Scheufler v. General Host Corp.

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
SEP 18 1997
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
TED SCHEUFLER, DEBRA
SCHEUFLER, husband and wife;
PAUL SCHEUFLER, ELVA
SCHEUFLER, husband and wife;
HARVEY WILHAUS; ALICE M.
RICHMOND; MABEL V. COLLE
TRUST; KENNETH D. KNAPP,
EILEEN KNAPP, husband and wife;
PEIRCE KNAPP FARMS, INC., by
agent Walter C. Peirce; VIOLET
STOCKHAM; COLL-MAR FARM,
INC., and LEE SCHEUFLER,
Plaintiffs-Appellees-Cross-
Appellants,
v. No. 96-3011
No. 96-3031
GENERAL HOST CORPORATION, a
New York corporation,
Defendant-Appellant/Cross-
Appellee.
Appeal from United States District Court
for the District of Kansas
(D.C. No. 91 1053-T)
William R. Sampson (Bill J. Hays and Paul W. Rebein with him on the brief), of
Shook, Hardy & Bacon L.L.P., Overland Park, Kansas, for the appellant.
Lee Turner, of Lee Turner, P.A., Great Bend, Kansas, and Deborah Turner
Carney, of Carney Law Office, Golden, Colorado, for the appellees.
Before EBEL, LOGAN, and BRISCOE, Circuit Judges.
BRISCOE, Circuit Judge.
Plaintiffs, a group of landowners and tenant farmers in Rice County,
Kansas, filed this trespass and private nuisance action against defendant General
Host Corporation (General Host), alleging General Host’s salt mining operations
polluted a fresh water aquifer underlying plaintiffs’ properties and prevented
plaintiffs from raising irrigated crops on their land. Plaintiffs filed their action
pursuant to 28 U.S.C. § 1332(a)(1), alleging diversity jurisdiction. A jury
returned a verdict in plaintiffs’ favor on their private nuisance claims and,
following the verdict, the district court imposed punitive damages against General
Host in the amount of $550,000. General Host appeals the jury’s verdict and the
award of punitive damages. Plaintiffs have filed a cross-appeal challenging the
district court’s decision to require the tenant farmers to join as party plaintiffs.
We have jurisdiction pursuant to 25 U.S.C. § 1291 and affirm.
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I.
Since 1908, the American Salt Company (American Salt) has operated a
salt manufacturing plant in Rice County, approximately one-half mile southeast of
Lyons, Kansas. From 1971 to 1988, American Salt was owned and operated by
the Cudahy Company, a Delaware corporation with its principal place of business
in Arizona. In turn, the Cudahy Company was a wholly owned subsidiary of
defendant General Host, a New York corporation.
Cow Creek, a minor tributary of the Arkansas River, is located two miles
south of Lyons. Underlying Cow Creek at varying depths of approximately ten to
seventy feet is the Cow Creek Valley Aquifer, a fresh-water aquifer
approximately one to two miles wide. The water in the aquifer flows in a
southeasterly direction at a rate between one and one-half and five feet per day.
Without the influence of pumping wells, it would take approximately ten years for
the water in the aquifer to travel one mile.
Plaintiffs are owners and tenants of real property in rural Rice County, the
majority of which is used for agricultural production. The specific breakdown of
land ownership is as follows:
Owner Tract
Ted and Debra Scheufler 160 acres in Southwest Quarter of Section
28, Township 20 South, Range 7 West.
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Paul and Elva Scheufler 80 acres in the West Half of the Southeast
Quarter of Section 28, Township 20 South,
Range 7 West.
Harvey Wilhaus 277 acres in Sections 4 and 5, Township 21
South, Range 7 West.
Mabel Colle Trust 147 acres in the Northeast Quarter of
Section 33, Township 20 South, Range 7
West.
Kenneth and Eileen Knapp 160 acres in the Southeast Quarter of
Section 32, Township 20 South, Range 7
West.
Violet Stockham 75 acres in the West Half of the Southwest
Quarter of Section 12, Township 20 South,
Range 8 West.
Peirce/Knapp Farms, Inc. 80 acres in the South Half of the Southeast
Quarter of Section 13, Township 20, Range
8 West.
Alice Richmond 106.1 acres in the Southwest Quarter of
Section 29, Township 20, Range 7 West.
All of these parcels of real property lie, in whole or in part, over the aquifer.
Prior to flowing under these parcels, however, the water in the aquifer flows
under land occupied by the American Salt plant.
