Superfund Liability Update: A Summary of Cases Decided in 2010 Construing the Supreme Court’s BNSF Decision
Last year, in Burlington Northern and Santa Fe Railway Co. v. United States (BNSF), the United States Supreme Court decided two issues of critical importance to parties facing Superfund liability – the standard for establishing “arranger” liability and the standard for establishing divisibility of liability. In the year and a half since the BNSF ruling, over fifty courts have cited the decision. At the start of this year, we summarized in this Newsletter the cases issued in 2009 construing BNSF. This article picks up where our last update left off, by providing a summary of cases that have substantively addressed BNSF in 2010.
The majority of cases applying BNSF have focused on arranger liability, including the first substantive application of BNSF at the federal appellate level. Generally, the cases illustrate that courts are following the Supreme Court’s directive to conduct a fact-intensive inquiry into a defendant’s purported “intent” to dispose of a hazardous substance. In a number of cases, courts have been more reluctant to establish liability under an arranger theory than in the expansive era preceding BNSF.
There have been many fewer cases applying the Supreme Court’s divisibility holding in BNSF. The courts looking at whether a “reasonable basis” for apportionment exists have exhaustively reviewed the evidence that defendants have submitted to determine whether they have met their burden of proof. These cases are highly fact-intensive and, so far, too few to suggest a trend.
Cases Applying the Arranger Liability Standard Announced in BNSF
The “arranger” issue that BNSF addressed arose from a fact pattern involving a chemical manufacturer that sold a product to a chemical mixing facility. Although the manufacturer used a third party to transport the chemicals and sold a “useful product,” the defendant knew that significant leaks and spills occurred during the transfer of its product to storage on the site. The Ninth Circuit held the manufacturer liable on the theory that it arranged for disposal because it knew spills and leaks were inherent in the transfer process. The Supreme Court disagreed, explaining that an entity may only qualify as an arranger “when it takes intentional steps to dispose of a hazardous substance.” In this case, the defendant’s “mere knowledge” that spills would occur did not amount to “intent” to dispose. The Court emphasized that arranger liability “requires a fact-intensive inquiry that looks beyond the parties’ characterization of the transaction as a ‘disposal’ or ‘sale’ and seeks to discern whether the arrangement was one Congress intended to fall within the scope of CERCLA’s strict-liability provisions.”
So far, the majority of cases applying BNSF have focused on whether defendants fall into the class of parties that Congress intended as arrangers. Generally, these cases show that lower courts are taking seriously the Supreme Court’s directive to engage in a “fact-intensive inquiry” of whether the defendants have an “intent to dispose” and have, in many cases, rejected plaintiffs’ requests to extrapolate “intent” from “mere knowledge.”
Several decisions issued by Judge O’Neill in the Eastern District of California involving two California dry cleaning sites illustrate this trend. The underlying cases, Hinds Investments v. Team Enterprises, Inc. and Team Enterprises, LLC v. Western Investment Real Estate Trust, involved claims against the manufacturers of dry cleaning machines and products that recycled spent perchloroethylene (PCE) for reuse. The machine manufacturers intended to dispose of PCE, according to the plaintiffs, because the machines were designed to dispose of PCE-laden wastewater to open drains, as evidenced by manuals for the machines instructing the operators to connect the machines to open drains. The court rejected the plaintiffs’ claims on the pleadings, holding that they at best showed that the manufacturers knew that disposal would occur, but that the plaintiffs failed to show that the manufacturers sold the machines with the intention that a portion of the PCE be disposed of. The court noted that the plaintiffs failed to present evidence showing that the manufacturers had control over how the products would be used – the defendants did not directly install the equipment, determine how the equipment would be used at the specific dry cleaning sites, or inspect the disposal mechanisms.
The court also rejected the plaintiffs’ claims against the manufacturers that designed the recycling equipment for similar reasons. The products at issue were designed to recapture spent PCE and recycle it for future use. In both cases, the plaintiffs alleged that PCE-laden wastewater – that could not be reclaimed – would be discharged to floor drains. In the Western Investment case, the plaintiff presented evidence showing that the defendant required its product to be set up in a manner where PCE would be disposed of down floor drains, and that a representative of the defendant had once visited the store and poured waste PCE down the drain. In both cases, the court held that the plaintiffs presented insufficient evidence that the defendants intended to dispose: According to the court, the manufacture of these products and the instructions on their use were insufficient – without actual direction for their use at the facilities – to hold the defendants liable.
