Becker's Iowa Environmental Law Update : Iowa Environmental Lawyer & Attorney : Charles Becker : Belin McCormick P.C. Law Firm : IA Regulatory Compliance, Site Cleanups

The Supreme Court's last determination of what wetlands are subject to the Clean Water Act and hence may not be filled without a permit, left behind a matted mess. In Rapanos v. United States, the 4-1-4 opinion articulated two tests for when a wetland constitutes a water of the United States.  In the plurality opinion, wetlands must have “a continuous surface connection to bodies that are waters of the United States.”  Justice Kennedy's swing vote decision for the plurality's remand stated that while there needed to be a connection, it would be sufficient if there was a “significant nexus” with the waters of the U.S.; that is, it would be sufficient if the wetlands, alone or in combination with other lands in the region, would significantly affect the chemical, physical and biological characteristics of the U.S. waters. So which test should be applied?

Since Rapanos, the Seventh and Eleventh Circuits have found that Justice Kennedy’s test must be met under a “weakest link” theory – it is the narrowest grounds for the Supreme Court’s decision in Rapanos. On the other hand, the First, Eighth and recently the Third Circuits have held that if the wetlands can meet either test set forth in Rapanos, then the fill would be in violation of the Clean Water Act.

EPA and the Corp of Engineers, deciding that they needed to "clarify" things, issued a proposed guidance document to help identify waters subject to Clean Water Act jurisdiction.  The Agencies added that the proposed guidance would result in more waters being brought within their jurisdiction - a statement that is the political equivalent of poking a bear with a stick.  Predictably, the proposed guidance quickly came under attack as being an attempt by EPA and the Corp to expand their jurisdiction and to promulgate rules without following proper procedure. 

The "clarification" guidance also did not sit well with several Republican members of Congress -- John Mica, Bob Gibbs, James Inhofe and Jeff Sessions.  On November 8, 2011, these four Congressmen wrote a letter to EPA and the Army Corps of Engineers. They noted that EPA had apparently decided not to finalize the draft guidance but, rather, that the Agencies were planning to address the scope of CWA jurisdiction via rulemaking. The authors commended the agencies for deciding to follow the rulemaking procedure, but lamented that if they were simply going to incorporate the guidance documents into the rulemaking, the Agencies had effectively (and improperly) prejudged the issue, particularly given their view that the guidance “misconstrues or manipulates the legal standards announced in the Supreme Court decisions.”

The letter goes on to “encourage” the agencies to start the rulemaking process fresh, open the matter to an advanced notice of proposed rule-making to obtain public input, and to do a cost-benefit analysis of whatever proposed rule is developed. The authors sincerely hoped that the agencies would not make a “mockery of the rule-making process under the Administrative Procedure Act.”

Perhaps there is more to the letter than a gentle reminder that the Agencies shouldn't consider mocking the law.  If EPA promulgates the rule rather than issues a guidance, the inevitable challenge will be much more difficult because of the deference (frequently referred to as Chevron deference) that will attach to the rule. Deference is a powerful weapon in any agency's arsenal and anyone who seeks to diminish the power of an agency would do well to find a way to challenge that deference.   In this case, the letter is preemptively making the case that if the final rule looks like the guidance, it proves that EPA prejuged the outcome, that the rule should be thrown out and that it would be a "mockery" to allow deference to save it. Given the recent decisions regarding  deference, it just might work.  And if it does, letter-writing will be back in vogue.

(This entry is cross-posted at American College of Environmental Lawyers)

 RELATED POST: An Agency Must Earn Deference

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During the 1990s, there was an interesting string of Superfund actions that addressed what turned out to be a common problem. Many products that contain hazardous materials are shipped in 55 gallon drums. When the drums arrive at their destination, usually a manufacturing facility, the product is used. The question is, what do you do with the empty drums? Since many facilities have no use for the drums, there developed a business that was willing to accept the drums, clean them up and resell them. The problem was that the drums often contained some of the hazardous material. The drums were “RCRA empty,” but that designation allows some material to remain in the drum. Many of these refurbishing companies were a bit . . . lax . . .  in their cleanup procedure and the residual product ended up on the ground. When the contamination was discovered, the company was often unable to pay for the cleanup.  EPA would review all the records of the company and usually pursued the top 10 drum suppliers.  These top 10 suppliers formed a committee, looked through the receipts and went after the other 500 -- or 5000 -- customers who had supplied the facility with drums. EPA was extremely successful in its endeavor and a large number of these “drum-and-barrel” facilities were cleaned up by thousands of unsuspecting companies that had sent the barrels to the facilities only to find, many years later, that mishandling of the barrels cost them a lot more money and time.

EPA’s underlying theory for this recovery was that all persons are responsible for hazardous materials from “cradle-to-grave.” It's one of those catch-phrases that rolls off the tongue so easily.  It means that once you buy a hazardous material, you are responsible for every drop of it until its final disposition either by incorporation into a product or by arranging for its proper disposal.

A recent case from the Federal District Court of Connecticut (which will certainly be repeated) illustrates that a lot can happen in a decade or two.

In the case of Schiavone and Harbor Circles, LLC v. Northeast Utilities Service Company, the defendants, from 1971 through 1978, would obtain and drain electrical transformers of their PCB-containing oil. They then sold the transformers to a scrap yard. Not surprisingly, the sale contract made no reference to the residual PCBs or the disposal of hazardous substances.  As you would guess, the scrap yard was eventually identified as a clean up site for PCBs and the suppliers of the scrap transformers were pursued. The Court first noted that the plaintiff failed to show that the transformers supplied to the scrap yard had any PCBs left in them. However, the Court went on to say that even if PCBs had been included, it would not matter. The District Court stated:

It is undisputed that the defendants had a specific purpose of disposing of used transformers, and in the case of the sales to Kasden, by selling them as scrap metal.  The defendants have produced evidence that would support a conclusion that their specific purpose with respect to their dealings with Kasen did not extend beyond that, i.e., to disposing of any oil that was In the transformers or any PCBs that were in such oil. . . .

[T]he defendants’ specific intent to dispose of the transformers themselves is not enough to make them “arrangers” under Section 9607(a), even if the defendants had knowledge that oil was in the used transformers when they sold them to Kasden. [Citing to Burlington Northern v. United States]. The plaintiffs have produced no evidence that could support a conclusion that the defendants had as a purpose in their dealings with Kasden disposing of transformer oil containing PCBs.

The Court sustained the defendants’ motion for summary judgment because the intent element of arranging for disposal could not be established even if the actual release could be.  Put another way, if an inevitable release is certain to happen based on the product supplied, but the supplier really hopes that the certainty will not occur, then the supplier is not responsible for the release. State of mind, particularly one rooted in fantasy, is a wonderful thing.

Still, it's hard to criticize Judge Thomson’s conclusion. It certainly fits with the holding of Burlington Northern. After all, if you intend no harm, why should you have to pay for it when it happens?  In slightly different terms, I have gotten the same question from my five-year old. It is a bit disturbing to know that he now has the backing of the Supreme Court.  

My only question is, now what? Are these orphan sites going to be cleaned up by EPA? Doesn’t this just shift the cost of cleanup from the refurbishing company to the public? Don’t get me wrong, perhaps that's the "fair" result. I just think someone should tell Congress while they are considering reauthorization of the Superfund tax. 

And while we’re at it, do the thousands of individuals and companies who paid to clean up the old drum-and-barrel sites get their money back? I’m just wondering.

RELATED POSTS:

R.I.P. Superfund Arranger Liability: 1980 - 2010

Burlington Norther (Part 1): The Shell Game Of Shipping

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If someone moves a hazardous substance from their property to a property owned by another and the substance is released into the soil or groundwater, that party can be liable for the resulting damages under a theory of arranger liability under CERCLA. The tough question is usually the level of proof necessary to show that the party caused such a transfer. In the recent case of DVL, Inc. v. General Electric Co., et al., the United States District Court for the Northern District of New York set a rational, but surprisingly high, bar for that proof.

Before setting out the facts, I should point out that the Court acknowledged that there is a relaxation of traditional causation principles under CERCLA:

[T]he party seeking costs need only show that there was a release or threatened release, which caused incurrence of response cost, and that the defendant generated hazardous waste at the cleanup site. What is not required is that the government (or another authorized party) show that a specific defendant’s waste caused incurrence of cleanup costs. CERCLA thus “relaxes” but does not eliminate the causation requirement: a plaintiff need not show a causal link between that particular waste and the response costs the plaintiff incurred, but it must demonstrate that a defendant deposited hazardous waste at the site in question.

While the Court was agreeable to allowing the use of circumstantial evidence to prove the relaxed causation standard, it found that such evidence did not exist in this case.

In DVL, Inc., the plaintiff owned property that was 150 feet “down-gradient” from a property owned and operated by General Electric for the production of capacitors and electrical components. It was undisputed that the GE site was contaminated with polychlorinated biphenyls (PCBs). Although GE never owned or operated any portion of the DVL site, the DVL site was found to be heavily contaminated with PCBs. (DVL had made no investigation of the site when it purchased the property for $500,000 in foreclosure in 2002).

Despite the fact that the DVL property was down-gradient from the GE site, two monitoring wells placed between the properties consistently tested non-detect for PCBs. As such, if the contamination was traveling to the DVL site from the GE site, it apparently was not doing so via the tested aquifer. As a result, there were only two remaining possibilities: the contaminant was being physically transported from the GE site and allowed to be released on the DVL site or the contaminant was moving next door via storm water runoff.

With regard to the physical transportation theory, the plaintiff could produce no evidence that anyone from GE had transported materials to the DVL site. Although there was some testimony that electrical transformers containing PCBs could have leaked on the DVL site, there was no showing that they were GE transformers.

Turning to the possibility of surface water transport, the testimony showed that such water did, in fact, flow from the GE property to the DVL site but there was no proof that the water contained any PCBs. The Court noted:

DVL has not presented an expert to opine that [the surface water had PCB contamination] and that this migration of surface water explains the contamination at the DVL site. In the absence of eyewitness testimony or other direct evidence, and without expert opinion linking GE to the contamination at the DVL site, the circumstantial evidence DVL cites does not provide the Court with a basis for denying GE’s Motion for Summary Judgment.

The case is an interesting read for causation in lateral migration cases because it is a situation that so often arises. The question in these cases is always: How did the contamination get from there to here? For the plaintiff, the clean wells between the properties presented an almost insurmountable problem because if the contamination was not traveling underground, how else could it have been conveyed from the upstream property? The Court’s answer was likely the correct one; that is, either someone must have seen the release of the hazardous substance from a GE activity (either the delivery of the hazardous waste onto the property or the sale of a GE transformer that was seen leaking) or expert testimony would need to be used to fill the gap regarding the unknown delivery. For example, if storm water transported the contamination from the GE site to the DVL site, testing might establish that the contamination was confined to the surface runoff paths and the contamination was greatest on the surface and at the property border and decreased away from property border and at depth. While expert testimony is never cheap, the plaintiff was seeking the recovery of cleanup costs that were in excess of $1 million dollars. (I should note that it is possible that this analysis was done and an expert could not support the theory, though the opinion does not give that impression).

