Categor(ies): CERCLA

Court Crafts Rule for Apportioning Liability Among PRPs in 107 Case

United States et al. v. Burlington Northern & Santa Fe Railway Company et al.
No. 03-17125 (9th Cir. Mar. 16, 2007)

Background

Brown & Bryant, Inc. (B&B), an entity that no longer exists, owned and operated a facility at which toxic chemicals were stored and distributed in Arvin, California. In 1975, needing more land on which to conduct its business, it leased a 0.9-acre parcel of land that was jointly owned by the predecessors in interest to the defendant railroads. This parcel was on the western portion of the Arvin site and was graded toward a drainage pond on the B&B property.

B&B used the leased property as an integral part of its agricultural chemical facility. Two of the chemicals purchased and distributed were nematocides produced by Shell Oil ― D-D and Nemagon. During the 1960s and 1970s, Shell strongly encouraged its customers to purchase D-D in bulk and required customers to maintain large storage tanks. The bulk D-D was delivered in trucks and transferred to B&B tanks by hoses. There were frequent spills. The rigs used to apply D-D to the fields were stored on the leased property as were bulk containers of dinoseb and empty fertilizer cans. Later, B&B used converted stainless steel milk trailers to store the bulk D-D. This highly-corrosive chemical can eat through steel and cause leakage in only a few years. These trailers were located all over the Arvin property, including on the railroads’ land.

In 1983, the California Department of Toxic Substances Control (DTSC), one of the two plaintiffs, found B&B in violation of several hazardous waste laws. Separately, U.S. EPA investigated and found evidence of substantial soil and groundwater contamination. The agencies began remediation and, in 1991, EPA ordered the railroads to take specific preventative steps on their parcel, including installing groundwater monitoring wells. None of the contamination requiring immediate remediation was on the railroad property.

In 1992, the railroads filed an action against B&B for costs incurred in the EPA-ordered cleanup. In 1996, the federal and state governments filed actions under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) against B&B, the railroads, and Shell for reimbursement of their investigation and clean-up costs.

The district court found the railroads liable as owners and Shell liable as an arranger under 42 U.S.C. § 9607(a). The court also found that the harm at the site was capable of apportionment. For the railroads, the court looked at the percentage of the overall site that was owned, the percentage of time the railroads leased the parcel in relation to B&B’s total operations, and the fraction of hazardous products attributable to the railroad parcel. Eventually, the court apportioned the railroads’ liability at 9%. For Shell, the district court approximated the percentages of leakage from various activities attributable to Shell, finding its proportion of the total liability was 6%. In the contribution action, Shell also was assigned a 6% share.

The government appealed; Shell cross-appealed the finding that it was liable as an arranger under CERCLA.

Holding

The court began its discussion by noting that CERCLA is a “super-strict” liability statute, the key purpose of which is “shift[ing] the cost of cleaning up environmental harm from the taxpayers to the parties who benefited from the disposal of the wastes that caused the harm.” EPA v. Sequa Corporation (In the Matter of Bell Petroleum Services, Inc.), 3 F.3d 889, 897 (5th Cir. 1993) (citations omitted). The statute does not address the issue of whether, as among potentially responsible parties (PRPs) who are liable for clean-up costs, liability is joint and several or severable. If joint and several, each PRP is responsible for all clean-up costs at a facility. If severable, the clean-up costs at a facility can be apportioned among PRPs on some basis.

The Ninth Circuit had never directly addressed the issue of severability. In examining the issue, it noted that the other circuits that have analyzed the issue have relied on the seminal case United States v. Chem-Dyne Corporation, 572 F. Supp. 802 (S.D. Ohio, 1983). In that case, the court found that liability under CERCLA is joint and several and found that Congress intended that common law rules, adjusted as necessary to CERCLA, be applicable. The Chem-Dyne court looked to the Restatement (Second) of Torts for the applicable principles of joint and several liability. Jurisprudence has also established that any resulting standard must be a uniform federal rule; courts, again, have used the Restatement of Torts as a guide to determining apportionment.

The court in this case agreed with this approach, finding that apportionment is available at the liability stage. However, it noted that there are two areas where the Restatement approach is a poor fit and requires modifications to ensure that the approach comports to the statutory scheme of liability and remediation found in CERCLA. First, there are clear distinctions between causation as envisioned in the Restatement and causation in CERCLA. Second, the concept of “harm” in the Restatement as actual injury does not really correspond to CERCLA’s emphasis on the “costs of removal or remedial action” and “necessary costs of response.” 42 U.S.C. § 9607(a).

Section 433A of the Restatement allows for apportionment of damages where “(a) there are distinct harms, or (b) there is a reasonable basis for determining the contribution of each cause to a single harm.” Restatement (Second) of Torts § 433(a)(1) (1965) (internal citations omitted). CERCLA, however, does not require causation as a prerequisite to liability. Therefore, most of the cases on joint and several liability under CERCLA that address divisibility under the Restatement have incorporated a modified concept of causation. The situation, however, is more complicated in this case where none of the PRPs were, themselves, active polluters. Each of the current defendants had an entirely different role in the contamination process and there were overlapping effects.

