Sunburst School Dist. No. 2 v. Texaco, Inc., 04-798.

• Docket Nº: No. 04-798.
• Citation: 165 P.3d 1079, 338 Mont. 259, 2007 MT 183
• Case Date: August 06, 2007
• Court: United States State Supreme Court of Montana

165 P.3d 1079 2007 MT 183 338 Mont. 259 SUNBURST SCHOOL DISTRICT NO. 2, et al., Plaintiffs, Respondents and Cross-Appellants,
v.
TEXACO, INC., et al., Defendants and Appellants. No. 04-798. Supreme Court of Montana. Argued March 8, 2006. Submitted March 14, 2006. Decided August 6, 2007.

[165 P.3d 1082]

For Appellants: Stanley T. Kaleczyc (argued), Browning, Kaleczyc, Berry & Hoven, Helena, Montana Charles Cole (argued), Steptoe & Johnson, LLP, Washington, D.C., Laurence Janssen and Daniel R. Blakey, Steptoe & Johnson, Los Angeles, California.

For Respondents: Tom L. Lewis (argued), J. David Slovak (argued), and Mark M. Kovacich, Lewis, Slovak & Kovacich, P.C., Great Falls, Montana.

For Amicus Curiae Montana Petroleum Marketers & Convenience Store Association, Town Pump, Inc., CHS, Inc., and Rocky Mountain Oil, Inc.: Keith Strong and Stephen Bell, Dorsey & Whitney LLP, Great Falls, Montana.

For Amicus Curiae Western Environmental Trade Association: Page Dringman, Dringman & Redmon, P.C., Big Timber, Montana.

For Amicus Curiae Northern Plains Resource Council, Montana Environmental Information Center and Women's Voices for the Earth: Jory C. Ruggiero, Beck, Amsden & Ruggiero, PLLC, Bozeman, Montana, Jack

[165 P.3d 1083]

R. Tuholske, Tuholske Law Office, P.C., Missoula, Montana.

For Amicus Curiae Montana Trial Lawyers Association: Lawrence A. Anderson, Attorney at Law, Great Falls, Montana William A. Rossbach, Attorney at Law, Missoula, Montana.

Justice BRIAN MORRIS delivered the Opinion of the Court.

¶ 1 Sunburst School District No. 2 and approximately ninety adjoining private property owners (collectively Sunburst) sued Texaco Inc. (Texaco) for damages caused by the migration of benzene onto their properties from Texaco's neighboring refinery. Texaco appeals from a judgment in the Eighth Judicial District, Cascade County, following a jury trial. We affirm in part, reverse in part, and remand for further proceedings.

¶ 2 Texaco raises numerous issues, but we need address only the following to resolve this matter:

¶ 3 1. Whether an award of restoration damages for an injury to real property may exceed the pre-tort market value of the damaged property.

¶ 4 2. Whether the Comprehensive Environmental Cleanup and Responsibility Act (CECRA) preempts a common law action for restoration damages.

¶ 5 3. Whether the District Court properly instructed the jury to award monetary damages, pursuant to Article II, Section 3, of the Montana Constitution, for any alleged constitutional tort committed by Texaco.

¶ 6 4. Whether the District Court's exclusion of Texaco's expert testimony constituted the proper remedy for Texaco's failure to comply with the court's scheduling order and M.R. Civ. P. 26(b)(4)(A)(i).

¶ 7 5. Whether the District Court properly excluded evidence of Texaco's negotiations with the Department of Environmental Quality regarding remediation measures.

¶ 8 6. Whether Sunburst established that Texaco acted with actual fraud or actual malice as required by § 27-1-221, MCA, to support a punitive damages award.

¶ 9 7. Whether the private attorney general doctrine supports the District Court's award of Sunburst's attorney's fees.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 10 Texaco operated a gasoline refinery just outside the town of Sunburst, Montana, from 1924 until 1961. Gasoline leaked from pipes at the refinery for many years and contaminated the surrounding soil. The gasoline spread to the subsurface groundwater and eventually migrated underneath the town of Sunburst. The contamination came to Texaco's attention as early as 1955 when escaping fumes from the underground plume caused a house in the town of Sunburst to explode. The accident prompted Texaco to conduct a partial cleanup of the contamination in the soil and groundwater. Texaco extracted some gasoline over the next few years, but left a significant amount of pollution.

¶ 11 Texaco notified the Environmental Protection Agency (EPA) in 1981 that potentially hazardous substances still might be present at the refinery site. EPA contractors conducted a site investigation in 1985 that revealed contamination of the soils and surface water in and around the refinery. Montana's Department of Environmental Quality (DEQ) eventually assumed jurisdiction over the site pursuant to the terms of the CECRA, §§ 75-10-705 through 728, MCA. The continued presence of pollution caused Texaco to enter into a Consent Order with DEQ in 1989. The Consent Order required Texaco to investigate the pollution in order to develop and implement a remediation plan pursuant to CECRA.