While the Court gave lip service to the prior case law that there is a “relaxed standard” for arranger liability under CERCLA, it certainly did not give the plaintiff in this case much benefit of the doubt, even though the Court was simply considering a motion for summary judgment. The Court made it clear that for arranger liability, you must show how the defendant’s hazardous material got from there to here -- and for this showing, close is not good enough.

RELATED POSTS: R.I.P. Superfund Arranger Liability: 1980-2010

                                   Burlington Northern: The Shell Game of Shipping

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In November of 2006, the earth shook.  At that time, the EPA regulations relating to the Bona Fide Prospective Purchaser Defense (“BFPP”), became effective.  The BFPP Defense, theoretically, allows the purchase of contaminated real estate without stepping into Superfund liability. Though too soon to tell, it looks like it might have just been a minor tremor.

For the first time, a court has interpreted the requirements of the BFPP Defense. In the case of Ashley II of Charleston, LLC v. PCS Nitrogen, Inc. v. Ross Development Corp. et al, the Federal District Court for South Carolina took on the issue. The facts are both complicated and, at times, confusing. The need for an $8 million dollar clean-up was identified at a fertilizer manufacturing plant. The remediation will require the removal of arsenic, lead, PAH contamination and raising the pH of the site. There were multiple parties brought into the action and the allocation made to each party is interesting reading. However, this post will focus on the liability of Ashley II, a limited liability company. Interestingly, the principals of Ashley are Cherokee Investment Partners which is a large investment fund that has dedicated $1 billion dollars to the acquisition of Brownfields properties.

As part of a multi-million dollar project, Ashley retained an environmental engineer.  The project included the purchase of a part of the land that now needs remedial action. A Phase I Environmental Site Assessment was issued and, shortly thereafter, the property was purchased. The Phase I identified some sumps and stained concrete pads as Recognized Environmental Conditions (“RECs”). Ashley did not do any testing around the sumps or the concrete pads to determine if the RECs had, in fact, caused a release.

Some time thereafter, Ashley tore down some buildings on a parcel of the property which had covered sumps that previously contained hazardous substances. No testing was done around the sumps prior to removal of the buildings.

THE EIGHT ELEMENTS OF THE BFPP DEFENSE

In analyzing Ashley’s assertion of the BFPP Defense, the Court required Ashley to prove eight elements by a preponderance of the evidence.

I. NO DISPOSAL AFTER ACQUISITION

The BFPP Defense requires that there be no disposal of any hazardous substances after the acquisition of the property. Judge Seymour arrived at an interesting reading of this requirement. The Judge found that Ashley removed the outside structure of the buildings but left in place a number of sumps and pads and did not conduct soil testing under the pads. Testimony showed that, after the removal of the building, the sumps would fill with rain water which would then seep through cracks in the sumps or fill up and overflow onto the site. Based on these findings, the Court determined that disposals "likely" had occurred after the purchase of the property.  More importantly, the burden of proof was held to be on Ashley.  In the words of the Court: "The court concludes that Ashley did not prove that no disposals occurred on the Site after its acquisition of the Site."

II. CONDUCT OF ALL APPROPRIATE INQUIRIES

The Court noted that Ashley had an ASTM-compliant Phase I Environmental Site Assessment conducted prior to purchase. While there were some claims of non-compliance with ASTM standards, the Court found that Ashley acted reasonably and that it “properly conducted AAI.”

III. LEGALLY REQUIRED NOTICES

Next, the Court looked to see if there was a release of any hazardous substance since acquisition of the property that needed to be reported. Oddly, the Court found that Ashley satisfied this requirement because

[t]he record does not establish that any releases occurred on the Site subsequent to Ashley acquiring ownership. The Court finds that Ashley has met its burden of proving that it made all legally required notices.

IV. THE EXERCISE OF APPROPRIATE CARE

To show that it exercised appropriate care, Ashley needed to show that it took reasonable steps to: 1) stop any continuing release; 2) prevent any threatened future release; and 3) prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance. Again, Ashley fell short.  The Court found that Ashley’s failure to clean out and fill in the sumps, thus leaving them exposed to the elements, resulted in possible releases. Also, Ashley failed to prevent debris from accumulating on the site, did not investigate a debris pile and did not remove the pile for over a year. For these reasons, appropriate care was not shown.

V. FULL COOPERATION, ASSISTANCE IN ACCESS

The Court found that Ashley fully complied with this requirement.

VI. INSTITUTIONAL CONTROLS

The Court did not find any violation that institutional controls were needed and therefore this element was satisfied.

VII. COMPLIANCE WITH REQUESTS AND SUBPOENAS

The Court found full compliance with this requirement.

VIII. NO AFFILIATION

Under this requirement, Ashley needed to show that it was not: 1) a potentially responsible party; 2) affiliated with persons that were potentially liable for response costs at the site through: a) any direct or indirect familial relationships; b) any contractual, corporate or financial relationship; or c) the result of a reorganization of a business entity that was potentially liable. Ashley passed this test.  However, Ashley's indemnification of others at the site, according to the Court, "reveals just the sort of affiliation Congress intended to discourage."  Again, the Court found the BFPP Defense requirements to have been violated.

 CONCLUSION

Once done with the analysis, the Court found that Ashley was, indeed, a PRP because it was the current owner of contaminated property and it did not satisfy the requirements of the BFPP Defense. That is, the Court found that a disposal occurred after Ashley acquired the site. The Court then undertook the difficult job of allocating the costs to the various parties identified in the case. The good news is that Ashley was allocated 5% of the entire costs of clean-up. The bad news is that $400,000 is still a significant amount to pay when Ashley clearly tried to follow the rules set out by EPA.

There appears to be at least three lessons to be learned from Ashley. First, courts are going to carefully scrutinize every aspect of the BFPP Defense -- and there are a lot things that can go wrong.  Second, despite what you may have been told (by EPA officials or others), doing a Phase I ESA is not all that is necessary for the BFPP Defense -- RECs must be investigated and further reporting may be necessary. Finally, as we already knew, what happens after acquisition is important. Getting the defense is one thing, keeping it is another. 

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An agency is not entitled to deference simply because it is an agency.  It is true that agencies are more specialized than courts are.  But for courts to defer to them, agencies must do more than announce the fact of their comparative advantage; they must actually use it.  And that means, among many other things, that the agency must apply – rather than disregard – the relevant statutory and regulatory criteria.

Thus begins the Sixth Circuit Court of Appeals decision in Meister v. U.S. Dep’t of Agriculture.  The Court went on to hold that the Forest Service had effectively disregarded its own rules and procedures and its actions were reversed.  The interesting discussion in the opinion, however, was the Court’s finding that an agency is not entitled to automatic deference.

Attorneys who try cases against the myriad state and federal agencies constantly run into the problem that the court spots the agency ten points (in a twenty point game) before the trial even begins.  While the U.S. Supreme Court has held that deference is permissible in some instances, it is also the case that an agency is not automatically conferred such deference. The agency must reasonably interpret its rules and is required to apply all relevant statutory and regulatory criteria.

Meister is a timely reminder that the statement “Good morning Your Honor – I’m from the EPA (or DNR or IRS or any number of other acronyms), so I win,” is not the law. Sometimes courts, and administrative law judges, need to be reminded of this fact and Meister says it oh so eloquently (and quotably) when it says: “Deference must be earned.”
 

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It looks like the last vestiges of arranger liability under CERCLA are all but gone.

In a recent Fifth Circuit Court of Appeals decision, Celanese Corp. v. Martin Eby Construction Company, Inc., the Court addressed what would seem to be a fairly common set of facts. In 1979, the Coastal Water Authority of Texas hired Eby to install an underground water pipeline which was to cross several existing underground pipelines, including Celanese’s methanol pipeline. Eby did this by excavating an area to work which exposed the methanol pipeline. Eby then ran a section of the water pipeline below the methanol pipeline and backfilled that area. It then moved onto the next section and repeated the same process.

Not particularly surprisingly, at one point in the process an Eby employee struck and damaged the methanol pipeline with the backhoe. However, according to the recited facts, that employee did not know what he had struck and there was no contemporaneous report of the incident. According to the opinion, “neither Eby nor any of its employees knew that the work on the CWA pipeline had damaged the Celanese pipeline.”

The opinion does not go into a lengthy description of the damage to the pipeline. However, it does say that over the course of several years, the dented pipe deteriorated and eventually allowed methanol to leak from the pipe. The leaking was discovered in 2002 and by 2008, Celanese had removed and disposed of over 232,000 gallons of methanol.

Celanese sued Eby under CERCLA to recover its clean-up costs. An advisory jury found that the release at the site would not have occurred but for the 1979 damage to the methanol line. However, the Court also found that Eby did not intentionally damage the pipeline.

The Fifth Circuit reviewed the United States Supreme Court case of Burlington Northern  v. United States and found that Eby could not be held liable as an arranger. The reasoning was that under Burlington Northern, Eby could be liable as an arranger “only if it took intentional steps or planned to release methanol from the Celanese pipeline.” Since Eby did not intentionally damage the pipeline and allegedly did not even know it had struck the pipeline, the intent element of arranger liability could not be satisfied.

On appeal, and for the first time, Celanese argued that the only reason that Eby did not know that it had struck the pipeline was it “consciously disregarded” its obligation to investigate what it had hit in the pipeline corridor and to rectify the damage. This concept, which will become very prevalent in future arranger-liability cases, is also known as “willful blindness.”  The general concept is that the actor intentionally fails to investigate or to acquire information in order to avoid having the necessary knowledge that could satisfy the intent requirement of Burlington Northern.

As one would expect, the Fifth Circuit first said that the new claim could not be considered because it was untimely argued. However, the Court went on to say that even if it had been presented, it would be unsuccessful. The Fifth Circuit returned to the reasoning of Burlington Northern:

Celanese argues that Eby’s conscious disregard of its duty to investigate is tantamount to intentionally taking steps to dispose of methanol. Burlington, however, precludes liability under these circumstances. In Burlington, the Court declined to impose arranger liability for a defendant with more culpable mens rea. The defendant had actually arranged to ship hazardous chemicals under conditions that it knew would result in the spilling of a portion of the hazardous substance by the purchaser or common carrier . . . . Given that there was no arranger liability under those circumstances, we fail to see how we can impose such liability here when Eby did not even know that it had struck the Celanese pipeline. Therefore, we hold that Eby is not liable as an arranger under CERCLA.

