Filed 1/8/18

CERTIFIED FOR PARTIAL PUBLICATION*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

CITY OF MODESTO et al.,

Plaintiffs and Appellants,

v.

THE DOW CHEMICAL COMPANY et 

al.,

Defendants and Respondents.

 A134419

 (San Francisco County Super. Ct.

 Nos. CGC-98-999345 & 

 CGC-98-999643)

I. INTRODUCTION

In late 1998, the City of Modesto (the City), the City of Modesto Sewer District 

No. 1 (the Sewer District) and the Modesto Redevelopment Agency (the RDA) sued 

various retail dry cleaning businesses (dry cleaners) operating in Modesto together with 

the manufacturers of dry cleaning equipment used at those dry cleaners, and the 

manufacturers and distributors of dry cleaning solvent. Plaintiffs alleged that defendants 

had caused the City’s groundwater, sewer system and easements, and the soil of property 

located within the project area of the RDA, to become contaminated with 

perchloroethylene (PCE), a “toxic chlorinated solvent[].” Plaintiffs sought recovery for 

the past, present and future costs of investigation and remediation of the contamination at 

numerous sites under multiple legal theories. 

This action has engendered nearly 14 years of litigation, including three detours to 

this court, and five trial phases. A final judgment was entered in November of 2011, and 

an amended judgment in May 2012. To the extent it can be summarized in one sentence, 

* Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, Sections I, II, 

III.B. and Section IV.A. (except subsection 1.) of this opinion are certified for 

publication.

1

 
the judgment awarded plaintiffs damages with respect to three dry cleaning sites, 

including an award of punitive damages against three defendants; as to all other claims, 

judgment was entered in favor of defendants. 

An issue that has been central to this litigation from the outset is the interpretation 

and application of the Polanco Redevelopment Act (Health & Saf. Code, § 33459 et seq.)

(the Polanco Act),

1 which, in essence, authorized redevelopment agencies to remediate 

contamination found in property, including private property, located in a redevelopment 

project area, and to recover from the “responsible parties” the costs of the cleanup. Early 

in the case, this division issued a decision, on a petition for writ of mandate, providing 

our construction of that law. Specifically, we reversed the trial court’s summary 

adjudication of the Polanco Act claims, concluding that the trial court erred in finding, as 

a matter of law, that defendants could not be “responsible parties” under the Act based on 

the facts put forward by the plaintiffs. (City of Modesto Redevelopment Agency v. 

Superior Court (2004) 119 Cal.App.4th 28 [Modesto I].) 

Thereafter, the Polanco Act claims were tried two times, with respect to different 

contaminated sites, before two different judges, with different results. In the second 

proceeding, the trial court concluded that Modesto I implied a special causation standard 

was applicable to the Polanco Act claims. In the published portion of this opinion we 

hold that no special causation standard applies and we will, accordingly, vacate the trial 

court’s ruling and order on the Phase IV Polanco Act claims. 

In the unpublished portion of the opinion we address the remaining issues on 

appeal. We will vacate the trial court’s pretrial ruling with respect to plaintiffs’ nuisance 

claims; the punitive damages award against defendant, the Dow Chemical Company 

(Dow) in Phase I; and the trial court’s directed verdict on grounds of no present injury as 

to various sites in Phase III. Our determinations with respect to the statute of limitations, 

the denial of equitable relief, the amended judgment, the prevailing parties and the 

allocation of settlement credits will be described in the course of the opinion. 

1

 All unattributed statutory cites are to the Health and Safety Code. 

2

 
II. GENERAL BACKGROUND

We begin by providing some general technical information about the 

characteristics of PCE, how it can contaminate groundwater, how it is used and reused in 

dry cleaning equipment, and how it was released into the environment. This is not a 

comprehensive discussion of the evidence but is intended only to supply context for our 

discussion of the issues on this appeal.

A. Characteristics of Perchloroethylene

Perchloroethylene, also known as tetrachloroethylene, is a molecule containing 

chlorine atoms and carbon atoms. It is also characterized as a “volatile halogenated 

organic compound,” a “halogenated hydrocarbon”, a “chlorinated solvent” or a 

“chlorinated hydrocarbon”. As shorthand, it is referred to as “perc” or PCE. All 

chlorinated hydrocarbons, like all solvents other than water, are “toxic.” In 1978, the 

National Institute for Occupational Safety Hazards (NIOSH) recommended that PCE be 

handled as if it were a human carcinogen. In 1980 the State of California began 

regulating PCE as a hazardous waste. In 1984, when the Resource Conservation 

Recovery Administration (RCRA) was reauthorized, its regulations brought “small dry 

cleaners” under the same requirements as major hazardous waste sources, with respect to 

PCE. 

