Minyard Enterprises, Inc. v. Southeastern Chemical & Solvent Co.

Citations: 184 F.3d 373; 1999 WL 496216Docket: Nos. 98-1207, 98-1264

Court: Court of Appeals for the Fourth Circuit; July 13, 1999; Federal Appellate Court

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The court affirmed in part, vacated in part, and remanded the case involving Minyard Enterprises, Inc. and JB. CR, Inc., who owned a contaminated property in Greenville, South Carolina. Minyard, which operated an automobile dealership on the site, alleged that Southeastern Chemical Solvent Company negligently caused the contamination by improperly removing an underground storage tank in 1988. Minyard filed suit under CERCLA and South Carolina law seeking reimbursement for environmental assessment costs and damages for property value loss. After a bench trial, the magistrate judge found both Southeastern and the Plaintiffs liable under CERCLA, apportioning responsibility for past and future remediation costs, with Plaintiffs awarded approximately $42,817.58 for past costs and an undetermined future cost amount. Minyard was awarded $200,000 for diminished property value due to Southeastern's negligence and breach of contract. Southeastern appealed, arguing that the finding of liability was erroneous, claiming no evidence supported that it caused the contamination, and asserting that Minyard's claims were barred by the statute of limitations. Southeastern also sought to vacate the $200,000 award, arguing it was duplicative of the CERCLA reimbursement.

Southeastern argues that the magistrate judge incorrectly held it liable for contribution to Response Costs under § 113(f) of CERCLA, asserting that while Plaintiffs sought recovery of Response Costs under § 107(a), they did not explicitly request contribution from potentially responsible parties under § 113(f) in their complaint. Alternatively, Southeastern seeks to vacate the judgment regarding damages related to the Plaintiffs' contribution claim and requests a remand for cost reapportionment, claiming the magistrate judge wrongly placed the burden of proof for cost apportionment on Southeastern rather than the Plaintiffs. Minyard cross-appeals, asserting that the magistrate judge erred by not awarding $2,375,000 for the diminished value of the Property. The court affirms in part, vacates in part, and remands for further proceedings. 

Historically, Minyard’s predecessors owned the Dealership and Property. In 1977, Minyard Sr. contracted with Southeastern to install and maintain the Transchem System, which included four underground tanks used for storing solvents supplied by Southeastern. The Dealership stopped purchasing solvents from Southeastern in the early 1980s but continued using the system for waste disposal until late 1984 or early 1985. Despite repeated requests for removal of the system, Southeastern did not comply, and in November 1988, during an attempted removal, a tank ruptured, leading to environmental contamination of the Property, which Minyard later discovered. In 1991, Bradshaw contracted to purchase the Dealership and the Property, contingent on financing and environmental certification. He commissioned an environmental assessment, which revealed potential contamination issues, prompting further investigation recommendations.

Lehocky collected samples from monitoring wells at the former Transchem System site on October 18, 1991, discovering volatile organic hydrocarbon contamination and both chlorinated and nonchlorinated chemicals. He submitted a preliminary study to SCNB, identifying the Transchem System's former location as the most contaminated area, attributing the contamination to leaky lines or spills during the system’s removal. Lehocky estimated the remediation cost at $200,000. Bradshaw proposed to buy the Property for $2,800,000, contingent on SCNB financing the cleanup, but after SCNB declined, he only purchased the Dealership and relocated it. Minyard subsequently sold the Property to JB. CR for $1,625,000, which entered a consent agreement with DHEC for remediation. On October 18, 1994, Minyard filed a lawsuit against Southeastern, serving them on October 24. JB. CR joined the lawsuit on December 7, 1994. Southeastern sought partial summary judgment, arguing that the Plaintiffs could only seek contribution for Response Costs under CERCLA rather than recovery of full costs, and asserted that Minyard's claims were barred by South Carolina's three-year statute of limitations, but the district court denied the motion. The case was referred to a magistrate judge for a bench trial, which determined that all parties were responsible under CERCLA. The magistrate judge allocated 80% of past and future Response Costs to Southeastern, with Minyard and JB. CR each responsible for 10%. Minyard's past Response Costs totaled $30,000, while JB. CR's were $23,521.97. The magistrate judge awarded Minyard $24,000 and JB. CR $18,817.58 for past Response Costs, plus an undetermined amount for future costs, and $200,000 for diminution in Property value due to Minyard's state law claims. Southeastern and Minyard both filed timely appeals, focusing on the judge's finding regarding the contamination's cause.

To establish a negligence claim under South Carolina common law, a plaintiff must demonstrate: 1) the defendant owed a duty of care to the plaintiff, 2) the defendant breached that duty through an act or omission, and 3) the plaintiff suffered loss or injury as a proximate result of the breach. Southeastern acknowledges it owed a duty to Minyard regarding the removal of the Transchem System from the Property and confirms the removal occurred on November 22, 1988. However, Southeastern denies it ruptured an underground storage tank during the removal, which they argue caused environmental contamination, claiming the magistrate judge’s finding to the contrary is erroneous.

