U.S. v. Shell Oil Co.

Decision Date11 February 2002
Docket NumberNo. 00-55027.,00-55027.
Citation294 F.3d 1045
PartiesUNITED STATES of America, Plaintiff-Appellant, and State of California, ex rel. California Department of Health Services; Hazardous Substance Account and Hazardous Cleanup Fund, Plaintiff, v. SHELL OIL COMPANY; Union Oil Company of California; Atlantic Richfield Company; Texaco, Inc.; Los Coyotes Estates; Ramparts Research & Financial Corporation, Defendants-Appellees. United States of America; State of California, ex rel. California Department of Health Services; Hazardous Substance Account and Hazardous Cleanup Fund, Plaintiffs-Appellees, v. Shell Oil Company; Union Oil Company of California; Atlantic Richfield Company; Texaco, Inc., Defendants-Appellants, and Los Coyotes Estates; Ramparts Research & Financial Corporation, Defendants.
CourtU.S. Court of Appeals — Ninth Circuit

Todd S. Kim, U.S. Department of Justice, Washington, District of Columbia, for the plaintiff-appellant/cross-appellee United States.

Timothy R. Patterson, Deputy Attorney General, California Department of Justice, San Diego, California, for the plaintiff/cross-appellee State of California.

Ronald L. Olson, Peter R. Taft, Munger, Tolles & Olson LLP, Los Angeles, California, for the defendants-appellees/cross-appellants Shell Oil Company, et al.

Appeal from the United States District Court for the Central District of California; Robert J. Kelleher, District Judge, Presiding. D.C. No. CV 91-00589-RJK.

Before: TROTT, THOMAS and W. FLETCHER, Circuit Judges.

ORDER

The opinion filed on February 11, 2002, and published at 281 F.3d 812 (9th Cir. 2002), is withdrawn and replaced by the attached opinion.

With the filing of this new opinion, the panel has voted unanimously to deny the Oil Companies' petition for rehearing and petition for rehearing en banc, filed March 28, 2002. The full court has been advised of the petition for rehearing en banc and no judge of the court has requested a vote on whether to rehear the matter en banc. Fed. R.App. P. 35. The Oil Companies' petition for rehearing and petition for rehearing en banc are

DENIED.

The United States' petition for rehearing, filed March 28, 2002, is also

DENIED.

OPINION

WILLIAM A. FLETCHER, Circuit Judge.

We are asked to decide who must pay for cleaning up the McColl Superfund Site in Fullerton, California. The site was contaminated with hazardous waste associated with the production of aviation fuel during World War II. Defendants in this case, Shell Oil Co., Union Oil Co. of California, Atlantic 9267 Richfield Co., and Texaco, Inc.1 (collectively, "the Oil Companies"), operated aviation fuel refineries in the Los Angeles area during the war and dumped their waste at the McColl site.

The United States and the State of California brought suit against the Oil Companies under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601-9675, to recover cleanup costs incurred at the site. The Oil Companies counterclaimed under the same statute, contending that the United States was liable for cleanup costs.

On motion for summary judgment by the United States and the State of California, the district court held that the Oil Companies were liable as "arrangers" under 42 U.S.C. § 9607(a)(3). See United States v. Shell Oil Co. (Shell I), 841 F.Supp. 962, 969-70 (C.D.Cal.1993). The district court rejected the Oil Companies' argument that they were exempt from liability on the ground that the contamination was caused by an "act of war" within the meaning of 42 U.S.C. § 9607(b)(2). See id. at 970-72. On later cross-motions for summary judgment by the United States and the Oil Companies, the district court held that the United States was also liable as an arranger under 42 U.S.C. § 9607(a)(3) for the "non-benzol" waste dumped at the site. The United States conceded that it was an arranger for the "benzol" waste. See United States v. Shell Oil Co. (Shell II), No. 91-0589, at 14-19 (C.D.Cal. Sept. 18, 1995). The district court also held that the United States had waived its sovereign immunity to suit under 42 U.S.C. § 9620(a)(1). Id. at 6-9. After trial, the district court held that 100% of the cleanup costs for all the waste, including the benzol waste, should be allocated to the United States, and 0% to the Oil Companies, under 42 U.S.C. § 9613(f)(1). See United States v. Shell Oil Co. (Shell III), 13 F.Supp.2d 1018 (C.D.Cal.1998).

