City of Harrisonville v. McCall Serv. Stations
| Decision Date | 25 February 2014 |
| Docket Number | WD74429,c/w WD74436,c/w WD74950 |
| Parties | CITY OF HARRISONVILLE, Appellant-Respondent, v. McCALL SERVICE STATIONS d/b/a BIG TANK OIL, et al; THE MISSOURI PETROLEUM STORAGE TANK INSURANCE FUND, Respondent-Appellant. |
| Court | Court of Appeal of Missouri (US) |
Appeal from the Circuit Court of Cass County
During construction of a sewer upgrade project, a contractor for the City of Harrisonville discovered soil contaminated by petroleum products which had migrated from a nearby service station's underground storage tank system. The City contends that the Missouri Petroleum Storage Tank Insurance Fund promised the City that the Fund would pay the increased construction costs associated with the contamination, but that the Fund later reneged. The City sued the Fund and the service station's present and former owners, alleging claims of nuisance and trespass against the station owners, and fraudulent and negligent misrepresentation against the Fund. Following a jury trial, the City was awarded compensatory and punitive damages against the past and present station owners, and against the Fund. The trial court remitted thepunitive damages awarded against the Fund in part, finding that the award violated due process principles.
The Fund and the station owners appeal; the City cross-appeals from the trial court's remittitur of the jury's punitive damages award. We affirm the bulk of the trial court's rulings, but reverse the trial court's refusal to apply § 510.265.1(2),1 which limits the punitive damages awarded against the Fund to five times the net amount of the judgment. Employing our authority under Supreme Court Rule 84.14, we modify the trial court's judgment to reduce the punitive damages awarded against the Fund to the amount authorized by § 510.265.1(2).
McCall Service Stations, doing business as Big Tank Oil, owned a gas station in Harrisonville. In September 1997 McCall discovered that its underground gasoline storage tank system was leaking. McCall notified the Missouri Petroleum Storage Tank Insurance Fund. The Fund is a special trust fund created by the Missouri Legislature to provide insurance to service station owners for the cleanup costs associated with spills and leaks from underground petroleum storage tanks. The Fund investigated the leak and determined that a significant amount of gasoline had leaked into the soil surrounding McCall's tank system.
McCall and the Fund hired Bob Fine, an environmental engineer, to determine the extent of the leakage. In October of 1997, Fine notified that Department of Natural Resources ("DNR") that the leaking tank system on McCall's property had caused petroleum contamination to migrate off site in a northwesterly direction toward a nearby creek. Additional reports from Fine indicated that contamination had been detected north of the creek. Fine prepared a plan tocontain and monitor the leak. Fine installed several monitoring wells on the streets that were contiguous to the service station.
In 2000, McCall sold the service station to Fleming Petroleum.
In 2003, the City of Harrisonville determined that its sewer system needed to be upgraded to provide increased capacity to accommodate its growing population. Harrisonville residents approved a bond issue for a multi-million-dollar sewer upgrade project. The sewer project called for the City to replace about one and one-half miles of its existing sewer line with larger diameter pipe. Part of the new pipe was to be laid under the street adjacent to Fleming's service station. Another part of the new pipe was to be laid adjacent to the creek on the north side of the service station. The City hired George Butler & Associates, a local engineering firm, to design the project and prepare a scope of services so that the construction work could be let for competitive bidding.
Rose-Lan Construction won the bidding process and was engaged by the City to complete the sewer project. During construction, Rose-Lan encountered contaminated soil adjacent to Fleming's service station. Rose-Lan did not have the expertise to complete construction in contaminated soil; it declined to complete this portion of the sewer project.
The City notified DNR of the contaminated soil, and was informed that the Fund had retained Fine to monitor the contamination since 1997, when it was first discovered. The Fund was contacted and hired Fine to determine whether gasoline from the service station was responsible for the soil contamination in the City's sewer easement. Fine confirmed that the service station was the source of the contamination.
The City began discussions with the Fund on the best way to address the contaminated soil, and complete construction of the sewer upgrade project. Ted Martin, the City's engineer,estimated that to completely remove and replace the contaminated soil would cost in excess of $500,000. A more cost-effective approach, suggested by Fine and the Fund, involved leaving the contaminated soil in place, and substituting petroleum-resistant pipe and fittings for the sewer pipe the City had intended to install. Fine and BV Construction submitted a bid of $190,226.38 to install the petroleum-resistant pipe.
