INSIGHT: US High Court to rule in two key cases

09 October 2008 16:50  [Source: ICIS news]

By Joe Kamalick

Major chemical cases are pending before US High CourtWASHINGTON (ICIS news)--The US Supreme Court began its new term this week with two crucial cases that could have a profound impact - and raise major costs - for chemical producers and a broad range of other manufacturers.

In one, Shell Oil Co v. United States, an adverse ruling by the High Court could put any chemical company at risk for millions of dollars worth of environmental clean-up costs - even if the company was not directly responsible for the contamination.

In the Shell case, the energy and chemicals company was held liable by a federal district court for clean-up at another firm’s contaminated work site. 

Shell had sold agricultural chemicals to the now defunct firm, which, according to arguments made in the case, mishandled those products, causing soil and groundwater contamination at its business site.

The district court ruled that simply by selling its product to the other company, Shell had “arranged” for disposal of hazardous substances in the agrochemicals and therefore was liable for at least a portion of the clean-up costs.

Under the governing statute, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), commonly known as the Superfund law, a company that arranges for the disposal of toxic substances is liable for environmental damages resulting from those arrangements.

The law also states that “disposal” includes unintentional processes such as leaks and spills.

Shell appealed to the US Court of Appeals for the Ninth Circuit, arguing that simply by its sale of the agrochemical products it did not “arrange” for their disposal, by mishandling or otherwise.

The Ninth Circuit not only ruled against Shell but also held that Shell was wholly liable for the entire cost of the clean-up. Shell then appealed to the US Supreme Court.

Because the case raises environmental liability issues for a broad range of manufacturers, Shell has been joined in its appeal by the US Chamber of Commerce, the American Petroleum Institute (API) and the National Association of Manufacturers (NAM), along with more chemical-specific trade groups such as the American Chemistry Council (ACC), the National Petrochemical & Refiners Association (NPRA) and CropLife America.

In a friend-of-the-court brief filed with the High Court, the trade groups contend that the Ninth Circuit appellate court decision unfairly widened “the already broad net of CERCLA liability to encompass those who sell chemicals or other products in the ordinary course of business based on the assertion that such companies have somehow ‘arranged for the disposal’ of their products at the same time they are delivering them to customers for use”.

“Given the magnitude of the costs typically associated with cleaning up contaminated sites, the imposition of such costs on chemical manufacturers and suppliers places a significant burden on these manufacturers and suppliers,” the trade groups argue.

According to an attorney at the ACC: “If allowed to stand, the Ninth Circuit ruling means that manufacturers of chemicals and other products could potentially be subject to Superfund’s harsh liability scheme merely for selling and shipping useful products - not wastes - to customers who later spill those products through sloppy handling.”

Chemical companies have of course been found liable for contamination at current or previous production sites, but the ruling in Shell, if not overturned by the Supreme Court, could expose chemical firms to clean-up liabilities at thousands of sites where they had no manufacturing or other operational presence.

The average cost for site remediation under Superfund mandates runs around $12m (€8.7m).

In addition, if the Ninth Circuit ruling stands, it likely would create a blizzard of new litigation targeting chemical producers as city and state governments seek to attach liability for clean-up costs at contaminated sites.

In the second case, Entergy Corp v. Environmental Protection Agency, there are no chemicals involved, but the outcome of the case could substantially raise environmental and electric power costs for chemical producers and other high-energy consuming manufacturers.

The Entergy case is on appeal to the US Supreme Court from the US Court of Appeals for the Second Circuit, which ruled that the Environmental Protection Agency (EPA) may not give consideration to cost-benefit analyses when applying Clean Water Act (CWA) requirements to electric utilities’ operations.

Under the Clean Water Act, EPA requires electric utilities to install new environmental control technology in what are known as cooling water intake structures (CWIS), used by power companies to draw water from lakes, rivers or other water bodies to cool their generators.

In the Entergy case, the EPA allowed the power company to implement one wastewater treatment technology option in its cooling system rather than another technical approach that would have been much more costly but would have produced only marginally better results.

The Second Circuit appellate court ruled against EPA, holding that under the law the agency was precluded from making CWIS authorisation decisions based on cost-benefit grounds.

In friend-of-the-court briefs filed by the ACC, NAM, the Chamber, the Iron and Steel Institute and the American Forest & Paper Association, the wide range of non-utility companies side with Entergy.

“The Second Circuit’s view that EPA cannot reject a wastewater treatment technology option that has far greater costs but only minimal additional pollution reduction benefits would, if applied to the thousands of facilities with wastewater discharges, impose serious financial burdens on society for little benefit,” the industries argue.

Although chemical producers, steel manufacturers and forestry and paper companies obviously are not electric utility firms, they do share some common processes.

As the trade groups note in their supporting brief, they too “withdraw water from rivers, lakes, estuaries and the territorial seas for use in their facilities for cooling purposes”.

Although not subject to exactly the same Clean Water Act requirements for cooling water systems, chemical producers and other manufacturers are subject to a similar CWA provision that could be influenced by the ultimate decision in the Entergy case.

In addition, these industrial allies of Entergy are “large consumers of electric power, which can expect increased operating costs if less-flexible, more expensive requirements... mandated by [the Second Circuit appellate court] are imposed on electric utilities from which those businesses purchase their electric power”.

A decision by the Supreme Court on Entergy is likely during the first quarter next year, and the High Court ruling on Shell is expected by mid-2009.

($1 = €0.73)

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By: Joe Kamalick
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