This is a pretty remarkable holding. The Fifth Circuit is saying that even if Eby had chosen to avoid doing further investigation, it would not have arranger liability because it had not intended to dispose of a hazardous substance. It was, in essence, an accidental act that caused a release. And since no one intends an accident, there is no liability. (I remember making this argument to my parents many times in my formative years. It didn’t work. Though too late by forty years, it feels good to be vindicated by a federal court of appeals).

Stepping back and looking at the bigger picture (always a mistake in doing a legal analysis), it is undisputed that Eby caused damage to a pipeline that resulted in a massive release of a hazardous substance over the course of several years and, despite these facts, Eby cannot be held liable for the release as an arranger.  How’s that “polluter pays" principle working for you?

Post Script: I wonder if Eby leased the backhoe?  If so, perhaps Celanese can sue the backhoe owner under a theory that the leased equipment caused the release. Just a thought.
 

RELATED POSTS: Burlington Northern (Part 1): The Shell Game of Shipping 

                              U.S. v. Saporito: Superfund Liability For Equipment Leases

                              City Superfund Liability Goes Down the Drain

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Associate Justice Sonia Sotomayor recently made a presentation at Case Western Reserve University. It was a private event at which only students were allowed to ask questions.

According to Professor Jonathan Adler, who was in attendance, the first question put to Justice Sotomayor was "whether the takings clause imposes any real limit on the ability of state and local governments to impose environmental restrictions on land-use, such as limitations on mowing private land (a restriction apparently placed on the questioner’s family)."

What an extraordinary question in this age of environmental consciousness.  

Put another way, the question (or at least part of the question) is: To what extent can governmental entities (cities, counties or states) mandate that builders, developers or property owners be “green?”  Should a city be able to tell you that you cannot grow a “natural” front lawn?  Or prohibit you from cutting down trees on your property?  Or require you to build to a LEED-certified rating?  Or compel you to install high efficiency furnaces?  Or mandate the installation of bike paths at a new development?  Or prohibit the use of phosphorus as a lawn fertilizer? At what point do these requirements rise to the level of a taking under the United States and/or State Constitutions?

Justice Sotomayor, in response to the question, sighed and stated “I don’t know the answer to that.”  My best guess is that she is going to need to come up with one pretty soon.

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Whether we like it or not, we are a dirty society.

Every day, millions of cars drip hazardous materials onto various streets and parking lots and emit hazardous fumes from tail pipes. Every day we pave roads and roof tops with tar that is full of hazardous materials. Every day factories, industrial sites and machinery send out clouds of hazardous smoke into the atmosphere. As luck, and nature, would have it, rain then falls and washes them all away. Since 1990, this act of nature has been regulated.  Two recent cases indicate that stormwater regulation may apply to many more sites than previously thought.

In Northwest Environmental Defense Center v. Brown, the 9th Circuit Court of Appeals held that the discharge of pollutants from ditches, culverts and channels that collect storm water runoff from logging roads required the issuance of an NPDES permit. Logging was determined to be an “industrial activity” and, therefore the roads and their drainage systems leading to and from that activity constituted a point source that required the issuance of a permit.

In another case, United States v. Washington State Department of Transportation, the District Court for the Western District of Washington, ruling on cross motions for summary judgment,  was asked to find that the Washington DOT was liable for designing state highways with storm water collection and drainage structures which allowed hazardous substances, particularly phosphorus, to be deposited into Commencement Bay, a listed Superfund site. EPA argued that the Washington DOT “arranged for disposal (of a hazardous substance) by designing, constructing and operating drainage systems whose sole function was to collect highway runoff and dispose of it into nearby water-bodies."  The Court was persuaded:

WSDOT arranged for disposal of hazardous substances. It is undisputed that WSDOT designed the drainage systems at issue. Designing is an action directed to a specific purpose. The purpose was to discharge the highway runoff into the environment. WSDOT had knowledge that the runoff contained hazardous substances and that there was an actual release of the hazardous substance into the environment. WSDOT argues that it did not have control over the hazardous substances. However, it did have control over how the collected runoff was disposed of. WSDOT did design the drainage system and, as noted by the U.S., WSDOT has the ability to redirect, contain, or treat its contaminated runoff. For the foregoing reasons, WSDOT is an arranger under 42 U.S.C. § 9607(a)(3).

While WSDOT argued that the runoff was a federally permitted release under its NPDES permit pursuant to 42 U.S.C. 9607(j), the Court held that there was a question of fact on whether the WSDOT was in compliance with the permit and whether there was a release outside the scope of the permit.

Based on these two cases, the scope of storm water regulation seems to have dramatically increased. All haul roads and streets within an industrial complex would require an NPDES permit; tar covered roofs having storm water runoff directed to ditches and into streams would have a similar requirement; and asphalt-based highways, streets and parking lots that could ever be near a Superfund site now or in the future, would be similarly situated.  It should be noted that these cases are consistent with EPA's goal of considerably more stormwater regulation in the near future. 

Is it just me or is the regulation of Mother Nature getting a bit out of hand? Are we really going to compel these kinds of regulatory costs without seeing what kind of incremental impact is taking place?  For better or worse, it looks like that's where we are going.  I guess all the regulated community can do is to pray for dry weather. 

RELATED POSTS:  The Train's A-Comin': More Stormwater Rule Changes

                              Applying Stormwater Rules To Existing Facilities

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Sometimes bad facts make such bad law that change becomes obvious.  We can only hope that this will be the result of U.S. v. Saporito.

The case involved a company named Crescent Plating Works.  And the facts went downhill from there.

Without going into extensive detail, it is enough to say that the facility was highly contaminated based on plating operations that had occurred from the 1970s to 2003.  There was disputed evidence with regard to whether the defendant, James Saporito, was an "operator" of the facility.  In the end, however, it didn't matter.

The critical question before the court on the Government’s motion for summary judgment, was whether Mr. Saporito was an “owner” of the facility under Superfund at the time of the cleanup solely because of his undisputed ownership of equipment used in the plating process.  There was no question that Mr. Saporito owned and leased equipment that was an integral part of the plating process but, like most other equipment lessors, Mr. Saporito did not manufacture, install, operate, maintain or direct the use of the equipment.  Nevertheless, Judge Pallmeyer held Mr. Saporito liable for $1.5 million in cleanup costs as an “owner."

During the course of the summary judgment hearing, Mr. Saporito pointed out that there was no evidence offered that connected any of his leased equipment to any release or threatened release or to any cleanup costs.  The court found that CERCLA requires no such connection to be shown.  It was enough that the equipment was a necessary part of a platting process that caused a release of a hazardous substance.  The equipment need not be the cause of the release.

Mr. Saporito next argued that while he may have owned the equipment, he was not an owner of a facility under CERCLA if all he was doing was leasing equipment to an independent party that then used the equipment to cause pollution.  The court found that the plating line was “no less a facility than the land on which it operated.”  Therefore, “an owner of equipment necessary to the operation of the plating line is no less an ‘owner’ than a part-owner of land.”   In fact, according the court, the equipment owner is "arguably more culpable" than a land owner because “a land owner might not inquire into how her land is being used, but an equipment owner is likely to know exactly what her equipment can do.”

Apparently Mr. Saporito saw this disaster coming and argued to the court that the government’s position was absurd because it would make power companies (who supply electricity necessary to run the plating line) and cities (who provide water pipes necessary to allow the process to work) equally liable.  The court, however, had an answer:

The court agrees with Defendant that holding these parties liable would be absurd, but does not share Defendant’s concern that the government’s theory leads to this result. Defendant’s equipment is similar to the power lines or water pipes in that it is necessary for the electroplating process, but under a common understanding of the word “owner,” the power company and the city are not owners of the plating line. Defendant, though, because he owned actual components of the plating line, is an owner.

I think the court has problems on this one, though not for the reasons given by Mr. Saporito.  The question isn't whether, for example, the City is leasing equipment to the line and is therefore an owner; the question is whether the City owns part of the "facility," which is certainly possible.  However, this doesn't save Mr Saporito.

What about the court’s admonition that the “equipment owner is likely to know exactly what her equipment can do?”  Does this really have anything to do with environmental liability?  If it does, the possible universe of potentially responsible parties has, once again, grown significantly.  Certainly a lessor of a backhoe knows that the backhoe could be used to break through a gas pipe line or scoop up coal tar tailings.  Certainly a lessor of plastic totes knows that a company might use the totes to store solvents that might be spilled or otherwise released. Certainly a company who leases chairs could know that a person might stand on them to throw the hazardous waste over the fence.  (Well, maybe that last one is a reach.  At least I hope it is.)

Buried in the opinion is the real basis for the ruling.  It doesn't involve knowing how the equipment is going to be used or whether the machinery was integral to the process.  It involves definitions.  Under Superfund a "facility" is the buildings, structures, installation, equipment, pipe or pipeline, well, pit, pond, lagoon, impondment, ditch, landfill, storage container, motor vehicle rolling stock, aircraft or contaminated site or area.  That's it.  Is it fair to find the innocent landowner or the innocent building owner liable for the tenants environmental sins?  Of course not, and usually it isn't necessary.   Judge Pallmeyer had to reach farther in this case because that's where the solvent defendant could be found.

If the court is correct that the mere owner of leased equipment, the operation of which is part of a line that results in a hazardous waste release, is responsible for the environmental cleanup caused by a sloppy lessee, the repercussions are significant.  Certainly under the court’s analysis, all equipment that is actually used in the production line of a product where a hazardous waste release is identified would fall within the terms of the holding.  That could include acid baths, printing presses, paint lines, white goods production and any line with a degreaser, among many others.   If you just include equipment that, in some manner, touches a hazardous substance or is in a production line that uses a hazardous substance, you have already placed at risk a large number of very profitable leasing companies in the United States as well as the myriad equipment sale/leaseback arrangements that occur on a daily basis.  If you add to this the equipment that a lessor should realize could possibly be used in a release, there isn't a lot left to safely lease. 

The Saporito case is very disturbing in how far it goes to find a responsible party.  Ownership liability under CERCLA has always been a broad concept, but this case seems to stand the concept on its head.   If followed elsewhere, it is hard to believe that equipment leases aren't going to be hard to come by.  If anything, the case should be a call to action.  Since CERCLA was enacted, cases that have liberally construed the PRP provisions of Superfund have resulted in changes that provide limitations of environmental liability for lenders, trustees and bonafide prospective purchasers.  Protection for lessors should be part of this group.  It would certainly help to get us back to the principle that the “polluter pays.”

RELATED POSTS:  City Superfund Liability Goes Down the Drain

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A while back, I posted about a case in London that addressed the issue of whether climate change was a philosophical belief.  If so, a person who acted on those beliefs could not be discriminated against in the workplace (which is how the court ruled).   The case raised the question of whether climate change could be viewed as a matter of faith, rather than science, though I noted that the issue had not yet come up in a U.S. court.  Well, it looks like they skipped the courts and went straight to the state legislatures.

