INTRODUCTION
In May, 1994, forty-two families in Sutter Creek, California learned their homes, which had been constructed between 1975 and 1985, were built on land contaminated with mine tailings containing arsenic. In California’s Gold Country background levels of arsenic in soil are approximately 22 parts per million [ppm]. But on these properties, arsenic levels were as high as 1320 ppm, well into the toxic range.
The lawsuit that followed is reported in three parts. Part I explains how California’s statute of limitations for permanent nuisance and statutory exclusion for claims for latent construction defects discovered more than ten years after construction have insulated polluters from liability and, more importantly, how federal law provides for delayed discovery and authorizes the collection of damages otherwise not available. Part II discusses the Sutter Creek homeowners’ responses to defenses raised by the mine owner and a developer of this subdivision. Part III reviews the damages available in a case of permanent nuisance.
A settlement was obtained for these Amador County homeowners because of a little known federal law which allows delayed discovery in cases qualifying under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 USC Section 9601[known as CERCLA or “Superfund”]. CERCLA also suspends the California ten year statute of limitations on construction defects in toxic pollution cases.
BACKGROUND AND DISCOVERY OF ARSENIC IN SUTTER CREEK
The Central Eureka Mine opened in 1890. The headframe is less than a quarter mile east of Highway 49, sitting on a hill top, just north of the Westover Amador County Airport. The mine and its mill operated continuously from that time until closed by President Roosevelt in 1942. After WWII, the mine reopened and operated until 1958. Quartz ore was crushed until reduced to a fine sand that could pass through a 1/32nds of an inch screen. It then was treated with cyanide to extract the gold and the waste, known as “slime,” was sluiced to a pond, where the water drained into a creek, leaving behind the fine sands in a mine tailings pile located approximately 150 yards east of Highway 49. By 1958 the mine tailings pile was three stories high and had a top surface area of 11 acres. The Central Eureka Mine was aware of the presence of arsenic in the gold ore processed on the site because of U.S. Mint assay reports, but in the 1960 sale of the tailings pile and the surrounding 19 acres the deed mentioned mine tailings on the property but did not disclose that the tailings contained arsenic. Through a series of corporate mergers, the Central Eureka Mining Corporation became the property of AlliedSignal, Inc., a Fortune 500 business.
By 1970, the 30 acre parcel had been transferred several times and it was approved for housing by the City of Sutter Creek as the Mesa de Oro and Gold Quartz Subdivisions. The County Health Department was aware of the presence of arsenopyrite on the site, which is reported to be “safe” in its natural state. An environmental consultant suggested the crushed arsenopyrite should be tested. Mesa de Oro was developed on top of the mine tailings pile. The Gold Quartz Subdivision lots bordered the tailings pile on the west and south and became the location for large, attractive homes with an average value of $350,000, before the discovery of arsenic.
In April, 1994 Cal-OSHA received a report that a worker at Mesa de Oro had developed rashes and flu symptoms. Arsenic was determined to be the cause. The California Department of Toxic Substances Control of Cal/EPA and US/EPA joined in the investigation. Cal-OSHA ordered a halt to all construction on the site and the county stopped home sales.
In May, 1994, Cal/EPA reported that the waste pile contained high concentrations of arsenic which could be inhaled in dust and dissolved in water. Soil sampling in May, 1994 showed arsenic levels on Mesa de Oro ranging from 115 ppm to 1,320 ppm. Levels in excess of 500 ppm are hazardous waste under California law.
In November, 1994 Cal/EPA and US/EPA released the results of their tests on soil from the Mesa, the slopes and the yards around the tailings pile, which showed concentrations of 90 to 1,142 ppm. Arsenic also was found in homeowners’ vacuum cleaner bags. Of 14 tested vacuum bags, eight had arsenic: five had concentrations between 20 and 42 ppm and three had concentrations between 278 and 889 ppm.
Arsenic is commonly found in gold ore and in its natural state is not considered a mining hazard, but once it is pulverized the increased surface area accelerates its interaction with soils, salts and minerals, and renders the arsenic salts bioavailable and bioaccessible. California EPA toxicologist Dr. Charles Salocks reported that testing by the State of California, and a contractor hired by AlliedSignal confirmed, that the arsenic in the dirt and sands found on Mesa de Oro were bioavailable and bioaccessible.
