In Burlington Northern Santa Fe Railway Co. v. United States, 129 S. Ct (2009), the United States Supreme Court tackled two unsettled areas of

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2 In Burlington Northern Santa Fe Railway Co. v. United States, 129 S. Ct (2009), the United States Supreme Court tackled two unsettled areas of the law under the Comprehensive Environmental Response, Compensation and Liability Act ( CERCLA ) 42 U.S.C et seq. The first part of the BNSF decision addresses what activities or states of mind make a defendant liable as someone who has arranged for the disposal or treatment... of hazardous substances.... The Court resolved a split in the circuits on the definition of the word arrange by looking the word up in Webster s Dictionary. As simple as this approach may sound, it drastically changed the law as it had been applied in some circuits. This White Paper will address the sometimes murky standard for arranger liability which predated BNSF and will examine post-bnsf case law to demonstrate the refreshing level of clarity and uniformity BNSF delivered to this area of the law. The Court s ruling on the issue of apportionment sounded more revolutionary than it turned out to be. While most pre-bnsf courts had acknowledged that CERCLA liability may be apportioned in the appropriate circumstances, many courts took a restrictive view of which circumstances were appropriate. The Supreme Court appeared to endorse a permissive approach, holding that the District Court s arguably sloppy apportionment decision could not be reversed because it was reasonable. While there have been only a few circuit court CERCLA apportionment decisions since BNSF, the most recent (the 7th Circuit s decision in U.S. v. NCR Corp.) appears to advocate a return to a more restrictive view. Moreover, the district courts seem intent on distinguishing BNSF so as to avoid having to follow it. This White Paper will trace the evolution of the case law on apportionment under CERCLA and will discuss the extent to which recent decisions appear to be inconsistent with the Supreme Court s BNSF ruling. The ultimate goal of this White Paper will be to help practitioners answer the following questions: What are the best strategies for proving or disproving the intent required to impose arranger liability? What is the interplay, if any, between apportionment and allocation? What are the best strategies for proving or disproving that CERCLA liability is capable of apportionment? 2

3 CERCLA and CERCLA Liability CERCLA is the Comprehensive Environmental Response, Compensation and Liability Act. 1 It was passed in 1980 and designed to promote the cleanup of hazardous waste sites and to ensure that the polluter pays, i.e., that clean-up costs are borne by those responsible for the contamination. 2 CERCLA imposes strict liability for releases of hazardous substances on four broad classes of PRPs: (1) The owner and operator of a vessel or a facility; (2) any person who at the time of disposal of a hazardous substance owned or operated any facility at which such hazardous substances were disposed of; (3) any person who by contract, agreement or otherwise arranged for the disposal or treatment, or arranged with a transporter for disposal and treatment, of hazardous substances owned or possessed by such person...; and (4) any person who accepts or accepted any hazardous substances for transport to disposal or treatment facilities... from which there is a release. 3 If a defendant fits within one or more of these four classes of PRPs, and provided the other prima facie elements of CERCLA liability are established, then the defendant may be compelled to clean up contaminated property or to reimburse another private party or the government for its past and future response costs. 4 Arranger Liability Pre-BNSF: Aceto and Its Progeny While there were numerous seminal arranger cases in the decade following the passage of CERCLA in 1980, most of them were fairly straightforward. A party who contracts with waste hauler to get rid of hazardous substances has arranged for the disposal of those substances. The Aceto decision stands out as a case where the court was forced to consider a set of facts which did not fit the typical arranger scenario. The Aceto case concerned the extent to which CERCLA arranger liability arises in the context of what is commonly referred to as a toll formulation contract. Aidex Corporation operated a facility in Mills County, Iowa where it received technical grade 1 42 U.S.C et seq. 2 BNSF, 129 S. Ct. at U.S.C. 9607(a). 4 BNSF, 129 S. Ct. at

4 pesticides from manufacturers, mixed the pesticides with inert ingredients, and produced commercial-grade agricultural products. 5 The resulting commercial-grade products were either shipped back to the manufacturers or shipped directly to customers according to the manufacturers instructions. 6 By the time the lawsuit was filed, Aidex was bankrupt, and the United States and the state of Iowa had spent over $10 million to clean up the site. 7 In a cost recovery action brought against the toll manufacturing customers, the U.S. alleged that, although Aidex did the actual mixing, formulation, and disposal, the toll manufacturing customers (including Aceto) owned the raw materials, the work in process, and the finished product. 8 The U.S. claimed that the spillage of pesticidecontaining waste was an inherent part of the toll formulation process, and therefore the defendants had arranged for the disposal of the spilled product. 9 The defendants moved to dismiss, contending that they had contracted with Aidex for the formulation of a valuable product, not spillage or disposal of waste, and Aidex alone controlled the formulation operations and the disposition of waste materials. 10 The defendants argued that it was Aidex, and not the defendants, who owned the hazardous waste and made the crucial decision how it would be disposed of or treated, and when. 11 The trial court denied the customers motions to dismiss, holding that the complaint stated a claim under 9607(a)(3) of CERCLA. 12 The 8 th Circuit granted interlocutory appeal and affirmed. 13 The 8 th Circuit noted that Section 107(a)(3) of CERCLA imposes liability on any person who by contract, agreement or otherwise arranged for the disposal or treatment...of hazardous substances owned or possessed by such person.... (emphasis added) 14 The court went on to observe that CERCLA had generally been interpreted liberally, consistent with its overwhelmingly remedial statutory scheme. 15 The court further noted that both the First and Second Circuits had declared that they 5 Aceto, 872 F.2d at Id. 7 Id. 8 Id. 9 Id. at Id. 11 Id. at 1379, citing United States v. A&F Materials Co., 582 F. Supp. 842, 845 (S.D. Ill. 1984). 12 Id. 13 Id. 14 Id. at 1379, citing 42 U.S.C. 9607(a)(3). 15 Id. at 1380, citing U.S. v. Northeastern Pharm. and Chem. Co., 810 F.2d 726, (8th Cir. 1986) [ NEPACCO ]. 4