There are now fifteen states that have considered or passed resolutions or statutes that support the position that climate change does not exist, has been manipulated or is only a matter of opinion.

For example, Kentucky's resolution states that there is "serious doubt upon the scientific data that have purportedly supported the finding that manmade carbon dioxide has been a material cause of global warming or global climate change."  Based on this serious doubt, the Kentucky legislature seeks to prohibit any state institution from enacting OR ENFORCING, "any federal, state or local law  . . . that limits, regulates, or controls the emission of carbon dioxide."

South Dakota, noting that "there are a variety of climatological and meteorlogical dynamics that can affect world weather phenomena, and the significance and interralitivity of these factors remain unresolved," resolved that teaching of climate change in public schools, "be presented in a balanced and objective manner and be appropriate to the age and acedemic developmenty of the student and to the prevailing classroom circuimstances." 

Virginia, never one to mince words, simply  proposes to declare that "carbon dioxide shall not be considered air pollution."

It makes you wonder where the debate is going.  Certainly if a state legislature declares that federal law must be ignored, litigation could follow.  We might then see a replay of the Scopes Monkey Trial, just as the U.S. Chamber of Commerce predicted.  The problem is that the Scopes trial wasn't exactly the high point of American jurisprudence.  I wonder if it would fare better this time. 

RELATED POSTS: Monkeys and Science, Part Deux: Putting Climate Change On Trial

                             Climate Change, Jedi Knights and Philosophical Beliefs

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The Clean Water Act is complex and rule intensive.  As such, it is easy to forget the purpose of the Act -- clean water.   The Eighth Circuit recently had an opportunity to remind us of that purpose in the case of Service Oil, Inc. v. U.S. EPA.

For those who practice in the area of property development and storm water regulation, the facts were not surprising.  Service Oil began construction of a Stamart Travel Plaza on more than five acres of land in Fargo, North Dakota. As soon as earth was turned, the site became a potential “point source” under federal law. The storm water discharges from the site were deposited into Fargo’s storm sewer system which then went into the Red River of the North. As a result of this discharge, the site was required to obtain an NPDES permit. The North Dakota Department of Health was authorized to issue the NPDES permits and required that a Notice of Intent to obtain such a permit had to be submitted at least 30 days prior to the start of construction.

In October of 2002, EPA and the North Dakota Department of Health officials inspected the Stamart site and found that no Notice of Intent had been filed, which was quickly corrected by Stamart.  As luck would have it, there was apparently no rain fall that occurred at the site between the time that development commenced and the time Stamart was able to get its Notice of Intent on file. Though the state officials were satisfied, EPA continued its review and determined that Stamart had also failed to conduct site inspections as required by state law.

In bringing its action against Stamart, EPA sought an $80,000 administrative penalty based on two acts: (1) Stamart’s failure to file its Notice of Intent in a timely manner and 2) Stamart’s failure to conduct timely inspections. The majority of the penalty ultimately assessed by the Administrative Law Judge was for the failure to properly file the Notice of Intent. The ALJ found that Section 1318 of the Clean Water Act had record-keeping requirements supported by regulations that required the preconstruction submission of a completed permit application.

On appeal, the Court agreed that the Clean Water Act prohibits discharges without a permit.  It also agreed that it is logical that the regulations provide for permit applications to be submitted prior to any initial discharge. The Court focused on the fact that the regulations required that a person who proposes a new discharge must submit its application before the date on which the discharge is to commence. However, the statute’s requirements, by its terms, applies to a point source. In the words of the Court:

Failure to comply with [the requirement of submitting an application before discharge] cannot be a violation of section 1318(a) because that statute’s record-keeping requirements are expressly limited to “the owner or operator of any point source.” Before any discharge, there is no point source. (Emphasis added).

The Eighth Circuit was simply emphasizing that EPA does not regulate “point sources.” Rather, a point source is just a defined term which determines whether the regulatory scheme might apply to that source. If the source is not deemed to be a point source (such as agricultural runoff), then the regulatory scheme does not apply to it. If it is defined to be a point source (such as a construction site), then the regulations do apply, but only after there has been a discharge.  Since the statute gives jurisdiction only over actual water discharges, a developer cannot be penalized for failing to take out a permit, at least not until a discharge event, such as storm water runoff, has actually occurred.

To emphasis this point, the Court quoted an earlier Second Circuit case:
 

The Clean Water Act gives the EPA jurisdiction to regulate and control only actual discharges—not potential discharges, and certainly not point sources themselves. (Emphasis in original).

So does this mean the developer can avoid filing a Notice of Intent or obtaining a permit?  The Court, recognizing that EPA might be concerned that it lacks regulatory authority to assess administrative penalties for failing to submit a timely permit application, offered these words of consolation:

Prudent builders know that permits do not issue over night and that storm water discharges can happen any time after the start of construction makes the site a point source. They will apply and obtain permits before starting construction to avoid penalties for unlawful discharges that may prove to be severe. That is the regulatory regime Congress crafted.

In other words, developers take note -- counting on the Farmer's Almanac is probably not a sound business plan. 

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I will not make it a practice to review cases from other countries — there are enough interesting ones from our own courts. However, a case decided on November 3, 2009, in London is worth a look. 

The case is entitled Grainger, P.L.C. v. Mr. T. Nicholson. It was in the Employment Appeal Tribunal which hears cases of employment discrimination. The case was at a very early stage, similar to our summary judgment proceeding.

 Mr. T. claimed that he was terminated unfairly by Grainger, P.L.C. because he was discriminated against based on his asserted philosophical belief concerning climate change and the environment. In particular, Mr. T. contended that:

I have a strongly held philosophical belief about climate change and the environment. I believe we must urgently cut carbon emissions to avoid catastrophic climate change. 

 

It is not merely an opinion but a philosophical belief which affects how I live my life including my choice of home, how I travel, what I buy, what I eat and drink, what I do with my waste and my hopes and my fears.

The trial judge decided that Mr. T's claim of discrimination was not cognizable under English law. He ruled that Mr T’s philosophical belief could not be the basis for a wrongful termination claim because the regulation in question stated that discrimination against another person occurs if, “on the grounds of the religion or belief of B, A treats B less favorably than he treats or would treat other persons.” The regulation also provided that “belief” means “any religious or philosophical belief.” The trial judge held that belief in climate change did not rise to the level of a philosophical belief protected by the regulation. The appellate court disagreed.

On review, the Court examined the regulations and quickly determined that the problem was the definition of “philosophical belief.” The Court went on to define the standard of when a philosophical belief rises to the level of a protectable interest, at least under the English employment regulation. He held that there were five conditions which must be satisfied for a philosophical belief to be protected:

1.      The belief must be genuinely held;

2.      It must be a belief and not an opinion or viewpoint based on the present state of information available;

3.      It must be a belief as to a weighty and substantial aspect of human life and behaviors;

4.      It must obtain a certain level of cogency, seriousness, cohesion and importance; and

5.      It must be worthy of respect in a democratic society, be not incompatible with human dignity and not conflict with the fundamental rights of others.

(Now here is a judge who understands how to create a standard that trial attorneys can embrace).

In applying the standard to the case of Mr. T, the Court held that his philosophical belief about climate change and the environment could, indeed, satisfy each of the five conditions. He was careful not to say that Mr. T.’s belief did, in fact, satisfy each of the conditions because the testimony had not yet been presented that would challenge, for example, whether the belief was genuinely held. Also, the Court didn’t address the question of whether the employer’s act of dismissal was in retaliation for Mr. T. acting on his belief or for some other reason. Those questions remain for trial. The Court simply held that a belief in climate change could be a protectable, philosophical belief.

So, what else might be deemed a philosophical belief worthy of protection? Interestingly, the opinion gives a number of examples: Humanism, veganism, pacifism, vegetarianism, socialism, Marxism, communism, capitalism and abstinence from alcohol made the cut. The Court saw all of these satisfying the five-part test.

What didn’t qualify? The opinion was a bit sparse on examples, but the Court explicitly found that racism and homophobia would not be philosophical beliefs that are worthy of respect in a democratic society.

In perhaps the unkindest cut of all, the Court found that a belief in the supreme nature of Jedi Knights would “fail on the basis of non-compliance with at least four of the limitations suggested above.” The Court did not identify which limitation might be satisfied.  (The next London Comic Con should be lively).

Some have said that the opinion could be used to show that climate change is, in the end, a matter of faith, not science. Others contend that it does not stand for that proposition.  

As luck would have it, we don’t need to address the issue because the case wasn’t decided in the United States.  However, before one jumps to the conclusion that it couldn’t happen here, I would point out an interesting statement recently made by Representative Nancy Pelosi at the Detroit motor show where she said that green technology is "a moral issue if you believe, as we do, that this planet is God’s creation.” 

If she's right, I wonder if there is an argument about separation of church and state somewhere in there.

 RELATED POST: Is Climate Change a Fact or a Philosophy?

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When it rains, it pours, and right now there’s a veritable typhoon of Superfund liability cases.

On September 30, 2009, the federal district court in Georgia ruled on several summary judgment motions in Scarlett & Associates, Inc. v. Briarcliff Center Partners, L.L.C. The primary question was whether a property management service could be liable for remedial costs under CERCLA and/or RCRA. The Court said yes to both.

The property in question was a strip mall that housed a leaking dry cleaning facility. The contamination was identified in the early to mid-1990s and a release notification was issued on June 27, 1994. Since that time, the plume has continually migrated and expanded. When the owner of the center failed to make its payments, AmSouth Bank of Florida took over operation of the center.

In September of 1995, AmSouth retained Faison and Associates to undertake certain property management services, which they did until September of 1997.

What Faison could not do:

1) Manage any tenant operations;

2) Assert control over which tenants were permitted to lease space;

3) Evict tenants; or

4) Assert control over any hazardous substances handled by a tenant.

What Faison could do:

1) Attempt to rent and renew rentals space to tenants approved by AmSouth;

2) Collect rent and maintain common areas;

3) Make repairs;

4) Pay utilities and taxes for AmSouth;

5) Ensure that the operators of the dry cleaning business complied with EPA’s reporting requirements on dry cleaning facilities covering PCE emissions, equipment monitoring and repair, and accounting of PCE consumption.

AmSouth successfully argued that its indicia of ownership was for the sole purpose of protecting its security interest, so it had no liability pursuant to the Secured Creditor Exemption under Superfund. Faison, its agent, wasn’t as lucky.

With respect to the CERCLA claim, the court found that, to be liable, Faison needed to be actually involved in the operations involving leakage or disposal of a hazardous waste. The Court found that there was evidence that Faison “played at least a minimal role in managing the dry cleaner’s operations specifically related to pollution.”  That role was that Faison had sent the dry cleaner a letter advising it of some reporting requirements (not release related) to EPA. Based on this act and Faison's general management actions, the court found that there existed a question of whether Faison had operator liability under CERCLA.

