Law and the Environment : Environmental Lawyer & Attorney : Foley Hoag Law Firm : Boston, Washington D.C.

Recently, I expressed concern that District Courts, which traditionally have never seen a CERCLA plaintiff they didn’t like, would ignore the Supreme Court’s Burlington Northern decision – at least until there is another Supreme Court decision affirming that Supremes really meant the two-part holding in Burlington Northern: (1) divisibility isn’t that hard and (2) parties aren’t liable as arrangers unless they actually intended to dispose of hazardous material. 

Although it shouldn’t be earthshaking, I was therefore encouraged to see last week’s decision in Schiavone v. Northeast Utilities Service Company. In Schiavone, the defendants sold used transformers to a scrap yard. Their policy was to drain the transformers before sale. The Court concluded that there remained a material dispute whether the defendants sent PCB-containing transformers to the site. Nonetheless, the Court granted the defendants’ motion for summary judgment on the ground that there was no evidence that the defendants intended to dispose of PCBs. Citing to Burlington Northern, the Court stated that:

The defendants’ specific intent to dispose of the transformers themselves is not enough to make them “arrangers” under § 9607(a), even if the defendants had knowledge that oil was in the used transformers when they sold them…. The plaintiffs have produced no evidence that could support a conclusion that the defendants had as a purpose in their dealings with [the scrap yard] disposing of transformer oil containing PCBs.  Consequently, the plaintiffs have not created a genuine issue of material fact as to whether the defendants arranged for the disposal of a hazardous substance.

Sometimes, justice does triumph. I am hopeful that arranger cases where the defendant wasn’t actually intending to dispose of hazardous substances will start to fade away. I remain less optimistic about the divisibility side of Burlington Northern, but one can always hope.

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In an interesting decision issued earlier this month, Judge Lewis Babcock of the District of Colorado ruled, in County of La Plata v. Brown Group Retail, that detection of contamination at levels exceeding state cleanup standards does not, by itself constitute an imminent and substantial endangerment under RCRA. I think that Judge Babcock is correct, but I can’t help but feel that the decision might be different in the blue state of Massachusetts. I was particularly taken by Judge Babcock’s description of the nature and purpose of state regulatory standards:

Regulatory screening levels, action levels, and standards do not identify real or actual risks to human health. Rather, these regulations are designed to protect the public health by identifying the level of chemical exposure at which there is no threat of harm with a large margin of error. Exceedance of regulatory screening levels, action levels, or standards therefore does not demonstrate a real or actual risk to human health.

Tell it to MassDEP.

I think it’s wonderful that a federal judge has said that “regulatory … standards do not identify real or actual risks to human health.” He’s right, of course, and we often forget that when conservative assumption is piled on top of conservative assumption in the establishment of a standard, the standard may end up having only the most tenuous connection to any actual concern about human health.

I wish I could make equally kind statements about Judge Babcock’s handling of the CERCLA claims in the same case. Like many judges implementing the Supreme Court’s decision in Burlington Northern, Judge Babcock shrugged off the defendant’s divisibility arguments, notwithstanding that the arguments the defendant made were well within the ambit of the types of considerations the Supreme Court said were relevant in Burlington Northern. I feel we are destined to continue the cycle of lower court decisions which simple-mindedly whack the defendant, followed every few years by a Supreme Court decision that says fairly simply: No, that’s not the way it’s supposed to be.

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When the Burlington Northern decision was first announced, I concluded that “never has the Supreme Court done so much by doing so little.” On May 5, Judge John Mendez, of he Eastern District of California, proved me at least half right. In United States v. Iron Mountain Mines, joint and several liability was imposed on the defendants in 2002. The 2002 decision stated that “given the nature of pollution at the site, it would be difficult to identify distinct harms.” The court did not analyze whether there was a reasonable basis for apportionment of liability. 

Following the Burlington Northern decision, the defendants moved for reconsideration, arguing that Burlington Northern constituted an intervening change in the law. Defendants argued that “the Supreme Court clearly meant to send a signal to other courts that they must begin evaluating apportionment in a different way.” I think that the defendants in Iron Mountain were right.  Unfortunately, that’s not the standard for a motion for reconsideration.   If Iron Mountain were being decided for the first time today, the defendants might get a better result, but that doesn't mean that they win their motion for reconsideration.

What the Supreme Court really said in Burlington Northern isn’t that the law was wrong; it is that District Courts weren’t applying the law correctly. District court judges had their collective judicial thumbs firmly on the side of the government. The Supreme Court simply told the lower courts to take those thumbs off the scales. I hope that this decision will not encourage lower courts to keep the thumbs on the scales.

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Late last week, Elliott Gilberg, Acting Director of EPA’s Office of Site Remediation Enforcement (OSRE) issued an Interim Policy on Managing the Duration of Remedial Design/Remedial Action Negotiations. Members of the regulated community may not be surprised by the contents of the memo, but they certainly will not be pleased. In brief, the memorandum fundamentally makes two points:

EPA wants to shorten the duration of RD/RA negotiation

EPA is going to use the heavy hammer of unilateral administrative orders, or UAOs, to keep PRPs’ feet to the fire and ensure that negotiations move quickly.

PRPs will likely agree that shortening the duration of negotiations would be a good outcome in the abstract – but achieving it by greater use of UAOs? I don’t think so.

