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McCoy v. Gustafson

December 15, 2009


(Monterey County Super. Ct. No. M58994).Trial Judge: The Honorable Michael S. Fields.

The opinion of the court was delivered by: Rushing, P.J.


I. Introduction

In 1986, Margaret McCoy wrote a letter to the owners of the Grove Laundry in Pacific Grove, complaining that "black oil is seeping up between the laundry" and the house owned by Margaret and Edward McCoy on property downhill from the laundry (the downhill property). She asserted that it was the laundry's "spill of black oil" and that they should clean it up.

The Blackwells, then owners of the laundry, made some efforts to clean up the oil contamination on the laundry property. After acquiring the laundry property in 1988, in 1993 M. Douglas Gustafson demolished one of the buildings and had almost 560 tons of soil excavated from the laundry property, as monitored and approved by the Monterey County Health Department (the Health Department).

Because the downhill property has remained contaminated, in 2002 the McCoys filed this civil action against the current and former owners of the laundry property.*fn1 As the jury was instructed in this case, to release fuel oil into a neighbor's soil without consent is a trespass, and to interfere with the free use and enjoyment of the neighbor's property by contaminating it is a nuisance.

California law classifies nuisances and trespasses as either continuing or permanent. "An action for trespass upon or injury to real property" (Code of Civil Procedure, § 338, subd. (b))*fn2 must be filed within three years of the discovery that the property has been contaminated by a permanent nuisance. (Mangini v. Aerojet-General Corp. (1996) 12 Cal.4th 1087, 1096, 1103 (Mangini II)), while a new action can be filed every three years for the damages caused by a continuing nuisance or trespass. A nuisance is regarded as continuing if "the nuisance can be remedied at a reasonable cost and by reasonable means." (Id. at p. 1103.)

Based primarily on the 1986 letter complaining about oil seeping from the laundry, the trial court summarily adjudicated that plaintiff's claims for negligence, permanent nuisance, and permanent trespass were time-barred. The trial court later denied plaintiff's motion to amend the complaint a month before trial.

Plaintiff proceeded to trial on theories of continuing nuisance and trespass. The jury concluded by way of a special verdict form that two defendants, M. Douglas Gustafson and his corporation, the Tamarind Group, Inc., had intentionally, recklessly, or negligently caused oil or other petroleum products to be released onto the downhill property, thereby creating a condition that caused harm and interfered with plaintiff's free use and enjoyment of the downhill property.*fn3

The jury was instructed, among other things, that, to establish a nuisance, plaintiff was required to prove "that the condition can be repaired, or abated, by reasonable means and at a reasonable cost." To establish a trespass, plaintiff was required to prove "that the unauthorized entry can be removed, repaired, or abated, by reasonable means and at a reasonable cost." Given the choices "[y]es," "[n]o," or "[u]nknown" in Questions 5 in the special verdict form (pertaining to nuisance and trespass), the jury determined that it was "unknown" whether the condition of plaintiff's property could "have been repaired or abated by reasonable means and at a reasonable cost[.]" As directed by the verdict form, in light of this special verdict, the jury bypassed the remaining questions about damages and signed the verdict form.

We will conclude for the reasons stated below that this special verdict established the statute of limitations defense, so the trial court should have entered judgment in favor of the Gustafson defendants based on this special verdict, as they contended in a motion for judgment notwithstanding the verdict. Based on the lack of evidence at trial that the contamination of the downhill property is reasonably abatable, the jury could not have found otherwise. We will further conclude that this failure of proof did not result from any erroneous ruling by the trial court in connection with granting summary adjudication, denying plaintiff's motion to amend the complaint, or limiting the expert testimony presented by plaintiff.

This action did not end with this special verdict. The trial court directed the jury to deliberate further, after which they determined by special verdict that the Gustafson defendants acted with malice, fraud, or oppression in creating a nuisance, but not by releasing oil. After a bifurcated trial, by a separate special verdict, the jury awarded punitive damages of $250,000 against M. Douglas Gustafson and $250,000 against the Tamarind Group, Inc.

Plaintiff and the Gustafson defendants both challenged this outcome, with defendants moving for a judgment notwithstanding the verdict and an order vacating the punitive damages award, and plaintiff making a motion for a new trial. The trial court deemed defendants' motion also to be seeking a new trial. The court ruled orally, "I think that the verdict form was unfortunately hopelessly mired in confusion and ambiguity, such that I think a motion for new trial has to be granted, both as to the issues of compensatory damages, punitive damages, the corporate and individual standing of Mr. Gustafson." Both sides have appealed from this ruling, and plaintiff has appealed from the original judgment and related prior rulings.

