Petition for Writ of Certiorari — Atlantic Richfield Co. v. United States

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FILED

(i) Supreme Court, U.S.

woOZ 500 SEP 26 2002

INTHE OFFICE OF THE CLERK

Supreme Court of the Giited States

ATLANTIC RICHFIELD COMPANY AND TEXACO, INC.,

Petitioners,

UNITED STATES OF AMERICA, ef al,

_Respondents.

Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit oe

JOINT PETITION FOR A WRIT OF CERTIORARI

JEAN A. MARTIN CARTER G. PHILLIPS*

ATLANTIC RICHFIELD SIDLEY AUSTIN BROWN &

COMPANY WOOD LLP

333 South Hope Street 1501 K Street, N.W.

Los Angeles, CA 90071 Washington, DC 20005

(213) 486-0761 (202) 736-8000

Counsel for Petitioner

Atlantic Richfield Company KATHERINE L. ADAMS

DAVID H. BECKER

CHARLES G. LAMBERT SIDLEY AUSTIN BROWN &

CHEVRONTEXACO WOOD LLP

CORPORATION 787 Seventh Avenue

2613 Camino Ramon New York, NY 10019

San Ramon, CA 94583 (212) 839-5300

(925) 973-4546 Counsel for Petitioners

Counsel for Petitioner Atlantic Richfield Company

Texaco, Inc. and Texaco, Inc.

September 25, 2002 * Counsel of Record

(202) 789-0096 — WASHINGTON, D. C. 20001

WILSON-EPES PRINTING Co., INC. —

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QUESTION PRESENTED

Whether the United States is liable as a party who “ar-

ranged” for the disposal of hazardous waste under Section

107(a)(3) of the Comprehensive Environmental Response,

Compensation, and Liability Act when, in the exercise of its

war powers, the United States exerted pervasive and coercive

control over the manufacture of aviation gasoline necessary

for World Wai II military operations and deprived the manu-

facturers of the resources necessary properly to dispose of

hazardous waste generated in the manufacturing process.

(i)

STATEMENT REQUIRED BY RULES 14.1 AND 29.6

Pursuant to Supreme Court Rule 14.1, the Petitioners state

that the parties to the proceedings below were the United

States of America, the State of California ex re/. California

Department of Health Services, Hazardous Substance Ac-

count and Hazardous Cleanup Fund, Shell Oil Company,

Union Oil Company of California, Atlantic Richfield Com-

pany, Texaco, Inc., Los Coyotes Estates Ltd., Ramparts

Research & Financial Corporation, and Mcauley LCX Corpo-

ration.

Pursuant to Supreme Court Rule 29.6, Petitioner Atlantic

Richfield Company states that its parent company is BP

America Inc., which owns all the common stock of Atlantic

Richfield Company. Petitioner Texaco, Inc. states that its

parent company is ChevronTexaco Corporation, formerly

known as Chevron Corporation, which owns all the common

stock of Texaco, Inc.

TABLE OF CONTENTS

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STATEMENT REQUIRED BY RULES 14.1 AND

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RELEVANT CONSTITUTIONAL AND STATU-

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STATEMEN! OF THE CASE ..........................00......

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2. Decisions of the District Court .........................

3. Decision of the Court of Appeals......................

REASONS FOR GRANTING THE PETITION ...........

I. A CONFLICT EXISTS AMONG THE COURTS

OF APPEALS CONCERNING THE APPRO-

PRIATE TEST FOR CERCLA “ARRANGER”

LIABILITY WHERE A PARTY EXERCISES

PERVASIVE- CONTROL OVER MANUFAC-

TURING BUT DOES NOT DIRECTLY DIS-

POSE OF HAZARDOUS WASTE .......................

II. THE ISSUE RAISED IS IMPORTANT BE-

CAUSE OF THE EXTENSIVE AND PERVA-

SIVE UNITED STATES INVOLVEMENT IN

MANUFACTURING DURING WARTIME ........

DT MIIEY Sis n cn cddeveesseesesshcersssecerees ae Seinsomeitsinets

TABLE OF AUTHORITIES

CASES Page

Axel Johnson, Inc. vy. Carroll Carolina Oil Co.,

191 F.3d 409 (4th Cir. 1999)..................ccccccceee 25

Cadillac Fairview/California, Inc. v. United

States, 41 F.3d 562 (9th Cir. 1994) 000.0. 19, 25

Carson Harbor Vill., Lid. v. Unocal Corp., 270

Fe rR isis ccctss ssecrcterenvensisiiensads 25

Commander Oil Co. v. Barlo Equip. Corp., 215

fg Fe |: ih ermenmeNmne yeas 25

Concrete Sales & Servs., Inc. v. Blue Bird Body

Co., 211 F.3d 1333 (11th Cir. 2000)................. 22,23 —

Florida Power & Light Co. v. Allis Chalmers

Corp., 893 F.2d 1313 (11th Cir. 1990)...00.0........ 25

FMC Corp. v. United States Dep’t of Commerce,

786 F. Supp. 471 (E.D. Pa. 1992), aff'd 10 F.3d

987 (3d Cir. 1993), opinion and judgment va-

cated, reh’g granted, aff'd and aff'd in part by

an equally divided court, 29 F.3d. 833 (3d Cir.

a ,_ IER ae eNO RAS ACIS LOR MON i Ar EAT AON 19

Franklin County Convention Facilities Auth. v.

American Premier Underwriters, Inc., 240 F.3d

ee 25

General Elec. Co. v. AAMCO Transmissions,

Inc., 962 F.2d 281 (2d Cir. 1992)............... NAS 22

Geraghty & Miller, Inc. v. Conoco Inc., 234 F.3d

re ee 23, 25

Hercules, Inc. v. United States, 516 U.S. 417

1, CRASS ERseadrulesis iia itn toni gen ecioein aera 29

Mobil Oil v. United States, 530 U.S. 604 (2000)... 29

New Jersey Tpk. Auth. v. PPG Indus., Inc., 197

eg a | , Eee ye en 24

Pennsylvania vy. Union Gas Co., 491 US. 1

I ihn ho ccsct nang hiaigsuaseenee cin yationsenseo Nei: 25

Redwing Carriers, Inc. v. Saraland Apartments,

94 F.3d 1489 (11th Cir. 1996)... ee. 23

-_-

TABLE OF AUTHORITIES -— continued

Page

South Florida Water Mgmt. Dist. v. Montalve, 84

ee Eee hI ED oc ce cscs cinsecicinkeceumcnatess 22

United States v. Aceto Agric. Chem. Corp., 872

F.2d 1373 (8th Cir. 1989)... 12, 17, 20, 25

United States v. Bestfoods, 524 U.S. 51 (1998)..... 24

United States v. CDMG Realty Co., 96 F.3d 706

CE es WE Riccsientsac ooaanuancmenen 24

United States v. Hercules, Inc., 247 F.3d 706 (8th

ee eee 20

United States v. Kayser-Roth Corp., 910 F.2d 24

fo 43, RRR ead iier Meioe ARRAN Nel EMEA Fee 25

United States v. Kayser-Roth Corp., 272 F.3d 89

CR, SPE ain ie 25

United States v. Mottolo, 605 F. Supp. 898

Ge FANE BOE peck ccenicsnnls vidoe 25

United States v. Northeastern Pharm. & Chem.

Co., 810 F.2d 726 (8th Cir. 1986)......... 17, 18, 19, 25

United States v. Occidental Chem. Corp., 200

eR fk Lk ae . , neu N oman erne 19

United States v. Reilly Tar & Chem. Corp., 546

F. Supp. 1100 (D. Minn. 1982)............0.2..0....... 26

United States v. TIC Inv. Corp., 68 F.3d 1082

Ge. SMe arrreresrncees tas epiticiatcn en oiadees 21

United States v. Vertac Chem. Corp., 46 F.3d 803

RE. | SARC SA rasta inale op aiioie Soya Meet tes 21

United States v. Winstar Corp., 518 U.S. 839

EEE -ishvekistnccrioicmnaiexeaierednaa cena mee 29

STATUTES

Be Ree EEE ckGidisicineninndelaunenn 2, 10, 11

NIE op. oicas diadesaia acess cae eee 10

TABLE OF AUTHORITIES -— continued

LEGISLATIVE HISTORY Page

More Emphasis Needed on Risk Reduction: Tes-

timony Before the Subcomm. on Nat'l Econ.

Growth, Natural Res. & Regulatory Affairs of

the House Comm. on Gov't Reform and Over-

sight, GAO/T-RCED-96-168 (1996).................. 28

Oe SRE FOO Fe CO isn cai ccd eancbesscisestavetens 4

SCHOLARLY AUTHORITIES

John Lord O’Brian & Manly Fleischmann, Zhe

War Production Board Administrative Policies

& Procedures, 13 Geo. Wash. L. Rev. 1

CRONIN ccscuciscueusticcuta ns een eae 27, 28

Nancy Perkins Spyke, From War Strategy To

Waste Strategy: The Validity of Government

CERCLA Liability For War Production Site

Cleanups, 4 N.Y.U. Envtl. L.J. 263 (1995)........ 28

Pe en

IN THE

Supreme Court of the Anited States

No. 02-

ATLANTIC RICHFIELD COMPANY AND TEXACO, INC.,

Petitioners,

UNITED STATES OF AMERICA, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

JOINT PETITION FOR A WRIT OF CERTIORARI

Petitioners Atlantic Richfield Company and Texaco, Inc.

respectfully petition for a writ of certiorari to review the

judgment of the United States Court of Appeals for the Ninth

Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals was entered on Febru-

ary 11, 2002, then withdrawn and replaced by a new opinion

on June 28, 2002. The June 28, 2002 opinion is reported at

294 F.3d 1045 (9th Cir. 2002) and is reprinted in the Appen-

dix to this Petition (“App.”) at la-30a. The district court

decision pertaining to “arranger” liability, which the court of

appeals reversed, was entered as a summary judgment ruling

on September 18, 1995, is unpublished, and is reprinted in

App. at 31a-47a. Also reproduced are related decisions of the

district court: a summary judgment holding the Oil Compa-

nies liable for waste disposal arrangements, entered on

September 28, 1993, which is reported at 841 F. Supp. 962

(C.D. Cal. 1993) and is reprinted in App. at 84a-107a; a

decision affirming liability and allocating costs to the United

States after trial, entered on August 11, 1998, which is

reported at 13 F. Supp. 2d 1018 (C.D. Cal. 1998) and is

reprinted in App. at 57a-83a; a decision denying the United

States’s motion for new trial, entered on November 4, 1998,

which is unreported and is reprinted in App. at 55a-56a; and

the final judgment of the district court and attached stipula-

tion of the parties, entered on October 13, 1999, which are

reprinted in App. at 48a-54a.

JURISDICTION

The court of appeals entered its decision on February 11,

2002. Petitioners Atlantic Richfield Company and Texaco,

Inc., together with defendants-appellees/cross-appellants

Shell Oil Company and Union Oil Company of California

(the “Oil Companies”), filed a Petition for Panel Rehearing

and Rehearing En Banc, and the United States of America

filed a Petition for Panel Rehearing, both of which were

denied in the revised opinion filed on June 28, 2002. See

App. 2a-3a. This Court has jurisdiction pursuant to 28 U.S.C.

§ 1254(1).

RELEVANT CONSTITUTIONAL AND

STATUTORY PROVISIONS

The question presented concerns Section 107(a) of the

Comprehensive Environmental Response, Compensation, and

Liability Act (“CERCLA”), 42 U.S.C. § 9607(a) (“CERCLA

§ 107(a)”), which is reproduced in App. at 108a-109a.

STATEMENT OF THE CASE

The important question raised by the decision below is

whether the United States, in the exercise of its wartime

powers, can be liable as a party which “arranged” for the

disposal of waste under 42 U.S.C. § 9607(a)(3) (“CERCLA

§ 107(a)(3)”) where the United States maintained pervasive

control over manufacturing at private facilities of materials

necessary for the war effort, manufacturing that required the

disposal of hazardous waste. Although the United States did

not itself own the raw or intermediate products involved in

the manufacturing process and did not directly arrange to

dispose of hazardous waste generated in that process at a

particular landfill, the United States controlled the disposal in

other ways. It ordered the facilities to increase production,

made all important decisions concerning the allocation of

resources necessary for production and disposal of the result-

ing waste, and was the exclusive ultimate purchaser of the

wartime products created. Significantly, the United States

also denied the private companies the resources necessary

properly to dispose of the waste generated, resources unavail-

able at that time from any other sources.

The courts of appeals have taken fundamentally inconsis-

tent approaches to deciding the level of control over waste

disposal required for imposition of CERCLA arranger liabil-

ity. The proper interpretation of this provision of CERCLA

has substantial implications for the allocation of cleanup

liability throughout the country. The United States has been

extensively involved in organizing wartime production

efforts, and there are many hazardous waste disposal sites at

which this issue has arisen and potentially will arise. More-

over, the scope of government liability will affect private

conduct in the future, including the United States effort to

prosecute the current War on Terrorism, or in future wars.

1. Factual Background

This case involves the disposal of hazardous waste at a site

(the “McColl Site”) in California used during World War II

and the determination, nearly 60 years later, of who should

bear the responsibility for cleaning up this Site. '

The conditions in the United States between 1941 and 1945

were unprecedented in our history: the nation was engaged in

a foreign war involving the total commitment of all elements :

of our society to prevail in a world war. Unlike the First

World War, it was not a war being fought “over there”:

United States involvement began with an enemy strike against

our sovereign territory that signaled the beginning of the War

in the Pacific. Our nation entered the European theater as

Nazi expansion reached its height. To meet these threats,

President Franklin Roosevelt announced to the Congress in

January, 1942 that

[t]he superiority of the united nations in munitions and

ships must be overwhelming — so overwhelming that the

Axis nations can never hope to catch up with it. In order :

to attain this overwhelming superiority, the United ;

States must build planes and tanks and guns and ships to

the utmost limit of our national capacity.... We must

strain every existing armament producing facility to the

utmost. We must convert every available plant and tool

to war production.

88 Cong. Rec. 32, 33-34 (1942) (State of the Union Address).

To achieve these goals, the United States instituted extraor-

dinary controls over the production and procurement of.

critical war goods. In 1942 the government established the

War Production Board (“WPB”) to coordinate manufacture

and delivery of products essential to the war effort. Because

of the importance of fuel for aircraft, ships and motor vehi-

cles, the Petroleum Administration for War (“PAW”) was

created to maximize fuel output. See App. 4a-6a, 60a-65a.

SIME el KIRAN LG DEL CE A Matic A RR Aa ng AR WY

' The facts recited here are taken from the stipulations entered into by |

the parties and the decisions below. The decisions and all relevant ]

stipulations are reprinted in the Appendix to this Petition. ;

These agencies directed raw materials to plants that could

most efficiently use them for producing goods required by the

armed forces, and set increasingly-higher production targets

for refined petroleum products as the war progressed. The

WPB and PAW had extraordinary powers to enforce their

directives: they could compel refiners to increase their

existing capacity to produce certain fuels, command the

allocation of raw materials needed for production, order a

refinery to increase production, and could and did seize plants

that refused to cooperate with agency directives or where

labor or other disputes threatened to disrupt fuel production.

See id. at 4a-8a, 63a-65a, 11 1a-112a.

World War II was the first international war_in which supe-

riority of air power proved determinative. From the Battle of

Britain to the Battle of Midway to the final attacks against

Germany and Japan prior to their capitulation, control of the

air by allied air forces dictated the outcome of the war. To

fuel planes that were created in unprecedented numbers, it

was Critical that the United States increase its production of

high-octane aviation gasoline — commonly known as

“avgas” — which permitted Allied aircraft to operate more

efficiently than their Axis counterparts. The WPB and PAW

placed production of avgas among the top priorities for

domestic industry throughout the war. Indeed, 100-octane

avgas was the single most critically needed refinery product

during the war. See App. 110a.

Avgas was a blend of ordinary gasoline and various chemi-

cal additives, most of which were derived by treating different

petroleum distillates with sulfuric acid. The most common

additive was called “alkylate,” produced by combining

lighter-weight petroleum fractions with 98% pure sulfuric

acid in a process called “alkylation.” See App. 110a-11 1a.

Spent alkylation acid from this process was about 87-90%

pure. See id at 115a. The spent acid could be 1) reprocessed

to 98% purity for re-use in the alkylation process, 2) used to

treat other avgas additives and other refinery products,”

3) sent off-site for use in fertilizer manufacture or for dis-

posal, or 4) mixed with fuel oil at the refineries and burned in

refinery boilers or in collection ponds. See id at 6a-8a, | 1Sa-

116a, 118a. The byproduct of the treatment of other avgas

additives and other refinery products was know®as “acid

sludge” and contained approximately 45-65% acid Acid

sludge was more difficult to reprocess to a purity that would

make it useable for further acid treatment, but it could be used

in fertilizer manufacturing, or disposed in the same manner as

spent alkylation acid. See id at 115a-i16a.