In appeals from bench trials, findings of fact can only be overturned if deemed clearly erroneous, considering the trial court's ability to assess witness credibility. A finding is clearly erroneous if, despite some supporting evidence, the reviewing court strongly believes a mistake was made. The magistrate judge's conclusion that Southeastern ruptured a tank, leading to contamination, is upheld as not clearly erroneous. Evidence includes soil samples with chemicals linked to Southeastern and eyewitness testimony from Broome, who observed the removal process and heard a crew member claim a tank was ruptured. Broome's observations of sludge drainage were supported by testimony from Southeastern employee Thomas Keels, affirming the removal procedure.

Southeastern contends the magistrate's finding is erroneous based on inconsistencies with Burgess’s testimony, who claimed Broome worked at a different site on the same day. These discrepancies challenge Broome's credibility but do not undermine the sufficiency of evidence supporting the magistrate judge's finding regarding the contamination incident.

Southeastern's efforts to discredit Broome's testimony, which stated he witnessed the rupture of the underground storage tank, were insufficient to demonstrate that the magistrate judge made a clear error in crediting Broome's account. The testimonies and work-order records presented by Burgess did not conclusively prove that Broome was unable to be present at the Property on November 22, 1988. Burgess did not clarify whether he and Broome were at a different job site for the entire day, and the work-order only accounted for five and a half hours, leaving Broome with two and a half hours unaccounted for to witness the tank's rupture. A minor inconsistency regarding whether the event occurred on a Saturday or a Tuesday did not warrant a rejection of Broome's core testimony. The court affirmed that Southeastern’s actions caused environmental contamination at the Property. 

Regarding the $200,000 negligence award to Minyard, Southeastern claimed it was duplicative of a separate CERCLA award of $24,000 for response costs. The court disagreed, clarifying that the $200,000 was based on Minyard’s loss in property value due to Southeastern’s negligence, while the CERCLA award covered specific incurred costs related to a preliminary study and future response costs. Although CERCLA prevents double compensation for repair costs under both CERCLA and state law, it allows recovery under state law for damages that do not overlap with CERCLA claims. The court concluded that the two awards addressed different aspects of damages and were therefore not duplicative.

The magistrate judge awarded Minyard $200,000 for the reduction in value of the Property due to Southeastern's negligence and $24,000 to cover Response Costs associated with obtaining a preliminary study. These amounts are intended to address two distinct damages. Additionally, the magistrate judge granted Minyard potential compensation under CERCLA for future Response Costs related to property remediation, although it is likely that JB CR, the current owner, will incur these costs. A key issue is whether the $200,000 award would lead to double recovery for Minyard if future Response Costs arise. The conclusion is that it will not, as Minyard no longer owns the Property. Minyard has been compensated for past Response Costs, but cannot reap economic benefits from future expenses. This situation contrasts with the case of Braswell Shipyards, Inc., where the plaintiff, having purchased contaminated land without disclosure, successfully claimed damages for both the purchase and remediation costs. The appellate court in Braswell found procedural errors in the district court's handling of post-trial motions and remanded for further proceedings.

Rule 54(b) certification was deemed inappropriate due to concerns that the plaintiff could achieve an impermissible double recovery. Specifically, the plaintiff might recover both the Response Costs under CERCLA and the full purchase price plus improvement costs, leading to full compensation for the negligent nondisclosure claim without incurring cleanup costs. However, a key distinction in this case is that Minyard no longer owns the property, meaning restoration under CERCLA does not benefit Minyard. Consequently, the $200,000 awarded for the property’s diminished value due to Southeastern’s negligence does not amount to double recovery. 

The court upheld the magistrate judge's finding that Southeastern was liable for contribution for Response Costs under § 113(f) of CERCLA, despite the plaintiffs not explicitly seeking contribution in their complaint. However, the court agreed with Southeastern's argument that the magistrate judge incorrectly placed the burden of proof for apportioning costs on Southeastern rather than the plaintiffs. Therefore, the court vacated the damages portion regarding the contribution claim and remanded for further proceedings. 

Under § 107(a) of CERCLA, a private party can seek recovery for cleanup costs from responsible parties; however, one responsible party cannot claim these costs from another under this section. Instead, contribution must be sought under § 113(f), where the plaintiff must prove the defendant's responsibility and equitable share of costs. The court retains discretion to allocate costs among liable parties based on appropriate equitable factors.

The court has significant discretion in determining equitable factors for allocating Response Costs among responsible parties, but liability under § 113(f) of CERCLA is several rather than joint and several as under § 107(a). Southeastern, as the owner of the Transchem System, is recognized as a responsible party under CERCLA. Southeastern argues it should not be liable for contribution under § 113(f) because the Plaintiffs did not explicitly seek this in their complaint. However, this argument is dismissed based on Federal Rule of Civil Procedure 54(c), which allows courts to grant any relief to which a party is entitled, regardless of whether it was requested in pleadings. The court affirms that the Plaintiffs properly pleaded and proved their entitlement to contribution under § 113(f), having established that both they and Southeastern are responsible parties under § 107(a). Evidence shows that Minyard had a contract with Southeastern for the removal of hazardous substances from the Property, fulfilling the criteria of § 107(a)(3). Additionally, all parties agree that the Property qualifies as a 'facility' under CERCLA. Therefore, the Plaintiffs are entitled to contribution from Southeastern for Response Costs.