A 1997 study by Drs. Golub and Keen of the UC Davis Department of Internal Medicine and Nutrition also concluded that arsenic from Mesa de Oro soil is bioavailable. Fortunately testing of human hair and urine in late 1994, well after the community had been alerted to the arsenic hazard and had taken steps to limit their exposures, did not reveal any significant deposits of arsenic. According to the Agency for Toxic Substances and Disease Registry, arsenic clears through human urine and blood in 48 hours. Although the toxicity of arsenic is well known, it is a carcinogen only in humans, but not in animals. Accordingly there are no animal carcinogenicity studies. The latency period for skin cancer in humans is estimated to be three to four decades according to one Asian study of arsenic in well water.
It is common for pollution sites to languish on the U.S. EPA’s National Priority List for years before action is taken. Fortunately these subdivisions were declared an Emergency Response Site. Remediation work began in 1995 and was completed in 1996. It included removing contaminated dirt and replacing with clean fill, as well as grading, capping, and replanting the mine tailings pile, and installing drainage and water diversion channels.
Utilizing original sales reports, appraisals both before and after the 1994 disclosure of arsenic, data on the county-wide appreciation of homes reported by the Amador County Development Corporation and comparable sales in the City of Sutter Creek, and after an individual inspection of each property, a market study and appraisal by an MAI certified appraiser showed that homeowners had suffered an estimated diminution in value of approximately 25%. Total diminution in value was approximately $2,000,000.
DAMAGES IN NUISANCE CASES
The remedies available in a nuisance action depend upon whether the nuisance is continuing (and abatable) or permanent.
On the one hand, permanent nuisances are of a type where “by one act a permanent injury is done, [and] damages are assessed once for all.” Williams v. Southern Pacific R.R. Co. (1907) 150 Cal. 624, 626 In such cases, plaintiffs ordinarily are required to bring one action for all past, present and future damage within three years after the permanent nuisance is erected.
On the other hand, if a nuisance is a use which may be discontinued at any time it is considered continuing in character and persons harmed by it may be bring successive actions for damages until the nuisance is abated. Phillips v. City of Pasadena (1945) 27 C. 2d 104, 107-108. When a nuisance is “continuing,” i.e. temporary and can be abated, “each repetition authorizes a new cause of action and successive actions for damages only for loss of use and enjoyment which can be brought until the nuisance is abated.” Burbank-Baker v. Glendale Pasadena Airport Authority (1985) 39 Cal. 862, 869, 218 Cal. Rptr. 293; Nestle v. Santa Monica (1972) 6 Cal. 3d 920, 937, 101 Cal. Rptr. 568; Phillips v. Pasadena (1945) 27 Cal. 2d 104, 107-08; Strong v. Sullivan (1949) 180 Cal. 331, 334; Kafka v. Bozio (1923) 191 Cal. 746; Mattos v. Mattos (1958) 162 Cal. App. 2d 41, 43; Tracy v. Ferrera (1956) 144 Cal. App. 2d 827, 829; Spalding v. Cameron (1952) 38 Cal. 2d 265, 267.
Recovery in a case of continuing nuisance is limited, however, to actual injury suffered prior to commencement of each action. Prospective damages are not available. Baker v. Burbank-Glendale-Pasadena Airport Authority, supra, 39 C. 3d 862, 868-869; see also, Cornoff v. Kingsburg Cotton Oil Co. (1955) 45 C. 2d 265, 268-269; City of San Jose v. Superior Court (1974) 12 C. 3d 447, 446, 115 Cal.Rptr. 797.
If the nuisance can be abated no claim for diminution in value can be made. Mangini v. Aerojet-General Corp. (1991) 230 Cal. App. 3d 1125, 281 Cal. Rptr. 827; Camsi IV v. Hunter Technology Corp. (1991) 230 Cal. App. 3d 1525, 282 Cal. Rptr. 80; see also, Capogeannis v. Superior Court (1993) 12 Cal.App. 4th 668, 679, 15 C.Rptr. 2d 796; Alexander v. McKnight (1992) 7 Cal.App.4th 973, 978, 19 Cal. Rptr. 2d 453; Mozzetti v. City of Brisbane (1977) 67 Cal. App. 3d 565, 575-76; Rhodes v. San Mateo Investment Co. (1955) 130 Cal .App. 2d 116, 118.
