Tuesday, October 12, 2010

State Gets Taken to the Cleaners with Discovery Snafus

Once upon a time in Barre, there was a dry cleaner, who like many in the trade, did not necessarily follow the best practices when it came to disposing of its incredibly dangerous and deadly toxic chemicals.  But what is a little illegal dumping among friends, eh paisano?  Needless to say, the owners of Howe Cleaners are long since gone, dead in early graves or enjoying their ill-gotten, pollution-fueled profits on some beach in the Bahamas. 

Instead we have the baker, the banker, and the defunct pizza-bread maker.  These three entities took ownership of the building/toxic waste dump over the past ten years, and they are the entities that the state sought to stick with the large bill it incurred cleaning the site. 

The State brought an action under the Vermont Waste Management Act (VWMA) (10 V.S.A. § 6615) and under a common law theory of public nuisance to recover from the new landowners.  The VWMA allows the State to seek recovery from owners up the chain of title who took ownership of the property after the site had been contaminated.  The statute is a strict liability provision that tracks the Federal Government’s CERCLA regime, but not too closely, as the majority in this case finds. 

Before the parties were able to reach any of the nitty-gritty of their claims, they began duking it out over depositions and the finer points of discovery procedure.  Banknorth began with a motion for summary judgment designed to flush out the State’s evidence, followed by a notice of deposition under Rule 30(b)(6), which names a governmental agency but allows the agency to designate a deponent.  The State refused.  Banknorth sought a motion to compel, and the State, a protective order. 

In June 2006, the trial court rejected the State’s arguments and granted Banknorth’s motion to compel.  But the parties headed to mediation.  Once mediation failed, Defendants Banknorth and Fiore, the pizza-maker, served a “re-notice of deposition” on the State.  The notice was sent on October 10th and the depositions were scheduled for November 1st.  Five days before the depositions, the State filed for a second protective order and notified the Defendants that it would not attend.  Defendants attended a very brief deposition on November 1st, most of which was no doubt spent planning the motion for sanctions that followed.  In May of 2007, the trial court sided with Banknorth and Fiore, and precluded the State “from using at trial evidence that should have been provided in accordance with the court’s June 2006 order.”  This order effectively shut down the State’s case against Banknorth, and one swift summary judgment motion later, the case against Banknorth and Fiore was dismissed. 

On appeal, the State argues that the trial court erred in applying “litigation-ending sanctions” under Rule 37 without evidence or findings that the State acted in bad faith.  The State argued that the trial court had failed to make any findings of this nature before it made a ruling that effectively shut down the State’s case by not allowing it to put on evidence concerning the release or potential release of toxic material during Banknorth’s ownership.  The Court was unmoved by this line of argument.  The Court ruled that the trial court did not actually dismiss the case; it simply took away the State’s (best and only) evidence. 

The gasp you heard was from our staff logician who seems to be rolling on the floor in some type of fit.  Pay no heed to him as he is not a member of the bar.

The Court continues.  Not only was the sanction not explicitly final, but the whole reason it had a final, completely detrimental effect on the State’s case was because of the State’s faulty strategy.  This will take a minute to unpack.  Pour yourself a glass of limoncello, put on your favorite Brubeck album, and hang in there. 

When Banknorth made its first motion for summary judgment, it raised the issue of whether any releases occurred during its tenure with the property.  This timing issue is a part of the VWMA and an issue on which the State has the burden of proof at trial.  In responding to the motion, the State proffered only general evidence that the trial court noted met its minimum burden of production but little else.  Aha, says the Court, this is your mistake.  If only you, State, had produced more specific evidence at the first motion for summary judgment, then you could have used it later after the sanctions had issued.  Or as SCOV’s staff logician has helpfully reduced down its essentials: if the State had released the information it considered outside the scope of discovery before Banknorth requested it and the State sought to protect, then it could have used that information after its renewed objections were struck down and sanctioned.  This is otherwise known as Lubnitz’s Gambit or “Quit before You Begin.”

The State makes one more argument that the trial court’s dismissal failed to take into account the limitation of the Rule 37 sanction, which the State contended would have allowed the earlier evidence in and required the trial court to distinguish what it was and was not considering as the basis for the dismissal.  The Court disagrees and in applying the “We Gave You the Lemmons, You Make the Lemmonade” Rule, puts it back on the State to have come up with the distinctions in the Rule 37 order to provide proof to defeat Banknorth’s motion.

So far so unified for the Court in its opinion, but the next issue about the diligent owner defense divides the Bench 3-to-2.  The question for the Court is whether Fiore, who bought the property from Banknorth for $2,000 below its assessed value, should be on the hook under the VWMA.  Fiore argued, and the trial court accepted, his diligent owner defense, which says that if an owner acts in a reasonable manner, takes reasonable steps, and still remains unaware of the pollution, then she is off the hook.  In this case, the question is whether Fiore can claim the defense for relying on an environmental Phase I assessment that Banknorth had commissioned, which everyone by the time of trial agreed was faulty, negligent, and more useless than a chocolate teapot. 

For the majority, the issue is not whether Fiore can claim the diligent owner defense for relying on the Phase I study, but whether he was objectively reasonable in light of the totality of the circumstances.  Three justices find that he was.  Their reasoning is that Fiore had no outward evidence to determine that there was pollution on the site, and that it was reasonable to rely on a Phase I Environmental Report.  The majority declines to assign blame to Fiore simply because the report has proven to be completely wrong.  The report read well, and Fiore, who is not a trained environmental engineer, was reasonable to rely on it.

For Justice Johnson, the answer is no.  Fiore used the report and effectively adopted it.  He must, therefore, live or die by the report as his own.  It is a simple issue of agency.  The environmental company was the agent and Fiore was the principal.  The environmental company messed up the study and report.  Fiore stands in the agent’s shoes and has to take responsibility for the unreliable study.  Later, he can sue the company and pass along the costs if a judgment attaches.  But it is strict liability, and a lot of people like him get hurt simply by standing in someone else’s shoes.  Justice Johnson would remand and, without further showing, reject Fiore’s diligent owner defense .

Chief Justice Reiber suggests a different tack.  He believes that the Phase I Environmental Report, while flawed, may be some proof of diligence, but that its weight and ultimate validity is the province of the fact finder to determine.  Being a strictly factual issue, the Chief would reverse the grant of summary judgment and remand the issue back to the trial court for a hearing.

Not to remain fractured, the Court comes back together for the final issue concerning whether the State has another cause of action against Fiore for common law public nuisance stemming from a plume of pollution that has extended hundreds of feet from the site into the area’s groundwater.  The Court finds that this general interest in protecting groundwater is not enough to support a public nuisance claim, which requires a showing that the contamination affects a general public.  The Court suggests that the State is simply trying to re-package a VWMA claim under another name, but it stops short of denying that such parallel claims can exist and rules against the State for failing to present a prima facie case.  The dismissal is affirmed.

On a somewhat related note, there is a great parcel in Barre available for immediate development.  Call B. Sorrell for additional details and MLS number.

—Daniel Richardson

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