The Emerging Judicial Recognition Of Government Liability Under Superfund

On August 11, 1998, U.S. District Judge J. Kelleher ruled in United States v. Shell Oil Co., 1998 WL 477077 (C.D. Cal.), that the U.S. government must bear 100 percent of the Superfund liability at a hazardous waste disposal site which was associated with the production of aviation gasoline and operated during World War II by four "deep pocket" oil companies – Shell Oil, Union Oil Company, Atlantic Richfield Company, and Texaco. The district court had found that the government and the oil companies were all jointly liable under Superfund as "arrangers" for the disposal of hazardous waste, but the court allocated response costs among the jointly liable parties using equitable factors. Judge Kelleher ruled that "after reviewing the evidence and applying such equitable factors as appear appropriate, the Court is convinced that the Government should bear total responsibility for any waste attributable to the [aviation gasoline] program . . . ," because, in part, "such a result simply places a cost of the war on the United States and thus on society as a whole . . . ." Id. at 8.

The Shell Oil decision dramatically illustrates how the usual Superfund rules of joint and several retroactive liability without regard to fault can be changed entirely when the joint liability of the U.S. government is established. The Shell Oil ruling is not the first of its kind, nor will it be the last. However, cases like Shell Oil remain rare, in part, because many private potentially responsible parties ("PRPs") associated with Superfund sites fail to aggressively pursue claims of joint liability against federal government entities.

Governmental entities are often closely tied to activities which give rise to Superfund liabilities. As the single largest owner of lands and facilities in the Nation, the federal government faces enormous liabilities for response costs and natural resource damages due to Superfund’s express waiver of sovereign immunity. These liabilities are present at a wide variety of sites ranging from historic abandoned mines on federal lands to Department of Defense and Department of Energy manufacturing and research facilities. PRPs at such sites always should be cognizant of both the government’s own joint liability for environmental remediation costs and the fact that EPA and federal natural resource trustees will often not aggressively pursue other government agencies as liable parties under Superfund.

Much of the litigation to date has arisen in relation to the federal government’s operation of, or control over, facilities during the Second World War, particularly involving mining and manufacturing to produce needed resources for military machines and munitions and other critical materials. War resources production required extensive governmental involvement in the activities of private entities, often with the knowledge that this production could not occur without generating wastes containing hazardous substances. Similar wartime involvement occurred during World War I, and the Korean and Vietnam conflicts.

The level of governmental involvement varies widely. The potential "operator" liability of the United States at mining and manufacturing sites, for example, depends upon a detailed factual investigation of the role of the former "War Production Board," and other federal agencies at the individual facilities. During World War II, for example, the War Production Board controlled the prices of most minerals and raw materials and took the extraordinary step of furloughing thousands of soldiers in order that they could be used to operate mines and mills at peak production.

The government’s connection to industries generating wastes with hazardous substances has not been limited to wartime. For example, under the federal Mining Law of 1872, 30 U.S.C. § 22, et seq., for over a century the government has authorized and encouraged private citizens and corporations to enter upon federal lands managed by the Interior and Agriculture Departments and mine minerals such as gold, uranium, lead, zinc, copper, silver — activities which inevitably generate substantial wastes containing hazardous substances. Additionally, the government, acting in its proprietary capacity, has entered into countless contracts in past decades for various products and raw materials, thereby becoming a critical party in a production process that can lead to the generation of hazardous substances which may in turn result in Superfund liability.

Each of these activities potentially implicates government agencies in the Superfund regime. Whether it is an owner of a facility upon which hazardous substances have been disposed, an operator of such a facility, or an arranger of the production leading to that waste, the government may be jointly and severally liable on a retroactive basis for Superfund liabilities. The possibility of placing a significant portion of the responsibility for cleanup on the government under the contribution provisions of Superfund quite obviously has significant implications for private parties who may be the targets of Superfund.

Superfund Waives The Federal Government’s Sovereign Immunity

It is now well settled that Superfund waives the government’s sovereign immunity. Superfund § 101(21) expressly defines "person" to include the "United States Government." 42 U.S.C. § 9601(21). In addition, Superfund § 120(a)(1) provides:

Each department, agency, and instrumentality of the United States (including the executive, legislative and judicial branches of government) shall be subject to, and comply with, this act in the same manner, and to the same extent, both procedurally and substantively as any non-governmental entity, including liability under Section 107 of this Act.

