Mehlenbacher v. Akzo Nobel Salt

• Decision Date: 01 August 1999
• Docket Number: Docket No. 99-9469
• Citation: 216 F.3d 291
• Parties: (2nd Cir. 2000) TERRY MEHLENBACHER, LYN MEHLENBACHER, NANCY GLAZIER, KIRK RICHENBERG, WILLIAM BENSON, DEBORAH BENSON, JOHN MILIKEN, Individually and d/b/a Cuylerville Service, JOHN HENDRICKSON, Individually, THE SHEPARD'S FOLD CHURCH, by John Hendrickson, its Pastor, JOHN ARGENNIA, PHYLLIS ARGENNIA, Individually and d/b/a Argennia's Restaurant, MARK BAILEY, BRENDA BAILEY, EARL HILL, KAREN HILL, TIMOTHY JACOBS, MELISSA JACOBS, GARY MYERS, CINDY MORRISON, GARY MURPHY and CAROL MURPHY, Individually and on behalf of all those similarly situated, Plaintiffs-Appellants, v. AKZO NOBEL SALT, INC., formerly known as Akzo Salt, Inc., Defendant-Appellee
• Court: U.S. Court of Appeals — Second Circuit

Page 291

216 F.3d 291 (2nd Cir. 2000)

TERRY MEHLENBACHER, LYN MEHLENBACHER, NANCY GLAZIER, KIRK RICHENBERG, WILLIAM BENSON, DEBORAH BENSON, JOHN MILIKEN, Individually and d/b/a Cuylerville Service, JOHN HENDRICKSON, Individually, THE SHEPARD'S FOLD CHURCH, by John Hendrickson, its Pastor, JOHN ARGENNIA, PHYLLIS ARGENNIA, Individually and d/b/a Argennia's Restaurant, MARK BAILEY, BRENDA BAILEY, EARL HILL, KAREN HILL, TIMOTHY JACOBS, MELISSA JACOBS, GARY MYERS, CINDY MORRISON, GARY MURPHY and CAROL MURPHY, Individually and on behalf of all those similarly situated, Plaintiffs-Appellants, v. AKZO NOBEL SALT, INC., formerly known as Akzo Salt, Inc., Defendant-Appellee.

Docket No. 99-9469

August Term, 1999

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued: May 25, 2000

Decided: June 20, 2000

Appeal from a final order of the United States District Court for the Western District of New York (David G. Larimer, Chief Judge) granting summary judgment to defendant-appellee Akzo Nobel Salt, Inc. ("Akzo") as to the claims of certain plaintiffs who alleged diminution in the value of their property due to stigma resulting from the collapse of a salt mine operated by Akzo, but who had shown no physical damage to their property resulting from the mine collapse.

Vacated and remanded.

RICHARD J. LIPPES, Allen & Lippes, Buffalo, N.Y., for Plaintiffs-Appellants.

KENNETH A. PAYMENT, Harter, Secrest & Emery LLP, Rochester, N.Y. (A. Paul Britton, on the brief), for Defendant-Appellee.

Before: McLAUGHLIN and CALABRESI, Circuit Judges, and MUKASEY, District Judge.^*.

CALABRESI, Circuit Judge:

This action arose out of the collapse of a salt mine owned by defendant Akzo Nobel Salt, Inc. ("Akzo"). Plaintiffs, who own property in the area surrounding the mine, seek to recover for, inter alia, diminution in the value of that property stemming from public fear of the mine collapse; some, but not all, plaintiffs also seek recovery for physical damage to their property. In a final order, the United States District Court for the Western District of New York (David G. Larimer, Chief Judge) granted summary judgment to Akzo as to the claims of those plaintiffs who alleged only diminution in property value, with no accompanying physical damage. See Mehlenbacher v. Akzo Nobel Salt, Inc., 71 F. Supp. 2d 179, 193 (W.D.N.Y. 1999). For the following reasons, we vacate the judgment of the district court and remand for further proceedings. ¹

I

For many years, Akzo operated the largest salt mine in North America, in Retsof, New York. In March 1994, part of the mine collapsed, allegedly because Akzo used a risky small-pillar mining technique that did not provide enough surface support.² The collapse led to flooding that completely inundated the mine cavities and made further mining impossible; the mine is now closed. As Akzo concedes, the collapse also damaged the land above the mine. In the area of about 50 acres nearest to the collapse, the surface subsided more than fifteen feet, creating deep sinkholes, and causing cracks in buildings and the destruction of a bridge. Additional subsidence damage occurred in a larger area of about 1,000 acres northeast of the collapse. Akzo alleges that, outside those areas, no physical damage to property occurred.

