Environmental, Energy, and Natural Resources Law Committee
  Environmental and
  Energy Business Law Reporter

Notes from the Chair

Featured Articles
  Obama's Push for Renewable Energies:
How to Negotiate a Wind Energy Lease Agreement on Behalf of Private Landowners

  The Rise of Biofuel and Fall of Ethanol?

Q & A
  Paul Dickerson
Clean Tech Practice Group
Haynes and Boone, LLP

Editorial Board:

Bernie Hawkins
Lucie H. Cohen
    Nelson Mullins Riley
    & Scarborough, LLP

Matthew D. Penny
    Issue Editor
    Cokinos, Bosien & Young

  Notes from the Chair
Lawrence Schnapf, Chair
I was going to devote this column to welcoming the return of our committee newsletter and reviewing the various changes and the ambitious projects that our committee has slated for 2009. However, on May 4th the United States Supreme Court issued an important ruling governing the liability of generators under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Burlington N. & Santa Fe R. Co. v. United States, 129 S. Ct. 1870 (2009). To ensure that our newsletter provides members with timely information, I will summarize the decision.

The decision involved two consolidated cases: Burlington N. & Santa Fe R. Co. v. United States (No. 07-1601) and Shell Oil Co. v. United States (No. 07-1607). In an 8-1 opinion written by Justice Stevens, the Court ruled that Shell was not liable for the contamination at an agricultural chemical distribution center in Arvin, California. However, the Court left in place a lower court determination that two railroads must bear their share of the cleanup costs.

In this case, Brown & Bryant, Inc (B&B) operated an agricultural chemical distribution center for 28 years that was partially located on a parcel that was leased from petitioners Burlington Northern and Santa Fe Railway Company and Union Pacific Railroad Company (collectively BNSF). B&B purchased and stored various hazardous chemicals, including a pesticide purchased from petitioner Shell Oil Company. Numerous spills occurred during transfers and deliveries of products as well as from a variety of equipment failures. After investigations by the California Department of Toxic Substances Control (DTSC) and federal Environmental Protection Agency (EPA) revealed significant soil and ground water contamination, the site was placed on the National Priorities List (NPL). DTSC and EPA incurred over $8 million in response costs and filed a cost recover action against Shell and BNSF.

The district court found Shell liable because it had arranged for the disposal of hazardous substances and BNSF liable as the owner of part of the NPL site. The district court also apportioned liability, holding BNSF liable for nine percent of the response costs while Shell was allocated responsibility for six percent of the total response costs.

On appeal, the United States Court of Appeals for the Ninth Circuit affirmed the imposition of arranger liability on Shell. However, the Ninth Circuit said that while the harm was theoretically capable of apportionment, it found the record insufficient to support apportionment, and therefore held Shell and BNSF jointly and severally liable for the cleanup costs.

In finding that Shell was not liable as an arranger, the Court noted that CERCLA did not have a specific definition of "arranger" and therefore the term is to be given its ordinary meaning. The Court said the ordinary meaning of that term involved issues of "intent" and the subjective determination of whether the potentially responsible party (PRP) intended for disposal to occur. While evidence showed that Shell was aware that minor and accidental spills occurred transfer from the common carrier to the facility's storage tanks after the product had come under B&B's stewardship, the Court said that mere knowledge of spillage was not enough to impose arranger liability. Instead, there had to be evidence of taking "intentional steps" to arrange for the disposal of hazardous substances. Moreover, the Court noted that Shell took numerous steps to encourage its distributors to reduce the likelihood of spills.

Another important factor was that Shell Oil Company had transferred title to its chemicals to its customer. This distinguished this case from the line of arranger cases involving formulation arrangements where manufacturers would provide raw materials to a facility to mix or formulate a product that was returned to the original manufacturer. In these formulation arrangements, the original manufacturer retains title to the raw materials and the contracts contemplated that some spillage.

The other significant aspect of the ruling was the conclusion that there was evidence of a "reasonable basis" for apportioning liability, and therefore the joint liability would not be imposed on the defendants. Here, the district court had apportioned liability based on the percentage of land surface area owned or operated by B&B and BNSF, the duration of the ownership period relative to the overall duration of time during which spills and leaks occurred, and the volume of hazardous substances disposed on the parcels compared to the entire site.

The practical import of the decision will be to give trial courts greater discretion in apportioning liability where in the past the courts might have imposed joint liability. This should create an incentive for defendants to generate information on relative liability and challenge liability allocations. With the possibility that joint liability may not be imposed, some defendants and plaintiffs might have to reevaluate the math or analysis they have used in the past to decide whether to settle their liability or reconsider litigation strategies at a non-owned site.

As I wrote at the beginning of this column, our committee has embarked on a number of interesting initiatives. We have replaced the old subcommittees, which were not very active, with a new structure that focuses on committee activities such as the newsletter and programming. We also will be publishing a book covering environmental issues in business transactions.

For many of you, the newsletter is your primary exposure to our committee. I am excited that we have an energetic newsletter committee that is looking to publish a number of issues each year. I encourage those of you who are not active in committee activities to consider becoming more involved and contacting the chairs of the subcommittees that you find interesting. I particularly want to encourage young attorneys to get involved. The committee can be an excellent vehicle for you to get exposure and develop important networking opportunities.

Lawrence Schnapf
Committee on Environmental, Energy, and Natural Resources Law
ABA Business Law Section

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  Featured Articles
Obama's Push for Renewable Energies: How to Negotiate a Wind Energy Lease Agreement on Behalf of Private Landowners
Cari Rincker and Brandon L. Jensen
Wind energy is currently one of the fastest growing forms of electricity generation in the United States. In light of the recent economic stimulus plan, the American Recovery and Reinvestment Act ("ARRA"), and the Obama Administration's push for green jobs and renewable energies, landowners from coast-to-coast, especially farmers and ranchers, are tempted to lease their private properties to a wind energy company. Attorneys can play an instrumental role in this process—from organizing landowners to negotiating terms in the wind lease.