In 1977, owners and tenants of land upstream from plaintiffs filed suit
against General Host, Cudahy, and American Salt, claiming salt from American
Salt’s mining operations had contaminated the water in the aquifer, leaving it
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unfit for use in irrigating crops. Following a non-jury trial, the district court
found the water in the aquifer was heavily polluted with salt, rendering it unfit for
domestic and irrigation use. Miller v. Cudahy Co., 592 F. Supp. 976, 990-91
(D.Kan. 1984) (Miller I) (“Salt concentrations of over 30,000 parts per million
have been recorded in water drawn from the aquifer.”). This salt pollution, the
court found, resulted from two sources directly attributable to American Salt--
through surface spills at the American Salt plant, and through direct subsurface
leaks from American Salt’s solution mining and settling activities. Although the
court found growing irrigated crops (such as corn) would have been the most
profitable use of the land owned by plaintiffs, it found the salt pollution of the
water in the aquifer prevented plaintiffs from planting irrigated crops. 1
Based upon these factual findings, the district court concluded the
American Salt plant was a private, continuing, abatable nuisance per accidens
(i.e., a private nuisance that could be abated through proper operation of the salt
plant). Alternatively, the court concluded the plant was operated in a negligent
manner and caused harm to the plaintiff landowners. Accordingly, the court
awarded plaintiffs $3,060,000 “for the temporary damages to [their] annual crops
wrought by the defendants’ continuing abatable nuisance.” Id. at 1005. In
1
Some of the plaintiffs in the instant action were plaintiffs in Miller I. However,
their claims were dismissed prior to trial on the grounds that the contaminated water had
not yet reached the area underlying their real property.
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addition, the court awarded plaintiffs $49,500 in consequential damages to two
domestic water wells and a dairy operation, and approximately $8,200 in damages
resulting from brine flowing over certain portions of plaintiffs’ land. Finally,
based upon what it concluded was defendants’ wanton conduct, the court awarded
plaintiffs $10,000,000 in punitive damages. On appeal, this court affirmed the
district court’s decision in substantial part. Miller v. Cudahy Co., 858 F.2d 1449
(10th Cir. 1988) (Miller II) (upholding findings of liability and award of punitive
damages, but reversing decision to tax as costs against defendants approximately
$40,000 in fees and expenses incurred by plaintiffs’ trial expert during post-trial
investigation of defendants’ post-trial remedial efforts). 2
In Miller I, the district court concluded the salt pollution in the aquifer
posed a threat to other landowners downstream:
Because the aquifer flows, the salt dissolved in it will continue to move
downstream unless steps are taken to extract that salt. Thus, increasing
numbers of the state’s citizens will be injured as the pollution continues to
spread. The aquifer joins the Arkansas River at Hutchinson, and that river
then flows through Wichita, . . . before entering the state of Oklahoma.
2
The pollution of the aquifer by American Salt has resulted in other related
litigation. Specifically, the general liability insurer for American Salt and General Host
filed suit in federal district court in Kansas seeking a declaratory judgment that it was not
responsible to indemnify the companies for damages awarded in Miller I or for the
companies’ settlement of a second similar suit filed against them in 1984. The district
court ruled in the insurer’s favor, and this court affirmed on appeal. American Motorists
Ins. Co. v. General Host Corp., 946 F.2d 1482, 1483 (10th Cir. 1991).
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Miller I, 592 F. Supp. at 999. However, both the district court and this court
concluded the damage to the aquifer could be remedied. Id. (“There is a very
high probability that remedial measures could prove effective in removing a
substantial amount of the pollution from the aquifer at a reasonable cost well
within the range of the defendants.”); Miller II, 858 F.2d at 1456 (“The damage to
the aquifer is remediable.”).
In 1987, the Kansas Department of Health and Environment (KDHE)
ordered General Host to develop and implement a plan to clean up the aquifer.
Following this order, in February 1988, General Host sold the American Salt plant
to NAMSCO. As part of the sale, NAMSCO agreed to take reasonable measures,
at General Host’s expense, to comply with KDHE’s 1987 order.
In January 1987 (at approximately the same time KDHE issued its order to
General Host) the Kansas Department of Water Resources (DWR) adopted an
administrative policy which defined a specific area in Rice County (the Lyons
Special Water Quality Use Area) where there was a known instance of
contamination and water quality problems (i.e., the contamination caused by
American Salt). The policy set forth a procedure for DWR to use in reviewing
applications for proposed appropriation of water for beneficial use in that area.
In particular, the procedure allowed an application to be held until such time as
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DWR could determine whether the proposed application would adversely affect
the proposed cleanup.
In April 1990, the DWR enacted a moratorium on new permits for the
entire Big Bend Water Management District (the District). The District
encompasses parts of eight counties, approximately four or five million acres,
including the Lyons Special Water Quality Use Area (which constitutes
approximately one percent of the District’s total acreage).