A private party potentially responsible for a Superfund site may sue the United States for contribution due to its involvement in the production of the hazardous substances at the site. The express waiver of sovereign immunity was recognized in FMC Corporation v. U.S. Department of Commerce, 29 F.3d 833 (3d Cir. 1994) (en banc). As the court explained:

[Section 120(a)(1)] states that the government is liable in the same manner and to the same extent as any non-governmental entity. Thus, when the government engages in activities that would make a private party liable if the private party engaged in those types of activities, then the government is also liable. This is true even if no private party could in fact engage in those specific activities. For example, although no private party could own a military base, the government is liable for clean-up of hazardous wastes at military bases because a private party would be liable if it did own a military base . . . . Just as the government can be liable for hazardous wastes created at a military base it owns, the government can be liable when it engages in regulatory activities extensive enough to make it an operator of a facility or an arranger of the disposal of hazardous wastes even though no private party could engage in the regulatory activities at issue.

Id. at 840. Accord East Bay Municipal Utility District v. U.S. Dept. of Commerce, 142 F.3d 479 (D.C. Cir. 1998) (rejecting the government’s sovereign immunity defense, but finding government not liable as operator or arranger for contamination at mine site that allegedly resulted from government’s wartime zinc requirements due to lack of evidence of sufficient control).

Owner Liability: Federal Facility Compliance Obligations

Military bases and other federal institutions around the country have come under increasing public scrutiny in recent years as sources of hazardous waste contamination. Under the original 1980 Superfund law, responsibility for on-site clean up of such federal facilities was delegated to the Department of Defense, with off-site clean up to be handled by agreement with EPA. Congress added Section 120 to Superfund which brings the clean-up of these sites under the direction and ultimate control of EPA, requires consultation with affected states, and calls for public participation in remedy selection.

In as early as 1985, a federal court in Colorado examined the government’s Superfund liability in the context of a natural resource damages claim at a government-owned facility in United States v. Shell Oil Co., 605 F. Supp. 1064, 1072-79 (D. Colo. 1985). The case involved claims for natural resource damages and response costs against Shell Oil Co. for its activities at the Army’s Rocky Mountain Arsenal. Shell Oil counterclaimed against the federal government, alleging that the Army was also liable because of its role in contaminating the military base. The court agreed, and held that as a "trustee [i.e., land owner], the Army is bound to accept responsibility for its share of the costs of clean-up and damages to the natural resources." Id. at 1083. The court analogized to the rules followed in comparative negligence cases where courts apportion liability for damages according to the relative fault of the parties. A partial settlement was reached between the United States and Shell Oil Co. in 1988, under which the government would fund 50 percent of the first $500,000,000 of Superfund response costs and the majority of costs, if any, over that sum. The settlement agreement deferred resolution of the natural resource damages claims.

Additionally, the federal government may be held liable as a former owner of property. Superfund § 107(a)(2) imposes retroactive liability upon "any person who at the time of disposal of any hazardous substances owned or operated any facility at which such hazardous substances were disposed of . . . ." The federal courts have held that the "plain language of section 107(a)(2) extends liability to owners of waste facilities regardless of their degree of participation in the subsequent disposal of hazardous waste." United States v. Monsanto Co., 858 F.2d 160, 168 (4th Cir. 1988). Under Superfund §107(a)(2) "any person who owned a facility at a time when hazardous substances were deposited there may be held liable for all costs of removal or remedial action if a release or threatened release of a hazardous substance occurs." Id. (emphasis in original). In Monsanto, the court rejected the arguments of lessors who contended that "they were innocent absentee landlords unaware of and unconnected to the waste disposal activities that took place on their land." Id. at 169. According to the court, Superfund "does not sanction such willful or negligent blindness on the part of absentee landowners." Id. at 166. But see United States v. Iron Mt. Mines Inc., 987 F. Supp. 1263 (E.D. Cal. 1997) (United States’ ownership of "small, oddly shaped slivers of land . . ." in Superfund site did not create liability due to "third party defense," i.e., private third party was found to be the sole cause of the releases and the government exercised "due care," etc.).

