Jaasma v. Shell Oil Co ( 2005 )

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
6-28-2005
Jaasma v. Shell Oil Co
Precedential or Non-Precedential: Precedential
Docket No. 04-2095
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 04-2095
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
Argued April 18, 2005
Before: ROTH, FUENTES, and BECKER, Circuit Judges.
(Filed June 28, 2005)
WILLIAM T. SMITH (argued)
ANNE P. WARD
Hook, Smith & Meyer
851 Franklin Lake Road
P.O. Box 128
Franklin Lake, NJ 07417
Attorneys for Appellants
JEFFREY W. MORYAN (argued)
AGNES ANTONIAN
Connell Foley LLP
85 Livingston Avenue
Roseland, NJ 07068
Attorneys for Appellees
OPINION OF THE COURT
BECKER, Circuit Judge.
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
2
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,
3
846 (3d Cir. 1978).1
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
1
The District Court exercised diversity of citizenship
jurisdiction pursuant to 28 U.S.C. § 1332. We have jurisdiction
over Jaasma’s appeal pursuant to 28 U.S.C. § 1291.
4
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.2
Three months later, on April 5, 2002, NJDEP acknowledged
2
Defendants contend that all environmental remediation
efforts were completed by October 31, 2001. Brief for Appellee at
6. However, the Remedial Investigation Report states that the three
underground storage tanks were not removed until November 23,
2001, and does not specify when the excavation activities took
place. It is therefore unclear from the Remedial Investigation
Report when the tank removal and soil excavation were actually
completed.
5
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 groundwater and soil met the applicable environmental
standards under N.J.A.C. 7:26E-1.8, and thus, concluded its
oversight of the property.
Defendants maintain that soil and water samples have
consistently demonstrated that the property was in fact
environmentally safe during the period of NJDEP oversight
following the termination of the lease. They contend that, between
October 31, 2001, and February 18, 2004, NJDEP only requested
“additional confirmatory samples,” but no further remediation
measures were taken or required. Moreover, Defendants have
provided records chronicling each sample taken from October 24,
2001 (i.e. before the lease terminated) until July 3, 2003, reflecting
that the soil and groundwater contaminants were below regulated
levels.
Jaasma does not dispute that contaminant levels in the soil
and groundwater were, with 20/20 hindsight, compliant with
environmental standards during the period between October 31,
2001, and February 18, 2004. Rather, Jaasma alleges that, due to
the ongoing NJDEP review and the uncertainty surrounding the
environmental status of the property, she was not able to rent or sell
the property at fair market value for the twenty-eight months from
the termination of the lease until NJDEP issued the final NFA.
Thus the problem, according to Jaasma, was not the actual
environmental condition of the property, but her inability to
confirm that the property was in compliance with New Jersey’s
6
environmental regulations and the corresponding lack of an NFA.
Jaasma represents that three different realtors advised that she
would not receive fair market value for the property and could not
warrant the condition of the property to prospective purchasers
without an NFA.
Jaasma alleges that defendants would not communicate
about the status of the property for eight months following the
termination of the lease, notwithstanding three letters sent to them
soliciting information about the removal of the tanks and
compliance with environmental laws. Moreover, Jaasma asserts
that defendants did not transmit the Tank Closure Report until
January 31, 2002, and that she only learned about the ongoing
NJDEP investigation of the property on May 10, 2002. Thus, it is
Jaasma’s position that her use and marketability of the property
was hampered by the lack of an NFA and her inability to ascertain
the true environmental status of the property from defendants.
Jaasma claims that, as a result, she waited to market the
property until May, 2003, when she believed that the issuance of
the NFA was “imminent,” although in reality the NFA was not
issued until nearly a year later. Jaasma acknowledges that she
received several offers to purchase the property in the meantime.