The instant case was filed by plaintiffs in February 1991. Plaintiffs
claimed the contaminated portion of the aquifer had reached the area under their
property and prevented them from growing irrigated crops. Accordingly,
plaintiffs claimed the pollution from the American Salt plant constituted a
trespass to their lands and a private nuisance that substantially interfered with
their rights to use and enjoy their lands.
At the time the lawsuit was filed, none of the plaintiffs had applied for, or
received, a permit from DWR to pump water from the aquifer. Subsequently, in
1993, all of the plaintiffs applied for such permits. To date, none of the permits
have been acted upon by the DWR.
Trial commenced on June 27, 1995, and the jury returned a special verdict
in favor of plaintiffs on their nuisance claims on August 1, 1995. In particular,
the jury concluded (1) the groundwater underlying plaintiffs’ properties was
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unsuitable for irrigation because of salt pollution emanating from the American
Salt plant, (2) plaintiffs were unable to irrigate because of salt pollution in the
aquifer, and (3) plaintiffs’ inability to obtain irrigation permits from the State of
Kansas was not an intervening cause for plaintiffs’ inability to irrigate. Based
upon these conclusions, the jury awarded plaintiffs actual damages.
After the initial verdict was reached, the court held a second phase of trial
before the same jury for the purpose of deciding whether punitive damages were
appropriate. In their verdict on this second phase, the jury determined defendant
was liable for punitive damages. Pursuant to Kan. Stat. Ann § 60-3702(a), the
district court held an evidentiary hearing on September 11, 1995, to determine the
amount of punitive damages to be awarded. On October 24, 1995, the court
issued its order awarding plaintiffs $550,000 in punitive damages. In so doing,
the court noted, in pertinent part, that “defendant continued to pollute the aquifer
during the four years following the Miller [I] trial.” Appellant's append. I at 174.
Defendant subsequently filed a motion for judgment as a matter of law,
which was denied on December 6, 1995. On January 4, 1996, defendant filed its
notice of appeal “from the final judgment for actual and punitive damages entered
in this action on the 24th day of October 1995 and from an order denying General
Host’s motion for judgment as a matter of law entered in this action on the 6th
day of December 1995.” Id. at 191. Plaintiffs filed a cross appeal on January 17,
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1996, "from the final judgment for actual and punitive damages entered in this
action on the 24th day of October 1995." Id. at 194.
II.
Defendant’s appeal
Effect of plaintiffs’ failure to apply for or receive irrigation permits
Defendant contends plaintiffs’ claims are barred because they did not
properly apply for, or receive, irrigation permits, and because no groundwater was
available for their use during the period in question. In support of this general
contention, defendant presents a number of arguments: (1) Plaintiffs did not prove
and could not prove any entitlement to use of the groundwater or to damages for
its contamination; (2) the district court failed to properly apply Kansas water law
to plaintiffs’ claims and has substantially interfered with the program for
management and conservation of Kansas water resources established by the
Kansas legislature; (3) plaintiffs have no property interest in the aquifer and
therefore cannot receive damages because there has been no invasion of a legally
protected property interest; (4) plaintiffs’ participation in the state system for
water appropriation was not futile; (5) the assessment of damages against
defendant is manifestly unfair; and (6) the court’s refusal to apply Kansas water
law is against public policy.
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Because defendant is ultimately challenging the district court's denial of its
motion for judgment as a matter of law, our scope of review is de novo. See
Sheet v. Salt Lake County, 45 F.3d 1383, 1387 (10th Cir.), cert. denied 116 S. Ct.
74 (1995). Judgment as a matter of law is proper if the evidence, viewed in the
light most favorable to the non-moving party, presents no genuine issue as to any
material fact and the moving party should prevail as a matter of law. See
Frandsen v. Westinghouse Corp., 46 F.3d 975, 977 (10th Cir. 1995).
Principles of Kansas water law
Since the late 1880’s, Kansas has followed the appropriation doctrine for
water. F. Arthur Stone & Sons v. Gibson, 630 P.2d 1164, 1169 (Kan. 1981).
“The appropriation doctrine is based upon the premises that all unused water
belongs to all of the people of the state,” and “[t]he first person to divert water
from any source and use it for beneficial purposes has prior right thereto.” Id. In
1945, the Kansas legislature enacted the Water Appropriation Act of Kansas (the
Act) and created a procedure for acquiring water appropriation rights. Id.; see
also John C. Peck & Constance Crittenden Owen, Loss of Kansas Water Rights
for Non-Use, 43 U. Kan. L. Rev. 801, 802 (1995). More specifically, the Act
created a permit system for acquiring appropriation rights. The Act also granted
vested rights to all beneficial uses of water occurring at the time the Act became
effective on June 28, 1945. All vested rights carry a priority senior to all
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appropriation rights. Both types of water rights “specify an authorized type of
use (e.g., irrigation or municipal), annual quantity, maximum peak rate of
pumpage, place of use (e.g., the given tract of land that may be irrigated), and
point of diversion (e.g., the location of the well or pump site).” Id. at 805.
