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'Shell Oil': Are Chemical Sellers Liable for Cleanup
of Sites?
By Aaron Gershonowitz
December 16, 2008
The Superfund Law provides that four parties may be held
liable for the remediation of inactive hazardous waste sites:
the owner or operator of the site, the person who owned
or operated the site at the time of disposal, the person
who arranged for disposal and the transporter. 42 USC §9607(a)(4).
The U.S. Supreme Court's recent grant of certiorari in United
States v. Burlington Northern and Santa Fe Railway Co.,
520 F3d 918 (9th Cir 2008), cert. granted 129 S. Ct 30 (Oct.
1, 2008) will require it to decide the extent to which a
seller of chemicals who had no intent to dispose of any
waste can be liable as a person who arranged for disposal.
The Supreme Court's decision could have a significant impact
on the law applicable to New York Superfund sites because
the U.S. Court of Appeals for the Ninth Circuit's decision
created two possible splits among the federal circuits that
could affect Second Circuit precedent.
In Burlington Northern, the Ninth Circuit held that a seller
of chemicals may be liable for having arranged for disposal
of chemicals that spill at the purchaser's facility. The
case arose out of contamination at an agricultural chemical
storage and distribution facility owned by Brown & Bryant
Inc. (B&B). Shell sold two products to B&B that
were purchased in bulk, delivered in tanks and transferred
to storage tanks by hose. The delivery process was messy
and spills often occurred during delivery. The district
court held Shell liable as an arranger and the Ninth Circuit
affirmed the finding of arranger liability.1
Sale of a Useful Product
• As Exempt From Liability. The Ninth
Circuit's conclusion that a seller of chemical products
arranges for disposal if the chemical product spills during
delivery appears to be in direct conflict with the Seventh
Circuit's decision in Amcast Industries v. Detrex Corp.,
2 F3d 246 (7th Cir. 1993), and the Second Circuit's decision
in Freeman v. Glaxo Wellcome Inc., 189 F3d 160 (2d Cir.
1999). In Amcast, the Seventh Circuit held that a chemical
seller whose product spilled in transit has not arranged
for disposal of the chemical. The court reasoned that even
though Superfund is a strict liability statute, the word
"arrange" means to plan and one cannot plan for
something to happen accidentally. Thus, because Detrex (the
seller) did not intend to dispose of anything, it did not
"arrange" for disposal.
In Freeman, the Second Circuit gave a slightly different
reason why the seller of a useful product is not subject
to arranger liability. Glaxo closed a facility and sold
the chemical reactants it used in its laboratory to Freeman.
Freeman used some of the chemicals and stored some. The
stored chemicals became the source of a remedial action
at the Freeman facility and Glaxo was alleged to be liable
as an arranger. The court held that Glaxo's sale of chemicals
was not an arrangement for disposal, reasoning that while
one cannot avoid Superfund liability by characterizing a
transaction that is really the disposal of waste as a sale,
a transaction in which one is truly selling a useful product
is not an arrangement for disposal. The court must examine
the transaction and understand the intent of the parties.
The sale of virgin chemicals to someone who intends to use
those chemicals is a real sale and therefore, not an arrangement
for disposal. "Sale" of a waste product, on the
other hand, may really be arrangement for disposal.
The Ninth Circuit in Shell distinguished the "sale
of a useful product" cases, reasoning that the sale
of a useful product doctrine does not apply where the sale
"necessarily and immediately results in the leakage
of hazardous substances," 520 F.3d at 950. In other
words, the court could have agreed with the Second and Seventh
circuits that ordinarily a sale of a useful product is not
arranging for disposal and that the court must examine the
transaction as a whole. However, where spilling is a necessary
part of the way the delivery was arranged by the seller,
the transaction is an arrangement for disposal. The key
difference then between Amcast, in which a spill during
delivery was not arrangement for disposal and Shell in which
it was held to be a disposal, may be that in Amcast the
spill was an unusual occurrence - an accident, while in
Shell it was a necessary part of the process; it always
happened.
'Broader' Arranger Theory
The court also explained that Shell could be held liable
on the "broader" theory of arranger liability,
addressed in cases where the primary purpose of the transaction
is not a disposal, but where some disposal is inherent in
the process. The court cited Florida Power and Light Co.
v. Allis Chalmers Corp., 893 F.2d 1313 (11th Cir. 1990),
which involved a suit against manufacturers of PCB-containing
transformers at a site used for recycling transformers.
The leading case regarding this "broader" arranger
theory is United States v. Aceto Agricultural Chemicals
Corp., 872 F.2d 1373 (8th Cir. 1989). In Aceto, pesticide
manufacturers delivered raw materials to a pesticide formulator
to mix the chemicals and produce commercial-grade pesticide
products. The EPA sought to hold the manufacturers liable
for waste disposed of at the formulator's plant by the formulator.
The manufacturers argued that they had no control of the
formulator's actions; they merely provided raw materials
and could not, therefore, have arranged for the disposal
of waste that was generated by and disposed of by the formulator.