5 would not interpret Section 9607(a) in any way that apparently frustrates the statute s goals, in the absence of a specific congressional intent otherwise. 16 While the 8 th Circuit acknowledged that defendants had not directed Aidex to dispose of hazardous substances, it nonetheless interpreted the phrase otherwise arranged for in light of CERCLA s two essential purposes: (1) the federal government must be given the tools necessary for a prompt and effective response to problems of a national magnitude resulting from the disposal of hazardous waste; and (2) Congress intended that those responsible for problems caused by the disposal of hazardous waste would bear the costs and responsibility for remedying the harmful conditions they created. 17 The court held that the second of CERCLA s remedial goals the polluter pays would be thwarted if it were to accept defendants argument that the complaint did not sufficiently allege that they had arranged for disposal of hazardous substances. 18 The 8 th Circuit examined cases in which parties had unsuccessfully attempted to characterize their activities as sales of their waste materials rather than disposals. 19 In each case, the defendant allegedly knew that the product would be disposed of by the purchaser. Each court held that the defendant could not be allowed to escape liability by contracting away its responsibility or claiming that the actual disposal was the act of an independent third party. 20 At the same time, the court acknowledged a line of cases in which courts had refused to impose liability when a useful commercial product was sold to another party who later disposed of it. 21 The Aceto defendants attempted to analogize their situation to the useful product line of cases, but the 8 th Circuit rejected the analogy. The court considered it significant that defendants continued to own the hazardous substances throughout the formulation process and that Aidex mixed the products at defendants direction. 22 In 16 Id., citing Dedham Water Co. v. Cumberland Farms Dairy, Inc., 805 F.2d 1074, 1081 (1st Cir. 1981); New York v. Shore Realty Corp., 759 F.2d 1032, 1045 (2d Cir. 1985). 17 Id. at Id. 19 New York v. Gen. Elec. Co., 592 F. Supp. 291, 297 (used transformer oil sold to a drag strip for dust control); United States v. A&F Materials, Inc. (spent caustic solution sold as a neutralizing agent). 20 Aceto, 872 F.2d at Id., citing Florida Power & Light Co. v. Allis Chalmers Corp., 1988 U.S. Dist. Lexis 4707 (S.D. Fla. 1988) (transformers); United States v. Westinghouse Elec. Co., 1983 U.S. Dist. Lexis (S.D. Ind. 1983) (same); Edward Hines Lumber Co. v. Vulcan Materials Co., 685 F. Supp 654 (N.D. Ill. 1987), aff d, 861 F.2d 155 (7th Cir. 1988) (wood-treating pesticides). 22 Id. at

6 Florida Power and Light (a useful product case), by contrast, the defendant had completely transferred ownership of an intact, useful product to the plaintiff, who used the product for forty years before making the decision to dispose of it. 23 The court held that the eventual disposal of the defendant s product did not create liability because the product was commercially useful at the time of the original transaction. The Aceto defendants, by contrast, knew that some portion of the products they owned would be spilled in the formulation process. The Aceto defendants final contention was that they should not be liable because they lacked the authority to control Aidex s waste disposal decisions, and under the 8 th Circuit s previous NEPACCO decision, [i]t is the authority to control the handling and disposal of hazardous substances that is critical under the statutory scheme. 24 The 8 th Circuit also rejected this argument on the grounds that the defendants owned the hazardous substances, as well as the work in process. 25 The court appeared to assume, without proof, that ownership of the raw materials equated to the control of disposal decisions or to otherwise feel that the defendants ownership of the raw materials and finished product made it fair to impose arranger liability on the defendant. While the 8 th Circuit distinguished NEPACCO and the useful product line of cases, it never clearly articulated the basis for its decision that defendants could be held liable as arrangers. For example, the court made several references to the defendants ownership of the raw materials and finished product, but the court never stated that ownership of raw materials or finished product was, in itself, enough to create arranger liability. The court did not find that defendants had either actual control over Aidex s disposal decisions or the authority to control those decisions. In fact, it is difficult to discern in the Aceto opinion any single rationale for the court s ruling. The court s standard for arranger liability appeared to be we know it when we see it. The court held that the United States complaint stated a cause of action because any other ruling would have allowed defendants to simply close their eyes to Aidex s disposal of their hazardous substances. 26 As would many other courts in subsequent years, the Aceto court paid less attention to the language of CERCLA than to its remedial goals. Years 23 Florida Power & Light Co., 1988 U.S. Dist. Lexis 4707 at *2. 24 Aceto, 872 F.2d at , citing NEPACCO, 810 F.2d at Id. at Id. 6

