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MEHLENBACHER v. AKZO NOBEL SALT

September 28, 1999

TERRY MEHLENBACHER, ET AL., PLAINTIFF,
v.
AKZO NOBEL SALT, INC., DEFENDANT. INTEGRATED WASTE SERVICES, INC., PLAINTIFF, V. AKZO NOBEL SALT, INC., DEFENDANT.



The opinion of the court was delivered by: Larimer, Chief Judge.

DECISION AND ORDER

These two cases both arise out of the March 1994 collapse of a salt mine being operated by defendant Akzo Nobel Salt, Inc. ("Akzo"). Several motions are pending in both cases, but since in many respects they involve similar if not identical issues of law, solely for purposes of these motions and this Decision and Order I am consolidating these cases pursuant to Rule 42(a) of the Federal Rules of Civil Procedure, which permits consolidation "of any or all the matters in issue" in "actions involving a common question of law or fact. . . ."

PROCEDURAL BACKGROUND

Although the plaintiffs in both cases are owners of surface property above or near the mine, the two cases have very different procedural histories. In Integrated Waste Services, Inc. v. Akzo Nobel Salt, Inc., 95-CV-6247L (hereinafter "Integrated Waste" or "IWS"), the two plaintiffs, Integrated Waste Services, Inc. ("IWS"), and Bear Development Company, Inc. ("Bear"), sued Akzo for damage caused to the mine cavities (in which IWS and Bear held a reversionary interest) by water that filled the cavities in the aftermath of the collapse, as well as for surface damage. On April 16, 1996, I granted summary judgment in favor of Akzo on all of plaintiffs' claims. Integrated Waste Services, Inc. v. Akzo Nobel Salt, Inc., 921 F. Supp. 1037 (W.D.N.Y. 1996).

Plaintiffs appealed, and the Court of Appeals for the Second Circuit affirmed as to plaintiffs' claims for damage to the mine cavities, but, stating that plaintiffs' evidence of surface damage, though "meager," was "enough to permit them to introduce more specific evidence at trial," reversed and remanded as to that issue alone. Integrated Waste Services, Inc. v. Akzo Nobel Salt, Inc., 113 F.3d 296, 303 (2d Cir. 1997).

Akzo has now moved for summary judgment on this sole remaining claim on the grounds that plaintiffs have presented no evidence of surface damage, and that as a matter of law plaintiffs cannot recover for loss of market value due to public fear of future surface damage, i.e., so-called "stigma" damage. Plaintiffs have moved for summary judgment on the issue of liability, asserting that the only issue left upon remand from the Second Circuit is to establish the amount of plaintiffs' damages. Akzo denies that it has conceded liability for anything other than actual physical damage to surface properties, and maintains that plaintiffs have presented no evidence of such damage.

Plaintiffs in the other case, Mehlenbacher v. Akzo Nobel Salt, Inc., 94-CV-6343L (hereinafter "Mehlenbacher"), consist of both individuals and businesses who reside or do business in the vicinity of the collapsed portion of the mine. They seek to represent a class comprising all individuals, businesses, and professional entities residing within thirteen miles of the site of the collapse. Plaintiffs have moved to certify the proposed class pursuant to Rule 23 of the Federal Rules of Civil Procedure. Akzo has moved for partial summary judgment dismissing all claims for stigma damage and for emotional distress that is not related to actual physical illness or injury, including emotional distress related only to property damage.

Although Akzo has not conceded that any of the named plaintiffs have sustained physical damage to their surface property, it does contend that at the very least, the vast majority of the plaintiffs in both cases own property that is located in areas where the mine collapse and flooding caused no surface damage at all. According to Akzo, the area over that part of the mine that collapsed completely, i.e., where the underground salt pillars supporting the mine cavity roof completely dissolved (which Akzo refers to as "Area # 1"), covers only about fifty acres, which comprises less than one percent of the roughly 6550 acres over the entire mine. Akzo states that "Area # 2," which was subject to moderate subsidence, covers about 1000 acres (about fifteen percent of the mine surface area), and "Area # 3," which covers the remaining 5500 acres, was subject to no physical surface damage at all. According to Akzo, plaintiffs' lands are primarily located in Area # 3, and could not have sustained any surface damage. Akzo also states that in Area # 2, even though there was some subsidence in the immediate aftermath of the mine collapse, subsidence there now is actually occurring more slowly than before the collapse, because the mine there is completely filled with saturated saltwater, so that the pillars are no longer dissolving, and the water itself acts as a support for the surface.

DISCUSSION

I. Claims for "Stigma" Damage

Whether plaintiffs can recover damages for diminution in property value attributable to the stigma that has allegedly attached itself to their property in the minds of the public affects both cases in a number of ways. In Integrated Waste, this is a very significant issue because such damages comprise a major portion of the damages claimed by plaintiffs. This issue is important in Mehlenbacher for that reason as well, and also because it will have a bearing on the nature of the class or subclasses that might be appropriate for certification.

Plaintiffs in Integrated Waste contend that they clearly can recover stigma damages because of Akzo's alleged concession of liability in that case. According to plaintiffs, the only issue left to be tried upon remand from the Court of Appeals is one of damages, of which diminution in property value is a part. In support of this assertion, plaintiffs note the Second Circuit's statement that "Akzo, in an affidavit provided to this court, essentially concedes liability for substantiated surface damages resulting from the inundation of the salt mine," 113 F.3d at 302. Plaintiffs take the position that the "surface damages" referred to by the Second Circuit necessarily include stigma damages, because "[t]he diminution in the market value of IWS's property is obviously damage to the surface." Plaintiffs' Memorandum of Law at 3.

