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Jaasma v. Shell Oil Co.

June 28, 2005

ALICE JAASMA; TRUST UNDER LAST WILL AND TESTAMENT OF RALPH MCEWAN APPELLANTS
v.
SHELL OIL COMPANY, A DELAWARE CORPORATION; MOTIVA ENTERPRISES, LLC.



On Appeal from the United States District Court for the District of New Jersey (D.C. No. 02-CV-4677). District Judge: Honorable Williams H. Walls.

The opinion of the court was delivered by: Becker, Circuit Judge.

PRECEDENTIAL

Argued April 18, 2005

Before: ROTH, FUENTES, and BECKER, Circuit Judges.

OPINION

This is an appeal by plaintiffs Alice Jaasma and the Trust of Ralph McEwan (hereinafter "Jaasma") from an order of the District Court granting judgment as a matter of law against Jaasma pursuant to Fed. R. Civ. P. 50(a), because Jaasma had not established that the defendants, Shell Oil Company (Shell) and its assignee, Motiva Enterprises, LLC (Motiva) had breached their obligations under a lease agreement to operate a gasoline station or that she had suffered cognizable damages as a result.

Motiva ceased operating the gasoline station on Jaasma's property, and terminated the lease on October 31, 2001. However, when Motiva removed the gasoline station's underground storage tanks one week before the termination of the lease, fuel residue was discovered on the adjacent soil, which led to a two-and-a-half year investigation by the New Jersey Department of Environmental Protection (NJDEP). It was not until February 18, 2004, that NJDEP issued a final No Further Action (NFA) letter concluding the investigation. While soil samples taken between October 31, 2001, and February 18, 2004, indicated that the levels of hazardous compounds were in fact below regulatory standards, it took over two years of sampling to prove the safety of the property to the satisfaction of NJDEP.

Jaasma's suit, which alleged that Shell and Motiva breached the lease, sought damages for loss of use during the pendency of the NJDEP investigation. The appeal presents two principal questions. First, is there is a legally sufficient basis for a jury to find that Shell/Motiva breached the lease agreement? We conclude that there is. Second, does New Jersey law recognize loss of use as a measure of damages for temporary harm to property interests as a result of the uncertainty surrounding a property's environmental status which impairs its marketability? The District Court found that New Jersey law limits the measures of damages to only permanent diminution in value and cost of repair or cost of remediation, and therefore does not recognize damages for such temporary harm. We conclude, however, that the loss of use described is a cognizable measure of damages under New Jersey law, and that judgment as a matter of law was therefore inappropriate because there is sufficient evidence of lost use for the case to proceed.

Defendants urge that even if loss of use is cognizable, Jaasma was unreasonable in her mitigation efforts by failing to immediately market the property. However, because the reasonableness of mitigation efforts is generally a question of fact, and because the evidence is sufficient for a jury to find that Jaasma was reasonable in her efforts to market the property, we decline to dispose of this case as a matter of law on the grounds of lack of mitigation.

Finally, we agree with Jaasma that the District Court abused its discretion by excluding the expert testimony of Gary J. DiPippo because the Court's decision was based on a misunderstanding of the purpose of DiPippo's testimony. DiPippo's testimony was relevant to the measure of damages and to the reasonableness of Jaasma's mitigation efforts, and thus the exclusion of his testimony was not harmless error. Therefore, we will reverse the District Court's grant of judgment as a matter of law and the order excluding DiPippo's testimony.

Our review of the District Court's grant of judgment as a matter of law is plenary. Mosley v. Wilson, 102 F.3d 85, 89 (3d Cir. 1996). Judgment as a matter of law is warranted only if "there is no legally sufficient evidentiary basis for a reasonable jury to find" in favor of Jaasma. Fed. R. Civ. P. 50(a)(1). "The question is not whether there is literally no evidence supporting the party against whom the motion is directed but whether there is evidence upon which the jury could properly find a verdict for that party." Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure §2524 (1971), quoted in Patzig v. O'Neil, 577 F.2d 841, 846 (3d Cir. 1978).*fn1

I. FACTUAL AND PROCEDURAL BACKGROUND

Jaasma owns a 1.3-acre parcel in West Paterson, New Jersey, which she leased to Shell in 1988. Shell or its franchisees had been operating a gasoline station at this site since 1961, and continued to do so after entering into the lease agreement. On October 31, 1996, Shell exercised an option to extend the lease for an additional five years, and two years later, Shell assigned the remainder of the lease to Motiva. In a July 31, 2001, letter, Motiva stated its intention to leave the property at the end of the lease, which was scheduled to terminate on October 31, 2001.

Jaasma claims, however, that Motiva and Shell failed to return the property to its "original state" as required by the lease terms. Paragraph 20A of the Addendum to the Lease states in pertinent part:

It is also agreed that all gasoline, waste oil and fuel oil tanks shall be removed from the Premises at the expiration of the Lease by Shell and the Premises restored to its original state.

Shell shall comply with all applicable environmental laws and shall hold the Lessor harmless and shall indemnify the Lessor against all claims whatsoever arising out of any violation of said laws or any contamination of the subject property by hazardous substances attributable to Shell.

Additionally, Paragraph 20 of the lease states, "At any termination of this Lease or any tenancy thereafter, Shell shall surrender the Premises to Lessor, subject to ordinary wear and tear . . . ."

Jaasma alleges that the property was contaminated by the gas station's operations during the lease. The environmental problems on the property first began in November 1989, when, during the removal of a 25-year-old waste-oil tank, contaminants were noticed in the adjacent soil. The leak was reported immediately to NJDEP. Between 1990 and 1997, NJDEP required Shell and Motiva to remediate the property and to conduct nearly seven years of sampling of the soil and groundwater to monitor contaminant levels. On January 7, 1997, NJDEP issued a conditional NFA, which stated, "Shell has complied with the existing requirements regarding the remedial investigation and remedial action for the underground storage tank system," but found that levels of contamination remained above the state's Ground Water Quality Standards. As a result, NJDEP required Shell/Motiva to conduct further sampling to ensure that the soil and groundwater control complied with NJDEP regulations and restricted the "use of groundwater as a potable water supply . . . without the proper precautions."

On October 24 and 25, 2001, one week before the end of the lease, Shell/Motiva removed the underground storage tanks, and petroleum discharges were again found in the soil adjacent to the tanks. On January 31, 2002, three months after the lease terminated, Motiva prepared an Underground Storage Tank Closure Remedial Investigation Report, which stated that, while some discharge was apparent, the tanks were structurally intact, they had no holes or cracks, and post-excavation soil samples did not identify any above-level concentrations of regulated compounds. The Remedial Investigation Report also stated that nearly 6,500 tons of soil were removed from the property as part of excavation activities and replaced with clean fill.*fn2

Three months later, on April 5, 2002, NJDEP acknowledged the receipt of Motiva's Remedial Investigation Report. The NJDEP response did not, however, give the property a clean bill of health, but rather identified certain deficiencies that Motiva still needed to address. In particular, NJDEP stated that the soil samples had not been properly prepared and that Motiva needed to resample in accordance with NJDEP requirements and to install new monitoring wells.

Motiva claims that it was delayed in completing this testing because, in June 2003, NJDEP requested that Motiva conduct further groundwater sampling pursuant to the 2003 amendments to state environmental regulations. On September 29, 2003, Motiva submitted the supplemental information requested in NJDEP's April 5, 2002, letter. This report confirmed that the contaminants in the soil and water continued to be below regulated levels. NJDEP issued a final NFA on February 18, 2004, which reported that the ...


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