In Mangini v. Aerojet-General (1996) 12 Cal. 4th 1087, 51 Cal. Rptr. 272, the Supreme Court set the rules to determine whether pollution is permanent or abatable. The Court reversed a $13.2 million judgment for plaintiffs-lessors for a continuing nuisance caused by a former lessee’s dumping of millions of pounds of waste rocket fuel and trichloroethylene on 2,400 acres in Sacramento County. The lessor had sued under a continuing nuisance theory because it was late in coming to court and the statute of limitations for a permanent nuisance had run. Because a continuing nuisance remains open until the nuisance is abated, the plaintiff in Mangini tried the impossible: to stay in court he categorized his claim as a “continuing” nuisance, but sought damages for a permanent nuisance, i.e. the diminution in value that his property had suffered.
Aerojet-General found itself in the illogical and bizarre position of supporting any proof that it had permanently polluted this land, since that would defeat a claim that the nuisance was continuing and further assure that the three year “runs with the land” statute for permanent nuisance precluded any claim. It is in this strange context, after a substantial jury verdict, that the case came to the Supreme Court.
The Supreme Court came down squarely on the side of polluters and held that the nuisance was permanent because the plaintiffs did not present sufficient evidence to prove there was a continuing nuisance which could reasonably be “abatable” at a reasonable cost.
The Supreme Court’s final conclusion in Mangini was that the pollution was not an abatable nuisance. “We conclude ‘abatable’ means that the nuisance can be remedied at a reasonable cost by reasonable means.” Mangini, supra at 1103, 281. Because the Mangini’s land was so heavily polluted with TCE that it could not be remediated, it was held that the pollution was permanent and the victim of the pollution lost. In Sutter Creek, the testimony of Cal/EPA Project Supervisor Dan Ziarkowski established that a complete clean-up of the Gold Quartz and Mesa de Oro subdivisions would cost “tens of millions” and was both “impractical,” and “improbable.” It is for this reason that throughout the U.S. it is common to cap and contain dirt that cannot be removed from a toxic site.
In cases where “abatement is impractical” or it is “improbable as a practical matter that the nuisance can or will be abated,” the Supreme Court ruled that the nuisance is permanent. Mangini, supra at 1098, 278. The Court noted that in clean-up cases: “We are satisfied to presume that the cleanup standards set by responsible public agencies sufficiently reflect expert appraisal of the best that can be done to abate contamination in particular cases. [citation omitted]” The court did not suggest that the existence of contamination at levels above the government standard must be classified as a continuing nuisance. To the contrary, the court acknowledged the issue presented a “factual question.” Mangini (1996) 12 C. 4th 1087, 1102.
The Supreme Court in its 1996 opinion in Mangini was referring in part to this language in the 1991 Mangini opinion: “[w]here contamination by toxic waste is a permanent or continuing injury is ordinarily a question of fact turning on the nature and extent of the contamination.” Mangini (1991) 230 Cal. App. 3d 1125, 1148.
AlliedSignal argued that the contamination was not permanent because it had been abated under EPA cleanup standards. AlliedSignal also relied on Capogeannis v. Superior Court (Spence) (1993)12 Cal. App. 4th 684, 15 Cal. Rptr. 2d 796 in which the polluter was granted summary judgment and the Court of Appeal reversed holding there were issues of material fact as to whether continuing nuisance claims were still viable. The court recognized the need to allow a continuing nuisance claim because “a finding that the nuisance is permanent would leave the Capogeannises with private recourse barred, and with no practical motivation to proceed promptly and efficiently beyond that provided by the enforcement practices of governmental agencies acting at public expense.” Capogeannis v. Superior Court (Spence) (1993)12 Cal. App. 4th at 682, 15 Cal. Rptr. 2d at 804. The polluter had argued that the contamination was permanent in order to outlaw the complaint and in response the court, viewing “the nuisance from the plaintiff’s perspective” [at 683 and 805] noted that the plaintiffs were satisfied in that case that once the regulatory agencies demand had been met “the nuisance will be abated.” Ibid. Striving to rescue an abatable nuisance theory for the plaintiffs the court stated it would not “presume to insist upon absolutes these agencies do not require.” Ibid. Based on this law, AlliedSignal argued that because US/EPA determined what hazard containment remediation work was to be done at this site, that the arsenic has been abated.