While the offers to buy the property were not consummated for
reasons other than the lack of an NFA, Jaasma points out that each
potential buyer specified that an NFA was a precondition of
closing, or at least conditioned the transaction on proof that the
property was free from contamination.3
Jaasma sued defendants in state court alleging in Count I,
that defendants failed to vacate the property at the termination of
the lease and were holdover tenants; in Count II, that defendants
negligently contaminated the property; and in Count III, that
defendants breached the lease by failing to return the property to its
“original condition.” Defendants timely removed the case to the
District Court for the District of New Jersey and then moved for
summary judgment on all counts. After oral argument, the District
3
At one point, the property was under agreement for $1.5
million—$150,000 above the asking price—but the buyer backed
out (in January 2004) for reasons unrelated to the absence of a
NFA.
7
Court granted summary judgment on the holdover tenancy claim
(Count I) and the negligence claim (Count II).
Just prior to trial on the breach of lease claim (Count III),
the District Court heard oral argument on several motions in limine.
First, the Court granted defendants’ motion to exclude the
testimony of Jaasma’s expert, Gary J. DiPippo, after determining
that his testimony did not meet the requirements of Daubert v.
Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Then,
after reviewing the deposition testimony of Jaasma’s remaining
expert witness, Charles Lanyard, the District Court dismissed the
amended complaint, pursuant to Fed. R. Civ. P. 50(a).4 The Court
concluded that Jaasma could not prove damages, and suggested
that there was no evidence defendants had breached the lease. The
Court stated:
It is undisputed that the market value of the
property has not been [a]ffected. It’s unchallenged. What
is sought by the plaintiffs by way of demonstration is that
in 2003 Mr. Lanyard, who was a real estate salesman
working with the brokerage in commercial real estate,
sought prospective buyers of that property. And he says
they, among other concerns besides the price, was the
4
It was premature for the District Court to have decided this
case under Fed. R. Civ. P. 50(a). The Court may grant judgment
as a matter of law under Rule 50 if the motion is brought “during
a trial by jury” after the non-moving party “has been fully heard on
an issue.” Fed. R. Civ. P. 50(a). The Court’s decision in this case
occurred prior to the commencement of trial and prior to the jury
being sworn, and thus was not determined “during a trial by jury.”
We are also not convinced that Jaasma was given the opportunity
to be “fully heard” on the issue of damages. See Echeverria v.
Chevron USA Inc., 391 F.3d 607, 612 (5th Cir. 2004) (holding that
“it is essential that the nonmoving party be permitted to present all
of its evidence” prior to the entry of judgment as a matter of law
under Rule 50); Francis v. Clark Equip. Co., 993 F.2d 545, 555
(6th Cir. 1993). However, because neither party raises an objection
on procedural grounds in this appeal, we will decide this case on
the merits notwithstanding our concerns about the procedural
posture of the District Court’s determination.
8
property clean or were the[re] environmental conditions
that had to be met. And he spoke generally of the need
for [an] NFA . . . .
I am constrained, reluctantly but I am constrained
to say that’s insufficient legally in this circumstance. And
the defendant is right in its recitation of the law. The
measure of damages would be a diminution of . . . the
market value of the property occasioned by whatever
might be attributable to the unreasonable actions of the
defendant . . . or the cost [of] remediation or the cost of
repair[.] [W]e don’t have . . . any assertion that the market
value has been diminished.
We don’t have any assertion as to any cost of
remediation visited upon the plaintiff and we don’t have
any assertion of what any reasonable fact finder could
conclude would be an unreasonable delay by Shell in
doing what it was supposed to do in regard to enforcing,
by enforcing I mean living up to the two paragraphs that
I spoke of . . . .
Thus, by limiting the measure of damages to diminution in
value or cost of remediation or repair, the District Court implicitly
rejected Jaasma’s argument, presented during the oral argument on
the Rule 50 motion, that New Jersey law recognizes damages due
to temporary impairment of the use or marketability of property
caused by uncertainty over its environmental status.
II. BREACH OF THE LEASE AGREEMENT
We must first address the difficult question whether
defendants breached the lease agreement. While the District Court
relied essentially on the damages issue in granting judgment as a
matter of law, the Court also suggested that defendants may not
have breached their obligations under the lease.5 We conclude,
5
A district court exercising diversity jurisdiction must apply
the substantive law of the state whose law governs the action.
Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1373 n. 15 (3d
Cir. 1996) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78
9
however, that a jury could reasonably find that defendants violated
the lease.
Under New Jersey law, a commercial lease is governed by
traditional contract principles, see Ringwood Assocs. v. Jack’s of
Rte. 23, Inc., 398 A.2d 1315, 1320 (N.J. Super. Ct. App. Div.
1979); Matter of Barclay Indus., Inc., 736 F.2d 75, 78 (3d Cir.
1984), under which “[d]iscerning contractual intent is a question
of fact unless the provisions of a contract are ‘wholly
unambiguous.’” Id. at 78 n.3 (citations omitted). Thus, only where
the terms are unambiguous is judgment as a matter of law
appropriate. St. Paul Fire & Marine Ins. Co. v. Lewis, 935 F.2d
1428, 1431 (3d Cir. 1991). To interpret a contract, courts will
consider the “actual words of the agreement themselves, as well as
any alternative meanings offered by counsel, and extrinsic
evidence offered in support of those alternative meanings,” id.,
reading contract terms in context. See Barco Urban Renewal
Corp. v. Housing Auth. of Atlantic City, 674 F.2d 1001, 1009 (3d
Cir. 1982); Restatement (Second) of Contracts § 202(2) (1981).
Additionally, where the contractual language is ambiguous, we
may look to the conduct of the parties following the execution of
the lease to interpret the ambiguous lease provisions. See
Michaels v. Brookchester, Inc., 140 A.2d 199, 204 (N.J. 1958)
(“Where ambiguity exists, the subsequent conduct of the parties in
the performance of the agreement may serve to reveal their original
understanding.”).
There are two phrases in Paragraph 20A of the Addendum
to the Lease Agreement that could support Jaasma’s claim that
Defendants breached their obligations under the lease: first, the
lease states that Shell “shall comply with all applicable
environmental laws”; and second, the agreement states that the
(1938)). “When the state’s highest court has not addressed the
precise question presented, a federal court must predict how the
state’s highest court would resolve the issue.” Id. But “[a]bsent a
definitive statement of the applicable law by the state’s highest
court, a district court may also consider the decisions of state
intermediate appellate courts in order to facilitate its prediction.”
Paolella v. Browning-Ferris, Inc., 158 F.3d 183, 189 (3d Cir.
1998).
10
property shall be returned “to its original state.”
Under the lease agreement, it was Shell’s responsibility to
comply with all applicable environmental laws. The pertinent
environmental regulations include both substantive and reporting
requirements. Thus, the regulations governing underground
storage tanks not only require physical remediation, but also
contain a series of sampling and reporting requirements in the
wake of a reported discharge of petroleum contaminants. See
N.J.A.C. 7:26E-1.1 et seq. Although there is no explicit obligation
for Shell to obtain an NFA or to provide information to Jaasma
about the environmental condition of the property after the
termination of the lease, we believe that a reasonable factfinder
might determine that compliance with “all applicable
environmental laws” includes the obligation to produce the
evidence and reports necessary for NJDEP to issue an NFA.
Evidence of custom and practice in the trade might also support
such a finding. See VRG Corp. v. GKN Realty Corp., 641 A.2d
519, 523 (N.J. 1994) (looking to, inter alia, custom and usage as
evidence of the parties’ intention).
Second, Defendants had a contractual duty to return the
property to its “original state.” Jaasma argues that this obligation
encompasses not only a duty to leave the property free from
physical contamination, but also a duty to leave the property in
marketable condition. Under this view, even if defendants had
successfully remediated the soil and groundwater prior to the
termination of the lease agreement, after the contamination was
discovered, an NFA was a crucial aspect of returning the property
to the “original state” so that the property could be freely marketed
for sale or lease.
