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

                                   “Be afraid. Be very afraid.”
                                                    Genna Davis in The Fly

In November of 2006, a remarkable thing happened – EPA allowed for the purchase of contaminated real estate without ownership liability. A change in the rule allowed a person buying real estate to assert the Bona Fide Prospective Purchaser Defense, the Innocent Landowner Defense or the Contiguous Property Owner Defense. The rain stopped, the clouds parted and the sun shined.

Surprisingly, EPA did not demand all that much in return. It set out concise rules about what needed to be included to conduct "all appropriate inquiry" (AAI) and permitted the use of a Phase I Environmental Site Assessments (compliant with ASTM 1527-05) to qualify for the protection. Apparently, some consultants have trouble reading.

In a recent investigation conducted by the United States EPA Office of Inspector General, a review of 35 Phase I Reports was undertaken to see if they satisfied the requirements of AAI. Low and behold, every one of them – 100% – failed. Every one of them left out something that must be addressed under the AAI protocol.

Among the findings:

• Seven reports failed to have a statement regarding data gaps;

• None of them included the Statement of Qualifications of the Environmental Professional;

• All of them left out the EP opinion statement in the Conclusion that is required;

• In the most baffling finding of all, nine were not signed by the EP.

So of the 35 reports received, none passed. Is this so devastating?  In the context of the Brownfields program that was being reviewed, maybe not.  But these Phase I reports were the same reports that we order up every day for real estate purchases.  Would it really be a problem if the Environmental Professional forgot to include one of the listed items? 

Imagine your client comes to you and says she wants to buy a site that was previously a manufacturing facility. The Phase I identifies the past use of toluene at the facility and finds evidence of a release. Your client purchases the property and undertakes all requirements necessary to satisfy the Bona Fide Prospective Purchaser Defense.  Five years later, a toluene plume, identified as originating from the site, is threatening the drinking water supply for the city of Puppyville. EPA investigates and determines that the prior owner is bankrupt. Your client, having used the site very successfully and profitably as the home office of a mortgage foreclosure company, is the only one around who might be able to pay for the clean-up. She refuses and asserts the Bona Fide Prospective Purchaser Defense.

At the summary judgment hearing, your client concedes that the only thing standing between her and clean-up liability is the fact that she conducted AAI by performing a Phase I Environmental Site Assessment prior to buying the property. EPA agrees that if the Phase I is valid, the defense would be available. However, EPA points out that the Phase I did not include the Statement of Qualifications of the Environmental Professional. As it turns out, the Environmental Professional that conducted the Phase I is the same one who received the Environmental Professional of the Year Award for the past five years, but he concedes that his office manager failed to include the Statement in this particular report.

You be the judge. Is the Puppyville drinking water supply protected or does Ms. Mortgage Foreclosure get to keep her money?

The teaching point of the OIG Report is that your client might not have the protection that was bargained for due to some pretty basic mistakes. For those who think that it is the consultant’s job to provide a Phase I ESA that is AAI compliant, you’re right. However, if the consultant is uninsured or underinsured, being right will be of little consolation to your client. And your client might very well look for someone else to blame.

As an aside, I feel compelled ask the question: What in the world prompted EPA to conduct the study in the first place? I am sure it wasn’t to confirm that if they ever needed to void a Phase I ESA in the future, they will likely be able to do so. I'm not that cynical. So why? I don’t know, but it’s why I’m afraid – very afraid.

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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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On January 18, 2011, President Obama signed an Executive Order that addresses regulatory reform. Among other things, all federal rules affecting business will be reviewed to see if they are “outmoded, ineffective, insufficient or excessively burdensome.” Prominent in the Order is a directive that:

Each agency must, among other things: (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the cost of cumulative regulation; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior of manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.

In other words, the agencies are to do a cost/benefit analysis of their regulations. This is not a new requirement, but it is interesting that the President would choose this time (just before the State of the Union Address) to reiterate the principle.

Perhaps not surprisingly, the EPA has decided to modify its method of determining the value of a human life when it comes to regulatory analysis. In a draft White Paper issued on December 10, 2010, EPA sets out its new formula. I’ll leave it to you to decipher the sixty-two page tome, but you should be happy to know that you are worth more today than you were last year. (While perhaps a consoling thought, one should consider the source). 