I can only wonder if EPA has even considered the impact of the Burlington Northern decision here. Is this a perverse reaction from EPA? A metaphorical throwing down the gauntlet to PRPs? It certainly feels that way.

I have a different suggestion, if EPA truly wants to shorten negotiations. First, acknowledge Burlington Northern and compromise on the merits in those great majority of cases where there are legitimate divisibility arguments. Second, stop acting like the last bastion of command and control regulation. Set cleanup standards and then, to the maximum extent permitted by existing law, let PRPs clean up to those standards, without micromanaging every detail of the cleanup process.

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One more note on the Burlington Northern decision.  A client of mine has already noted that one impact of the decision will be to result in more litigation over divisibility, which will be good for private lawyers (ouch!).  She’s right, as my clients always are, but she shouldn’t be.

Litigation should only increase if EPA does not adjust its settlement demands. If EPA responds appropriately, and makes demands which reflect a fair resolution of a divisible liability, then there shouldn’t necessarily be more litigation than there is today.  However, if EPA continues to negotiate with PRPs as though liability is always joint and several, then there will certainly be more litigation – and EPA will start to lose some more cases.  

Anyone care to bet which response by EPA is more likely?

If EPA adjusts its settlement demands downward in response to the decision – or if we start to see litigation in which courts find liability to be divisible – then EPA’s ability to fund Superfund cleanups will be under even more pressure.  This could provide some additional momentum behind the current Congressional effort to reinstitute the Superfund tax.

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Those of us who have practiced in the Superfund arena for some time know that the government, in those rare cases where it has been forced to litigate, has used the same oral argument in every case: “Good morning, your honor. My name is ______. I represent the government in this action and we win.” Today, the Supreme Court made clear that that the government now needs a new oral argument template.

In Burlington Northern v. United States, the Supreme Court issued two important decisions in one. First, the Court held that a defendant must actually intend its waste to be disposed of before it can be found liable as an arranger under § 107(a)(3) of CERCLA. The facts were these. Shell Oil sold pesticides to Brown & Bryant, Inc., which operated a chemical distribution business. As part of the transfer of pesticides from Shell to B&B, some pesticides were released on the property. There was evidence that Shell knew that releases were a regular part of the transfer process. Both the District Court and Appeals Court concluded that Shell’s knowledge that releases occurred was enough to establish arranger liability.

Noting that CERCLA does not define the term “arrange[e] for”, the Court looked the phrase’s ordinary meaning. Doing so, the Court concluded that liability may attach only where the defendant “takes intentional steps to dispose of a hazardous substance.” The government argued that, because the defendant knew that disposal was the inevitable result of its sale of product to the site owner, the defendant had “intended” disposal to occur. The Court rejected this argument. The Court was very clear: The defendant “must have entered into the sale of [the product] with the intention that at least a portion of the product be disposed during the transfer process.”

The direct holding with respect to Shell will be important in a number of cases and is helpful in setting a fairly bright line on arranger liability. Even beyond the immediate holding, however, I wonder what, if anything, this case means for what is known as transshipment liability. Under section 107(a)(3), a person is liable as an arranger if they

arranged for disposal or treatment … of hazardous substance owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party…

It has always seemed to me that the plain reading of § 107(a)(3) is that the defendant must have “arranged” for the disposal of the hazardous substances at the site where disposal occurred. In those not uncommon situations where the site operator transshipped the waste – without the generator’s knowledge or consent – the generator should not be liable under CERCLA at the transshipment site, because it did not intend for any disposal at the transshipment site. Given the Supreme Court’s emphasis on what the generator intended, I think that, in the right case, a transshipment generator defendant would stand a pretty good chance of winning, if he or she were willing to litigate the case all the way up to the Supreme Court. 

I hope someone will and I hope I’m right. 

The second holding in Burlington Northern may be of even more practical significance. In it, the Court reversed the Court of Appeals and upheld the District Court’s original divisibility finding with respect to the Burlington Northern Railroad. The District Court used a simple formula based on percentage of the site owned by Burlington Northern and the percentage of time that Burlington Northern leased the land as compared to the total duration of site operations. What’s most significant is that the Court did not even require any significant analysis to uphold the District Court; Justice Stevens’ opinion merely stated that there was evidence that contribution from the railroad parcel to the overall contribution was limited, so that, “[w]ith these background facts in mind, we are persuaded that it was reasonable for the court to use the size of the leased parcel and the duration of the lease as the starting point for its analysis.”

This seems obvious, but is probably a game changer in government Superfund litigation. The overwhelming tenor of lower court opinions has been that the defendant’s burden in a divisibility argument is almost overwhelming and that the burden will be satisfied in the rarest of cases and only upon almost perfect evidence of divisibility. The Supreme Court has made clear that that is simply not the case. Superfund cases are no different than other cases and there is no unstated higher burden of proof. 

Thus, while a district court judge might still be affirmed if he or she concludes that the defendant did not meet its burden of proving divisibility, the real import of the decision is that now district court judges need not fear that they will be automatically reversed if they do conclude that the harm is divisible. Given the standard stated in Burlington Northern, it might go too far to say that most cases will be divisible, but divisibility findings should not be at all rare – and that’s definitely news.

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