We need not decide, as an abstract proposition, whether an
NFA per se is required; we do however believe that a reasonable
fact finder could determine that the duty to return the property to
its “original state” encompasses the duty to leave the property free
from the kind of impediments that would render it unmarketable.6
Based on the deposition testimony of Charles Lanyard (who served
6
Obviously, the legal conclusions reached in this part of the
opinion are our prediction of what the New Jersey Supreme Court
would likely hold. Orson, Inc., 79 F.3d at 1373 n. 15.
11
as both a fact and expert witness for Jaasma), on Jaasma’s proffer
that three realtors told her that she could not sell the property at
market price without an imminent NFA, and on the evidence that
prospective buyers made an NFA a precondition for sale, we
believe that a factfinder could reasonably find that the property
was not fully marketable prior to the issuance of the NFA.7
Finally, New Jersey courts have given “great weight” to the
parties’ course of conduct in discerning the intent of the parties.
See Joseph Hilton & Assoc., Inc. v. Evans, 492 A.2d 1062, 1070
(N.J. Super. Ct. App. Div. 1985); Savarese v. Corcoran, 709 A.2d
829, 832-33 (N.J. Super. Ct. 1997). Where the contract terms are
ambiguous, New Jersey courts have been willing to infer
contractual duties based on the conduct of the parties. For
example, in Michaels, 140 A.2d at 200, tenants sued their landlord
for failure to repair a cabinet door’s hinge, which gave way,
injuring one of the tenants. The New Jersey Supreme Court found
that the lease “contain[ed] no clearcut promise by the tenant or
landlord with respect to repair of the defect[ive cabinet door] . . . .”
Id. at 204. Nevertheless, the court found that “[w]hen we look to
the actual performance of the parties, we find conduct which
persuasively justifies the conclusion that the parties did intend by
the writing that the landlord make repairs” because the landlord
generally furnished a maintenance crew, had made repairs on prior
occasions in response to tenants’ calls, and “readily agreed to
repair the cabinet door” when asked. Id. at 205-06.
The parties’ course of conduct in this case supports the view
7
At his deposition, Lanyard was asked whether the property
would be unmarketable if the contamination was removed before
the tenant left the site and all that remained was ongoing testing.
Lanyard testified, “Once there is a no further action [letter],
[potential buyers] know—they feel they can proceed without a
problem. But if there is [sic] some other concerns or some
monitoring problems that might occur or future question as to . . .
whether or not they can build on the property, it’s going to come
up; the issue will, in fact, be raised.” Even if the property could be
built upon immediately, Lanyard stated, “somebody would have a
higher comfort level. But I’m sure that . . . they would still look for
the final cleanup, especially on buy situation . . . .”
12
that it was defendants’ obligation under the lease not only to clean
up the property, but also to engage in the sampling and reporting
necessary to obtain an NFA and to restore the property to fully
marketable status. Jaasma has adduced evidence which shows
that, following the first spill in 1989, defendants took full
responsibility for dealing with NJDEP regulatory procedures by
conducting all of the physical remediation, and by taking the
necessary samples, submitting the data, and handling the
regulatory processes in order to obtain a conditional NFA.
Moreover, as in Michaels, during the events which gave rise to this
litigation, defendants have apparently never disputed that they
were responsible for obtaining an NFA and they have in fact done
so. The parties’ course of dealing thus further justifies submitting
the breach element to the jury.
In sum, given the varying interpretations offered by Jaasma
and defendants of the contractual language, see St. Paul Fire &
Marine Ins., 935 F.2d at 1431 (looking to “alternative meanings
offered by counsel” to discern contractual intent), we cannot say
that the lease is “wholly unambiguous” as to defendants’
contractual duties. And we conclude that the language of the lease
and the parties’ course of dealing present a jury question whether
defendants had a duty under the lease to obtain an NFA following
the discharge of contaminants from defendants’ underground
storage tanks and to render the property fully marketable by the
conclusion of the lease term.
