October 23, 2012

Q and A on Burlington No. & Santa Fe R. Co. v. United States and Shell Oil Co. v. United States Oral Argument With Robert H. Abrams

Q and A on Burlington No. & Santa Fe R. Co. v. United States and Shell Oil Co. v. United States Oral Argument With Robert H. Abrams

Can you briefly review how this case got to the Court and what are the main issues?
This case arose as a result of agricultural chemicals materials handling at an Arvin, California facility operated by Brown and Bryant (B & B), a firm that has since become insolvent. The B & B operations were conducted on a parcel that was expanded in size in 1975 to include lands leased from companies that have since been absorbed into Burlington Northern Railroad (Burlington). Over a period of many years dating to the 1960s, Shell Oil Co. (Shell) was the supplier of the principal chemical of concern, a product, called D & D (used to eradicate nematodes) which eventually contaminated the groundwater at the B & B facility. Shell delivered the finished D & D product to B & B, which then resold it to end users. For an initial period the D & D was delivered in sealed drums, but when the volume increased, Shell insisted that the chemicals be delivered in bulk to the facility and, quite predictably, spills occurred at and around the delivery site and in loading D & D for delivery to end-user customers. Other chemical spills also contributed to the contamination, but D & D is the major contaminant.

The cleanup cost at the site is approximately $15 million, of which roughly $8 million has been expended by the United States acting through the Environmental Protection Agency (EPA) and a far lesser amount by the State of California. The United States, joined by California, brought an action under the Comprehensive Environmental Response, Compensation, & Liability Act (CERCLA, a/k/a “Superfund”) seeking to be reimbursed for the costs of response at the B & B facility.

The basis for liability of the respective defendants can be found in CERCLA’s central liability provision. The government alleges Burlington is liable as a current owner and owner at the time of release of hazardous substances under §107(a)(1-2) and that Shell “arranged for disposal” under §107(a)(3). The statute has long been construed as providing for strict, joint and several liability of all parties found within the ambit of §107(a). At trial, Burlington vigorously denied liability, but also less extensively sought to have its liability limited by an apportionment that took into account the small size of its parcel and the comparatively small amount of spillage that it claims took place on its parcel in relation to the whole parcel and total spillage. A Burlington expert also offered testimony about the method of cleanup and the cost of some aspects of the cleanup. At trial, Shell also hotly contested liability and claims that it, too, sought apportionment on the basis that the overwhelming bulk of the responsibility lay with the now-insolvent site operator, B & B.

In announcing its decision, the United States District Court for the Eastern District of California made an extensive series of “Findings of Fact and Conclusions of Law” that covered literally hundreds of pages. The most salient rulings, for present purposes are that (1) Burlington Northern was a responsible party due to its status as an owner of the facility both at the present time and at the time of release, per CERCLA §107(a)(1-2); (2) Shell was a responsible party due to its status as an arranger per CERCLA §107(a)(3); and (3) although the parties defended almost exclusively on those issues and offered no basis for apportioning the loss, the court itself found a basis upon which to issue judgments based on a division of responsibility. On its own view of the bona fides of a reasonable basis for apportionment, the district court issued a judgment apportioning 9 percent of the total cost of cleanup to Burlington Northern and 6 percent of the cost to Shell. The Ninth Circuit Court of Appeals affirmed the liability holdings and reversed the finding on apportionment and directed entry of a judgment that required Shell and Burlington to pay almost all of the governmentally borne cleanup costs.

Shell and Burlington sought certiorari, which was granted. At oral argument, Shell Oil was represented by Kathleen Sullivan, Burlington Northern was represented by Maureen Mahoney; and the United States was represented by Malcolm Stewart.

How did the oral argument go?
The Justices were quite active in their questioning of the attorneys, frequently posing hypothetical situations and, at times, like the law professors that some of them had been, embellishing their own hypos and those of the other justices. This series of hypothetical questions that tried to isolate possible ways of looking at the liability issues in the case tended to give the argument a fractured feeling, and at times lead to some confusion about just which hypo was being addressed by a response of counsel.

The oral argument had two separate components, the issue of Shell’s arranger liability and Burlington’s effort to have the district court’s apportionment reinstated. On the arranger liability issue, the Court was clearly seeking to find a workable position between two results that seemed unacceptable. At one end of the spectrum was siding with the government on so broad a basis that sellers of goods would become insurers of the fate of all constituents of their products after the product has left their direct control. On the other end of the spectrum was letting sellers of products externalize the cost of known, foreseeable contamination (and potentially thrusting that cost on the public) that are necessarily associated with, and even exacerbated by, the seller’s method of distributing its product.

