Amicus Curiae Brief — Shell Oil Co. v. United States (Nos. 07-1607, 07-1601)

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No. 0?-1607 si

In the

Supreme Court of the Anited States

SHELL OIL COMPANY,

Petitioner,

Vv.

UNTTED STA'TES OF AMERICA; DEPARTMENT OF TOXIC

SUBSTANCES CON'TROL, STA'TE OF CALIFORNIA,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

BRIEF OF THE CIVIL JUSTICE ASSOCIATION

OF CALIFORNIA AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

FRED J. HIESTAND

Counsel of Record

1121 LSrreet, Suire 404

SACRAMENTO, CA 95814

(916) 448-5100

fhiestand@avl.com

Counsel for Amicus Curiae

The Cwil Justice Association

of California

November 24, 2008

Becker Gallagher + Cincinnan, OH - Washington, DC + 800.890.5001

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TABLE OF CONTENTS

TABLE OF AUTHORITIES .................. ill

ope gg tg err 1

BACKGROUND AND PROCEEDINGS BELOW . 2

SUMMARY OF ARGUMENT ................. 6

EE 5 4 ac Os 2 os hah oA ke ee eS 7

I. THE SELLER OF A “USEFUL PRODUCT”

WHO RELINQUISHES OWNERSHIP AND

CONTROL OF IT UPON RECEIPT BY THE

BUYER IS NOT AN “ARRANGER” UPON

WHOM CERCLA LIABILITY SHOULD BE

665 ones cc ehuenen eres eine kis 7

A. A Seller’s “Intent,” “Ownership” and

“Control” of Hazardous Substances Should

be Key Factors for Determining whether

CERCLA “Arranger” Liawility Attaches. ... 7

1. Considering “inter. for “arranger”

liability is consistent with the language of

the statute and not contrary to the strict

liability principle underlying CERCLA. . 9

2. “Ownership” and “Control” are More

Sensible Criteria for Determining

“Arranger Liability” than the Ninth

Circuit’s Use of “Knowledge.” ........ 12

ii

B. Arranger Liability Should Not be Imposed

Upon one who Makes and Sells a “Useful

Product” to Another who Misuses it and then

Disposes of it as Waste. ............... 17

II. THE OPINION IMPOSES AN IMPRACTICAL

AND UNWORKABLE “ADEQUATE

RECORDS” REQUIREMENT FOR

APPORTIONMENT OF CLEAN-UP COSTS TO

OCCUR AT THE LIABILITY STAGE OF

CERCLA PROCEEDINGS. ............... 20

o_O NSE ae a ae eg 23

ill

TABLE OF AUTHORITIES

CASES

3550 Stevens Creek Assocs. v. Barclay’s Bank of

Cal.,

915 F.2d 1355 (9th Cir. 1990) ............. 17

AM Int'l. v. Int'l. Forging Equip.,

982 F.2d 989 (6th Cir. 1993) .............. 18

Amcast Indus. Corp. v. Detrex Corp.,

2 F.3d 746 (7th Cir. 1993) .......... 10, 11, 12

American Cyanamid Co. v. O'Neil,

EE coop bccn vecsecessene 20

B.F. Goodrich v. Betkoski,

99 F.3d 505 (2d Cir. 1996) ............... 20

C. Greene Equip. Corp. v. Electron Corp.,

697 F. Supp. 983 (N.D. Ill. 1988)........... 18

California Dep't of Toxic Substances Control uv.

ALCO Pacific, Inc.,

508 F.3d 930 (9th Cir., 2007)............... 8

Carson Harbor Vill., Ltd. v. Unocal Corp..,

270 F.3d 863 (9th Cir. 2001) ............. 8,9

Edward Hines Lumber Co. v. Vulcan Materials Co.,

685 F. Supp. 651 (N.D. Ill.), affd on other

grounds, 861 F.2d 155 (7th Cir. 1988) ...... 18

Florida Power & Light Co. v. Allis Chalmers Corp..,

893 F.2d 1313 (11th Cir. 1990) ............ 18

iv

FMC Corp. v. U.S. Dep’t of Commerce,

BO Be BO Ce Ge BE once ec ccc ccce 13

FMC Corp. v. U.S. Dep’t of Commerce,

29 F.3d SSS (Gd Cir. 19904) ..... ccc cee 14

Freeman v. Glaxo Wellcome, Inc., |

189 F.3d 160 (2d Cir. 1999) ............... 18

G.J. Leasing Co. v. Union Elec. Co.,

64 F.3d S79 (7th Cir. 1996) ...... 2. cccece 18

General Elec. Co. v. AAMCO Trans., Inc.,

O68 F.2d 3Bi (Sa Cir. 1908) .. .. 0 ccs 15

In re Bell Petroleum Servs., Inc.,

SP 2e Gee Cote Cor. BOGS) ... ccc ccces 21

Jones-Hamulton Co. v. Beazer Materials & Servs.