I find that proposition far from obvious, however, nor do I believe that the Court of Appeals made any ruling in that regard at all. For one thing, I interpret Akzo's statements concerning its concession of liability to mean only that it concedes liability for physical surface damage. Secondly, as a matter of law it is not at all certain that loss of market value constitutes legally cognizable "damage" giving rise to liability. Before one can recover damages for any thing, there must be an independent basis for liability to begin with. To say that a subsurface owner is strictly liable for damage to the surface, and therefore must pay for any diminution in value, begs the question. The real issue, then, is whether diminution in value does in fact constitute surface "damage."

The parties agree that New York law is controlling in this diversity action. As the Second Circuit has recognized, however, New York law is uncertain about whether stigma damages are recoverable in a tort action involving real property. Scribner v. Summers, 138 F.3d 471, 473 (2d Cir. 1998) (per curiam). Most of the cases discussing such damages involve condemnation or tax proceedings, where the only real issue is the actual market value of the property. In the case at bar, the threshold issue is whether, even assuming that there has been a decrease in the property's value due to the mine collapse, plaintiffs are entitled to recover damages for that decrease.

That is not necessarily true in a tort action against a private defendant. For example, if person A owns a house that enjoys a scenic view of a valley, and person B then builds a house blocking that view, potential buyers might not be willing to pay as much for A's house as they would have before B's house existed, but that does not mean that B is liable to A for the diminution in market value of A's house, absent some tortious act on B's part.

Commerce Holding Corp. v. Board of Assessors of the Town of Babylon, 88 N.Y.2d 724, 649 N.Y.S.2d 932, 673 N.E.2d 127 (1996), also cited by plaintiffs, is likewise not controlling here. Commerce Holding was a tax certiorari proceeding in which the petitioner sought a reduction of the assessed value of its property by a town board of assessors. The main issue was whether environmental contamination should be considered in valuing the property for tax purposes. The Court of Appeals held that it should, and stated that "the stigma remaining after cleanup" was one factor that could be considered. Id. at 732, 649 N.Y.S.2d 932, 673 N.E.2d 127. As the court noted, however, "[t]he cardinal principle of property valuation for tax purposes . . . is that property `[a]ssessments shall in no case exceed full value.'" Id. at 729, 649 N.Y.S.2d 932, 673 N.E.2d 127 (quoting N Y Const., art. XVI, § 2). Since "`full value' is typically equated with market value," the court said, "the assessment of property value for tax purposes must take into account any factor affecting a property's marketability." Id. (citation omitted; emphasis added).

Again, those principles are different from the ones applicable in a tort case. The court or factfinder cannot simply proceed to the question of market value, but must first consider whether there is a basis for liability.

  Plaintiffs in Mehlenbacher cite the Fourth Department's
decision in Scheg v. Agway, Inc., 229 A.D.2d 963, 645 N.Y.S.2d 687
 (4th Dep't 1996), in which the court held that plaintiffs had
stated a cause of action for continuing nuisance based on their
allegation that the value of their property had diminished as a
result of its proximity to the defendant's landfill, which had
been found by the New York State Department of Environmental
Conservation ("DEC") to pose a significant threat to the
environment because of hazardous waste on the site. The
plaintiffs did not claim any damages resulting from actual
exposure of their property or themselves to the toxic chemicals.

Although Scheg lends some weight to plaintiffs' position, I do not believe that it resolves the precise issue presented in the case at bar. The actual issue in Scheg was whether the plaintiffs' claims were timely, and the consequences of the court's finding that the plaintiffs had stated a cause of action was that a three-year statute of limitations for property damage claims applied, that the plaintiffs could claim the benefit of the "continuing wrong" exception to their nuisance claims (which had arisen more than three years before they filed suit), and that the damages that the plaintiffs could seek were limited to those incurred within the three-year period prior to commencement of the suit.

A federal district court applied New York law to a situation roughly analogous to that here in Nashua Corp. v. Norton Co., No. 90-CV-1351, 1997 WL 204904 (N.D.N.Y. Apr. 15, 1997). There, the plaintiff had purchased a factory from the defendant. Alleging that the defendant had contaminated the property, the plaintiff sought remediation costs and, under a nuisance theory, damages for diminution in property value remaining after remediation. The defendant sought to limit damages to the lesser of the two. The court said that the principle that damages should be limited to the lesser of diminished value or cost of remediation only applies when the property can be completely restored to its original condition. The plaintiff had presented proof that this would be impossible. Relying on Criscuola, the court held that the plaintiff could show proof of stigma as part of its proof of diminished value.

Certain factual differences between Nashua Corp. and the instant case, however, reduce its relevance here. First, the plaintiff in Nashua Corp. alleged actual physical injury — chemical contamination — of its property. That is a significant difference. The plaintiffs in Integrated Waste, and at least some of the plaintiffs in Mehlenbacher, have not alleged any actual physical injury. Granted, plaintiffs' subsurface property has been permanently altered, but I have already held in this case that that alteration, i.e., the filling of the mine cavities with water, is not an injury for which plaintiffs are entitled to recover. Integrated Waste, 921 F. Supp. at 1042.

In addition, the plaintiff in Nashua Corp. presented proof that the site could not be restored to its original, uncontaminated condition. The court's holding was therefore based in part on the principle that where property cannot be fully remediated, the difference in market value immediately before the accident and after the repairs have been made may be included in an award of damages. Nashua Corp., 1997 WL 204904 *6. Here, however, Akzo contends that some of the properties have been fully repaired, and that others sustained no physical damage in the first place, ...


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