Highland Industrial Park, Inc. v. BEI Defense Systems Co.
Docket: No. 02-4024, 03-1276
Court: Court of Appeals for the Eighth Circuit; March 11, 2004; Federal Appellate Court
BEI Defense Systems Company is appealing judgments against it regarding Highland Industrial Park’s claims for trespass, negligence, violations of the Arkansas Hazardous Waste Management Act (AHWMA), and breach of lease covenants, resulting in a $500,000 damages award and $185,000 in attorney’s fees to Highland. The case centers on BEI's lease of property starting in 1966, during which it burned waste, leading to soil contamination discovered in 1989 and addressed in 1990. After BEI notified Highland of lease termination in 1996, environmental reports indicated groundwater contamination, prompting Highland to file suit in July 1999. BEI's summary judgment motion, claiming statute of limitations barring Highland's claims, was denied by the district court, which later granted Highland summary judgment on one breach of covenant claim. Following a bench trial, the court found BEI liable for negligence, trespass, and AHWMA violations.
The appellate review focuses on the statute of limitations, governed by Arkansas law, which has a three-year limit for tort claims. The district court concluded the limitations period began in 1997, when Highland allegedly became aware of its injury's nature and extent. However, referencing the Arkansas Supreme Court's ruling in Arkansas v. Diamond Lakes Oil Co., it is argued that the statute typically starts when a complete cause of action arises, generally at the time of injury, unless there is concealment. The Diamond Lakes case also introduced a “discovery rule” that allows for the statute to begin running only when a plaintiff knows or should reasonably know of a remediable injury. The appellate court disagrees with the district court’s interpretation, asserting that the statute should begin when Highland recognized the existence of a remediable injury, thus reversing the lower court's decision.
In Martin v. Arthur, the court established that the statute of limitations for a claim begins when the damage occurs. The McEntire v. Malloy ruling clarified that a plaintiff's cause of action arises once they are aware of their injury, allowing them to investigate and present evidence regarding the injury's extent. In Diamond Lakes, the court refrained from endorsing the idea that the statute of limitations only starts when the full extent of the injury is known. This interpretation is supported by the absence of any state requiring full knowledge of damages before the statute of limitations begins. The principle is reiterated in Goodhand v. United States, affirming that the limitations period starts upon discovering the injury, regardless of the injury's extent.
In this case, Highland was aware of the contamination issue by June 1996, when it received an environmental report indicating that groundwater contaminants exceeded safe levels. Additionally, a mortgage refusal due to soil contamination in 1991 indicated Highland's awareness of property value impacts from contamination. Thus, Highland's knowledge of a significant injury to its land predates its lawsuit by over three years, barring its tort claims.
Highland contended that the statute of limitations should be tolled under a continuing trespass theory, suggesting that it would not commence until the pollution was removed. However, this argument contradicts Arkansas law, which does not recognize the continuing-tort theory. The Arkansas Supreme Court has emphasized that the statute of limitations cannot be tolled indefinitely. While some cases have allowed for tolling until a party is aware of certain facts, the statute must eventually begin to run. The district court's reliance on Sewell v. Phillips Petroleum Co. for supporting the continuing trespass theory was insufficient, as it depended on a case regarding trespasser's status without consent.
The concept of continuing trespass discussed in Coleman is not relevant to statute-of-limitations issues but rather pertains to the duties owed by landowners to trespassers. There is no basis for tolling the statute of limitations based on this case. The Arkansas Supreme Court has yet to determine the applicable statute of limitations for actions under the Arkansas Hazardous Waste Management Act (AHWMA). In the absence of a ruling from the state’s highest court, federal courts must predict the court's likely decision. The district court determined that the three-year statute of limitations for private AHWMA actions is appropriate under Arkansas law, which is applicable to all liability actions. Highland became aware of environmental violations in June 1996, at which point its cause of action began, making its July 1999 lawsuit untimely.
For breach of written contract claims, Arkansas law prescribes a five-year statute of limitations, which begins when the breach occurs. Highland alleged that BEI breached lease covenants by violating laws, neglecting property maintenance, and failing to indemnify Highland. The district court granted summary judgment on some claims regarding compliance with statutes but noted these claims were barred by the statute of limitations, as violations ceased by February 1989, rendering any claims expired by 1994. Conversely, Highland's claim regarding a lease covenant requiring the property to be returned in good condition was not time-barred, as the breach could only occur upon BEI vacating the property in 1997, with the lawsuit filed in 1999 being timely. The district court denied BEI's summary judgment motion regarding whether their activities constituted ordinary wear and tear, indicating that such determination required examination of disputed facts. However, BEI did not challenge Highland's evidence regarding the property's condition prior to the lease.
Highland is currently unable to provide essential evidence required for its claim; thus, the claim cannot proceed. Since BEI did not request summary judgment on this basis, the case is remanded to the district court for further evaluation. Highland's breach of covenant claim, which is contingent upon BEI indemnifying it against third-party claims, is not actionable as Highland has not incurred liability for groundwater contamination. The Arkansas Department of Environmental Quality (ADEQ) is not mandating remediation, but suggests natural attenuation, which BEI proposed. As Highland has not faced fines or third-party claims, the indemnification claim is not ripe.
The district court awarded Highland $500,000 in damages for property damage, applying the principle that damages in Arkansas for land injury depend on whether the injury is permanent or temporary. Since the groundwater contamination is remediable, the court's award for full restoration costs is inappropriate, given that the market value difference due to contamination was only $50,000. The remaining actionable claim is based on BEI's obligation to return the leased property in a condition no worse than at the lease's start. If this claim is successful, damages should reflect the difference in market value rather than restoration costs.
Additionally, under Arkansas law, the prevailing party in a breach of contract case may recover reasonable attorney’s fees. The district court initially awarded Highland $185,000 in fees, but this is now vacated due to the reversal of the underlying judgment. If Highland succeeds on its remaining breach of contract claim, the court may reassess the fee award at that time. The overall judgments of the district court are reversed, the fee award vacated, and the case is remanded for further proceedings consistent with these findings.
