Doralee Estates, Inc. v. Cities Service Oil Co.

• Decision Date: 21 December 1977
• Docket Number: No. 149,D,149
• Citation: 569 F.2d 716
• Parties: DORALEE ESTATES, INC., Plaintiff-Appellee, v. CITIES SERVICE OIL COMPANY, Defendant and Third-Party Plaintiff-Appellant, v. MGO CORP. and Monticello Gas & Oil Co., Inc., Third-Party Defendants-Appellees. ocket 77-7121.
• Court: U.S. Court of Appeals — Second Circuit

Page 716

569 F.2d 716

DORALEE ESTATES, INC., Plaintiff-Appellee, v. CITIES SERVICE OIL COMPANY, Defendant and Third-Party Plaintiff-Appellant, v. MGO CORP. and Monticello Gas & Oil Co., Inc., Third-Party

Defendants-Appellees.

No. 149, Docket 77-7121.

United States Court of Appeals Second Circuit.

Argued Oct. 27, 1977.

Decided Dec. 21, 1977.

George H. Colin, New York City (Baer, Marks & Upham and Jeffrey L. Liddle, New York City, of counsel), for defendant and third-party plaintiff-appellant.

Gerald Orseck, Liberty (Orseck Law Offices and Robert Orseck, Liberty, of counsel), for plaintiff-appellee.

Joseph D. Ahearn, New York City (Grubbs, Leahy & Donovan, New York City, of counsel), for third-party defendants-appellees.

Before FRIENDLY, GURFEIN and MESKILL, Circuit Judges.

GURFEIN, Circuit Judge:

This appeal arises out of a diversity action brought by plaintiff, Doralee Estates, Inc., to recover for damages to its bungalow colony in Monticello, New York, allegedly caused by an oil spill. Defendant Cities Service Oil Co. (hereinafter "Cities") appeals from a judgment of the United States District Court for the Southern District of New York (Owen, D. J.), entered on a jury verdict, and also from an order dismissing Cities' third-party claim against MGO Corp. and Monticello Gas & Oil Co., Inc. (hereinafter collectively "MGO"), and an order denying Cities' motion to reduce the amount of punitive damages fixed by the jury.

Plaintiff alleged that fuel oil waste and other pollutants had been discharged onto its property from an oil terminal operated by MGO and owned and leased by Cities. The jury so found, and awarded $60,000 in compensatory damages and $200,000 in punitive damages. At the close of plaintiff's case, the district court denied a request for a directed verdict dismissing plaintiff's claim. The court granted a motion by MGO to dismiss Cities' third-party claim against it. After verdict, the court denied a motion to set aside the verdict, for judgment notwithstanding the verdict, and for reduction of the punitive damages award. From the denials, Cities appeals.

Cities maintains that the plaintiff failed to establish Cities' liability or to prove any damage, and that the issue of punitive damages should not have been submitted to the jury. It contends also that the court erred in its method of empanelling the jury, and made erroneous and prejudicial rulings at trial.

I

Cities contends that under no circumstances could it have been liable for trespass, negligence or nuisance as a matter of law because MGO was obligated, under its lease with Cities, to take all measures that were necessary to abate pollution from the Monticello plant.

Cities was not only the landlord of the oil terminal; it was also the supplier of the oil to MGO. Cities' name appeared on the terminal and its colors and emblems were on the trucks. The lease between Cities and MGO provided that the tenant should maintain the demised premises in good condition and make all non-structural repairs, and that the landlord should make any alteration, improvement, or structural addition required by municipal or government authorities. The landlord also retained the right to enter for inspection or repair, but this right was not to be deemed to impose upon the landlord any obligation to effect repairs. Appellant stands upon the lease.

Whether the lease provisions standing alone would exonerate a lessor from all responsibility to prevent oil runoffs from its leased plant is problematic under New York law. See Putnam v. Stout, 38 N.Y.2d 607, 381 N.Y.S.2d 848, 345 N.E.2d 319 (1976). ¹ We need not decide the question, however, since there was other evidence from which the jury could conclude that Cities affirmatively undertook, dehors the lease, to abate the pollution.

Cities entered into a stipulation before the New York State Supreme Court in April of 1972, three years after the lease was executed. The stipulation was made in settlement of a lawsuit brought by Doralee Estates against both MGO and Cities to recover for damages caused by oil spillage from the Monticello plant. Under the settlement, plaintiff was to recover $12,500, of which $7,000 was to be paid by Cities and $5,500 by MGO for past damage. For the future, defendants agreed that they would abandon use of the premises for oil distribution purposes or, alternatively, that they would submit construction plans to the court, within sixty days, designed to eliminate the discharge of petroleum products into Doralee's lands and lakes and would commence the implementation of such plans within sixty days after the court's approval.