The California Department of Health Services has set the maximum contamination 

level (MCL) for PCE in drinking water at 5 parts per billion based on its finding that PCE 

potentially causes cancer in humans. Applying this standard, if one cup of PCE were 

completely dissolved in water, it could contaminate 24 million gallons of groundwater. 

There are also regulations to prevent migration of PCE vapors in concentrations that 

could cause cancer. All parties agree that the applicable regulatory standards are not 

arbitrary and address genuine public health risks. 

PCE is a colorless liquid, and is therefore difficult to see once released into soil. It 

is a cleaning solvent used by dry cleaners and also in degreasing operations. Because in 

its pure form it is a dense non-aqueous phase liquid (DNAPL), it is heavier than water 

and so when placed in water it will sink and sit below the water. This is distinguished 

3
from a light non-aqueous phase liquid (LNAPL), such as gasoline, that is lighter than 

water and will therefore float on top. PCE also has lower viscosity (internal friction) than 

water and so it is very mobile and can move quickly to penetrate, for example, small 

cracks or joints in concrete. PCE does not readily dissolve in water—thus, “nonaqueous”—although it will dissolve very slowly over time. PCE is also quite volatile, 

meaning it will quickly become a gas when it is heated or released into soil where it 

mixes with the soil gas. 

As is explained below, PCE is particularly “persistent” and “long lived” compared 

to other contaminants, making it extremely difficult to accomplish complete remediation. 

B. The Flow and Transport of PCE in a Groundwater System

The City of Modesto uses groundwater as a primary source of its drinking water 

supply. The hydrologic cycle for groundwater is fairly straightforward. The rain falls 

and sinks into the “soil zone” which is the layer near the surface where plants and trees 

take it up with their roots. The rest of the water continues to move downward through the 

soil into the “vadose zone,” in which there are various types of soils—fine grain such as 

clay or silt and coarse grain such as sand or gravel. Some of the water may “perch” on 

the fine grain materials but other water will flow through the coarser soil media and 

recharge the water table, which is at the top of the “saturated zone” from which ground 

water is pumped by wells. Between the vadose and saturated zones is a “capillary 

fringe.” This space can hold “quite a bit of liquid,” and the porous media can pull water 

up from the water table. 

As we have noted, when PCE is released into the ground it can volatilize and mix 

with the soil gases. Where there is a very high concentration of PCE in the soil the PCE 

gas, which is denser than air, will tend to sink. If it reaches all the way to the capillary 

fringe it can then recondense on the water table and begin to dissolve into the 

groundwater. 

When released into the ground, PCE can also remain in liquid form and will sink 

through the subsurface to the water table. Unlike gasoline—which is a LNAPL and will 

tend to float on top of the water table—PCE is a DNAPL and so will continue to move 

4
past the water table and through the saturated zone. Because it dissolves into water only 

very slowly, it creates a long-term continuing source of contamination to any 

groundwater that comes in contact with it. 

Small releases of pure PCE will tend to penetrate only into the vadose zone 

because it gets “pulled apart” as both a gas and a liquid and will eventually get trapped in 

the soil pores—much like a small amount of coffee will be absorbed into and trapped in a 

sugar cube. When more PCE is added, however—either a larger release or repeated 

releases—the PCE breaks out and penetrates deeper. Even if it pools or perches on the 

fine-grained soil layers, it can still stair-step down through the subsurface and reach the 

capillary fringe and—if there is enough PCE—the water table. If PCE is being cleaned 

out of the groundwater, the PCE that pools or has been trapped above the water table will 

continue to move into the water table—a process called “back diffusion”—and thus is 

another long term source of groundwater contamination. PCE that has been trapped in 

the subsurface can also move downward during a “recharge event;” the PCE can dissolve 

into the rainwater and be released from the vadose zone, and is yet another long-term 

source of contamination. 