Inc.,

973 F.2d 688 (9th Cir. 1992) .............. 14

Kelley v. Arco Indus. Corp.,

739 F. Supp. 354 (W.D. Mich. 1990) ........ 18

Northern Secs. Co. v. United States,

Rr 7

O’Neil v. Picillo,

883 F.2d 176 (1st Cir. 1989) .............. 20

Pfaff v. Wells Elecs., Inc.,

SED oo occ cs wees etbneeeces 9

Vv

Pneumo Abex Corp. v. High Point, Thomasville &

Denton R.R.,

142 F.3d 769 (4th Cir. 1998) .............. 19

Prudential Ins. Co. of Am. v. United States Gypsum,

711 F. Supp. 1244 (D.N.J. 1989) ........... 17

Rhodes v. County of Darlington, S.C.,

833 F. Supp. 1163 (D.S.C. 1992) ............ 8

U.S. v. Burlington Northern & Santa Fe Ry. Co.,

502 F.3d 781 (Sth Cir. 2007) ............... i]

U.S. v. Burlington Northern & Santa Fe Ry.,

520 F.3d 918 (9th Cir. 2008) ........... passim

U.S. v. Chem- Dyne, Corp.,

572 F. Supp. 802 (S.D. Ohio 1983) .......... 5

United States v. Aceto Agr. Chems. Corp.,

872 F.2d 1373 (8th Cir. 1989) ....... 13, 14, 15

United States v. Cello-Foil Prods., Inc.,

100 F.3d 1227 (6th Cir. 1996)............. ll

United States v. Hercules,

247 F.3d 706 (8th Cir. 2001) .............. 14

United States v. Mead Corp.., |

i | eer e om g

United States v. Occidental Chem. Corp.,

700 F.3d 143 (Sd Cir. 1998) ..........2.4.. 14

United States v. Shell Oil Co.,

294 F.3d 1045 (9th Cir. 2002) ....... 13, 14, 15

vi

United States v. The Atchison, Topeka, & Santa Fe

Railway Co.,

Nos. CV-F-92-5068 OWW, CV-F-96-6226 OWW,

CV-F-96-6228 OWW (E.D. Cal. July 15, 2003.) 4

United States v. Westinghouse Elec. Corp.,

22 Env’t Rep. Cas. (BNA) 1230

GES Sethe case vcccccsccnes 18

Woods v. Simpson,

46 F.3d 21 (Gth Cir. 1995) ................ 10

STATUTES

ee dia gh a wel in ea hee 3

Ee 3

EE ee oe 3

ee is wrk otis eanee eben passim

i a 2

42 U.B.C. $OGOMANS) . 0. ccc cece cee 8, 15

OTHER AUTHORITIES

2A Norman J. Singer, SUTHERLAND STATUTORY

CONSTRUCTION § 47.17 (1992) .......... --- 10

Jerry L. Anderson, The Hazardous Waste Land, 13

Va. Envtl. L.J. 1, 10 n.50 (1993) ............ 3

vil

Martin A. McCrory, The Equitable Solution to

Superfund Liability: Creating a _ Viable

Allocation Procedure for Businesses at

Superfund Sites (1998) 23 VT. L. REV. 59 ..... 3

John T. Ronan III, A Clean Sweep on Cleanup, THE

RECORDER, Sept. 30, 1992, available in LEXIS,

News Library, Reerdr File ...........2.0-.- 3

RESTATEMENT (SECOND) OF TORTS § 433A(1) ... 21

1

INTEREST OF AMICUS’

The Civil Justice Association of California (CJAC)

is a 30-year old nonprofit organization whose

membership consists of hundreds of businesses,

professional associations and local governments. Our

principal purpose is to educate the public about ways

to make our civil liability laws more fair, certain, and

efficient. Toward these ends, CJAC regularly petitions

the co-equal and coordimate branches of government

for redress concerning who pays, how much, and to

whom when potentially liable conduct is charged or

implicated.

CJAC participated as amicus curiae in urging the

Court to grant certiorari from the panel opinion

because it expands “arranger” liability under the

Comprehensive Envirommental Response,

Compensation, and Liability Act (““CERCLA”, 42

U.S.C. § 9601) in ways that conflict with other circuit

courts, and imposes an unworkable “adequate records”

requirement for apportionment of clean-up costs at the

hiability stage of CERCLA proceedings.

Resolving conflicting legal opinions within and

between our federal judicial circuits is, of course,

consistent with CJAC’s goal of educating the public

abeut how to make our civil liability laws more fair,

certain, and efficient. We now explain why these goals

'‘ The parties have consented to the filing of this brief. No counsel

for a party authored this brief in whole or in part, and no counsel

or party made a monetary contribution intended to fund the

preparation or submission of this brief. No person other than

amicus curiae, its members, or its counsel, made a monetary

contribution to its presentation or submission.

2

are best achieved by this Court’s holding that

“arranger” liability under CERCLA should not attach

to a bona fide seller of a useful product who

relinquishes ownership and control of it upon its

delivery to the buyer who carelessly handles and

disposes of that product as waste; and that

apportionment of clean-up costs amongst responsible

parties should not be denied at the liability phase of

CERCLA litigation due to the absence of “adequate

records” for which there is no utility for amyone to

maintain.

BACKGROUND AND PROCEEDINGS BELOW

Under CERCLA, federal and state governments can

clean up hazardous waste sites and later sue

potentially responsible parties for reimbursement.

Four categories of “potentially responsible parties”

(PRPs) are defined from whom recovery of clean-up

costs are permitted. Only one of these four categories,

the third enumerated one in CERCLA, is at issue here

— “arrangers,” defined as “as 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 . . ..””