There was ample factual basis for the jury to find that Cities by the stipulation, undertook independent obligations which exceeded those provided for in the lease, and that Cities breached that stipulation. Although a plan for structural alterations was timely submitted to the court in June of 1972, no alterations were ever begun. ² Rather, MGO ultimately abandoned the premises in February of 1973, only when its new terminal was completed. The jury might well have concluded that Cities, in fact, never intended to effect changes in the Monticello plant, but had submitted plans solely to buy time until MGO's new site could become operational. Such a strategy would hardly be consistent with the settlement agreement, which contemplated that Cities and MGO would decide whether to abandon or abate, and that either abandonment or abatement would occur in expeditious fashion not ten months after the stipulation was filed.

There was evidence from which the jury could find that Cities, by its conduct as well as by the stipulation, assumed practical responsibility for whatever repairs were necessary to prevent seepage. Employees of both MGO and Cities testified that all structural repairs (and not merely those required by governmental authority) required Cities' approval. According to Sam Green, MGO's manager, Cities paid for the culvert, the containers under oil load racks, and the catch ditch which collected spillage. Leroy Langbein, manager of construction and maintenance for Cities' New York region, acknowledged that Cities made all structural repairs, installed the catch ditch and dismantled the plant. Moreover, an investigator for the New York Department of Environmental Conservation testified that large quantities of oil were spilled, as the plant was dismantled by Cities itself in the summer of 1973. ³ The district court was right, therefore, to submit Cities' liability to the jury, and to deny Cities' motions to set aside the verdict or to direct a judgment n. o. v.

II

The dismissal of Cities' third-party complaint raises separate questions. Cities' complaint against MGO alleged that it was entitled to indemnity by virtue of the hold harmless clause in the lease. That clause provided:

"Tenant agrees to defend, indemnify and save harmless the Landlord from any and all claims, demands, suits, actions, judgments and recoveries for or on account of damage or injury (including death) to property or person of himself, his family, servants, agents or any other person, firm or corporation, caused by or due to the condition or use of said premises or the streets or roads on which they abut."

We find it unnecessary to decide whether this indemnity provision is enforcible under New York law when the landlord commits an intentional tort. ⁴ Cities is not simply a landlord who was negligent in failing to avert dangerous conditions on its premises. The jury found Cities liable for its intentional violation of its obligations to abate the pollution under the state court stipulation. Having assumed an affirmative obligation, outside the lease, to prevent oil seepage, appellant may not now insist that MGO make it whole, under a lease indemnification clause, for damages resulting from its own failure to discharge that obligation. We have no reason to think that, in the circumstances, the New York courts would permit a lessor to escape the direct consequences of its own intentional breach of a settlement agreement. See note 4, supra.

We also find no merit in Cities' contention that the trial court erred in denying Cities' motion to amend its pleadings at the close of trial to include a common-law claim for indemnification or contribution under Dole v. Dow Chemical Co., 30 N.Y.2d 143, 331 N.Y.S.2d 382, 282 N.E.2d 288 (1972). From the outset, Cities' trial strategy was to argue that it bore no responsibility whatever for seepage from the Monticello terminal. It, accordingly, made no claim for contribution, which would have posited a joint liability. Since Cities had elected for tactical reasons not to acknowledge the slightest culpability, the district court did not abuse its discretion in declining to accept a proposed Dole v. Dow Chemical instruction, proffered just two hours before the jury was to be charged, under which the jury could apportion liability between Cities and MGO.

III

Appellant further submits that the plaintiff failed to establish damages. Cities argues here, as it did at trial, that Doralee Estates failed to prove how much of its claimed diminution in property value was attributable to seepage from the MGO plant which occurred after the effective date of the release executed by Doralee pursuant to the April 1972 state court settlement. ⁵ In Cities' view, Doralee was obligated to establish that discharge from the MGO plant which occurred before the 1972 release was in no part responsible for its claimed damages. Cities further suggests that other pollutants such as sewage, discharge from another petroleum plant, and automobile exhaust and leakage contributed to Doralee's damages.

We think that Cities overstates plaintiff's burden. When a defendant's tortious acts are of a nature which preclude precise ascertainment of damages, the jury may make "a just and reasonable estimate of the damage based on relevant data and render its verdict...