Similarly, in the first substantive application of BNSF at the federal appellate level, the Fifth Circuit declined to hold a construction company liable after it damaged an underground methanol pipeline. The case, Celanese Corp. v. Martin K. Eby Construction Co., Inc., involved CERCLA claims brought by the owner of a methanol pipeline against the construction company that struck and damaged the plaintiff’s pipeline with a backhoe. Neither party was aware of the damage to the pipeline until it corroded and leaked many years later. In a pre-BNSF decision, the district court rejected the plaintiff’s claims based on the defendant’s lack of awareness that it had damaged the pipeline. The Fifth Circuit affirmed, holding that the defendant did not “plan to take any intentional steps to release methanol from the” pipeline under the BNSF standard of arranger liability. The plaintiff argued that the defendant “intentionally took steps to dispose of methanol by disregarding its obligations to investigate the incident and backfilling the excavated area where the incident had occurred. In other words, [the plaintiff] argue[d] that [the defendant’s] conscious disregard of its duty to investigate is tantamount to intentionally taking steps to dispose of methanol.” The Fifth Circuit disagreed, holding that BNSF “precludes liability under these circumstances,” because the BNSF Court “declined to impose arranger liability for a defendant with more culpable mens rea,” i.e., where that defendant knew that its actions resulted in disposal.
A typical application of arranger liability, even after BNSF, is evidenced in a New Jersey case, Litgo New Jersey, Inc. v. Martin, where the court declined to hold the United States liable for contamination stemming from a facility that produced parts for the military, but did hold the United States liable for contamination stemming from its discarded hazardous wastes. First, the court determined that releases likely occurred from a facility that manufactured precision parts for military aircraft during World War II due to degreasing operations and common disposal practices of solvents at the time. The United States leased a significant amount of machinery and equipment to the facility and conducted frequent inspections of the facility. The court held that this evidence was insufficient to hold the United States liable, because the plaintiffs failed to show that that the United States “owned or possessed any [of the hazardous substances] which were disposed of at the” site, a “necessary element” of arranger liability. However, the court did hold the United States liable as an arranger with respect to hazardous substances that were released from a warehouse at the site during a potentially botched cleanup. Although the United States claimed that it only arranged to have the substances stored at the warehouse, and that the stored substances were in stable condition until difficulties arose during the cleanup, the court held that the United States intended to dispose by hiring a third party “to permanently get rid of what they believed to be waste products.”
At least one case shows, however, that arranger liability is not necessarily limited to the so-called “direct” circumstances, where a defendant contracts with a third party to dispose of the defendant’s waste. In United States v. Washington State Department of Transportation (WSDOT), the Western District of Washington potentially expanded arranger liability by holding that the design and management of a stormwater system that discharges hazardous substances to a contaminated site may be sufficient to establish arranger liability. The case involved the United States’ efforts to recover costs associated with a Superfund site in Washington from WSDOT, which constructed, designed, owned, and operated highways and storm drains that discharged stormwater runoff containing hazardous substances to the site. In a brief analysis, the court held WSDOT liable as a matter of law. The court acknowledged that, under BNSF, arranger liability is limited to entities that “take intentional steps to dispose of a hazardous substance,” and that “the word ‘arrange’ implies action directed to a specific purpose.” But WSDOT’s actions met that standard, the court opined, because the agency indisputably designed the stormwater system, “[d]esigning is an action directed to a specific purpose,” and that “purpose was to discharge the highway runoff into the environment.” WSDOT knew that the runoff contained hazardous substances, according to the court, had “control over how the collected runoff was disposed of,” and had “the ability to redirect, contain, or treat its contaminated runoff.”
Finally, in American International Specialty Lines Ins. Co. v. United States, the Central District of California held the United States liable for historical contamination stemming from a private facility that refurbished and recycled rocket engines for the military. The Cold War era contracts between the facility and the United States included provisions that vested title in the products with the United States while the products were at the facility. The United States also required the facility to “hog-out” the original propellant from the engines undergoing refurbishment, test-fire some of the rocket engines, and dispose of remaining perchlorate. The United States argued that it only “owned” the perchlorate when it was a part of the rocket engines, and that it did not own the “waste” perchlorate. The court disagreed with the United States’ interpretation of the contract, but also held that, “continuous ownership” was unnecessary to constitute arranger liability. Here, according to the court, the United States “owned the materials at the outset, continued to own them during the manufacturing process, and received the finished product, all with knowledge that processing would lead to hazardous wastes.” This case was distinguishable from BNSF, according to the court, because there the defendant sold a useful product and “completely gave up ownership of the chemicals to the site operator.” Allowing the United States to escape liability in this case would, according to the court, “create a loophole in the statute that could be exploited by other polluters.”