* 42 U.S.C. § 9607(a). The other three numbered categories are,

in ordinal position, “(1) the owner and operator of. . . a facility, (2)

any person who at the time of disposal of any hazardous substance

owned or operated any facility at which such hazardous

substances were disposed of, . . . and (4) any person who accepts

or accepted any hazardous substances for transport to disposal or

treatment facilities.” Jd.

3

Those who make useful products, in contrast to

hazardous products for disposal or treatment, are not

listed as PRPs under CERCLA, but are instead taxed

to defray clean-up costs by the federal government

through contributions to the Hazardous Substance

Superfund. (42 U.S.C. §§ 4611, 4661 & 4662.)

Since CERCLA’s 1980 enactment, its effect on

businesses in the United States has been costly.

Businesses spend over thirty million dollars

cleaning up an average Superfund site, with

larger sites costing businesses over 100 million

dollars. By 1991, businesses spent over 11.3

billion dollars on CERCLA cleanups. Obviously,

liability for even a single Superfund site has

disastrous effects on a business, and the cost to

businesses is going up. By even the most

conservative estimates, the total cost of cleaning

all Superfund hazardous waste sites in the

United States will be well over 100 billion

dollars.’

One of many costly CERCLA enforcement actions

by the government began in 1983, when the

* Martin A. McCrory, The Equitable Solution to Superfund

Liability: Creating a Viable Allocation Procedure for Businesses gt _

Superfund Sites (1998) 23 V7. L. REv. 59. While the estimates of

CERCLA cleanup costs vary, spending is certainly exorbitant. The

cleanup of an individual CERCLA site may range from $26 million

to $50 million. See Jerry L. Anderson, T'he Hazardous Waste

Land, 13 VA. ENvTL. L.J. 1, 10 n.50 (1993). Total nationwide

cleanup costs could be as high as $750 billion. See John T. Ronan

III, A Clean Sweep on Cleanup, THE RECORDER, Sept. 30, 1992, at

10, available in LEXIS, News Library, Recrdr File.

4

Environmental Protection Ageney (EPA) and the |

California State Department of Toxic Substanees

Control (DTSC) separately investigated an

ayricultural chemical storage and distribution facility

in Arvin, California to determine whether repeated

leaks and spills had caused soil and groundwater

contamination. Finding several violations of hazardous

waste laws, the agencies proceeded to clean up the site

and in doing so incurred substantial cost.

In 1996, the United States, acting through the EPA

and DTSC, brought a CERCLA suit against Brown &

Bryant, Inc., owner and operator of the facility;

Burlington Northern & Santa Fe Railway and Union

Pacific Transportation Co. (“Railroads”), part

landowners of the facility; and Shell Oil Company

(Shell), distributor of the agricultural chemical

products involved. The district court determined that

the Railroads fell into the category of “owner” PRPs

and Shell an “arranger” PRP, and that the harm

sustained at the site was capable of apportionment.

(United States v. The Atchison, Topeka, & Santa Fe

Railway Co., Nos. CV-F-92-5068 OWW, CV-F-96-6226

OWW, CV-F-96-6228 OWW (E.D. Cal. July 15, 2003.)

B & B was insolvent.

For the Railroads, the district court multiplied the

percentage of ownership, percentage of time owned in

relation to total operations, and fraction of hazardous

products attributable to the Railroads’ parcel to

determine that they were liable for 9% of the total

cleanup costs. For Shell, the district court multiplied

the percentages of leaks attributable to Shell to

determine that Shell was liable for 6% of the total

cleanup costs. Both parties appealed the judgment: the

EPA and DTSC arguing that the Railroads and Shell

—————

eee eee EEE

5

are jointly and severally liable for the entire judgment,

and Shel) arguing that it is not an “arranger” under

CERCLA and therefore not a party upom whom any

cleanup liability can be imposed.

The Ninth Circuit affirmed the district court’s

rulingthat CERCLA liability attached to the Railroads

as “owners” and Shell as am “arranger.” (U.S. w.

Burlington Northern & Santa Fe Ry. 520 F.3d 918 (9"

Cir. 2008) (“Burlington Northern”).) Relying heavily

on U.S. v. Chem- Dyne, Corp., 572 F. Supp. 802 (S.D.

Ohio 1983), it also held that apportionment of clean-up

costs may be determined at the liability phase oi the

CERCLA proceedings, but ultimately disagreed. with

the district court’s method of apportionment.

Regarding thre Railroads, the Ninth Circuit found that

the factors the district court used (percentages of land

area, time of ownership, and types of hazardous

products) bore am insufficient logical connection to the

pertinent questaon: what part of the contammants

found on the lamd in question were attributable to the

presence of toxic substances or to activities on the

Railroad parcel? The Ninth Circuit rejected the

district court’s apportionment calculation and held

that the Railroads had failed to prove a “reasonable

basis” for apportioning liability. With regards to Shell,

the Ninth Circuit found that because the appropriate

consideration for apportionment is contamination, by

presenting evidence of leakage Shel! failed to prove

whether its chemicals that were leaked had

contaminated the soi! in any specific proportion as

compared to other chemicals spilled at the site. The

Ninth Circuit held that Shell’s evidence concerning

leakage was insufficient to prove a “rational basis” for

apportionment o: liability.

