In 2009, the U.S. Supreme Court issued an opinion that fundamentally changed the scope of liability for “arrangers” under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (“CERCLA”). See Burlington Northern & Santa Fe Railway Co. v. United States, 556 U.S. 599 (2009). In the years since it was issued, a number of federal courts have applied the Burlington Northern holding, in varying degrees, to limit CERCLA liability. Recently, a federal district court in California used it to limit liability under a California statute with a CERCLA-like liability scheme. See City of Merced Redevelopment Agency v. Exxon Mobil Corp., 2015 WL 471672 (E.D. Cal. Feb. 4, 2015).
Under CERCLA, four broad categories of potentially responsible parties (“PRPs”) are liable for the costs of cleaning up releases of hazardous substances. This liability is strict, meaning no evidence of intent is necessary to establish liability, as well as joint and several, meaning that when two or more parties are liable for the release each is independently liable for the full extent of the damages. One category of PRPs attaches this unique blend of liability to “any person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances.” 42 U.S.C. § 9607(a)(3). Until the Burlington Northern decision, establishing that a PRP was an “arranger” was a much easier task. CERCLA plaintiffs could do so by demonstrating through direct or circumstantial evidence that the defendant knew or should have known of the disposal of the hazardous substance at issue.
Burlington Northern changed the burden of proof necessary to establish arranger liability. CERCLA plaintiffs must now prove that an arranger defendant specifically intended to dispose of the hazardous substances. 556 U.S. at 611. (“[U]nder the plain language of the statute, an entity may qualify as an arranger under § 9607(a)(3) when it takes intentional steps to dispose of hazardous substances.”) The court rejected arguments advanced by the federal government that selling hazardous substances with knowledge that some disposal would occur as a collateral consequence of the sale was sufficient to establish arranger liability. Id.at 611-12. Instead, there must be proof that the arranger PRP entered into the sale with the “intention that at least a portion of the product be disposed of[.]” Id. at 612.
Since the Supreme Court issued its decision in Burlington Northern, a number of federal circuit courts of appeals have grappled with its application. These cases include:
- Vine Street LLC v. Borg Warner Corp., 776 F.3d 312 (5th Cir. 2015).
- NCR Corp. v. George A. Whiting Paper Co., 768 F.3d 682 (7th Cir. 2014).
- Team Enterprises, LLC v. Western Investment Real Estate Trust, 647 F.3d 901 (9th Cir. 2011).
- United States v. General Elec. Co., 670 F.3d 377 (1st 2012).
- Calanese v. Martin Eby Construction, 620 F.3d 529 (5th Cir. 2010).
In these federal circuit court opinions, intent for purposes of arranger liability was difficult to prove and was highly fact-dependent. Only one case, U.S. v. General Elec. Co, 670 F.3d 377 (1st 2012), imposed arranger liability on the defendant. Federal district courts have been similarly reluctant to impose arranger liability post-Burlington Northern. See Carolina Power & Light Co. v. Alcan Aluminum Corp. 921 F.Supp.2d 488 (E.D.N.C. Feb. 1, 2013); Hobart Corp. v. Waste Mgmt. of Ohio, Case No. 3:10CV195, 2011 U.S. Dist. LEXIS 148224 (S.D. Ohio Feb. 9, 2011); Schiavone v. Northeast Utilities Service Co., 41 E.L.R. 20132 (D. Conn. 2011); but see U.S. v. Dico, Inc., 892 F.Supp.2d 1138 (S.D. Iowa Dept. 24, 2012). Other district courts have not granted summary judgment because intent is considered a fact-intensive inquiry that does not lend itself to summary adjudication. See Appleton Papers Inc. v. George A. Whiting Paper Co., 2009 U.S. Dist. LEXIS 117112 (E.D. Wis. 2009) (summary judgment denied); Frontier Communications Corp. v. Barrett Paving Materials, Inc., 631 F. Supp. 2d 110 (D. Me. 2009) (denying motion to dismiss).
A recent decision from the U.S. District Court for the Eastern District of California follows this trend, holding that several oil companies were not liable under a California statute called the Polanco Redevelopment Act (the “Polanco Act”) because they were not “arrangers” as that term has been interpreted post-Burlington Northern. City of Merced Redevelopment Agency v. Exxon Mobil Corp., 2015 WL 471672 (E.D. Cal. Feb. 4, 2015). The district court held that the oil companies’ intent was not to dispose of the gasoline but to sell it to independent gas stations. The court also found that even if the release of gasoline during delivery is a known danger, the oil companies could not be held liable as arrangers because their intent in delivering the gasoline was not disposal.
In City of Merced, the redevelopment agency (“RDA”) for the city purchased two former gas stations located at 1415 and 1455 R Street (the “R Street Stations”) in the early 1990s. The R Street Stations were within a redevelopment area. The RDA spent more than $5 million remediating MTBE contamination from these stations and then filed suit in 2008 against Exxon Mobil Corp., Shell Oil Company, Chevron USA and others for cost recovery under the Polanco Act and various commonly law theories.1 The Polanco Act allows redevelopment agencies to pursue “responsible parties” for costs incurred in remediating contamination within a redevelopment area.
At issue in the oil companies’ motion for summary judgment was whether the companies were responsible parties under the act. The Polanco Act looks to statutory definitions of liable parties contained in CERCLA. See 42 U.S.C. § 9607(a); CERCLA § 107(a). The RDA argued that the companies were liable as arrangers under § 107(a)(3) because they arranged for the disposal or treatment of hazardous substances.2 The RDA maintained that the companies fit the definition of arrangers because the MTBE released from the gas stations through spills and leaks constituted disposal under CERCLA and that the defendants knew that MTBE-containing gas would be released at the stations yet they intentionally did not take steps to minimize the releases.
The district court rejected the RDA’s characterizations, pointing instead to CERCLA’s intent requirement for arranger liability established in Burlington Northern 556 U.S. 599 (2009). The district court explained that a defendant “may not be held liable as an arranger under CERCLA unless the plaintiff proves that the company entered into the relevant transaction with the specific purpose of disposing of a hazardous substance.” Team Enters., LLC v. Western Invest. Real Estate Trust, 647 F.3d 901, 907 (9th Cir. 2011) (emphasis in original). In this case, because the defendants’ purpose was to sell gasoline and not to dispose of MTBE, they were not arrangers under CERCLA. The court cited Burlington Northern in concluding that although MTBE was released at the gas stations, it occurred “as a peripheral result of a legitimate sale of an unused, useful product.” 556 U.S. 559, 612 (2009). This is an important decision for oil companies because the court chose not to extend liability to allow for arranger responsibility.
The RDA has filed an appeal with the 9th Circuit Court of Appeals — the same circuit court that was reversed in Burlington Northern.
1The case was originally brought in the Superior Court for the County of Merced but was removed to federal court under Section 1503 of the Energy Policy Act of 2005, which provides that “claims and legal actions . . . related to allegations involving actual or threatened contamination of [MTBE] may be removed to the appropriate United States district court.”
2Specifically, Section 107(a)(3) holds liable “any person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances[.]”