Santa Fe Partnership v. ARCO Products Co., No. B094284

• Court: California Court of Appeals
• Writing for the Court: JOHNSON; LILLIE, P.J., and WOODS
• Citation: 46 Cal.App.4th 967,54 Cal.Rptr.2d 214
• Parties: , 96 Cal. Daily Op. Serv. 4601, 96 Daily Journal D.A.R. 7276 SANTA FE PARTNERSHIP, et al., Plaintiffs and Appellants, v. ARCO PRODUCTS COMPANY, et al., Defendants and Respondents.
• Decision Date: 20 June 1996
• Docket Number: No. B094284

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54 Cal.Rptr.2d 214 46 Cal.App.4th 967, 96 Cal. Daily Op. Serv. 4601, 96 Daily Journal D.A.R. 7276 SANTA FE PARTNERSHIP, et al., Plaintiffs and Appellants,
v.
ARCO PRODUCTS COMPANY, et al., Defendants and Respondents. No. B094284. Court of Appeal, Second District, Division 7, California. June 20, 1996.
Review Denied Oct. 2, 1996.

[46 Cal.App.4th 968] John C. Teal, Jr., Newport Beach, for Plaintiffs and Appellants.

Smith, Brennan & Dickerson, Donald D. Dickerson and Sterling A. Brennan, Irvine, for Defendants and Respondents.

JOHNSON, Associate Justice.

This appeal presents the question whether an owner of property contaminated by chemical pollutants can recover post remediation "stigma" damages on a continuing nuisance theory of liability. California law provides diminution in value damages and damages for future harm may be recoverable in a situation where the nuisance is deemed to be permanent. However, prevailing law holds damages for prospective harm are unavailable where the nuisance is deemed to be continuing and abatable.

[46 Cal.App.4th 969] Appellants urge this court to "overrule" existing law, claiming it fails to take into account the economic and practical realities associated with properties which have a history of contamination despite successful remediation. To date our Supreme Court has only permitted recovery for diminution of value in cases of permanent nuisance where damage to the property is assessed once for all past, present and future damage. As an intermediate appellate court, we are bound to follow the decisions of our highest court. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.) Accordingly, we affirm the judgment denying appellants recovery for diminution in value on a theory of continuing nuisance.

FACTS AND PROCEEDINGS BELOW

In late 1987, respondents, ARCO Products Company and Atlantic Oil Company (ARCO), arranged to remove underground storage tanks at its service station located at 13460 Firestone Boulevard in Santa Fe Springs. On December 1, 1987, a preliminary soils investigation revealed the tanks had leaked gasoline into the soil and groundwater. On December 7, 1987, ARCO removed the underground storage tanks.

Sometime prior to February 1988, ARCO reported the unauthorized release to the County of Los Angeles Department of Public Works. On February 2, 1988, the Department

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of Public Works notified ARCO it was referring the matter to the state Regional Water Quality Control Board. These reports became a matter of public record.

Upon discovery of the unauthorized release ARCO engaged environmental consultants to monitor and remediate the soil and groundwater contamination. These remediation efforts are continuing under the jurisdiction of the state Regional Water Quality Control Board.

In 1987 Falcon Pacific Development, Inc. (Falcon Pacific) began negotiations to purchase undeveloped property adjoining ARCO's property from Southern Pacific Transportation Company (Southern Pacific). On September 28, 1987, Falcon Pacific submitted a written proposal to Southern Pacific to purchase the property. Pursuant to the proposal, Falcon Pacific or its nominee, was to conduct and approve "customary engineering and soils tests prior to the close of escrow."

A subsequent contract to purchase the land was accepted by Southern Pacific on April 12, 1988. Conditions precedent to performance of the contract included Falcon Pacific's approval of the soils condition, engineering and/or feasibility studies. Falcon Pacific agreed to purchase the property [46 Cal.App.4th 970] "as is" and further agreed to "perform and rely solely upon its own independent investigation concerning the physical condition and possible contamination of the property." ¹

Neither Falcon Pacific nor its principal, Jim Arnold, had the capital necessary to purchase the property. In July 1988, Falcon Pacific entered into a joint venture agreement with Wallace and Harry Hansen to acquire and build a motel on the property. The Hansens were partners in an entity known as Partners Johansen. The parties named their joint venture the Santa Fe Partnership. The Santa Fe Partnership and Partners Johansen are the appellants in this action.

