INSIGHT: Major High Court win for industry in Shell case

07 May 2009 17:13  [Source: ICIS news]

By Joe Kamalick

US High Court rules for Shell in major caseWASHINGTON (ICIS news)--The US Supreme Court delivered a major victory this week for Shell Oil Company, chemical producers and a broad array of other manufacturers by ruling that Shell was not liable for environmental damage caused by one of its customers.

The question at issue in Shell Oil Co v. United States was whether Shell as the manufacturer of pesticides sold to a distributor could be held liable for all clean-up and remediation costs at the distributor’s business site.

Shell had sold agricultural chemicals to the now defunct firm, Brown & Bryant (B&B), which, according to arguments made in the case, mishandled those products, causing soil and groundwater contamination at its Arvin, California, facility.

A federal district court ruled that simply by selling its product to the distributor, under the law 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 raised environmental liability issues for a broad range of manufacturers, Shell was 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 argued 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 argued.

According to an attorney familiar with the case, “If allowed to stand, the Ninth Circuit ruling would mean 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 of course have been found liable for contamination at their own current or previous production sites. But, if it had been affirmed, the Ninth Circuit ruling in Shell would have exposed chemical firms and other manufacturers to clean-up liabilities at thousands of sites where they had never had any operational presence.

In addition, the Ninth Circuit ruling could have unleashed a blizzard of new litigation targeting chemical producers as city and state governments scrambled to attach liability for clean-up costs at contaminated sites.

In a rare near-unanimous 8-1 ruling, the High Court justices said that “Shell is not liable as an arranger for the contamination at the Arvin facility”.

“Because CERCLA does not specifically define what it means to ‘arrange for’ disposal of a hazardous substance, the phrase should be given its ordinary meaning,” the court held.

“In common parlance, ‘arrange’ implies action directed to a specific purpose.Thus, under [CERCLA’s] plain language, an entity may qualify as an arranger when it takes intentional steps to dispose of a hazardous substance.”

“To qualify as an arranger, Shell must have entered into [pesticide] sales with the intent that at least a portion of the product be disposed of during the transfer process by one or more of [the statute’s specified] methods,” such as spills.

“The evidence shows that Shell was aware that minor, accidental spills occurred during [the pesticide’s] transfer from the common carrier to B&B’s storage tanks after the product had come under B&B’s stewardship,” said the Supreme Court.

“However, it also reveals that Shell took numerous steps to encourage its distributors to reduce the likelihood of spills. Thus, Shell’s mere knowledge of continuing spills and leaks is insufficient grounds for concluding that it ‘arranged for’ [the] disposal,” the court concluded.

Shell said it was “very pleased the Supreme Court has decided in its favour and agreed that it cannot be held liable as an ‘arranger’ under CERCLA for the clean-up costs associated with a third-party’s minor, accidental spills”.

“We are particularly happy with the wide 8-1 margin of this decision, which shows very broad support across the court,” Shell said.

Shell noted that the decision affects the broad business community and “avoids exposing property owners and manufacturers to crippling liability far beyond what Congress intended when it enacted CERCLA”.

“The Supreme Court’s decision therefore provides much-needed clarity for businesses and property owners in all sectors of the economy regarding their potential liability under CERCLA,” Shell said.

To discuss issues facing the chemical industry go to ICIS connect


By: Joe Kamalick
+1 713 525 2653



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