6

Finally, the Ninth Circuit agreed with the district

court that Shell was an “arranger” for purposes of

CERCLA. On appeal Shell contended the district court

used the wrong standard in determining whether it

was an “arranger,” that the “useful product” doctrine

precludes imposition of “arranger” liability on Shell,

that Shell lacked ownership and control over the

chemicals at the time of the transfers, and the district

court erred when it determined Shell contributed to

the groundwater contamination. The Ninth Circuit

rejected Shell’s arguments, finding that an entity can

be an “arranger” even if it did not “own” or “control”

the hazardous material and did not intend to dispose

of it (under CERCLA, “dispose” can mean “spill” or

“leakage”); the “useful product” doctrine does not apply

where the sale of a useful product necessarily and

immediately results in the leakage of hazardous

substances; and Shell had sufficient control over, and

knowledge of, the transfer process to be considered an

“arranger” under CERCLA.

SUMMARY OF ARGUMENT

“Arranger” liability under CERCLA should not

attach to a bona fide seller of a useful product who,

even if it is a hazardous substance, relinquishes

ownership and control of it upon delivery to the buyer.

That is the law in every jurisdiction except, as a result

of this opinion, the Ninth Circuit. Nor should

apportionment of CERCLA clean-up costs be denied at

the liability phase of litigation due to the absence of

“adequate records” for which there is no utility for

anyone to maintain. That, again because of this

opinion, now occurs only in the Ninth Circuit.

7

Bad law should be nipped in the bud lest it infect

future courts considering similar or analogous issues.

The opinion in this case is “bad” law, not because it is

animated, as Holmes intimated, by “hard facts; but

because it is at odds with better reasoned decisions

from other circuits and common-sense. The Court

should reverse in its entirety the judgment of the

Ninth Circuit and adopt the better reasoned opinions

from the majority of circuits on CERCLA “arranger”

liability and “apportionment.”

ARGUMENT |

I. THE SELLER OF A “USEFUL PRODUCT”

WHO RELINQUISHES OWNERSHIP AND

CONTROL OF IT UPON RECEIPT BY THE

BUYER IS NOT AN “ARRANGER” UPON

WHOM CERCLA LIABILITY SHOULD BE

IMPOSED.

A. A Seller’s “Intent,” “Ownership” and

“Control” of Hazardous Substances

Should be Key Factors for Determining

whether CERCLA “Arranger” Liability

Attaches.

As mentioned, CERCLA provides that “any person

who by contract, agreement or otherwise, arrangel|s]

for disposal or treatment, or arranges[s] with a

transporter for transport for disposal or treatment, of

hazardous substances owned or possessed by such

person” is liable as an “arranger.” (42 U.S.C.

*“Great cases, like hard cases, make bad law.” Northern Secs. Co.

v. United States, 193 U.S. 197, 400 (1904).

8

§9607(a)(3).) Other than this language, there is little

else surrounding CERCLA to guide courts in its

application and enforcement. “Any inquiry into

CERCLA’s legislative history is somewhat of a snark

hunt. Like other courts that have examined the

legislative history, we have found few truly relevant

documents.” (Carson Harbor Vill., Ltd. v. Unocal

Corp., 270 F.3d 863, 885 (9th Cir. 2001).)°

Not surprisingly, courts which have grappled with

the content and contours of “arranger” liability

disagree as to how best to determine the conditions

upon which liability attaches, with the better reasoned

opinions standing in sharp contrast to the Ninth

Circuit panel’s opinion here. Inde2ed, the panel opinion

is an outlier compared with other circuit courts

regarding the test it adopts for deter:nining “arranger”

liability, particularly the lack of importance it accords

to the elements of “intent,” “ownership” and “control”

by the seller with respect to disposal or treatment of

the hazardous material. What the Ninth Circuit has

finally wrought by this opinion is the stripping away of

three key, commonsense’ elements to “arranger”

liability, none of which it finds to any longer have

much importance, and their replacement with a vague

knowledge given the “totality of the circumstances”

° See also Rhodes v. County of Darlington, S.C., 833 F. Supp. 1163,

1174(D.S.C. 1992) “CERCLA is oft-criticized for its hasty passage

and lack of clarity. There is virtually no legislative history to

guide the courts in interpreting the Act. The statute as originally

enacted was, at best, vague and indefinite.”).

® See also California Dep’t of Toxic Substances Control v. ALCO

Pacific, Inc., 508 F.3d 930, 939 (9th Cir., 2007). This Court has

criticized the “totality of circumstances” approach in numerous

9

test that leaves determinations of “arranger liability”

uncabined and unconfined.

1. Considering “intent” for “arranger”

liability is consistent with the language

of the statute and not contrary to the

strict liability principle underlying

CERCLA.

We begin with intent, an implied element of

“arranger” liability the panel mistakenly found

unnecessary under CERCLA. “{AJn entity [like Shell]

can be an arranger even if it did not intend to dispose

of the product.” (U.S. v. Burlington Northern & Santa

Fe Ry. Co. , 502 F.3d 781, 808 (9th Cir. 2007), amended

by order denying petition for rehearing en banc.) This

conclusion is, we are told, fortified by the observation

that “disposal” under CERCLA includes “leaking,” and

since “leaking” may not “require affirmative . . .

conduct,”’ “disposal” need not be “purposeful.” (Jd.)