The Rise of Biofuel and Fall of Ethanol?
Matthew D. Penny
A funny thing happened on the way to the New Energy revolution: the movement's leader lost its way. For years, corn and soy-based ethanol reigned as the alternative energy establishment's fuel of choice to replace gasoline and other liquid combustibles in the American energy portfolio. Ethanol was thought to be a viable domestic substitute to foreign oil, producing less adverse environmental effects and being largely compatible with the nation's existing vehicle fleet and driving habits. Perhaps most importantly, ethanol was seen as politically expedient, dovetailing the interests of the nation's farmers with environmental advocates. Industry and political leaders were singing ethanol's praises and crafting national policy to encourage ethanol's growth.


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  Q & A
Paul Dickerson Paul Dickerson
Clean Tech Practice Group
Haynes and Boone, LLP

Paul Dickerson launched Haynes and Boone's Clean Tech practice group in 2009. He focuses on helping clients develop products and businesses in the Clean Tech arena in the U.S. and abroad. Prior to rejoining Haynes and Boone in Houston, Dickerson served as Chief Operating Officer of the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy (EERE) for three years. At EERE, he helped move alternative and renewable energy technologies from the "vision" stage to real-world development.

Q: Why Houston?
PD: Today, Texas isn't just a world leader in oil and gas—it's a world leader in wind energy, biofuels, and energy efficiency. Now the state is getting ready for a big push into solar. When you consider that Texas had virtually no developed renewable energy resources just 10 years ago, and today it's the No. 1 state in the land for wind power—it's just staggering. And the beauty of this transformation is that Texas seems to be connecting the dots to profitability along the way—something few states have been able to replicate.

But Texas's biggest opportunity lies before it. The state has unrivaled resources when it comes to two prerequisites for growth in the renewables sector: capital and energy expertise. Small VC-backed energy companies in San Francisco and Boston are graduating to the world's energy stage, and they need partners with deep pockets who know the ropes. Enter the oil and gas industry. We're going to see a lot of deals over the next few years with traditional energy companies teaming up with emerging players in biofuels, offshore wind, and geothermal exploration, to name a few.

In fact, we're already starting to see some movement here. Valero Energy, the country's largest independent refiner, recently agreed to buy seven ethanol plants from bankrupt VeraSun Energy in a deal that will give it about half of the ethanol the company needs to fulfill new federal mandates for renewable fuels.

Q: So do you see federal mandates and regulations driving investments in this space going forward?
PD: Policy definitely has its place. My time at DOE saw the passage of meaningful federal mandates to spur investment in clean technologies. The Energy Independence and Security Act, for example, increased vehicle fuel efficiency standards for the first time in more than three decades. It also mandated the addition of 36 billion gallons of renewable fuels to our energy mix by 2022.

Of course, just because the federal government ordains something doesn't mean it will automatically come to pass. We need to recognize that this sector relies on a three-legged stool of support, and policy is just one leg. The other two are capital and markets. The federal government can hit industry as much as it wants with the stick, but it has to supplement that strategy by offering the private sector enough carrots to induce investment and commercialize these technologies.

Q: What kinds of "carrots" are you talking about?
PD: Tax incentives, for one. One of the key provisions of the American Recovery and Reinvestment Act extended the renewable electricity production tax credit, for instance. This is a big deal for industry—countless CEOs came to me during my time at DOE explaining how their projects were being held up by banks waiting to see if Congress would renew the unreliable PTCs. Industry needs long-term, durable, tax policies—and that is exactly what we now have with this multiyear extension.

But we also have to be more inventive when it comes to partnering with the private sector. Over the last three years, we implemented a number of innovative ventures with industry partners in which we would share in the cost of the program. The DOE's USAutoPARTS partnership with the state of Michigan and the auto supplier industry is one example. We pooled our resources to tackle research and development of efficiency advances like lightweighting and engine combustion, and the results are being used by auto manufacturers to speed the development of plug-in hybrids.

Q: In your mind, what is the biggest near-term hurdle for this industry to overcome?
PD: Clearly it's access to capital. If this period has taught us anything, it's that the cost of capital is as important as the cost of oil when it comes to clean energy's expansion. Clean technology entrepreneurs, like their counterparts in so many other industries, are taking it on the chin during this downturn. Lenders are very reluctant to put additional capital to work, particularly on such a nascent industry. As a result, each passing week seems to bring news of another company unable to secure much-needed expansion capital.

This funding paralysis is leading many companies to take themselves out of the game, meaning they're sitting on their hands—cutting jobs and spending—while they wait for the markets to right themselves or federal financial support to come to the rescue.

Q: So what is your advice to these companies?
PD: Find a better path forward. Nobody knows when the economy is going to fully turn the corner. And as someone who was worked inside the federal bureaucracy, I can readily say that the system isn't set up to expedite the kinds of funding that the ARRA authorized. That money will make a big difference to some companies, but others are going to expire before help arrives.

Companies need to take matters into their own hands in the short term by examining their strategic options. There are any number of alternatives companies can choose not just to survive in this environment, but to set themselves up to thrive once conditions improve. I'm talking about joint ventures, licensing agreements, and strategic acquisitions. And I'm talking about exploring untapped markets for future growth, both here and abroad.

The federal government, for example, isn't just a source of handouts—it's the largest single customer in the nation, and it has a long shopping list of renewable energy and energy efficiency technologies to make federal buildings and other sites more environmentally friendly.

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