The process for obtaining an appropriation right under the Act’s permit
system is multi-staged. The first step is submission of an application. If an
application is approved by DWR, the applicant receives a permit formally called
“an approval of application and permit to proceed.” Id. at 806. “The permit sets
deadlines for the construction of diversion works and for the beneficial use of
water as authorized.” Id. Typically, a permit allows a period of five years in
which to use water and perfect the right. If the deadlines are not met, the permit
may be dismissed for failure to comply with its conditions. “When the perfection
period plus any extensions have expired, DWR personnel review the file and
conduct a field inspection to calculate the extent to which the water right has been
perfected.” Id. DWR’s calculation is formally documented in a certificate of
appropriation. “The certificate represents the final stage of the development of an
appropriation right. Because the appropriation right is a kind of real property
right, the certificate must be filed in the register of deeds office in the county
where the point of diversion is located.” Id.
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In summary, under Kansas law, a person does not acquire a water
appropriation right upon the filing of an application with DWR. Rather, in
DWR’s view, a water appropriation right comes into being only after a permit is
issued and the permit holder actually makes beneficial use of the water as
authorized by the permit. See id. at 807.
Was defendant entitled to judgment as a matter of law because
plaintiffs lacked water appropriation rights in the aquifer?
Applying the principles of Kansas water law to the uncontroverted facts of
this case, it is clear plaintiffs do not have any water appropriation rights in the
aquifer. At the time the lawsuit was filed in 1991, none of the plaintiffs had
applied to DWR for a permit. In 1993, all of the plaintiffs filed applications for
permits with DWR to pump water from the aquifer for purposes of irrigation. To
date, however, none of those applications have been processed (apparently due to
the 1990 moratorium).
Defendant contends it is entitled to judgment as a matter of law because
plaintiffs’ lack of water appropriation rights bars them from recovering damages
for contamination to the aquifer. More specifically, defendant contends because
plaintiffs do not have a right to use any of the water from the aquifer, they have
not been injured by the contamination and thus have no cause of action against
defendant.
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If this were a water rights case, we would perhaps agree with defendant.
The critical flaw in defendant’s argument, however, is that plaintiffs have not
claimed injury to any water appropriation rights. Rather, plaintiffs have
consistently claimed, under a theory of continuing nuisance, that defendant’s
conduct unreasonably interfered with their use and enjoyment of their land, in
particular their ability to grow irrigated crops on their land. See Finlay v. Finlay,
856 P.2d 183, 189 (Kan.App. 1993) (summarizing rules applicable to nuisance
claims under Kansas law); see also United Proteins v. Farmland Indus., 915 P.2d
80, 85 (Kan. 1996) (noting nuisance actions can be based on theories of
intentional nuisance, strict liability, or negligence). Consistent with this theory,
plaintiffs sought and received an award of temporary damages for injuries caused
to their land. See Miller II, 858 F.2d at 1457 (approving temporary damage
formula utilized by district court in first trial); see generally Alexander v.
Arkansas City, 396 P.2d 311, 315 (Kan. 1964) (where injury is temporary or
remediable, measure of damages is depreciation of rental or usable value during
continuance of injury within period limited by statute of limitations).
The fact that plaintiffs had no water appropriation rights in the aquifer and
were not irrigating at the time the contamination occurred was not fatal to
plaintiffs’ continuing nuisance claims. In Vickridge Homeowners Ass’n, Inc. v.
Catholic Diocese of Wichita, 510 P.2d 1296 (Kan. 1973), the Kansas Supreme
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Court held that “‘[a] private nuisance is a tort related to an unlawful interference
with a person’s use or enjoyment of his land.’” Id. at 1302 (quoting Culwell v.
Abbott Construction Co., 506 P.2d 1191, Syl. ¶ 2 (Kan. 1973)). Although the
particular use allegedly infringed must be “reasonable,” id., there is no
requirement that it be actual. See Williams v. Amoco Production Co., 734 P.2d
1113 (Kan. 1987) (outlining essential elements of private nuisance claim;
interference with actual use or enjoyment not an essential element of claim); see
also Meat Producers, Inc. v. McFarland, 476 S.W.2d 406, 410 (Tex. Civ. App.
1972) (“in determining the existence of a nuisance, the jury is not limited to
consideration of the actual use of the land”). This is entirely logical in light of
the fact that the market value of land is tied not to the actual use of the land but
rather to any reasonable use to which the land may be appropriated. See id.; see
also Alexander, 396 P.2d at 315. Thus, although none of the plaintiffs had
actually used their lands for growing irrigated crops prior to learning of the
contamination in the aquifer, they were nevertheless entitled to proceed on their
continuing nuisance claims.
