The plaintiffs appealed and the defendants cross-appealed the district court's decision regarding Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)[1] liability for the cleanup of the McColl Superfund Site in Fullerton, California. The Ninth Circuit upheld the district court's finding that the United States waived its sovereign immunity under 42 U.S.C. § 9620(a)(1). However, the Ninth Circuit reversed the district court's finding of liability against the United States, holding that the United States was not an "arranger" of non-benzol hazardous wastes under 42 U.S.C. § 9607(a)(3).[2] Because of this holding, the United States's appeal of the allocation of liability between it and the defendants for the non-benzol waste was moot. The Ninth Circuit affirmed the district court's allocation of one hundred percent of the clean up costs to the United States for benzol waste. Finally, the Ninth Circuit upheld the district court's rejection of defendants' claim that they were exempt from liability because they qualified for the "act of war" defense.[3]

The oil company defendants (Oil Companies) operated high-octane gasoline fuel refineries during World War II. The United States was the primary consumer of this fuel, also know as "avgas," which it needed to operate its airplanes during the war. Because of its dependence on avgas, the United States exercised control over avgas production. Government agencies, including the War Production Board (WPB) and the Petroleum Administration of War (PAW), could seize oil companies or order the production of gas.[4] However, the government primarily procured avgas through contractual agreements. Although the government encouraged production maximization through programs to assist avgas producers financially and to encourage exchange of avgas components between producers, the Oil Companies owned and managed the facilities themselves. They also sought contracts independently and profited from these contracts.

The major increase in avgas production during World War II led to a significant increase in hazardous waste byproducts, including spent alkylation acid and acid sludge. The government was aware of the acid waste increase, and it made some efforts to deal with the problem by, for example, facilitating a storage tank lease. However, it also declined to provide the resources to build new acid reprocessing facilities, despite the fact that existing facilities were inadequate to deal with the increased production. Faced with a choice between stopping production and dumping, the Oil Companies chose to dump large amounts of acid waste at the McColl Superfund Site. There was no evidence that the government was aware of any dumping contracts the Oil Companies had with the site, nor did the government order or approve this dumping. Prior to its cleanup, the site contained approximately 100,000 cubic yards of hazardous wastes.

The government eventually cleaned up the site, and after the cleanup was complete, the United States and the State of California brought suit to recover the approximately $100,000,000 cleanup cost. The Oil Companies filed a counter-claim alleging that the United States was responsible for the costs. In response to a motion for summary judgment, the district court rejected the Oil Companies' claim that the "act of war" defense applied to the companies and found that the companies were liable as arrangers.[5] However, after trial the court allocated one hundred percent of the cleanup costs to the United States,[6] having determined in summary judgment that the United States had waived its sovereign immunity and that the United States was liable as an arranger of non-benzol wastes under CERCLA.[7] The United States had conceded that it was an arranger of the benzol wastes at the site.[8] The United States appealed, and the Oil Companies cross-appealed.

The Ninth Circuit first addressed the United States's claim that it had not waived sovereign immunity for liability under CERCLA. The United States acknowledged that section 120(a)(1) of CERCLA waived sovereign immunity for some CERCLA claims.[9] The United States, however, argued that the waiver was limited to claims involving federally owned facilities engaged in nongovernmental activities. The Ninth Circuit rejected this narrow interpretation of the waiver. To be subject to suit, the government must unambiguously waive sovereign immunity. The Ninth Circuit indicated that section 120(a)(1) provides a clear waiver of immunity that the Supreme Court has acknowledged.[10] The Ninth Circuit rejected the government's claim that because the heading for section 9620 is "Federal facilities" the waiver must apply only to these facilities. The court explained that the section's text is not so limiting and that the heading was added to CERCLA after the waiver language had already been codified.[11] The court also indicated that the United States has been held liable in the past for activities other than nongovernmental activities, such as military installation cleanups. The court held that the waiver under section 9620 extends to any liability that could be found under 42 U.S.C. § 9607.

The court next addressed the United States's argument that under CERCLA, it was not an "arranger" of non-benzol waste. Persons liable under CERCLA include "any person who . . . arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances."[12] Accordingly, arrangers are included in the list of persons liable. Although the Oil Companies had argued that the United States was liable under a broad theory of arranger liability rather than as a traditional direct arranger, the district court found that the United States could be liable as a direct arranger.[13] The district court described a direct arranger as one engaged in a transaction where "the sole purpose of the transaction is to arrange for the treatment or disposal of the hazardous wastes."[14] In so finding, the lower court relied on a letter from PAW concerning a proposed acid reprocessing plant. PAW declined to get involved with acid waste disposal but indicated that the problem was being left to WPB. The court also relied on the government's attempts to facilitate a storage tank lease, although the government was not itself the lessee. On appeal, the Ninth Circuit indicated "[a] direct arranger must have direct involvement in arrangements for the disposal of waste" [15] and held that these facts were not sufficient for a finding of direct arranger liability against the United States.

