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And You Thought CERCLA Was Complicated Before . . . Just Wait!!!

by Bruce S. Flushman

[Originally published as a Wendel Rosen Client Update, March 4, 2009.]


Two cases just argued in the U.S. Supreme Court, Burlington Northern v. United States, 07-1601, and Shell Oil v. United States, 07-1607, could have significant impact on both liability and apportionment of liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).  The parties expect a decision in the next couple of months.

In brief, the CERCLA liability scheme sweeps in, among others, property owners and other parties that arrange for transportation of chemicals that have been released in the environment.  Courts have held that parties responsible under CERCLA are jointly and severally liable for the cleanup costs.  In these two related cases, Burlington Northern Santa Fe Railway (“BNSF”) was found jointly and severally liable for cleanup at a property where it had leased a small portion to a now-defunct bulk chemical distributor.  In addition, Shell, the manufacturer of the chemicals stored by the distributor, was also held liable as arranger.

The district court apportioned 15% of the cleanup liability costs to be shared by BNSF and Shell and 85% liability to the chemical distributor.  The 9th Circuit Court of Appeals reversed the decision, limiting CERCLA liability apportionment to exceptional circumstances where “adequate records were kept and the harm is meaningfully divisible."  As a result, the Ninth Circuit held that BNSF and Shell had not introduced sufficient evidence to support apportionment and held both jointly and severally liable for the entire cleanup.

In the Supreme Court, Shell argued it merely sold a product to a distributor and did not arrange for the chemical to be released; in fact, Shell directed the distributor to place the chemical in storage tanks.  On the other side, the government argued Shell arranged for transportation of the chemical and knew a release was possible when the chemical was unloaded, even requiring the distributor to store the chemical in bulk storage containers.

The question of whether the harm caused by pollution can be divided in order to assign discrete responsibility is difficult, especially in cases in which the party primarily at fault is no longer a viable entity.  Should the public end up paying for the defunct company’s liability or should an entity that has minimal connection to the release, such as one that owned the property but was not directly linked to the release of the contamination?

This case is being closely watched by businesses.  If Shell is held jointly and severally liability for the entire cleanup tab, it would appear to be a major extension of liability, effectively making manufacturers the “insurer” of the conduct of entities throughout the supply chain.  Moreover, if apportionment is upheld, CERCLA litigation will become even more expensive and adversarial as the potentially responsible parties attempt to apportion liability between themselves.