7 later, BNSF Court would unequivocally reject such policy-driven readings of CERCLA in favor of strict statutory interpretation. 27 Arranger Liability After Aceto In the twenty years between Aceto and BNSF, federal courts fell into a number of camps with respect to which acts, states of mind, or levels of control would give rise to arranger liability. Several Circuits anticipating the Supreme Court s BNSF holding required proof that the defendant specifically intended to dispose of the hazardous substance. 28 Other courts focused on the issue of ownership and on whether the putative arranger knew that disposal would occur or was likely to occur as a result of the transaction. 29 Still others attempted to weigh all of the relevant factors and to examine the totality of the circumstances. 30 This last standard spawned a series of cases in which the courts struggled to find a nexus between the defendants alleged conduct and the disposal. One court described the nexus test this way: Nexus is, in common terms, merely a connection between the potentially-responsible party and the disposal of hazardous waste.... As the case law makes clear, the requisite nexus can be found where, as here, the party had some involvement in or responsibility for the decision to dispose of waste. 31 These nexus cases tended to be heavily fact dependant. In situations where the defendant retained ownership of the raw materials combined with authority to control the process, courts generally found that a sufficient basis existed to impose liability on the defendant. 32 Using the nexus standard, courts were able to extend CERCLA liability, consistent with the statute s remedial policy, without clearly articulating why the defendant s activities amounted to an arrangement for disposal. It was enough if the 27 BNSF, 129 S. Ct. at 1879.( liability may not extend beyond the limits of the statute itself ). 28 See, e.g., Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 746, 751 (7th Cir. 1993); United States v. Cello-Foil Products, Inc., 100 F.3d 1227, 1232 (6th Cir. 1996). 29 Jones-Hamilton Co. v. Beazer Materials and Serv., Inc., 973 F.2d 688, (9th Cir. 1992); Morton Int l., Inc. v. A.E. Stanley Mfg. Co., 343 F.3d 669, (3d Cir. 2003). 30 S. Florida Water Mgmt. Dist. v. Montalvo, 84 F.3d 402, 407 (11th Cir. 1996). 31 Emergency Tech. Serv. Corp. of Illinois v. Morton Int l., No. 92 C 3376, 1993 WL , *4 (N.D. Ill. 1993) citing, United States v. Arrowhead Refining Co., No , 1992 WL , *5 (D. Minn. 1992). 32 See Gen. Elec. Co. v. Aamco Transmissions, Inc., 962 F.2d 281, 287 (2d Cir. 1992) citing Levin Metals v. Parr Richmond Terminal Co., 782 F. Supp. 1452, 1453 (N.D. Cal. 1991). 7

8 court felt that there was a connection of some sort between the disposal and the defendant. By the time the BNSF decision reached the U.S. Supreme Court, therefore, the standard for imposing arranger liability had become highly inconsistent. In some circuits, proof of intent to dispose was required, while in others a defendant could be held liable as an arranger based on nothing more than alleged ownership of raw materials, alleged knowledge of foreseeable disposal, or some other amorphous link between defendant s conduct and an eventual disposal. The BNSF Decision In a few simple words, the BNSF Court dispensed with more than 20 years of conflicting case law and brought arranger liability back to its statutory foundations: [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 a hazardous substance (emphasis added). 33 The bulk of the arranger portion of the BNSF opinion was taken up with a discussion of whether the evidence in the trial court was sufficient to prove intent. In BNSF, Brown & Bryant, Inc. ( B&B ) operated an agricultural chemical distribution business, purchasing pesticides and other chemicals from suppliers such as Shell Oil Co. 34 Shell s products arrived in tanker trucks and were transferred to storage tanks. 35 Leaks and spills were commonplace during handling and transfers of Shell s products. 36 Although B&B and the carriers delivering products used buckets to catch spills, the buckets sometimes overflowed or were knocked over. 37 After becoming aware of the spillage at B&B s facility, Shell supplied a safety manual and even instituted a voluntary discount plan for distributors who made improvements in their handling and safety programs. 38 Later, Shell revised its discount plan to require that distributors obtain an inspection by a qualified engineer and provide self-certification of compliance with applicable laws and regulations. 39 B&B eventually became insolvent, and the government pursued Shell for clean-up costs. 40 After a six-week bench trial, the District 33 BNSF, 129 S. Ct. at BNSF, 129 S. Ct Id. at Id. 37 Id. 38 Id. 39 Id. 40 Id. at

9 Court held Shell liable as an arranger under 9607(a)(3) of CERCLA. 41 The Ninth Circuit affirmed this portion of the lower court s ruling. The Supreme Court reversed, holding that an entity will qualify as an arranger only when it takes intentional steps to dispose of a hazardous substance. 42 The Court noted that Merriam-Webster s Collegiate Dictionary defines arrange as to make preparation for: plan[;]... to bring about an agreement or understanding concerning. 43 The Court agreed that a defendant s knowledge of the eventual fate of its products could be relevant, but only to the extent that it tends to prove an intent to dispose: 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... with the intention that at least a portion of the product be disposed of The Court went on to hold that Shell did not become an arranger merely because it knew that minor, incidental spills would occur during transfers from one container to another. 45 The evidence did not support the inference that Shell intended such spills. 46 In fact, the evidence proved just the opposite. Shell encouraged its contractor to run a safe and compliant operation. Shell s mere knowledge that spills and leaks continued to occur is insufficient grounds for concluding that Shell arranged for... disposal Accordingly, the Supreme Court held that Shell was not liable as an arranger because it lacked the requisite intent. 48 Post-BNSF Case Arranger Law In the four years since the BNSF decision, District Courts and Circuit Courts have consistently applied the intent to dispose requirement, even in situations where a 41 Id. 42 Id. at Id. at Id. at Id. 46 Id. 47 Id. 48 Id. 9

