NRC Corp. v. Amoco Oil Co.

• Decision Date: 09 March 2000
• Docket Number: Nos. 98-2162 and 98-2314,s. 98-2162 and 98-2314
• Citation: 205 F.3d 1007
• Parties: (7th Cir. 2000) NRC CORPORATION, Plaintiff-Appellee, Cross-Appellant, v. AMOCO OIL COMPANY, Defendant-Appellant, Cross-Appellee
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1007

205 F.3d 1007 (7th Cir. 2000)

NRC CORPORATION, Plaintiff-Appellee, Cross-Appellant, v. AMOCO OIL COMPANY, Defendant-Appellant, Cross-Appellee.

Nos. 98-2162 and 98-2314

In the United States Court of Appeals For the Seventh Circuit

Argued April 13, 1999

Decided March 9, 2000

Appeals from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 93 C 1448--V. Sue Shields, Magistrate Judge. [Copyrighted Material Omitted] Before KANNE, ROVNER and DIANE P. WOOD, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

For approximately thirty years, Amoco leased land from NRC for a gasoline service station. Near the end of the lease period, the parties discovered that underground storage tanks installed by Amoco had leaked, contaminating the property. Amoco ultimately agreed to remediate the property. NRC sued Amoco for damages, and after a bench trial, the court entered judgment for NRC and against Amoco.¹ The court ordered Amoco to pay $528,000.81 for NRC's loss of use of the property, $13,000 for NRC's environmental response costs, and NRC's costs of the suit. The court declined to award attorney's fees to NRC. Amoco appeals the amount of the award and NRC cross-appeals the amount of loss of use damages, the attorney's fees ruling, and the court's refusal to grant punitive damages.

I.

NRC owns 35 acres in Hamilton County, Indiana, at the northwest corner of 96th and Meridian Streets. In 1959, Amoco leased the very tip of that large corner property, a .75 acre patch of land, in order to operate a gasoline service station. Because of two separate highway projects completed by the State of Indiana during the lease period, the parcel was twice reduced in size through condemnation proceedings, first to .36 acres and then to .327 acres. Amoco renewed the lease several times over the years, with the final lease period ending on March 31, 1989. Amoco ultimately refused to renew the lease because it wanted a larger parcel of land on the same corner so that it could build and operate a more modern service station. NRC refused to lease additional land because it had a master plan for the entire 35 acre parcel that did not include a service station at that location. Up until that time, the rest of the 35 acres was not developed and was used for farming only.

The lease permitted Amoco to install underground storage tanks, and Amoco made use of such tanks throughout the lease period. In December 1986, thirty gallons of gasoline spilled onto the property when the tanks were being filled. Amoco cleaned the spill and reported it to the Indiana Department of Environmental Management ("IDEM"). Shortly thereafter, Amoco installed monitoring wells on the property, and although hydrocarbon odors and gasoline smells were reported at two of the wells, Amoco did not further investigate until approximately two years later. In November 1988, well sampling revealed gasoline odors in one well and three to four inches of "free product" in two other wells.² Testing done on the well samples was completed in March 1989, and revealed gasoline constituents in four of the six wells. Amoco reported these results to IDEM that same month. A hydrogeologist subsequently recommended that Amoco remove the underground storage tanks and that Amoco subject the property to remediation, a process that would take a minimum of one to three years.

Amoco hired Soil Exploration Services ("SES") to remove six underground storage tanks from the property, five used to store gasoline and one used to store waste oil. SES reported that there was significant free product floating on the water in the tank pit area and removed about 50 gallons from the site at that time. Amoco installed pumps in the tank pit area to remove hydrocarbons once a week. The company also installed more monitoring wells to determine the extent of the hydrocarbon contamination. The contamination detected in these wells was reported to IDEM. In June 1989, NRC asked Amoco to enter into a written agreement to remediate the property, and Amoco did not respond. More wells and additional testing revealed more contamination in October 1989. The Indiana Department of Transportation then asked Amoco to remediate the property and Amoco agreed to do so. In March 1990, Amoco discharged SES from the project and hired Groundwater Technology, Inc. ("GTI") to study the problem. GTI continued the testing that SES had begun and tried to determine the outer boundaries of the contamination. In November 1990, NRC again sought a formal commitment from Amoco to remediate the property, and Amoco again failed to respond.

