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Notes from the Chair
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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
Chair
Committee on Environmental, Energy, and Natural Resources Law
ABA Business Law Section
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Q & A
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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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