Ethics Matters: Business gets a break on Superfund liability

U.S. businesses recently got some good news on cleaning up toxic waste sites.

Superfund fixes liability for costs in cleaning up toxic waste sites and makes liable as many parties as possible for cleaning up a site to prevent U.S. taxpayers from bearing the costs.

Superfund's application, however, is often unfair. Government and court decisions can impose multimillion-dollar cleanup costs on businesses not - or only slightly - responsible for the waste site.

In June, in a case involving Shell Oil Co. and two railroads, the U.S. Supreme Court gave businesses some relief from Superfund's unfair application.

Brown & Bryant, a chemical distribution company, bought pesticides wholesale from Shell. B&B conducted some of its business on land leased from Burlington Northern and Union Pacific railroad companies. When B&B received pesticide shipments, it transferred the chemicals to B&B distribution trucks or storage tanks.

Despite handling instructions and warnings from Shell, B&B employees sometimes spilled pesticides during the transfers, creating a toxic waste site.

The U.S. Environmental Protection Agency ordered B&B to clean up the toxic site. When B&B went broke, the EPA went after Shell and the railroad companies.

A U.S. District Court found Shell 6 percent liable for the site's clean-up costs and the railroad companies 9 percent liable. The government, wanting Shell and the railroads to bear all the costs, appealed the district court's decision. The 9th Circuit Court of Appeals ruled in the government's favor and the companies appealed to the U.S. Supreme Court.

Arranger liability

Superfund also holds companies that arrange for hazardous waste disposal liable for clean-up costs. The district and appellate courts broadly interpreted the term "arranger" and found Shell an arranger because it sold pesticides to B&B.

Shell questioned, however, why a company is an arranger for lawfully selling a useful product that another company mishandles? Besides, Shell continuously warned B&B to be more careful.

The Supreme Court agreed with Shell and overturned the lower court decisions. The Supreme Court held an arranger is one who intentionally disposes of a hazardous substance. In a common-sense ruling, the court found that selling a hazardous substance is not the same as disposing of it and further held that Shell's knowledge of B&B's mishandling of the pesticides did not make it an arranger, especially since Shell tried to improve B&B's handling practices.

Joint-and-several-liability rule

The Supreme Court also softened the harsh application of the joint and several liability rule. The rule states, if multiple parties acting independently cause a single harm, each party is liable for its portion.

The district court ordered Shell to pay 6 percent of the toxic site's cleanup costs based on the pesticides found at the site. It based the railroads' 9 percent liability on their ownership of some of the polluted land, how long B&B leased land from the railroads and the location of most of the toxins.

But what if one of the parties cannot pay its share?

Often in Superfund cases, the party responsible for most of the harm is insolvent. In such a case, the other parties can find themselves paying for the nonpaying party's harm as well as their own.

The court of appeals held the lower court's calculations invalid to allot harm between the parties because the district court based its calculations on estimates. With B&B insolvent, the appellate court ordered Shell and the railroads to pay.

After declaring Shell not an arranger, the Supreme Court examined the district and appellate courts' applications of the joint and several liability rule. The court reversed the 9th Circuit's ruling and held that, only if a court cannot reasonably allot harm between the parties, is each party liable for the entire harm. The court found the district court's calculations using estimates reasonable and sufficient to allot harm.

The Supreme Court's decision provides at least some relief for businesses from the often crippling costs associated with cleaning up toxic waste sites.John D. Copeland, J.D., LL.M., Ed.D., is an executive in residence at The Soderquist Center for Leadership and Ethics and a retired professor of business at John Brown University in Arkansas.