III. DAMAGES
A. Loss of Use as a Measure of Damages
As a threshold matter, we must determine whether New
Jersey law recognizes loss of use as a measure of damages for
breach of lease resulting in uncertainty impairing the marketability
of real property. Jaasma contends that the District Court erred as
a legal matter in holding that, under New Jersey law, the only two
measures of damages for breach of lease are diminution in value
and cost of repair or remediation. It is clear, however, that New
Jersey recognizes lost rental income as a standard measure of
damages for breach of a lease. See McGuire v. City of Jersey City,
593 A.2d 309, 315 (N.J. 1991); River Road Assocs v. Chesapeake
13
Display & Packaging Co., 104 F. Supp. 2d 418, 425 (D.N.J. 2000)
(“Under New Jersey law, a commercial landlord may recover for
lost rental income resulting from a tenant’s breach of a lease.”).
Moreover, in both T&E Indus., Inc. v. Safety Light Corp.,
587 A.2d 1249, 1263 (N.J. 1991), and Silgato v. State, 632 A.2d
837, 842 (N.J. Super. Ct. App. Div. 1993), New Jersey courts
recognized that loss of use is one of several possible measures of
damages for tortious harm to real property. This comports with the
common law of property, which includes loss of use or lost rental
value as a proper measure of damages when land is temporarily
unusable, but then later returned to its original state. Thompson on
Real Property states:
Loss of rental value may be the appropriate measure of
damages, if the property itself is not harmed but its
usefulness has been impaired . . . . If temporary damages
are recovered for harm to property, those damages are
measured by the loss of the rental value or loss of use
value of the property as a result of or during the
continuance of the nuisance.
8 Thompson on Real Property § 67.06(a)(2), at 119-20 (David A.
Thomas ed. 1994); see also 9 Powell on Real Property § 64.07[3],
at 64-42 (Michael Allan Wolf ed., Matthew Bender) (“When the
harm caused by a nuisance is only temporary and can be abated,
the measure of damages normally is the depreciation in the rental
or use value of the affected property.”).
The more difficult question, presented here, is whether
damages for loss of use are available during the period of
uncertainty which may occur after the clean-up is physically
completed, but before the property has been certified as compliant
with all environmental regulations. Jaasma argues that, even if the
property did not in fact require any further environmental
remediation after the termination of the lease, she suffered
damages so long as the cloud of uncertainty from the prior
contamination lingered.
We are satisfied that New Jersey law does recognize
damages for the uncertainty that follows in the wake of
environmental contamination. More specifically, Bahrle v. Exxon
Corp., 652 A.2d 178 (N.J. Super. Ct. App. Div.1994), supports the
14
proposition that New Jersey law recognizes an injury due to the
temporary uncertainty surrounding the environmental status of
property created by NJDEP investigation. In Bahrle, adjoining
landowners sued the proprietors of a gasoline service station under
a nuisance theory for groundwater contamination due to alleged
spills from the station’s underground storage tanks. The trial judge
had dismissed the claims of seventeen plaintiffs whose water never
registered as contaminated, but who lived within the “redlined”
area where NJDEP prohibited new wells. The Appellate Division
reversed, finding that even though these landowners’ wells were
not contaminated in fact, there was foreseeable damage caused by
the redlining itself, including plaintiffs’ hesitancy to use the water
for drinking or showering during the pendency of the
investigation. Id. at 194.
NRC Corp. v. Amoco Oil Co., 205 F.3d 1007 (7th Cir.
2000), is also instructive. Amoco had leased land from NRC for
a gasoline station. At the end of the lease period, it was discovered
that the underground storage tanks were leaking and had
contaminated the property. NRC sued Amoco for the loss of the
use of the property during the remediation period, and the district
court awarded the full fair rental value from the time of the
termination of the lease until the Indiana Department of
Environmental Management approved the corrective action plan
and remediation was completed. Id. at 1013.
Amoco claimed that NRC could have used the property
during the remediation and argued that NRC had voluntarily
declined to market the property. The Seventh Circuit disagreed,
concluding that the evidence established that “until the corrective
action plan was approved . . . the property was unmarketable.