It is because arsenic remains under the surface on these remediated properties that the Department of Toxic Substances Control of the State of California required a long-term maintenance plan for this site which includes inspection, supervision and repairs to any deterioration of the partial hazard containment work, strict rules for controlling any landscaping, construction or repair work involving any excavation that contacts the mine tailings on these properties and a public file memorializing the remediation work that was been performed.
Accordingly the landowners suffered from “an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property.” Civil Code Section 3479 and had suffered a permanent nuisance as defined by California case law.
In Spalding v. Cameron, 38 Cal. 2d 268 and in Kornoff v. Kingsburg Cotton Oil Co. (1955) 45 Cal. 2d 265, it was noted that a nuisance is continuing if the defendant can abate it and is permanent if it appears improbable as a practical matter that it can or will be abated. Beck v. Southern Pacific suggested a similar practical test: where the cost estimates for cleaning up the property far exceeded the value of the property in a clean state, it was concluded that the nuisance was permanent. Beck 44 Cal. App. 4th 1218-1223, 52 Cal. Rptr. 518, 557-560.
In Sutter Creek the plaintiffs’ properties had a total value, before the announcement of arsenic pollution, of approximately $7,000,000. The total cost of removing all arsenic contaminated dirt would cost in the tens of millions of dollars and that estimate did not include razing every house, driveway, patio and deck to remove all contaminated soil. Clearly the cost of a total clean-up exceeded the value of these properties.
Although safely contained to preclude human contact, these properties still have arsenic below the surface and under driveways, garages, patios, decks, foundations and clean fill. Because arsenic remains underground, AlliedSignal’s lead cleanup expert conceded that future maintenance and limits on underground construction would be required “forever” to keep in place the “remediation” work performed to date. If controls are required “forever,” such a finding is consistent with a “permanent” condition.
DAMAGE SUFFERED AFTER REMEDIATION AND CLEAN-UP
The removal and capping of dirt on their land, even though making the property free from health hazards, is a fact that the owners are required to disclose to prospective buyers any information of “substances, materials or products which may be an environmental hazard” and “contaminated soil on the subject property.” Civil Code Section 1102.6.
It is for this reason that the subdivision homeowners claimed their land was stigmatized.
“Stigma is defined to represent all of the risk, hazard and uncertain consequences of contamination, which increase the costs of attracting capital to a contaminated or previously contaminated property.” Chalmers and Roehr, “Issues in the Valuation of Contaminated Property,” The Appraisal Journal 28, 41 (January 1993).
By definition, the value of a property depends not only on the nature and extent of any contamination, but more importantly the manner in which the contamination is “perceived or evaluated.” Id. at 28-29. Stigmatization occurs when, as in Sutter Creek, there is:
- objective evidence of past pollution and current pollution levels after remediation;
- uncertainty as to the amount and location of undiscovered contamination;
- fear of of potential health effects from exposure to toxics;
- potential carcinogenicity of toxins and developing scientific knowledge concerning toxin;
- potential liability for future clean-ups;
- possibility that clean-up standards will become more stringent;
- government ordering hazard containment work; and
- restrictions on the use of the property.
The purpose of damages is, insofar as possible, to make the injured party whole. This is true whether recovery is sought in tort or in contract. Turpin v. Sortini, (1982) 31 Cal. 3d 220, 232 (tort), and Coughlin v. Blair (1953) 41 Cal. 2d 587, 603 (contract). In the case of damaged property that cannot be completely repaired, the measure of damages is the difference in value in the property before and after repairs have been performed.
Although no California cases explicitly discuss stigmatization, the general rule is that the “measure of damages for tortious injury to real property has long been held to be diminution in value or costs of repair, whichever is less.” See McKinney v. Christiana Community Builders (1991) 229 Cal.App. 3d 611, 619.