According to the joint venture agreement, Partners Johansen were to pay the deposit owing to Southern Pacific, provide capital for start-up costs such as soils testing, and pay the remaining $995,000 purchase price for the property. Arnold of Falcon Pacific would design, acquire necessary permits and licenses for, supervise construction of, and market the completed motel project. The parties notified escrow that ownership should vest in Santa Fe Partnership and instructions were modified to reflect Partners Johansen's 67 percent interest and Falcon Pacific's 33 percent interest in the property.

[46 Cal.App.4th 971] Jim Arnold of Falcon Pacific retained AAKO Geotechnical Engineering Consultants (AAKO) to conduct soils tests on the property.

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On August 2, 1988, AAKO bored six holes on the property. AAKO's drilling technician recorded certain information in a "boring log" for each hole bored. The technician noted a "petroleum odor" at approximately 15 feet on one bore hole, a "strong petroleum odor" at the same depth at another bore hole, and a "very strong solvent odor" at approximately 20 and 23 feet deep on a third bore hole.

In analyzing the soil samples at AAKO's laboratory a technician observed the petroleum or solvent in one of the soil samples was so strong it melted the PVC tube in the laboratory.

AAKO subsequently prepared a written report of its findings. The drilling technician's findings of petroleum and solvent odors was attached as an appendix to the report. In the body of the report AAKO noted "[m]oderate to high petroleum or solvent odors were encountered in the western half of the site, with the highest concentration appearing to be in the vicinity of Boring B-3 (a solvent order [sic] ). Odors were primarily encountered at depths below 14 feet."

The written report is dated August 31, 1988, the day before escrow was scheduled to close. According to AAKO's principal, it is AAKO's policy to verbally inform a client of any abnormal findings, including petroleum or solvent odors, within days of their discovery.

Thereafter, AAKO prepared a revised version of its August 31, 1988, report entitled "31 August 1988 Revised 4 November 1988" report. The revised report deletes all references to petroleum and solvent odors. AAKO's principal testified AAKO would not revise the report on its own and instructions to do so must have come from the client, Falcon Pacific. On November 4, 1988, Falcon Pacific submitted the revised AAKO report and building plans for the motel to the city of Santa Fe Springs for approval.

In May 1990, Santa Fe Partnership entered into escrow to sell the property to a Mr. Chung-Ching Kuo for $5,250,000. Mr. Kuo learned of the petroleum contamination on the property when his environmental consultants uncovered it in performing soils testing and by consulting public agency records. Mr. Kuo refused to close escrow. Santa Fe Partnership then leased the property to a Mr. Satish Patel who operates the motel.

Santa Fe Partnership and Partners Johansen (appellants) filed suit on July 29, 1992, against ARCO on theories of private nuisance, trespass, negligence, strict liability (ultra hazardous activity) and negligence per se. On [46 Cal.App.4th 972] June 6, 1994, they filed their third, and the operative, complaint in this action.

On December 24, 1995, ARCO filed a motion for summary judgment or, in the alternative, for a summary adjudication of issues. In its motion ARCO pointed out appellants had either actual or imputed knowledge of contamination on the property as early as the summer of 1988. ² As a result, ARCO argued each of appellants' causes of action was barred by the three-year statute of limitations for injury to property. (Code Civ. Proc., § 338.) ARCO also argued that, in the event appellants' trespass and nuisance claims were deemed to be continuing rather than permanent, and therefore not barred by the three-year statute of limitations, summary judgment was appropriate nonetheless because appellants had not suffered any costs for abatement of the nuisance nor loss of use damages--the only damages recoverable for continuing trespass and nuisance claims.

The trial court found the statute of limitations barred appellants' causes of action for negligence and strict liability. However, the trial court concluded there was an issue of

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fact whether appellants' causes of action for trespass and nuisance were permanent or continuing in nature and denied summary judgment as to those causes of action.

ARCO's experts did not know when remediation would be complete. Appellants' expert testified he expected remediation efforts to successfully remove all contamination from the property in due course. Appellants acknowledged they had not suffered any costs of abatement because ARCO had been remediating the contamination on the property at its own expense. In addition, appellants acknowledged they had not suffered, and probably would not suffer, any loss of use of their property because the contamination did not interfere with the motel operations. Thus, appellants concluded the only damage they could allege at trial were post-cleanup stigma damages. However, they acknowledged California law did not allow an award of damages for diminution in value on a continuing trespass or continuing nuisance theory.

[46 Cal.App.4th 973] Rather than proceed to trial, the parties stipulated to entry of judgment in ARCO's favor in order to immediately seek review in this court to request an extension of the law which would entitle them to recover damages for diminution in value on a theory of continuing trespass or nuisance.

DISCUSSION

I. UNDER CALIFORNIA LAW, DAMAGES FOR...