To speak of a PRP as “causing” contamination on the land when PRP status is premised on ownership of a facility is, according to the court, to indulge in metaphor. However, it would undermine the premise underlying the designation of PRPs in CERCLA to allow defendants to prove through traditional causation analysis that they were not entirely liable. CERCLA requires a connection, not causation. The court, thus, adjusted the application of the Restatement principles by substituting a nexus concept for the causation concept. The nexus concept would mean that the landowner can establish divisibility only by demonstration that portions of the contamination are not traceable to the portion of the facility that the landowner owned at the time of the disposal.

The second problem with applying a tort-based principle on CERCLA liability is that the statute does not focus on “harm,” but, instead, on “necessary costs of removal or remedial action” and “necessary costs of response.” 42 U.S.C. § 9607(a). The statute is concerned on remediating contamination to avert future injury; it is not focused on compesation for past injuries. The court concluded that, under CERCLA, the most useful view, for purposes of determining divisibility, is to view the “harm” as the contamination traceable to each defendant.

In this case, the harms are not distinct; thus, if apportionment is to be allowed, it must be under Restatement § 433(A)(1)(b). This section is silent on the issue of whether equitable considerations are available in determining divisibility. CERCLA is also silent as to the applicability of equitable factors on the initial issue of divisibility, but does allow equitable factors in resolving contribution issues. 42 U.S.C. § 9613(f). Other courts that have considered the issue of whether equitable factors are appropriate for purposes of apportioning liability among joint tortfeasors have held that they are not appropriate. Again, this court followed that reasoning. According to the court, the proper time to look at the equitable factors is at the contribution phase, not the liability phase. Consequently, in an action under section 107(a), a court is not to look to equitable considerations, such as relative fault, in determining whether a PRP is liable.

Applying these principles circumstances of the case before it, the court first looked at the question of whether the railroads and Shell are liable for all the clean-up costs or only, as the district court held, some of it. The second question is whether Shell is liable at all.

The court held that the most appropriate approach in determining the standard of review for apportionment cases at the liability stage is the one adopted in United States v. Hercules, Inc., 247 F.3d 706, 717 (8th Cir. 2001) with a refinement suggested by the dissent in EPA v. Sequa Corporation (In the Matter of Bell Petroleum Services, Inc.,), 3 F.3d 889, 897 (5th Cir. 1993). This approach calls for the court to first inquire whether the particular harm at issue is theoretically capable of apportionment; this is a question of law, reviewed de novo. The next step is to review for clear error whether the defendant submitted sufficient evidence to establish a reasonable basis for the apportionment of liability.

On the purely legal question of whether the harm is capable of apportionment, there is no dispute. Some of the contamination at the site occurred before the railroads’ land became part of the facility. Only some of the toxic substances were stored on the railroads’ parcel and only some of the water washed over the railroads’ site. As to Shell’s responsibility, only some of the toxic substances that spilled were sold by the company. Conceptually, therefore, the contamination traceable to the defendants would be allocable if perfect information were available.

The court then looked at the evidence brought forth by the railroads to determine whether it was sufficient to establish a reasonable basis for apportionment. The railroads could have established divisibility by demonstrating that portions of the contamination are not traceable to land they owned at the time of the toxic disposal; that evidence was not presented. In reaching its decision, the district court relied on percentages of land area, the time of ownership, and the types of hazardous products. The appellate court reviewed the evidence as to each of these factors.

In United States v. Rohm and Haas Company, 2 F.3d 1265 (3d Cir. 1993), the court adopted a fairly strict approach to apportionment on the basis of land area. It held that “simply showing that one owns only a portion of the facility in question is [not] sufficient to warrant apportionment.” Id. at 1280. In this case, the court agreed with the Third Circuit that, although this approach seems straightforward, it fails in most circumstances to provide a minimally reliable basis for tracing “the proportion of leakage, contamination, or cleanup costs associated with the entire parcel.” Slip op. at 32. A simple calculation of the percentage of land ownership in this place does not reflect the dynamic, unitary operation of the facility. The railroad land was leased to accommodate the expanding operation; the potentially exponential effect additional land availability had on the contamination is not known. Certainly there would not have been as much storage capacity available to B&B.

In this case, a better method to apportion as to percentage of land ownership would be to determine the amount of chemicals stored, poured from one container to another, or spilled on each parcel. However, that evidence was either not available or not introduced at trial.

Thus, the district court’s apportionments calculation based on land area did not correspond to the harms. Similarly, the calculation based on the time the railroads owned the land was faulty because it assumed constant contamination traceable to the facility as a whole for each time period. However, there is no evidence to suggest that this was actually the case.

Finally, the district court’s calculations that assigned a two-thirds fraction to represent the types of hazardous products present were in error. All three chemicals were on the railroad parcel at some time. The chemical that the district court excluded from its calculations was, according to the evidence, present on the railroad property.