10 nexus unambiguously existed between the defendants alleged actions and the disposal. 49 The Ninth Circuit issued its first decision analyzing arranger liability post-bnsf in Team Enterprises, LLC v. Western Investment Real Estate Trust. 50 The Team Enterprises court held that, to sustain an action based on arranger liability, a plaintiff must prove that the company entered into the relevant transaction with the specific purpose of disposing of a hazardous substance. 51 In Team Enterprises, a dry cleaning operator sued a manufacturer of machines that filtered and recycled water contaminated with a solvent, perchloroethylene ( PCE ), used in cleaning clothes. 52 The machine separated and reused most of the PCE but discharged into a bucket the resulting waste water that contained trace amounts of dissolved PCE. 53 The plaintiff then poured this waste water down the sewer from which it leaked into the soil. 54 The plaintiff alleged that the manufacturer arranged for disposal of PCE by selling a machine that created waste. 55 The defendant argued that it could not be liable as an arranger based solely on its design of a product that would inevitably produce waste. 56 Following the reasoning in BNSF, the lower court granted summary judgment on behalf of the defendant. 57 The appellate court affirmed. 58 In considering the defendant s intent, the Ninth Circuit observed that [a]t most, the design indicates that [the defendant] was indifferent to the possibility that [the plaintiff] would pour PCE down the drain. This is insufficient. 59 To satisfy the requirements of BNSF, the plaintiff must plead and prove that the defendant acted with the specific intent to dispose of a 49 Mathies v. Vulcan Materials Co., No , 2009 WL , *6 (D. VI. 2009); 631 F. Supp. 2d 110, 114 (D. Maine 2009);United States v. Washington State Dep t of Transp., Pakootas v. Teck Cominco Metals, Ltd., 665 F. Supp. 2d 1233, (W.D. WA. 2009); Celanese Corp. v. Martin Eby Construction Company, 620 F.3d 529, 530 (5th Cir. 2010); Virgin Islands v. Vulcan Materials Co., 2010 WL , *7 (D. VI. 2010); Arkema v. Anderson Roofing Co., Inc., 719 F. Supp. 2d 1318, 1331 (D. Or. 2010); Chubb Custom Ins. Co. v. Space Sys./Loral Inc., 2010 WL , *8 (N.D. Cal. 2010); Enterprises, LLC v. Western Investment Real Estate Trust, 647 F.3d 901 (9th Cir. 2011); Wells Fargo Bank v. Renz, 795 F. Supp. 2d 898, (N.D. Cal. 2011); Appleton Papers Inc. v. Whiting Paper Co., 776 F. Supp. 2d 857, (E.D. Wis. 2011); and United States v. Gen. Elec. Co., 670 F.3d 377, 380 (2012) F.3d 901 (9th Cir. 2011). 51 Id. at 909 (emphasis added). 52 Id. at Id. at Id. 55 Id. at Id. 57 Id. at Id. at Id. at

11 hazardous material. 60 After Team Enterprises, therefore, even knowing indifference as to the eventual disposal of waste is not enough to create arranger liability if the defendant did not specifically intend for the disposal to occur. Similarly, the Eastern District of California dismissed a claim on the pleadings by another dry cleaner against the same manufacturer of machines used to recycle solvents. 61 The plaintiff argued that the defendant was liable as an arranger because the instruction manuals that came with its machines contained waste disposal guidance. 62 The court disagreed, holding that the plaintiff s guidance allegations are insufficient to establish [the defendant s] intentional disposal of a hazardous substance. 63 In addition to the Ninth Circuit, two other Circuits have addressed arranger liability post-bnsf. 64 All three have required the plaintiff to demonstrate a specific intent to dispose of waste. In Celanese Corp. v. Martin Eby Construction Company, 65 the Fifth Circuit rejected the plaintiff s argument that a defendant s conscious decision not to investigate a pipeline rupture amounted to an intentional disposal. The defendant was a construction company. One of its workers struck a methanol pipeline with a backhoe, causing contamination. 66 The property owner sought to hold the construction company liable as an arranger under CERCLA. The court held that BNSF precluded liability on these facts because the construction company did not know that it had struck the pipeline, and therefore it could not have possessed the requisite intent to dispose. 67 In United States v. General Electric, the First Circuit conducted an extensive examination of the underlying historical facts and documents in order to determine whether GE had the requisite intent to dispose. GE manufactured Pyranol, an insulating material made from polychlorinated biphenyls ( PCBs ). It sold its left over and off spec Pyrandol to a local manufacturer, Fletcher, who used the product as an additive for paint. 68 After Fletcher went bankrupt, the United States initiated an action to recoup 60 Id. 61 Hinds Investments, L.P. v. Team Enterprises, Inc., No. CV F LJO GSA, 2010 WL , 10 (E.D. Cal. Apr. 22, 2010). 62 Id. at *5. 63 Id. at *6. 64 They are the First and Fifth Circuits F.3d 529, 530 (5th Cir. 2010). 66 Id. at Id. 68 United States v. Gen. Elec. Co., 670 F.3d 377, 380 (2012). 11

12 costs from GE associated with the clean up of the Fletcher site alleging that GE was liable as an arranger. 69 The trial court found GE liable and the First Circuit affirmed. 70 The Court analyzed GE s actions and calculated inactions to resolve whether GE had the requisite intent under BNSF. First, the court found that the left-over Pyranol was waste because GE kept it in containers marked waste Pyranol and scrap Pyranol. 71 Also significant to the court s analysis was that despite Fletcher s falling behind in payments, GE not only continued to supply the scrap Pyranol to Fletcher but actually increased its shipments. 72 After Fletcher notified GE that it could not use large quantities of GE s Pyranol because it was contaminated with other products, GE sent chemists who confirmed that the Pyranol was unusable. 73 GE then made a financial calculation that it was cheaper to forgive Fletcher s debt and leave the contaminated barrels with Fletcher than to dispose of the waste itself. 74 The court, therefore, held GE liable as an arranger because [p]roperly connected, these points establish that GE purposefully entered into this arrangement with Fletcher with the desire to be rid of the scrap Pyranol. 75 Thus, the case law reveals that courts have consistently applied the intent to dispose standard in the wake of BNSF. A party will not be held liable if it did not intend to dispose of waste (BNSF), did not know that it caused waste to be disposed of (Celanese), or did nothing other than be indifferent to the disposal of waste (Team Enterprises & Hinds). Knowledge that a product or substance will eventually or inevitably be disposed of is not enough, if there is insufficient evidence of an intent to dispose. A party s actions, however, may provide circumstantial proof of intent (General Electric). Ownership of Raw Materials Post-BNSF: Pakootas and Nu-West Mining None of the post-bnsf cases cited above dealt with the same difficult circumstance the 8 th Circuit faced in Aceto: Is a PRP a CERCLA arranger when it retains title to raw materials and finished product, but an independent third-party causes the release? One could argue that the ownership of the materials in process, and by 69 Id. at Id. 71 Id. at Id. 73 Id. at Id. at Id. at