This is not to say, however, that plaintiffs’ lack of water appropriation
rights was irrelevant. As the district court correctly concluded, plaintiffs’ lack of
water appropriation rights was a potential intervening cause for plaintiffs’
inability to grow irrigated crops on their land. See Finkbiner v. Clay County, 714
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P.2d 1380, 1384 (Kan. 1986) (“One person’s [wrongful conduct] is not the
proximate or direct cause of an injury where there is a new, separate, wholly
independent, and efficient intervening cause of the injury and the loss.”); see also
Major By and Through Major v. Castlegate, Inc., 935 P.2d 225, 230 (Kan.App.
1997) (proximate or legal cause of injury is cause which in natural and continuous
sequence, unbroken by efficient intervening cause, produces injury and without
which injury would not have occurred). Because the parties submitted conflicting
evidence on this issue, the district court properly submitted the issue to the jury.
See Barkley v. Freeman, 827 P.2d 774, 778 (Kan.App. 1992) (generally speaking,
question of whether particular act is proximate cause of injury is question for
jury).
In conclusion, we believe the district court correctly treated plaintiffs’ lack
of water appropriation rights as a potential intervening cause for plaintiffs’
injuries rather than as a complete bar to plaintiffs’ continuing nuisance claims.
Was it futile for plaintiffs to apply for water appropriation rights?
In response to defendant’s argument that the lack of water appropriation
rights was an intervening cause for plaintiffs' inability to irrigate, plaintiffs
argued that applying to the DWR for water appropriation rights would have been
futile because the groundwater underneath their property was polluted with salt
before the 1990 moratorium was established. In the instructions to the jury, the
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district court outlined the procedure under Kansas law for obtaining a permit to
irrigate, and specifically noted: "Kansas law does not allow a permit to be granted
for irrigation unless it will actually be put into use. Where the water cannot be
used, a permit application will be denied solely for that reason." Appellant's
append. I at 137. With respect to plaintiffs’ futility argument, the court instructed
the jury:
Plaintiffs contend that their failure to apply for irrigation
permits and the 1990 moratorium do not constitute an independent
and intervening cause because the salt pollution itself would have
prevented plaintiffs from obtaining and using irrigation permits when
they were available. In other words, plaintiffs contend it would have
been futile to apply for irrigation permits.
An act is futile when, under the circumstances surrounding it,
the act will serve no beneficial purpose, and the circumstances which
deprive the act of any benefit are known initially. The law does not
require people to engage in futile acts.
Plaintiffs have the burden to prove futility. If you determine
that to apply for water use permits would have been futile, then you
must find that the failure or inability to obtain irrigation permits is
not an intervening cause for plaintiffs’ inability to irrigate.
Id. at 139.
As reflected in the verdict form, the jury was asked a series of questions
designed to determine whether salt pollution in the aquifer was the proximate
cause of plaintiffs’ inability to irrigate, or whether, as alleged by defendant,
plaintiffs’ inability to obtain irrigation permits from the DWR was an intervening
cause for the inability to irrigate. In returning a verdict in favor of plaintiffs, the
jury determined plaintiffs were unable to irrigate because of salt pollution in the
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aquifer emanating from the American Salt plant, and that plaintiffs’ inability to
obtain irrigation permits was not an intervening cause. More specifically, the jury
rejected defendant’s assertions that plaintiffs’ inability to irrigate was caused by
plaintiffs’ failure to obtain irrigation permits before 1990 and by the 1990
moratorium on new irrigation permits in the Big Bend Groundwater District.
Implicit in these findings is an acceptance of plaintiffs’ futility argument, i.e., the
jury had to implicitly find the groundwater under plaintiffs’ parcels of land was
contaminated prior to 1990, rendering plaintiffs' pursuit of irrigation permits
through the permit application process futile.
On appeal, defendant argues plaintiffs’ participation in the state system for
water appropriation was not futile. Although the precise nature of defendant’s
argument is not entirely clear, we construe the argument as a challenge to the
sufficiency of the evidence underlying the jury’s finding of futility. 3 As our
circuit rules make clear, such challenges require submission and review of the
entire trial transcript. See 10th Cir. R. 30.1.1 (“It is the responsibility of
appellant’s counsel to file an appendix sufficient for consideration and
determination of the issues on appeal.”); see also 10th Cir. R. 10.1.1 (“It is the
3
At the conclusion of its futility argument, defendant implies that plaintiffs failed
to exhaust administrative remedies available to them. See appellant's br. at 29. We find
no merit to this argument. Defendant has cited no Kansas authority that requires a
landowner to seek administrative relief prior to filing a nuisance action.