After that time, while the property was undergoing remediation,
uncertainty remained. Testimony demonstrated that lenders would
be reluctant to get behind the property without guarantees that
remediation was working.” Id. We find this case persuasive.
We conclude that the District Court erred by limiting its
assessment of damages to diminution of value or cost of
remediation and thereby ignoring damages for temporary loss of
use. Moreover, in light of Bahrle, we find that, even in the
absence of actual pollution, a claim is cognizable under New
Jersey law for the period of uncertainty following a pollution
incident, particularly where that uncertainty is due to ongoing
15
investigation by the state environmental agency.8
B. Mitigation of Damages
Defendants argue that Jaasma is entitled to loss of use
damages only if she can establish that she reasonably mitigated her
damages. See McGuire, 593 A.2d at 314; Fanarjian v. Moskowitz,
568 A.2d 94, 98 (N.J. Super. Ct. App. Div. 1989) (extending the
mitigation of damages requirement to commercial leases). The
issue of mitigation was not reached by the District Court because
the Court disposed of the case on the issue of availability of
damages; however, as it has been properly raised and could
dispose of the case, we will address it on appeal. See Storey v.
Burns Intern. Sec. Svcs, 390 F.3d 760, 761 n.1 (3d Cir. 2004) (“An
appellate court may affirm a result reached by the district court for
reasons that differ from the conclusions of the district court if the
record supports the judgment.”).
Under New Jersey law, “Whether the landlord’s efforts to
8
During oral argument on defendants’ Rule 50 motion, the
District Court questioned whether the delay in obtaining the NFA
may have been due to “state bureaucracy,” rather than caused by
any failure on the part of defendants. The question of contractual
liability for governmental delay is governed by the usual principles
of consequential damages. New Jersey has adopted the traditional
rule of Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854),
that consequential damages are available for those delays that may
“fairly and reasonably be supposed to have been in the
contemplation of the parties to the contract at the time it was made,
as the probable result of the breach.” Sandvik, Inc. v. Statewide
Sec. Sys, Div. of Statewide Guard Servs, Inc., 469 A.2d 955, 958
(N.J. Super. Ct. App. Div. 1983). Liability for bureaucratic delay
following a breach of contract, like all consequential damages,
therefore, is limited by reasonable foreseeability. Among the
things that might be considered on remand is whether the delays
incurred in this case were a foreseeable consequence of waiting to
remove the tanks until one week before the lease terminated and
whether such delays were contemplated by the parties when they
executed the Addendum to the lease agreement.
16
mitigate its damages were reasonable is a question of fact.” See
Harrison Riverside Ltd. P’ship v. Eagle Affiliates, Inc., 707 A.2d
490, 493 (N.J. Super. Ct. App. Div.1998). Moreover, New Jersey
courts have recognized that landowners do not have an obligation
to mitigate when such efforts would be fruitless. See Borough of
Fort Lee v. Banque Nat’l de Paris, 710 A.2d 1, 7 (N.J. Super. Ct.
App. Div. 1998).9
Defendants submit that Jaasma did not exercise the requisite
diligence in attempting to market the property for lease or sale
after the termination of the lease. Jaasma did not place the
property on the market until May 2003, at which time she received
three offers above the asking price and a lease offer for over
$5,000 a month more than defendants had been paying.
Jaasma, on the other hand, testified that she approached
three realtors about marketing the property, each of whom told her
that she would be “very unlikely to seize [sic] any money until we
had . . . specific and clear evidence . . . from Shell that there was
no further action required with respect to any contamination.”
SA2. Jaasma represents that for the first eight months, defendants
would not provide her with any information about the
environmental status of the property, and that she was unable to
get confirmation even that the tanks had been removed.
Additionally, Jaasma received NJDEP’s April 5, 2002, letter,
which established that the soil samples were clean, but which also
required defendants to continue testing—a process that entailed the
installation of monitoring equipment on the property and could
have led to additional remediation requirements.