13 extension ownership of the waste, provides a nexus between the defendant and the waste, sufficient to support an inference of liability. After BNSF, however, ownership should only matter to the extent that it is evidence of an intent to dispose. In most cases, ownership should be a neutral fact, tending to prove neither intent nor a lack of intent. A strong argument exists that an owner of raw materials and finished goods is not liable for contamination by a third party if the owner did not enter into the transaction for the purpose of disposing of waste products. Two recent cases have addressed whether, post-bnsf, an owner of raw materials has CERCLA arranger liability. Read together, they strongly suggest that Aceto is no longer good law. In Pakootas v. Teck Cominco Metals, Ltd., the state of Washington sued the defendants seeking CERCLA response costs for the remediation of mine tailings and waste rock. 76 The defendants were parties to mining contracts with the state. The contracts gave the defendants the right to extract ore from state lands and to refine the ore into metals, provided that they paid a royalty to the state. 77 The extraction and processing of the ore resulted in the creation of hazardous substances in the form of waste rock and mine tailings. 78 The defendants counterclaimed and sought a declaration that the state was an arranger under CERCLA. 79 The defendants argued that because their mining contracts contemplated extraction of the ore owned by the state, they also contemplated disposal of the mine tailings. 80 Understanding that the Supreme Court s BNSF decision requires a finding of intent to dispose of hazardous substances before arranger liability can attach, the defendants asked the court to infer an intent to dispose from the fact ore must be extracted which produces waste rock, and then what is left must be treated in order to obtain the metals within, producing additional waste in the form of tailings. 81 The court stated... this court finds the physical nature of the ore and the need to obtain access to the metals within does not indicate the state intended the disposal of mining waste, but at most was indifferent to whatever disposal method was chosen by the mining companies. 82 The court continued... foreseeability is not the test. Disposal of 76 No LRS, 2011 WL , *1 (E.D. Wa. 2011). 77 Id. 78 Id. at *2. 79 Id. 80 Id. 81 Id. at *5. 82 Id. 13

14 hazardous waste must be the purpose of the transaction, not merely a foreseeable byproduct of the transaction. The state did not require the mining companies to dispose of waste rock in any particular manner. 83 The court noted that continued ownership or control of a hazardous substance can be evidence of an arrangement for disposal; however, it was not dispositive. 84 The court held: Requiring continued ownership or control for Section 107(a)(3) liability would make it too easy for a party, wishing to dispose of a hazardous substance, to escape its responsibility to see that the substance is disposed of properly. Such a requirement would allow defendants to close their eyes to the method of disposal of their hazardous substances, contrary to the policies underlying CERCLA. It is sufficient that the substance had the characteristic of waste, as we have defined it above, at the time it was delivered to another party. 85 The court went on to observe that the naturally occurring ore deposits on state lands did not have the characteristic of waste at the time they were delivered to the mining companies. 86 Hence, the state never owned or possessed hazardous waste. 87 While it was true that the mining contracts contemplated that there would be treatment of the severed ore to obtain the metals within, the court stated [e]ven assuming that this somehow evidences the state retained a continuing ownership interest in the ore, the ore was not waste The Pakootas court contrasted the facts before it with another post-bnsf case involving mining waste, Nu-West Mining, Inc. v. United States. 89 There, the mining companies had leases to mine phosphate on federal lands. The federal government had issued special use permits to the mines allowing them to dispose of wastes in nearby national forests. 90 The federal government monitored environmental conditions at the mines, including water quality sampling. 91 They inspected the mines to make sure waste was being disposed of properly. 92 In fact, the government required the lessees to cover 83 Id. at *6. (emphasis added) 84 Id. at *7, citing Jones-Hamilton, 973 F.2d at Id. (emphasis added) 86 Id. 87 Id. 88 Id. 89 Id. at *10, citing United States v. Shell Oil Co., 294 F.3d 1045, 1055 (9th Cir. 2002). 90 Id. at *9. 91 Id. 92 Id. 14

15 their waste dumps with a layer of middle shale waste. 93 The middle shale waste was later discovered to be contaminated with selenium, a hazardous substance. 94 It was this selenium contamination that later gave rise to the need to remediate. 95 So while the United States may not have known about the selenium contamination at the time of the waste disposal, it did know that the middle shale waste was in fact a waste product, and exercised some actual control over the disposal or treatment of the substance. 96 As such, the Nu-West court found that the federal government met the intent requirement set forth in BNSF. 97 The Pakootas court noted that it was facing a very different set of facts. 98 In Nu- West, the federal government was fully engaged in the waste disposal process and no waste disposal could occur without its approval. The federal government had authority to control waste disposal and did control it. In Pakootas, by contrast, the state did not monitor or control environmental or waste disposal conditions at the site. The Pakootas court concluded: Naturally occurring in ground ore deposits did not have the characteristic of waste at the time that they were delivered by the state to the mining companies.... It was the extraction of the ore and the treatment of the ore which created hazardous waste (waste rock and tailings). The state did not perform this extraction and treatment. The mining companies did. Hence, the state was not the source of the pollution. 99 Pakootas and Nu-West strongly suggest that ownership of raw materials and resulting waste is not, by itself, dispositive of arranger liability, post BNSF. If the product does not have the characteristic of waste at the time that it is turned over to a third party, continued ownership of the product even after some of it becomes waste will not make the one an arranger under CERCLA. Proving or Disproving Arranger Liability Post-BNSF After BNSF, courts must now focus on intent, and intent alone. Mere knowledge of waste disposal activities is insufficient to impose liability. The Supreme Court 93 Id. 94 Id. 95 Id. 96 Nu-West Mining, Inc. v. United States, 768 F. Supp. 2d 1082, 1088 (D. Idaho 2011).). 97 Id. 98 Pakootas, 2011 WL at * Id. at *12. 15