In July 1992, after discussions between Amoco and IDEM, and following assorted delays caused by road construction, Amoco provided NRC with a corrective action plan that it had submitted to IDEM nearly a year earlier. Amoco and NRC subsequently reached an agreement to give Amoco access to the property to complete the remediation, and Amoco hired GTI to complete the task. Because of the delays, though, IDEM withdrew its support for the corrective action plan, fined Amoco and required it to submit an updated plan. GTI developed another corrective action plan which IDEM approved in December 1993. After additional testing, Amoco submitted revisions to the plan, and IDEM approved the final corrective action plan in March 1994. The remediation system was installed that same month and at the time of the district court's opinion in April 1998, the system was still operating. Amoco ultimately concluded through testing that the contamination was confined to the leased premises and had not spread to adjacent land or groundwater.

NRC sued Amoco for the loss of the use of the property during the remediation process. After a bench trial, the district court found that the property would not attain its full fair rental value until the cleanup was complete, which was projected at the time of trial to occur in March 2000. The court found that buyers and renters alike had difficulty measuring the risk associated with contaminated property and therefore avoided it. Lenders are similarly loathe to deal with the uncertainties posed by contaminated property, making a sale during remediation even less likely than a lease. The court thus ruled that the property was unmarketable until IDEM approved the corrective action plan, and remediation had actually begun. During the remediation period, the court found, the market demanded a full indemnification agreement, and as of the time of trial no such agreement had been reached between Amoco and NRC, rendering the property unmarketable during that time as well. The highest and best use of the property was as part of a multi-acre tract, according to the district court's findings:

A reasonably sized area that would bear the brunt of the stigma of possible contamination is an area, including the Property, of approximately two acres. Further, even without the threat of contamination outside the Property, a prospective buyer, tenant, or lender would not consider a two-acre tract that did not include the Property, because it is the Property's corner location with access onto both U.S. 31 and 96th Street that will dictate the highest and best use if rezoning is allowed. Thus, NRC has and will continue to suffer loss of marketability of the two-acre tract until the Property is remediated within approved limits.

NRC Corp. v. Amoco Oil Co., No. IP 93-1448-C, slip op. at 18 (S.D. Ind. April 7, 1998) (internal cite omitted). The court calculated the lease price of the two-acre parcel, and determined that between March 1989 (when the lease terminated) and March 2000 (when remediation was projected to be complete), NRC lost $528,000.81 in rent. Because Amoco agreed in the lease to fully indemnify NRC for any and all damages caused by the operation of the gas station at the site, the court held Amoco liable for that entire amount. The court also held Amoco liable for $13,000 in "response costs," the amount NRC paid to monitor Amoco's compliance with the corrective action plan. After allowing NRC to recover its court costs as well, the trial court declined to award NRC attorneys' fees incurred in the action or punitive damages. Both parties appeal from the district court's judgment.

II.

Amoco challenges the district court's finding that NRC was due damages on any land other than the leased premises. Amoco contends that the district court should have limited the damages to the .327 acre leased parcel because the contamination did not spread beyond that area. Amoco also disputes the award of damages for loss of use, faulting NRC for voluntarily declining to use the property. According to Amoco, the property could have been used for a number of purposes during remediation, and NRC would have recovered significant rent during that period. Finally, Amoco claims the district court erred in awarding damages for the period of time between March 1994 and March 2000, positing that no damages should be awarded once the remediation had begun. NRC cross-appeals the amount of the damage award, contending that the district court undervalued the property in light of the substantial probability that the land would be rezoned to a higher use. NRC also appeals the district court's refusal to grant punitive damages and attorneys' fees.

A.

Both sides agree that Indiana law governs this dispute. After a bench trial, we review the district court's fact findings with great deference, reversing only for clear error. See Fed. R. Civ. Pro. 52(a); Petrilli v. Drechsel, 94 F.3d 325, 329 (7th Cir. 1996). We review conclusions of law de novo. Petrilli, 94 F.3d at 329. The district court ruled that damages were due for a two-acre parcel encompassing the .327 acres leased, on the theory quoted above, that two acres was the smallest parcel that would bear the brunt of the stigma of contamination, and that no one would lease those two acres without the .327 acre...