The owner may elect to prove his damages by showing either, and need not prove both. If the plaintiff elects to show diminution in market value, the burden is on the defendant to show that the reasonable cost of repairs is or would be less. Here is how one case viewed the issue:
It is undisputed that the machine was a new one at the time of injury, and there was ample evidence to justify the conclusion of the trial court that the machine could not be completely repaired and restored to its previous condition with the value which it had prior to the injury. In the Byrne case, supra, it is said at page 274 that ‘if the damaged property cannot be completely repaired, the measure of damages is the difference between the value before the injury and its value after the repairs have been made, plus the reasonable cost of making the repairs. (Citing cases.) The foregoing rule gives the plaintiff the difference between the value of the machine before the injury and its value after such injury, the amount thereof being made up of the cost of repairs and the depreciation not withstanding such repairs.’ The rule urged by defendant, which limits the recovery to the cost of repairs, is applicable only in those cases in which the injured property ‘can be entirely repaired. [Rhodes v. Firestone Tire & Rubber Co., 51 Cal. App. 569, 573 (197 P. 392).] This latter rule presupposes that the damaged property can be restored to its former state with no depreciation in its former value. Merchant Shippers Association v. Kellogg Express & Draying Co., 28 Cal. 2d 594, 600 (1946).
On this issue, the Court in Mozzetti v. City of Brisbane (1977), 67 Cal. App. 3d 565 stated: “The primary object of an award of damages in a civil action, and the fundamental principle on which it is based, are just compensation or indemnity for the loss or injury sustained by the complainant, and no more. While there is no fixed, inflexible rule for determining the measure of damaged for injury to, or destruction of, property, and whatever formula is most appropriate in the particular case will be adopted (e.g. the difference in the value of the real property immediately before and after the injury; cost of making repairs, loss of use of property; loss of profits and prospective profits; increased operating expenses pending repairs; present and prospective damages that are the natural, necessary or reasonable incident of the taking of property; cost of minimizing future damages), in a case involving damage to plaintiff’s property due to defendant’s negligence, the general rule is that if the cost of repairing the injury and restoring the premises to their original condition amounts to less than the diminution in value of the property, such cost is the proper measure of damages and if the cost of restoration will exceed such diminution in value, then the diminution in value of the property is the proper measure.” At 565.
Here the cost of removing all arsenic beneath houses and driveways, as well as that to be encountered in any excavation or trenching was prohibitively expensive.
THE PERCEPTION OF BUYERS DICTATES MARKET CONDITIONS
The perception of potential buyers is a market reality. If people think property is worth less, it is. If the reason that people think that the property is worth less is because of acts performed by the defendant, then the defendant is liable for that diminution in value.
Reputation and history clearly have a significant effect on the value of a piece of property. ‘George Washington slept here’ is worth something, however physically inconsequential that consideration may be. Ill-repute or “bad will” conversely may depress the value of property.’ Reed v. King (1983) 145 Cal. App. 3d 261, 267 [193 Cal. Rptr. 130].)” Alexander v. McKnight (1992) 7 Cal.App.4th 973, 977- 78, 19 Cal. Rptr. 2d 453.
In Reed v. King (1983) 145 Cal.App. 3d 261, 267, the court held that a cause of action had been stated against a seller and broker of a home who failed to disclose that the house had been the site of the murder of a mother and her four children ten years earlier. The court explained it in this manner: “If information known or accessible only to the seller has a significant and measurable effect on market value and, as alleged here, the seller is aware of this effect, we see no principled basis for making the duty to disclose turn upon the character of the information.” The Reed court also cites other instances in which other courts have found that impacts on market value from buyers fears are compensable. Alexander v. McKnight (1992) 7 Cal. App.4th 973 made it clear that past problems even though corrected must be disclosed and certainly in this case where arsenic exists beneath structures and clean fill, the disclosure cannot be avoided.