16 stressed that liability may not extend beyond the limits of the statute itself. 100 The Court determined Shell s intent by analyzing Shell s knowledge of the spillage in conjunction with Shell s actions related to that spillage. 101 The Court did not focus on ownership and in fact only mentioned ownership in passing. 102 Similarly, none of the Circuit Courts that have addressed arranger liability post-bnsf have focused on ownership as determinative of intent. 103 Ownership is only relevant if, combined with other facts, it can support an inference of intent to dispose. As the Pakootas court noted, if an owner turns a product having the characteristic of waste over to a third party, then the owner is responsible for what happens to that waste. If the product (i.e., pesticides or constituent chemicals) does not have the characteristic of waste at the time custody is transferred, then the owner should not be liable as an owner under CERCLA. 104 Post-BNSF, Strategies for Proving or Disproving Arranger Liability, Post-BNSF, an entity trying to prove or disprove arranger liability, should focus on the specific intent to dispose of the substance at issue. Indifference is not enough under BNSF, and proof of intent must be specific. In some cases, proof of intent will be clear. In others, the parties will need to examine the circumstantial evidence in order to make their best argument that specific intent existed. The following topics may be worth exploring. What was the nature of the substance? Was it useful to both the seller/transferor and the purchaser/transferee? What is used by the transferor, or was it a new product? If it was used, discarded or waste product to the transferor, there was arguably an arrangement for disposal even if it was useful to the transferee. What were the financial terms of the transfer? If there is a market for the substance, and the seller transferred it at the market price, then the transfer was arguably a sale and not a disposal. 100 BNSF, 129 S. Ct Id. at Id. 103 See Team Enterprises, LLC, 647 F.3d at 909; Celanese, 620 F.3d at 533; General Electric, 670 F.3d at This logic also suggests that a case like Jones-Hamilton Co. v. Beazer Materials and Services, Inc., 959 F.2d 126 (9th Cir. 1992) is also no longer good law. Like Aceto, Jones-Hamilton involved a toll formulation contract. Unlike Aceto, the contract in Jones-Hamilton contained a tolerance of up to two percent by volume for spillage or shrinkage each month. The Ninth Circuit pointedly disavowed any intent requirement for arranger liability and held that the defendant was an arranger because the agreement contemplated spillage. Under BNSF, it should not be enough to contemplate disposal. Only intentional spillage will satisfy the BNSF test. 16

17 How much involvement did the seller have with the product after it was sold or otherwise transferred? The more day-to-day involvement in the use of the product on the part of the seller or transferor, the less likely the transaction was a disposal. That is, if the product was waste, the seller would not care what happened to it after it was sold or transferred. What did the transferee agree to do? If the transferee agreed to use the substance in a specific way in order to create a new product, then there was arguably no intent to dispose. If the transferee agreed to keep accurate inventories or otherwise to account for how much of the substance it used, re-sold or otherwise re-transferred, then the substance was likely useful and not a waste. What did the transferor know about the transferee s disposal practices? Under BNSF, this issue is relevant in some circumstances, but never dispositive. Did the transferor encourage or provide incentives to the transferee to be careful? The Supreme Court found Shell s incentive program to be relevant in BNSF. Are there contracts that govern the relationship between the parties? These are clearly relevant if they mention waste disposal, but may be relevant even if they do not. If the transferor transfers the product to the transferee pursuant to a contract that does not mention waste disposal, one can argue that waste disposal was left to the discretion of the transferee and is therefore the transferee s responsibility. CERCLA Apportionment The second half of the BNSF decision was devoted to apportionment. Apportionment is different from allocation in that apportionment deals with whether a defendant is jointly and severally liable for an entire site, or rather only severally liable for a portion of the site. Allocation, by contrast, deals with how courts calculate a defendant s share of liability after it has been determined that the defendant is, in fact, jointly and severally liable. As will be described below, however, the concepts of apportionment and allocation can at times be intertwined. The BNSF decision seemed to revolutionize apportionment case law by approving the use of allocation factors to determine whether liability at the Brown and Bryant site was divisible. The lower courts, however, have either ignored or completely rejected the BNSF court s approach. 17

