BURLINGTON NORTHERN (PART 1): The Shell Game Of Shipping
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.