PCE that pools on top of fine-grained layers will stop moving vertically but then 

will begin to move in other directions due to differing soil strata and “fine textural 

changes” in the sand; as a result, PCE will have a very complicated pattern of 

distribution, making it more difficult to locate. Also, because DNAPL’s can be trapped 

in various ways, and then dissolve and move over time, they are extremely difficult to 

clean up. There are sites in the United States where they have been trying to clean up 

PCE for decades. 

C. The Use, Reuse and Release of PCE and PCE Residue at Dry Cleaners

As we have described, PCE is particularly “persistent” and “long lived” compared 

to other compounds, making it difficult to remediate but advantageous for industrial use 

because it can be reused after being distilled back to its pure state. Dry cleaning 

equipment therefore has the capacity to do that. Here we provide an elementary 

description of how the various machines work.

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From the 1950’s to the 1970’s, dry cleaners used what is now referred to as “first 

generation” equipment. In that iteration, the washer and the dryer were separate 

machines. In this equipment PCE was continuously pumped into, and drained out of, the 

washer from a tank on the bottom of the machine into the basket containing the clothing. 

As the solvent drained out it was sent through a filter, to clean out the solids, dyes and 

soil being removed from garments, before it was pumped back into the washing basket. 

After the cleaning cycle was complete, the washer entered a spin cycle to remove and 

drain as much solvent as possible back into the tank. The clothing was then moved to 

the “reclaiming dryer.” This dryer did not vent to the air during the drying cycle; the 

vapors were kept in the machine in order to recover the solvent. The dryer also had a lint 

trap. As will be explained, the vapor was then cooled using water coils to recondense the 

solvent back to liquid form. 

The “second generation” machines were used from the 1970’s to the mid-1980’s. 

This equipment operated in the same way, but combined the washing and drying 

functions into one “dry-to-dry” machine. Also, after reclaiming most of the vapor, some 

residual vapors were vented into the air at end of the dry cycle. An operator, however, 

could add a “sniffer” (carbon adsorber) to capture the vapors. These were very large and 

contained perhaps 100 pounds of charcoal or carbon in which the vapors were caught. 

The “third generation” machines were used from the mid-1980’s to the mid1990’s. These were also dry-to-dry machines, but used refrigeration coils instead of 

water to cool the vapor, which was far more efficient in turning vapors to liquid for 

recovery. The fourth generation machines added a built-in carbon adsorber to filter out 

the last traces of PCE vapors before the door to the machine was opened. 

Reclaiming dryers (or “reclaimers”) operate with hot air, so the solvent on the 

clothing vaporizes. Those vapors are continually blown out of the reclaimer by a fan, 

through the lint filter. The vapors enter a pipe with cooling coils, where the solvent turns 

to liquid and drips off the coils into a pipe leading to the water separator. 

The water separator is a device by which any water—even just from humidity in 

the air—is removed from the recaptured solvent. All used solvent, no matter from where 

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it is reclaimed or distilled, must go through the water separator before it is reused. The 

water separator operates by gravity. Because PCE is heavier than water, it will settle to 

the bottom of the separator. It is then siphoned out by a drain that is piped back to the 

tank. The water, called “contact water” or “separator wastewater” is drained out through 

a different pipe located higher in the separator, and was (during the pertinent time period) 

sent either down a drain or into a pail, depending on how the machine had been set up. 

All contact water has a certain amount of PCE left in it, because the separation is 

“imperfect.” 

As noted, some dry cleaners added a sniffer, or carbon adsorber, to collect solvent 

vapors. To release the solvent from the sniffer, live steam would be applied to the 

charcoal bed to release the solvent as vapor; the steam and vapors were then vented to the 

pipe with the cooling coils where they would condense and go to the water separator. 

This process creates significantly more separator wastewater than other reclaiming 

processes because of the large amount of steam. 

The final major piece of equipment is the still, which is used to clean the solvent. 

All solvent is periodically sent to the still, because it will accumulate residual oil, grease, 

wax, detergent and other impurities. The solvent is heated with steam coils until it begins 

to vaporize. The vapors are sent through pipes with cooling coils and then to the water 

separator. The residue, that is, what remains behind after the PCE is vaporized, is called 

“still bottom residue” or “muck.” 