Under § 107(a)(1) of CERCLA, JB. CR is deemed a responsible party as the owner of a contaminated facility, similar to the Plaintiffs and Southeastern. The magistrate judge correctly held Southeastern liable for contribution towards Response Costs under § 113(f) of CERCLA, despite the Plaintiffs not explicitly seeking contribution in their complaint, as no unfair prejudice to Southeastern was demonstrated. Southeastern had notice of this potential liability and did not articulate any specific prejudice. 

Furthermore, the magistrate judge incorrectly assigned the burden of proof for the allocation of Response Costs to Southeastern rather than the Plaintiffs, who are responsible for proving Southeastern's equitable share under § 113(f). This error necessitates vacating the judgment regarding damages in the Plaintiffs’ contribution claim and remanding the case for proper reapportionment of costs, with the burden of proof resting on the Plaintiffs. 

For remand, it is suggested that the magistrate consider various equitable factors, including JB. CR's purchase of the Property at a reduced price due to its contamination, its knowledge of the contamination and estimated remediation costs, and the potential future appreciation of the Property post-remediation. The findings include: 1) Southeastern's liability for contaminating the Property; 2) the legitimacy of the $200,000 award to Minyard for property value diminution not constituting double recovery; 3) the affirmation of Southeastern's liability for contribution; and 4) the error in burden assignment for cost allocation.

The judgment is affirmed except for the Response Cost(s) aspect of the Plaintiffs’ contribution claim under § 113(f) of CERCLA, which is vacated and remanded for the magistrate judge to reassess the Response Costs, placing the burden of proof on the Plaintiffs for Southeastern’s equitable share. The Plaintiffs did not contest the magistrate judge's ruling favoring Southeastern on their state law claims of nuisance, strict products liability, and trespass. The case was tried before a magistrate judge with consent from all parties. Southeastern's contract with the Dealership automatically renewed annually unless canceled with a sixty-day notice. In case of cancellation, the Dealership could purchase, lease, or arrange for the removal of the Transchem System. The solvents supplied by Southeastern included a mixture of various chemicals, while other vendors provided chlorinated solvents for cleaning purposes. Two former Southeastern employees testified that the company would only remove Transchem Systems as part of a scheduled program. Southeastern removed the Transchem System from the property on November 22, 1988. Witness Kenneth Broome observed a crew from Southeastern attempting to remove the system and noted that a foul-smelling sludge leaked from the tank. Pee Dee Tank Company, the manufacturer of the Transchem System, was dismissed from the case before the appeal and is not a party in the current proceedings. Southeastern contests the evidence supporting Minyard's breach of contract claim, but since Minyard's negligence and breach of contract claims arise from the same facts, and he can recover through the negligence claim, the breach of contract claim is not addressed. Additionally, Southeastern's statute of limitations defense to Minyard's claims is deemed ineffective.

Southeastern contends that Minyard's negligence and breach of contract claims are barred by South Carolina’s three-year statute of limitations, which it argues expired on October 18, 1994, due to Minyard's failure to serve a summons and complaint by that date. Southeastern's position is based on meter readings indicating contamination conducted by Lehocky on October 18, 1991, which they attempt to attribute to Minyard through a common law agency theory. However, the court finds no evidence that Lehocky consented to act under Minyard's control, thus rejecting Southeastern’s statute of limitations defense.

The court also notes that it will not address whether state law claims in federal question cases are not commenced until service of a summons and complaint, in contrast to federal claims which begin upon filing. In Minyard's cross appeal, he challenges the magistrate judge's valuation of the property loss due to Southeastern's negligence, which was assessed at $200,000. Minyard argues instead that the loss amounted to $2,375,000, based on the difference between the purchase price agreed upon by Bradshaw and the eventual sale price to JB. CR, who purchased the contaminated property for $1,625,000. The court finds no clear error in the magistrate judge’s valuation, affirming the lower valuation despite Minyard's assertions, and references relevant case law regarding property valuation testimony. Lastly, the court briefly mentions Section 107(a) of CERCLA, which identifies four classes of responsible parties.

42 U.S.C. § 9607(a)(1) and § 9613(f)(1) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) enable any person to seek contribution for response costs from other potentially liable parties. Under Rule 54(c), remedies not desired by any party should not be imposed. The Plaintiffs seek affirmation of a judgment in their favor regarding an award made under § 113(f) of CERCLA, rendering this limitation irrelevant. They briefly argue that both are innocent parties under 42 U.S.C. § 9607(b) since they were neither owners, operators, nor arrangers at the transchem facility, thus maintaining a claim under § 107. The Plaintiffs appear to invoke defenses outlined in § 107(b) of CERCLA, aimed at alleviating the stringent effects of strict liability. However, the court notes that it will not address their alternative argument because the record lacks evidence of it being presented previously, and the Plaintiffs have not demonstrated any exceptional circumstances that hindered their ability to do so, as established in relevant case law.