We will conclude, for reasons stated below, that the trial court erred in granting the motion for new trial and denying the motion for judgment notwithstanding the verdict. Accordingly, we will reverse the order granting a new trial and direct entry of a judgment in defendants' favor.

II. Pretrial Pleadings and Rulings

A. The Pleadings

The complaint, filed April 29, 2002, alleged the following. Plaintiffs Edward and Margaret McCoy owned residential property downhill from the Grove Laundry in Pacific Grove. While defendants Galen and Gary Blackwell owned and operated the laundry, bunker oil was discharged into the ground, and the oil has migrated through the groundwater and soil on and under the downhill property. Defendant M. Douglas Gustafson, individually and as a trustee of the M. Douglas Gustafson Trust, and through the corporate defendants Spindletop, Inc. and the Tamarind Group, purchased the uphill property from the Blackwells, sold it, repossessed it, and attempted to clean up the contaminated soil on the uphill property. Gustafson sold part of the property to defendants Thomas and Claude Finklang, doing business through the corporate defendants CTE Properties, Inc., the Grove Homescapes, and the Grove Innerscapes (the Finklang defendants). The Finklang defendants demolished the laundry and replaced it with a retail and residential building. In July 1999, the plaintiffs discovered groundwater filled with petroleum during excavation of a trench about 18 inches deep on their property. Plaintiffs alleged causes of action for negligence, nuisance per se, private and public nuisance, and trespass as a result of the contamination of their soil. They requested damages representing the diminution in their property value, interference with their use of their property, their costs of improving their property and testing for toxic wastes, and punitive damages.

M. Douglas Gustafson, individually and as a former trustee of the M. Douglas Gustafson Trust, and the Tamarind Group, formerly doing business as M. Douglas Gustafson & Co., Inc., and Spindletop, Inc., filed an answer alleging a number of affirmative defenses, including that plaintiff's action was barred by the three-year statute of limitations for damages to real property.

B. The Motions for Summary Adjudication

On October 27, 2005, the Gustafson defendants filed a motion for summary adjudication asserting that the statute of limitations barred plaintiff's claims of permanent nuisance, negligence, and trespass. The motion was heard on January 27, 2006, and taken under submission. The motion was based primarily on an exchange of letters between Margaret McCoy, Marc Blackwell, and the Health Department from April 1986 through September 1987.

On April 22, 1986, Margaret McCoy wrote to Marc Blackwell that Mrs. Walker had complained of oil seeping up between the Grove Laundry and the downhill property at 164 12th Street in Pacific Grove that Walker rented from Margaret and Edward McCoy. Marc Blackwell was the son of Galen Blackwell, one of the owners of the Grove Laundry. By letter dated April 29, 1986, Marc Blackwell accepted full responsibility for the situation and offered to clean up the downhill property. He noted that he had been in contact with the Health Department. On September 3, 1987, the Health Department wrote, asking Blackwell to establish a cleanup schedule in coordination with his consultant, Russell Juncal of WaterWork. One of the elements to be scheduled was installation of monitoring wells.

WaterWork performed some work on the laundry property by January 1988, when the Blackwells sold the property to M. Douglas Gustafson.

Plaintiff filed opposition to the motion. Plaintiff acknowledged that the three year limitations period of section 338, subdivision (b) applied, but argued that the downhill property suffered no "appreciable and actual harm" until "after confirmation of the soil sample showed high levels of petroleum contamination were present in the soil and groundwater underneath the property." The written opposition made no claim that the state statutes of limitations were preempted by the federal Comprehensive Environmental Release Compensation and Liability Act (CERCLA).

On March 10, 2006, Galen Blackwell filed a motion for summary judgment or summary adjudication based on a release of liability executed by Gustafson and the statute of limitations.

On March 27, 2006, the trial court ruled in writing that plaintiffs were on notice of possible oil contamination of their property in 1986, so claims of negligence, negligence per se, trespass, and permanent nuisance were barred by the applicable three-year statute of limitations long before the lawsuit was filed in 2002. While they could proceed on claims for continuing nuisance and trespass, their damages were limited to those incurred within three years of their lawsuit and did not include diminution in market value or damages for future harm.

On May 2, 2006, plaintiff sought clarification of the summary adjudication ruling. This written motion made no reference to CERCLA.

On May 12, 2006, plaintiff filed opposition to Blackwell's motion for summary adjudication. This opposition did not mention CERCLA.