A still is also used to extract PCE from the filters in the machines that capture the 

solids, dyes and soils. Historically, dry cleaners used diatomaceous earth (a powder) to 

filter the PCE, but later they began to use cartridges filled with carbon or carbon and 

activated clay; some had pleated cellulose on the outside. The still had mechanical 

paddles to continuously stir the mixture to release the PCE. The residue, or “muck” was 

then shoveled into a container, and disposed of as waste. This residue contained about 20 

percent to 25 percent PCE. A similar process was used for the cartridges. When the 

cartridge needed to be changed it was removed and drained for 24 hours; that liquid went 

into the still and was processed leaving a residue like very heavy heating oil, which was 

7
drained out through a valve into a pail. In the first generation equipment the PCE content 

left in the residue could be as high as 50 percent. In the new equipment (being sold in the

early 2000’s) there is as little as 10 percent. 

Even after draining the filter for 24 hours there could be as much as a gallon and a 

half of PCE remaining in the filter. At some point prior to 1984, a process was developed 

by which, like cleaning out a sniffer, high pressure steam was used to release the 

remaining PCE from the filter cartridge, although it could never remove 100 percent. 

This was accomplished by a “solvent recovery system” or SRS. The cartridges were 

placed into a tank and steam was released into the tank to vaporize the PCE which, again, 

goes to the water separator. This involves a great deal of steam, and creates a 

“tremendous” amount of contact water—up to 20-25 gallons. 

In very general terms, PCE releases into the environment occurred as a result of 

equipment failures or leaks during operation or maintenance of the machine or the water 

separator, leaks in joints or valves due to vibration of equipment, and leaks or spills 

during solvent delivery or transfers which are flushed to the outdoors, or which permeate 

the concrete floors, or seep through the cracks or joints in the floors. PCE releases also 

occurred as a result of tossing filter cartridges into the garbage, tossing muck into the 

trash or into dumpsters, or “out the back door”; and by PCE disposal practices which 

have been described as “dumping” or “back lot burial.” PCE also entered the soil by 

releases of separator water on the ground or down the drain and into the sewer system, 

thence out of sewer pipes into the ground. 

In addition, those servicing the dry cleaners on behalf of the manufacturers or 

distributors performed tests to check on the amount of detergent in the solvent. The dry 

cleaners did not want that liquid to be put back in the machines because it used a strong 

dye, so as a practical matter the test liquid, which contained about 25 percent PCE, was 

poured down the drain. 

D. Contamination of Soils, Groundwater and Wells in Modesto

Defendants do not dispute that the soils at many dry cleaning sites in Modesto are 

contaminated by PCE. It is also not the subject of serious dispute that this contamination 

8
has dispersed through the subsurface and into the groundwater at many sites. PCE 

contamination can enter a municipal supply well by migrating with the groundwater 

generally according to the natural gradient, but when it is near a well, it will come within 

the “cone of draw” and will be captured and pumped into the well. 

The residents of Modesto rely on groundwater wells to produce most of their 

potable water. The City is served by a network of 90 wells designed to serve specific 

neighborhoods, and operating interdependently. PCE has been detected in four of the 

City’s wells, and two were removed from service after exceeding the state-mandated 

MCL. If a well is taken off-line, nearby wells are required to pump at greater capacity 

and the contamination plume is likely to migrate to those wells. The parties dispute 

whether and when the third and fourth wells (or additional wells) will exceed the MCL 

for PCE. 

This action was filed as a result of the PCE contamination from the dry cleaning 

sites in Modesto.

III. PROCEDURAL HISTORY

A. Overview

The original complaint was filed in 1998 and final judgment was not entered until 

2012. The record filed on appeal—which is not the complete record of the proceedings 

below—contains reporters’ transcripts exceeding 15,000 pages, and 25,000 pages of 

court filings exhibits, and deposition transcripts. This case has followed a complex and 

tortuous path, each step of which need not, and will not, be chronicled. We provide here 

only a brief summary of the procedural events out of which the issues before us arose. 

B. The Parties to the Appeal

The City of Modesto is a plaintiff and the principal appellant. The RDA also filed 

a separate action, which was consolidated with the City’s action. In 2012, however, the 

legislature effectively dissolved all redevelopment agencies. (§ 34172.) The City 

became the RDA’s “successor agency” by operation of law (§ 34173), and pursues the 

RDA’s appeal, together with the City Attorney of Modesto who, representing the People 

of the State of California, seeks a nuisance injunction. The Modesto Sewer District No. 1 

9
was also a plaintiff and a cross-defendant but is involved in this appeal only with respect 

to the cost award entered against it. For ease of reference we will refer to all plaintiffs as 

“the City.”