Ergo, “arrangling] for” liability under CERCLA has

nothing to do with the seller’s intent. The panel

opinion concludes a seller can be found liable as an

“arranger” absent an intent to dispose of the product.

contexts, including its use to determine whether an act falls

within the “statutory public use” or “on sale” as being

unnecessary, vague, and uncertain. See Pfaff v. Wells Elecs., Inc.,

525 U.S. 55, 66 (1998). See also United States v. Mead Corp., 533

U.S. 218, 237 (2001) (Scalia, J., dissenting) (criticizing the

majority’s replacement of the Chevron doctrine with a “totality of

the circumstances” test).

” See Carson Harbor Vill., supra, 270 F.3d at 880 (holding that

“leaking” may not “require affirmative .. . conduct” (internal

quotation marks omitted)).

10

“Arranging for a transaction in which there necessarily

would be leakage or some other form of disposal of

hazardous substances is sufficient.” (Burlington

Northern, supra, 520 F.3d at 808.)

This construction of the “arranger liability”

language of CERCLA is syntactically clever, but

semantically wrong; it ignores the plain meaning of

the words used and their relationship to each other.

CERCLA’s definition of an “arranger,” which includes

those who by “contract or agreement” or who

“otherwise arrange for” disposal of hazardous

substances, evinces an “indispensable role” for state of

mind in applying the statute. “Although the statute

defines ‘disposal’ to include ‘spilling,’ the critical words

for present purposes are ‘arranged for.’ The words

imply intentional action.” (Amcast Indus. Corp. v.

Detrex Corp., 2 F.3d 746 (7th Cir. 1993) (Amcast).)

“Otherwise arranged” is a general term

following in a series two specific terms and

embraces the concepts similar to those of

“contract” and “agreement:” 2A Norman J.

Singer, SUTHERLAND STATUTORY

CONSTRUCTION § 47.17 (1992); Woods uv.

Simpson, 46 F.3d 21, 23 (6th Cir.1995). All of

these terms indicate that the court must inquire

into what transpired between the parties and

what the parties had in mind with regard to

disposition of the hazardous_ substance.

Therefore, including an intent requirement into

the “otherwise arranged” concept logically

11

follows the structure of the arranger liability

provision. ®

This parsing of the pertinent statutory language is

neither novel nor new. Judge Posner had occasion to

discern the meaning of “arranger” liability from

analysis of the statutory language in Amcast. In that

case the defendant, a chemical manufacturer,

contracted with a common carrier for transportation of

a hazardous substance, which “spilled” when the buyer

filled his storage tanks with it. The Court of Appeal

reversed the district court and held there was no

“arranger liability for the seller of the hazardous

substance because defendant did not contract with the

transporter for the purpose of spilling the substance on

the premises. As if anticipating the panel’s

explanation in this case as to why intent is irrelevant

to determining arranger liability, Judge Posner

addressed and laid to rest the argument that since

“disposal” in CERCLA’s definitions includes the

“accidental spilling” or “leaking” of a substance,

intentionality cannot be implied as 2 required element

of CERCLA arranger liability:

Statutes sometimes use words in nonstandard

senses, and do so without benefit of a

definitional section. . . . But since context

determines meaning, the same word can mean

different things in different sentences — to

monopolize a conversation doesn’t mean the

same thing as to monopolize the steel industry

— even in the same statute, especially when the

* United States v. Cello Foil Prods., Inc., 100 F.3d 1227, 1231 (6th

Cir. 1996); emphasis added.

12

statute does not attempt to impose a single

meaning by defining the word. In the context of

the operator of a hazardous-waste dump,

“disposal” includes accidental spillage; in the

context of the shipper who is arranging for the

transportation of a product, “disposal” excludes

accidental spillage because you do not arrange

for an accident except in the A®sopian sense

illustrated by the staged accident.®

Ascertaining the intent of the seller to determine if

arranger liability is appropriate does not run counter

to the strict liability principles undergirding CERCLA.

The intent inquiry is geared only towards determining

whether the party in question, here Shell, is

potentially liable, a PRP. Once a party is determined

to have the requisite intent to be an “arranger,” then

strict liability takes effect. If an arrangement has been

made, that party is liable for damages caused by the

disposal regardless of the party’s intent that the

damages not occur. But if there is no intent to make an

“arrangement for” disposal or treatment of waste,

there should be no liability as an “arranger.”

2. “Ownership” and “Control” are More

Sensible Criteria for Determining

“Arranger Liability” than the Ninth

Circuit’s Use of “Knowledge.”

Besides dispensing with intent as an element of

CERCLA arranger liability, the panel opinion in this

case vastly alters the importance of the “ownership”

and “control” elements from previous Ninth Circuit

* Amcast, supra, 2 F.3d at 751; emphasis added.

13

opinions and those of other circuits that have

considered the content of arranger liability. In United

States v. Shell Oil Co., 294 F.3d 1045, 1055 (9th Cir.

2002), for instance, the court hailed control as “a

crucial element of the determination” and, in the

absence of ownership, indicated that “actual control” is

necessary. Here, however, the Ninth Circuit placed a

revisionist gloss on Shell and its antecedents by

asserting that thee authorities did not deem ownership

or control to be “crucial” elements of arranger liability,

but merely “useful indices or clues””® in the analysis.

United States v. Aceto Agr. Chemicals Corp., 872

F.2d 1373, 1381-82 (8" Cir. 1989) (“Aceto”) underscores

the importance of ownership and control as factors to

be considered in determining arranger responsibility.