¶ 12 Texaco completed a study of the groundwater beneath the town of Sunburst in 1991. The study revealed that the groundwater remained contaminated with benzene, a well-known carcinogen. The contamination did not violate any existing standards as Montana had not yet adopted benzene regulations for groundwater. Texaco hired TRC Environmental Consultants, Inc. (TRC) to conduct tests of the benzene levels in homes above the contamination plume. TRC's test results indicated that "no volatile

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organic vapors were detected in excess of the Montana Department of Environmental Quality (MDEQ) action levels and no further action was required by MDEQ." MDEQ concluded in January 1994—based on the 1991 study by TRC—that "no exposure pathway and therefore no significant risk to the residents existed at the site for the impacted groundwater and no further groundwater investigations or remedial action was warranted."

¶ 13 DEQ promulgated new regulations for groundwater in 1995. See Admin. R.M. 17.30.1003. DEQ based the groundwater regulation for benzene on an excess lifetime cancer risk level, assuming continuous lifetime exposure, not to exceed one in one-hundred thousand. DEQ adopted a value for benzene of 0.005 mg/l, the same number used by the U.S. Environmental Protection Agency.

¶ 14 Data from the tests conducted by TRC in 1990 as part of the remedial investigation indicated that the groundwater from at least one sampling well in the town of Sunburst exceeded the new DEQ regulation for benzene. A resampling of the well in 1998 demonstrated that the groundwater continued to have benzene levels in excess of the DEQ regulations, thereby causing Texaco to be in violation of CECRA. See Admin. R.M. 17.38.204. Texaco sought a waiver from DEQ with regard to the new groundwater regulation. DEQ denied Texaco's waiver request.

¶ 15 Texaco conducted no further remediation activities until 1999 when it entered into an investigative work plan with DEQ to examine the groundwater conditions. Texaco hired an environmental contractor, Tri-Hydro, Inc. (Tri-Hydro), to investigate the groundwater and to evaluate remediation alternatives. Following the completion of TriHydro's investigation, Texaco proposed to DEQ in May 2003 that it remediate the groundwater contamination through monitored natural attenuation (MNA).

¶ 16 MNA involves simply monitoring the level of benzene in the groundwater with the expectation that the environment naturally will degrade the benzene over a period of years. Opinions on the degradation period for benzene through MNA ranged from 20 to 100 years to reach contamination levels below the maximum level allowed by the DEQ regulations. Texaco selected MNA as its proposed remediation method based, in part, upon its cost effectiveness. Tri-Hydro estimated that MNA would cost approximately $1 million compared with active remediation plans identified by Tri-Hydro that potentially could cost over $30 million. In 2003, DEQ proposed, for public comment, that Texaco use MNA to conduct the remediation.

¶ 17 DEQ released information to the public regarding contamination levels in both June 2001 and May 2003. Texaco also presented information to the public concerning the contamination and its proposed remediation method. Texaco's presentation included a map that it had constructed of the contamination plume. At trial, Sunburst alleged that Texaco's map selectively ignored unfavorable data.

¶ 18 Texaco distributed a newsletter to Sunburst residents in 2001, touting the effectiveness of MNA. The newsletter claimed that benzene levels already had declined dramatically as a result of natural degradation. The newsletter contained a graph that purported to show the benzene levels of the highly-polluted well, identified by the earlier TRC studies, as decreasing over time. Sunburst alleged at trial that Texaco had omitted important data from the graph, however, and substituted data from a separate, less contaminated well, to create the false impression that the benzene level in the groundwater had been declining.

¶ 19 Sunburst filed this action against Texaco on February 22, 2001. Sunburst alleged numerous causes of action, including trespass, strict liability for abnormally dangerous activity, public nuisance, violation of the constitutional right to a clean and healthful environment, wrongful occupation of property, and constructive fraud. The District Court held a scheduling conference in October of 2003. The court's subsequent scheduling order required the parties to disclose their expert witnesses and any "information required by Rule 26(b)(4)(A)(i), M.R. Civ. P." on March 26, 2004. The parties later stipulated

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to extend the deadline for expert disclosure to May 11, 2004.

¶ 20 Texaco listed sixty-seven expert witnesses and referenced documents that were not attached to its disclosure. The disclosure instead referred to documents that were contained in 50,000 pages of files that Texaco had provided in discovery. Sunburst moved to strike Texaco's expert witnesses based upon Texaco's failure to comply with M.R. Civ. P. 26(b)(4)(A)(i). Sunburst alleged that Texaco intended to overwhelm Sunburst's counsel by failing to provide qualifications for many of the sixty-seven listed experts and by failing to specify the facts and opinions upon which many of the experts...