One notable aspect of the Paper is that EPA proposes to add a 50% “cancer differential” to arrive at the appropriate life valuation. In effect, this says that dying is costly but dying of cancer is 50% costlier than the risk of dying in other ways. That increased risk, then, must be calculated into the cost/benefit analysis.

There is no question that applying cost/benefit analysis to regulatory reform is necessary and appropriate. Like so many economic tools, however, the devil is in the detail; that is, what you count (and don’t count) becomes the real fighting issue. As a general rule, one side tends to emphasize the hard costs of environmental regulation while the other attempts to put a dollar value on the benefits of the regulation.  Benefits tend to be the harder side of the equation because many are intangible or unquantifiable (like "human dignity" and "fairness" - newly added by the President), with the "value of life" being high on the list.  For the fourteen economists who can decipher it, the White Paper changes the way that value is computed.   And don't forget that the U.S. Supreme Court has recently said that it is up to the agency to determine what to include in a cost/benefit analysis for regulatory purposes.  

My only comment about the change is that we shouldn't get too exited (or buy more life insurance) just yet -- we likely will be considered for "re-valuation" in two or six years.

RELATED POST:  Entergy Corporation v. Riverkeeper, Inc.

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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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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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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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In a letter to Congress, EPA has requested the reinstatement of the Superfund “polluter pays” tax.  Superfund is the federal law that deals with the nation’s most polluted sites and, if reinstated, the tax would aid funding the investigation and remediation of orphan sites – contaminated sites where a responsible party cannot be found or the party is bankrupt.

The original Superfund tax expired on December 31, 1995, under a Republican-controlled Congress.  The fund peaked in 1996 at $3.8 billion and ran out of money in 2003.  Since then, clean up at orphan sites has been paid out of general funds – that is, tax revenues – to the tune of $1.2 billion per year for the past 4 years.

While the tax existed, the source of the funds was primarily a tax on the chemical industry.  Specifically, there was a tax on crude oil and imported petroleum products at the rate of $9.70 per barrel, hazardous chemicals at varying rates of $0.22 to $4.87 per ton and a charge for imported substances that use hazardous materials in their production.  When an orphan site was identified, the fund could be tapped for the costs.

The request to Congress would reinstate the tax for 10 years (2011 – 2021) and would cause manufacturers of hazardous chemicals to pay into the fund for use at the sites that find pollution that includes hazardous chemicals and for which no one else can be found to pay for the release.

In support of the legislation, Mathy Stanislaus, Assistant Administrator for EPA’s Office of Solid Waste and Energy Response, said:

Since the beginning of this administration we have made it clear that we support the reinstatement of the polluter pays system for the Superfund program.

If Mr. Stanislaus really means what he says, the administration should be adamantly opposed to the Superfund tax because this does nothing to "support the reinstatement of the polluter pays system."

That's not to say that the Superfund tax is necessarily a bad idea.  It adds a few cents to every gallon of (legal) hazardous substances sold so that there will be a pool of money readily available to clean up toluene, for example, identified at a site for which a responsible party cannot be found.  By doing so, it spreads the risk of contamination out over the universe of those who benefit from the sale of a hazardous substance.

But it is time to stop saying that this, in any way, supports the concept of “polluter pays.” It doesn’t. If the Recreational Toluene Company pays $50,000 into the fund in a given year and the fund pays out $50,000 to a contaminated site, it doesn’t mean that Recreational Toluene's toluene was identified at the site, so it was not the polluter. Even if it was somehow determined that Recreational’s toluene was actually at the site, it doesn’t mean that Recreational was the polluter. It means that someone who was sloppy used Recreational’s legal product in an illegal manner. Recreational was not the polluter, but it paid. Call it the “innocent manufacturer pays” tax, or the “someone-other-than-the-general-public-pays” tax, but not the “polluter pays” tax, because they don’t and it isn’t.  If that’s what our elected officials want to do in the case of the environment, that’s fine.  Just don’t pretend it's something that it's not.
 