The Court then considered RCRA liability. While CERCLA is designed to address past releases, the intent of RCRA is to regulate the ongoing use of hazardous materials and to require cleanup from those operations.   That is, the party, at the time that suit is filed, must be involved in an ongoing violation of a RCRA requirement, i.e., there must be a current violation.  But, in this case, Faison had been off of the site for years prior to commencment of the suit.  So why was Faison liable under RCRA?

The Court held that the existing plume was continuously expanding and was, therefore, a “current violation.” Although the Court specifically found that Faison did not contribute to the past or present handling, storage, treatment, transportation or disposal of PCE, its management role on behalf of AmSouth was sufficient to support a finding that it was operating a hazardous waste treatment, storage and disposal facility.

Looking at the activities of the management company, the short time period of oversight, and the length of time since the company worked on the property, I believe that most would say that this is a very disturbing holding. Obviously, the “polluter pays” principle is nonexistent but, more importantly, what message is being sent? One message is that if a property manager is aware of any contamination at a site being managed, there are only two options: 1) Don’t manage the property, or 2) Have an iron-clad indemnification from your customer (and if it’s anyone other than a bank or Microsoft, good luck with that).

But what if the property manager doesn’t know about the releases?  Short answer – it doesn’t matter. In this case, the court found that there were active releases from the dry cleaner between 1995 and 1997, but there was no evidence that Faison was aware of those releases.  However, nothing in the opinion or the law requires knowledge for operator liability. All that is required is that there be a release of a hazardous substance during the manager’s watch which is still migrating (I have yet to see a plume that hasn’t migrated) and is not remediated at the time of the action (which can be years after the manager has ceased managing).

Regardless of the final outcome, I would suggest that this is bad policy.  We need property managers to be able to do their job without fear of being drawn into Superfund liability.  We are in an era where it is permissable for banks and land purchasers to be sheilded from environmental liability.  Surely we can afford similar protection to property managers.

RELATED POSTS: City Superfund Liability Goes Down the Drain

                            CERCLA Operator Liability: A Tragedy in One Act
 

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In September of 2009, the federal district court for the Eastern District of California issued a ruling in Adobe Lumber, Inc. v. Hellman.  If the holding catches on, it should scare the sewage out of every city in the country.

The facts are fairly unremarkable as Superfund facts go. Between 1974 and 2001, a shopping center, owned by Adobe Lumber,  housed a dry cleaning business. A floor drain from the dry cleaners connected to the sewer system for the City of Woodland, California through a waste pipe. The dry cleaning operators used the floor drain to dispose of waste water containing perchlorethylene, which is a hazardous substance under CERCLA.  In 2001, it was determined that PCE from the dry cleaning establishment had contaminated the soils and groundwater. So far, not too surprising. 

The interesting aspect of the case is that the plaintiff chose to include the City in the lawsuit. The plaintiff''s claim against the City was that the contamination was a result of the leakage of PCE from the sewer system and that the sewer system was

especially likely to leak due to … its age, the large number of joints, grout (mortared) joints and defects in the sewer system and that the city’s management and maintenance of the sewer system was re-active, minimal, and inadequate.

In suing the City, the plaintiff sought declaratory relief and cost recovery under CERCLA as well as several other theories. The plaintiff moved for summary judgment on the CERCLA claim under the theory that the City, as the owner and operator of the sanitary sewer system, had liability for any leaking hazardous substances from those facilities. 

The court first addressed the question of whether the sewer pipes constituted a “facility” under CERCLA. The court noted that the term “facility enjoys a broad and detailed definition.” (For those who don’t read a lot of cases, this kind of language is a bad sign). The court then found that the sewer pipes can be deemed a facility because the statutory language identifies a facility as any site or area where a hazardous substance has been disposed of or comes to be located. The court could find no language to exclude the city’s sewer system, so it held that the pipe was a “facility” under CERCLA.

The court then went on to determine whether the city was an owner or operator of the facility. This one, however, was easier because there was no question but that the city owned the sewer system.

Finally, the city asserted the innocent landowner defense. The elements of that defense are that the defendant must prove that: 1) the release or threat of release of hazardous substances was caused solely by the acts of a third party, and 2) the defendant exercised due care with respect to the hazardous substances and took precautions against foreseeable third acts or omissions. The Court found that neither of the elements were satisfied.

First, the court found that the dry cleaners did not constitute the “sole” cause because the City allowed the sewer lines to degenerate to the state which allowed the releases to occur. 

Second, the court found that though the dry cleaner's conduct clearly violated state and local law, that did not render the conduct unforeseeable as a matter of law. The evidence showed that the City did not take steps to remedy the leaks in the sewer system until 2004 even though it was aware that several dry cleaners did operate in the area. The court found that it was foreseeable that the City would be aware that PCE could be illegally discharged from these facilities and the City was required to take “reasonable steps” to prevent ongoing contamination, which the City did not do until 2004. Therefore, the City was the “owner” and “operator” of a “facility” that allowed the release of a hazardous substance.

I believe it is safe to say that the City was surprised at the outcome.

There is still a long way to go and appeals to be had, but, based on the cases cited by the court, there is every reason to believe that the City will ultimately be one of those parties who gets allocated some of the response costs for this clean up. It will be interesting to see if the Burlington Northern case lets them get out for a low percentage.

The real import to this case, in my mind, is that it, once again, highlights the idea that the “polluter pays” under CERCLA is often not true. The environmental regulatory schemes under both federal and many state laws are much less concerned with who caused a hazardous release than they are with who can be easily located to pay for the clean up of a hazardous release. And while that may be expedient, it is a far cry from making the polluter pay as that phrase is understood by most people.

RELATED POSTS: The SCARLETT Letter of Operator Liability

                            CERCLA Operator Liability: A Tragedy in One Act
 

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The principle of "polluter pays" for environmental contamination and the activity of land development have always been uneasy bedfellows.  The most recent example of a sleepless night can be found in the New Jersey federal district court case of Bonnieview Homeowner’s Association v. Woodmont Builders, LLC.  In a foreshadowing of things to come, Judge Deberoise’s opening line, in that case says:

This matter involves a dispute over the environmental contamination of an area of land in Montville, New Jersey, where a fruit orchard was operated in the mid-twentieth century and which was later developed into a residential neighborhood.

There is not a single well-read developer that doesn’t understand that by the end of the opinion, this is a tragedy of epic proportions.

The facts of Bonnieview HOA are the ones that every developer fears. A seemingly innocuous parcel of ground is ripe for development in the lovely city of Montville, New Jersey. At some point in the past, the property had been an apple orchard, though a Phase I Environmental Site Assessment failed to note that the orchards may have used pesticides which may have contaminated the soils.

The developer of the site, in an effort to provide the finest of “natural homesites” with a “great place to raise children” removed the topsoil from the site, stockpiled it, built the homes and returned the topsoil to the site for the lawns. No testing of the soils was done before or during the process, but, as luck (and tragedy) would have it, the soils were heavily contaminated with metals and pesticides.

The Plaintiff homeowner’s association, after discovering the facts, brought action against the developers and others contending that:

[B]y clearing the topsoil, stockpiling it, then spreading it over the Residential Lots, the Defendants caused the pesticide contamination to spread “ubiquitously across the Residential Lots” and into areas previously not contaminated, and to be extended from the surface into the subsurface soil.

Liability under CERCLA, the federal statute that requires cleanup of contaminated property, for a person operating on the property (such as a developer) requires that the operations occur at a time during which there was a disposal of a hazardous substance. In this case, there was no question that the pesticides in the soil constituted a hazardous substance. The open question was whether the mere movement of the previously contaminated soils constituted “disposal.” The Court conducted an analysis of the case law and found:

Woodmont Builders’ movement of the contaminated soils on the Residential Lots may be considered a “disposal” under CERCLA.

Ironically, the members of the Plaintiff homeowner’s association that had moved soils to put in swimming pools, driveways, etc. were also found to be liable for response costs.

It is important to note that the Court acknowledged that the developers were not liable as arrangers (due to the recent holding of Burlington Northern Railroad) but found that the developers were liable based on operator liability, which does not require knowledge of the presence of a contaminant for liability to be imposed.

There are several other interesting aspects of the case, but the fact that a developer (or a homeowner) who moves around soil that turns out to be contaminated can be responsible for response costs is the most problematic. Environmental attorneys who practice in the area of CERCLA are not particularly surprised at the outcome, but I haven't met a developer yet who isn't shocked.  It is yet another instance where the “polluter pays” principle means (tragically) very little.

RELATED POSTS:  City Superfund Liability Goes Down the Drain

                             The SCARLETT Letter of Operator Liability
 

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On October 16, 2009, EPA drew a line in the sand regarding mountaintop mining. With regard to the Spruce No. 1 Service Mine Permit located in Logan County, West Virginia, EPA informed Arch Coal, Inc. that it was beginning the process that could result in the rescission of its Clean Water Act permit.  Although the mine had a validly-issued permit from the Corps of Engineers, EPA believes that it has broad authority to veto the Corps' issued permit if it finds that serious water quality damage may occur and that there are methods to avoid such damage.   In the words of William Early, the acting regional administrator for EPA in Region III:

We recognize the issued permit contains several provisions that may be intended to address water quality and mitigation based upon information and data available at the time [of the issuance of the Clean Water Act Section 404 permit]. However, in light of new data and information since permit issuance, EPA remains concerned with much of the analysis set forth in your letter, particularly as it relates to the potential for adverse water quality impacts, further avoidance and minimization measures, the potential for accumulative impacts, and identification and enforceability of success criteria for mitigation.

Mr. Early’s concern, as stated in the letter, is that the operation of the mine “may result in unacceptable adverse impacts to fish and wildlife resources.” He noted that the project allows for the construction of six valley fills for placement of excess spoil material generated through the surface coal mining activities and that there were only minimally acceptable methods to minimize impacts to aquatic resources. In EPA’s view, “there is the potential for [the mine’s] associated discharges to cause further stream degradation.” Early also noted that the existing permit fails to contain adequate measures to mitigate environmental damage and does not set out what procedure would be appropriate if water-quality impacts would happen to occur.

The action of EPA is notable in several respects:

• It is the first time that EPA has threatened to rescind a permit for a project that had been previously authorized.
• Since 1989, only one other project has received a Section 404(c) veto from EPA.
• Prior to 1989, a total of eleven projects have received a veto, none of which involved mining.

Additionally, it is interesting to note that EPA's review is purportedly based on "new data and information since permit issuance,"  a process that took almost ten years.  Some might wonder wherther it is new evidence or a new administration that is driving the review and, if it is the latter, what impact will it have on business to know that the fundamental rules of the game (such as revoking already issued permits) can be changed every four or eight years? 