18 cases. 107 By 2009, it was generally accepted that CERCLA liability was divisible (i.e., CERCLA imposes strict liability on liable parties. 105 Courts have often held that CERCLA liability is joint and several, despite the fact that the phrase joint and several does not appear anywhere in the liability provisions of the statute. 106 Indeed, a line of cases pre-dating BNSF held that CERCLA liability was not joint and several in all capable of apportionment), but courts disagreed over which circumstances were appropriate for apportioning liability. As a result, in most cases, CERCLA liability remains effectively joint and several. Divisibility of harm is the only real defense to strict, joint and several liability under CERCLA. 108 To receive the protection of that defense, a party must show that the harm at the site is both (1) divisible and (2) capable of apportionment. 109 The party asserting divisibility bears the burden of proof. 110 Origins of Divisibility and Apportionment In BNSF, the Court endorsed as the seminal opinion on the subject of apportionment a 1983 decision from the Southern District of Ohio: U.S. v. Chem-Dyne Corp While there were several pre-1983 decisions on the issue of apportionment, Chem-Dyne was the most thoughtful early examination of the topic. In Chem-Dyne, the District Court carefully reviewed the legislature history of CERCLA and quoted numerous examples of the House and Senate sponsors explaining 105 See, e.g., California Dept. of Toxic Subs. Control v. Hearthside Res. Corp., 613 F.3d 910, 912 (9th Cir. 2010); United States v. Davis, 261 F.3d 1, (1st Cir. 2001); United States v. Northeastern Pharm. and Chem. Co., 810 F.2d 726, 743 (8th Cir. 1986). 106 Fireman s Fund Ins. Co. v. City of Lodi, 302 F.3d 928, 945 (9th Cir. 2002); United States v. Capital Tax Corp F.3d 525, 535 (7th Cir. 2008); United States v. Hercules, Inc. 247 F.3d 706, 715 (8th Cir. 2001). In fact the term joint and several was eliminated from several draft versions of the statute before it was passed in late U.S. v. Chem-Dyne Corp., 572 F. Supp. 802, 806 (S.D. Ohio 1983) citing, 126 Cong. Rec (November 24, 1980). 107 United States v. Monsanto, 858 F. 2d 160, 171 (4th Cir. 1988); State of N.Y. v. Shore Realty Co., 759 F.2d 1032, 1042 n.13 (2d Cir. 1985); United States v. Chem-Dyne Co., 572 F. Supp. 802, 810 (S.D. Oh. 1983). 108 BNSF, 556 U.S. at 613, citing United States v. Chem-Dyne Corp., 572 F. Supp. 802 (S.D. Oh. 1983). 109 Santa Fe R.R., 2003 WL at * The first determination, divisibility, is a question of law reviewed de novo, while the second determination is a factual determination reviewed for an abuse of discretion. Id. 111 U.S. v. Chem-Dyne Corp., 572 F. Supp. 802 (S.D. Ohio 1983). 18

19 the reasons why they had voted to remove the words joint and several from the draft legislation. 112 The Chem-Dyne court held that reading... the entire legislative history in context reveals that the scope of liability and the term joint and several liability were deleted to avoid a mandatory legislative standard applicable in all situations which might produce inequitable results in some cases.... The deletion was not intended as a rejection of joint and several liability.... Rather, the term was omitted in order to have the scope of liability determined under common law principles, where a court performing a case-by-case evaluation of the complex factual scenarios associated with multiple generator waste sites will assess the propriety of applying joint and several liability on an individual basis. 572 F. Supp. at 808. Supported by copious references to the legislative history, the Chem-Dyne court held that the scope of liability under CERCLA Section 107 should be determined from traditional and evolving principles of common law Applying federal common law, the Chem-Dyne court held that, when two or more persons acting independently caused a distinct or single harm for which there is reasonable basis for division according to the contribution of each, each is subject to liability only for the portion of harm he himself has caused. 114 After Chem-Dyne, the majority of Circuit Courts acknowledged that the universal starting point for divisibility of harm analyses in CERCLA cases is 433A of the Restatement (Second) of Torts, 115 and there appeared to be general agreement that CERCLA liability may be apportioned when there is a reasonable basis for determining the contribution of each to case a single harm. 116 Despite recognizing that apportionment was possible, few courts apportioned CERCLA liability. 117 Thus, while apportionment was theoretically possible, it was the rare exception F. Supp. at , citing, 126 Cong. Rec. S14964 (Nov. 24, 1980); 126 Cong. Rec. H11787 (December 3, 1980); 126 Cong. Rec. S15004 (Nov. 24, 1980); 126 Cong Rec. S14969 (Nov. 24, 1980). 113 Id F. Supp. at 810, citing Restatement (Second) of Torts, 433A, 881 (1976); Prosser, Law of Torts (4th ed. 1971). 115 BNSF, 129 S. Ct. at 1881, citing, U.S. v. Hercules, 247 F.3d 706, 717 (8th Cir. 2001); Chem- Nuclear Systems, Inc. v. Bush, 292 F.3d 254, 259 (D.C. Cir. 2002); U.S. v. R.W. Meyer, Inc., 889 F.2d 1507 (6th Cir. 1989) S. Ct. 1870; see also United States v. Monsanto, 858 F.2d 160, (4th Cir. 1988); Stevens v. Bangor & Aroostook R. Co., 97 F.3d 594, 602 (1st Cir. 1996). 117 Metropolitan Water Reclamation Dist. of Greater Chicago v. N. Am. Galvanizing & Coatings, Inc., 473 F.3d 824, 827 n.3 (7th Cir. 2007) ( The only exception to joint liability is when the harm is divisible, but this is a rare scenario. ). Similarly, the First Circuit noted that [t]he practical effect 19

