Face Challenges Confidently

558 Exxon Mobil Corp. v. United States

Tuesday, December 6th, 2016

Richard F. Brown

Exxon Mobil Corp. v. United States held that the federal government shared liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) for the cleanup costs incurred in response to an administrative settlement by a private contractor for the contractor’s wartime production wastes. Predecessors of Exxon Mobil Corporation (“Exxon”) owned and operated refineries and chemical plants located in Baytown, Texas, and Baton Rouge, Louisiana. During World War II and the Korean War, Exxon’s predecessors entered into profitable wartime government contracts to produce high-octane aviation gas and synthetic rubber at these sites. Production of these materials generated increased hazardous wastes, which was disposed of in nearby bodies of water. Decades later, Exxon entered into administrative settlements with Texas and Louisiana to clean up the Baytown and Baton Rouge sites, respectively. Exxon estimated that it had incurred roughly $71 million to clean up both sites and filed suit against the government under CERCLA to hold the government accountable as a potentially responsible person (“PRP”) liable for its share of the cleanup costs at both sites.

The case concerns two provisions of CERCLA: § 107(a), a cost recovery provision, and § 113(f), a contribution provision. Section 107(a) states that a PRP may be responsible for costs incurred by another party in responding to a contamination. Section 113(f) allows a PRP that “has resolved its liability to the United States or a State in an administrative or judicially approved settlement” to seek contribution from PRPs who have not settled their liability. Exxon brought suit under both sections.

The government argued that, as Exxon incurred its cleanup costs under administrative consent orders with the state, the company could only recover its cleanup costs under § 113(f). Upon reviewing the statute’s text, structure, and history, the court agreed that § 113(f)’s contribution provision was the exclusive remedy for PRPs, such as Exxon, who incurred cleanup costs pursuant to an administrative settlement. In particular, the court noted the following factors: (1) CERCLA was amended after its enactment to add the express contribution remedy of Section 113(f); (2) § 113(f) protects parties that have previously settled with the government from future contribution actions; and (3) some actions under § 113(f) may have shorter statutes of limitation periods compared to § 107(a) actions. Reading the statute as a whole, the court stated that “[i]f PRPs could simply pick either § 107(a) or § 113(f) to recover cleanup costs incurred in responding to an administrative settlement, these limits on § 113(f) actions . . . would be superfluous.”

To determine the government’s liability for cleanup costs, the court also determined whether the government was an “operator” of the refineries or the plants. Exxon argued that the standard to be applied in determining operator status is the “indicia of control test” as articulated in FMC Corp v. U.S. Dept. of Commerce, which found that the government had “substantial control” over a production factory by determining “what product the facility would produce, the level of production, the price of the product, and to whom the product would be sold.” However, the court disagreed noting that “many lower courts have recognized that FMC’s test is not helpful after United States v. Bestfoods.”

The court stated that, “under CERCLA, an operator is simply someone who directs the workings of, manages, or conducts the affairs of a facility.” But, to be held liable for remediation costs under Bestfoods, “an operator must manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with leakage or disposals of hazardous waste or decisions about compliance with environmental regulations.”

Exxon further argued that the government’s pervasive regulation of the petroleum industry, which affects operations of the refineries, subjected the government to liability as an operator. In support, Exxon cited United States v. Twp. of Brighton, which held that a government entity could be liable as an operator when its “‘regulations’ are just the government’s method of macromanaging the facility.” However, this court distinguished Brighton by noting that the government there “took responsibility for ameliorating the unacceptable condition of the dump” while there is not a similar assumption of responsibility by the government with regards to the refineries at Baytown or Baton Rouge. In addition, the court stated that the distinction the Brighton court drew in applying the “regulation” versus “macromanagement” test only when a government entity (not a private entity) is involved is inconsistent with Bestfoods, which requires more than a “general influence over the economy or over a plant’s operations, even if the result could increase waste production.”

Exxon also argued that inspections of the refineries conducted by government employees, including an employee stationed at the Baton Rouge site, supported its allegation that the government was an operator of the refineries. Again, the court rejected Exxon’s argument, finding no evidence to suggest that the government inspectors’ duties included day-to-day management of the refinery or were related to waste disposal or environmental compliance. There was also no evidence that the government had control over personnel decisions.

The court was similarly unconvinced by Exxon’s position that the government’s rationing of materials during wartime restricted the refineries’ ability to properly dispose of the hazardous waste. Specifically, the federal government denied Exxon’s requests to divert materials towards waste disposal projects at the sites. However, the court found that the government’s decisions focused on allocating resources, not waste disposal. Accordingly, such decisions did not constitute control over the refineries’ waste disposal operations so as to impose liability. The court concluded that the United States did not operate either refinery during either war.

In contrast, the government had greater control and direction with regards to the operations of the chemical plants. In particular, the court found that the government approved the plants’ designs, required government approval for the disposal of wastes and other materials, stationed a government official who had substantial control over day-to-day operations at one of the plants, and hired an industrial waste management expert to inspect and provide recommendations regarding the issue of pollution at a plant. Thus, the court determined that the government’s direction over the plant’s operations satisfied the operator standard set forth in Bestfoods.

The case has important implications for future CERCLA litigation as it restricts the remedies available to a plaintiff as well as adopts a high standard for determining whether a party is an “operator” for purposes of CERCLA liability.