WASHINGTON — For years, businesses large and small viewed as unfair but unchangeable their potential liability for the entire cost of a Superfund site cleanup, no matter how tenuous their connection to the site.

But an oil company and two railroads, on the hook for a $40 million cleanup, will urge the U.S. Supreme Court this month to limit how most courts and the federal government approach liability for cleaning the nation’s worst hazardous waste sites.

Although the federal Superfund law has been on the books for nearly three decades, there were 1,258 uncontrolled hazardous waste sites on the so-called National Priorities List as of last September, according to the Environmental Protection Agency, and more sites await listing.

“You’d think eventually Superfund would fade in importance because we have addressed these problems, but thousands of these sites are in the pipeline and being discovered all the time,” said environmental law scholar Jerry Anderson of Drake University Law School. “It’s going to be relevant for quite a while.”

The two Superfund cases that the high court has consolidated for argument on Feb. 24 are among six potentially significant environmental cases to be decided this term under a number of different environmental laws.

The two cases — Burlington Northern-Santa Fe Railway Co. v. U.S. and California, No. 07-1601, and Shell Oil v. U.S. and California, No. 07-1607 — ask the justices to reverse the 9th U.S. Circuit Court of Appeals on two issues critical to Superfund liability.

First is the 9th Circuit’s holding that Shell Oil Co. is liable as an entity that “arranged for” disposal of hazardous substances, so-called arranger liability; and second is its decision that both companies are jointly and severally liable for the entire cleanup costs of the federal and state governments at the disposal site because they failed to provide a reasonable basis for apportioning the liability.

The apportionment question

Arranger liability is a frequent issue in Superfund litigation, but courts increasingly find liability even as the link between the “arranger” and the actual disposal of hazardous substances becomes more and more attenuated, said environmental litigator Steven Jones, a partner at Seattle’s The Marten Law Group. And, he added, joint and several liability — the default when apportioning liability is not possible — has become more of the rule.

If the high court reverses the 9th Circuit, he and others contend, the landscape of Superfund litigation will change.

“In terms of overall Superfund administration, this is a very big deal for government agencies,” said Jones. “If apportionment becomes much more easier to find, a PRP [potentially responsible party] with a basis to argue apportionment will fight a lot harder not to take on 100% liability, and the government may be left holding a lot bigger bag than before. That’s why industry groups are interested in what happens here — they want to limit their exposure.”

Because the Supreme Court is seemingly so “literal-minded” in its approach to interpreting statutes, industry has “half a chance,” suggested Superfund scholar Martha Judy of Vermont Law School.

“I can see industry saying: ‘What do we have to lose? We’ve already lost this in many venues. If the Supreme Court will go with our argument, we’ve made up a lot of time,’ ” said Judy.

If the court reverses the 9th Circuit, she added, “It will become harder for EPA and private parties to clean up sites and to recover costs. EPA and taxpayers will have to pay for cleanup. That’s not what Congress had in mind with Superfund.”

Leaks and spills

In 1960, Brown & Bryant Inc. (B&B), now insolvent, began to operate an agricultural chemical distribution business on a 3.8-acre parcel of land. In 1975, B&B expanded its operations by leasing a 0.9-acre parcel owned by the railroads that adjoined the B&B parcel.

Shell sold B&B a soil fumigant called D-D, which was delivered to B&B via common carrier tank truck. All sales were “free on board destination,” meaning, says Shell, that title, ownership and control passed to B&B when the common carrier arrived at the B&B facility.

During the transfer and storage of D-D and other chemicals, they routinely spilled and leaked onto both parcels, contaminating soil and a plume of groundwater that threatened municipal drinking water.

The United States and California began a cleanup operation, and in 1996 they sued B&B, the railroads and Shell under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) to recover their response costs.

The district court found that the entire site — both the railroads’ parcel and the B&B parcel — constituted a single facility and that the railroads were “responsible parties” as owners at the time of disposal.

The court also found Shell liable as a party that had arranged for disposal of hazardous substances. The court said that Shell “was an active participant in the D-D shipment, delivery and receiving process at Arvin with knowledge that spills and leaks of hazardous D-D were inherent and inevitable.”

At that point, the district court had to decide whether there was a reasonable basis for apportioning liability. If there was not, it would impose joint and several liability.

Under CERCLA, Vermont’s Judy noted, the burden was on Shell and the railroads to provide a reasonable basis for dividing the harm caused. The district court said that both parties had effectively “abdicated” presenting any helpful arguments to the court in pursuit of their “scorched earth” and “all-or-nothing” approach to liability.