Though environmentalists may look on the EPA action as an indicator that the EPA under Obama is going to be much more aggressive against mountaintop mining, perhaps this is not really the best test case for that proposition. This site was, after all, one of the very few sites that even the Bush-era EPA was reluctant to give a glowing review. In June of 2006, during the comment period for the permit for the Spruce Mine, the site received a ranking of “EC-2,” which equates to “Environmental Concerns and Insufficient Information.”  Further, in its statement, EPA "emphasizes that the Spruce No. 1 represents an unusual set of circumstances we do not expect to be repeated again."

While it is a significant first step, what action is taken by this EPA for the remaining seventy-eight mountaintop mining permits will be much more telling.

RELATED POST:  Switchback Regulation and Mountaintop Mining: The Wrong Path?
 

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Traveling up a mountain is never an easy proposition -- thin air, cold temperatures and those dizzying roads that whipsaw back and forth for miles.  While I recognize the need for switchback roads to convey the traffic, I have trouble using them as a model for environmental regulation, but it seems that that is where we are today; that is, changing environmental policy 180 degrees with each change of administration.  A case in point is Coeur Alaska, Inc. v. SEACC and EPA's recently announced initiative relating to mountaintop mining.

                                                 THE COEUR ALASKA CASE

The last time we saw  Coeur Alaska, the company had just won their case before the United States Supreme Court and could fill a lake with sludge from their mining operations. They were allowed to do so because a Bush-era EPA policy, as set forth in a director's memorandum, said that it was acceptable for the Corp of Engineers to issue the permit without applying the performance standards of the Clean Water Act to the fill material.  The Court deferred to EPA's interpretation because it was "not plainly erroneous or inconsistent with the regulation[s].”

Here we are, eighty-one days since the decision and all you can say is what a difference a few days make.

                                                MOUNTAINTOP MINING REVIEW
 

On September 11th, EPA declared that all seventy-nine pending permits for mountaintop removal mining would be sent back for additional review under the term of the Clean Water Act. EPA’s concern is that these operations would “likely cause water quality impacts.”

Lisa Jackson, the EPA Administrator, attempted to emphasis that this was an "enhanced coordination process" between EPA and the Army Corps of Engineers and that it was not a change in policy. With all due respect to Ms. Jackson, I think she misspoke. It isn’t a change in law, but it is certainly a change in policy. She said as much when she told the Tampa Bay Press: “The whole permitting process had become a bit toothless.” In a year’s time, this EPA will have every molar, bicuspid, canine and incisor back in place (the jury is still out on the wisdom teeth).

                                                             THE IMPACT

The problematic holding of the Coeur Alaska case isn’t only what Coeur Alaska won, but how it won it. The Supreme Court reaffirmed that EPA has great discretion in all things environmental. In that case, the holding worked to the advantage of the business.  However,  that ruling (and others) also gives EPA the ability to quickly reverse the environmental policies of the past eight years.  I agree that to the victor goes the spoils and that changes in many areas are appropriate.  My concern is that when there is another change in EPA (one of those few guarantees in life), the road will almost certainly take a hard turn, this time to the right.  And when the inevitable happens, it will turn back yet again.

In the end, maybe switchback regulation is as necessary as switchback roads.  But while both will get you where you want to go, they certainly expend a lot of energy, and costs, to get there.  So what's the alternative?  Maybe something more permanent, like a tunnel or legislation, is preferable.  Sure they both have up front costs, but at least you minimize the whipsaw effect (that is so hard on brakes and business planning).

RELATED POSTS:  The Supreme Court and the Environment: Who Did They Really Help?

                              COEUR ALASKA, INC. VS. SEACC: When Is A Lake Really a Landfill?

                              ENTERGY CORPORATION VS. RIVERKEEPER, INC.

                              Clean Water and Mountaintop Mining No Longer Mix

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With a new sheriff in town, environmental change is a foregone conclusion. The only questions are how and when will change be made. Rules that are created to give effect to environmental statutes are where we can find the real heart and soul of environmental protection. Every modern-day president that has taken office has realized that he has a lot more power to quickly cause policy changes via rulemaking than through the ponderous process of legislation. As I have said before, President Obama is no exception and is already in the process of making significant changes to the environmental rules.

The only problem with the use of this power is that it does have some minimal safeguards in place – and apparently they were exceeded.

In April, Secretary of the Interior Ken Salazar asked the U.S. District Court for the District of Columbia to remand and vacate the Stream Buffer Zone rule. This was an 11th-hour rule change made by President Bush which made it easier to discharge water taken from mountaintop removal into streams. Salazar decided that this was a bad public policy and, according to him, it did not pass the “smell test.”

In ruling on the question, the D.C. Circuit Court said that, as discerning as Mr. Salazar’s nose might be, there is a right way and a wrong way to remove the odor. And Mr. Salazar’s attempt was the wrong way. In the words of the Court:

Here, the federal defendants seek a remand and vacation of the SBZ Rule without a determination on the merits that the SBZ Rule is legally deficient.

The Court finds no precedent to support the proposition that it should reward and vacate the SBZ Rule under the circumstances presented here. Moreover, the National Mining Association has the better argument that granting the federal defendants’ motion would wrongfully permit the federal defendants to bypass established statutory procedures for repealing an agency rule. The Administrative Procedures Act requires government agencies to follow certain procedures, including providing for public notice and comment, before enacting or amending a rule. An agency must follow the same procedure in order to repeal the rule.                        

In other words: Sheriff, the law says you have to have a town meeting before you close the saloon, so have the town meeting before you close the saloon.

It seems unlikely that the requirement that there be notice and an opportunity to comment will change the outcome in any manner, other than to slow things down a bit. But telling the sheriff that the law also applies to him is probably a good reminder that there’s a difference between a sheriff and, say, a king.

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I have read, with interest, several posts that describe the most recently concluded United States Supreme Court term as being a miserable year   for environmental interests. The authors point out that of the five cases addressing the environment, all of them resulted in reversals of decisions that had favored environmentalists. Based on this scorecard, the posts are quick to label the majority of members of this Supreme Court as being hostile to the environment and pro-business. Glenn Sugameli, an attorney with the environmental group Earth Justice, went so far as to say that he believes that the Court put on “pro-business blinders.”
 

While the outcome of the cases certainly did not advance environmental interests, I find it difficult to refer to the outcomes as pro-business. In fact, in three of the cases, the Court deprived the business community of what it needs most.
 

Businesses necessarily rely upon predictability. They need to know, to the greatest extent possible, that the rules of the game are not going to constantly shift. They need to know that government will not make major changes in the regulatory scheme and that they can plan future  purchases, hiring, markets, expansion and the like on rules that are not subject to daily variation. This is critical in the area of environmental regulation where a change in the rules can shift millions of dollars in costs. Business owners understand that there will always be some changes, but they expect it to occur through a cumbersome and combative process (a/k/a Congress). In short, they hope for some level of stability. By this measure, the Supreme Court did not do business a favor during this term.
 

In my previous post relating to Entergy Corp. v. Riverkeeper, Inc., I noted that the end result was that the Court has now accorded broad deference to EPA to determine when and where the agency will employ the use of a cost-benefit analysis. In a similar vein, I noted that in the Coeur Alaska, Inc. v. SEACC case, the Court deferred to EPA’s interpretation as found in an unpublished memorandum authored by the Director of EPA’s Office of Wetlands, Oceans and Watersheds.  In both of these cases, the Supreme Court was making it clear that EPA can change the rules as it sees fit and without public comment.  In several articles written about the Coeur Alaska case, the comment was made that, although the environmentalists lost that case, there would be an easy fix by asking the present administration to take action (presumably without the need for public comment) to repeal the interpretation of the rule that allowed the Supreme Court to rule in favor of Coeur Alaska.  

In Winter v. NRDC, Inc., the Court ruled that the needs and prior practices of the Department of the Navy should receive deference. As in Entergy and Coeur Alaska, this case resulted in substantially strengthening the hand of the governmental entity.
 

Though it is an admittedly small sample, I believe that the best way to label this Court is pro-government when it comes to environmental questions. Given the complexities of environmental regulation, I can’t say that I’m surprised at the rulings which, in effect, simply defer to the expertise of the agency.  What does surprise me is that the Roberts Supreme Court believes that making federal agencies more powerful and less accountable is a good result.
 

Moreover, the impact on many types of businesses is likely going to be significant in light of the political climate. It is an understatement to say that the Obama  administration’s view of environmental regulation is significantly different  from the view held by the Bush administration. With this Court’s seal of approval, changes in EPA regulations, guidance documents and unpublished memos are going to come fast and furious. If anyone really believes that it is “pro-business” for the Supreme Court to tell EPA that it has discretion to change the rules whenever it desires and without notice or public comment, I would question their definition.
 

I believe I can safely guarantee that a change in the presidency, like death and taxes, is a certainty at some time in the future. When that happens, the rules will change yet again. And for business, the lack of certainty, or at least relative stability, is anything but “pro-business.”
 

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In its final environmental ruling for this term, the United States Supreme Court went up against the fishes.  The fishes lost.

In Coeur Alaska, Inc. v. Southeast Alaska Conservation Council, the plaintiff mining company sought to pipe a slurry of 210,000 gallons of process wastewater and 1,440 tons of tailings each day to the bottom of Lower Slate Lake. The parties to the litigation agreed that the activities would fill the lake with solids and destroy all aquatic life. Upon conclusion of the mining operations, Coeur Alaska proposed to cap the tailings with four inches of native material and restore and expand the lake.

Since the lake was a water of the United States, Coeur Alaska needed a permit to discharge the slurry. The difficulty here was that the Clean Water Act provides for two distinct methods of getting a discharge permit. Under Section 404 of the Act, the Corp of Engineers can issue permits for discharge of “fill material," with EPA having the right to veto. Fill material is defined to be any material "that has the effect of . . . [c]hanging the bottom elevation of water."  For discharges of anything other than fill, Section 402 of the CWA requires EPA to issue permits pursuant to the effluent limitations of the Act. 

As one might imagine, EPA and the Corps occasionally disagree on who has jurisdiction, and such was the case with mining tailings.  In 2002, the Corps and EPA promulgated a regulation that defined fill material to include “tailing or similar mining-related materials.”  Still, the regulation failed to identify whether the fill material, that was subject to the Corps jurisdiction, needed to meet performance standards.

In a 2004 internal memorandum written by Diana Regas, the Director of EPA’s Office of Wetlands, Oceans and Watersheds during the Bush administration, Ms. Regas declared that EPA’s performance standards did not apply to discharges of fill material.

Based on this information, Coeur Alaska sought a discharge permit from the Corps of Engineers rather than EPA. The Corps determined that any environmental damage would be temporary and issued the permit. SEACC challenged the Corps decision and won at the 9th Circuit, but lost before the Supreme Court.

In a 6-3 decision, the High Court held that the terms of the CWA were ambiguous. The Court said:

Because Congress has not “directly spoken” to the “precise question” of whether an EPA performance standard applies to discharges of fill material, the statute alone does not resolve the case.