Thus, where the federal government currently owns or formerly owned all or part of the lands on which wastes are or were disposed, the government will typically be jointly and severally liable under Superfund as a facility "owner."

Operator & Arranger Liability:

Governmental Control At A Facility

In FMC Corporation, the Third Circuit held that the federal government was liable for a portion of the Superfund response costs associated with a private rayon manufacturing facility due to the pervasive control exercised over the facility’s operation during World War II by the War Production Board. In reaching this conclusion, the court stated:

It is clear that the government had "substantial control" over the facility and had "active involvement in the activities" there. The government determined what product the facility would manufacture, controlled the supply and price of the facility’s raw materials, in part by building or causing plants to be built near the facility for their production, supplied equipment for use in the manufacturing process, acted to ensure that the facility retained an adequate labor force, participated in the management and supervision of the labor force, had the authority to remove workers who were incompetent or guilty of misconduct, controlled the price of the facility’s product, and controlled who would purchase the product. 29 F.3d at 843.

Although the court in FMC was concerned that "application of the principles in this case by other courts could lead to the imposition of broad liability on the government," it declined to let that circumstance "influence our result as we cannot amend CERCLA by judicial fiat." FMC, 29 F.3d at 846. The court reasoned that "at bottom our result simply places a cost of the war on the United States, and thus on society as a whole, a result which is neither untoward nor inconsistent with the policy underlying CERCLA." Id.

In Cadillac Fairview/California, Inc. v. Dow Chemical Co. (Haz. Waste Lit. Rep., March 24, 1997, at 31,985) (C.D. Cal. Feb. 14, 1997), the government was found liable under Superfund for 100 percent of cleanup costs at a site used to produce synthetic rubber during World War II. The court determined that the government was liable as an operator of the facility. Because the government owned all of the materials used and generated at the plants, and conceded that it knew waste would be generated, the court concluded that the government had conducted sufficient activity to merit imposing liability.

Conversely, the D.C. Circuit found that the government’s war-time zinc production requirements did not create operator or arranger liability on the part of the government. East Bay Municipal Utility District v. United States, 142 F.3d 479 (D.C. Cir. 1998). The court determined that the government neither exercised day-to-day activities or control over the mining site nor had authority to control the waste production process at the mine. Accord United States v. Iron Mt. Mines, Inc., 987 F. Supp. 1277 (E.D. Cal. 1997) (United States’ encouragement of zinc and copper mining during World War II did not constitute the exercise of the requisite degree of control over mine to subject the government to operator liability).

Arranger liability results when "any person. . . by contract, agreement, or otherwise arranged for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such substances. . ." 42 U.S.C. § 9607(a)(3). When a party owned the waste, possessed the waste, was the source of the pollution, managed the waste’s disposal, had authority to control the waste disposal, or had a duty to dispose of the waste, it may be found liable as an arranger. In FMC, the United States was held to be liable as an arranger of the waste disposal. FMC, 29 F.3d at 845-46. But see United States v. Vertac Chem. Corp., 46 F.3d 803, 810 (8th Cir. 1995), cert. denied, 115 S.Ct. 2609 (1995) (holding that arranger liability only occurs if there is actual knowledge of the disposal of a hazardous substance, and the mere exercise of regulatory authority does not deem the government an arranger).

Determinations of governmental operator or arranger liability are very fact specific. Liability is dependent upon a showing that the government control was "substantial" enough to constitute "active involvement" in the facility. Most courts addressing the issue of governmental liability since FMC have compared the allegations of facts in the case at bar with the facts in FMC. When the facts fall short of those in FMC, courts have been less likely to hold the government liable under an operator or arranger theory.

Conclusion

The case law illustrates that the federal courts are increasingly willing to find the federal government liable under Superfund, and use equitable factors to allocate substantial shares of the joint liability to the government in appropriate cases. However, private PRPs will usually have to aggressively pursue claims of government liability in order to achieve equitable results.