Plaintiff's motion for clarification was heard on May 19, 2006 and taken under submission.

On June 9, 2006, Blackwell's motion for summary adjudication was heard and taken under submission.

On June 12, 2006, the court issued an order on the motion for clarification, essentially indicating that its prior ruling needed no clarification. On the same date, it granted Blackwell's motion for summary adjudication, reaching the same conclusions about the statute of limitations, and recognizing that Gustafson had settled prior litigation with the Blackwells by releasing them from further liability for any contamination.

On June 28, 2006, at a hearing on motions in limine, the trial court clarified that its summary adjudication ruling was intended to apply to plaintiff's purported claim for nuisance per se.

C. The Motion to Amend the Complaint

On May 26, 2006, with a pending trial date of June 27, 2006, plaintiff filed a motion seeking leave to file a first amended complaint. This motion was heard on June 2, 2006 and taken under submission. On June 12, 2006, the court denied plaintiff's motion to amend the complaint, giving the following written explanation. "This case arises from a release of `bunker oil' at the Grove Laundry site in 1986. Evidence in the prior motion showed Plaintiffs were on notice of oil contamination in their property in 1986, but did not file this lawsuit until 2002. Plaintiffs now seek to allege new causes of action stemming from remediation efforts made by Defendants on their own property in 1987 and 1993.

"Plaintiffs seek to allege that Defendants failed to obtain permits and install monitoring wells as directed by the County and the State. Additionally, Plaintiffs claim Defendants failed to record or provide technical information as required by the State. Lastly, in 1995, Defendants allegedly discovered oil in postholes while erecting a retaining wall, and `turned a blind eye' to it.

"The amendment does not appear to be appropriate. The `bunker oil' was released onto Defendants' property in 1986. Evidence before the court on the summary judgment motion indicated Plaintiff Margaret McCoy was aware of the black oil `seeping' onto her property in 1986-87 and wanted Defendant Blackwell or the County to replace the soil and clean up the oil at that time. No remediation efforts on Plaintiffs' property ever took place.

"The fact that Defendants remediated their own property unsuccessfully more than once, and the fact that the County has undertaken remediation efforts with Defendants, do not create new causes of action for Plaintiffs."

III. The Trial

A. Motions In Limine

Plaintiff's counsel, Kathleen Clack, made a motion in limine to exclude evidence that had not been produced in discovery. At a hearing on June 28, 2006, the trial court essentially granted the motion.

Representing the Finklang defendants, Mark Hudak made a similar motion in limine to exclude any evidence of the cost of remediation or repairs, because none of plaintiff's three designated experts was designated to testify on that topic. He pointed out that, at his deposition, Michael Burns stated that he did not know how much soil would need to be excavated from the downhill property or what the cost of excavation would be. Sammy Salem also had made no estimate of the amount of soil that needed to be excavated from the downhill property. Salem's partner, Todd Polvado, had only estimated the cost of the engineering work for replacing the retaining wall, not the total cost of the wall.*fn4

Clack admitted that none of those experts was a cost estimator. Michael Burns "wasn't hired to give a cost estimate." Polvado had made no attempt to "cost out any of the work." At his deposition on June 8, 2006, Polvado stated he " `can't speak to the amount of soil that might need to be excavated at this point.' " However, according to Clack, Polvado had given a contractor, Mr. Mosebach at DMC Construction, a scope of the estimated work for soil excavation, and the contractor had come up with a number. Clack asserted that Polvado could recite this estimate during his testimony and that it was common knowledge what it costs to remove a cubic yard of dirt. The court disagreed, saying it was a matter of expert testimony. The trial court stated, "You're in trouble, Ms. Clack. It appears that you don't have the evidence."

Hudak pointed out that Polvado had not seen the DMC estimate at the time of his deposition. Under questioning by the judge, Clack admitted that Polvado never said whether the estimate was reasonable or not. Quoting from Polvado's deposition, DMC's various estimates pertaining to the removal of different amounts of soil, whether 120 cubic yards or 800 cubic yards, were not based on information he provided.*fn5 Mosebach was not designated as any kind of witness.

Clack explained to the court that she did not require more of her experts because the Regional Water Quality Control Board has been pressing Gustafson to obtain estimates for remediation work.

The trial court granted the Finklang defendants' motion in part.

Clack suggested that defendants could conduct another deposition of Polvado, because he "was under terrific strain" in his deposition, so he became "somewhat flustered." The court said it was unaware "of any Evidence Code or Code of Civil Procedure exception for being flustered at a deposition." She had earlier suggested that he had not had time to review and correct his deposition, so he should be given time to do so.