Cases Applying BNSF’s Divisibility Ruling
The divisibility prong of the Supreme Court’s BNSF ruling arose from the defendant railroads’ argument that, because they only owned a portion of the contaminated property, their liability could reasonably be “apportioned.” The Court agreed, affirming a standard that had already been adopted by several circuit courts. Applying Section 422A of the Restatement (Second) of Torts, the Court held that “apportionment is proper when there is a reasonable basis for determining the contribution of each cause to a single harm,” and that the defendants bear the burden of proof on the issue. The Supreme Court also held that the evidence supporting apportionment need not be precise: There must simply be “facts contained in the record reasonably support[ing] the apportionment of liability.”
Only a few cases have applied the “divisibility” prong of the BNSF case. In a case out of the Eastern District of California, United States v. Iron Mountain Mines, the defendants sought reconsideration of a 2002 order holding them jointly and severally liable to the United States. In the 2002 order, the court held that “given the nature of the pollution at the site, it would be difficult to identify distinct harms,” instead instructing the defendants to raise their arguments regarding their lesser responsibility in a contribution proceeding. The defendants argued that BNSF required reconsideration of that decision, because “the Supreme Court would not have granted certiorari for [BNSF] if it was only dealing with a factual dispute … the Supreme Court clearly meant to send a signal to other courts that they must begin evaluating apportionment in a different way,” and, after BNSF, “district courts are now mandated to consider apportionment.” The court disagreed, holding that BNSF “simply reiterated the law as established in” what the Supreme Court called “the seminal opinion on the subject of apportionment in CERCLA action,” United States v. Chem-Dyne Corp., “and then examined the record to resolve a factual question of whether the record supported apportionment. [BNSF] did not add a new mandate that District Courts must apportion harm.”
A few cases in 2010 have applied BNSF’s divisibility standard to the evidence submitted by the defendants. For example, in United States v. Saporito, the Northern District of Illinois rejected the defendant’s effort to be apportioned zero liability, where the court had already determined that the defendant was liable because it leased equipment to operators at a contaminated site. The defendant argued that, because his equipment was incapable of producing waste by itself, he should be apportioned no liability based solely on his ownership of the equipment. The court disagreed, holding that, because the equipment was “a necessary part of the plating process,” it must be “responsible for some amount of the waste that the process produced.” The defendant also maintained that, because one piece of his equipment – a filter press – could only hold a small fraction of the hundreds of thousands of gallons of waste that were removed from the site, the contribution of waste from the filter press was negligible. The court rejected this argument as well, concluding that the defendant failed to provide evidence showing what his proper percentage of liability should be.
A case out of Michigan, ITT Industries, Inc. v. Borgwarner, Inc., is one of the few cases so far that has evaluated the sufficiency of a defendant’s evidence for a divisibility defense. The case involved the North Bronson Industrial Area Superfund site in Michigan. The primary contaminants included metals and volatile organic compounds, such as trichloroethylene (TCE), in soil and groundwater stemming from activities at several former industrial facilities and the historical disposal of industrial wastewater into a complex of industrial sewers and waste lagoons. EPA divided the site into two sub-areas, including several operable units in these areas, and entered into several administrative orders with entities connected to the former industrial facilities. One of these entities sought to recover its costs incurred at a former facility from several defendants, including one party whose predecessors conducted activities at the plaintiff’s facility, and two other parties with connections to adjacent facilities.
The court rejected the defendants’ divisibility arguments, holding that the defendants did not meet their burden of proof. The party with connections to the plaintiff’s facility argued that its liability was divisible based on the geographic location of its operations and the types of contaminants released at the site. The court disagreed, holding that the defendant failed to show: (1) that its predecessor’s operations were contained within a geographically limited portion of the facility, because that entity leased the entire facility, operated on the entire facility, and evidence showed that releases occurred throughout; and (2) that its predecessor’s liability was divisible based on the types of contaminants released at the site, because evidence showed that the predecessor discharged some contaminants containing PCE, and investigating for PCE would have required the same level of effort as investigating for TCE. The two other defendants – with connections to adjacent facilities – argued that their liability was limited to TCE contamination, because that was the only contaminant at issue in the plaintiff’s administrative consent order, and because metal contamination at the plaintiff’s site originated from on-site operations. The court disagreed, holding that the consent order also required the plaintiff to determine the source of all contaminants on the site, and evidence showed that metals and other contaminants released at the defendants’ sites could have reached the plaintiff’s site.
The cases decided so far in 2010 affirm that BNSF directed the courts to conduct a fact-intensive inquiry into whether parties qualify as arrangers. On the divisibility side, the early cases show that courts are working their way through the evidence put forth by defendants, but there are too few decided cases to draw firm conclusions regarding the quantum of proof necessary to establish a divisibility defense.
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