The operative complaints named 28 defendants. Along the way, however, most 

of the defendants settled, and there now remain only five active participants. They are: 

two dry cleaning establishments, Modesto Steam Laundry (MSL) and Estate of Shantilal 

Jamnadas, dba Halford’s Cleaners (Halford’s); two PCE manufacturers, the Dow 

Chemical Company (Dow) and Axiall Corporation, the successor in interest to PPG 

Industries, Inc. (PPG); and one PCE distributor, R.R. Street & Company (Street), which 

also manufactured some equipment used by the dry cleaners. Dow is the sole crossappellant on the issue of punitive damages. 

C. The Pleadings

The first complaints were filed in 1998, one by the RDA and the City Attorney (on 

behalf of the People), and the other by the City of Modesto and its Sewer District. 

Named in the action were dry cleaning establishments, distributors and manufacturers of 

PCE, and manufacturers of dry cleaning equipment. After three years of demurrers and 

amendments, the operative pleadings were settled upon. In essence, the RDA, the 

People, the City and the Sewer District were suing 28 defendants for their roles in 

polluting the soil, the groundwater and the sewer system in Modesto with chlorinated 

solvents. The causes of action alleged against defendants included: negligence, products 

liability, statutory liability, trespass and nuisance. The two actions were consolidated. 

Various defendants cross-complained against the City and the Sewer district for 

contribution, indemnity and declaratory relief. Defendants did not prevail on any of the 

cross-complaints. 

D. The Summary Adjudication Motions

Shortly after the pleadings were settled, Dow, PPG and others filed a motion for 

summary adjudication on the nuisance and trespass claims. Four and a half months and 

7,000 pages later, the motion was granted as to Dow and PPG. The trial court ruled that 

liability for nuisance required evidence that the defendants had control over the solvent 

10
use and disposal activities of the dry cleaner or “direct involvement . . . in the design and 

installation of unsafe disposal systems or dry cleaning equipment;” it was not enough for 

plaintiffs to prove that the manufacturers were aware of the hazards of solvents and 

provided “insufficient or inaccurate instructions and warnings . . . concerning the[ir] use, 

handling and disposal....” The City filed a petition for writ of mandate in this court 

seeking interlocutory review of the ruling; the petition was summarily denied. 

Dow, PPG and others then filed a motion for summary adjudication of the RDA’s 

statutory claim under the Polanco Act. The Polanco Act provides, by reference to the 

Water Code, that those who “discharge[] waste” or “cause or permit any waste to be 

discharged or deposited where it is, or probably will be, discharged into the waters of the 

state and creates, or threatens to create, a condition of pollution or nuisance” are liable for 

costs associated with cleaning up the pollution. (§ 33459, subd. (h); Wat. Code § 13304.) 

The trial court granted the motion as to Dow and PPG, again concluding that plaintiffs’ 

evidence did not show that these defendants “either directly participated in or exercised 

authority or control over on-site activities or disposal activities at Modesto dry cleaners.”

The City again filed a petition for writ of mandate seeking review of the trial 

court’s order. We granted the petition, vacated the trial court’s ruling and remanded the 

matter for a new hearing on the motion. (Modesto I, supra, 119 Cal.App.4th 28.) Our 

opinion will be discussed in detail below. For now, it is sufficient to say we concluded 

that the Polanco Act should be construed in keeping with principles of nuisance; that in 

keeping with those principles, liability is not limited to those who directly participate in 

or have control over discharges but also includes those who assist in creating the 

pollution; and that a defendant who provides instructions to users regarding the improper 

disposal of toxic chemicals can therefore be liable under the Act. 

On remand, the court denied Dow and PPG’s summary adjudication motion on the 

Polanco Act claim. Plaintiffs then requested the court to reconsider its ruling on the 

nuisance motion in light of Modesto I. The court ruled there was no basis for 

reconsideration because this court had previously denied the petition for a writ of 

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mandate on the nuisance summary adjudication ruling. Plaintiffs contend the denial of 

the reconsideration motion was error. 