20 Significant Pre-BNSF Decisions on Divisibility A few cases, however, provided hope to PRPs that they might limit their potential liability by asserting the divisibility defense. Based usually on geographic and volumetric evidence, several circuits reversed lower courts determinations that harm was indivisible. Rejecting the government s argument that commingled was synonymous with indivisible harm, the Third Circuit, in Alcan, reversed the district court and remanded for a determination on whether the harm could be apportioned. 118 Shortly afterward, the Second Circuit, in a related case involving Alcan, also remanded for a determination on divisibility. 119 On remand, however, both courts held that Alcan failed to meet its burden of presenting any reasonable basis to divide the harm at the site. 120 The Fifth Circuit s opinion in Bell Petroleum remains one of the few successful cases in which a party proved divisibility and a reasonable basis to apportion harm. In Bell Petroleum, EPA sued three chromium plating companies for recovery of its expenses in cleaning up a contaminated local water source. 121 The District Court held that all three companies were jointly and severally liable. 122 The Fifth Circuit reversed, reasoning that the fact that apportionment may be difficult, because each defendant's exact contribution to the harm cannot be proved to an absolute certainty, or the fact that it will require weighing the evidence and making credibility determinations, are inadequate grounds upon which to impose joint and several liability. 123 The court held that there was a reasonable basis for apportioning the harm and noted that this case was closely analogous to the Restatement s illustrations in which harms were divisible. 124 The court analogized the case to the Restatement s illustration in which cattle from two or more owners trespass onto a farmer s land and destroy his crop. 125 Although the aggregate harm is a lost crop, the harm may be apportioned among the owners of the cattle, based on the number of cows each owned on the assumption that the respective harm was proportionate with each cow destroying an of placing the burden on defendants has been that responsible parties rarely escape joint and several liability. O Neill v. Picillo, 883 F.2d 176, (1st Cir. 1989). 118 United States v. Alcan Alum. Corp., 964 F.2d 252, 270 (3d Cir. 1992). 119 United States v. Alcan Alum. Corp., 990 F.2d 711, 717 (2d Cir. 1993). 120 United States v. Alcan, 96 F.3d 1434 (3d Cir. 1996); United States v. Alcan, 315 F.3d 179 (2d Cir. 2003). 121 Bell Petroleum v. Sequa Corp., 3 F.3d 889, 892 (5th Cir. 1993). 122 Id. at Id. at Id. at Id. 20

21 equal amount of crop. 126 The court found this reasoning persuasive even though the evidence does not establish with certainty the specific amount of harm caused by each defendant s cattle, and even though there is a possibility that only one of the defendant s cattle caused all the harm. 127 Similarly, the court found that the harm at the site was divisible and that the defendant had met its burden of proving a reasonable basis for apportionment, as a matter of law, based on each plant owner s volumetric contribution of chromium. 128 The court, however, acknowledged that Bell arguably was easier than most CERCLA cases for apportioning harm because there was only one hazardous substance and no alleged synergistic effects between two or more contaminants. 129 Similarly, the Sixth Circuit vacated and remanded a trial court s determination that harm was not divisible in United States v. Township of Brighton. 130 In Brighton, EPA sued the owner of a waste disposal site, Vaughn Collett, and the Township of Brighton which disposed its waste at that site. 131 The township presented evidence that its locally-produced waste was limited to the southwest corner of the site, which was not in the contamination hot zone, and that the hot zone hazardous waste was contained in 55 gallon drums, from non-local sources. 132 The Sixth Circuit remanded for a determination of divisibility. 133 The Eighth Circuit also reversed a trial court s order that rejected the defendant s divisibility defense in United States v. Hercules, Inc. 134 In Hercules, EPA sued the current and former operators of a chemical plant that made herbicides, including Agent Orange. 135 The lower court held that Hercules did not present any evidence that its waste did not, or could not, contribute to the release and the resulting response costs at the site. 136 The Eighth Circuit reversed, reasoning that the lower court misunderstood the divisibility defense because a PRP who contributed waste could still prove divisibility of harm based on geographic, volumetric, or other considerations, despite having 126 Id. 127 Id. 128 Id. at Id F.3d 307, 310 (6th Cir. 1998). 131 Id. 132 Id. 133 Id. at F.3d 706, 711 (8th Cir. 2001). 135 Id. 136 Id. at

22 contributed some waste to the site. 137 Divisibility is a defense to joint and several liability not to liability generally. 138 A few pre-bnsf District Courts also accepted the divisibility defense. In United States v. Broderick Inv. Co., EPA sued a wood treating plant and Burlington Northern to recover response costs from pentachlorophenol contamination. 139 Burlington Northern argued that the harm was divisible by chronology and by geography. 140 The court rejected the chronology argument but held that there were two separate plumes at the site. 141 Neither Burlington Northern nor its predecessor ever owned the land from which the second plume originated. 142 Therefore, the court held that Burlington Northern was jointly and severally liable for only one plume and had no liability as to the other plume. 143 Another District Court similarly divided the harm created by the tailings generated by two mining companies in Coeur D Alene Tribe v. Asarco, Inc. 144 The United States, State of Idaho, and the Coeur D Alene Tribe sought their recovery of response costs associated with cleaning up a mining site. 145 The court found a reasonable basis on which to apportion the harm. 146 The court distinguished the Fourth Circuit s Monsanto decision because in Coeur D Alene each generator was contributing the same harm (mining tailings), which contained the same chemicals: lead, zinc, and cadmium. 147 The plaintiffs, however, argued that the defendants had to fingerprint each mill s hazardous waste over the many years to prevail on the divisibility defense. 148 The court disagreed stating, Plaintiffs seek to hold the Defendants to an unrealistic standard in order to succeed with divisibility. 149 Therefore, the court held there was a reasonable basis to apportion the harm based on volume of contribution by each generator. 150 A review of the case law prior to the BNSF decision reveals that divisibility was a rare exception. In general, the successful apportionment cases were limited to ones in 137 Id. 138 Id F. Supp. 272, (D. Colo. 1994). 140 Id. at Id. 142 Id. 143 Id F. Supp. 2d 1094, 1119 (D. Idaho 2003). 145 Id. 146 Id. 147 Id. at Id. 149 Id. 150 Id. 22