Since the statute did not provide the answer, the Court attempted to determine congressional intent.  However, they found another road block in that there was no such indicia.  Next, the Court looked to agency regulation, but found it to be ambiguous. Stepping down one more rung, the Court looked to the subsequent interpretation of the regulation by EPA and found Ms. Regas' internal EPA memo that the performance standards do not apply to fill material.  The Court declared that the memo did not satisfy the Court's previous ruling in Chevron v. NRDC on what can be accorded deference by a court, but went on to say: 

The Memorandum presents a reasonable interpretation of the regulatory regime. We defer to the interpretation because it is not “plainly erroneous or inconsistent with the regulation[s].”

With that, the Supreme Court reversed the 9th Circuit and allowed Lower Slate Lake (presumably to be renamed Much Higher Slate Lake in the near future) to be filled with the slurry.

It must be said that this Court searches very hard for guidance. On the central question of whether performance standards apply to discharges of fill material, they found that:

• The statute had not “directly spoken” to the “precise question;”
• There was no indicia of Congressional intent;
• Agency regulations were ambiguous; and
• One internal agency memo, that had not been subject to public comment and which did not meet the Court’s previous cases to merit deference, was sufficient to justify the discharge.

That is one heck of a memo. For all those low level staffers and department heads who think that no one reads anything that they put in their reports, Ms. Regas would beg to differ. Those memos can have some real clout.

I would note that the oral arguments, as well as references in the opinion, indicated that several members of the Court were consoled by the fact that EPA had veto power and it did not exercise it in this case. If EPA didn’t see the need to veto it, why should the Court?  I suppose there are any number of ways to answer that question. Suffice it to say that a majority of this Supreme Court, reviewing a Bush-era EPA decision, felt that the answer was that it shouldn’t.
 

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I recently received a poll asking me what I thought was the most important environmental case that ever came out of the United States Supreme Court. About thirty cases were listed, but my pick wasn’t anywhere among them.  My write-in vote?   Bush v. Gore.

You remember the Bush case. It was about that pesky election in 2000 where we just couldn't make up our minds.  The country was learning that more than just the weather can get hot in Florida. Eventually, the Supreme Court came to the rescue and found, by a 5-4 vote, that enough of that silly counting had been done, and that Mr. Gore had missed it by just that much (actually it was by .0092%).

As is the winner's prerogative, the new president and empowered Congress began to apply Republican ideals to environmental regulation. Not surprisingly, the beneficiaries of this action were environmental interest groups, who did not find it difficult to argue that Republican politics were isolationist, dangerous and destructive. For eight years, George W. Bush, and a Republican Congress, would swell the ranks of environmental groups across the country. All because of one vote from Robstown, Texas.

But the importance of Bush v. Gore didn’t just rest with an increase in environmental group participation. After all, that phenomenon has displayed itself during every Republican administration since Ronald Reagan.

No, the real importance of Bush v. Gore was that it put Al Gore out of a job. 

Just think about it.  Eight years as vice-president -- prime of life -- more than half the country voted for him and then . . . poof . . . gone.

Outward appearances were that Mr. Gore sat around for a while and then began to work up an idea that would later be know as “An Inconvenient Truth.” Had Mr. Gore prevailed in the election, he would have spent eight years of fits and starts trying to get Republicans in Congress to consider that global warming might exist. Maybe he would have been able to advance an environmental agenda . . . but I doubt it. At least until the mid-term election of 2006, he would have been lucky to sign a bill that had the word “environment” in it. But it doesn’t really matter because, in the end, he lost.

So eight years sooner than would otherwise be the case, we get “An Inconvenient Truth.”

I make this observation because the history of environmental regulation in the United States has been substantially aided by events that raised public fear levels: Cuyahoga River Fire, Three Mile Island, Chernobyl, Bhopal and Exxon Valdez , for example. When these kinds of events happen, the public reacts and when the (voting) public reacts, politicians tend to listen. That’s what “An Inconvenient Truth” did -- it scared a lot of people. In one fell swoop, the debate over the scientific basis for global warming was essentially over. Right or wrong, it was over and all that was left was to pass a law to do something about it.
 

The timing couldn’t have been better. Barack Obama is elected, successfully bypasses any serious debate on global warming, and, in six months, goes straight to a cap-and-trade proposal. I would suggest that this would not have been possible without the heavy lifting having already been done by the movie.

Further, I think that "An Inconvenient Truth" will be a catalyst for change in multiple areas of environmental regulation. Obviously air regulation, CO2 emissions and global warming are directly affected, but concerns about water, hazardous waste releases and natural resource destruction will also be impacted. It was, after all, a very scary movie. Not in the Freddy Krueger sort of way but more in that Indiana-Jones, Arc-of-the-Covenant, flesh-melting-because-you’ve-loosed-the-demons-of-hell sort of way.

Certainly it can be said that many Supreme Court cases have resulted in important environmental decrees on one topic or another.  But Bush v. Gore, rather than deciding a particular point of environmental law, started the chain of events that led to a major change in environmental activism.  Now that is a significant environmental law case.

(And you thought it was just about hanging chads).

Related Post:  Monkeys and Science, Part Deux: Putting Climate Change On Trial
 

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I mentioned earlier that an important finding in Entergy v. Riverkeeper  was that EPA can now decide when it will use cost-benefit analysis in environmental regulation (unless "categorically prohibited"), the standard to be applied to that analysis (strict or loose) and that it may change that standard without notice.  I thought that the ruling was significant in that it put the power to use (and to quickly change the standard for) cost-benefit analysis firmly in the hands of the EPA Administrator, with all the political nuances therein.  Fearing that mine might be a somewhat cynical take on the decision, I thought it might be a good idea to seek a second opinion -- what did the losers think of the ruling?

The New York Times reported that Alex Matthiessen, the president of Riverkeeper, said:

We are disappointed, of course, that the court did not affirm the lower court's judgment in it its entirety, but nonetheless pleased that the court agreed that EPA is not required to use cost-benefit analysis and left it up to EPA on remand to decide to what extent, if any, cost-benefit analysis should be used in regulating cooling water intake structures.  We are looking forward to working with EPA's new administrator, whom we are confident will agree that the Bush EPA regulations failed to satisfy the Clean Water Act's mandate that the adverse environmental impacts of cooling water intake structures be minimized.

Since EPA has not commented on the ruling, one might wonder why Mr. Matthiessen is so "confident."  It is likely that it has something to do with the fact that Lisa Jackson has a new job.  Ms. Jackson, formerly head of the New Jersey's Department of Environmental Protection, is now the Administrator of EPA.  New Jersey was one of six states that joined in the Entergy case -- in support of Riverkeeper.

Ms. Jackson has excellent credentials and I have no doubt that she will be a great administrator of an Agency that is going to be very busy for four or more years.  It must be helpful for her to know that on something as fundamental as the use of cost-benefit analysis, it's pretty much up to her as to when, and to what degree, it will be applied.                               

Sometimes it's funny how things work out.                            

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 Chalk this one up to old dogs and new tricks.

In a previous post, I discussed the politics of environmental law and the fact that, as a general matter, the Republican philosophy of environmental law is to consider costs versus benefits while the Democratic approach places considerably more emphasis on protecting the environment and much less on the cost of doing so. In many ways, this is at the heart of the differences between the parties when it comes to environmental regulation.

Since 1995, however, this difference hasn’t been very heavily debated because Republicans controlled Congress and, for the last eight years, the White House. During that time, EPA’s use of cost-benefit analysis has been fairly consistent. Not surprisingly, with a new sheriff in town (Democratic President and Democratic Congress), it has quickly become apparent that there will be significant changes in all aspects of environmental regulation. But given EPA’s historical use of cost-benefit analysis, how can it go about changing its tune? Let me ask it another way: If the President and this Congress want to make a change in environmental enforcement so that cost-benefit analysis plays a significantly reduced role, will it be like turning a barge or a speedboat? In light of the Entergy Corp. case, my guess is the latter.

In Entergy Corp. v. Riverkeeper, Inc., the United States Supreme Court addressed the issue of cost-benefit analysis in environmental regulation. Those who work in the area of the Clean Water Act are well aware of the five statutory standards found throughout the Act which are applicable to various situations. Those five standards are: 1) BTA (Best Technology Available); 2) BPT (Best Practicable Technology); 3) BATEA (Best Available Technology Economically Achievable); 4) BADT (Best Available Demonstrated Technology); 5) BCT (Best Control Technology). (I’ve always been consoled by the fact that each and every one of these standards is the “best”). If you did not have all of these committed to memory, don’t be embarrassed. The Court actually found it necessary to add an appendix to its opinion which set out the definition of the terms.

In the case, the Court was confronted with the question of whether the use of the BTA standard should include a balancing of costs against benefits. After conducting an analysis of the statutory language, the Court finally found that the choice is up to EPA. The Court could not identify any prohibition against EPA including a cost-benefit analysis in setting health and safety standards under BTA if it chose to do so. In the words of the Court:

 [I]t was well within the bounds of reasonable interpretation for the EPA  to  conclude that cost-benefit analysis is not categorically forbidden.

The Court then went on to look at what the EPA’s BTA standard actually was and determined that, historically, EPA had employed the standard that technology would not be required if the cost was “wholly disproportionate to the environmental benefit to be gained.” However, the standard employed in the case at bar was that the changes would not be required if the costs of compliance were “significantly greater than” the benefits of complying with the applicable performance standards. In discussing the change in terminology by EPA between these two standards, the Court said:

While the EPA’s prior “wholly disproportionate” standard may be somewhat different from its current “significantly greater than” standard, there is nothing in the statute that would indicate that the former is a permissible interpretation while the latter is not.

Maybe it’s been a slow month, but I find these statements very interesting. First, the Court found that use of the cost-benefit analysis is permitted because it isn’t “categorically forbidden.” Then the Court recognized that EPA has changed its standard, but approved the use of either one.

The partial concurrence and dissent by Justice Breyer took the Court to task. He agreed that the EPA could include a cost-benefit component but he felt that if EPA was employing a new and different test, it was incumbent on EPA to adequately explain why it had changed its standard. Since it had not done so, Justice Breyer would have ordered a remand to EPA so that EPA could either apply the traditional “wholly disproportionate” standard or provide an adequately reasoned explanation for the change.

It seems to me that Justice Breyer has a point. If EPA is going to change its standards (which could be change that would be either looser or tighter) from what it has been using for the past 5 or 10 years, maybe it should be required to explain itself. Maybe applying a particular standard on a business is tough enough without the possibility of that standard changing each time there is a change in the administration and/or the head of EPA. Maybe there is something to be said for consistent application of the environmental laws so that business can at least plan and prepare. Naaah...said the United States Supreme Court.

