May 2009

Roger Zehntner, Esq.
Jennifer R. Cervenka, Esq.

In a decision handed down on May 4, 2009, the U.S. Supreme Court weighed in on the question of so-called “arranger” liability under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.9601 et seq.(“CERCLA”). Section 107(a)(3) of CERCLA imposes liability for the cleanup of a contaminated site on any person who “arranges” for disposal at that site of waste that contains hazardous substances. This “arranger” liability is the standard hook that the Government uses to sue waste generators for the clean up of contaminated facilities. The question arises, however, as to what does and does not constitute “arranging” for disposal under the statute.

Historically, a few lower federal courts have held that shipment of a “useful product” containing hazardous substances that was subsequently disposed of by others should not constitute a basis to impose arranger liability on the shipper of the product. This issue has now been addressed by the U.S. Supreme Court in Burlington Northern and Santa Fe Railway Company v. United States, 2009 U.S. Lexis 3306 (May 4, 2009). However, rather than focusing on whether or not a “useful product” was involved, the Court stresses the importance of understanding what the shipper of the material intended when it arranged for its material to be transported.

In Burlington Northern, Shell Oil Company had shipped a corrosive pesticide product in bulk to one of its distributors. The Court described the distributor as a “sloppy operator” whose unloading practices resulted in frequent leaks and spills. Indeed, Shell itself was aware that such spills were “commonplace among its distributors” and, as consequence, Shell instituted a number of measures to improve the safe handling of its products. Despite these measures, the distributor continued to have spills and leaks of material and ultimately the distributor’s facility became a CERCLA clean up site. To pay for the costs of that clean up, the Government sued a number of entities for clean up liability under CERCLA, including Shell.

The Government’s theory of liability against Shell was that, although Shell did not qualify as a “traditional” waste generator that “arranged” for the disposal of hazardous substances, it nonetheless should be held liable under a “broader category” of arranger liability because the “disposal” of Shell’s material (i.e. the chronic leaks and spills) were a “foreseeable by-product” of Shell’s shipments.

In grappling with this issue, the Court observed that the case fell in between two extremes--shipment of a product that, unbeknownst to the seller, is subsequently disposed of by the purchaser (where there is no liability) and entering into a specific transaction to dispose of a “no longer useful” hazardous substance (where there is clear liability). In this case, Shell knew full well that it was arranging for the shipment of its product and that there were leaks and spills of that product by the distributor. To resolve whether this case should be the basis for CERCLA “arranger” clean up liability, the Court analyzed the plain meaning of “arranging” for disposal under Section 107(a)(3) of the CERCLA statute.

The Court held that, in order to be held liable an “arranger” under CERCLA, a person must have knowingly “planned” and taken “intentional steps” to dispose of a hazardous substance. The Court further asserted that the “state of mind” of the person alleged to have arranged for disposal is “indispensable” in determining whether there was an actual plan or intention to dispose of hazardous substances within the meaning of the CERCLA liability provisions. In the case of Shell, the Court found that Shell’s knowledge that there were leaks and spills of its material by the distributor was insufficient to prove that Shell somehow planned or intended that its product be disposed of. Thus, Shell was found not to have “arranged” for disposal of hazardous substances and, consequently, was found not to have any clean up liability under CERCLA.

The Burlington Northern decision is important for several reasons. First, the decision now clearly requires the Government to prove that a person alleged to be liable as an arranger actually planned and intended for its material be disposed of rather than intending it to be used for some other purpose. This argument is directly pertinent to Superfund cases involving recycling facilities where persons arrange for materials to be recycled into useful products in lieu of disposal. This new burden of proof will also be imposed on private parties seeking contribution to their clean up costs from other parties alleged to be liable under CERCLA.

The decision is also noteworthy in that it rejects the Government’s argument that liability should be imposed merely because potential spills and leaks are “foreseeable.” The Court clearly emphasizes that intent and not foreseeability is the crucial factor for determining whether or not a person arranged for disposal. If the Court had accepted the Government’s foreseeability argument, it would have expanded the universe of liable parties under CERCLA to all shippers of products containing hazardous substances where there was a reasonably foreseeable possibility that, at some point, the products could be leaked or spilled. The U.S. Supreme Court has clearly said “no” to this expansive and troublesome proposition.

Finally, the Burlington Northern decision is important because it is now the law of the land that is applicable in all jurisdictions. Previously, the Government could seek to isolate the effect of lower court precursor cases similar to Burlington Northern to just those jurisdictions where those cases arose. The Supreme Court changed all that on May 4.