E. The Phase I Jury Trial

In an effort to manage this complex action, the parties agreed to try in the first two 

phases only those issues pertaining to the contamination of four City wells, identified by 

their numbers (3, 8, 21 and 225) and all of the City’s claims against four dry cleaners, 

including MSL and Halford’s. Three of those dry cleaners were alleged to be the source 

of contamination at Wells 3, 8 and 21. Two other dry cleaner defendants were included 

but only the well-related claims (Well 225) were to be tried in Phase One. 

Prior to trial, defendants filed motion in limine number 40 (MIL 40) seeking to bar 

the testimony of plaintiffs’ expert, Anthony Brown, relating to anticipated future 

remediation costs which plaintiffs sought to recover as damages. Defendants argued that 

these claims (1) were too speculative, (2) did not involve any damage to City property, 

and (3) were foreclosed by federal and state “superfund” statutes.2

 The trial court granted 

the motion on the first and third grounds. The City argued this ruling was erroneous.3

After a four-month trial, the trial court granted a nonsuit on all claims relating to 

Well 8 and granted a nonsuit to Dow and PPG as to the claims relating to Well 225. As 

pertinent to this appeal, the jury awarded plaintiffs damages of over $3 million against 

various defendants resulting from the contamination at three sites (Modesto Steam 

Laundry, Ideal and Coffee Plaza) and found against Street and a solvent manufacturer 

(Vulcan) on the City’s public nuisance claim at Coffee Plaza. The jury also found against 

Dow, Street and Vulcan on the issue of malice, and, awarded punitive damages of 

$75,000 against Street, $75 million against Dow, and $100 million against Vulcan. 

2

 The federal statute is the Comprehensive Environmental Response, 

Compensation, and Liability Act of 1980 (CERCLA) (42 U.S.C. § 9601 et seq.). The 

California superfund law is the Carpenter-Presley-Tanner Hazardous Substance Account 

Act (HSAA) (§ 25300 et seq.).

3

 The City withdrew this issue as a ground for appeal in its reply brief, having 

noted that defendants did not dispute that their preemption argument would not apply to a 

public nuisance injunction, and did not contest the City’s authorities to that effect. 

12

 
Dow, Street and Vulcan filed motions for judgment notwithstanding the verdict 

(JNOV) with respect to malice, contending it was not supported by substantial evidence. 

Dow, Street and PPG also argued, in JNOV motions, there was insufficient proof of 

causation to support the verdict. These motions were denied. Dow and Vulcan also 

sought a new trial with respect to the amount of punitive damages. The trial court 

reduced the awards to $5,441,221 against Dow and $7,254,115 against Vulcan, ruling 

that this was the maximum allowed both under the federal constitution and in light of the 

evidence. The trial court conditioned the denial of a new trial on the City’s acceptance of 

the reduced amounts. 

Dow contends the jury’s findings regarding malice were not supported by 

substantial evidence. The City argues the punitive damages should not have been 

reduced.

F. The Phase II Court Trial

In the next phase, the parties introduced additional evidence related to the City’s 

statutory claims, which were tried to the court. With respect to the Polanco Act claim 

relating to the MSL site, based on the entire evidentiary record of Phases I and II, the trial 

court found in favor of the RDA and against Dow, PPG, Street and MSL. It awarded 

$88,143 for regulatory oversight charges and $349,808 in “response costs.” The court 

also ordered that the final judgment include an injunction requiring the defendants to 

comply with any future remediation orders from the state’s Department of Toxic 

Substances Control (DTSC) or the Regional Water Quality Control Board (the Board) at 

the Modesto Steam Laundry site, “subject to the right to challenge such orders in this 

Court. . . .” On the HSAA (state “superfund” statute) claims against MSL and Halford’s, 

the court found against the dry cleaners; it awarded the City its response costs and 

directed the entry of equitable relief in the final judgment. 

G. The Phase III Jury Trial

In Phase III, the City sought damages under negligence and strict liability theories 

for contamination of City property (groundwater and soil in street and sewer easements) 

at the remaining dry cleaner sites. Before the case went to the jury, however, the trial 

13
court granted a directed verdict as to 14 sites. The court ruled that, as to those sites, the 

City had not proven its appropriative interest in groundwater had suffered a present 

injury, as opposed to a possible future injury, and that the City had not proven any 

damage to its sewers, streets or soil. The City contends this ruling was erroneous.

