Kennedy Building Associates v. Viacom, Inc.

• Decision Date: 15 July 2004
• Docket Number: No. 03-1520.,03-1520.
• Citation: 375 F.3d 731
• Parties: KENNEDY BUILDING ASSOCIATES, Plaintiff-Appellee, v. VIACOM, INC., as successor in interest to CBS Corporation, as successor in interest to Westinghouse Electric Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

375 F.3d 731

KENNEDY BUILDING ASSOCIATES, Plaintiff-Appellee, v. VIACOM, INC., as successor in interest to CBS Corporation, as successor in interest to Westinghouse Electric Corporation, Defendant-Appellant.

No. 03-1520.

United States Court of Appeals, Eighth Circuit.

Submitted: December 15, 2003.

Filed: July 15, 2004.

Rehearing Denied August 18, 2004.

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Glen D. Nager, argued, Washington D.C. (John D. French, John F. Beukema, John P. Borger and Delmar R. Ehrich, Minneapolis, MN, and Thomas C. Gricks III, of Canonsburg, PA on the brief), for appellant.

George G. Eck, argued, Minneapolis, MN (Alexandra B. Klass and Sara J. Peterson of Minneapolis, MN on the brief), for appellee.

Before WOLLMAN, JOHN R. GIBSON, and RILEY, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

Viacom, Inc., the corporate successor to Westinghouse Electric Corporation, appeals the judgment entered against it for damages and injunctive relief and the awards of attorneys' fees and prejudgment interest in this suit arising out of Westinghouse's environmental contamination of a site it once owned in Minneapolis. Kennedy Building Associates, the present owner of the contaminated property, obtained a jury verdict awarding it $225,000 in compensatory damages and $5,000,000 in punitive damages on its common law claim for strict liability. The district court awarded Kennedy $106,393.23 in response costs Kennedy had already incurred under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and the Minnesota Environmental Response and Liability Act (MERLA), and declared Viacom liable for any response costs Kennedy should incur in the future. The court also issued an injunction under the Minnesota Environmental Rights Act (MERA), requiring Viacom to clean up the contamination at the site. The court awarded Kennedy statutory attorneys' fees, witness fees, and costs in the amount of $1,113,915, and prejudgment interest in the amount of $41,677.89. Viacom appeals everything except the CERCLA and MERLA relief, arguing that the strict liability award was not permissible under Minnesota common law; that the strict liability claim cannot support an award of punitive damages; that the MERA claim is moot because Viacom has entered an administrative consent order concerning the contaminated property; that the attorneys' fee award was excessive; and that the prejudgment interest was excessive because Viacom had offered to settle the case. We reverse as to the common law strict liability claim and the punitive damages award; reverse and remand the award of injunctive relief with instructions to modify the injunction; remand for adjustment of the fees award; affirm the award of prejudgment interest on the CERCLA and MERLA claims; and reverse the prejudgment interest on the strict liability award.

Westinghouse owned the property at 2303 Kennedy Street in Minneapolis from the 1920s until 1980. Westinghouse used the building there to house an electrical transformer repair facility. A portion of Westinghouse's business there was the repair of transformers that were insulated with Inerteen, a Westinghouse product that contained polychlorinated biphenyls, known as PCBs. Chlorobenzenes were used as a solvent to thin the PCBs down to a usable consistency.

By the late 1960s, it was recognized that PCBs were potential carcinogens and that they were accumulating, rather than breaking down, in tissues and in the environment. In 1976, Congress passed the Toxic Substances Control Act, which singled out PCBs as a hazardous substance, requiring the EPA to prescribe rules restricting their manufacture, use and disposal. Pub.L. No. 94-469, Title I, § 6, 90 Stat.2020 (1976) (codified at 15 U.S.C. § 2605). In 1979, EPA banned rebuilding of transformers that contained PCB levels of more than 500 parts per million, stating that these operations presented an unreasonable risk of release of PCBs. Polychlorinated Biphenyls (PCBs), Manufacturing, Processing, Distribution in Commerce, and Use Prohibitions, 44 Fed.Reg. 31514 (May 31, 1979) (codified at 40 C.F.R. pt. 671). PCBs and chlorobenzenes are classified as hazardous substances under MERLA and CERCLA. Minn.Stat. § 115B.02, subd. 8(1) (cross referencing 33 U.S.C. § 1321(b)(2)(A)); 42 U.S.C. § 9601(14) (same); 40 C.F.R. § 116.4 (listing hazardous substances). Sites contaminated with hazardous substances are subject to remediation under federal and state law. See 42 U.S.C. § 9604 (CERCLA); Minn. Stat. § 115B.04, subd. 1 (MERLA).