Between February and May, 1942, the Oil Companies en-

tered into contracts with the Defense Supply Corporation

(“DSC”) to provide avgas to the United States. The contracts

required the Oil Companies to make substantial investments

in new equipment to increase avgas production, partially

financed by loans from the United States. See App. 6a-8a,

112a. Oil Company profits, fixed by the contracts, were

approximately 7%. See id at 112a. Although the Oil Com-

panies entered into the contracts voluntarily, the United

States’s demand for avgas was so great during the war that a

tremendous array of regulations, orders, and restrictions

* Among the other petroleum products that were acid-treated during the

war was benzol, a petroleum derivative used as a raw material to manu-

facture cumene, which in turn was a significant avgas component. See

App. 55a-56a. The benzol was owned by the United States, shipped to Oil

Companies for acid treatment, then returned to the United States. The

process for treating benzol, like other uses of acid in the refineries,

produced acid sludge. The courts below recognized a distinction between

acid waste resulting from the treatment of government-owned benzol

(“benzol waste”) and acid waste resulting from other uses of acid at the

refineries, primarily avgas production (“non-benzol waste”). The United

States admitted it is liable for arrangements to dispose of government-

owned benzol waste at the McColl Site, and the trial and appellate courts

both allocated 100% of the costs arising from benzol wastes to the United

States. See id. at 23a-29a, 55a-56a, 67a-70a. This petition concerns the

government’s liability for the “non-benzol waste.”

Sins aitaa Tinie rtcine Hie iat

Setar ene!

evolved by which the United States ultimately directly

controlled production levels and related functions at the

manufacturing facilities and took away the Oil Companies’

discretion to choose any disposal option for the avgas waste

other than disposing of it in a landfill.

The military-requirement for avgas exceeded available

production capacity until after the war in Europe ended in

1945. See App. 119a. To maximize avgas production, the

PAW instituted the Planned Blending Program in February

1943. Under this program, refineries (including those owned

by the Oil Companies) were required to ship particular avgas

additives to other refineries, at the direction of the PAW. See

id. at 33a-35a, 113a-114a. Plants that refused to comply with

planned blending assignments were subject to enforcement

orders, and refiners could not change their blend of compo-

nents without express approval from the PAW.” See id. at

63a-6Sa.

In December 1942, the DSC instructed the Oil Companies

that they were to take instructions from the PAW on the rate

of production, stating that any contractual provisions with

DSC that conflicted with PAW instructions were considered

waived. See App. 113a. If companies did not achieve

maximum avgas production or comply with federal directives,

3 The Ninth Circuit, in describing the facts of this case, characterized

the government planning of manufacture, distribution, and blending of

avgas components by stating that under the Planned Blending Program

“the government assisted the refineries” to maximize production of avgas.

App. 6a (emphasis added). The court’s implication that the government

was not actively and directly involved in determining exactly what avgas

constituents were to be shipped where. when, and by whom, is factually

inaccurate. It ignores the stipulation of the parties and the district court’s

express findings that “[iJt is undisputed that the Government, on a regular

basis, controlled the specifications, quantities, delivery, and price of

avgas” and that “[tJhe undisputed facts reveal that the actions of the

United States resulted in, as a practical matter, almost total control over

the production of avgas.” /d. at 45a.

the United States could and would seize the refinery, shut it

down, or divert labor and materials to more productive and

cooperative facilities. See id at 63a-65a, 113a. As a result of

these orders, avgas production rose from 40,000 barrels per

day at the outset of the war to 514,000 barrels per day by

war’s end. See id. at 114a-115a.

Not surprisingly, along with the dramatic increase in avgas

production came a tremendous surge in the use of sulfuric

acid at the refineries. Sulfuric acid use at the Shell refinery in

Los Angeles alone increased from 24 million to 120 million

pounds per year from 1941 to 1944. See App. 115a. The vast

majority of the sulfuric acid used by the Oil Companies

during the war was used to produce alkylate to be blended

into avgas. For example, 91% of the Shell Wilmington

refinery’s acid use went to alkylation by war’s end. See id.

There was a corresponding dramatic increase in the volume of

spent alkylation acid and acid sludge with which refiners had

to cope. Excess spent alkylation acid and acid sludge threat-

ened to halt avgas production. See id at 8a-10a, 87a-89a.

Prior to the war, the Oil Companies had disposed of acid

sludge that could not be reprocessed at the refineries in one of

three ways: 1) shipping it by tank car for use at a fertilizer

manufacturing plant; 2) shipping it to nearby reprocessing

facilities; or 3) in small volumes, disposing of it in landfills or

by burning. See App. 74a-76a, 118a. As avgas production

rose, the refineries’ existing capabilities to burn or reprocess

acid waste were quickly overwhelmed.‘

“The Ninth Circuit’s statement that “the Oil Companies had other

disposal options for their acid waste,” App. 29a, is not supported by the

record on appeal. There is no evidence that any Oil Company other than

Shell Oil dumped acid waste prior to the war. See id. at 117a-118a. Acid

waste dumping ceased when wartime production controls-ceased and

reprocessing alternatives again became available. See id at 76a-79a.

Furthermore, each of the refineries at issue was located in a populated area *

of Los Angeles. Attempts to burn the significantly increased volume of

acid on refinery property generated acidic air emissions that resulted in

The Oil Companies and PAW sought alternatives, but the

United States controlled access to all resources (including

steel and transportation services) needed to safely handle the

increased waste volume. The United States determined that

such resources were needed to support other aspects of the

war effort. As a consequence, during the war, there was a

chronic shortage of tank cars available for transporting acid

waste to off-site facilities that could reprocess the waste or

put it to other uses. The United States controlled access to

these tank cars and it refused to allow the Oil Companies to

purchase tank car services for what it determined was a low-

priority use. See App. 74a-79a, 117a. The WPB also de-

clined to authorize the use of strategic resources necessary to

build new acid reprocessing facilities. See id at 116a. An

attempt by the United States late in the war to rent a storage

tank for excess acid waste did not provide sufficient capacity

to solve the problem. See id. at 45a-46a.

After the United States foreclosed all possible methods of

storing, reprocessing, or reusing the acid waste, the Oil

Companies were forced to dump acid waste, contracting with

Eli McColl to transport waste from the refineries and to dump

it at the McColl Site landfill. See App. 65a-67a. The McColl

Site was in operation from 1942 to 1946 and existed solely

for the disposal of acid waste from refineries generated during

the war. At the end of the war, once the PAW relaxed its

control over the Oil Companies’ operations and again allowed

access to acid waste handling alternatives, shipment of acid

sludge by tank car to a fertilizer plant resumed on a large

scale and dumping at the McColl Site ceased. See id. at 8a-

10a, 76a-79a.

The McColl Site was contaminated with approximately

100,000 cubic yards of sulfuric acid waste — some as spent

alkylation acid, some as acid sludge from the treatment of

health and nuisance complaints. The practice was quickly discontinued.

See id. at 118a-119a.

government-owned benzol, some as acid sludge from the

treatment of other avgas additives and other refinery products.

See App. 65a-67a. The Oil Companies remediated the

McColl Site in the 1990s, eventually incurring nearly $65

million in response costs.” See id. at 52a.

CERCLA § 107(a)(3) provides that “any person who by

contract, agreement, or otherwise arranged for disposal or

treatment ... of hazardous substances owned or possessed by

such person, by any other party or entity, at any facility ...

owned or operated by another party or entity and containing

such hazardous substances” shall be liable for all response

costs incurred to clean up hazardous waste. 42 U.S.C.

§ 9607(a)(3). In 1991, the United States and the State of

California sued the Oil Companies and other potentially

responsible parties (“PRPs”) under CERCLA § 107(a)(3),

claiming that the Oil Companies arranged for the disposal of

hazardous waste at the McColl Site. The Oil Companies

counterclaimed. against the United States for contribution

under 42 U.S.C. § 9613 (“CERCLA § 113”). The Oil Com-

panies argued that the United States was also liable as an

“arranger” pursuant to CERCLA § 107(a)(3) due to its

pervasive wartime control over the manufacture of avgas at

the Oil Companies’ plants and for denying the Oil Companies

the necessary resources properly to dispose of the waste acid

generated in the production of unprecedented levels of

wartime avgas.

° The Ninth Circuit’s statement that “[t]he government began removing

this waste from the site in the 1990s, at an eventual cost of close to $100

million,” App. 9a, is inaccurate to the extent it suggests that the United

States paid the entire cost of the cleanup. In fact, the Oil Companies

performed the cleanup and the United States directly incurred oversight

costs, which amounted to $18 million through June 1990. The parties did

not stipulate to the amount of oversight costs after June 1990. See id. at

49a-50a.

2. Decisions of the District Court

In 1993, the district court granted summary judgment to the

United States holding the Oil Companies liable as arrangers

under CERCLA § 107(a)(3). See App. 104a-106a. In 1995,

the Oil Companies moved to hold the United States liable as

an arranger for disposal at the McColl Site.°

Prior to the court’s consideration of the Oil Companies’

motion, the parties agreed to 430 stipulations of fact. Based

on these. stipulated facts, the district court found that the

United States “pervasively regulated the petroleum industry

during World War II, as well as the modes of available

transportation within the country, including railroad tank

cars.” App. 33a. In addition, the court found that the United

States, through the PAW, “instituted a blending program by

which it required quarterly inventory reports from all refiner-

ies, authorized purchase of certain quantities of raw materials,

and instructed refineries with respect to manufacturing

specifications. The PAW had approval power over prices of

components” needed to produce avgas and “also controlled

the available modes of transportation for the raw and finished

materials.” Jd. at 34a. The district court concluded that:

the Government’s control, even daily control, over the

output of avgas produced by the Oil Company defen-

dants, was pervasive and omnipotent. The Government,

through its various departments, boards and commis-

sions, coerced the Oil Companies into producing avgas,

knowing full well that the acid sludge would be dumped.

war defense, 42 U.S.C. § 9607(b)(2), and the United States countered that

it was immune from suit under CERCLA on the basis of sovereign

immunity. The district court found the act of war defense inapplicable,

see App. 93a-100a, and found that 42 U.S.C. § 9620(a)(1) waived the

United States’s sovereign immunity, see id. at 35a-38a. The Ninth Circuit

affirmed these holdings. See id. at 8a-15a, 23a-30a. These issues are not

presented in this petition.

Undisputed evidence presented to this Court exists that

during the relevant times the Government knew acid

wastes were being dumped, and the Government at-

tempted to divert the wastes, but its efforts were ulti-

mately unsuccessful. When it was either unable or un-

willing to allocate resources for the proper disposal of

the wastes, the Government turned a blind eye to the

problem. This is exactly the conduct that Congress in-

tended to condemn, albeit retroactively, when it enacted

CERCLA.

Id. at 45a.

The district court analyzed these facts under a test for

CERCLA arranger liability first articulated in United States v.

Aceto Agricultural Chemical Corp., 872 F.2d 1373, 1379-80,

1382 (8th Cir. 1989). According to the district court, apply-

ing the Eighth Circuit’s Aceto standard, a party is liable as an

arranger “(1) if it supplies raw materials to be used in making

a finished product, (2) and it retains ownership or control of

the work in process, (3) where the generation of hazardous

substances is inherent in the production process.” App. 43a.’

The court found that the United States was “‘supplying’ the

raw materials within the meaning of Acefo” and controlled the

production of avgas. /d. at 45a (emphasis in original). On the

basis of the undisputed facts and the Acefo standard, the

district court held the United States liable as an arranger for

disposal of hazardous waste under CERCLA § 107(a)(3).

The district court found additional support for this determi-

nation by noting that the factual record showed that the

United States “began to arrange for the disposal of acid

wastes, by undertaking the responsibility for disposing of the

sludge.” App. 45a. Government employees attempted to

obtain priority use for tank cars needed to ship acid waste to a

"The district court distinguished Aceto-type liability from circum-

stances where “the sole purpose of the transaction is to arrange for the

treatment or disposal of the hazardous wastes.” App. 42a.

plant that could use it in fertilizer production, but the gov-

ernment did not obtain enough tank cars to handle all the

waste. The government also directed its employees to lease a

storage tank to hold acid temporarily, until other disposal

options might become available, but the tank was not ade-

quate to hold all the waste at issue. See id. Consequently, the

trial court found that the government failed to follow through

on its disposal responsibilities, and that “[t]he case law

certainly supports the proposition that once an entity under-

takes to arrange for disposal or treatment, it cannot abdicate

responsibility when the disposal becomes infeasible.” /d. at

46a.

In 1998, after a trial on apportionment, the district court

issued an opinion that reaffirmed the factual basis for arranger

liability and allocated the cleanup costs at the McColl site

between the Oil Companies and the United States. In this

opinion the district court drew a distinction between the acid

sludge from the processing of government-owned benzol, for

which the United States admitted liability,® and other acid

waste associated with the production of avgas, for which the

government had contested liability. See App. 68a-70a.

Benzol waste accounted for approximately 5.5% of the total

acid waste at the McColl Site, with other waste making up the

balance. See id. at 69a.

Among the critical reasons to support its allocation deci-

sion, the district court reiterated its findings that “the Oil

Companies were unable to transport avgas waste [off-site] for

recycling due to the unavailability of tank cars, and [that] the

Oil Companies were unable to construct treatment plants due

to the WPB’s refusal to issue priorities.” See App. 74a. The

® Early in the district court proceedings, the United States conceded it

was liable as an “arranger” with respect to disposal of the acid waste

associated with the acid treatment of government-owned benzol at the

Shell refinery in Wilmington, California during the war. See App. 55a-

56a.

court was “convinced that the Oil Companies had no reason-

able recourse to on-land dumping of the sludge due to the

conduct of the WPB,” and concluded that “[g]iven the pattern

of transport both before and after the war, one can be sure that

had lead-lined tank cards been available throughout the war

years, the Oil Companies would have made use of them.” /d.

at 76a, 77a. Based on these findings, the district court deter-

mined that it was equitable to allocate 100% of the cleanup

costs related to all waste to the United States. See id. at 83a.

3. Decision of the Court of Appeals

The Ninth Circuit reversed the district court’s holding re-

garding the United States’s arranger liability for the non-

benzol waste at the McColl Site. In so doing, the Ninth

Circuit rejected the district court’s conclusion that arranger

liability could be based on the government’s pervasive

involvement in and control over avgas production and the

resources needed to safely handle the resulting acid waste.

Addressing the Government’s liability as an arranger, the

Ninth Circuit stated that it “agree[d] with the Oil Companies

and the district court that control is a crucial element of the

determination of whether a party is an arranger under”

CERCLA § 107(a)(3), but disagreed that “the government

exercised the requisite control” in this case. App. 17a. After

considering and distinguishing several other court of appeals

decisions, including the Eighth Circuit’s holding in Acefo that

informed the district court’s analysis, the Ninth Circuit

reached a number of conclusions concerning the requisite

control required for imposing arranger liability. First, the

Ninth Circuit concluded that the United States had never

“owned any of the raw materials or intervening products.” /d.

at 18a. Second, the Ninth Circuit held that “‘authority to

control’” waste disposal is not sufficient to support arranger

liability. /d. at 20a-21a. Third, the Ninth Circuit found that

the United States never “exercised actual control over any of

the waste disposal at issue.” Jd. at 2la. In this regard, the

court was apparently looking for evidence of direct control

over contracts to dispose of waste at the McColl Site, rather

than control over resources needed to pursue other disposal

options. The Ninth Circuit went on to quote approvingly a

1995 district court decision that concluded, without regard to

the significance of the World War, that “‘[nJo court has

imposed arranger liability om a party who never owned or

possessed, and never had any authority to control or duty to

dispose of, the hazardous materials at issue.’” Id. at 22a. On

this basis, the court held that the government’s degree of

control in this case was insufficient to support arranger

liability.? This Petition, and a parallel Joint Petition for a

Writ of Certiorari by Shell Oil Company and Union Oil

Company of California (the “Shell Petition”), ensued.

REASONS FOR GRANTING THE PETITION

The Ninth Circuit’s approach to arranger liability under

CERCLA § 107(a)(3) liability is contrary to the tests adopted

by five other courts of appeals and is inconsistent with settled

doctrine for interpreting the language of CERCLA. This

inconsistency alone warrants this Court’s review. Moreover,

this case presents an important issue of CERCLA liability

which potentially affects the allocation of costs for hundreds

of millions of dollars in response costs at hazardous waste

disposal sites. This issue is particularly important as it relates

to the responsibility of the United States in times of war or

other international crisis and the risks to private parties who

assist the United States in such times of need. The Court

should therefore grant certiorari to clarify the proper standard

to be applied in determining arranger liability under CER-

CLA.

° The Ninth Circuit rejected the United States’s contention that CER-

CLA did not waive the government’s immunity from suit. See App. 8a-

15a.

I. A CONFLICT EXISTS AMONG THE COURTS OF

APPEALS CONCERNING THE APPROPRIATE

TEST FOR CERCLA “ARRANGER” LIABILITY

WHERE A PARTY EXERCISES PERVASIVE

CONTROL OVER MANUFACTURING’ BUT

DOES NOT DIRECTLY DISPOSE OF HAZARD-

OUS WASTE.

Prior to the Ninth Circuit’s decision in this case, the courts

of appeals had interpreted the scope of arranger liability under

CERCLA expansively. Those courts have found liability to

be warranted where there is a “but for” causal connection

between the exercise of control and the waste disposal.

A. The Ninth Circuit’s opinion adopts an approach to ar-

ranger liability that focuses narrowly on identifying specific

touchstones showing direct control over arrangements to

dispose of waste at a particular site, while ignoring evidence

of indirect control. The court of appeals’s opinion is turgid,

but this is no reason to allow its harmful ruling to stand

uncorrected. Although the Ninth Circuit rightly noted that

“[t]here is no bright-line test, either in the statute or in the

case law,” for arranger liability under § 9607(a)(3), App. 17a,

the court nevertheless adopted a constricted approach that

requires one of two critical facts to hold a party liable as an

arranger. Specifically, the Ninth Circuit held that arranger

liability requires either: (1) ownership of raw materials or

intermediate products at another’s facility or (2) direct control

of the disposal of hazardous waste at a particular location.