The apportionment portion of the oral argument is less easy to characterize, and received less vigorous participation by the justices in the framing of the questions that they would be seeking to decide. Three topics garnered the most attention here: (1) the procedural aspects of the decision concerned Justice Ginsburg; (2) the impact of insolvency on how and whether apportionment is appropriate concerned Justice Kennedy and Chief Justice Roberts, and (3) the question of divisibility of harm received some play. On the procedural question, Justice Ginsburg appeared to be of the view that Burlington and Shell had not carried the burden of production (sometimes called the burden of going forward) and that the trial court should not have reached out and imposed an apportionment, or, alternatively, that the apportionment of the district court was not supported by the evidence in the record. (The standard of review, and how that might affect these issues was not raised.) The insolvency issue seemed to trouble the Justices who commented on it, because the facts in this case are such that B & B appears to have greater responsibility for what occurred than does Shell or Burlington. The divisibility issue is important because the Justices and the attorneys all seemed to concede that whatever harms are treated as invisible give rise to joint and several liability, after which it is up to the tortfeasors to reallocate the loss via contribution, in which case the share of the insolvent parties would be borne by the solvent defendants, Shell and Burlington.

What do you think the Court saw as the strongest argument?
Shell’s argued that all it had done was what any seller of products does – deliver its product to a customer -- and that holding it liable here was tantamount to making every seller an insurer for whatever customers do with their products. Shell suggested that since the contracts were FOB at the Arvin facility, their possible exposure to liability ended while the chemicals were still on the truck. Some members of the Court disputed whether that was the full extent of Shell’s conduct and responsibility in this case. Nevertheless, all members of the Court, especially Justice Breyer who posed a hypothetical regarding the chemical toner in laser cartridges that will eventually be improperly disposed, seemed concerned that a rule making sellers of products into CERCLA-liable parties based on the mere fact that the product eventually causes contamination is too sweeping a rule.

That effort to find a limit through questioning blended into discussions about the degree of control that Shell was able to exercise over B & B at the time of and after delivery. Mr. Stewart used part of his time detailing the ways in which Shell influenced B & B’s material handling choices, such as insisting that it accept bulk deliveries, with specified equipment, used according to a series of standards that Shell set forth in a manual. He also pointed to Shell’s knowledge that spillage was occurring in regard to deliveries to B & B and other bulk recipients of the product. Ms. Sullivan, in her rebuttal, tried to insist that “arranging for disposal” required an intent to dispose and that mere knowledge that spillage would occur was insufficient for arranger liability. Both of these arguments seemed to have an effect on the Justices, but neither side seemed to have offered a general rule that the Court was ready to adopt for deciding this and similar cases.

Which argument seemed to get the least traction with the Justices?
One argument that seemed to fail was the suggestion that Restatement of Torts (2d) § 912 which sets a relatively modest burden of proof for parties seeking apportionment, was applicable to defendants in a CERCLA case. This argument was introduced by Ms. Mahoney in her very first sentence. She argued that, in effect, any plausible basis for apportionment was sufficient, but the law in CERCLA cases has always been to the contrary. As Justice Ginsburg pointed out a few moments later, a key policy that has always illuminated the interpretation of CERCLA is that the government, and the innocent taxpayers whose funds it has expended, The Justice put it this way, “One PRP can go after another, but the party who shouldn't be left holding the bag is the public, the innocent victims of the pollution.”

Were there any questions or discussions that surprised you?
Perhaps more surprising than the discussions made was one that was omitted, the possible importance of standards of review in relation to both the treatment of the district court’s fact finding by the court of appeals. A second omission that was surprising was the scant emphasis put on the purposes of Superfund as reflected in the extensive CERCLA case law in the federal courts. The petitioners deliberately framed their arguments as CERCLA cases are just another garden variety of common law torts case, which the CERCLA precedents rather clearly reject.

What was the media coverage of the argument like? If there was any, do you think it was a fair representation?
There were very few reports made of the oral argument and were reportorial in nature rather than analytical. The report of Adam Liptak in the New York Times (2/25/09) was brief, commenting only on Justice Breyer’s hypo and Justice Ginsburg’s comment that CERCLA can be “a punishing statute” in response to the parade of horribles argument made by Ms. Sullivan when she decried the “potentially crippling liability” that sellers of products would face if her client lost this case. The BNA Environment Reporter (40:9, 2/27/09) was a bit lengthier, referring to a few of the specific questions and answers relating to both arranger liability and apportionment.

Any guesses on how the case will be resolved? Did any of the justices show their hand?
To begin, let me emphasize the word “guesses” in the heading of this section. From the argument, it is reasonably clear that most members of the Court see the arranger issue in this case as one that requires a carefully drawn answer. Only Justice Scalia seemed inclined to offer a simple answer based on his interpretation of the words “arranged for.” As a prediction, I think the decision will be narrow, and will turn on the degree of control that the product seller is able to effectively exercise on the immediate distributor of the product. That cuts off the risk of limitless liability for sellers of products. What is harder to guess at is whether the Court would find Shell had enough control in this case to satisfy whatever test it might erect. Reading the district court and circuit court decisions, there is enough evidence that Shell was able to, and did dictate practices at B & B for part of the time involved, after which they turned a blind eye to the ongoing spills of D & D. Whether that will be enough to affirm the court of appeals is an open question.

On the apportionment issue, the oral argument gave no clues about the views of a majority of the Justices. That makes prediction quite speculative, and it is hard to separate my own view of the merits from any tea leaves in the argument. With those disclaimers, I think the Court will affirm the court of appeals on the apportionment issue, where a small portion of the cost relating to variable costs was apportioned and the bulk of the cost was subjected to joint and several liability.