Pat Vuchetich, an employee with Williams and Company, the Fund's third-party administrator, concluded that the Fine/BV Construction estimate was too high, and made efforts to find a cheaper bid. Vuchetich contacted three companies he knew were capable of completing this type of remediation work. Ultimately, he decided that Midwest Remediation was best suited for the project, based on his prior experience with the company. Vuchetich spoke to Shaun Thomas of Midwest Remediation, and requested that Midwest Remediation prepare a bid for the project. Vuchetich worked with Thomas to prepare a low bid, making suggestions about specific cost items. Vuchetich indicated that with the changes Midwest's bid would "knock the socks off" of the City, and that he "would be a sure bet then to push the City to hire Midwest for the job." Midwest's bid, prepared by Thomas, was for $175,161.41, more than $15,000 lower than the Fine/BV Construction bid.
On April 13, 2004, Vuchetich forwarded Midwest's bid to Carol Eighmey, the Fund's executive director. Vuchetich indicated that the Fund's exposure would be $135,571 after subtracting Rose-Lan's estimated costs for the relevant section of pipe (which the City would avoid, since Rose-Lan would not be constructing this portion of the project). Vuchetich informed Eighmey that he would meet with the City and inform them that Midwest's costs were reasonable.
On April 15, 2004, the City held a meeting involving all of the parties involved in the remediation project. Vuchetich represented the Fund. The City was represented by Dianna Wright, the City Administrator, Martin, the City Engineer, and Steve Mauer, the City Attorney. Also in attendance at the meeting were Thomas, representing Midwest Remediation, and Willman Rextroat, representing Rose-Lan. Vuchetich presented Midwest's bid to the City officials and informed them that it was reasonable.
Vuchetich expressed concerns that Rose-Lan's initial bid for installing the relevant section of pipe ($19,061.31) was too low. In response, Rose-Lan revised the bid upward to $25,138.41 (which had the effect of reducing the amount of the contamination-related costs for which the Fund would be responsible). Vuchetich also stated that the Fund felt that both the City and George Butler & Associates should share some of the additional costs of the cleanup project based upon their failure to discover the soil contamination before preparing their sewer construction plan. The City responded that if the Fund had an issue with George Butler & Associates for failing to discover the contamination, the Fund should take it up with the firm, not with the City.
Wright, Martin, and Rextroat left the meeting with the understanding that the Fund wanted the City to hire Midwest Remediation for the project, and that the Fund would reimburse the City for Midwest Remediation's costs, less the amount that the City would otherwise have paid Rose-Lan for the affected portion of the sewer project.
Various discussions between the City and the Fund occurred over the following months. Vuchetich, on at least two occasions, made an offer of $50,000 to the City to settle the Fund's liability. The City authorized Rose-Lan to subcontract with Midwest Remediation to install the petroleum-resistant pipe with Change Order No. 3, dated August 3, 2004. On August 4, 2004,the City's attorney sent a letter to Vuchetich stating that the City was going forward in reliance on his promise that the Fund would pay the full amount of Midwest Remediation's costs.
The Fund did not reimburse the City for the expenses associated with Midwest Remediation's work. The City filed suit against the Fund for fraudulent and negligent misrepresentation, alleging that the City had hired Midwest Remediation in reliance on the Fund's promise to pay Midwest Remediation's costs. The City also asserted claims for nuisance and trespass against McCall and Fleming, based on the migration of petroleum contamination from the underground petroleum tank system on the service station property. The City sought compensatory and punitive damages from each defendant.
A jury trial was conducted on the City's claims. During trial, the circuit court granted the City's motion for directed verdict on liability against McCall and Fleming, leaving only damages issues for jury determination on the City's nuisance and trespass claims.
The jury returned a verdict for the City on all claims. The jury awarded compensatory damages of $172,100.98 against McCall, Fleming and the Fund. The jury awarded punitive damages of $100 each against McCall and Fleming, and punitive damages of $8,000,000 against...
To continue reading
Request your trial