RELATED POSTS:  Putting The Fund Back In Superfund

                                    City Superfund Liability Goes Down The Drain

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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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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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Many thanks to Michael Foti at Attorney.org for including this blog in the list of "Top Environmental and Land Use Law Blogs."  The primary focus of Attorney.org is to raise awareness and take stands on pressing issues in an effort to fight for change.  They have decided to focus some of their resources on the environment and land use and have spent what appears to be a considerable amount of time researching the available law blogs. 

If you like to see good writing on very current environmental issues, take a look at the list that Attorney.org has put together.  The posts by those authors will make you laugh and make you cry.  But most of all, they'll make you think.  And in this environmental age, there's a lot of thinking--and acting--that needs to be done.

I'm proud to be included in the list and I would encourage you to look at all of the others found there. They deserve your attention and support.

RELATED POST: Best Environmental Law Blogs

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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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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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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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As many of you know, a new era in purchasing environmentally contaminated (or possibly contaminated) land began in November, 2006. That is when new federal rules relating to All Appropriate Inquiry commenced and allowed new defenses to CERCLA liability for buyers of real estate. Without going into a lot of detail, the rule allows buyers to limit Superfund liability if they conduct a Phase I Environmental Site Assessment, in accordance with the rules, prior to purchasing the real estate. Under these circumstances, an individual or a company theoretically will not be liable for remediation of the property even if it is contaminated. However, in order to maintain the defenses, there are certain continuing obligations that are imposed on the buyer. These include complying with land use restrictions and institutional controls, responding to information requests and administrative subpoenas and providing legally required notices. Most importantly, there is a requirement of taking “reasonable steps” with respect to hazardous substance releases, and therein lies the problem.

The obvious question that is raised is what constitutes reasonable steps? If, for example, reasonable steps requires the removal of the hazardous substance from the ground, then EPA has effectively gutted the defense.

As a general rule, reasonable steps would include stopping any continuing release, preventing any threatened future release, and preventing or limiting human, environmental or natural resource exposure to any hazardous substance released on or from the property. But does it, for example, require a Phase II audit to identify the nature and extent of the suspected contamination? Does it require capping the contaminated soils with clay or asphalt? Does it require some sort of vapor intrusion protection around the basement of a building to avoid gas buildup?

ASTM has organized the Continuing Obligation Task Group to work on a draft continuing obligation standard which will define “reasonable steps.” Currently, it appears that the Group has identified two actions that may be taken to meet the requirement. They are: (a) lower the contaminate levels, also known as remediation; or (b) prevent exposure to the contamination through institutional or engineering controls. Obviously, both of these actions also require a Phase II site assessment and both could be extremely expensive to a purchaser.

I would suggest that if the ASTM Task Group does require these actions or something close to these actions, we will essentially be back to the pre-2006 days of sites having any potential contamination being difficult to market because banks will mandate a Phase II and, if any contaminate is discovered, bank financing will dry up.

I’ll let you know as soon as I hear the edict of the ASTM Task Group.

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Since 1996, Superfund has not really been a “fund.” From 1980 to 1996, the Superfund program levied taxes on petroleum and chemical companies and on corporate profits for its operational costs, but Congress failed to reauthorize it in 1995, and by 2003 the fund was fundless. It looks like that’s going to change.

President Obama’s 2010 budget calls for reinstatement of the tax to support the Fund to the tune of $17.2 billion from 2011 through 2019. Also, $600 million of the stimulus package is to go to the Superfund program.

The interesting question here is not whether or not the tax will pass, but how will the money get spent. During the sixteen years that Superfund was funded, less than half of the fund was used to do any cleaning of the environment. For example, in 1996, of the $1.4 billion spent by Superfund, only $614 million (44%) was actually used for cleanups. The remaining funds were used to oversee the cleanups and to administratively and legally chase “potentially responsible parties” (that wonderfully contradictory phrase that is at the heart of Superfund liability).

If we’re going to do this again, someone needs to ask the question of whether significantly more of the funds should be used to actually clean the environment rather than spending the money on chasing the parties who, after several years of administrative and legal appeals, may or may not have the money to pay for the cleanup.

It’s just a thought.

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