The Ninth Circuit did agree “with the Oil Companies and

the district court that control is a crucial element of the

determination of whether a party is an arranger under

§ 9607(a)(3);” it disagreed “with their conclusion that the

government exercised the requisite control” during World

War II. App. 17a. To explain the level of control required for

finding arranger liability, the court of appeals then proceeded

to analyze two seminal Eighth Circuit cases, which the district

court found dispositive, and purported to distinguish them.

~ a oe ee ae eT ee

United States v. Aceto Agric. Chem. Corp., 872 F.2d 1373

(8th Cir. 1989); United States v. Northeastern Pharm. &

Chem. Co., 810 F.2d 726 (8th Cir. 1986) (“NEPACCO”).

The Ninth Circuit explained that “[t]he question in Acefo

was whether pesticide manufacturers were arrangers and

therefore liable for cleanup costs for contamination at the

plant of a pesticide ‘formulator,’ Aidex Corporation. The

pesticide manufacturers routinely shipped active pesticide

- ingredients to Aidex, which blended them with inert ingredi-

ents.” App. 17a-18a. Hazardous waste was generated as an

inherent part of the formulation process. The Ninth Circuit

stressed that:

[t]he manufacturers owned the pesticide ingredients and

the commercial-grade pesticides at all times.... The

Eighth Circuit held, under these circumstances, that the

pesticide manufacturers were arrangers: “Aidex is per-

forming a process on products owned by defendants for

defendants’ benefit and at their direction: waste is gen-

erated and disposed of contemporaneously with the pro-

cess.” .

id. «4 18a (quoting Aceto, 872 F.2d at 1381).

The court of appeals also found that Acefo did not control

this case because “the United States was in a materially

different position in this case from the pesticide manufactur-

ers in that case,” acting “more like a customer of the pesticide

manufacturers than like the manufacturers themselves”

because the United States was the end purchaser of avgas.

App. at 18a. Central to its determination that Acefo was

inapplicable was the issue of ownership: the court emphasized

that “the United States never owned any of the raw materials

or intervening products. It never owned unrefined petroleum,

refined gasoline, fresh sulfuric acid, spent acid, or alkylate or

any additive.” /d.

The Ninth Circuit also considered NEPACCO, an earlier

Eighth Circuit case which involved the liability of corporate

officers as arrangers for disposal of hazardous wastes at one

of the company’s plants. The Eighth Circuit had held in

NEPACCO that “[i]t is the authority to control the handling

and disposal of hazardous substances that is critical under the

statutory scheme.” NEPACCO, 810 F.2d at 743. Ignoring the

NEPACCO approach of finding liability where there is

“authority to control,” the Ninth Circuit read NEPACCO as

holding only that corporate officers “may be held responsible

as arrangers when one of those officers has exercised actual

control over the disposition of waste on behalf of the corpo-

ration, and the other officer has the authority to control the

first officer.” App. 20a-21a. :

The Ninth Circuit then found that, in this case, “the United

States neither exercised actual control, nor had the direct

ability to control” the waste disposal, because “the waste

never belonged to the United States” and “no official or

employee of the United States ever exercised actual control

over any of the waste disposal.”'® App. 21a. It is clear from

this reading of NEPACCO, and its application to the stipu-

lated facts of this case, that the Ninth Circuit requires a

showing of: 1) ownership of the waste; or 2) direct control

over waste disposal arrangements at a particular location

before it will find arranger liability. See id. at 20a-21a.

In summarizing its view of Aceto, NEPACCO, and “the

interrelationship of the factors of ownership, possession, and

control over waste disposal,” the court of appeals concluded

'° In drawing these conclusions, the Ninth Circuit ignored the district

court’s finding, on stipulated facts, that “[t]he Government began to

arrange for the disposal of acid wastes, by undertaking the responsibility

for disposing of the sludge,” App. 45a, as well as all of the facts found

below evidencing the United States’s indirect control over waste disposal,

including coerced generation of waste in excess of what the refineries

could handle, withholding of authorization for the construction of

reprocessing plants, and denial of tank cars to move the waste off-site to

facilities that could reprocess or otherwise safely handle the waste. See id.

at 44a-47a, 74a-79a.

that “‘[n]o court has imposed arranger liability on a party who

never owned or possessed, and never had any authority to

control or duty to dispose of, the hazardous materials at

issue.” App. 22a (quoting United States v. Iron Mountain

Mines, Inc., 881 F. Supp. 1432, 1451 (E.D. Cal. 1995))"'

This conclusion imposes a standard under which a party must

own the materials being processed, or employ direct, hands-

on control over the arrangements to dispose of hazardous

waste at a particular location to be liable as an arranger under

CERCLA § 107(a)(3).'? This position may be a convenient

'! The court’s statement is incorrect. In 1992 the District Court for the

Eastern District of Pennsylvania did impose arranger liability on the

United States despite the government having no ownership of the raw

materials being processed nor control over the disposal of the hazardous

waste generated. The Third Circuit affirmed this decision without

opinion. See FMC Corp. v. United States Dep't of Commerce, 786 ©

F. Supp. 471, 486 (E.D. Pa. 1992), aff'd 10 F.3d 987 (3d Cir. 1993),

opinion and judgment vacated, reh’g granted, aff'd and aff'd in part by an

equally divided court, 29 F.3d 833 (3d Cir. 1994) (en banc). The Ninth

Circuit incorrectly relied on FMC in its opinion, because neither the

district court opinion nor the Third Circuit’s en banc opinion in FMC

discusses the applicable legal standard for arranger liability. Indeed, after

FMC, the Third Circuit has expressly noted that the circuit has “neither

accepted nor rejected” the Acefo theory of liability. United States v.

Occidental Chem. Corp., 200 F.3d 143, 145 n.1 (3d Cir. 1999).

12 To the extent the Ninth Circuit’s opinion, which is somewhat opaque,

may be read as requiring both ownership of raw materials and direct

control over waste disposal, it is flatly inconsistent with the Eighth

Circuit’s holding in NEPACCO that constructive ownership of hazardous

waste is sufficient to impose arranger liability. See NEPACCO, 810 F.2d

at 743 (finding liability in the absence of ownership and explaining that

“requiring proof of personal ownership or actual physical possession of

hazardous substances as a precondition for liability under [CERCLA

§ 107(a)(3)] would be inconsistent with the broad remedial purposes of

CERCLA”); see also Cadillac Fairview/California, Inc. v. United States,

41 F.3d 562, 565 (9th Cir. 1994) (holding that “[IJiability is not limited to

those who own the hazardous substances” and noting that the Ninth

Circuit had “extended liability under section 107(a)(3) to persons who

have sold and therefore no longer own the hazardous substances ... and to

one for the United States in this case, but it is inconceivable

that the United States Environmental Protection Agency

would take the same position if the potential arranger were a

private party.

B. All other circuits that have addressed the standard for

determining who is an arranger have found that a party may

be liable as an arranger if there is a “but for” causal nexus

between its actions and the arrangement for disposal of

hazardous waste. One of the primary purposes of CERCLA

is to make responsible parties bear the cost of correcting

environmental conditions caused, directly or indirectly, by

their actions. Outside the Ninth Circuit, this principle is

widely recognized in arranger liability jurisprudence.

As the district court explained, the Eighth Circuit has de-

veloped the most comprehensive arranger liability jurispru-

dence. Beginning with NEPACCO and Aceto, the Eighth

Circuit has recognized that CERCLA § 107(a)(3) liability

may attach even where the arrangement -for treatment and

disposal of waste was not the purpose of a transaction be-

tween parties. Both of these cases expanded the traditional

understanding of arranger liability to ensure that parties

substantially connected with the manufacturing process do

not “simply ‘close their eyes’ to the method of disposal of

their hazardous substances, a result contrary to the policies

underlying CERCLA.” Aceto, 872 F.3d at 1382. Since the

late 1980s when these cases were decided, the Eighth Circuit

has further widened and refined its test for arranger liability.

Consistent with the approach of other circuits, the Eighth

Circuit has stated that “[iJn deciding questions of arranger

liability, we do not rely on bright-line rules but look to the

totality of the circumstances to determine whether the facts of

a given case fit within CERCLA’s ‘overwhelmingly remedial

scheme.’” United States v. Hercules, Inc., 247 F.3d 706, 721

persons who have no control over the process leading to release of the

substances.”) (citations omitted).

(8th Cir. 2001). Thus, “a finding of arranger liability requires

some level of actual participation in, or exercise of control

over, activities that are causally connected to, or have some

nexus with, the arrangement for disposal of hazardous sub-

stances or the off-site disposal itself.” United States v. TIC

Inv. Corp., 68 F.3d 1082, 1087-88 (8th Cir. 1995). Under this

standard, a party is liable as an arranger if it “had the author-

ity to control and did in fact exercise actual or substantial

control, directly or indirectly, over the arrangement for

disposal, or the off-site disposal, of hazardous substances.”

Id. at 1089; see also id. at 1090 n.7 (“[t]o establish arranger

.iability, the exercise of control must be causally related to the

arrangement for disposal, or the off-site disposal.”) Under

this standard the United States unquestionably would be liable

as an arranger under CERCLA.

The Eighth Circuit recognizes that a party’s substantial

involvement, even indirectly, in activities that affect the

arrangements for disposal of hazardous waste give rise to

arranger liability under CERCLA § 107(a)(3). See id That

circuit has further acknowledged that a significant level of

government control over the operations of a facility and the

arrangement for disposal of hazardous waste creates liability

as an arranger. The Eighth Circuit concluded that “circum-

stances may exist where a government contract involves

sufficient coercion or governmental regulation and interven-

tion to justify the United States’s liability as an arranger under

CERCLA.” United States v. Vertac Chem. Corp., 46 F.3d

803, 811 (8th Cir. 1995).'° This is the situation presented in

the McColl case.

The Second Circuit also has adopted a similar construction

of the phrase “otherwise arranged for’ in CERCLA

'3 The Eighth Circuit in Vertac noted that “the United States’ actual

involvement in the operations of the Jacksonville facility was sporadic and

minimal,” leading to the court’s holding that there was insufficient

evidence of control in that case. Vertac, 46 F.3d at 811.

§ 107(a)(3). Noting that “arranger liability can attach ‘to

parties that do not have active involvement regarding the

timing, manner or location of disposal,’” the Second Circuit

requires merely that “there must be some nexus between the

potentially responsible party and the disposal of the hazardous

substance.” General Elec. Co. v. AAMCO Transmissions,

Inc., 962 F.2d 281, 286 (2d Cir. 1992) (quoting CPC Intl v.

Aerojet-General Corp., 759 F. Supp. 1269, 1279 (W.D. Mich.

1991)). The “nexus is premised upon the potentially liable

party’s conduct with respect to_the disposal or transport of

hazardous wastes.” /d. Because “Congress employed tradi-

tional notions of duty and obligation in deciding which

entities would be liable under CERCLA as arrangers,” the

court of appeals concluded that arranger liability arises if

there is “the obligation to exercise control over hazardous

waste disposal.” /d. (emphasis in original). Under the

Second Circuit’s standard, whether such obligation exists is

based on the party’s conduct as it relates to the disposal of

hazardous waste. See id. at 286-87. Applying this test in this

case again leads to a finding that the United States is an

“arranger.”

The test that has evolved for arranger liability in the Elev-

enth Circuit also considers a variety of factors to determine

“whether there has been an ‘arrangement’ for disposal.”

South Fla. Water Mgmt. Dist. v. Montalvo, 84 F.3d 402, 407

(11th Cir. 1996). Legally relevant factors include whether a

party “made the ‘crucial decision’ to place hazardous sub-

stances in the hands of a particular facility,” whether the party

has “knowledge (or lack thereof) of the disposal,” and

whether the party owned the hazardous substances. /d. The

Eleventh Circuit cautioned that courts must avoid using a

bright-line test to determine liability, and instead “must focus

on all of the facts in a particular case.” Jd None of the

factors is dispositive or determinative of liability. See Con-

crete Sales & Servs., Inc. v. Blue Bird Body Co., 211 F.3d

1333, 1336 (11th Cir. 2000); Montalvo, 84 F.3d at 407.

Furthermore, the Eleventh Circuit’s standard recognizes

“the possibility that a party could so control and benefit from

another company’s production of hazardous waste that

arranger liability would arise under 42 U.S.C. § 9607(a)(3).”

Concrete Sales & Servs., 211 F.3d at 1339. The Eleventh

Circuit contemplates that a party’s failure to take an action

which it had a duty to take could be the basis of a claim for

arranger liability. See Redwing Carriers, Inc. v. Saraland

Apartments, 94 F.3d 1489, 1506 n.23 (llth Cir. 1996).

Nothing could more accurately characterize the government’s

conduct in this case.

The Fifth Circuit has also held that “just as a nexus must

exist for operator liability to attach, there must also be a nexus

that allows one to be labeied an arranger.” Geraghty &

Miller, Inc. v. Conoco Inc., 234 F.3d 917, 929 (Sth Cir. 2000).

The court reversed and remanded a grant of summary judg-

ment finding no arranger liability on the part of a contractor

which moved hazardous waste within a site and whose

subcontractor may have exacerbated the migration of waste.

See id. Citing the Second Circuit’s opinion in General

Electric, the Fifth Circuit ordered that on remand a determi-

nation of arranger liability required the consideration of “the

totality of the circumstances.” /d. (quoting General Elec.,

962 F.2d at 286).

Finally, although the Third Circuit has never issued an

opinion analyzing arranger liability,'* it has considered the

issue in the context of the burden of proof required to estab-

lish such liability. The Third Circuit held that a CERCLA

plaintiff attempting to prove defendants were arrangers had to

show a connection between the actions of the defendants and

the contamination at the site, terming this a “nexus” require-

ment. To sustain the burden, the court required that the

plaintiff offer proof that the defendants “deposited, or caused

the disposal of’ hazardous waste at the contaminated site.

'4 See supra note 11.

New Jersey Tpk. Auth. v. PPG Indus., Inc., 197 F.3d 96, 105

(3d Cir. 1999). Another Third Circuit decision recognized the

possibility of liability as an arranger “because [a party]

arranged for a process that (perhaps) necessitated disposal.”

United States v. CDMG Realty Co., 96 F.3d 706, 718 n.11 (3d

Cir. 1996). Both of these cases read CERCLA as consistent

with the expansive interpretation of “arranged for” in the-

Second, Fifth, Eighth, and Eleventh Circuits.

Contrary to the Ninth Circuit’s narrow focus on actual

ownership or direct control over the disposal arrangements,

these five circuits are consistent in holding that a causal nexus

between a party’s conduct and the waste disposal is sufficient

to establish arranger liability. Indeed, had this case been

decided in those circuits, the result would have been different.

The United States coerced and pervasively regulated and

controlled the production of avgas during World War II. The :

United States’s wartime demands first increased the magni-

tude of the waste problem, and then withheld from the Oil :

Companies the resources safely to ship away or reprocess the

acid waste generated by increased avgas production. This

exercise of control left the refineries with no option other than

to dispose of the acid waste at the McColl Site. These facts

certainly show the government’s actions caused the disposal

of the hazardous waste, and these facts would be sufficient to

impose arranger liability upon the United States, in all circuits

with established arranger tests other than the Ninth Circuit.

Sets

" ey.

C. An interpretation of “otherwise arranged for” that fo-

cuses on the causal connection between a party’s activities

that affect the production of hazardous waste at another

party’s facility and the disposal of that waste is consistent

with Congress’s unmistakable purpose in passing CERCLA. i

This Court has remarked on the sweeping nature of CER- ;

CLA. Under the broad reach of the statute, “those actually

‘responsible for any damage, environmental harm, or injury }

from chemical poisons [may be tagged with] the cost of their

actions.”” United States v. Bestfoods, 524 U.S. 51, 55-56

(1998) (quoting S. Rep. No. 96-848, at 13 (1980)). See also

Pennsylvania v. Union Gas Co., 491 US. 1, 21 (1989)

(plurality opinion of Brennan, J_).

The Eleventh Circuit recognized that “a liberal judicial

interpretation of the term [“arranged”] is required in order

that we achieve CERCLA’s ‘overwhelmingly remedial’

statutory scheme.” Florida Power & Light Co. v. Allis

Chalmers Corp., 893 F.2d 1313, 1317 (11th Cir. 1990).

Other circuits have similarly stressed the importance of giving

full meaning to CERCLA § 107(a)(3). See Geraghty &

Miller, Inc., 234 F.3d at 929; Cadillac Fairview/California,

Inc. v. United States, 41 F.3d 562, 565 n.4 (9th Cir. 1194);

NEPACCO, 810 F.2d at 733; accord Aceto, 872 F.2d at 1380

(one of the “essential purposes” of CERCLA is “‘... that those

responsible for problems caused by the disposal of chemical

poisons bear the costs and responsibility for remedying the

harmful conditions they created.””) (quoting Dedham Water

Co. v. Cumberland Farms Dairy, Inc., 805 F.2d 1074, 1081

(ist Cir. 1986)). - See also United States v. Kayser-Roth

Corp., 272 F.3d 89, 93 (1st Cir. 2001); Carson Harbor Vill.,

Lid. v. Unocal Corp., 270 F.3d 863, 880-81 (9th Cir. 2001);

Franklin County Convention Facilities Auth. v. American

Premier Underwriters, Inc., 240 F.3d 534, 546 (6th Cir.

