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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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