As pertinent to this appeal, the jury found Dow and PPG liable on at least one 

product liability claim at the group of sites referred to as “Elwood’s” and awarded the 

City $320,000 in investigation costs and $18 million for future costs for remediation. 

Defendants, however, had raised a statute of limitations defense with respect to those 

sites. The jury found that the City’s claimed harm at the Elwood’s sites occurred before 

December 3, 1995 (three years prior to the filing of the complaint), but the jury could not 

agree on the factual question pertaining to the discovery rule. 

The jury rejected plaintiffs’ claim of malice against Dow. 

Post-trial, the City moved for JNOV as to the finding that the harm at Elwood’s 

had accrued before December 3, 1995. The City argued, in essence, that defendants had 

failed to provide the necessary expert testimony to support that finding. The trial court 

denied the motion, concluding the record as a whole was sufficient to support the finding. 

The City challenges this ruling on appeal.

Defendants, for their part, brought a motion for judgment on their statute of 

limitations claim, pursuant to the Code of Civil Procedure section 630, subdivision (f). 

After this court issued an alternative writ instructing the trial court to take action on the 

motion, the court granted the motion based upon the jury’s finding that the harm at 

Elwood’s had accrued outside of the three-year statute of limitations. The court also 

ruled that the City could not rely on the delayed discovery rule because it failed to prove 

that it did not discover the harm until after December 1995. 

As a result of the pre- and post-trial rulings, the City recovered nothing in the 

Phase III jury trial.

H. The Phase IV Court Trial

In the follow-on to Phase III, the parties submitted additional evidence pertaining 

to the Polanco Act claim with respect to five sites. As will be described in detail later in 

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this opinion, the court ruled in favor of defendants. The City contends the court erred in 

applying an improper causation standard for the Polanco Act claim.

I. The Phase V Court Trial

Finally, the trial court held an evidentiary hearing to determine whether, 

considering events transpiring since the Phase II decision, the equitable relief ordered in 

Phase II with respect to the MSL and Halford’s sites was still warranted. The trial court 

found that, due to the EPA taking responsibility for clean-up at Halford’s, the clean-up 

work already accomplished at MSL, the filtration treatment being conducted at Well 3, 

and the availability of settlement funds, no equitable relief was warranted. The City also 

challenges this ruling. 

J. The Remaining Rulings and Entry of Judgment

In preparation for entry of judgment, the trial court issued orders on a number of 

outstanding issues. As pertinent here, the court allocated settlement credits and 

concluded that Dow, PPG and Street were entitled to full credit for their liability against 

the approximately $37 million in settlements, excluding the punitive damages award. 

The trial court also decided, as to each set of trial phases, who was the prevailing party 

and entered judgment. 

Defendants moved to set aside the judgment, arguing that they were prevailing 

parties in Phase II, as a matter of law, because in Phase V the court denied any equitable 

relief with respect to the Phase II liability determination. The trial court agreed and 

entered an amended judgment. 

After extensive post-judgment activity, the trial court entered an order against the 

City for payment of a portion of defendants’ costs. 

The City contends that the trial court did not have jurisdiction to enter an amended 

judgment and that the rulings on the settlement credits and (in the amended judgment) on 

the prevailing party in Phase II were erroneous.

K. On Appeal

On appeal, the City proposes a wholly new argument and remedy. It asks us, in 

the event we reverse the summary adjudication in favor of Dow and PPG on the nuisance 

15
causes of action, to direct the trial court to issue an injunction that would: “(1) compel 

Dow and PPG to comply with any and all PCE remediation or investigation orders issued 

by appropriate officials of the City of Modesto . . . ; [¶] (2) limit Dow and PPG’s 

obligations under such orders to remediation or investigation steps not already in 

progress, and that are not subject to any applicable settlement funds Modesto received in 

this litigation; [¶] (3) authorize such orders in connection with any dry cleaning site in 

Modesto; [¶] (4) provide that Dow and PPG’s obligations under such orders shall be joint 

and several at all sites unless the superior court determines otherwise on a proper 

showing; [¶] (5) specify that Dow and PPG shall comply promptly and fully with such 

orders notwithstanding any right they may have, or claim to have, to seek contribution, 

indemnity, or similar remedies from any other party; and [¶] (6) provide that any and all 

factual disputes arising in connection with the injunction shall be referred in the first 

instance to a special master or referee to be appointed by the superior court, either by 

consent or pursuant to Code Civ. Proc. § 639, subd. (a)(3) (‘question of fact’).” 