2001); Commander Oil Co. v. Barlo Equip. Corp., 215 F.3d

321, 327 (2d Cir. 2000); Axel Johnson, Inc. v. Carroll Caro-

lina Oil Co., 191 F.3d 409, 415 (4th Cir. 1999).

The United States, as a counterclaim defendant in this case,

asked the Ninth Circuit to adopt a reading of the liability

provisions of CERCLA that is inconsistent with the liability

standards used throughout the rest of the United States.

Ironically, as a plaintiff seeking to recover its cleanup costs,

the United States has succeeded in convincing several courts

that CERCLA liability must be construed more broadly to

effectuate Congress’s intent. See, e.g., Aceto, 872 F.2d at

1382; NEPACCO, 810 F.2d at 742-43; United States v.

Kayser-Roth Corp., 910 F.2d 24, 26 (ist Cir. 1990); United

States v. Mottolo, 605 F. Supp. 898, 903 (D.N.H. 1985);

United States v. Reilly Tar & Chem. Corp., 546 F. Supp.

1100, 1112 (D. Minn. 1982). Now the United States adopts

the convenient position that arranger liability should be

narrowly construed in this case. But there cannot be one test

for the United States and another for all other potential

arrangers. The United States is subject to CERCLA “to the

same extent, both procedurally and substantively, as any

nongovernmental entity, including liability under section

9607.” 42 U.S.C. § 9620(a)(1). Thus, the Court needs to

resolve this conflict to ensure consistency in the interpretation

of CERCLA liability determinations.

The Ninth Circuit’s test predicating arranger liability on

ownership of raw materials or direct control over arrange-

ments to dispose of hazardous waste does not comport with

CERCLA’s purpose to ensure that responsible parties who

caused environmental contamination should pay for its

cleanup. The court’s unique construction of the CERCLA

§ 107(a)(3) liability provision will result in a party, such as

the United States here, but also private entities such as parent

companies in other cases, being able to evade liability as an

arranger by carefully avoiding ownership of raw materials or

direct involvement in contracts to dispose of hazardous waste

at a particular location, while nonetheless maintaining perva-

sive and coercive control over manufacturing and the alterna-

tives available for the reuse, treatment or disposal of hazard-

ous waste.

D. This case raises important questions concerning the

United States’s involvement in controlling operations at

wartime manufacturing facilities that have broader implica-

tions for CERCLA liability in cases involving contractual

relationships between the United States and private parties, as

well as for the applicability of CERCLA to the United States

more generally. The analysis in the parallel Shell Petition in

this case is based on the same stipulated facts and findings

below and on the contention that the United States was

pervasively involved in the manufacturing of avgas and

disposal of avgas waste. While the Shell Petition primarily

focuses more generally on the level of government control

necessary to find CERCLA liability, the analysis is fully

consistent with the discussion of arranger liability in this

Petition. Atlantic Richfield Company and Texaco, Inc. agree

with that discussion and join in the arguments presented in the

Shell Petition. Moreover, as both Petitions seek review of the

same judgment below, in the event the Court chooses to grant

certiorari on one Petition, both Petitions should be granted

and the matters consolidated for review on the merits.

II. THE ISSUE RAISED IS IMPORTANT BECAUSE

OF THE EXTENSIVE AND PERVASIVE UNITED

STATES INVOLVEMENT IN MANUFACTURING

DURING WARTIME.

The proper scope of arranger liability has important impli-

cations for the many hazardous waste disposal sites that

resulted from government activities during World War II and

other international conflicts. During World War II the United

States was deeply and coercively involved in all aspects of

production, procurement and use of critical war materials.

These activities often resulted in the generation and disposal

of hazardous waste at sites throughout the country. An

account of United States involvement in private production,

written during World War II by leading WPB officials,

indicates that between 1941 and mid-1944 the WPB and the

Office of Price Administration issued over three million

priority certificates and 5,353 orders, regulations, and

amendments. See John Lord O’Brian & Manly Fleischmann,

The War Production Board Administrative Policies & Proce-

dures, 13 Geo. Wash. L. Rev. 1, 28 (1944). The authors

boasted that:

[a] free economy was changed to a regulated economy in

the interest of the war effort with surprising speed and

efficiency of operation. The system now in force regu-

lates more than one hundred thousand transactions of the

most diverse nature every week, controls the activities of

more than 250,000 manufacturers, wholesalers and re-

tailers, and has drastically altered the American indus-

trial and distribution system.

Id. at 5. The extent of government intrusion into the day-to-

day operation of crucial sectors of the economy has never

been equaled, before or since the war. As a result of the

priority placed on production, without regard to consequences

to the environment, many sites exist throughout the United

States where hazardous waste resulting from wartime manu-

facturing are being cleaned up years after the war ended.

No one can quarrel with the wisdom of the United States’s

response to the crisis of World War II. But the fact remains

that the government is potentially liable for the cleanup of

over 8,000 military sites, most of which were involved in the

war effort during World War II. Hundreds of private compa-

nies also share responsibility for having responded to the

government’s call to arms during the war. See Nancy Perkins

Spyke, From War Strategy To Waste Strategy: The Validity of

Government CERCLA Liability For War Production Site

Cleanups, 4 N.Y.U. Envtl. L.J. 263, 269 (1995). It is esti-

mated that 3,200 such sites may enter the Superfund cleanup

program in the future, dwarfing the approximately 1,300 sites

already in the program. See More Emphasis Needed on Risk

Reduction: Testimony Before the Subcomm. on Nat'l Econ.

Growth, Natural Res. & Regulatory Affairs of the House

Comm. on Gov't Reform and Oversight, GAO/T-RCED-96-

168, at 1 (1996) (testimony of Stanley J. Czerwinski, Associ-

ate Director, Environmental Protection Issues, Resources,

Community, and Economic Development Division, General

Accounting Office). The costs of cleaning up these has

grown to $75 billion for private sites and up to $400 billion

for federal facilities. See id.

At least 19 cases have been litigated that involve the issue

of government involvement in hazardous waste disposal

during wartime. These cases, which involve activities rang-

ing from chemical and machinery manufacturing to mining

and oil refining to airport operations, are listed in App. at

120a-123a. While many of the cases have been settled

without a conclusive determination of the government's

arranger liability, a number of cases are still pending. In the

pending cases alone, historical and future cleanup costs

potentially exceed $1.5 billion.

Courts have recognized that arranger liability under CER-

CLA exists, in part, to prevent a party from contracting away

its responsibility to dispose of hazardous waste in a responsi-

ble manner. The Ninth Circuit’s rule in this case effectively

permits the United States to do just that by entering into a

manufacturing contract with a private party, then using its

regulatory power, including the threat of plant seizure, to

compel production without regard to the environmental

consequences. The Ninth Circuit’s decision has the potential

to undermine the public-private partnership that proved so

successful in defeating the Axis in World War II. Unless this

decision is reversed, private businesses that cooperate with

the government in wartime are subjected to the risk that they

will bear the entire burden of wartime environmental harms

and the government will be shielded from any share of

responsibility.

Considerations of fairness in contractual relations between

the government and private parties in wartime have prompted

the Court to grant certiorari in other cases. See, e.g., Hercu-

les, Inc. v. United States, 516 U.S. 417 (1996) (determining

whether chemical manufacturers could recover costs of

defending tort claims related to the performance of govern-

ment contracts during Vietnam War); cf United States v.

Winstar Corp., 518 U.S. 839 (1996) (plurality opinion)

(determining enforceability of contracts between government

and financial institutions after regulatory changes); Mobil Oil

v. United States, 530 U.S. 604 (2000) (determining whether

government repudiated lease contracts and whether oil

companies were entitled to restitution of fees paid for explo-

ration rights). If the government were itself a private party,

there is no question that it would be held liable as an arranger

in this case. No reason justifies the Ninth Circuit’s departure

from that approach. This Court’s intervention is therefore

necessary to ensure the fair and uniform application of

CERCLA.

CONCLUSION

For the reasons stated, this Joint Petition for a Writ of Cer-

tiorari should be granted.

JEAN A. MARTIN

ATLANTIC RICHFIELD

COMPANY

333 South Hope Street

Los Angeles, CA 90071

(213) 486-0761

Counsel for Petitioner

Atlantic Richfield Company

CHARLES G. LAMBERT

CHEVRONTEXACO

CORPORATION

2613 Camino Ramon

San Ramon, CA 94583

(925) 973-4546

Counsel for Petitioner

Texaco, Inc.

September 25, 2002

Respectfully submitted,

CARTER G. PHILLIPS*

SIDLEY AUSTIN BROWN &

WOOD LLP

1501 K Street, N.W.

Washington, DC 20005

(202) 736-8000

KATHERINE L. ADAMS

DAVID H. BECKER

SIDLEY AUSTIN BROWN &

WOOD LLP

787 Seventh Avenue

New York, NY 10019

(212) 839-5300

Counsel for Petitioners

Atlantic Richfield Company

and Texaco, Inc.

* Counsel of Record

ak mt etm wn Ct tae oa sae eam

APPENDICES

APPENDIX A

UNITED STATES COURT OF APPEALS,

NINTH CIRCUIT.

No. 00-55027.

Argued and Submitted June 4, 2001.

Filed Feb. 11, 2002.

Withdrawn June 28, 2002.

Order and Opinion Filed June 28, 2002.

UNITED STATES OF AMERICA,

Plaintiff-Appellant,

and

STATE OF CALIFORNIA, ex rel. CALIFORNIA DEPARTMENT OF

HEALTH SERVICES; HAZARDOUS SUBSTANCE ACCOUNT AND

HAZARDOUS CLEANUP FUND,

Plaintiff,

SHELL OIL COMPANY; UNION OIL COMPANY OF

CALIFORNIA; ATLANTIC RICHFIELD COMPANY;

TEXACO, INC.; LOS COYOTES ESTATES; RAMPARTS

RESEARCH & FINANCIAL Corporation,

Defendants-Appellees.

UNITED STATES OF AMERICA; STATE OF CALIFORNIA, ex rel.

CALIFORNIA DEPARTMENT OF HEALTH SERVICES;

HAZARDOUS SUBSTANCE ACCOUNT

and HAZARDOUS CLEANUP FUND,

Plaintiffs-Appellees,

SHELL OIL COMPANY; UNION OIL COMPANY OF CALIFORNIA;

ATLANTIC RICHFIELD COMPANY; TEXACO, INC.,

Defendants-Appellants,

and

Los COYOTES ESTATES; RAMPARTS

RESEARCH & FINANCIAL CORPORATION,

Defendants.

Appeal from the United States District Court for the

Central District of California; Robert J. Kelleher, District

Judge, Presiding. D.C. No. CV 91- 00589-RJK.

Before: TROTT, THOMAS and W. FLETCHER, Circuit

Judges.

ORDER

The opinion filed on February 11, 2002, and published at

281 F.3d 812 (9th Cir.2002), is withdrawn and replaced by

the attached opinion.

With the filing of this new opinion, the panel has voted

unanimously to deny the Oil Companies’ petition for

rehearing and petition for rehearing en banc, filed March 28,

2002. The full court has been advised of the petition for

rehearing en banc and no judge of the court has requested a

vote on whether to rehear the matter en banc. Fed. R.App. P.

35. The Oil Companies’ petition for rehearing and petition

for rehearing en banc are DENIED.

SE A RRL SE PREY IMS MELANIN OS RA

3a 7

The United States’ petition for rehearing, filed March 28,

2002, is also DENIED.

OPINION

WILLIAM A. FLETCHER, Circuit Judge.

We are asked to decide who must pay for cleaning up the

McColl Superfund Site in Fullerton, California. The site was

contaminated with hazardous waste associated with the

production of aviation fuel during World War II. Defendants

in this case, Shell Oil Co., Union Oil Co. of California,

Atlantic 9267 Richfield Co., and Texaco, Inc. ! (collectively,

“the Oil Companies’’), operated aviation fuel refineries in the

Los Angeles area during the war and dumped their waste at

the McColl site.

The United States and the State of California brought suit

against the Oil Companies under the Comprehensive

Environmental Response, Compensation, and Liability Act

(“CERCLA”), 42 U.S.C. §§ 9601-9675, to recover cleanup

costs incurred at the site. The Oil Companies counterclaimed

under the same statute, contending that the United States was

liable for cleanup costs.

On motion for summary judgment by the United States and

the State of California, the district court held that the Oil

Companies were liable as “arrangers” under 42 U.S.C.

§ 9607(a)(3). See United States v. Shell Oil Co. (Shell I ), 841

F.Supp. 962, 969-70 (C.D.Cal.1993). The district court

rejected the Oil Companies’ argument that they were exempt

from liability on the ground that the contamination was

caused by an “act of war” within the meaning of 42 U.S.C.

§ 9607(b)(2). See id. at 970-72. On later cross- motions for

summary judgment by the United States and the Oil

Companies, the district court held that the United States was

also liable as an arranger under 42 U.S.C. § 9607(a)(3) for the

' Texaco is the successor in interest to defendant The Texas Company.

“non-benzol” waste dumped at the site. The United States

conceded that it was an arranger for the “benzol” waste. See

United States v. Shell Oil Co. (Shell IT ), No. 91-0589, at 14-

19 (C.D.Cal. Sept. 18, 1995). The district court also held that

the United States had waived its sovereign immunity to suit

under 42 U.S.C. § 9620(a)(1). Jd. at 6-9. After trial, the

district court held that 100% of the cleanup costs for all the

waste, including the benzol waste, should be allocated to the

United States, and 0% to the Oil Companies, under 42 U.S.C.

§ 9613(f)(1). See United States v. Shell Oil Co. (Shell III ),

13 F.Supp.2d 1018 (C.D.Cal.1998).

The United States appeals, arguing that the district erred in

holding that § 9620(a)(1) waives the sovereign immunity of

the United States; in holding that the United States is liable

as an arranger for the non-benzol waste under § 9607(a)(3);

and in allocating 100% of the cleanup costs for all the waste

to the United States under § 9613(f)(1)._ The Oil Companies

cross-appeal, arguing that the district court erred in rejecting

their argument that they were exempt from liability under the

“act of war” provision of § 9607(b)(2). The State of

California is a cross-appellee only on the “act of war’ issue.

We hold the following: (1) We affirm the holding of the

district court that § 9620(a)(1) waives the sovereign immunity

of the United States. (2) We reverse the holding of the

district court that the United States is liable for the non-

benzol waste cleanup costs as an arranger under

§ 9607(a)(3). Because the United States is not liable as an

arranger, the question of allocation of liability for the non-

benzol waste between the United States and the Oil

Companies under § 9613(f)(1) is moot. (3) We affirm the

holding of the district court that 100% of the cleanup costs for

the benzol waste should be allocated to the United States. (4)

We affirm the holding of the district court that the Oil

Companies are not exempt from liability under the “act of

war’ provision of § 9607(b)(2).

I. Factual Background

A. Avgas Production

The parties have entered into a comprehensive stipulation

of facts, upon which the following narrative is based. In the

early 1930s, petroleum refiners in the United States developed

new technologies for producing high-octane gasoline fuel.

Until that time, the highest octane gasoline available had an

octane rating of about 72-73, but by 1935 refiners possessed

the ability to produce mass quantities of 100-octane fuel. The

primary consumer of this fuel was the United States military,

which used it in airplane engines, leading to its colloquial

name “avgas.” The high octane and low volatility of avgas

allowed the design and use of high-compression internal

combustion engines for military airplanes.

Avgas was a blend of petroleum distillates and chemical

additives. Its base component was ordinary gasoline, to which

the refineries added varying amounts of several additives.

The most prevalent additive was a compound called

“alkylate,” which comprised 25-40% of the weight of avgas.

The production of alkylate, as well as other additives,

required the use of sulfuric acid. In the production of

alkylate, through a process called “alkylation,” the refineries

used 98% purity sulfuric acid as a catalyst. Approximately

90% of the sulfuric acid used by the refineries during the war

was devoted to this purpose. As a consequence of its use in

alkylation, the purity of the acid was greatly reduced. “Spent”

alkylation acid could be reprocessed, at some expense, so that

its purity was once again high enough for use as an alkylation

catalyst. Alternatively, spent acid either could be used in

other refinery processes, or could be dumped without being

reused.

When the war began, the alkylation process and the

production of avgas were new technological developments.

During the war, production of avgas increased more than

twelve-fold, from roughly 40,000 barrels per day in December

1941 to 514,000 barrels per day in 1945. Sulfuric acid

consumption increased five- fold, from 24 million pounds per

year in 1941 to 120 million pounds per year in 1944. The use

of sulfuric acid in the alkylation process produced quantities

of spent alkylation acid far greater than had ever been

produced before.

Because avgas was critical to the war effort, the United

States government exercised significant control over the

means of its production during World War II. In 1942,

President Roosevelt established several agencies to oversee

war-time production. Among those with authority over

petroleum production were the War Production Board

(“WPB”) and the Petroleum Administration for War

(“PAW”). The WPB established a nationwide priority

ranking system to identify scarce goods, prioritize their use,

and facilitate their production; it also limited the production

of nonessential goods. The PAW _ centralized the

government’s petroleum-related activities. It made policy

determinations regarding the construction of new facilities

and allocation of raw materials, and had the authority to issue

production orders to refineries. Although the WPB, PAW,

and other government agencies had the authority to require

production of goods at refineries owned by the Oil

Companies, and even to seize refineries if necessary, in fact

they relied almost exclusively on contractual agreements to

ensure avgas production. In particular, the government

entered into long-term contracts to purchase avgas, and

offered low- cost loans to refineries to help finance the

construction of avgas-producing plants.