Jaasma further claims that the defendants’ first disclosure
was not until June 2002, at which time the defendants provided
only the Tank Closure report, but not further information about the
9
In Borough of Fort Lee, the Court found that a tenant’s
holdover “so chilled the leasing market for the property that it
would have been fruitless [to mitigate damages by conducting
necessary repairs] until [the landowner] could be assured that
tenant would vacate.” 710 A.2d at 7. Therefore, the Court held
that the landlord was not obligated “to risk lowering the long term
value of the property by leasing to less discriminating class C
tenants.” Id.
17
status of the environmental investigation of the property. Jaasma
therefore argues that it was not until May 2003 that she reasonably
believed that the NFA was sufficiently imminent that she could
successfully market the property.
New Jersey regulations do not require that an NFA be issued
prior to the sale of a retail gasoline station. See N.J.A.C. 7 § 26B-
1.4. Nevertheless, retail gasoline stations are subject to the
technical requirements for site remediation which must continue
until NJDEP issues an NFA. See N.J.A.C. 7:26C-2.6 (setting forth
the prerequisites for obtaining an NFA). Jaasma represents that,
once she listed the property with a realtor, all serious bidders
required an NFA or assurances of environmental safety as a
condition of closing, which she could not provide during the
pendency of the NJDEP investigation. Thus, she claims that the
offers cited by defendants were made on the express precondition
that an NFA would be obtained.
After evaluating the record, we find that Jaasma has
adduced sufficient evidence that a jury could find that she made
reasonable efforts to mitigate, given the uncertainty surrounding
the property’s environmental status. Moreover, even if Jaasma
made insufficient mitigation efforts, that fact might not foreclose
her entire claim, but would only diminish the damage award by the
amount that she could have received if she had engaged in
reasonable mitigation. See Harrison Riverside Ltd. P’ship, 707
A.2d at 492 (holding that plaintiff’s failure to mitigate does not
preclude all recovery, but bars a landlord’s recovery against the
breaching tenant only to the extent that damages reasonably could
have been avoided). Because the mitigation issue is fact-bound,
and given the evidence of the futility of mitigation efforts during
the period of ongoing NJDEP investigation, we conclude that
judgment as a matter of law is not appropriate on the grounds of
lack of reasonable mitigation.
IV. EXCLUSION OF GARY J. DIPIPPO’S TESTIMONY
Jaasma argues that the District Court erred in excluding the
testimony of her expert, Gary J. DiPippo. The District Court
concluded that DiPippo would not be able to give a reliable opinion
regarding the environmental status of the property in 2001 because
the only available soil and groundwater data was from 1996 and
18
2003. Therefore, the Court found that “[a]ny conclusion that the
health hazard existed at the end of the lease term is . . . too
speculative to be admissible, particularly in the context of later
tests in 2003, two years later, indicating that there is no health
hazard apparently or benzine is not present.” We review the
decision to admit or reject expert testimony under an abuse of
discretion standard. Schneider ex rel. Estate of Schneider v. Fried,
320 F.3d 396, 404 (3d Cir. 2003); see also United States v. Trala,
386 F.3d 536, 541 (3d Cir. 2004).
To qualify as an expert under Fed. R. Evid. 702, a witness
must have sufficient qualifications in the form of knowledge,
skills, and training. In re Unisys Sav. Plan Litig., 173 F.3d 145,
155 (3d Cir. 1999). In addition, expert testimony must satisfy the
standards set forth in Daubert v. Merrell Dow Pharmaceuticals
Inc., 509 U.S. 579 (1993), that the expert testimony (1) must be
based on sufficient facts and data; (2) must be the product of a
reliable methodology; and (3) must demonstrate a relevant
connection between that methodology and the facts of the case.
In short, an expert must have the requisite “qualifications,
reliability, and fit.” Unisys Sav. Plan, 173 F.3d at 156.