In my mind, the significant holding of the Entergy Corporation case is that on something as fundamental as the use and proper application of cost-benefit analysis, EPA has discretion to employ that analysis (unless categorically prohibited) and EPA (read that to be each new EPA administrator) can modify that standard with impunity and without notice. While the decision certainly allows an agency, in this case EPA, to quickly adjust to new political realities, it wreaks havoc with business planning.

I started this post by referencing the old-dog-new-tricks maxim. However, I would like it understood that I am certainly not calling EPA an old dog. All I'm trying to say is that EPA’s ability to change its standards without notice does seem to be a new trick . . . and that it’s a shame that the majority of the Court didn’t require EPA to notice up and justify the change before it bit someone with it.

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I’ve written about the Shell Oil finding in the case of Burlington Northern and Sante Fe Railroad Co., et al. v. United States, et al. in a prior post. Allow me to turn to a review of the Court’s decision regarding the liability of the railroads for the cleanup of the B&B facility.

Not unexpectedly, the Supreme Court based its finding of liability on the fact that the railroads owned a portion of the site in question.  As you can see from the diagram in the Court’s opinion, the portion of the property owned by the railroad (the "Leased Property") was less than 20% of the total land being used by B&B.  (My father once told me that in the rare instance where a court decision includes a diagram, do not ignore it.  The Court is trying to say that the answer is obvious and to make sure you get it, they are going to draw you a picture. District and circuit courts around the country should take note: the Supreme Court drew them a picture.)  Some other relevant facts relating to the property were: 

               • B&B commenced in 1960 but did not begin leasing the railroad property until 1975;
               • All of the property was graded to slope to the pond;
               • Only two of the three chemicals were released on the railroad parcel;
               • Not all of the releases ended up at the pond; and
               • None of the D-D chemical needed to be remediated on the railroad property.

The District Court apportioned  to the railroads 9% of the total remediation costs. This was based on three factors. First, the railroad parcel constituted 19% of the surface area of the total site. Second, the railroad parcels had been leased to B&B for only 45% of the time B&B operated the facility. Third, the volume of hazardous-substance-releasing activities on the B&B property was at least ten times greater than the releases that occurred on the railroad parcel and that only spills of two chemicals (not D-D) substantially contributed to the contamination that had originated on the railroad parcel and that those two chemicals had contributed to two-thirds of the overall site contamination requiring remediation. The District Court, with calculator in hand, then multiplied .19 x .45 by .66 to get 6% of the remediation costs. It then added 3% for “calculation error.” The Supreme Court spent some time picking through the available facts, but ultimately concluded that there was reasonable support for the 9% apportionment.

I have to tell you, I was shocked (though, to be fair, I shock easily). It isn’t that 9% is a crazy number, it’s that the Court agreed, under these facts, that any apportionment was appropriate.  Remember, the Court had eliminated Shell as a PRP and B & B had no money, so the only parties left to help pay the bill were the railroads. By finding an apportionment possible, the Court guaranteed that 91% of the cleanup costs would be left with the government.

Moreover, it’s not as though the facts screamed out for a division. In fact, the Court lamented that the railroads had taken a “scorched earth” all-or-nothing approach to litigating their potential liability. They failed to acknowledge any responsibility for the release of hazardous substances on their parcel during the lease. On the other hand, the Government refused to acknowledge any potential divisibility of harm. Between the two of them, they provided only minimal input to facts that would allow divisibility. Nevertheless, the District Court and the Supreme Court found divisibility. In the words of the Court:  

Despite these criticisms, we conclude that the facts contained in the record reasonably supported the apportionment of liability. 

        
In the past, I have been surprised that courts have routinely refused to find divisibility in Superfund cases. I know that it is hard to quantify the factors that justify divisibility, but it seems to me that the fact that divisibility is difficult to do, doesn’t mean it shouldn’t be done. In my own mind, I have rationalized that divisibility has not been “encouraged” in the environmental arena because when divisibility is found, it will often mean that a large portion of the remediation costs will be left with the government (i.e. tax-paying public), which frustrates the concept of "polluter pays."
 

I would suggest to district courts and circuit courts throughout the country, a new day has dawned. If apportionment was possible under the facts given to the Court in Burlington Northern, there aren’t going to be a lot of cases in which apportionment is not possible. Of course, they all will stand or fall on their own facts and I am sure we are going to have a number of very interesting fact scenarios with some very creative reasons for divisibility. However, the really significant holding of Burlington Northern, it seems to me, is that where there used to be a presumption against apportionment in Superfund cases, there is now a presumption in favor of it. That, for better or worse, is a very big change.
 

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Just when you think you have them figured out, the Supreme Court throws a curve ball.

Much will be written about the recent United States Supreme Court case of Burlington Northern and Santa Fe Railway Company, et al. vs. United States, et al., which was handed down on May 4, 2009. It is one of those decisions in the environmental arena that answers some questions while raising new ones.

An understanding of the facts is critically important to understand the ruling, so I would encourage you to read the decision. However, the short version of the operative facts is that a fairly small chemical distributor in California known as Brown and Bryant, Inc. (“B&B”) was the owner and operator of a plant that repackaged agricultural chemicals. The plant sat on a 4.7 acre parcel. About 1 acre of this parcel was leased from two railroads. One of the products made by B&B included a chemical sold by Shell Oil Company. Shell Oil shipped the product to B&B in bulk. During delivery of the product, Shell was aware that B&B occasionally had minor spills.

Not surprisingly, the site was found to have soil and groundwater contamination and, in 1988, the California Environmental Regulatory Agency ordered B&B to clean the soil and groundwater. As is often the case, B&B closed shop and the site was listed on the National Priority List in 1989. EPA, in trying to find someone to do the cleanup, quickly identified the railroads and Shell Oil, which were named as potentially responsible parties (PRPs). The theory against the railroads was based on ownership liability, even though the portion they owned did not require remediation. The theory against Shell was that they delivered chemicals which they knew or should have known would be spilled and therefore “arranged” for the disposal of a hazardous substance. Since the United States and the State of California had expended costs at the site for cleanup, they brought an action for cost recovery seeking over $8 million in response costs. 

The Court made two major findings. First, the 8-1 decision authored by Justice Stevens held that Shell was not liable at all because it did not “arrange for” disposal of a hazardous substance. The second major finding was that the facts supported an apportionment of the site remediation costs and that the railroad share of those costs should be 9%. 

Since the case raises several interesting questions, I’ll break the discussion down into separate posts. Let’s first talk about the fact that Shell was found to have no liability.

Since Shell was not an owner or operator of the site, the only PRP category that could fit was “arranger” liability. There have been many cases that have imposed liability on companies that have “arranged for the disposal” of hazardous substances.   Interesting, Superfund does not define the term so the Court decided it was time to define it. The Ninth Circuit, based on prior cases, held that someone who sells a useful product but is aware that some of it will spill is liable as an arranger. The Supreme Court disagreed and held that an arranger must take intentional steps to dispose of a hazardous substance. The fact that Shell had knowledge of the spills was not sufficient to satisfy the intent element that can be found in the “plain language” of the terms of the statute. The Court said:

While it is true that in some instances an entity’s knowledge that its product will be leaked, spilled, dumped, or otherwise discarded may provide evidence of the entity’s intent to dispose of its hazardous wastes, knowledge alone is insufficient to prove that an entity “planned for” the disposal, particularly when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product. In order to qualify as an arranger, Shell must have entered into the sale of D-D with the intention that at least a portion of the product be disposed of during the transfer process by one or more of the methods described in Section 6903(3). Here, the facts found by the District Court do not support such a conclusion.

When I first saw this explanation, I thought it was a monumental change from the past. Upon further reflection, maybe not so much. 

Maybe the Supreme Court is just kicking the proverbial verbal can down the road a little bit. It appears that the new question is: what do the terms “intention” and “planned for” really mean? Based on the Court’s language, I am certain that if Shell had included, as a term of the sale, that B&B would agree “that during the process of the transfer of the chemical, B&B shall leak some of it onto the ground,” Shell would have been hooked.  On the other hand, the Court made it clear that since Shell knew of the releases, but did nothing other than to take steps to encourage its distributors to reduce the likelihood of the spills, the necessary “intent” was not present. So what’s in between? What if Shell had known of the spills and had not encouraged its distributors to reduce the likelihood of the spills (a fact scenario which is much more likely in most situations)? What if Shell had a contract with its common carrier that said that the carrier will not inform Shell of any spills? Will willful blindness avoid an intent finding? We’ll just have to wait for the next set of facts.

With regard to our definitional problem, I would note an interesting fact that did not seem to bother the Court: Beginning in the mid-1960s, Shell directed its buyers to create and maintain bulk storage facilities to receive its product rather than to continue to deliver the product in 30 and 55-gallon drums. Presumably this was advantageous to Shell. But as the Court later noted, Shell’s mandated system caused spills to be "commonplace" (there was no reference to spills occurring when the barrel system was used). A cynical person might say that someone who requires a change from a system of no releases to one that virtually guarantees releases, particularly when the change results in an advantage to the supplier, has “planned for” and ”intended” a disposal. Luckily, neither the Supreme Court nor I are cynics.

Another very interesting aspect of this issue was raised by a question during oral argument. Shell’s counsel was asked what would be the difference if the transfer of ownership of product did not occur until the final placement of the product in the tank and that, during that process, the spilling occurred. The response was that “Shell would have been the owner of the waste.” The majority found, however, that the product had been shipped “FOB Destination” and that, at the time of the spills, the chemicals had come under B&B’s "stewardship." In essence, once the truck passed over the property line to B&B’s facility, the Court deemed B&B to be the owner of the product and, in turn, the owner of the spills. If the Court had found that Shell Oil remained the owner of the product until it was in B&B’s tank, Shell would have been liable. You might say that Shell avoided liability by the length of a football field. The dissent by Justice Ginsberg makes the interesting point that

CERCLA liability, or the absence thereof, should not turn, in any part, on such an eminently shipper-fixable specification as “FOB Destination.”

So what are some of the practical results to take from the holding of arranger liability in the case?  You need to talk to your attorney for his/her advise, but allow me to throw out some possibilities:

• Any seller of products containing a hazardous substance should consider including, in the sale document and on a warning label attached to the product, terminology that it is the intention of the seller that none of its product be released into the environment and that buyer should not allow the spilling, leaking, or other disposal into the air, ground or water at any time. And it might be helpful to add: “We really, really mean it.”
• A term of the sale might be that notwithstanding the terms of any shipping documents to the contrary, buyer agrees to become the owner of the product no later than the moment the product crosses the buyer’s property line. 
• If the buyer wants some protection, they should consider a contract term that says that the buyer does not accept or own any product until it is completely within the confines of a tank or has been delivered to the warehouse and the delivery person has left the premises, or at least gone on break. 

I don’t know that any of these will work, but I can say that if “intention” is the new litmus test, putting your intentions in writing might not be a bad idea (even if they might be technically impossible).

Next up, tracking the railroads' liability.

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