_ The government sought to maximize avgas production

through the Planned Blending Program. Under this program,

the government assisted the refineries operated by the Oil

Companies in exchanging and blending various avgas

components in order to maximize production of avgas. The

nc: conan eer cee

government could, and sometimes did, direct that specific

exchanges be made, but it usually accepted what was

proposed by the refineries. The instructions issued under the

Planned Blending Program were at times quite detailed.

Sometimes they directed refiners to blend avgas in a way that

would allow increased overall production even if that method

would reduce an individual refinery’s yield. The program did

not exercise direct control over the production of avgas

components; rather, it controlled only their exchange and

blending after they had been produced.

The government reduced the financial risk to producers of

avgas and its components through the Aviation Gas

Reimbursement Plan (“AGRP”). This program allowed oil

companies that entered into long-term avgas supply contracts

to recoup costs they could not have anticipated at the time of

the execution of the contracts. The AGRP directly reimbursed

the refineries for any extraordinary expenditures they

undertook—including those incurred under the Planned

Blending Program to maintain maximum avgas production

during the war.

Throughout the war, the Oil Companies designed and built

their facilities, maintained private ownership of the facilities,

and managed their own refinery operations. The Oil

Companies affirmatively sought contracts to sell avgas to the

government, and the contracts were profitable throughout the

war. After the war, the Oil Companies retained ownership of

the facilities they had built with the help of government loans.

B. Acid Disposal and the McColl Site

Spent alkylation acid generated in the production of avgas

could be reprocessed, used in other refinery operations, or

discarded as waste. Some of the Oil Companies reprocessed

spent alkylation acid themselves, but at various times all of

them entered into contracts to have other private entities

reprocess it. The Oil Companies also used spent alkylation

acid to improve the effectiveness of other avgas additives and

to purify other refinery products, including gasoline,

kerosene, and lubricating oil. The use of spent alkylation acid

in other refinery processes produced waste in the form of

“acid sludge.”

Acid sludge had an acid cortent significantly lower than

spent alkylation acid. Because of its low purity, it was

difficult to reprocess and was not useful for refinery

processes. Acid sludge had been a product of refinery

operations before the discovery of the alkylation process.

Before the war, the technology to reprocess acid sludge had

existed, and some had, in fact, been reprocessed. For reasons

of cost, however, most acid sludge had been dumped or

burned. During the war, acid sludge was generated in much

greater quantities than ever before, and the Oil Companies

dumped most of it.

During the war, there was a chronic shortage of railroad

tank cars to transport spent acid for reprocessing or reuse

offsite from the refineries where it was generated. On two

occasions, the government refused to allocate the materials

and resources necessary to build new acid reprocessing

facilities in northern California. However, some reprocessing

facilities were built during the war. One, owned by Stauffer

Chemical Company, was capable of handling both spent

alkylation acid and acid sludge, but it failed to operate at

design capacity and this failure resulted in the dumping of

both spent alkylation acid and acid sludge. By late 1944 and

1945, the Oil Companies were producing so much spent

alkylation acid that they could not reuse all of it in their own

refineries, and the facilities for reprocessing this acid were

insufficient. When the resulting bottleneck threatened to halt

avgas production, the Oil Companies dumped large quantities

of spent alkylation acid at the McColl site.

The government was aware during the war that avgas

production generated acid wastes and that increased avgas

production increased acid waste generation. The government

took some actions to alleviate the problem of waste disposal.

For example, in 1945, it attempted to solve the problem of the

spent acid reprocessing bottleneck by facilitating the lease of

a large storage tank (known as the “Wilshire Storage Tank’’)

in Southern California. The government never specifically

ordered or approved the dumping of spent acid and acid

sludge by the Oil Companies, and there is no evidence that

the United States was aware of the disposal contracts between

the Oil Companies and McColl.

The dumping site in this case is named after Eli McColl,

who contracted to accept both spent acid and acid sludge from

refineries near Los Angeles.’ McColl began accepting the

waste and dumping it in earthen sumps at the site in June

1942, and continued to do so until shortly after the end of the

war. According to the district court, about 12% of the waste

at the McColl site was spent sulfuric acid from the alkylation

process, and about 5.5% was acid sludge resulting from the

treatment of government-owned benzol. Shell Jil, 13

F.Supp.2d at 1024-25. Of the remaining 82.5% of the waste,

most was acid sludge resulting from the chemical treatment of

non-avgas refinery products using spent alkylation acid. In

the 1950s, McColl, with the assistance of the Oil Companies,

filled and capped the waste sumps to allow residential

development of nearby areas, even though approximately

100,000 cubic yards of hazardous waste remained at the site.

The government began removing this waste from the site in

the 1990s, at an eventual cost of close to $100 million. On

August 27, 1998, the McColl Site was officially removed

from the National Priorities List and converted into a wildlife

sanctuary and community recreation facility.

2 No contracts have been found between Eli McColl and the Oil

Company defendants other than Shell Oil, but it has been stipulated by the

parties that the McColl site contains waste from all the Oil Companies.

10a

II. Sovereign Immunity

We first examine whether the government has waived its

sovereign immunity for purposes of liability under CERCLA.

Plaintiffs suing the United States must point to an

“unequivocal expression” of intent to waive sovereign

immunity. See Lane v. Pena, 518 U.S. 187, 192, 116 S.Ct.

2092, 135 L.Ed.2d 486 (1996); Blue v. Widnall, 162 F.3d

541, 544 (9th Cir.1998). A waiver of sovereign immunity

must be “unambiguous[ ],” and the relevant statutory

language is to be “strictly construed” in favor of the

sovereign. Lane, 518 U.S. at 192, 116 S.Ct. 2092; see also

United States v. Williams, 514 U.S. 527, 531, 115 S.Ct. 1611,

131 L.Ed.2d 608 (1995).

The Oil Companies contend that the necessary waiver

appears in § 120(a)(1) of CERCLA, codified at 42 U.S.C.

§ 9620(a)(1):

Each department, agency, and instrumentality of the

United States (including the executive, legislative, and

judicial branches of government) shall be subject to, and

comply with, [CERCLA] in the same manner and to the

same extent, both procedurally and substantively, as any

nongovernmental entity, including liability under section

9607 of this title. Nothing in this section shall be

construed to affect the liability of any person or entity

under sections 9606 and 9607 of this title.

The district court held that this provision does waive the

government’s immunity in the circumstances of this lawsuit.

We review this question of subject matter jurisdiction de

novo. See Ma v. Reno, 114 F.3d 128, 130 (9th Cir.1997). We

agree with the district court.

The Supreme Court has read the language of § 9620(a)(1)

as an unambiguous waiver of the sovereign immunity of the

United States. In Pennsylvania v. Union Gas Co., 491 U.S. 1,

109 S.Ct. 2273, 105 L.Ed.2d 1 (1989), the Court concluded

lla

that an analogous provision of CERCLA was an unambiguous

abrogation of the sovereign immunity of the states. It was led

to that conclusion by comparing the language of § 9607(d)(2),

applicable to the states, to the language of § 9620(a)(1),

applicable to the United States:

It can be no coincidence that in describing the potential

liability of the States in [§ 9607(d)(2)], Congress chose

language mirroring that of [§ 9620(a)(1)]. In choosing

this mirroring language in [§ 9607(d)(2)], therefore,

Congress must have intended to override the States’

immunity from suit, just as it waived the Federal

Government’s immunity in [§ 9620(a)(1)].

Id. at 10, 109 S.Ct. 2273 (emphasis added). We are, of

course, aware that the Court has overruled its conclusion in

Union Gas that Congress has the power under the Commerce

Clause to abrogate the sovereign immunity of the states. See

Seminole Tribe v. Fla., 517 U.S. 44, 116 S.Ct. 1114, 134

L.Ed.2d 252 (1996). But Seminole Tribe does nothing to cast

doubt on the correctness of the Court’s understanding of the

meaning of § 9620(a)(1).

The United States does not dispute that § 9620(a)(1)

waives its sovereign immunity under CERCLA for some

activities. It argues, however, that the waiver contained in

§ 9620(a)(1) is limited to cases in which it has undertaken

“nongovernmental” activities. In part, it bases its arguraent

on the fact that the heading for § 9620 is “Federal facilities.”

It also bases its argument on the text of § 9620(a)(1),

contending that the phrase making the government subject to

CERCLA “in the same manner and to the same extent. . . as

any nongovernmental entity” restricts the waiver of sovereign

immunity to situations in which the government acts as a

“nongovernmental entity.”

We believe that the United States’ construction of

§ 9620(a)(1) is too narrow. First, we disagree with the

government’s analysis of the importance of the heading

12a

“Federal facilities” at the beginning of § 920. Relying on this

heading, the government argues that Congress intended to

waive sovereign immunity only with respect to federally-

owned facilities. We agree with the Third Circuit’s analysis

in rejecting this argument. See FMC Corp. v. United States

Dep't of Commerce, 29 F.3d 833, 842 (3d Cir.1994) (en

banc). As an initial matter, we note that nothing in the text of

§ 9620(a)(1) limits its effect to federal facilities. See id.

Further, the waiver language of § 9620(a)(1) was enacted in

1980, and the “Federal facilities” portion of CERCLA was

added in 1986. For organizational reasons, the post-1986

codifiers placed the already-existing waiver of immunity

under the “Federal facilities” heading applicable to the newly-

added 1986 provision. /d. Finally, after the waiver provision

was moved, it employed language that explicitly referred

without qualification to the liability- creating provision of

CERCLA. It employed no new language that would have

limited the scope of the waiver. /d.

Second, the United States has repeatedly been held liable

under CERCLA for acts that cannot possibly be characterized

as “nongovernmental.” The clearest example is the United

States’ immense CERCLA liability for cleanups associated

with military installations and activity. Private parties do not

operate military bases, and yet the United States has been

found liable for the cleanup of hazardous wastes at military

facilities. As explained by the Third Circuit:

[A]lthough no private party could own a military base, the

government is liable for clean up of hazardous wastes at

military bases because a private party would be liable if it

did own a military base. Cf United States v. Allied Corp.,

1990 WL 515976, at *2-*3, 1990 U.S. Dist. LEXIS 20061,

at *7-*9 (N.D.Cal. Apr.25, 1990) (United States Navy

found liable under CERCLA because it authorized

demolition which caused release of hazardous substances).

FMC, 29 F.3d at 840.

13a

We hold that CERCLA’s waiver of sovereign immunity is

coextensive with the scope of liability imposed by 42 U.S.C.

§ 9607. If § 9607 provides for liability, then § 9620(a)(1)

waives sovereign immunity to that liability. In so holding, we

align ourselves with the two circuits that have thoroughly

considered the issue. See East Bay Mun. Util. Dist. v. United

States Dep't of Commerce, 142 F.3d 479, 482 (D.C.Cir.1998)

(“East Bay MUD “) (recognizing that the phrase “in the same

manner and to the same extent ... as any nongovernmental

entity” was potentially ambiguous, but holding that § 9620

does not, on its face, “suggest a distinction between the

exercise of private . . . and regulatory powers”); FMC, 29

F.3d at 841- 42 (“[T]he relevant sovereign immunity question

under CERCLA is . . . whether [the government’s] activities,

however characterized, are sufficient to impose liability on

the government as an owner, operator, or arranger.”’).

The United States warns that this reading of § 9620(a)(1)

will subject it to liability in a wide range of cases where it acts

in either a regulatory or remedial capacity. We believe its

fears are exaggerated. We recognize that by making the

United States liable “in the same manner and to the same

extent” as a private party, § 9620 does subject the government

to significant risk of liability. But the government is subject

to liability only to the extent of the substantive provisions of

CERCLA. That is, the waiver of sovereign immunity is

coextensive with the scope of liability under 42 U.S.C.

§ 9607, but the United States is liable under that section only

when it qualifies as an owner or operator of a facility, an

arranger of waste disposal, or an entity that accepts waste for

treatment or disposal. Otherwise, it is not liable and it

maintains its sovereign immunity. As we hold below, even

the pervasive activity of the government in this case does not

fit within these categories.

We also note two defenses provided within § 9607. First,

§ 9607(d)(1) confers a defense upon parties “for costs or

l4a

damages as a result of actions taken or omitted in the course

of rendering care, assistance, or advice in accordance with the

National Contingency Plan,” unless such actions are

negligent. Second, § 9607(d)(2) expressly immunizes state

and local governments from liability for actions “taken in

response to an emergency created by the release or threatened

release of a hazardous substance generated by or from a

facility owned by another person.” See East Bay MUD, 142

F.3d at 483 (suggesting that § 9607(d)(1) is intended to apply

to activity that is “primarily or exclusively governmental”’);

FMC, 29 F.3d at 841 (“{I]nasmuch as state and local

governments are immune from CERCLA liability [because of

§ 9607(d)(2) ] for the consequences of cleanup activities .. .

this distinction [is] implied in the federal government’s

waiver of sovereign immunity as weil.”).

Ill. “Arranger” Liability for “Non-Benzol” Waste

We next examine whether the government is liable as an

“arranger” with respect to the “non-benzol” waste at the

McColl site. Section 107(a)(3) of CERCLA, codified at 42

U.S.C. § 9607(a)(3), specifies that an arranger is a “covered

person” and is thus liable for cleanup costs. The text of

§ 9607(a)(3) provides that:

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, by any other party or entity, at any facility or

incineration vessel owned or operated by another party

or entity and containing such hazardous substances . . .

shall be liable... .

(Emphasis added.)

ISa

A. Direct Arranger Liability

The district court characterized “traditional” direct arranger

liability cases as those in which the “sole purpose of the

transaction is to arrange for the treatment or disposal of the

hazardous wastes.” Shell II, No. 91-0589 at 14. It noted that

the Oil Companies had not argued for direct arranger liability

on this basis, but it nonetheless held that “‘certain facts have

been presented to the Court upon which the Court could rest a

traditional finding of arranger liability. The Government

began to arrange for the disposal of acid wastes, by

undertaking the responsibility for disposing of the sludge... .

The case law certainly supports the proposition that once an

entity undertakes to arrange for disposal or treatment, it

cannot abdicate responsibility when the disposal becomes

infeasible.” /d. at 18-19.

The district court relied on two things to support its

conclusion that the United States was liable as a direct

arranger. First, it relied on an August 1944 letter from the

PAW concerning an acid reclamation plant proposed by the

Monsanto Chemical Company that would have reprocessed

acid waste produced by a Tidewater Oil Company refinery in

Northern California. Monsanto had delayed building the

plant because of a disagreement with the government over the

amount of accelerated depreciation it would receive. <A

compromise was reached on the depreciation issue in March

1944, but Monsanto had allowed its priority ranking, which

would have authorized the construction of the plant, to expire.

Then, in July 1944, the WPB refused to renew the priority

ranking.

The PAW made estimates of the amount of fresh acid that

would be required in Northern California, and was aware of

acid waste disposal problems that the Tidewater refinery was

having, but it declined to get involved in resolving them.

According to the stipulated facts, “[t]he PAW responded to

Tidewater that it considered Tidewater’s disposal problems

l6a

when making its acid estimates to WPB. On July 8, 1944, the

PAW said that the acid disposal problem was being left to

WPB since ‘they have overall responsibility for industrial

uses of acid.’ .. . In a letter dated August 23, 1944, from the

PAW to Tidewater, the PAW again stated ‘the sludge

disposal problem was being left with the WPB since they

have the over-all responsibility for industrial uses of acid.’ “

Second, the district court states that the “Government even

undertook the rental of a storage tank, known as the Wilshire

Storage Tank, for the disposal of some acid wastes.” Id. at

18. The stipulated facts indicate that in March 1945 the

government did make efforts to facilitate the lease of a

storage tank for acid waste in Southern California owned by

the Wilshire Oil Company, with the result that the tank was

being used for that purpose by April 1945. The stipulated

facts indicate that the government initially gave some

consideration to leasing the tank itself, but do not indicate that

the government was, in the end, the lessee of the tank.

The Oil Companies do not argue to us, just as they did not

argue to the district court, that these facts are sufficient to

support a finding that the United States was liable as a

“traditional” direct arranger. A direct arranger must have

direct involvement in arrangements for the disposal of waste.

See, e.g., Cadillac Fairview/Cal., Inc. v. United States, 41

F.3d 562 (9th Cir.1994) (in which rubber companies that had

transferred contaminated styrene to Dow Chemical for

reprocessing were held to be arrangers); Caéellus Devel.

Corp. v. United States, 34 F.3d 748 (9th Cir.1994) (in which

an automotive parts company that had sent used car batteries

to a battery-cracking plant for lead recovery and disposal was

held to be an arranger). We understand why the Oil

Companies did not argue, and are not arguing, for arranger

liability on this basis. There are simply insufficient facts in

the record to support a conclusion that the United States

Gi alii id ek ies ah ate

17a

directly entered into arrangements to dispose of acid waste at

the McColl site.

