Hayes Sight & Sound, Inc. v. Oneok, Inc.

• Decision Date: 16 June 2006
• Docket Number: No. 92,704.,92,704.
• Court: Kansas Supreme Court
• Parties: HAYES SIGHT & SOUND, INC., d/b/a Woody's Furniture, Appellee/Cross-appellant, v. ONEOK, INC. and Mid Continent Market Center, Inc., Appellants/Cross-appellees. Decor Party Supplies of Kansas, Inc. and Arnold Froese and Carol Froese, Appellees/Cross-appellants, v. Oneok, Inc. and Mid Continent Market Center, Inc., Appellants/Cross-appellees.

136 P.3d 428

HAYES SIGHT & SOUND, INC., d/b/a Woody's Furniture, Appellee/Cross-appellant, v. ONEOK, INC. and Mid Continent Market Center, Inc., Appellants/Cross-appellees.

Decor Party Supplies of Kansas, Inc. and Arnold Froese and Carol Froese, Appellees/Cross-appellants, v. Oneok, Inc. and Mid Continent Market Center, Inc., Appellants/Cross-appellees.

No. 92,704.

Supreme Court of Kansas.

June 16, 2006.

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Lynn W. Hursh, of Armstrong Teasdale LLP, of Kansas City, Missouri, argued the cause, and Gerald A. King, Darren K. Sharp, and Karrie J. Clinkinbeard, of the same firm, and Ross Hollander, of Joseph & Hollander, P.A., of Wichita, were with him on the briefs for appellants/cross-appellees ONEOK, Inc., and Mid Continent Market Center, Inc. Jay F. Fowler, of Foulston Siefkin LLP, of Wichita, argued the cause, and James D. Oliver, Timothy B. Mustaine, Mark A. Biberstein, and Todd N. Tedesco, of the same firm, were with him on the briefs for appellees/cross-appellants Hayes Sight & Sound, Inc., d/b/a Woody's Furniture, Decor Party Supplies of Kansas, Inc., and Arnold Froese and Carol Froese.

The opinion of the court was delivered by ALLEGRUCCI, J.:

The Hutchinson businesses Hayes Sight & Sound, Inc., d/b/a Woody's Furniture (Woody's) and Decor Party Supplies of Kansas, Inc. (Decor) were destroyed on January 17, 2001, when natural gas migrated from underground storage caverns and ignited. In the negligence action brought by Woody's and Decor against ONEOK, Inc. (ONEOK) and its wholly owned subsidiary, Mid Continent Market Center, Inc. (MCMC), a jury found each defendant 50% at fault. The compensatory damages awarded to Woody's were $955,636.76, and to Decor were $755,251.40. The jury also found that punitive damages should be awarded against MCMC. The trial judge awarded punitive damages in the amount of $5,250,000 for the two consolidated cases.

ONEOK and MCMC do not appeal the jury's finding of liability or its finding that MCMC's wanton conduct warranted an award of punitive damages. They do appeal the trial court's denial of their requests for setoff of subrogation claims and the amount of the punitive damages award.

Woody's and Decor cross-appeal the trial court's denial of their request for attorney fees and expenses.

The case was transferred to this court on the parties' motions. K.S.A. 20-3017.

ISSUES

The following issues are raised by ONEOK and MCMC in their appeal:

1. DID THE TRIAL COURT ERR IN DENYING ONEOK AND MCMC'S MOTIONS FOR SETOFF OF SUBROGATION CLAIMS?

2. IS THE PUNITIVE DAMAGES AWARD GROSSLY EXCESSIVE SO AS TO VIOLATE DUE PROCESS?

3. DOES THE PUNITIVE DAMAGES AWARD VIOLATE THE STATUTORY CAP OF K.S.A. 60-3702(e)?

FACTS:

On the morning of Wednesday, January 17, 2001, an explosion tore a 12-foot hole through the masonry fire wall between the buildings that housed Woody's and Decor. The concussion of the explosion blew out the plate glass windows of approximately 25 downtown Hutchinson businesses.

Firefighters at the fire station 2 1/2 blocks away heard the explosion. Within a minute of the alarm at 10:47, the first firefighter, Mike Patterson, was on the scene. When he arrived, the entire Decor building was engulfed in fire. By afternoon, 80 to 90% of the Decor building was completely consumed.

The fire immediately spread to Woody's through the hole in the common wall and from burning material that blew from Decor onto Woody's roof. Unable to enter the Decor building, firefighters conducted a defensive operation using large streams of water from elevated positions. Offensive efforts were focused on Woody's, including a search-and-rescue squad and water lines in from both front and back of the building. But when rumbling indicated that the upper floors of Woody's were beginning to shift, Patterson had to order all firefighters out.