The Ninth Circuit also rejected the Oil Companies' claim that the United States was liable for the non-benzol wastes under a broader theory of arranger liability. The Oil Companies argued that because the United States had sufficient control over the avgas production process, the United States should be liable as an arranger of the non-benzol hazardous waste that resulted from the production. The Ninth Circuit declined to find any bright line test for this broader theory and instead compared the facts of the case with four other cases concerning arranger liability.

The court first distinguished United States v. Aceto Agricultural Chemicals Corp. (Aceto).[16] In that case, pesticide manufacturers were found liable as arrangers when the manufacturers sent the ingredients to another corporation's plant to produce the pesticides, and the other plant generated hazardous waste.[17] The Ninth Circuit distinguished the instant case from Aceto because in Aceto the manufacturers owned the ingredients and the pesticides at all times whereas the United States never owned the raw materials for the avgas and only purchased the avgas after its production was complete. In addition, unlike the manufacturers in Aceto, the United States did not attempt to avoid responsibility for its waste by contracting out the portion of the manufacturing process in which the waste was generated.

The court next distinguished United States v. Northeastern Pharmaceutical & Chemical Co. (NEPACCO).[18] In that case, the president and vice-president of a company were found liable as arrangers when the vice-president permitted the burial of chemical waste from the plant.[19] The Ninth Circuit rejected the Oil Companies' claim that NEPACCO stood for the proposition that mere authority to control, rather than ownership or actual control, is sufficient to find arranger liability. The court explained that in NEPACCO, the vice-president exercised actual control and the president was his superior in the corporation, but that the United States in the present case "neither exercised control, nor had the direct ability to control" the waste, and "there was never a United States employee in a position comparable to [the vice-president's in NEPACCO]."[20]

The court found that the case before it was more comparable to FMC Corp. v. United States Department of Commerce[21] and United States v. Vertac Chemical Corp.[22] According to the court, in FMC, the United States had exercised significantly more control over rayon production during World War II than it did over avgas production in this case. In FMC, the government's role included installing government-owned equipment and building its own plant to supply sulfuric acid for the process.[23] Nevertheless, the FMC court split evenly as to whether the United States was an arranger. Because the Third Circuit in FMC found that on the facts before it arranger liability was a close question, the Ninth Circuit found that the facts in the present case were not enough to call the issue of arranger liability a close question.

The Ninth Circuit found the facts in the case at hand most similar to those in Vertac Chemical.[24] In Vertac Chemical, the Eighth Circuit found no arranger liability against the United States for its purchase of Agent Orange from a plant during the Vietnam War, even though the United States had required another company to supply the plant with raw materials and should have known that the production of Agent Orange would generate waste.[25] After comparing the facts of the present case with Vertac Chemical, as well as Aceto,[26] NEPACCO,[27] and FMC,[28] the Ninth Circuit concluded that the United States was not an arranger of the non-benzol wastes. The court consequently held moot the United States's appeal regarding allocation of cleanup costs for the non-benzol wastes.

The court next addressed the United States's claim that the district court erred in allocating one hundred percent of the cleanup costs for the benzol wastes to the United States. Although the United States conceded that it was an arranger of the benzol waste, it did not concede that it should be allocated the entire costs of the benzol waste cleanup.[29] Under CERCLA, a district court "may allocate response costs among liable parties using such equitable factors as the court determines are appropriate."[30] The Ninth Circuit explained that it could overturn the district court's allocation only for abuse of discretion or for clear error. The district court allocated one hundred percent of the benzol waste clean up costs to the United States for the same reasons that it allocated one hundred percent of the non-benzol waste clean up costs to the United States--because during the war the United States was willing to pay the costs of obtaining avgas, and the cleanup costs could be considered a part of the war effort. In addition, the United States did not provide needed transportation or resources to limit the dumping of hazardous wastes. The Ninth Circuit affirmed the district court's allocation of liability, finding the district court justified in relying upon the equitable factors it chose.

Finally, the court rejected the Oil Companies' claim of an "act of war" defense. Although section 107 of CERCLA provides such a defense,[31] the court found that the defense was a narrow one.[32] The court did not accept the Oil Companies' argument that the defense extended to the United States's involvement in wartime production of avgas. In addition, even if there had been an applicable "act of war," the Oil Companies failed to show that any such act was the sole cause, as the defense requires.