In 1971-73, Westinghouse undertook a study of the sites where it used PCBs. The purpose of the study was to ascertain whether PCBs were leaking from those sites and migrating off Westinghouse property, and if so, whether the PCBs were likely to be detected by others and traced back to Westinghouse. The head of the Westinghouse study, Dr. Thomas Munson, testified at trial that he examined four such facilities (but not the Minneapolis facility). Munson said, "We found PCBs everywhere we looked." Munson testified that Westinghouse stopped the study after the initial sampling of four plants showed PCBs were leaving the sites and showing up in wildlife (and fish markets) nearby. On cross examination, Viacom counsel brought out that the four plants sampled were manufacturing, not repair facilities, but Munson said that "it was a given" that repair sites were contaminated and that he told Westinghouse management,

It simply wasn't possible to handle, ah, gallon quantities of PCBs, pumping them into transformers, draining them out of transformers, without having some spillage. And it was just a given at that time that every facility that had been doing that for any length of time would have spilled considerable amounts of PCB.

(February 4, 2002, vol 4 p. 105-06.) The district court found,

Westinghouse knew during the time it owned the site at issue that there were health risks associated with PCBs, and that PCB contamination was virtually certain to be found at its long-term transformer-repair facilities.

(Order of May 31, 2002, slip op. at 3.) Viacom does not argue that this finding was clearly erroneous.

The district court found Westinghouse's operations contaminated the property with PCBs and chlorobenzenes through spillage, overflow of an oil-storage tank, and burning of PCB-contaminated oil in the building's furnace. Evidence at trial indicated that the site's soil was contaminated by PCB concentrations as high as 9,100 mg/kg (the allowable level is 1.2 mg/kg) and the groundwater contains concentrations as high as 37,000 μg/liter (the allowable level is .04 μg/liter). Expert witness William Welbes testified that the amount of PCB contamination now at the site indicates that approximately 18,000 pounds of PCBs have been spilled there, resulting in contamination of 25,000 tons of soil. Chlorobenzenes were also present in the groundwater. Welbes testified that, because the site was also contaminated with mineral oil, which is a solvent for the PCBs, the PCBs at the site are presently migrating and contaminating surrounding soil and groundwater of neighboring properties. The chlorobenzenes are very water soluble and they "show every indication of having left the site and they're still migrating."

The district court found that despite Westinghouse's knowledge that PCB contamination was "virtually certain" to exist on the property, Westinghouse sold the site to Hillcrest Development Company in 1980 without conducting any investigation or decontamination at the site and without disclosing the nature of its work at the site. (Order of May 31, 2003, slip op. at 3.) Gerald Trooien, a partner in Kennedy Building Associates, bought the property from Hillcrest in 1982 and transferred it to Kennedy. The district court found that at the time Trooien bought the property, he did not know and had no reason to know that Westinghouse had disposed of hazardous substances at the site. (Id. at 4.)

In 1997 Kennedy entered negotiations to sell the property back to Hillcrest. In preparation for the purchase, Hillcrest hired an environmental consultant, who discovered the PCB contamination. Hillcrest withdrew its offer to purchase the site. Kennedy reported the contamination to the Minnesota Pollution Control Agency and entered the Agency's voluntary clean-up and investigation program, which required Kennedy to undertake field investigations of the contamination of the soil and groundwater in order to avoid being referred to the federal Superfund program. The Kennedy Building site was listed on the Minnesota Pollution Control Agency's permanent list of priorities on September 27, 2000.

In 1999 Kennedy filed this suit in state court seeking relief under MERLA and MERA, as well as under the common law of nuisance, negligence and strict liability. Viacom removed the case to federal court on grounds of diversity of citizenship, and Kennedy amended its complaint to add claims for CERCLA relief and punitive damages. Viacom filed a counterclaim asserting Kennedy was liable under CERCLA and MERLA, and seeking injunctive relief against Kennedy under MERA.

At the time of trial, Kennedy had incurred costs of $106,393.23 in investigating the contamination. The Minnesota Pollution Control Agency had required it to file a deed restriction showing the property was contaminated, which meant that Kennedy could not do anything that would disturb the soil on the property without obtaining Agency approval. The Agency issued Kennedy an assurance letter stating that Kennedy did not contaminate the site. Viacom and the Agency entered an administrative consent order on the eve of trial, January 22, 2002, in which Viacom agreed to conduct a remedial investigation, submit a feasibility study, develop a response action plan, and implement such a plan.

The common law and punitive damages claims were submitted to a jury, which found in favor of Viacom on...