Plaintiff did not oppose a motion in limine to exclude her experts from presenting new opinions.

B. Trial Evidence

We will set out separately the evidence at trial of soil contamination, the property owners involved, past cleanup efforts, and whether there was any evidence at trial that the contamination could be abated by reasonable means at a reasonable cost.

1. The Discovery of Oil Migrating Downhill Underground

A laundry known as the Grove Laundry was constructed in Pacific Grove at 472 Lighthouse Avenue in 1914. The Blackwell family acquired the laundry in 1956 and operated it until they sold the property in January 1988.

In 1947, Edward and Margaret McCoy acquired the downhill property at 164 12th Street. The house on it was originally constructed in 1895. After living on the property for a little over two years, they relocated to southern California and rented out the residence. The Walkers were long-time tenants.

Michael Burns is an engineering geologist retained as plaintiff's expert in environmental geology. According to documents he reviewed, until 1980 the laundry used boilers fueled by fuel oils like bunker oil to heat the water used for cleaning. The basement of the laundry was unpaved soil. Over time, there were three boilers and three sumps that were used for collecting oil. In 1980, there was a reported accident where up to 200 gallons of fuel oil spilled onto the floor of the basement. Soapy water, which leaked into the basement, helped oil seep into the soil.

Burns explained that petroleum hydrocarbons in the soil will float in groundwater when it rises to the level of the contamination. Groundwater containing contamination will flow downhill from the source along underground pathways to receptor soil. This is what happened with the fuel oils released in the basement area of the laundry. They migrated into the groundwater, through the foundation wall, and onto the downhill property. He does not know when oil first began migrating onto the downhill property or how much oil has reached the downhill property.

In a letter dated April 22, 1986, Margaret McCoy complained to Marc Blackwell about oil from the laundry seeping up on her property.

On July 25, 1986, there was a complaint to the Health Department about bunker oil on the walk between the laundry and the downhill property. At the time, Jon Jennings was the supervisor of the hazardous materials program for the Health Department's Division of Environmental Health. A field inspector for the Health Department confirmed that there was oil on the downhill property and reported that sump soil on the laundry property had been contaminated for about 20 years. The Blackwells promised to remove the contaminated soil.*fn6

The State Regional Water Quality Control Board (the Water Board) was notified, but was not interested in 1988 because the groundwater was not drinkable. The Water Board's jurisdiction is groundwater, while the Health Department's jurisdiction is soil.

In January 1988, Gustafson bought the laundry property, on which there were two buildings, from the Blackwells. He sold it to Tom DiMaggio 11 months later. On February 13, 1991, the Health Department contacted DiMaggio about studying the contamination on his property. DiMaggio discovered there was contaminated soil from a sump. DiMaggio sued Gustafson, and Gustafson sued the Blackwells for not disclosing the soil contamination. One outcome of the litigation was that Gustafson took back the property from DiMaggio.

Another outcome was that there were cleanup efforts involving excavation of the laundry property in 1993. On November 8, 1993, the Health Department wrote a clearance letter approving Gustafson's cleanup efforts.*fn7 On November 30, 1993, Gustafson and the Blackwells reached a settlement of their litigation which acknowledged the clearance letter and that the Blackwells had removed all the contaminated soil at their expense, with Gustafson to reimburse them $40,000 for costs if he sold both of the parcels that were on the market.

In February 1994, Gustafson sold part of the laundry property to CTE Properties, Inc., a corporation of Claude and Thomas Edward Finklang. Gustafson has retained ownership of the property at 166 12th Street, the property on which three sumps were found during the 1993 excavation.

Before acquiring the property, Thomas Finklang was aware of the contamination issues on the adjoining property that Gustafson retained and the clearance letter. CTE did extensive renovation on the remaining building on his property. They dug a basement and put a foundation under the building. They removed virtually everything under the original building down to the bedrock. Despite the daily presence of government inspectors, there were no reports of soil contamination. Some of the soil was used for berms on the City of Pacific Grove's golf course. Other soil went to the Monterey Peninsula airport.

Rhett Smith, a friend of Thomas "Bo" Finklang,*fn8 was involved in the construction of the basement. According to Smith, some of the debris from excavating under the building was put on Gustafson's lot and buried under soil that was excavated from under the building.