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appellant’s responsibility to order and provide all portions of the transcript
necessary to give the court of appeals a complete and accurate record of the
proceedings insofar as such proceedings relate to the issues raised on appeal, and
when sufficiency of the evidence is raised, the entire trial transcript ordinarily
should be provided.”). Because defendant has included only a small fraction of
the trial transcript in the record on appeal, we conclude we do not have a
sufficient record to review this issue. See Taylor v. Phelan, 9 F.3d 882, 884 n. 4
(10th Cir. 1993); Deines v. Vermeer Mfg. Co., 969 F.2d 977, 979 (10th Cir. 1992)
(holding twenty pages of trial transcript insufficient for review of claims that
verdict was against weight of evidence, that instructions were clearly erroneous,
and that court made evidentiary errors).
Defendant's other related arguments
Defendant has asserted several other related arguments concerning
plaintiffs' lack of water appropriation rights. Specifically, defendant contends the
district court failed to properly apply Kansas water law to plaintiffs' claims and
has thereby substantially interfered with the program for management and
conservation of Kansas water resources, the assessment of damages against
defendant is manifestly unfair, and the district court's refusal to apply Kansas
water law is against public policy. We find no merit in these contentions.
Although defendant repeatedly contends the district court either refused to apply
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or misapplied Kansas water law, the record on appeal simply does not support
these contentions. To the contrary, the record suggests the court correctly
outlined to the jury the method for obtaining irrigation permits under Kansas law.
Notably, defendant has not challenged any of the court's jury instructions
regarding plaintiffs' legal basis for recovery and the basis for assessment of
damages against defendant.
Did the district court err in allowing Lee Scheufler and
Coll-Mar Farm, Inc., to join as plaintiffs during trial?
Defendant contends the district court erred in allowing tenants Lee
Scheufler and Coll-Mar Farm, Inc., to join the action as plaintiffs under Fed. R.
Civ. P. 17(a), and in allowing these new plaintiffs’ claims to relate back to the
date of commencement of this action. In support of these contentions, defendant
argues these tenants knew their landlords had sued defendant, yet made a
conscious decision not to join the action and incur legal expenses. Defendant
further argues it was prejudiced by joinder of these parties because it did not
conduct discovery in their claims. According to defendant, it may have had a
viable defense against these parties because they may have renewed their
respective lease agreements “with knowledge of the lost crop potential for some
or all of the crop years at issue in the lawsuit.” Appellant’s br. at 35. As for the
relation-back issue, defendant contends the tenants were new parties with new
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causes of action and should have been allowed to seek damages for only the two
years prior to asserting their claims.
Plaintiffs make several arguments in response. First, plaintiffs allege
defendant was aware, prior to suit being filed, of written agreements between the
landowners and tenants authorizing the landowners to pursue claims on behalf of
their tenants. Second, plaintiffs argue defendant made a deliberate tactical choice
not to raise the issue until mid-trial, and was at fault for doing so. Third,
plaintiffs argue defendant was not prejudiced by joinder of the tenants.
Specifically, plaintiffs allege defendant deposed every tenant during the course of
discovery and, in at least two of those depositions, asked questions regarding how
the landlord and tenant had agreed to proceed in this lawsuit. Further, plaintiffs
alleged defendant not only failed to take advantage of additional discovery that
was expressly authorized by the district court, but has also failed to explain on
appeal why it did not do so. Finally, plaintiffs argue it would have been
inequitable for the district court not to allow the tenants to join as plaintiffs in
light of the fact they were injured by defendant’s conduct, and in light of
defendant’s awareness of their injuries and their agreements with their respective
landlords.
In allowing the tenants to join as plaintiffs, the district court relied on Fed.
R. Civ. P. 17(a), which provides that “[n]o action shall be dismissed on the
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ground that it is not prosecuted in the name of the real party in interest until a
reasonable time has been allowed after objection for ratification of
commencement of the action by, or joinder or substitution of, the real party in
interest.” The function of Rule 17(a) “is simply to protect the defendant against a
subsequent action by the party actually entitled to recover, and to insure generally
that the judgment will have its proper effect as res judicata.” Rule 17(a) Advisory
Committee Notes (1966). In reviewing a district court’s decision to allow joinder
of a real party in interest under Rule 17, we apply an abuse of discretion standard.
See Harris v. Illinois-California Express, Inc., 687 F.2d 1361, 1373-74 (10th Cir.