B. Broader Arranger Liability

The Oil Companies argue for arranger liability on a broader

theory, contending that the government had sufficient control

over the process that created the waste such that it should be

considered an arranger. The test they propose is that if a party

“has substantial control over a manufacturing process wherein

a hazardous waste stream is generated and disposed of, then

that party assumes the obligation to control the disposal of

that waste stream.” The district court applied a somewhat

different test to find arranger liability on a broader theory. It

took its test from its reading of a case decided by the Eighth

Circuit, United States v. Aceto Agric. Chems..Corp., 872 F.2d

1373 (8th Cir.1989). That test, like the Oil Companies’

proposed test, includes a focus on the control by the United

States: “[A] party is . . . an arranger (1) if it supplies raw

materials to be used in making a finished product, (2) and it

retains ownership or control of the work in progress, (3)

where the generation of hazardous substances is inherent in

the production process.” Shell II, No. 91 0589 at 15. We

agree with the Oil Companies and the district court that

control is a crucial element of the determination of whether a

party is an arranger under § 9607(a)(3). But we disagree with

their conclusion that the government exercised the requisite

control on the facts of this case.

There is no bright-line test, either in the statute or in the

case law, for a broad theory of arranger liability under

§ 9607(a)(3). Rather, we are required to sort through the fact

patterns of the decided cases in order to find similarities and

dissimilarities to the fact pattern of our case. In finding that

the United States was an arranger, the district court explicitly

relied on Aceto. The question in Aceto was whether pesticide

manufacturers were arrangers and therefore liable for

18a

cleanup costs for contamination at the plant of a pesticide

“formulator,” Aidex Corporation. The pesticide manufac-

turers routinely shipped active pesticide ingredients to Aidex,

which blended them with inert ingredients in order to produce

commercial-grade pesticides that could be sold on the open

market. After the commercial-grade pesticides were

formulated, Aidex shipped them either back to the

manufacturers or directly to customers of the manufacturers.

The manufacturers owned the pesticide ingredients and the

commercial-grade pesticides at all times. The generation of

waste at the Aidex plant was an “inherent” part of the

formulation process, through such things as spills, cleaning of

equipment, and mixing and grinding operations. The Eighth

Circuit held, under these circumstances, that the pesticide

manufacturers were arrangers: ‘“Aidex is performing a

process on products owned by defendants for defendants’

benefit and at their direction; waste is generated and disposed

of contemporaneously with the process.” /d. at 1381.

We disagree with the district court that Aceto controls this

case, for the United States was in a materially different

position in this case from the pesticide manufacturers in that

case. The United States was the end purchaser of avgas, and

was thus more like a customer of the pesticide manufacturers

than like the manufacturers themselves. Further, unlike the

pesticide manufacturers, the United States never owned any

of the raw materials or intervening products. It never owned

unrefined petroleum, refined gasoline, fresh sulfuric acid,

spent acid, or alkylate or any other additive. Finally, unlike

the manufacturers, the United States did not contract out a

crucial and waste-producing intermediate step in a

manufacturing process, and then seek to disclaim

responsibility for the waste generated during that step.

The Oil Companies also rely on an earlier Eighth Circuit

case, United States v. Northeastern Pharmaceutical &

Chemical Co., (“NEPACCO “), 810 F.2d 726 (8th Cir.1986).

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19a

NEPACCO manufactured disinfectant at one of its plants.

Edwin Michaels was the president and a principal shareholder

of NEPACCO, and John W. Lee was a vice-president and

plant supervisor. With the knowledge and permission of Lee,

the plant manager agreed with a third party to bury drums of

chemical waste from the plant on a farm several miles away

from the plant. Both Lee and Michaels were sued for cleanup

costs as arrangers under § 9607(a)(3). By the time of the suit,

NEPACCO was insolvent.

The Eighth Circuit held that Lee was an arranger, even

though he did not personally own or possess the waste:

It is the authority to control the handling and disposal of

hazardous substances that is critical under the statutory

scheme .. . . Lee, as plant supervisor, actually knew

about, had immediate supervision over, and was directly

responsible for arranging for the transportation and

disposal of the NEPACCO plant’s hazardous substances

at the Denney farm site. We believe requiring proof of

personal ownership or actual physical possession of

hazardous substances as a precondition for liability

under . . . § 9607(a)(3), would be inconsistent with the

broad remedial purposes of CERCLA.

Id. at 743. It also held that Michaels was an arranger, even

though he was not as directly involved as Lee:

Unlike Lee, Michaels was not personally involved in the

actual decision to transport and dispose of the hazardous

substances. As NEPACCO’s corporate president and as

a major NEPACCO shareholder, however, Michaels was

the individual in charge of and directly responsible for

all of NEPACCO’s operations, including those at the

Verona plant, and he had the ultimate authority to

control the disposal of NEPACCO’s _ hazardous

substances.

20a

Id. at 745. In Aceto, the Eighth Circuit explained its earlier

holding in NEPACCO, stating in dictum that it had held in

that case that arranger liability is appropriate for “those who

had the authority to control the disposal, even without

ownership or possession.” Aceto, 872 F.2d at 1382.

The Oil Companies rely on NEPACCO, and its later

characterization in Aceto, for the proposition that neither

ownership nor actual control is necessary for arranger liability

under § 9607(a)(3). In the view of the Oil Companies, mere

“authority to control” is sufficient. The United States did not

exercise any actual control over the Oil Companies’ disposal

of spent acid and acid sludge at the McColl site; indeed, it

did not even know that the Oil Companies had contracts to

dispose of their waste at the site. But the United States had

ultimate authority to exercise such control. It could have

exercised control over the disposal of the waste, just as it

could have seized the Oil Companies’ refineries under

eminent domain and operated those refineries itself. If

authority to control the Oil Companies’ waste disposal were

sufficient without more, as the Oil Companies contend, then

we would agree that the United States was an arranger under

§ 9607(a)(3).

However, we believe that the Oil Companies’ conception

of “authority to control” is based on an incorrect reading of

NEPACCO. In NEPACCO, there was actual control

exercised by vice-president Lee, who gave permission to the

plant supervisor to dispose of the waste at the farm. Michaels

was Lee’s superior in the chain of command. Not only did

Michaels have authority to control Lee’s actions, but there

had also been an actual exercise of control by Lee. In other

words, NEPACCO holds that responsible officials in the chain

of command of a corporation may be held responsible as

arrangers when one of those officers has exercised actual

control over the disposition of waste on behalf of the

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corporation, and the other officer has the authority to control

the first officer.

In this case, the United States neither exercised actual

control, nor had the direct ability to control, in the sense

intended in NEPACCO. In this case, the waste never

belonged to the United States, so there was never a United

States employee in a position comparable to Lee’s. Further,

even if we put the problem of ownership of the waste to one

side, Lee exercised actual control over the disposal of waste.

In this case, no official or employee of the United States ever

exercised actual control over any of the waste disposal at

issue. Thus, NEPACCO’s premise for liability of a superior

with authority to control never existed.

Moreover, an analogy to VEPACCO misses the essence of

that case: The court in NEPACCO held officers of a bankrupt

company liable for an actual misdeed of that corporation.

One of the two officers had participated in the misdeed; the

other officer was the president and a principal shareholder of

the corporation, who as president had the authority to control

the other officer and as shareholder had the potential to

realize substantial financial benefit from the misdeed. In this

case, there is no bankrupt corporation; the United States

committed no misdeed; and there is no officer or entployee

named as a defendant.

To summarize our view of Aceto and NEPACCO, and to

assess the interrelationship of the factors of ownership,

possession, and control over waste disposal, we can do no

better than to quote from Judge Levi’s careful opinion in

United States v. Iron Mountain Mines, Inc., 881 F.Supp. 1432

(E.D.Cal.1995). He writes:

It is true that some cases impose arranger liability on

parties who did not literally own or physically possess

hazardous waste at the time it was disposed of or

released. But in each of these cases the party either was

22a

the source of the pollution or managed its disposal by the

arranger [citing numerous cases, including Aceto and

NEPACCO }.

No court has imposed arranger liability on a party who

never owned or possessed, and never had any authority

to control or duty to dispose of, the hazardous materials

at issue. See, e.g., General Elec. Co. v. AAMCO

Transmissions, Inc., 962 F.2d 281, 286 (2d Cir.1992) (“it

is the obligation to exercise control over hazardous

waste disposal, and not the mere ability or opportunity to

control the disposal of hazardous substances that makes

an entity an arranger under CERCLA’s liability

provision’’) (emphasis in original).

Id. at 1451.

There are two circuit cases more closely on point than

Aceto and NEPACCO, both of which deal with arranger

liability of the United States for its activities .n wartime. The

first is FMC Corp. v. United States Dep't of Commerce, 29

F.3d 833 (3d Cir.1994) (en banc). In FMC, suit was brought

against the United States under CERCLA to recover cleanup

costs at a plant that had been used to manufacture high

tenacity rayon during World War II. The government had

vigorously sought to increase production of such rayon during

the war, and it considered facilities producing it to be

““war plants’ subject to its maximum control.” /d. at 836.

The United States installed government-owned rayon-

manufacturing equipment, which it leased to the plant owner.

To ensure an adequate supply of sulfuric acid for the plant,

the government built and retained ownership of a new acid

plant adjacent to the rayon-manufacturing plant, and the two

plants were connected by a pipeline. The government

obtained draft deferments for workers at the plant, directly

controlled the process by which the rayon was manufactured,

directly controlled the supply and price of the raw materials,

and directly controlled the price of the rayon produced.

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23a

The Third Circuit, sitting en banc, held in FMC that the

United States was liable under CERCLA as an “operator” of

the facility under § 9607(a)(1). But it divided evenly on the

question of whether the United States was an “arranger”

under § 9607(a)(3). Because it divided evenly, it wrote no

opinion on the arranger question; but we may, despite the

lack of opinion, derive something from the case. If it was a

close question on the facts of FMC whether the United States

was an arranger, it cannot possibly be a close question on the

facts in the case before us. The degree of the United States’

actual control over the manufacture of rayon in FMC, and its

actual control over the resulting production of waste, was

substantially greater than in this case. Yet, even on those

facts, a majority of the court was not willing to hold that the

United States was an arranger.

The second case is United States v. Vertac Chem. Corp., 46

F.3d 803 (8th Cir.1995). The issue was whether the United

States was liable as an arranger for cleanup costs at a plant

that had manufactured Agent Orange during the Viet Nam

War. The plant had been devoted exclusively to the

production of Agent Orange, pursuant to “rated contracts”

with the United States directing that the manufacturing of

Agent Orange take precedence over all other manufacturing.

The United States did not own any of the components of

Agent Orange, but it did issue directives to a third-party

chemical company to ensure a sufficient supply of an

essential raw material. The contracts required the

manufacturer to maintain certain health and safety standards,

and United States inspectors visited the plant on two

occasions. “The United States knew or should have known

that the production of Agent Orange produced wastes,” id. at

807, but the manufacturer disposed of the waste by burial

without the knowledge or consultation of the United States.

The manufacturer profited from its sales of Agent Orange to

24a

the United States, and after the war continued to make related

chemical products that it sold commercially.

The Eighth Circuit held in Vertac that the United States

was not an arranger under § 9607(a)(3). The facts in Vertac

are similar to the facts in this case. In both cases, products

were manufactured for purchase by the United States in war-

time; in both cases, the manufacturing was carried out under

government contracts and pursuant to government programs

that gave it priority over other manufacturing; in both cases,

the companies voluntarily entered into the contracts and

profited from the sale; and in both cases, the United States

was aware that waste was being produced, but did not direct

the manner in which the companies disposed of it. The

involvement of the United States in the manufacturing of

avgas was somewhat greater than its involvement in the

manufacturing of Agent Orange, but we believe that this was

a matter of degree rather than kind.

C. Conclusion

Based on a comparison of the facts in this case to those in

Aceto, NEPACCO, FMC, and Vertac, we hold that the

United States was not an arranger under § 9607(a)(3) with

respect to non-benzol waste, even under a broad theory of

arranger liability. Because the United States is not an

arranger, it has no liability under CERCLA for the cleanup

costs. The United States has appealed the district court’s

allocation of liability between itself and the Oil Companies

for cleanup of the non-benzol waste. However, because of

our holding that the United States is not an arranger, that

portion of the United States’ appeal is moot.

IV. Liability for Benzol Waste

At one point in the litigation, the district court believed that

the United States had conceded liability for 100% of the

cleanup cost of waste resulting from the production of

ee re 2 ee eee

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25a

government-owned benzol. See Shell III, 13 F.Supp.2d at

1024 (“[O]ne of the few points of agreement is that the

Government is wholly responsible for acid waste resulting

from acid treating in the production of benzol.”). The United

States contended, however, that while it had agreed that it was

an arranger with respect to the benzol waste, it had not agreed

that it should be allocated 100% of the cleanup cost for

that waste.

In response to the United States’ contention, the district

court wrote in a later unpublished order, “Even assuming that

the Government did not concede any liability for benzol

waste, the Court still allocates 100 percent of the cost of

cleanup of benzol waste to the Government.” The United

States appeals from this allocation. On the assumption made

by the district court that the United States did not concede

liability, the question before us is whether the district court

erred in allocating 100% of the cleanup costs to the United

States.

CERCLA provides that the district court “may allocate

response costs among liable parties using such equitable

factors as the court determines are appropriate.” 42 U.S.C.

§ 9613(f)(1). We review the district court’s allocation of

cleanup costs among liable parties for abuse of discretion and

for clear error. As we said in Boeing Co. v. Cascade Corp.,

207 F.3d 1177 (9th Cir.2000), “This language[of CERCLA]

gives district courts discretion to decide what factors ought to

be considered, as well as the duty to allocate costs according

to those factors. We reverse only for an abuse of the

discretion to select factors, or for clear error in the allocation

according to those factors.” /d. at 1187.

The district court conducted a full-scale trial with respect to

allocation of cleanup costs at the McColl site. The United

States introduced a substantial amount of evidence with

respect to the acid waste generally, but almost no evidence

directed specifically to the benzol waste. At the conclusion of

26a

the trial, the district court allocated 100% of the costs for the

non-benzol waste to the United States. In a thorough opinion,

the district court relied on several factors to support its

conclusion. See Shell l/l, 13 F.Supp.2d at 1026-28. First, the

cleanup costs are properly seen as part of the war effort for

which the American public as a whole should pay. Second,

the United States generally refused to make tank cars

available to the Oil Companies to transport the waste to

Northern California for reprocessing. Finally, the United

States refused to allocate resources to build reprocessing

plants. In the end, the district court concluded:

The benefits of avgas to the war effort were such that the

United States was willing to incur almost any cost to

obtain the maximum quantity and quality of avgas ... .

Despite the size of the response costs, the Court is

confident that, had the future CERCLA regime been

foreseen by the parties, the Government would have

agreed to pay for the costs of the cleanup of the McColl

Site (or any other unforeseen cost) in the blink of an

eye[.]

Id. at 1030.

In its later unpublished order, the district court concluded

that 100% of the cleanup costs for the benzol waste should

also be allocated to the United States, for the reasons given in

Shell III with respect to the non-benzol waste. It wrote,

“Responsibility for the [benzol] waste is fully allocable to the

Government for the same reasons that avgas sludge is fully

allocable to the Government.” We hold that the district court

did not abuse its discretion in choosing the factors on which

to rely in determining allocation, nor did it clearly err in

applying those factors to the benzol waste.

We recognize that the district court’s analysis in Shell III

was focused on the non-benzol rather than the benzol waste.

The reason for this focus, however, was that the United States

27a

had introduced very little evidence with respect to the benzol

waste—so little, in fact, that the district court was under the

impression that the United States had conceded complete

liability with respect to those costs. When the United States

objected to the district court’s conclusion that it had conceded

liability, the court explicitly extended its Shell III analysis to

the benzol waste. We believe that it was entirely justified in

so doing. Indeed, to the degree that the equitable factors

support allocation of the cleanup costs to the United States

with respect to the non-benzol waste, where the arranger

status of the United States was disputed, such factors are even

stronger with respect to the benzol waste, where the United

States concedes that it was an arranger. We therefore affirm

the district court’s allocation of 100% of the cleanup costs

for the benzol waste to the United States.

V. Act of War

Finally, we examine whether the Oil Companies enjoy a

defense to liability because the government’s activities in

regulating wartime petroleum production constituted an “act

of war” under § 107 of CERCLA, codified at 42 U.S.C.

§ 9607(b)(2). That section provides:

There shall be no liability under [CERCLA] for a person

otherwise liable who can establish by a preponderance of

the evidence that the release or threat of release of a

hazardous substance and the damages resulting

therefrom were caused solely by . . . an act of war[.]

The parties and the district court have recognized that there

is very little authority to guide our interpretation of this

provision. See Shell I, 841 F.Supp. at 970. CERCLA does

not define the term “act of war,” and we have found no case

law exploring the extent of the defense.

28a

We agree with the district court that the “act of war”

defense is not available to the Oil Companies. Our analysis

here recapitulates the district court’s careful examination of

the issue. See Shell I, 841 F.Supp. at 970-72. The district

court first noted that CERCLA uses expansive language to

impose liability, but uses circumscribed and narrow language

to confer defenses. Compare, e.g., 42 U.S.C. § 9607(a) with

id. § 9607(b). The district court then recognized that although

the legislative history of CERCLA, and of its amendment in

the Superfund Amendments and Reauthorization Act of 1986,

did not explain the nature of the “act of war” defense, it did

emphasize that CERCLA was to be a strict liability statute

with narrowly construed exceptions.

