Will Court Ruling Increase Government Superfund Liability?
In a case that may shift significant liability onto the United States to fund hazardous-waste cleanups, a federal district court recently held that the United States Government ("Government") is liable under CERCLA as both an "arranger" and "operator" for cleanup costs at a property the Government leased to a private mining company. Nu-West Mining Inc. v. United States, No. 09-431 (D. Idaho Mar. 4, 2011). The court held that the Government's leasing, permitting, inspection, and oversight functions exposed it to CERCLA liability. The court also rejected the Government's argument that it acted in a mere "regulatory" capacity. The decision potentially exposes the federal government -- the largest landowner in the nation -- to an expanded share of cleanup costs on leased property throughout the country.
Under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. secs. 9601-9675 ("CERCLA"), a plaintiff may recover response costs arising from the release or threatened release of hazardous substances from four categories of persons, generally described as owners, operators, arrangers, and transporters. In Nu-West, the U.S. District Court for the District of Idaho examined the Government's potential liability as both an "arranger" and "operator". CERCLA imposes liability on arrangers -- or "any person who by contract, agreement, or otherwise, arranged for disposal or treatment ... of hazardous substances" -- as well as those who operate the facility at the time of the release. (42 U.S.C. sec. 9607(a)).
From the 1960s through the 1990s, Nu-West Mining Inc. ("Nu-West") leased property in Idaho from the Government to mine phosphate. During the mining process, waste rocks were hauled out of the mines. While Nu-West operated the mines, the Government inspected the mines to monitor environmental conditions, ensure that waste rock was properly disposed of, and validate royalty payments. The Government also issued special use permits for the construction of waste rock dumps adjacent to the mine sites. To promote re-vegetation, the Government required the companies to cover the waste rock dumps with middle waste shale.
However, the middle waste shale contained selenium that leached into the water flowing from beneath the piles, contaminating the site. The Government and Nu-West entered into an Administrative Orders on Consent to remediate the sites. Nu-West incurred response costs of approximately $10 million to remediate the contamination and filed a CERCLA action to recover some or all of its response costs from the Government.
Government Incurred CERCLA Liability as an Arranger.
With respect to arranger liability, the court looked to the U.S. Supreme Court's decision in Burlington Northern and Santa Fe Railway Co. v. United States ("BNSF") 129 S. Ct. 1870 (2009). In BNSF, the Supreme Court ruled that a manufacturer of a chemical product that was subsequently spilled at a site was not an arranger because an entity may only qualify as an arranger "when it takes intentional steps to dispose of a hazardous substance." The Court held that the manufacturer's "mere knowledge" that spills would occur did not amount to an "intent" to dispose, and emphasized that arranger liability "requires a fact-intensive inquiry that looks beyond the parties' characterization of the transaction as a ‘disposal' or ‘sale' and seeks to discern whether the arrangement was one Congress intended to fall within the scope of CERCLA's strict-liability provisions." (Id. at 1879).
Applying BNSF, the Nu-West court considered three elements for determining arranger liability, including whether the entity: (1) owned the hazardous substance; (2) had the authority to control the disposal of that substance; and (3) exercised some actual control over the disposal of that substance. The Nu-West court found the Government satisfied all three elements for arranger liability. The court further found that the Government owned the source of the selenium, the middle waste shale. The court also found that the Government had the authority to control the disposal of the mining waste on the land, as no mining or waste disposal could occur without its approval. In addition, the Government exercised actual control over the disposal -- and showed its intent that the disposal take place -- by requiring its lessees to cover the outer surface of the waste dumps with a layer of middle waste shale.
The court also rejected the Government's argument that it should not be held liable because it was "acting in a purely regulatory role." The Government asserted that it did not have the requisite intent required under BNSF, since it was merely acting to "ensure that the Lessees complied with the law and the terms of their leases, permits, and mine plans that [the Lessees] entered into as a condition of mining on public land." "Regulatory oversight," the Government argued, did not equate to "actual control" of the hazardous substances as required under CERCLA. The Government argued that its actions were "aimed only at mitigating the environmental harm caused by private parties' actions...." Therefore, it could not have taken any "intentional steps to dispose of a hazardous substance" as BNSF requires.
The district court rejected this defense, relying on the Ninth Circuit's decision in United States v. Shell Oil, 294 F.3d 1045 (9th Cir. 2002), where the court concluded that CERCLA's broad waiver of sovereign immunity under 42 U.S.C. sec. 9620(a)(1) exposed the Government to liability even when acting in a regulatory role. The court reasoned: "Shell Oil's rejection of the ‘governmental' defense applies with equal strength to the ‘regulatory' defense raised here. Congress could have easily included a regulatory exception to the broad waiver of sovereign immunity contained in CERCLA but did not do so."
Government Incurred CERCLA Liability as an Operator.
With respect to operator liability, the court looked to the U.S. Supreme Court's 1998 decision in United States v. Bestfoods, 524 U.S. 51, 118 S. Ct. 1876 (1998). In Bestfoods the Supreme Court held that for a parent corporation to be liable as an "operator" under CERCLA, the parent corporation "must manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations." (Id. at 66-67). Operator liability "attaches if the defendant had authority to control the cause of the contamination at the time the hazardous substances were released into the environment and actually exercised such control." (Kaiser Aluminum & Chem. Corp. v. Catellus Dev. Corp., 976 F.2d 1338, 1341-42 (9th Cir. 1992)).
Applying these elements, the Nu-West court held the Government liable as an "operator," noting that the Government "manage[d], direct[ed], or conduct[ed] operations specifically related to pollution...regularly inspected the dumps...and directed the lessees to take specific actions at the waste dumps." The court reasoned: "In this case, the record shows conclusively that the Government was managing the design and location of the waste dumps for the four mines....and in ensuring that the waste dumps complied with the mining plans and environmental rules. That is sufficient, as a matter of law, for operator liability."
Conclusion and Implications.
The Nu-West court's determination that the Government's leasing, permitting, and licensing roles on federal lands gives rise to operator and/or arranger liability under CERCLA may have significant implications on the allocation of liability for response costs. Courts generally allocate a greater percentage of liability to parties that actively participate in the disposal of hazardous waste. The fact that the Government took action in a regulatory capacity, to ensure compliance with law or to mitigate environmental harm, is not a defense. As the largest landowner in the Country, this expanded liability on the federal government could have significant implications in the allocation of response costs liability across the nation.
Byron Gee and Alfred Smith are partners at the law firm of Nossaman, LLP.