Similarly, in a series of cases dealing with properties located near high voltage transmission lines, the courts have upheld compensation for the diminution in property values resulting from public fear of the electromagnetic fields (“EMF”) from such lines, regardless of whether there is any real hazard. San Diego Gas &Electric Co. v. Daley (1988) 205 Cal.App. 3d 1334 is one of the most comprehensive reviews of California law on this subject. It stands for the proposition that an expert is entitled to take into account buyer fears (in that case, of EMF fields) as a factor affecting the market value of property, even if those fears are irrational, and held that the trial court had properly excluded evidence of whether the hazards were in fact real or not. Extensive citations to other cases to the same effect from other jurisdictions are presented, as well as earlier California cases admitting evidence that the fear of danger exists and affects market value. Also, the Court quoted from the highly regarded Willsey v. Kansas City Power, 631 P. 2d 268 (Ka. 1981), which held that loss of market value attributable to these factors should be compensable, even though in that jurisdiction “mere fears of injury cannot be compensated.”
In San Diego Gas & Electric a public utility condemned an easement for the construction of high voltage electrical lines. The court held that the jury had correctly been instructed that the public’s fear of electromagnetic radiations which would emanate from the high voltage lines was properly taken into account in determining the amount of severance damages suffered by the land owner.
Daley did not claim the jury could award severance damages based upon some possible adverse affects of electromagnetic radiation on a property. Rather, the basis of his claim was, among other things, a calculated diminution of the present market value of the property as the result of the public’s fear of electromagnetic radiation. The trial court was correct in its analysis and determination that the truth or lack of truth in whether electromagnetic projections caused a health hazard to humans or animals was immaterial. Rather, the question was whether fear of the danger existed and was having an impact on market value.
The Daley Court applied the rule that “any loss of market value proven with a reasonable degree of probability should be compensable.” See also Emery v. City of Palos Verdes Estates, Cal.App.4th 679, 687 (1992) (citing Daley to hold that offsite conditions could be taken into account in determining the impact on the market value of the plaintiffs’ property). See also Redevelopment Agency v. Thrifty Oil Co. (1992) 4 Cal. App.4th 469, 474 (citing Daley): “As a characteristic of the property which would affect its value, the remediation issue was properly before the trier of fact.”
“Stigma” often is defined as the amount of residual damage that will survive a complete clean-up, i.e., post-remediation stigma. In re Paoli R.R. Yard P.C.B. Litigation, 35 F. 3d 717 (3d Cir. 1994), the plaintiffs had lived for years near a rail car maintenance facility where PCBs were used. In addition to personal injury damages, they sued for the diminution in property value of their homes caused by the proximity of the railroad yard and the presence of PCBs on their land. The district court found that EPA already had a plan to remove the soil and groundwater contamination, that there was no evidence to show that this plan would be inadequate, and that therefore under Pennsylvania law plaintiffs were confined to the recovery of repair costs rather than diminution of value in their property. The Third Circuit reversed. The court analyzed the rule in Pennsylvania that diminution in market value is only recoverable if damage is “permanent,” that is, whenever repair costs would, for some reason, be an inappropriate measure of damages.
This approach is normally consistent with the view that, when physical damage is temporary, only repair costs are recoverable, because in a perfectly functioning market, fully recovered property will return to its former value. Thus, an award of repair costs will be fully compensatory. And it makes sense to award repair costs rather than the equivalent diminution of value absent repair, because it is easier to measure repair costs. Hence, normally, it is only when property cannot be repaired that courts must award damages for diminution of value in order to fully compensate plaintiffs. However, the market sometimes fails and repair costs are not fully compensatory. In such cases, plaintiffs should be compensated for their remaining loss. Absent such an approach, plaintiffs are permanently deprived of significant value without any compensation. 35 F. 3d at 797-798.
Other courts have allowed recovery in a nuisance claim based upon the public’s perception of contamination. See also DeSario v. Industrial Excess Landfill, Inc., 68 Ohio App. 3d 117, 129, 587 N.E. 2d 454, 461 (1991) (holding that a class action nuisance suit “may be premised on the public’s perception of contamination irrespective of actual land contamination.”); Allen v. Uni-First Corp., 151 Vt. 229, 558 A. 2d 961, 963-64 (1988) (finding that trial court failed to properly instruct the jury regarding damages based on evidence of “public perception of widespread contamination” in the town).
The total diminution in property values for all Sutter Creek plaintiffs was appraised at approximately $2,000,000, which was the amount of the final settlement.
