RAD Services, Inc. v. Aetna Cas. and Sur. Co.

• Decision Date: 30 December 1986
• Docket Number: No. 86-3044,86-3044
• Parties: , 22 Fed. R. Evid. Serv. 392 RAD SERVICES, INC., Appellant v. AETNA CASUALTY AND SURETY COMPANY.
• Court: U.S. Court of Appeals — Third Circuit

Page 271

808 F.2d 271

55 USLW 2359, 22 Fed. R. Evid. Serv. 392

RAD SERVICES, INC., Appellant v. AETNA CASUALTY AND SURETY COMPANY.

No. 86-3044.

United States Court of Appeals Third Circuit.

Argued Oct. 1, 1986.

Decided Dec. 30, 1986.

Thomas M. Mulroy (argued), Pillar and Mulroy, P.C., Pittsburgh, Pa., for appellant.

Avrum Levicoff (argued), Egler, Anstandig, Garrett & Riley, Pittsburgh, Pa., for appellee.

Before WEIS, MANSMANN, and HUNTER, Circuit Judges.

OPINION OF THE COURT

MANSMANN, Circuit Judge.

This case presents us with an issue of first impression raised but not reached in Lionti v. Lloyd's Insurance Co., 709 F.2d 237 (3d Cir.), cert. denied, 464 U.S. 995, 104 S.Ct. 490, 78 L.Ed.2d 685 (1983). Unlike the Lionti majority, we must decide the primary question of whether a defendant may introduce as substantive evidence the fact that non-party agents of the plaintiff claimed the Fifth Amendment privilege against compelled self-incrimination in response to questioning regarding their employment and the crucial facts at issue.

The plaintiff, RAD Services, Inc. ("RAD"), sued the defendant, Aetna Casualty & Surety Co. ("Aetna"), to recover under its insurance policy costs incurred in disposing of hazardous waste material. Aetna disavowed coverage since RAD (in the terms of the policy's exclusions) allegedly unlawfully "expected" and "intended" to dump the material. At trial, Aetna read to the jury deposition transcripts of two witnesses--a RAD official and a managing employee--in which the deponents invoked their Fifth Amendment rights. The district court instructed the jury that it could, but need not, infer that the witnesses would have answered Aetna's questions adversely to RAD. The jury found for Aetna.

We hold that the trial court did not err in admitting as evidence the depositions of the non-party witnesses who exercised their Fifth Amendment privileges, nor in permitting the jury to draw adverse inferences therefrom. We, therefore, will affirm the district court's judgment.

I.

A.

In 1975 RAD began toxic waste management operations through its TRI division in Baltimore, Maryland. RAD's Board of Directors since 1975 has consisted of its founders--Alden "Dale" Pflug and George Gary--and Art Sciullo, Neil Scholl, and Joseph Sepesy. Pflug headed RAD's TRI unit and, accordingly, understood environmental control laws and regulations.

In the late 1970's, RAD constructed a plant in Bowling Green, Kentucky to produce a zinc sulfate fertilizer additive. The additive contained as its basic raw material a waste product--variously called "electric furnace bag-house dust," "fly ash," or "air pollution control dust"--which accumulated in air pollution control devices of steel mills. Although regulatory authorities had not originally listed the dust as toxic waste, RAD anticipated that state and federal agencies would eventually regulate it and that steel mills would pay for proper disposal of the ash. RAD, therefore, could obtain the material at a negative inventory cost.

Malcolm Crump managed RAD's Bowling Green facilities. By 1980, RAD had accumulated between 2,000 and 3,000 tons of fly ash in a leased warehouse near the plant. In early 1981, however, RAD discontinued production of zinc sulfate fertilizer in the face of a disappearing market. RAD thereupon undertook to sell its plant. Yet, despite contacting some 170 prospective buyers, RAD received only one firm offer which RAD director Sciullo described as "quite low."

In August of 1982, government officials of the State of Kentucky notified RAD that its continued storage of the ash at the Bowling Green warehouse violated state environmental regulations. Pflug dispatched Elizabeth Morgan, the compliance officer at RAD's TRI unit, to evaluate the Bowling Green plant and warehouse. Morgan's report detailed numerous violations of federal and state law and recommended that RAD immediately remove the dust to avoid civil or criminal penalties.

Pflug requested that the TRI division prepare a plan to dispose of the material. TRI's plan involved shipping the dust under a manifest as federal law required and burying it at a proper site. The $500,000 to $600,000 cost of that program, however, caused RAD's directors to find another plan.

In November of 1982, plant manager Crump received another notice of violation from the State of Kentucky at the Bowling Green plant. Director Sciullo subsequently informed RAD's Board of an arrangement with George Hedrick, a chemical broker. Hedrick had agreed to find a buyer and to arrange transportation for the fly ash. RAD would pay two-thirds and Hedrick one-third of the shipping costs, while Hedrick would retain any sales proceeds. Hedrick located Fritt Industries, Inc. ("Fritt") which agreed to purchase the dust for processing at its plants in Iowa and Arkansas. Fritt, however, would buy the material only if RAD would ship it without a manifest.