The United States appeals, arguing that the district erred in holding that § 9620(a)(1) waives the sovereign immunity of the United States; in holding that the United States is liable as an arranger for the non-benzol waste under § 9607(a)(3); and in allocating 100% of the cleanup costs for all the waste to the United States under § 9613(f)(1). The Oil Companies cross-appeal, arguing that the district court erred in rejecting their argument that they were exempt from liability under the "act of war" provision of § 9607(b)(2). The State of California is a cross-appellee only on the "act of war" issue.

We hold the following: (1) We affirm the holding of the district court that § 9620(a)(1) waives the sovereign immunity of the United States. (2) We reverse the holding of the district court that the United States is liable for the non-benzol waste cleanup costs as an arranger under § 9607(a)(3). Because the United States is not liable as an arranger, the question of allocation of liability for the non-benzol waste between the United States and the Oil Companies under § 9613(f)(1) is moot. (3) We affirm the holding of the district court that 100% of the cleanup costs for the benzol waste should be allocated to the United States. (4) We affirm the holding of the district court that the Oil Companies are not exempt from liability under the "act of war" provision of § 9607(b)(2).

I. Factual Background
A. Avgas Production

The parties have entered into a comprehensive stipulation of facts, upon which the following narrative is based. In the early 1930s, petroleum refiners in the United States developed new technologies for producing high-octane gasoline fuel. Until that time, the highest octane gasoline available had an octane rating of about 72-73, but by 1935 refiners possessed the ability to produce mass quantities of 100-octane fuel. The primary consumer of this fuel was the United States military, which used it in airplane engines, leading to its colloquial name "avgas." The high octane and low volatility of avgas allowed the design and use of high-compression internal combustion engines for military airplanes.

Avgas was a blend of petroleum distillates and chemical additives. Its base component was ordinary gasoline, to which the refineries added varying amounts of several additives. The most prevalent additive was a compound called "alkylate," which comprised 25-40% of the weight of avgas. The production of alkylate, as well as other additives, required the use of sulfuric acid. In the production of alkylate, through a process called "alkylation," the refineries used 98% purity sulfuric acid as a catalyst. Approximately 90% of the sulfuric acid used by the refineries during the war was devoted to this purpose. As a consequence of its use in alkylation, the purity of the acid was greatly reduced. "Spent" alkylation acid could be reprocessed, at some expense, so that its purity was once again high enough for use as an alkylation catalyst. Alternatively, spent acid either could be used in other refinery processes, or could be dumped without being reused.

When the war began, the alkylation process and the production of avgas were new technological developments. During the war, production of avgas increased more than twelve-fold, from roughly 40,000 barrels per day in December 1941 to 514,000 barrels per day in 1945. Sulfuric acid consumption increased five-fold, from 24 million pounds per year in 1941 to 120 million pounds per year in 1944. The use of sulfuric acid in the alkylation process produced quantities of spent alkylation acid far greater than had ever been produced before.

Because avgas was critical to the war effort, the United States government exercised significant control over the means of its production during World War II. In 1942, President Roosevelt established several agencies to oversee war-time production. Among those with authority over petroleum production were the War Production Board ("WPB") and the Petroleum Administration for War ("PAW"). The WPB established a nationwide priority ranking system to identify scarce goods, prioritize their use, and facilitate their production; it also limited the production of nonessential goods. The PAW centralized the government's petroleum-related activities. It made policy determinations regarding the construction of new facilities and allocation of raw materials, and had the authority to issue production orders to refineries. Although the WPB, PAW, and other government agencies had the authority to require production of goods at refineries owned by the Oil Companies, and even to seize refineries if necessary, in fact they relied almost exclusively on contractual agreements to ensure avgas production. In particular, the government entered into long-term contracts to purchase avgas, and offered low-cost loans to refineries to help finance the construction of avgas-producing plants.

The government sought to maximize avgas production through the Planned Blending Program. Under this program, the government assisted the refineries operated by the Oil Companies in exchanging and blending various avgas components in order to maximize production of avgas. The government could, and sometimes did, direct that specific exchanges be made, but it usually accepted what was proposed by the refineries. The instructions issued under the Planned Blending Program were at times...

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