The District Court does not appear to have questioned
DiPippo’s qualifications, and it seems clear from the record that
DiPippo’s qualifications pass muster. He is a civil and
environmental engineer who is registered in New Jersey and is a
manager of an environmental consulting firm. He has been
working in environmental engineering for thirty years and has
extensive experience in the area of environmental remediation and
regulatory compliance.
The District Court instead used the reliability calculus to
exclude DiPippo’s testimony. The Court apparently believed that
DiPippo was going to testify to the actual condition of the property
as of October 31, 2001, based on extrapolations from the available
data. Jaasma correctly contends that the Court misunderstood the
purpose of DiPippo’s testimony. Jaasma’s proffer was not that
DiPippo would have testified to the actual condition of the
property in 2001, but rather that he would have established the
uncertainty surrounding the environmental status of the property
between the termination of the lease in 2001 and the issuance of
the NFA in 2004. He also would have offered his opinion that
Jaasma’s decision to delay marketing the property was reasonable
19
because, even in the face of below-regulation levels of hazardous
substances in 1996, the data left open the potential for danger in
2001.
In his deposition testimony, DiPippo offered several reasons
why Jaasma might reasonably worry about the environmental
safety of the property at the time the lease was terminated,
notwithstanding that the 1996 test data (the most recent testing
available as of 2001) revealed that the concentrations of
contaminants were below regulatory levels. First, he stated that it
was not clear from the 1996 groundwater and soil samples that
there was no “continuous source” of contamination because “two
of the highest concentrations noted for benzene . . . in the vicinity
of the tanks . . . occurred in the later years.” Thus, DiPippo
represented that he could not definitively determine from the 1996
data whether the concentrations of benzene, for example, would
continue to decline after 1996. In addition, he could not say,
without further information, whether certain compounds had
degraded or would continue to degrade during that time.
Second, DiPippo testified that the samples taken October
30, 2001, were “of inadequate size to do volatiles analysis . . . So
that while I look at these numbers and they all are below those
cleanup criteria, there is still this question lingering about whether
those results should be relied upon at this point.” Finally, DiPippo
stated that, even considering the data from the most recent
sampling in 2003, “there are some lingering questions on the site”
as to the risk of “vapor intrusion” because the concentrations
previously thought safe are now considered to have been too
permissive.
In Jaasma’s submission, this testimony is highly relevant to
her damages claim and to the reasonableness of her caution in
marketing the property once the petroleum leak was discovered.
We agree with Jaasma that, while it may have been speculative for
DiPippo to testify to the actual condition of the property in 2001,
there appears to be nothing unreliable about DiPippo’s testimony
regarding the uncertainty surrounding the property during that
time.
Defendants’ main counterargument is that DiPippo’s report
is “merely a summary of the environmental documents submitted
by defendants” which was not based on “independent testing.”
This argument has no support. We do not require an expert to base
20
his or her opinions on independent data collection or field
research; rather, the question is “whether an expert’s data is of a
type reasonably relied on by experts in the field . . . [and] whether
there are good grounds to rely on this data to draw the conclusion
reached by the expert.” In re TMI Litigation, 193 F.3d 613, 697
(3d Cir. 1999); see also Fed. R. Evid. 703 . There is no doubt that
the data DiPippo relied upon was reliable. Instead the question
was whether DiPippo was justified in making conclusions about
the uncertainty surrounding the environmental status of the
property in 2001 based on 1996 and 2003 data.
In sum, DiPippo’s testimony satisfies the Daubert standard.
He clearly has the requisite qualifications. His proposed testimony
“fits” as it goes to the risks associated with remediation efforts,
which are relevant to Jaasma’s claim for damages and her
mitigation argument. Because the District Court’s decision to
exclude DiPippo was based on a misunderstanding of the purpose
of the expert testimony, and because the testimony appears to meet
the Daubert standard, we find that the Court abused its discretion.
V.
For the foregoing reasons, we will reverse the decision of
the District Court granting defendants judgment as a matter of law
and excluding Jaasma’s expert, Gary J. DiPippo, and will remand
this case for further proceedings consistent with this opinion.
21