That opinion upholds a district court’s assignment of

CERCLA arranger liability on pesticide manufacturers

for the environmental contamination of a facility used

to formulate market-grade products. Based on the

manufacturers’ ownership of the raw materials in

addition to the final products, the district court held

the manufacturers liable for the environmental torts

of their independent contractor. In its opinion, the

Eighth Circuit emphasized that the authority to

control the pollution-causing process is not the sole

critical factor in imposing CERCLA liability for

resulting environmental harin. Rather, the Act

specifies ownership of the released substances as a

distinct basis for assigning such liability.'' “Plaintiffs

'© Burlington Northern, supra, 520 F.3d at 951.

'? Aceto was vacated after the Court granted rehearing en banc.

See FMC Corp. v. U.S. Dep't of Commerce, 10 F.3d 1003 (3d Cir.

1994). In the superseding en banc decision, the Court affirmed the

14

alleged that defendants retained ownership of their

hazardous substances throughout the formulation

process; and [wle hold these allegations . . . sufficient

to establish . . . that defendants ‘arranged for’ the

disposal of hazardous substances under CERCLA.” Ud.

at 1384; emphasis added.)

To be sure, there has been some disagreement

between the circuits over whether ownership or control

of the material being processed is the more critical

factor in “arranger liability” analysis. (Cf United

States v. Hercules, 247 F.3d 706, 720 (8th Cir. 2001)

(implying that ownership without control would suffice

and stating that “[clontrol ... is not a necessary factor”)

and Jones-Hamilton Co. v. Beazer Materials & Services

Inc., 973 F.2d 688, 695 (9th Cir. 1992) (liability based

on ownership without control); with United States v. ~

Shell Oil Co., supra, 294 F.3d at 1055-56 (proof of

ownership not required because actual control is the

“crucial element”).) But the panel opinion in this case

stands alone in relegating ownership and control to

nothing more than “clues,” as opposed to “crucial”

factors, in ascertaining arranger liability.

Denigrating the importance of “ownership” as a

critical element in ascertaining arranger liability

under CERCLA, which the panel opinion here does,

makes no sense. After all, proof of ownership or

district court’s judgment holding the government liable as an

arranger without discussion because the Court was “equally

divided on this point.” FMC Corp. v. U.S. Dep't of Commerce, 29

F.3d 833, 846 (3d Cir. 1994). Accordingly, to this date the Eighth

Circuit has neither ruled on the validity of the Aceto test for

“arranger liability,” nor articulated its own test. See United

States v. Occidental Chem. Corp., 200 F.3d 143, 145 (3d Cir. 1999).

15

possession of the hazardous substance is required by

the plain language of the statute. (See 42 U.S.C.

§ 9607(a)(3) (“any person who... arranged for disposal

or treatment .. . of hazardous substances owned or

possessed by such person . . ..) (emphasis added).) This

required factor is the starting point in determining

“arranger liability” because, of course, with ownership

comes responsibility. See Aceto, supra, 872 F.2d at

1382 (imposing “arranger liability” upon defendant

that :owned hazardous substance throughout

formulation process because finding otherwise “would

allow defendants to simply ‘close their eyes’ to the

method of disposal of their hazardous substances”).

While ownership often equates with “control,” it is

obviously possible for one to lack “ownership” over a

hazardous substance but still have “control” over the

disposal or treatment of that substance. In these

situations, courts have understandably found “control”

instead of ownership to be the decisive factor. (C.f,,

Shell Oil, supra, 294 F.3d at 1055, 1057 (suggesting

that “actual control” rather than simply “authority to

control” must be shown); General Elec. Co. v. AAMCO

Trans., Inc., 962 F.2d 281, 286-87 (2d Cir. 1992)

(implying that obligation to exercise contro! alone

satisfies the “arranger liability” standard).)

Here, however, “arranger” liability” is imposed by

the Ninth Circuit upon Shell absent any evidence that

Shell intended to arrange for the disposal of its soil

fumigant by B & B or that it owned or controlled what

happencd to the product once ownership transferred to

B & B. Lacking any evidence in the record of the key

factors of “intent,” “ownership” or “control,” the Ninth

Circuit opinion nonetheless attempts to cobble

together through tenuous reasoning some satisfaction

16

of these criteria only to end up substituting in their

place an independent criterion — knowledge.

“Ownership,” the opinion tells us, is satisfied by the

fact that Shell owned its product before it sold it to B

& B. “Shell . . . owned the chemicals at the time the

sale was entered into. The statute requires nothing

more in terms of ownership.” (Burlington Northern,

supra, 520 F.3d at 951.) But this cannot be the

“ownership” or “possession” CERCLA intends. If the

statute is construed in this way one can never sell an

allegedly hazardous substance to another without

incurring arranger liability for whatever the buyer

does with regard to disposing of or treating the

product. In other words, a seller can never escape

liability for sale of its product — however useful — no

matter how much the buyer assumes liability for its

disposal or treatment, which means no one of sound

mind would ever manufacture or sell any substance to

another that may be hazardous when disposed of or

treated and incur costs greater than the return made

from the sale.

