Tuesday, May 19, 2009

With near unanimity, United States Supreme Court strikes down government’s attempt to broaden CERCLA liability

Generally speaking, an entity who “arrange[s] for disposal” of a hazardous substance at a contaminated facility can be held liable for cleanup costs under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). It has long been understood that this provision clearly (a) covers an entity who enters into a transaction to solely discard a used and no longer useful hazardous substance, and (b) does not cover an entity who enters into a transaction solely to sell a new and useful hazardous substance that may later be disposed of by a third party. But in a recent case, EPA argued that Shell Oil should be subject to “arranger” liability for its sale of a hazardous chemical to a distributor because Shell had knowledge of leaking and spilling during the transaction, which EPA argued fell within the statutory definition of “disposal.”

In what seems like a rare showing of consensus these days at the Supreme Court, an 8-justice majority in Burlington Northern & Santa Fe Ry. Co. v. United States rejected this broad reading as beyond the bounds of the statutory language (the decision also addresses the named railroads were properly held to be joint and several liability; the Court ruled they were not). Specifically, the Court, applying an ordinary meaning of “arrange for,” ruled that there can be no liability as an “arrange[r] for disposal” unless it was the entity’s intent that the transaction involve, at least in part, the disposal (spilling and leaking in this case) of the substance. Thus, while Shell was aware that leaks and spills occurred when its chemicals were being transferred from the common carrier to the buyer, more was needed to impose “arranger” liability under CERCLA.

In contrast to a finding of intent, Shell encouraged the distributor to reduce spills by providing safety manuals, offering a discount for improvements in safety procedures, and requiring inspections by engineers. Although minor spills continued to incur, the Court held that such evidence showed that Shell intended to reduce spills and not intended for them to occur. Without that conscious desire that the useful substance be spilled or leaked during transport, it was beyond the common understanding of “arrange for disposal” to impose liability on Shell.

In reality, the Supreme Court’s decision is remarkable only for its common sense. The decision is based on a straightforward, ordinary understanding of what it means to arrange to dispose of a product. Of course, intent is still a subjective determination that is fact intensive. But at least we now know that if you, like Shell, take active steps to avoid spilling and leaking of a substance you are trying to sell, you are not arranging for disposal of the very chemical you are selling.

Submitted by Michael J. Mergens and Julie Nagorski

Michael J. Mergens is an attorney at Larkin Hoffman Daly & Lindgren in Minneapolis. His practice includes a broad range of real estate matters, such as environmental permitting and litigation, land use approvals and disputes, and general real estate disputes. He has devoted much of his practice to the regulation of greenhouse gas emissions, which has begun to arise in the environmental permitting processes of various state and federal regulatory bodies. He also tracks the potential for regulations under the Clean Air Act.

Julie Nagorski is an associate attorney at Larkin Hoffman and practices in the areas of real estate and land use law. In her practice, Julie combines knowledge of the related disciplines of land use and real estate with expertise in litigation, dispute resolution, and appellate advocacy.

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