The district court noted that the term “act of war” appears

to have been borrowed from international law, where it is

defined as a “use of force or other action by one state against

another” which “[t]he state acted against recognizes ... as an

act of war, either by use of retaliatory force or a declaration of

war.” Shell J, 841 F.Supp. at 972 (citing James R. Fox,

Dictionary of International and Comparative Law 6 (1992)).

The two treatises that discuss the issue suggest that “act of

war” has a narrow meaning. One suggests the “act of war”

defense requires “massive violence.” See 4 William H.

Rodgers, Jr., Environmental Law: Hazardous Wastes and

Substances § 8.13(C)(3)(c), at 697 (1992). The other suggests

that it requires “natural or man-made catastrophes beyond the

control of any responsible party.” See 3 The Law of

Hazardous Waste § 14.01[8][b], at 14-162.2 (Susan M.

Cooke, ed., 2001). Case law in other contexts also suggests a

narrow definition of “act of war.” For example, in Farbwerke

Vormals Meister Lucius & Bruning v. Chem. Found., 283

U.S. 152, 51 S.Ct. 403, 75 L.Ed. 919 (1931), the Supreme

Court characterized, in dictum, the United States’ wartime

seizure and assignment of patents owned by German

companies as “act[s] of war.” /d. at 161, 51 S.Ct. 403.

29a

In doing so, the Court distinguished the unilateral acts of the

United States from acts of mutually contracting parties. Other

cases endorse this distinction. See also Ribas y Hijo v. United

States, 194 U.S. 315, 322, 24 S.Ct. 727, 48 L.Ed. 994 (1904)

(seizure of enemy vessel was an “act of war’ because “[t]here

is no element of contract’); United States v. Winchester &

Potomac R.R. Co., 163 U.S. 244, 256-57, 31 Ct.Cl. 450, 16

S.Ct. 993, 41 L.Ed. 145 (1896) (seizure of Confederate

railroad materials was an “act of war” because it “had no

element of contract, but was wholly military in character’).

The Oil Companies do not discuss or otherwise respond to

this authority. Rather, they argue that it is impossible to

distinguish between acts of combat and acts taken pursuant to

government cirection. They contend that an “act of war”

includes any action by the federal government under the

authority of Article I, § 8, clause 11 of the Constitution,

which grants Congress the power “[t]o declare war.” But the

argument that any governmental act taken by authority of the

War Powers Clause is an “act of war” sweeps too broadly. To

take but one example, we have been unable to discover any

case in which wartime price controls have been held to be

“acts of war.”

Finally, even if we were to accept the Oil Companies’

position, that the involvement of the United States on wartime

production of avgas was an “act of war” within the meaning

of § 9607(b)(2), they cannot show that the actions they took

to dispose of avgas-related waste were caused “solely” by an

act of war, as required by that section. The undisputed facts

indicate that the Oil Companies had other disposal options for

their acid waste, that they dumped acid waste from operations

other than avgas production at the McColl site, and that they

were not compelled by the government to dump waste in any

particular manner.

30a

VI. Conclusion

We AFFIRM the holding of the district court that

§ 9620(a)(1) waives the sovereign immunity of the United

States under CERCLA. We REVERSE the holding of the

district court that the United States is liable as an arranger

under § 9607(a)(3). This holding renders moot the United

States’ appeal of the district court’s allocation of liability

between the United States and the Oil Companies as to the

non-benzol waste. We AFFIRM the holding of the district

court that 100% of the cleanup costs for the benzol waste

should be allocated to the United States. We AFFIRM the

holding of the district court that the Oil Companies do not

have a valid defense to liability under the “act of war”

provision of § 9607(b)(2).

AFFIRMED in part and REVERSED in part.

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APPENDIX B

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

[Filed Sep. 18, 1995]

CV 91-0589-RJK

UNITED STATES OF AMERICA, et al.,

Plaintiffs,

SHELL OIL COMPANY, et al.

Defendants,

AND RELATED ACTIONS

MEMORANDUM OF DECISION AND ORDER

I. INTRODUCTION

On July 31, 1995, at 10:00 a.m., the Honorable Robert J.

Kelleher presiding, the following motions came on for

hearing: (1) United States’ Motion for Partial Summary

Judgment Based on Sovereign Immunity; (2) Oil Companies’

Motion for Partial Summary Judgment Against the United

States for Liability Under CERCLA Section 107(a)(3); (3)

United States’ Cross-Motion for Partial Summary Judgment

on CERCLA Counterclaims; (4) United States’ Motion for

Partial Summary Judgment on the Pleadings with Respect to

the Contract Counterclaims; (5) United States’ Motion to

Strike Those Portions of Defendants’ Brief Relating to

Benzol or Toluene, or in the Alternative, to Stay

Consideration of These Issues Pending Discovery; (6) Oil

Companies’ Motion to Strike the Martin Melosi Declaration;

and (7) United States’ Motion to Exclude the Wimer and

Grant Declarations.

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Based on the pleadings submitted in support of and in

opposition to the above motions and argument made at

hearing, the Court determines as follows:

II. PROCEDURAL BACKGROUND

The United States of America (“Plaintiffs”) seeks, by this

action, to recover costs incurred, and to obtain declaratory

relief as to liability for costs yet to be incurred, in responding

to the presence of hazardous wastes at a site in Fullerton,

California, known as the McColl Site (“the Site”). Recovery

of response costs is sought pursuant to section 107(a) of the

Comprehensive, Environmental Response, Compensation,

and Liability Act of 1980 (“CERCLA”), Pub.L. No. 96-510,

as amended by the Superfund Amendments and

Reauthorization Act of 1986 (“SARA”), Pub.L. 99-499,

codified at 42 U.S.C. § 9607(a).

This Court has previously granted summary judgment as to

the liability of the Oil Companies (Shell Oil Company, Union

Oil Company, Atlantic Richfield Company, and Texaco, Inc.,

herein referred to as “Shell,” “Union,” “ARCO,” and

“Texaco,” respectively and “Oil Companies,” collectively)

under section 107(a) of CERCLA, 42 U.S.C. § 9607(a)

against the Oil Companies. See 841 F. Supp. 962, 975 (C.D.

Cal. 1993). The Oil Companies counterclaimed against the

United States (the ‘“Government”), asserting that the

Government is liable under section 107 of CERCLA due to

its own conduct, including the control it exercised over the

petroleum industry during World War II. These counterclaims

are the subject of motions now before the Court.

The Government moves for summary judgment, asserting

that its sovereign immunity insulates it from CERCLA

liability with respect to the McColl site. The Oil Companies

oppose the motion and move for summary judgment as to the

Government’s liability as an “arranger” under CERCLA. The

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United States brings a cross-motion for summary judgment

on the same subject.

This Memorandum of Decision and Order is based on the

Joint Statement of Undisputed Facts and by all other

pleadings and documents submitted in support of these

motions. The Court disregards the declarations of Elizabeth

Grant and Warren Wimer.

Ill. FACTUAL BACKGROUND

During World War II, the federal government instituted a

regulatory regime under which many industries cooperated

with the government in providing the necessary armaments

and supplies to support the United States’ fighting forces. Not

unlike other industrial sectors, the petroleum industry was

subject to pervasive oversight and intermingling by agencies

of the federal government. Such extensive oversight resulted

from the federal government’s wartime requirement for high

octane. High octane, or 100 octane aviation gasoline

(“avgas”) was an oil weapon during World War II, one which

allowed allied fighters to attain higher speeds, higher ceilings,

faster rates of climb and the ability to carry a heavier load

than our enemies could achieve.

The Oil Companies contend that the regulatory controls

over their wartime operations had the legal and practical

effect of coercing their production of avgas. The Government

contends that the oil industry voluntarily undertook the

production, viewing avgas as a commercial product with a

huge potential market. The undisputed evidence discloses that

the government pervasively regulated the petroleum industry

during World War II, as well as the modes of available

transportation within the country, including railroad tank cars.

The undisputed evidence also discloses that the Government

regulated the petroleum industry extensively and engaged in

private-like-conduct, such as contracting for the purchase of

and purchasing avgas. It is undisputed that the Government

34a

purchased the avgas solely as a result of and for the

advancement of the war effort.

During the war, the Government’s need for avgas grew

exponentially. The Government entered into contracts with

the Oil Companies for avgas production. In addition, various

executive agencies sprung up during the war as a result of

executive orders, presidential letters, and legislation. These

wartime agencies, boards and commissions interacted heavily

with the petroleum industry.

The War Production Board (“WPB”) set policy for and

issued mandatory regulations for the acquisition and

prioritization of scarce materials. The Petroleum Admin-

istration of War (“PAW”) similarly instituted a blending

program by which it required quarterly inventory reports from

all refineries, authorized purchase of certain quantities of raw

_materials, and instructed refineries with respect to manu-

facturing specifications. The PAW had approval power over

prices of components, such as cumene, acid and isopentane,

which the Oil Companies needed for the production of avgas.

The Defense Supplies Corporation (“DSC”) was designated

as the sole purchaser of aviation gasoline during the war. The

Government also controlled the available modes of trans-

portation for the raw and finished materials.

As a result of the regulatory regime instituted by the

Government, avgas was produced in great quantities for the

war effort. Two byproducts, acid sludge and alkylation acid,

necessarily resulted from the production of avgas. Spent

alkylation acid could and was, in part, reused, reprocessed,

and put to further uses. The acid sludge, by contrast, could

not be put to further use within the refineries. No further use

was ever put to that resultant sludge. This Court has

previously determined that acid wastes, resultant from the

production of avgas, are present at the subject Site.

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The Site is on land which, prior to World War II, was

owned by Helen Grant. Helen Grant sold her land to one Eli

McColl for $2,500 plus five cents for every barrel of sludge

dumped in excess of 50,000 barrels. Subsequently, the Oil

Companies used the Site as a disposal site for acid sludge and

for spent alkylation acid which was not reused. This Court

has already determined that the Oil Companies are liable as

arrangers under CERCLA as a result of their activities

generating the hazardous waste dumped at the McColl site

and as a result of contracting with Eli McColl to transport the

waste to, and dump it in the sumps on, the McColl site. The

Oil Companies contend that the Government should share

liability under CERCLA based on the Government’s

“arranger liability” under CERCLA.

IV. SOVEREIGN IMMUNITY

The Government’s preliminary argument is that the United

States did not waive its sovereign immunity under CERCLA

for claims arising from its wartime regulatory activities. This

argument stems from the well-established principle that the

federal government is immune from suit “save as it consents

to be sued.” United States v. Testan, 424 U.S. 392 (1976).

The federal government’s sovereign immunity can be waived

only by a clear, unequivocal statement by Congress.

United States v. Nordic Village, Inc., 503 U.S. 30 (1992).

Moreover, “the Government’s consent to be sued must be

construed strictly in favor of the sovereign, and not enlarge[d]

beyond what the language requires... .” /d.

A. CERCLA’s Statutory Waiver

Congress included two sections within CERCLA which

operate to waive the immunity of the United States. The first

section defines “persons” who may be sued under the Act. 42

36a

U.S.C. § 9601(21). It identifies the United States as one such

“person.” The second section is a statutory waiver of

sovereign immunity:

Each department, agency and instrumentality of the

United States (including the executive, legislative and

judicial branches of government) shall be subject to, and

comply with this chapter in the same manner and to the

same extent, both procedurally and substantively, as any

nongovernmental entity, including liability under section

9607 of this title.

42 U.S.C. § 9620(a)(1) (emphasis added).

The parties dispute the meaning of the statutory waiver set

forth in section 9620. The Oil Companies argue that the

waiver is unqualified, and therefore, the Government is_

subject to the CERCLA liability, even for regulatory actions.

The Government argues that the waiver only applies to

proprietary actions, where the Government acts as a market

participant, emulating the conduct of private parties. The

Government argues that immunity is held intact for any

regulatory actions, including those undertaken as a result of

fighting the war.

B. The Proprietary/Regulatory Distinction

The proprietary/regulatory distinction has its greatest

application in cases involving interpretation of the Commerce

Clause. For instance, in Hughes v. Alexandria Scrap Corp.,

426 U.S. 794, 806-10 (1976), the United States Supreme

Court held that a state is not precluded by the dormant

Commerce Clause from acting, instead of regulating to

control or restrict interstate commerce, it discriminates

against interstate commerce through its proprietary partic-

ipation in the market. Jd. at 809-10. The proprietary/

regulatory distinction drawn in Alexandria Scrap is based on

federalism concepts, as are the other cases cited by the

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Government. See e.g., Building & Trades Council, v. Asso-

ciated Builders & Contractors, Inc., 113 S. Ct. 1190 (1993)

(holding distinction allows states to act as market partic-

ipants). While these cases aptly illustrate the proprietary/

regulatory distinction, they are wholly inapplicable to the

instant case because they do not involve the relevant question

of whether a general statutory waiver of the United States’

liability should be construed to apply only to the ~

Government’s proprietary activities.

In Indian Towing Co. v. United States, 350 U.S. 51 (1955),

the United States Supreme Court interpreted a general

statutory waiver provision contained in the Federal Tort

Claims Act. The provision, somewhat similar to the one

contained in CERCLA, stated:

The United States shall be liable . . . in the same manner

and to the same extent as a private individual under like

circumstances, but shall not be liable for interest prior to

judgment or for punitive damages.

Federal Tort Claims Act, 28 U.S.C. § 2674 (“FTCA”); see

Indian Towing, 350 U.S. at 124.

In Indian Towing, a towing company sued the United

States for its negligent operation of a lighthouse which

resulted in the grounding of and damage to a barge. /d. at

123. The Government sought immunity, asserting that the

FTCA’s provision did not waive immunity. The Supreme

Court applied the statutory waiver, observing (1) it was hard

to think of any operational governmental activity which could

not conceivably be privately performed; (2) all governmental

activity is inescapably uniquely governmental because it is

performed by the government; and (3) the FTCA did not

suggest that Congress intended to draw such a fine distinction

when it enacted its waiver of sovereign immunity. /d. at 126.

Similarly, in the instant case, the conduct of engaging in a

war is uniquely governmental. However, when Congress

38a w

enacted CERCLA and included a general statutory waiver

within the Act, it drew no distinction as between regulatory

and proprietary actions.

The Supreme Court further observed in /ndian Towing,

supra, that the FTCA contained a limitation on the waiver for

“discretionary functions.” /d. at 126 (citing FTCA, 42 U.S.C.

§ 2680). Consequently, under the FTCA the functions of the

government at the policy level rather than at the operational

level are entitled to immunity. Wright v. United States, 719

F.2d 1032 (9th Cir. 1983). Such a limited waiver serves to

protect policy makers from judicial second-guessing. See

Baum v. United States, 765 F. Supp. 268 (D. Md. 1991).

By contrast, CERCLA contains no such provision limiting the

waiver of sovereign immunity.

C. Immunity For Remedial Actions Under CERCLA

The Government’s statement to the effect that the

overwhelming majority of courts recognize that CERCLA’s

sovereign immunity waiver excludes regulatory conduct is

overly broad. The overwhelming majority of courts do hold

accountable state, local and the federal government when

they are acting in a remedial capacity to respond to a release

or to a threatened release of hazardous substances. The

question of whether the Government is entitled to immunity

for any and all regulatory actions has been left, for the most

part, unaddressed. See, e.g. United States v. American Color

& Chem. Corp., 858 F. Supp. 445 (M.D. Pa. 1994); United

States v. Atlas Minerals & Chems., Inc, 797 F. Supp. 411

(E.D. Pa.); United States v. Skipper, 781 F. Supp. 1106

(E.D.N.C. 1991) ; United States. v. Azrael, 765 F. Supp. 1239

(D. Md. 1991); United States v. Western Processing Co., 761

F. Supp. 725 (W.D. Wash. 1991). Rather, they hold either

that (1) pursuant to the express language of section 107(d)

(2), state and local governments are expressly immune from

liability for cleanup activities; or (2) that the federal

39a

government enjoys like immunity for remedial or cleanup

activities. Two recent cases do appear to address whether the

federal government enjoys immunity under CERCLA for

non-remedial regulatory activities.

D. The Third Circuit’s Decision in FMC v. U.S. Dept. of

Commerce

The facts underlying F.WC are strikingly similar to those

involved in the instant action. Pursuant to CERCLA, the

United States sought to recover response costs from FMC for

cleaning up hazardous waste created during World War II at a

rayon manufacturing facility. FMC Corp, 29 F.3d 833, 834

(3rd Cir. 1994) (noting high demand of rayon due to rubber

shortage). FMC counterclaimed, seeking contribution from

the United States, claiming that it too was liable under

CERCLA as a result of the pervasive control exercised over

the facility during World War II. /d. at 834. The Government

asserted that it was entitled to sovereign immunity, arguing

that it could not be held liable under CERCLA for its wartime

regulatory activity. /d. at 839-40.

After an extensive statutory analysis, the Court held that

the statutory waiver did not shield the United States from

liability for the actions it took during World War II with

respect to the FMC site, and that both the government’s

regulatory and non-regulatory activities should be considered

in determining whether the United States was liable as an

operator or arranger under CERCLA. /d. at 842.

The Third Circuit considered the express statutory waiver,

42 U.S.C. § 9620(a)(1), and cases upholding the Govern-

ment’s immunity for cleanup actions, Paoli R. Yard PCB

Litig., 790 F. Supp. 94, 95-95 (E.D.Pa.), aff'd, 980 F.2d 724

(3d Cir. 1992). The court concluded that “the government

can be liable when it engages in regulatory activities

extensive enough to make it an operator of a facility or an

arranger of the disposal of hazardous wastes even though no

40a

private party could engage in the regulatory activity at issue.”