“Control,” which along with “ownership” has been

reduced by the panel opinion from a “crucial” element

to a mere “clue” for determining arranger liability, is

supposedly satisfied by Shell’s arranging for the

delivery of its fungicide D-D through common carrier,

and its knowledge that spills occurred every time

delivery was made to B & B. Petitioner has

persuasively addressed the factual errors and logical

flaws in the Ninth Circuit's musings toward this

end,” but the bottom line is the opinion’s

* Brief for Petitioner, pp. 29-31.

17

pronouncement that Shell had “sufficient knowledge of

the transfer process to be considered an “arranger,”

within the meaning of CERCLA ....” (Burlington

Northern, supra, 520 F.3d at 951.) Thus knowledge of

the transfer process, by itself, is sufficient to render

one an “arranger” in the current view of the Ninth

Circuit. Knowledge, however, whether actual or

constructive, is a highly subjective element and too

slim a reed upon which to rest arranger liability.

Indeed, if the Ninth Circuit is correct in its reasoning

that intent is not relevant to arranger liability because

“leaking” of a hazardous substance is a part of

“disposal,” then it is difficult to logically reconcile how

the subjective element of “knowledge” can be essential]

to determining arranger liability.

B. Arranger Liability Should Not be Imposed

Upon one who Makes and Sells a “Useful

Product” to Another who Misuses it and

then Disposes of it as Waste.

The “useful products” doctrine establishes that the

“sale of a new useful product containing a hazardous

substance” — as opposed to the sale of a substance

merely “to get rid of it” — does not give rise to CERCLA

liability. (Prudential Ins. Co. of Am. v. United States

Gypsum, 711 F. Supp. 1244, 1254 (D.N.J. 1989).)

Accordingly, courts have refused to impose arranger

liability for the sale of asbestos-containing

construction materials,’ the subsequent sale of a

'S Id. Nor does the mere installation of such materials constitute

“disposal.” 3550 Stevens Creek Assocs. v. Barclay’s Bank of Cal.,

915 F.2d 1355 (9th Cir. 1990).

18

building containing such materials,‘ the sale of new

and used electrical transformers containing hazardous

polychloronated biphenals (PCBs), the sale of wood

treatment chemicals to a wood treatment facility,”

the sale of PCBs for use as dielectric fluid in electrical

equipment,” the sale of neoprene compounds for use in

the manufacture of rubber goods," and the transfer of

hazardous chemicals for use in electroplating, heat

treating, and waste water treatment.”

Freeman v. Glaxo Wellcome, Inc., 189 F.3d 160 (2d

Cir. 1999) explains why sellers of useful hazardous

substances are not subject to arranger liability. Glaxo,

upon closing a facility, sold chemical reactants used in

its facility to Freeman Industries Incorporated (FII) for

use in FIIT’s business. FII used some of the chemicals in

“ G.J. Leasing Co. v. Union Elec. Co., 54 F.3d 379, 383 (7th Cir.

1995).

'S Florida Power & Light Co. v. Allis Chalmers Corp., 893 F.2d

1313 (11th Cir. 1990) (sale of new transformers); C. Greene Equip.

Corp. v. Electron Corp., 697 F. Supp. 983 (N.D. Il. 1988) (sale of

used transformers with useful life).

‘© Edward Hines Lumber Co. v. Vulcan Materials Co.,685 F. Supp.

651 (N.D. Ill.), affd on other grounds, 861 F.2d 155 (7th Cir.

1988).

"’ United States v. Westinghouse Elec. Corp.. 22 Env’t Rep. Cas.

(BNA) 1230, 1232 (S.D. Ind. 1983).

'® Kelley v. Arco Indus. Corp., 739 F. Supp. 354 (W.D. Mich. 1990).

"2 AM Int'l. v. Int'l. Forging Equip., 982 F.2d 989, 998 (6th Cir.

1993). Here, there was some question as to whether ownership of

the chemicals at issue was actually transferred between the

parties. /d. at 998 n.10.

19

its business, stored saime of them, and sold some of

them. The stored chemicals became the source of a

remedial action by the EPA at the FII facility. FII

commenced a third party action for contribution

against Glaxo, claiming that Glaxo had arranged for

disposal of its chemicals at the FII facility. Glaxo’s

defense was, as Shell argued here, that it merely sold

the chemicals and did not arrange for their disposal.

After citing cases holding that one cannot circumvent

the Superfund Law by characterizing disposal as a

sale, the court noted that Glaxo sold valuable products

‘» FII for use or resale. The court determined that

these were virgin chemicals, not waste, and liability

for the arrangement for disposal requires the presence

of waste. Therefore, Glaxo did not arrange for disposal

at the FII facility.

Similarly, Pneumo Abex Corp. v. High Point,

Thomasville & Denton R.R., 142 F.3d 769 (4th Cir.

1998) provides further analysis of how to determine

whether a transaction is a sale or an arrangement for

disposal. The court explained that the key factors “[i]n

determining whether a transaction was for the discard

of hazardous substances or for the sale of valuable

materials” were the intent of the parties, the value and

state of the materials, and the usefulness of the

product. The transaction in Pneumo was for the sale

of used bearings to be processed into new bearings.

The processing generated waste, but the court found

that the essence of the transaction was payment in

exchange for bearings, not an attempt to dispose of

unwanted metal. Thus, the seller did not arrange for

disposal.