In June 1994, Terry Mehlenbacher and the other named plaintiffs brought this putative class action in New York state court, seeking to represent a class composed of all individuals and businesses who reside, work, or own property within a ten-mile radius of the mine and who suffered damages due to the collapse of the mine. Plaintiffs alleged that the mine collapse had resulted in physical damage to property and buildings, adverse effects on the quantity and quality of well water in the area, personal injuries (including emotional injuries), and economic losses, including "stigma" damages for diminution in the value of plaintiffs' property due to public fear of the consequences of the mine collapse. The complaint stated claims sounding in negligence, strict liability due to an abnormally dangerous activity, nuisance, and gross negligence. It sought compensatory and punitive damages and injunctive relief "requiring the Defendant to take such action as to assure that the mine is shored up, the flooding ceased, and . . . the mine is stabilized." State complaint at 11-12. Plaintiffs did not specify the amount of damages sought.

Akzo filed a timely notice seeking to remove the case to the United States District Court for the Western District of New York. Akzo asserted that the district court could exercise jurisdiction pursuant to the diversity jurisdiction statute, 28 U.S.C. § 1332(a) (1994). It alleged that complete diversity existed between it and all the named plaintiffs, because Akzo was a New Jersey corporation and all the named plaintiffs, according to their complaint, were residents of New York. Akzo contended that the amount in controversy necessary for diversity jurisdiction (which at the time was $50,000, see id.) was satisfied "given the multiplicity of plaintiffs and their claim for punitive damages." Notice of removal at 2. Plaintiffs did not contest the removal, and the district court allowed it.

In January 1995, plaintiffs filed an amended class action complaint, asserting the same causes of action as had their state complaint. In the new complaint, plaintiffs sought to represent a broader class of all individuals and businesses who reside, work, or own property within a thirteen-mile radius of the mine and who suffered damages due to the mine collapse. That class, according to plaintiffs, was composed of four subclasses: (1) residential homeowners whose property values were adversely affected, who incurred physical damage to their property, or who lost the use and enjoyment of their property; (2) commercial property owners who suffered economic losses, including diminution in the value of their property or lost profits; (3) persons who live or work within the thirteen-mile radius who suffered economic losses, including "the expense of securing alternative water supplies," the cost of remediating damage to their property, and lost wages; and (4) persons who suffered personal injuries or emotional distress due to the mine collapse or resulting water contamination. The parties conducted discovery limited to the class certification issue, and, in March 1998, plaintiffs filed a motion for class certification under Federal Rule of Civil Procedure 23(b)(3), which Akzo opposed.

Before the district court had ruled on the motion for class certification, Akzo moved for partial summary judgment dismissing all the plaintiffs' claims for (1) stigma damages and (2) emotional distress unrelated to actual physical illness or injury, including emotional distress related only to property damage. The district court granted Akzo's motion for summary judgment in part and denied it in part. See Mehlenbacher, 71 F. Supp. 2d at 193. The court held that plaintiffs could not recover "stigma damages" - damages for diminution in property value unaccompanied by any actual physical damage to the property. In doing so, it noted that "the New York case law on this subject is neither extensive nor particularly apt," but that a majority of the cases from other jurisdictions indicated that stigma damages were not recoverable. Id. at 185. After reviewing numerous cases, the court concluded:

[T]he widely accepted if not universal view among the courts in this country is that causing the value of another's property to diminish is not in and of itself a basis for tort liability. Something more - physical invasion or damage, or unreasonable interference with that person's use and enjoyment of the property - is required. In order to recover damages for diminution in value, therefore, property owners must show (1) that their property has been physically damaged, or that their use and enjoyment of their property has been unreasonably interfered with, by the defendant's actions, and (2) either that the trespass or nuisance thus created cannot be fully remediated, or that the cost of remediation would exceed the amount by which the value of the property has been diminished.

Id. at 188. Finding that those plaintiffs who alleged no physical damage to their property could not satisfy the first prong of that test, the district court dismissed their claims for stigma damages. See id. at 190.

The court declined, however, to grant summary judgment as to the plaintiffs who sought to recover both for physical surface damage and for diminution in the market value of their property. The court noted (1) that "[t]he general rule in New York is that the measure of damages for injury to real property is the lesser of the repair costs or the diminution in market value," but that "[t]here is also authority that both types of damages may be awarded where the property cannot be fully restored by repairs," and (2) that Akzo had failed to show the absence of any material issue with respect to whether the damage to plaintiffs' property was fully remediable. Id. at 190-91.³

Finally, the court declined, for the time being, to certify the proposed class under Rule 23(b)(3), noting that it had dismissed the claims of potential class members seeking to recover only for stigma damages and that this dismissal changed the contours of the numerosity and typicality issues, making them difficult to decide on the current record. Accordingly, it denied the motion for class certification without prejudice. See id. at 193.

Appellants then moved for an order pursuant to Rule 54(b) entering a final judgment, so that they could immediately appeal the dismissal of the stigma claims.⁴ Finding that judicial efficiency would be furthered by allowing all of plaintiffs' claims to be tried together, should the court of appeals reinstate the stigma claims, the district court granted the motion.

The plaintiffs whose claims for stigma damages were dismissed...