Id. at 840; see also Indian Towing Co. v. United States, 350

U.S. 67, 70 (1955) (holding federal government liable for

negligent operation of lighthouse although private entities

forbidden from operating lighthouses). Further, the FMC

court reasoned that given CERCLA’s “essential purpose of

making those responsible for problems caused by disposal . . .

bear the costs .. . ,” that the bottom result “simply places a

cost of the war on the United States, and thus on society as a

whole, a result which is neither untoward nor inconsistent

with the policy underlying CERCLA.” /d. at 840, 846."

E. This Court’s Decision in Lincoln v. Republic Ecology

This Court resolved a related issue in Lincoln v. Republic

Ecology Corp., 765 F. Supp. 633 (C.D. 1991) (Kelleher, J.).

In Republic Ecology, several parties were sued under

CERCLA for response costs incurred in connection with the

remediation of hazardous substances at an auto salvage yard

within the Pasadena city limits. Jd. A cross-complaint against

the City of Pasadena sought contribution on the grounds that

' The Government encourages this Court to look to the dissent in FMC

for guidance. Chief Judge Sloviter would have construed the waiver more

narrowly to apply only to government conduct that a private party could

engage in, such as ownership of property, operation of facilities. /d at

846-47. Engaging in and coordinating war, Judge Sloviter posited, is a

regulatory activity exclusively reserved to the federal government for

which liability should not attach. She ultimately concluded that while

Congress could do so, it was difficult to imagine that it intended to impose

massive liability on the United States for the environmental consequences

of wartime regulation, without some reference in the legislative history to

its intent to do so. /d. at 851; cf Indian Towing Co. v. United States, 350

U.S. 61, 69, 76 S. Ct. 122, 126 (1955) (stating “when dealing with a

Statute subjecting the Government to liability for potentially great sums of

money, this Court must not promote profligacy by careless construction”).

This Court considers the dissent, but rejects its reasoning, given the plain

language of the statutory waiver and given Congress’ opportunity to have

amended CERCLA since the Third Circuit’s decision in FMC.

4la

the City’s actions in removing abandoned vehicles constituted

arranging within the meaning of CERCLA. /d. The City

moved for summary judgment on the grounds of sovereign

immunity, id. at 634, noting that its removal of abandoned

vehicles resulted from regulatory action, namely, a municipal

ordinance authorizing the removal of abandoned vehicles. /d.

This Court held that the City of Pasadena was entitled to

immunity for its actions in removing abandoned vehicles

because (1) state and local governments enjoy certain spe-

cial exemptions from liability; (2) CERCLA’s section

9601(20)(D) specifically provided immunity for “a unit or

State of local government which acquired ownership or

control involuntarily through abandonment, or other circum-

stances in which the government involuntarily acquires title

by virtue of its function as a sovereign.” Jd. at 636. The court

reasoned that “strict liability under CERCLA should not

attach to government entities engaged in legitimate sovereign,

as opposed to proprietary or commercial functions.” /d. at

637-38.

Republic Ecology includes general language indicating that

local government ought not be held liable under CERCLA for

regulatory actions. However, this language as well as that

found in other cases cited by the Government are merely dicta

as they relate to the case presently before the Court, because,

with the exception of Republic Ecology, they all involved the

question of immunity as applied to the governments’ remedial

or clean up activities. And in Republic Ecology, this Court

focused on specific statutory language which provided

immunity for state and local government when involuntarily

acquiring title over abandoned property.

F. Conclusion on Sovereign Immunity

Congress expressly and unequivocally waived the

immunity of the United States when it enacted CERCLA.

There is no basis within the Act, within its legislative history,

or within the law of this circuit which supports the adoption

42a

of the proprietary/sovereign distinction in the CERCLA

context. Accordingly, this Court determines, as a matter of

law, that the Government is subject to the provisions of

CERCLA even while it is engaged in regulatory activity, so

long as such regulatory activity was nonremedial in nature.

V. ARRANGER LIABILITY UNDER CERCLA

The Oil Companies and the Government each move for

summary judgment on the issue of the Government’s liability

as an arranger under CERCLA.

A. Standard for Imposing Arranger Liability

CERCLA section 107(a)(3) extends liability to “any person

who by contract, agreement, or otherwise arranged for

disposal or treatment . . . of hazardous substances owned or

possessed by such person, by any other party or entity, at any

facility . . . owned or operated by another party... .”

42 U.S.C. § 9607(a)(3).” The Court must “construe

[CERCLA’ s] provisions liberally to avoid the frustration of

the beneficial legislated purposes,” Wilshire Westwood Assoc.

v. Atlantic Richfield, 881 F.2d 801, 804 (9th Cir. 1989), and

to accomplish its remedial goals. 3550 Stevens Creek Assocs.

v. Barclays Bank, 915 F. 2d 1355, 1363 (9th Cir. 1990).

In “traditional” arranger cases, the soie purpose of the

transaction is to arrange for the treatment or disposal of the

hazardous wastes. See, e.g., Cadillac Fairview/Cal., Inc. v.

United States, 41 F.3d 562, 566 (9th Cir. 1994) (holding party

arranged by selling contaminated wastes); Catellus Dev.

Corp. v. United States, 34 F.3d 748, 753 (9th Cir. 1994)

(imposing liability where substance delivered to third party).

The Oil Companies do not seek to establish liability against

the Government based on one of the traditional approach [sic]

to arranger liability. Rather the Oil Companies look to

nontraditional methods of establishing arranger liability.

43a

Courts have developed two lines of authority for

determining arranger liability for cases which are not

“traditional.” See United States v. Northeaster Pharma-

ceutical & Chem. Co. (“NEPACCO”), 579 F. Supp. 823, 847

(W.D. Mo. 1984), aff'd in pertinent part, 810 F.2d 726, 743

(9th Cir. 1986), cert. denied, 484 U.S. 848 (1987); and United

States v. Aceto Agri. Chem. Corp. (“Aceto”’), 872 F.2d 1373,

1382 (8th Cir. 1989); see also Catellus, supra, (quoting

Aceto) and Jones-Hamilton Co. v. Beazer Materials & Svcs.,

959 F.2d 126, 131 (9th Cir. 1992) (following Aceto without

expressly adopting it). The Oil Companies argue that under

the Aceto standard, arranger liability should be imposed on

the Government.’

Under Aceto, a party is liable as an arranger (1) if it

supplies raw materials to be used in making a finished

product, (2) and it retains ownership or control of the work in

process, (3) where the generation of hazardous substances is

inherent in the production process. Aceto, at 1379-80, 1382

(holding that party may be liable as arranger despite lack of

direct authority to dispose or arrange); see also Catellus, at

752 (holding that continued ownership or control not required

because would allow [sic] defendants to “close their eyes” to

method of waste disposal).

According to the Ninth Circuit, on a motion for summary

judgment, the question is “whether the fact-finder could infer

from all the circumstances ‘that a transaction in fact involves

an arrangement for the disposal [or treatment] of a hazardous

substance.” Cadillac Fairview/Cal., Inc. v. United States, 41

F.3d at 562 (quoting Jones-Hamilton, 973 F.2d at 695).

* The Government states that the Oil Companies seek to assert liability

based on both the Aceto and NEPACCO standards. However, the Oil

Companies do not in their papers address the possibility of liability under

NEPACCO. Accordingly, this Court proceeds under only the Aceto

standard.

44a

B. The Aceto Analysis

The Government acknowledges that the generation of

hazardous substances was inherent in the production of

avgas. Thus, the third required element under Aceto is not

disputed. /d.

1. Did the Government Own or Supply Raw Materials?

The Government contends that Aceto is inapplicable

because the Government never owned or supplied any of the

raw materials used in Defendants’ production process. It has

not been established that the Government owned any of the

raw materials used in avgas production. The Oil Companies

contend that the Government supplied the raw materials, by

arranging and controlling which refineries could manufacture

avgas components, and by arranging and controlling the

delivery of such components.

In United States v. Vertac Corp, 46 F.3d 803 (1995), the

Eighth Circuit addressed a similar issue, when an Agent

Orange manufacturer counterclaimed under CERCLA against

the Government, asserting that the Government’s directives to

suppliers amounted to supplying the components of Agent

Orange.’ The court held that, despite the directives requiring

suppliers to send raw materials, the Government neither

actively nor constructively supplied such materials to the

manufacturer. This Court does not find Vertac persuasive.

When the Government, as a practical matter, orders a private

company to supply a finished product, dictates the delivery

dates, the quantity to be shipped, the prices of the materials,

the specifications of the raw materials, and provides the

> The Vertac cross-claimant, Hercules, was in a similar position to the

Oil Companies, having been issued a federal directing [sic] ordering it to

accelerate its production and delivery of Agent Orange, which resulted in

Hercules’ total devotion of its manufacturing plant to the production of

Agent Orange.

45a

transportation for the raw materials, there can be no question

but that it is “supplying” the raw materials within the meaning

of Aceto.

Further, the Government’s control, even daily control, over

the output of avgas produced by the Oil Company defendants,

was pervasive and omnipotent. The Government, through its

various departments, boards and commissions, coerced the

Oil Companies into producing avgas, knowing full well that

the acid sludge would be dumped. Undisputed evidence pre-

sented to this Court exists that during the relevant times the

Government knew acid wastes were being dumped, and the

Government attempted to divert the wastes, but its efforts

were ultimately unsuccessful. When it was either unable or

unwilling to allocate resources for the proper disposal of the

wastes, the Government turned a blind eye to the problem.

This is exactly the conduct that Congress intended to

condemn, albeit retroactively, when it enacted CERCLA.

2. Did the Government Retain Ownership or Control of

Avgas During Production?

There is no question of fact with respect to the

Government’s control over the production of avgas. It is

undisputed that the Government, on a regular basis,

controlled the specifications, quantities, delivery, and price of

avgas. The undisputed facts reveal that the actions of the

United States resulted in, as a practical matter, almost total

control over the production of avgas.

C. Under Traditional Notions of Arranger Liability

Furthermore, certain facts have been presented to the Court

upon which the Court could rest a traditional finding of

arranger liability. The Government began to arrange for the

disposal of acid wastes, by undertaking the responsibility for

disposing of the sludge. Stip. Facts. at 87 (letter from PAW

stating “sludge disposal problem was being left with WPB

46a

since they have the over-all responsibility for industrial uses

of acid’). The Government even undertook the rental of a

storage tank, known as the Wilshire Storage Tank, for the

disposal of some acid wastes. /d. at 78 (letter from WPB

directing that DSC rent the storage tank from Wilshire). The

Wilshire Tank stored spent alkylation acid for a short while,

but, once filled to capacity, no other arrangements were

made. As a result of a tank car shortage, the spent alkylation

acid and the acid sludge were both dumped. The case law

certainly supports the proposition that once an entity

undertakes to arrange for disposal or treatment, it cannot

abdicate responsibility when the disposal becomes infeasible.

D. Conclusion as to the United States’ Arranger Liability

Pursuant to CERCLA Section 107(a)(3)

Accordingly, the Court finds that the Government acted as

an arranger with respect to the production and output of avgas

during World War II and is thus liable as an arranger under

CERCLA.

ORDER

Based on the pleadings filed herein and pursuant to Fed. R.

Civ. P. 56(c), the Court finds:

(1) no genuine issues of material fact remain with respect

to the United States’ immunity under CERCLA. Accordingly,

the United States’ Motion for Partial Summary Judgment

Based on Sovereign Immunity is DENIED;

(2) no genuine issues of material fact remain with respect

to the Government’s liability as an arranger under CERCLA

Section 107(a)(3). Therefore, the Oil Companies’ Motion for

Partial Summary Judgment Against the United States for

Liability Under CERCLA Section 107(a)(3) is GRANTED.

The United States’ Cross-Motion for Partial Summary

Judgment on CERCLA Counterclaims is DENIED.

47a

IV. OTHER MATTERS PENDING BEFORE

THE COURT

The United States’ Motion directed to benzol and toluene,

with the consent of the parties, is declared moot. The United

States’ Motion for Partial Summary Judgment on the

Pleadings to Dismiss Counterclaims Six Through Twelve is

taken under submission.

This case is over four years old and has been the subject of

protracted discovery. This Court has issued rulings regarding

the liability of the principal parties in this litigation. From the

Court’s perspective, the bulk of the issues remaining pertain

to liability apportionment. Accordingly, pursuant to Local

Rule 23.4, the Court orders the parties to participate in a

Mandatory Settlement Conference. The Clerk is directed to

initiate the procedure designated by Local Rule 23.5.4.

It is ordered that within fifteen days of the date of this

order, the parties shall submit a concise, joint status report,

not to exceed ten pages, which shall disclose that which is

required by Local Rule 6.4.2. It is further ordered that the

parties shall file a Supplemental Joint Status Report, not to

exceed three pages, within fifteen days of the settlement

conference. The Supplement Joint Status Report shall inform

the Court, quite specifically, of the posture, status and

feasibility of settlement. All further proceedings in this

litigation shall proceed forthwith.

IT IS SO ORDERED.

DATE: Sept 18, 1995

/s/ Robert J. Kelleher

ROBERT J. KELLEHER

SR. UNITED STATES DISTRICT JUDGE

48a

APPENDIX C

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

[Filed Oct 12, 1999]

CASE NO. Civ. 91 0589 RJK(Ex)

FINAL JUDGMENT PURSUANT TO RULE 54(b) FRCP

UNITED STATES OF AMERICA, et al.,

Plaintiffs,

SHELL OIL COMPANY, et al.,

Defendants,

AND RELATED ACTIONS

WHEREAS this Court entered partial summary judgment

on behalf of Plaintiffs, the United States of America and the

State of California, against Defendants, Shell Oil Company,

Inc., Atlantic Richfield Company, Texaco, Inc. and Union Oil

Company of California (hereinafter the “Oil Companies”) on

liability pursuant to the Complaint on September 29, 1993, in

relation to the McColl Superfund Site located in the City of

Fullerton, in Orange County, California;

WHEREAS this Court entered a “Partial Consent Decree

Among Plaintiffs and Oil Company Defendants Regarding

Certain Cost Claims and Order” on December 12, 1994,

which resolved Plaintiffs’ claims for recovery of costs

incurred through approximately June 1990, which claims

were paid by the Oil Companies in the ameunt of

$18,000,000; and

49a

WHEREAS the Partial Consent Decree, entered December

12, 1994, provides at paragraph 10 that the Judgment and

Order filed by the Court on September 28, 1993, constitutes a

declaratory judgment pursuant to 42 U.S.C. § 9613(g) (2) in

favor of Plaintiffs against the Defendant Oil Companies for

further response costs, which include all response costs with

regard to the McColl Superfund Site incurred by the Plaintiffs

after approximately June 1990;

WHEREAS this Court entered partial summary judgment

on behalf of the Oil Companies against the United States as

Counterdefendant on liability pursuant to Claims I and II of

the Oil Companies’ Counterclaim on September 18, 1995;

WHEREAS this Court entered a Memorandum and Order

on August 12, 1998, allocating 100% of the liability for

CERCLA response costs at the McColl Superfund Site to the

United States as Counterdefendant;

WHEREAS the United States as Counterdefendant and the

Oil Companies have stipulated to the response costs incurred

or paid by the Oil Companies up to and including October

1998, in accordance with the terms of a “Stipulation” signed

by the United States and the Oil Companies, dated September

30, 1999 (“Stipulation’’);

WHEREAS the United States and the State of California,

as Plaintiffs, have outstanding demands against the Oil

Companies for response costs incurred by the Plaintiffs for

the period beginning in approximately June 1990, plus

prejudgment interest from the applicable dates of demand,

which costs have not yet been stipulated to by the parties;

WHEREAS the United States is presently responsible for

100% of the response costs incurred by the Plaintiffs, as a

result of the Court’s Memorandum and Order of August

12, 1998;

50a

WHEREAS the Plaintiffs have continued to incur response

costs in relation to the McColl Superfund Site and intend to

assert additional cost recovery claims against responsible

parties;

WHEREAS the parties have not completed their review of

supporting documentation for the Plaintiffs’ outstanding

response cost claims, but have established a schedule to do so

in the near future;

WHEREAS, subject to appeal, allocation of said response

costs will be in accord with this Court’s Memorandum of

Decision and Order entered August 12, 1998, and

proceedings with respect to the determination of said costs

will continue in this Court under its continuing jurisdiction

until resolved by stipulation or further proceedings;

WHEREAS the parties agree that Plaintiffs retain all their

rights to pursue their claims for response costs to judgment in

this Court, and the Oil Companies retain the right to seek

allocation of those costs and additional response costs

incurred since September 1, 1998, in accord with the

Memorandum of Decision and Order entered August 12,

1998;

WHEREAS on April 28, 1997, the Oil Company

defendants on one side and defendant McAuley LCX

Corporation on the other dismissed with prejudice cross

claims filed against each other;

WHEREAS on January 16, 1997, this Court entered a First

Amended Consent Decree between Plaintiffs and Defendant,

McAuley LCX Corporation, adjudicating all rights between

said parties;

WHEREAS on or about March 12, 1993, the Plaintiffs and

the Defendant Oil Companies dismissed without prejudice

their claims against defendants Los Coyotes Estates, LTD,

and Ramparts Research & Financial Corp.;

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