Gary asked Pflug to determine whether applicable manifest requirements might except RAD's shipment to another processor. Elizabeth Morgan, however, advised the Board that shipment without a manifest would contravene federal and perhaps state law. Nonetheless, RAD proceeded with the Fritt sale.

Sciullo and Crump oversaw the shipments to Fritt, and RAD remained responsible for the material until Fritt received it. In January of 1983, several truckloads arrived at Fritt's plant in Humboldt, Iowa. Fritt, though, rejected four loads, claiming the ash was too wet for its purposes. Crump instructed the shipper to bring the dust back to the Bowling Green plant. Crump then learned that substantially all of the dust in RAD's warehouse was wet. Fritt tried to process a few loads of the material at its Walnut Ridge, Arkansas facility, but soon refused to accept any more. Under pressure from Sciullo and Frank Sullivan, a RAD employee, Hedrick arranged with Don Draper of Alley-Cassetty Trucking Co. ("Alley-Cassetty") to dump the dust into a strip mine near Morgantown, Kentucky.

Sciullo agreed to pay Hedrick $60,000 in two installments for the dumping. Crump supervised the loading of the material and prepared bills of lading as if Alley-Cassetty were hauling the ash to Walnut Ridge, Arkansas. The shipments commenced in February, 1983. The following March, officials from the State of Tennessee caught Alley-Cassetty dumping the dust on a farm in Rutherford County, Tennessee. The State of Kentucky soon joined in commencing proceedings against RAD, Hedrick, Alley-Cassetty, and others for violating state environmental protection laws.

Faced with a fine of $10,000 per day while the dust remained in the strip mine, RAD's directors arranged to dispose properly of the material. RAD then filed a claim with Aena for the cost of the clean-up, citing its "comprehensive general liability insurance" policy insuring RAD for, inter alia,

bodily injury or property damage arising out of the [sudden and accidental ] discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water[.]

(Emphasis added.) Aetna, however, denied coverage under a policy exclusion providing that insured occurrences could be "neither expected nor intended from the standpoint of the insured[.]" (Emphasis added.) RAD thereupon brought this action in the district court.

B.

In order to defeat RAD's claim that the occurrence was "neither expected or intended," Aetna sought at trial to show that agents of RAD had planned the dumping. In addition to other circumstantial evidence, Aetna offered the depositions of Pflug and Crump, wherein both witnesses invoked their Fifth Amendment privileges and refused to answer questions concerning either their involvement with RAD or their present employment status with RAD. The district court instructed the jury that it could, but need not, infer that the witnesses would have testified adversely to RAD. The jury found for Aetna, and this appeal followed.

II.

A.

The plaintiff presses two related issues on appeal. First, RAD contends that the district court erred in admitting as evidence against it the depositions of Pflug and Crump, in which they refused to answer Aetna's questions and invoked the Fifth Amendment, since the depositions were irrelevant as an evidentiary matter and were highly prejudicial. Second, the plaintiff insists that the trial court compounded its error by permitting the jury to draw adverse inferences from the deponents' Fifth Amendment invocations.

B.

Because the admissibility against a party of a non-party's exercise of the Fifth Amendment privilege initially "implicates the interpretation and application of legal precepts ..." we possess plenary review on that issue. United States v. Fishbach and Moore, Inc., 750 F.2d 1183, 1193 (3d Cir.1984), cert. denied, 470 U.S. 1029, 105 S.Ct. 1397, 84 L.Ed.2d 785 (1985). We review by an abuse of discretion standard, however, the plaintiff's argument that the district court should have excluded Pflug's and Crump's depositions pursuant to Fed.R.Evid. 403. ¹ Fischbach and Moore, Inc., 750 F.2d at 1193; United States v. Long, 574 F.2d 761, 767 (3d Cir.), cert. denied, 439 U.S. 985, 99 S.Ct. 577, 58 L.Ed.2d 657 (1978). Assuming the admissibility of that evidence, we may reverse the trial judge "only if [his] instruction was capable of confusing and thereby misleading the jury." Fischbach and Moore, Inc., 750 F.2d at 1195, citing Idzojtic v. Pennsylvania Railway Co., 431 F.2d 1029, 1036 (3d Cir.1970) (Aldisert, J., dissenting).

III.

A.

1.

Initially, we recall that the privilege against compelled self-incrimination operates differently in civil and criminal proceedings. In Griffin v. California, 380 U.S. 609, 85 S.Ct. 1229, 14 L.Ed.2d 106, reh'g denied, 381 U.S. 957, 85 S.Ct. 1797, 14 L.Ed.2d 730 (1965), the Supreme Court announced the now...