The approach that a court takes in a review of apportionment may mean, as it does here, that a landowner, who may have been the least responsible for contamination, might be the one most unable to find and produce the evidence that would permit apportionment. However, CERCLA seeks to distribute economic burdens, not allocate fault. The statute is designed to ensure, as far as possible, that some entity with connection to the contamination will pay for the necessary remediation. The court opined that apportionment is the exception, available only where adequate records have been keep and the harm is meaningfully divisible. That is not the case here.

The court then looked at the liability of Shell to determine if sufficient evidence had been introduced to apportion. There is some volumetric basis for comparing Shell’s contribution to the total volume of contamination at the site. However, the court found that the evidence produced was insufficient to allow even a rough approximation of the contamination remaining on the facility. Shell only presented evidence concerning leakage. However, it is contamination, not leakage, that is the consideration in CERCLA. Where there is disposal of multiple contaminants, courts have required a showing of the relationship between “waste volume, the release of hazardous substances, and the harm at the site.” United States v. Monsanto Company, 858 F.2d 160,172 (4th Cir. 1988). The Monsanto court noted that factors such as “relative toxicity, migratory potential, and synergistic capacity of the hazardous substances” are relevant to demonstrating such a relationship. Id. As an alternative, the appellate court in the current case noted that volumetric calculations of contaminating chemicals that remain and require cleanup could be sufficiently specific in order for apportionment to be appropriate. In this case, however, Shell provided no such evidence.

To fill these gaps in the evidence, the district court assumed equal contamination and clean-up cost from the leakage of the various chemicals. That assumption fails to account for the possibility that one chemical contributed to more of the contamination, that one chemical is more expensive than another to remove, or that some contaminants are no longer present in the soil. Shell failed to produce the type of evidence that would have provided a proper basis for apportionment.

Shell, instead, argued primarily that it should not be held liable as an arranger under CERCLA. Shell pointed to four points of error with the district court’s decision: (1) The district court used the wrong legal standard to determine arranger liability; (2) the “useful product” doctrine precluded imposition of arrange liability on it; (3) it lacked ownership and control over the chemicals at the time of the transfer to B&B; and (4) the chemical it delivered, D-D, caused no contamination because it evaporates or disperses rather than remaining in toxic form in the soil.

The court began its discussion of Shell’s argument by noting that CERCLA does not define “arranger.” The court commented that, beyond “direct” arranger liability, it has recognized a broader category of arranger liability. “Direct” or “traditional” arranger liability involves transactions in which the central purpose is to dispose of hazardous substances. That is obviously not the case here. However, a broader arranger liability involves transactions that contemplate there will be some disposal even though it is not the focus of the transaction. In this case the “arranger” is either the source of the pollution or manages its disposal. These cases can involve the type of transaction that occurred in this case where there is a contract for the sale or transfer of hazardous substances which were then disposed of. Although there are no Ninth Circuit cases in this category, the inclusion of such situations fits within the statutory language and structure of CERCLA. “Disposal” includes unintentional processes such as leaking. Therefore, a company can be an arranger if there is a transaction in which there will be leakage or some other form of disposal of hazardous substances.

Companies may defend against inclusion as an arranger by arguing that the transaction was the sale of a “useful product.” For instance in 3550 Stevens Creek Associates v. Barclays Bank of California, 915 F.2d 1355 (9th Cir. 1990), the court recognized that liability under CERCLA should not extend to include all manufacturers of hazardous substances on the theory that there will be disposal of those substances sometime in the future. However, the useful product doctrine has no applicability where, as in this case, the sale of a useful product “necessarily and immediately results in the leakage of hazardous substances.” Slip op. at 43. Portions of the product, thus, were never used for its intended purpose. Shell arranged for delivery of the substances to the site, knew that some leakage was likely in the transfer process (of which it was aware and, to some degree, even dictated), and provided advice and supervision concerning transfer and storage. The court found that, under the facts of this case, disposal was a necessary part of the sale and delivery process.

Much of the district court’s analysis which led it to find Shell liable as an arranger centered on its factual determination that spills would necessarily occur during the transfer of the chemicals to B&B. Shell argued, however, that it did not own, and lacked control of, the chemicals at the time of the transfer and, thus, could not be an “arranger.” The evidence at trial, however, was sufficient to show that Shell provided incentives and specific guidance on how D-D was to be stored and handled. Shell also arranged for the delivery and chose the common carrier. It is not necessary for Shell to actually have owned or directly controlled the chemical at the time of the delivery. These are indices, but not determinative. In this case, the district court’s findings demonstrate that Shell had sufficient control over, and knowledge of, the transfer process to be an “arranger” within the meaning of CERCLA.

Finally, as to the contribution of D-D in the contamination at the site, the district court found that the chemical can enter groundwater and cause contamination. The appellate court did not find that determination clearly erroneous.

In conclusion, the court found that the district court erred by holding that the harm could be apportioned. The finding as to liability for both the railroad and Shell was upheld. The railroads and Shell are jointly and severally liable for the harm at the site.

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Published by the National Association of Attorneys General with the cooperation and support of the Office of Enforcement and Compliance Assurance of the U.S. Environmental Protection Agency.

Paula Cotter
Chief Counsel for Environment