But the court then used a variety of factors to calculate and apportion each party’s share: Shell was liable for 6% of the total cleanup costs, and the railroads were liable for 9%.

The 9th Circuit affirmed the lower court’s rulings on Shell’s liability as an arranger and the railroad’s liability as an owner of the facility. But the appellate court reversed on the apportionment of liability after deciding that evidence produced at trial was insufficient to form even a rough calculation of each party’s share of the contamination. Joint and several liability was the default response, according to the appellate court.

New standards?

Joint and several liability is one of the major areas of unfairness in Superfund litigation, said Drake’s Anderson, adding that he is neither a “shill” nor a consultant for industry. Superfund sites, he said, tend to be older, so they often involve companies that are out of existence or insolvent. At many sites, he said, there is an “orphan share,” of the harm that no one is around to claim or there is insufficient evidence to find anyone to hold liable.

“It is true it is the norm, I would say, for lower courts to impose joint and several liability,” said Anderson. “You end up with what I call a liability lottery — people who end up holding the bag are ones unlucky enough to still be in business and have some evidence that ties them to the site.”

Congress took any reference to joint and several liability out of the statute, he said, and left it to the courts, using common law principles, to decide.

“As a matter of policy, courts say over and over again, ‘We want to construe this broadly so taxpayers don’t end up paying the bill,’ ” he said.

In the high court, the railroads, represented by veteran high court litigator Maureen Mahoney, head of Latham & Watkins’ appellate and constitutional practice from the firm’s Washington office, argues that the apportionment problem in this case is created by the broad discretion CERCLA gives the EPA to define the boundaries of the “facility.”

“By refusing apportionment, however, the 9th Circuit effectively held the Railroads strictly liable as landowners for the consequences of disposals of hazardous materials on land they did not own,” she tells the court in her brief.

Without reasonable apportionment, Mahoney said, CERCLA, for example, would hold the railroads retroactively liable for cleanup of nearly 50-year-old contamination on the B&B parcel — “contamination for which the Railroads had no fault or responsibility under governing law at the time, and that the Railroads had absolutely no power to prevent.”

Mahoney also attacked the 9th Circuit for requiring as evidence of a reasonable basis for apportionment records “that only B&B could have kept, about activities on B&B’s own land 15 years before it began leasing the Railroad parcel, and that the court of appeals admitted would have been of ‘little utility to B&B’ and unlikely to be ‘available for periods long in the past.’ “

The 9th Circuit’s interpretation of CERCLA, Mahoney argues, would create serious constitutional problems in many cases.

Shell, represented by another high court veteran litigator — Kathleen Sullivan, head of the national appellate practice at Los Angeles-based Quinn Emanuel Urquhart Oliver & Hedges — also fights the joint liability ruling but, along with major industry support, focuses much of its energy on challenging its liability as an “arranger” of the disposal of hazardous substances.

Shell contends that the 9th Circuit erred by imposing liability on the seller of a useful product — not hazardous waste — that had no intent to make plans or preparations for the disposal of hazardous waste and that had no ownership or control (as required by the statute) of the product as soon as the delivery trucks entered the facility’s premises.

Bright-line rule is urged

The industry-backed Product Liability Advisory Council, General Electric Co. (involved in similar litigation) and other business groups urge the Supreme Court to announce a bright-line rule for arranger liability — requiring intent to dispose of hazardous substances and control over them, as urged by Shell, or when parties enter a transaction for the sole purpose of disposing of hazardous substances.

But Vermont’s Judy countered, “If we buy that argument, there’s going to be a whole lot of relitigating of spills. Nobody intends to spill.”

The United States and California argue that CERCLA defines “disposal” to include leaking and spilling, and that implies that arranger liability is not limited to intentional disposals.

“The fact that a transaction involves the delivery of a useful product does not preclude arranger liability where (as here) the arranger knows that disposal of a hazardous substance — through spills and leaks, or otherwise — will occur during the course of the transaction,” argues the United States.

And, because — as the district court said — neither Shell nor the railroads established a reasonable evidentiary basis for apportioning the harm, the appellate court “correctly” held that they were jointly and severally liable.

“If they had presented evidence, it would be a different argument,” said California Senior Assistant Attorney General Kenneth P. Alex.

California and the United States, Alex said, are on “the exact same page” with respect to Shell’s argument for an “intent and control” rule for arranger liability. “Both of us believe it would be a very radical departure from 30 years of case law to say there’s a per se rule,” he said.