Unlike in an ordinary building fire, the flames were white-hot. Even though 4,000 gallons of water were being pumped on the fire every minute, the Woody's and Decor fire was unabated. All indications were that the fire was fuel-fed. Electricity and gas supplies to the buildings had been cut off. Efforts, including digging out the alley looking for an abandoned gas line, were made to find the fuel source. Firefighters continued to pour water on the fire, directing the streams to protect excavators and loading equipment from the heat. By approximately 1:30 or 2 a.m. the next morning, enough rubble had been removed from around the fuel source to allow a view of it.

Joe Palacioz, the Hutchinson city manager, had contacted CUDD, the oil field fire company that worked in Kuwait during the Persian Gulf war, to help determine the source of the problem, the degree of danger, what to expect, and what steps should be taken. CUDD representatives arrived in Hutchinson about 2:30 a.m. on January 18.

Joe Ratigan, an engineer with 30 years experience consulting on storing commodities in underground salt caverns, was hired and brought to Hutchinson by one of the companies with storage facilities in the area. Once the company was satisfied that its facility was not involved, Ratigan went to work for the City.

At approximately 4:45 on Wednesday afternoon, a geyser had been reported at another location in Hutchinson. There was something under tremendous pressure pushing liquid 25 to 30 feet up out of the ground. It was flammable. From that and its other characteristics, it was determined that natural gas was involved. Other geysers developed, and, from Wednesday through Sunday, they erupted from the ground. Ratigan had never seen geysers of brine and gas like there were in Hutchinson.

The geysers were indicative of gas at a depth at significant pressure. They developed where minerals had been extracted at a much earlier time from wells that had surface casings but not deep steel casings. The gas traveled along a geologic formation until it came to such a hole with no steel restraints, and there it was able to shoot to the surface. The Woody's and Decor explosion, as well as the geysers, occurred when gas rose to the surface through old wells that lacked deep casings.

Thursday morning, January 18, two people were killed in an explosion in the Big Chief Mobile Home Park, which is approximately 2 1/2 miles from the downtown explosion. The mobile home park was evacuated, and, when it was learned that there were a number of brine wells in the vicinity, the evacuation area was expanded to include other residences and businesses. An evacuation center was set up at the state fairgrounds. State resources became available when Reno County was declared in a state of emergency. Kansas Highway Patrol, the Reno County Sheriff's staff, National Guard, and prison guards helped Hutchinson police patrol the area. Nearby railroad traffic was stopped to prevent sparks from igniting any of the geysers.

Yaggy is a natural gas storage field located outside Hutchinson. It is operated by MCMC, a subsidiary of ONEOK, which stores natural gas in caverns in underground salt formations. MCMC contracts with Kansas Gas Service for service, legal, and corporate functions. No one is employed by MCMC, and the people performing Yaggy Field functions are employed by ONEOK. Kansas Gas Service is an incorporated division of ONEOK. The names Yaggy, ONEOK, Kansas Gas, Kansas Gas Service, and MCMC all seem to have been used in the evidence to refer to one or both of the defendants.

At the time of the Hutchinson explosions, the Yaggy storage field consisted of 70 caverns, also referred to as wells. The wells were organized in clusters, called pods. Before MCMC developed the natural gas storage field in the early 1990's, the caverns had been used for propane storage and then were plugged and abandoned in 1989.

On Thursday afternoon, Mike Patterson and CUDD representatives went to the Yaggy facility to find out if it was losing pressure through loss of product. Rather than having Patterson and the CUDD representatives come into the office at Yaggy, management there met the visitors outside. Patterson was told that MCMC had experienced a 15% pressure loss and that MCMC had become concerned when the loss had been at 1%.

Larry Fischer, vice president of operations and engineering for ONEOK and MCMC, was in charge of the company's response to the Woody's and Decor explosion and fire. He was the person from ONEOK who dealt with government officials and representatives. He was informed Wednesday evening of a leak at Yaggy. Fischer testified: "I ordered that we start withdrawing from Yaggy and tried to find a plug to set a plug in the well where we had determined there could be a breach in the casing."

On Thursday afternoon, Fischer told Palacioz he had no knowledge of any leaks at any facility. Fischer denied knowing what the problem was but said MCMC would look into it.

On Friday morning, 2 days after the Woody's and Decor explosion, Palacioz met with representatives of all the utility companies. All power and gas lines to the Woody's and Decor site were shut off, but the fire was still being fueled. The circumstances pointed to a leak at one of the facilities in the vicinity, but it was not known which one.

For Palacioz and the city, the effort to find the source of the gas and shape a remedy included meetings two to three times a day with experts and utility representatives. Ratigan advised the city to drill holes that would allow gas to vent to the atmosphere— vent wells. According to Palacioz, a lot of time was wasted by Fischer's "stonewalling." The city, through Ratigan and other consultants, supplied geologic data to ONEOK, but, according to Ratigan, ONEOK was reluctant to the point of an occasional refusal to share its information. Fischer was not forthcoming with information, and he was reluctant to drill vent wells. In these circumstances, Palacioz repeatedly confronted Fischer and threatened to put pressure on ONEOK...