In finding that the manufacturers could be liable, the Eighth
Circuit began with the premise that one cannot "contract
away" their Superfund liability. The court noted that
the manufacturers owned the raw materials at all times,
owned the pesticide products produced by the formulator
and defined the process whereby the formulator would produce
pesticide products. This ownership of the materials and
the ability to control operations gave the manufacturers
potential liability. Otherwise, the court reasoned, a party
could set up contractual arrangement whereby they control
the process and delegate responsibility to another party
in order to avoid Superfund liability.
The Ninth Circuit's reasoning in Shell was that Shell's
sales of chemicals to B&B were not simply the sale of
a useful product. Shell determined the method of delivery
and the method of storage and knew that the method of delivery
would result in spillage. This gave Shell a sufficient role
in the process that resulted in the waste disposal. It was
thus, like Aceto, a sale that included elements of control
of a process that necessarily resulted in waste disposal.
The court stated that it must "look beyond defendant's
characterizations to determine whether a transaction in
fact involves an arrangement for the disposal of a hazardous
substance."
The Second Circuit discussed this "broader" theory
of arranger liability in General Electric v. AAMCO Transmissions,
962 F.2d 281 (2d Cir 1992). The case arose out of the sale
of petroleum products to service stations at which the products
were used in a manner that generated hazardous waste. The
Second Circuit rejected the analogy to Aceto, reasoning
that in Aceto the manufacturers had control of the formulator's
activities, while the AAMCO defendants had some ability
control, but no actual control, 962 F.2d at 287. The Second
Circuit explained that ability to control would be sufficient
for liability only if accompanied by facts that suggest
a "duty" to control.
Impacts of the Decision
The Shell petition for certiorari raises the specter that
sellers of hazardous substances will face increased liability
for disposal by other parties (purchasers and transporters)
over whom they have no control.
The reason for this fear is that the Court ordinarily agrees
to hear cases in order to resolve splits between the federal
circuits. There is an apparent split on the issue of whether
sale of a useful product is exempt. Thus, the Court could
have granted certiorari to resolve that split. Resolution
of that split will have a direct effect on the law applicable
in New York because the current rule applicable in New York,
the Second Circuit's Freeman decision discussed above may
be affirmed, rejected or modified.
That is not the most likely scenario, however, because the
"sale" cases such as Freeman and Amax, are too
easy to distinguish from Shell. Once the trial court in
Shell found that spillage was a necessary part of Shell's
delivery method, spillage (disposal) is no longer an accident;
it is planned for, and therefore very different from the
Second and Seventh Circuit precedent.
A look at the two most recent Supreme Court Superfund decisions
suggests a different reason for the Court to grant certiorari.
In United States v. Atlantic Research Corp., 127 U.S. 2331
(2007) and Cooper Industries Inc. v. Aviall Services Inc.,
543 U.S. 157 (2004), the Court addressed issues on which
there was near unanimity in the lower courts, and in both
cases outlined a new direction based on the language of
the statute.
In Aviall the Court addressed whether §113(f) of the
Superfund law permits a contribution claim by volunteers
and essentially concluded that while there may be policy
reasons to permit such causes of action, the language of
the statute does not permit them. Similarly, in Atlantic
Research the Court explained the relationship between §§107
and 113 in a manner that differed greatly from the way nearly
all other courts had, by focusing on the need to read the
statute as a unified whole.
If the Court is consistent with those other decisions, it
may have granted certiorari to address the "broader"
arranger theory. Lower courts have often focused on the
policies underlying Superfund and ignored the language of
statute to expand arranger liability.2 Shell's application
of the "broader" arranger liability theory is
an example of this, since the Ninth Circuit cites the policies
underlying Superfund as grounds for its expansion of the
"broader" arranger theory.
A decision regarding the "broader" arranger theory
could directly affect the law applicable in New York. Affirmance
of the Ninth Circuit could expand the "broader"
arranger theory beyond that currently applicable in New
York as described in the Second Circuit's General Electric
opinion. Reversal of the Ninth Circuit's decision would
suggest a new rule regarding this "broader" arranger
theory, which may limit its applicability.
Analysis
My analysis of the two most recent Superfund decisions suggests
that the Court may cut back on arranger liability as it
applies to parties who did not dispose of the waste or control
the actions of the person who disposed of the waste. The
Court has preferred a strict reading of the language of
the statute and, while there may be good cause to hold the
manufacturers responsible for the waste disposal in Aceto,
it is difficult to say the one who never handled the waste
and never made any decision regarding the waste has "arranged
for disposal" of the waste.
Aaron Gershonowitz is a partner at Forchelli, Curto, Crowe,
Deegan, Schwartz, Mineo & Cohn in Mineola and concentrates
his practice in environmental law.
Endnotes:
1. The decision also included an important issue regarding
the extent to which liable parties should be subject to
joint and several liability. That issue will be reviewed
by the Court but is not the subject of this article.
2. See my discussion of the issue in A. Gershonowitz, "Superfund
Arranger Liability: Why Ownership of the Hazardous Substance
Matters," 59 S.C. L. Rev. 147, 153-155 (2007).
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