The Ninth Circuit opinion here attempts to evade

the “useful product” defense to arranger liability by, as

20

previously discussed, pointing out that under

CERCLA’s definitions “waste” includes “leakage,” and

then grafting onto that the assertion Shell knew that

its fungicide D-D was subject to “leakage” and, given

that it was also hazardous, it was ipso jure, “waste.”

But this spin on CERCLA strips the useful products

doctrine of any viability whatsoever. All “leakage” of

a useful product that is also a hazardous substance

becomes, under the Ninth Circuit’s reading of the

statute, the “disposal” of “waste” for which a seller is

liable as an “arranger.” Once again, the panel opinion

goes too far and proves too much; it is a literal, but not

a literate reading, of CERCLA’s arranger liability

provision.

Il. THE OPINION IMPOSES AN IMPRACTICAIT.

AND UNWORKABLE “ADEQUATE

RECORDS” REQUIREMENT FOR

APPORTIONMENT OF CI.EAN-UP COSTS TO

OCCUR AT THE LIABILITY STAGE OF

CERCLA PROCEEDINGS.

Liability under CERCLA is normally joint and

several, meaning each defendant is potentially liable

for the entire amount of clean-up costs, with the

possibility of then seeking contribution from other

defendants. Some courts, however, have allowed

apportionment of responsibility on the basis of

equitable factors at the liability stage. See, e.g., B.F.

Goodrich v. Betkoski, 99 F.3d 505, 514 (2d Cir. 1996)

(“Liability under the Act is joint and several, unless

potentially responsible parties can prove that the harm

is divisible.”); O’Neil v. Pictllo, 883 F.2d 176, 178 (1st

Cir. 1989) (“{D)amages should be apportioned only if

the defendant can demonstrate that the harm is

divisible.”); cert. denied sub. nom, American Cyanamid

21

Co. v. O’Neil, 493 U.S. 1071 (1990). Congress intended

CERCLA ajportionment to be governed by common

law tort principles and guided by the Restatement

(Second) of Torts § 443. See, e.g., In re Bell Petroleum

Servs., Inc., 3 F.3d 889, 895 (5th Cir. 1993).

The opinion in this case recognizes’ the

appropriateness of apportionment at the liability

phase of CERCLA litigation, but then devises a test

that, for ail practical matters, obliterates that

possibility. Not surprisingly, the stringent test

devised by the opinion results in reversal of the district

court’s “reasonable basis” apportionment and saddles

Shell and the Railroads with complete responsibility

(joint and severally liable) for the total clean-up costs.

Factors to be considered by courts in determining

whether apportionment is appropriate are explained in

comment d to the RESTATEMENT (SECOND) OF TORTS

§ 433A(1), upon which other circuits apportioning

CERCLA liability have relied:

There are other kinds of harm which, while not

so clearly marked out as severable into distinct

parts, are still capable of division upon a

reasonable and rational basis, and of fair

apportionment among the causes responsible.

Thus where the cattle of two or more owners

trespass upon the plaintiffs land and destroy

his crop, the aggregate harm is a lost crop, but

it may nevertheless be apportioned among the

owners of the cattle, on the basis of the number

owned by each, and the reasonable assumption

that the respective harm done is proportionate

to that number. Where such apportionment can

22

be made without injustice to any of the parties,

the court may require it to be made.

Instead of cattle and crops, the district court

considered the percentage of land ownership held by

the various parties, the period in which the land was

held in ownership, and the length of time of

contamination to arrive at a “reasonable basis” for

apportioning the respective costs to be borne by Shell

and the Railroads. The district court’s approach to

apportionment was in keeping with the “whole point”

of Restatement § 433A that, as the dissent remarks,

“no specific evidence is required for apportionment so

long as the evidence and method used are

‘reasonable.” (Burlington Northern, supra, 520 F.3d at

958.) Nonetheless, the Ninth Circuit panel reversed

the district court’s “apportionment” because the

parties did not produce “adequate records” detailing

“the amount of leakage attributable to activities on the

Railroad parcel, how the leakage traveled to and

contaminated the soil and groundwater . . ., and the

cost of cleaning up the contamination.” (Burlington

Northern, supra, 520 F.3d at 957.)

Significantly, the opinion concedes that there would

be little “utility” to either the operator of the waste

facility or the owner of the land (not to mention the

seller of the useful product) to make such records; but

nonetheless faults the absence of such records as

grounds for reversing the _ district court’s

apportionment.

Under the opinion’s reasoning, it is difficult to

imagine any practical circumstances allowing for

apportionment of clean-up costs between and amongst

responsible parties. “Adequate records,” as the opinion

23

admits, are unlikely ever to be kept because there is no

“utility” for parties to keep the kind of documentation

the opinion says is a prerequisite for CERCLA

“apportionment.”

The opinion here accepts the theory of

apportionment by paying lip service to it, but saddles

courts attempting to perform apportionment at the

liability phase of CERCLA litigation with an

unreasonable and burdensome requirement that

effectively makes it unlikely to ever occur. This is

contrary to the law in numerous other circuits and

Congressional intent. The Court should reverse the

judyment on the grounds that a reasonable basis exists

to apportion damages between Shell and the Railroads

at the liability phase.

CONCLUSION

For all the aforementioned reasons, the judgment

of the court of appeals should be reversed.

Respectfully submitted,

Fred J. Hiestand

Counsel of Record

1121 L Street, Suite 404

Sacramento, CA 95814

(916) 448-5100

Counsel for Amicus Curiae