Roger Stang was a contractor involved in the renovation. Before he got involved, all the soil had been removed to a depth of 10 feet. He stored his building materials on the vacant lot owned by Gustafson. Stang was asked to dig fence holes on Gustafson's property adjoining the downhill property. According to Stang, when his men dug the holes, they were nauseated by the holes filling with oil, so they stopped digging the holes.

According to Bo, Stang constructed what was intended to be a temporary retaining wall on Gustafson's vacant lot to give the resident of the downhill property some privacy. Smith took a number of photographs of the renovation work. He also made a videotape that showed oil coming up in fence post holes that were 30 inches deep. Posts were put in the holes and the retaining wall and a fence were quickly completed.

On the Finklang property, a three-story building with a basement replaced the existing one-story building. When the renovation was complete, Thomas Finklang set up an importing business on the premises.

At trial, Thomas Finklang denied that he had ever seen Smith's videotape. When asked by his counsel if he was surprised to learn that there was oil appearing in post holes on plaintiff's property, he answered: "It wasn't a surprise to anybody. Mrs. Walker knew about it. The McCoys knew about it. We knew about it. The City knew about it. The City of Pacific Grove talked about it. Everybody knew it was there."

Cecelia McCoy, the daughter of the original property owners, moved in to the downhill property in December 1998 and began improving it. She hired a contractor to put in a curtain drain between the retaining wall and the house. The contractor dug trenches about 18 inches deep in the yard in July 1999. He called her to say that he was finding oil in the trenches, so he could not continue the work. He covered the trenches with plywood.

She had the soil tested. When she got the results showing contamination above regulatory action levels, she contacted the Health Department in August 1999. They said they would look into it. She heard from the district attorney's office. She later learned the Water Board was going to take over the case. It was her understanding that they were going to direct the cleanup. Nothing had been done to remove the oil from the downhill property before the lawsuit was filed in April 2002. Due to the contamination, she has been unable to improve the property, enjoy it, rent it, or sell it without losing money.

2. Past Efforts at Abatement and Remediation

In 1986, after Margaret McCoy's written complaint about oil on the downhill property, Jon Jennings recollected that the Blackwells were pumping oil out from the laundry property before the Health Department got involved. The Health Department directed them to clean up the contaminated soil and to obtain expert help. The Blackwells hired Russell Juncal's company, WaterWork, to identify the extent of the contamination. On June 15, 1987, WaterWork proposed to remove all the contaminated soil it could without disturbing the foundation of the structure.

According to Jennings, there were several possible methods of dealing with soil contamination. Monitoring wells would be installed to keep track of the contamination.*fn9 One method was to construct an underground impermeable slurry wall to contain the contamination, as well as a collection system allowing the contamination to be pumped out. Removing the source was another alternative. In the case of the laundry property, the attempt was to remove all the visible contamination.

The Health Department did not direct the Blackwells to remediate the downhill property. There were at least two reasons why. The first step before performing a cleanup is to locate the source and extent of the contamination. They were focused on the first step. Also, it was impractical to remediate the downhill property because there were a house and garage on it. The most likely method for cleaning up the downhill property would involve removing the house from its foundation and excavating the soil from two to 20 feet down. They probably would have directed remediation of the downhill property if there appeared to be a significant health risk.

It was Jennings' impression that the contamination was not removed before the property changed ownership. On May 21, 1990, WaterWork produced a draft report addressed to Gustafson reflecting their conclusions about the extent of the contamination based on their investigation, which began in 1987, and estimating the costs of the cleanup that might be required by the Health Department and the Water Board. Michael Burns relied on this report in forming his opinion about the soil contamination.

During the pendency of the litigation between Gustafson and the Blackwells, on August 16, 1993, Spindletop Inc. obtained a demolition permit for half of the laundry building. Gustafson had the closed building demolished to make it easier to remove the bunker oil and to facilitate sale of the property.

In Burns' opinion, the existence of buildings on the laundry property inhibited the investigation and removal of soil contamination. Removing a building facilitated the removal of the contamination. The downside of removing a building is that the building no longer deflected rain from the property, so it would enter the soil and the groundwater. That would mobilize the remaining contamination. The effect of a retaining wall would be to pool water on the uphill property, contributing to mobilizing the remaining contamination.

On September 23, 1993, Spindletop Inc. hired the Don Chapin Company to excavate the contaminated soil. Their original estimate was to remove 44 cubic yards, 75 tons, of soil at a cost of $15,525. In cleaning up contaminated soil, one often does not know the extent of the contamination until excavating and sampling the soil. The property owner hired the contractor, but the contractor obeyed the directions of the Health Department as far as what to do to remove the contamination. ...

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