1982); Metropolitan Paving Co. v. International Union of Operating Engineers,
439 F.2d 300, 306 (10th Cir.1971).
We conclude the district court did not abuse its discretion in joining the
tenants as real parties in interest under Rule 17(a). Plaintiffs’ failure to include
the tenants as party plaintiff from the beginning was not the result of some tactic
designed to prejudice defendant, but instead was the result of a mistake as to the
legal effectiveness of the documents allegedly assigning the tenants’ claims to
their respective landlords. 4 See Advanced Magnetics, Inc. v. Bayfront Partners,
Inc., 106 F.3d 11, 20 (2d Cir. 1997) (failure to include proper plaintiff result of
4
In Miller I, the district court allowed landowners to use such assignment
agreements to recover on behalf of their respective tenants. Accordingly, plaintiffs in this
action believed they could use similar assignment agreements.
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mistake as to legal effectiveness of purported assignment of claims). Moreover,
there has been no tangible showing that defendant was prejudiced by the joinder.
Although defendant contends it was unable to conduct discovery on possible
defenses relevant to the tenants’ claims, this is simply untrue. After joining the
tenants as plaintiffs, the district court expressly granted defendant the option of
conducting additional discovery. Apparently, defendant chose not to do so. In
any event, the record suggests defendant was well aware of the relevant parties in
this action and what the critical issues would be, and thus should not have been
surprised by the joinder. See Garcia v. Hall, 624 F.2d 150, 151 n.3 (10th Cir.
1980) (defendants would not be prejudiced by changing named plaintiff because
“[t]hey knew the persons and the issues involved before the statute of limitations
ran”). In particular, the record on appeal suggests defendant was well aware,
from the beginning of the lawsuit, that the plaintiffs/landowners intended to
recover on behalf of their respective tenants. Further, joinder of the tenants did
not alter the complaint’s factual allegations, nor did it substantially change the
issues in the case. In fact, the joinder had no effect on the jury’s function
because the parties stipulated they would divide the damages between landowners
and tenants after trial. Finally, it appears joinder of the tenants was appropriate
to avoid forfeiture of just claims. See Fed. R. Civ. P. 15 Advisory Committee
Notes (1966) (describing purpose of Rule 17(a)).
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In a secondary argument, defendant contends it never moved for dismissal
of any “action” or any “plaintiff,” and therefore the district court should not have
relied on Rule 17(a). This argument is disingenuous. Defendant knew from the
beginning of this action that the plaintiffs/landowners were intending, pursuant to
their agreements with their tenants, to seek full recovery for each parcel of land
(including any portion of damages allocable to the tenants). By claiming mid-trial
that the tenants were real parties in interest, defendant was essentially seeking
dismissal of the tenants’ claims for damages (which the landowners thought they
had a right to bring). Accordingly, we conclude it was entirely appropriate for the
district court to rely on Rule 17(a) in determining whether the tenants were real
parties in interest and in joining them as parties to the action.
As for the relation back of the tenants’ claims, the last sentence of Rule
17(a) specifically provides that “joinder . . . shall have the same effect as if the
action had been commenced in the name of the real party in interest.” In short,
the language of the rule mandated that, once the district court concluded the
tenants were real parties in interest and allowed them to join as plaintiffs, their
claims automatically related back to the original filing of the action. See
Advanced Magnetics, 106 F.3d at 21 (substitution of plaintiffs under Rule 17(a)
“will relate back to the date of the original complaint under the express terms of
that Rule”). Such a result seems particularly appropriate in light of the fact that
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plaintiffs’ failure to name the tenants as parties in the first place was due to their
mistaken belief about the legal effectiveness of their assignment agreements with
the tenants. Although defendant cites to Rule 15(c) in support of its assertion that
the tenants’ claims should not relate back, nothing in that rule undercuts the
mandatory relation-back provision of Rule 17(a). See Fed. R. Civ. P. 15 Advisory
Committee Notes (1966) (“The relation back of amendments changing plaintiffs is
not expressly treated in revised Rule 15(c).”).
Did the district court err in awarding plaintiffs punitive damages?
Defendant contends the punitive damage award imposed by the district
court is duplicative and unreasonable because it was based on the same wrongful
conduct previously punished by the district court in Miller I. In support of this
contention, defendant points to a single sentence in a May 16, 1995, order in
which the district court noted “a large punitive damages award in this case is
unlikely as the defendant has already paid $10 million in punitive damages for the
same wrongful conduct at issue in this case.” Appellant's append. I at 91.
We disagree with defendant's interpretation of the district court's order.
This order dealt with defendant’s motion to bifurcate the trial into liability/actual
damage and punitive damage phases. In noting significant punitive damages had
already been imposed on defendant in 1984, the district court was expressly
considering “the issues of fairness and economy,” id., and was not intending to
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make any definitive ruling with respect to defendant’s liability for punitive
damages in the instant case. For purposes of this appeal, the more telling order is
the one issued by the district court on October 24, 1995. That order, issued after
the jury had authorized punitive damages and after the court had conducted a
hearing on the punitive damages issue, actually imposed punitive damages in the
amount of $550,000 on defendant. In pertinent part, the court noted therein that
“this case involves some wrongful conduct which occurred after the [Miller I]
trial in addition to the original pollution of the aquifer.” Id. at 171. Later in the
same order, the court again emphasized that “defendant continued to pollute the
aquifer during the four years following the [Miller I] trial.” Id. at 174. Finally,
the court specifically stated: “The court believes that the additional pollution
[after 1984] warrants some additional punishment, but recognizes that the level of
misconduct since 1984 is minor compared to the misconduct before that time.”
Id. at 175.
Because the district court specifically found that defendant continued to
pollute the aquifer after 1984 (a factual finding which defendant has not
challenged on appeal), and because the court specifically concluded the additional
pollution warranted punishment, defendant’s argument about being punished
twice for the same conduct is baseless. Although defendant contends the pollution
that occurred after 1984 would not yet have reached the groundwater under
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plaintiffs’ respective properties, there is no indication in the record that it
presented this argument to the district court.
Even assuming, for purposes of argument, that the punitive damages award
in this case is based on the same conduct at issue in Miller I, we conclude
defendant’s argument is meritless for several reasons. First, this case involves
different plaintiffs from Miller I, and thus involves different injuries and
damages. Second, the Kansas Supreme Court rejected a similar argument in
McDermott v. Kansas Public Service Co., 712 P.2d 1199, 1201-03 (Kan. 1986).
Although the Kansas Supreme Court has since expressed concerns about the
extent of punitive damages a defendant may face in mass tort litigation, there is
no indication the court would be receptive to completely eliminating punitive
damage awards in successive lawsuits filed by different plaintiffs although the
lawsuits arise out of the same course of conduct. See Tetuan v. A.H. Robins Co.,
738 P.2d 1210, 1241-44 (Kan. 1987). Third, although the United States Supreme
Court recently emphasized the Due Process Clause of the Fourteenth Amendment
prohibits a state from imposing grossly excessive punishment on a tortfeasor,
BMW of North America, Inc. v. Gore, 116 S. Ct. 1589 (1996), it did not hold
multiple punitive damage awards arising out of the same conduct are
unconstitutional. Fourth, defendant in this case was granted considerable
procedural safeguards with respect to the punitive damage issue. In particular,
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the court bifurcated the trial into actual liability/actual damages and punitive
damages phases. Further, although the jury determined whether punitive damages
should be awarded, it was the district court that determined the amount of those
damages, and the court did so pursuant to strict statutory guidelines. Finally, as
reflected in the October 24, 1995, order imposing punitive damages, consideration
was given to the previous punitive damage award in Miller I. Accordingly, we
conclude the punitive damage award in this case is entirely appropriate.
Plaintiffs’ cross-appeal
Did the district court err in concluding Kansas law precluded the
tenants from ratifying the landowners’ lawsuit on their behalf?
In their cross-appeal, plaintiffs contend the district court erred in
concluding Kansas law prevented the tenants from ratifying the landlords’
lawsuit. Accordingly, plaintiffs argue, it was unnecessary to join the tenants as
real parties in interest under Rule 17(a).
A proper ratification pursuant to Rule 17(a) requires the ratifying party to
authorize continuation of the action, and agree to be bound by the lawsuit’s result.
Mutuelles Unies v. Kroll & Linstrom, 957 F.2d 707, 712 (9th Cir. 1992). In
reviewing a district court’s decision to allow or disallow ratification by the real
party in interest, we apply an abuse of discretion standard. Arabian American Oil
Co. v. Scarfone, 939 F.2d 1472, 1477 (11th Cir. 1991).
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We find no abuse of discretion on the part of the district court in this case.
Under Kansas law, the property interests of a landowner and tenant are distinct,
and one may not recover damages based upon the other's interests. Binder v.
Perkins, 516 P.2d 1012, 1017 (Kan. 1973). Further, Kansas law prohibits the
assignment of tort claims. E.g., Morsey v. Chevron, USA, Inc., 94 F.3d 1470,
1478 (10th Cir. 1996); Heinson v. Porter, 772 P.2d 778, 783-85 (Kan. 1989),
overruled in part on other grounds by Glenn v. Fleming, 799 P.2d 79 (Kan. 1990).
Here, the district court correctly concluded ratification by the tenants in this case
would have amounted to an assignment of their tort claims against defendant, a
result that would have violated Kansas law.
III.
Plaintiffs' response to defendant's motion to file a supplemental appendix is
construed as a request to reconsider this court's order granting the motion.
Plaintiffs' motion to reconsider is DENIED. Defendant's motions to file a second
and third supplemental appendix are GRANTED. The judgment of the district
court is AFFIRMED.
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