Because of the pretrial summary adjudication orders, the City could not seek this 

injunction in the trial court, but it contends our authority extends to fashioning this relief 

in the first instance. It relies on Code of Civil Procedure section 43, which authorizes 

appellate courts to “affirm, reverse, or modify any judgment or order appealed from,” and 

to “direct the proper judgment or order to be entered, or direct a new trial or further 

proceedings to be had,” and upon similar language in Code of Civil Procedure 

section 906.4

 The City argues that the injunction it seeks lies within our “ ‘inherent 

powers . . . to insure the orderly administration of justice.’ [Citation.]” (Walker v. 

Superior Court (1991) 53 Cal.3d 257, 266.) It also contends Dow and PPG are estopped 

4 Code of Civil Procedure section 906 provides that in a civil appeal, “the 

reviewing court may review the verdict or decision and any intermediate ruling, 

proceeding, order or decision which involves the merits or necessarily affects the 

judgment or order appealed from or which substantially affects the rights of a party, . . . 

and may affirm, reverse or modify any judgment or order appealed from and may direct 

the proper judgment or order to be entered, and may, if necessary or proper, direct a new 

trial or further proceedings to be had.”

16

 
to contest an injunctive remedy because they took the position below that a public 

nuisance injunction was “the only proper remedy.” 

In the circumstances of this case, we are not persuaded that we may properly order 

the trial court to issue the injunction the City seeks. The nuisance causes of action 

against Dow and PPG have yet to be adjudicated, and the trial court has made no findings 

or determined any appropriate remedy. The City argues that the undisputed facts support 

a public nuisance injunction. Whether or not that is so, we cannot say that the undisputed 

facts compel the specific remedy the City seeks. And in any case, our role on appeal is to 

review the trial court’s actions. As explained in Quantification Settlement Agreement 

Cases (2011) 201 Cal.App.4th 758, 844, “ ‘[T]he ordinary and widely accepted meaning 

of the term “appellate jurisdiction” is simply the power of a reviewing court to correct 

error in a trial court proceeding.’ [Citation.] ‘An appeal is not a trial but simply a 

method given litigants of rectifying errors, legal or factual, that may have occurred at a 

preceding hearing generally referred to as a trial. An appellate court is a reviewing court, 

and (except in special cases where original jurisdiction is conferred upon it) not a trial 

court or court of first instance. The jurisdiction of an appellate tribunal is generally 

confined to the correction of errors committed in the trial court . . . .’ [Citation.]” In 

Quantification Settlement Agreement Cases the court determined that the trial court had 

erred in dismissing two actions under the California Environmental Quality Act (CEQA) 

(Pub. Resources Code, § 21000 et seq.), but declined to adjudicate the merits of those 

actions, noting that the trial court had not reached the merits and that the plaintiffs “have 

not proven to our satisfaction that we are authorized to do so in the exercise of our 

appellate jurisdiction under the circumstances presented here.” (Ibid.; see also Center for 

Biological Diversity v. Department of Fish & Wildlife (2016) 1 Cal.App.5th 452, 465 

[appellate court’s authority extends to affirmance or reversal and modification of 

judgment or order].)

The City’s reliance on Waste Management of the Desert, Inc. v. Palm Springs 

Recycling Center, Inc. (1994) 7 Cal.4th 478 (Waste Management) is unavailing. The 

plaintiffs in Waste Management sought an injunction against the defendant, prohibiting it 

17
from collecting recyclable materials within the city limits of Rancho Mirage, and the 

defendant filed a cross-complaint seeking, inter alia, an injunction prohibiting the city 

from enforcing an ordinance forbidding anyone except the plaintiff from collecting such 

materials. (Id. at pp. 482-483.) The trial court granted the plaintiff’s injunction, and the 

Court of Appeal reversed, concluding state law did not authorize the city to grant an 

exclusive franchise for the collection and removal of recyclable materials that were not 

placed into containers maintained by the city or its authorized waste collector or 

otherwise “discarded” by the owner. (Id. at p. 484.) The appellate court directed the trial 

court to issue an injunction prohibiting the city from enforcing the ordinance against the 

defendant with respect to recyclable materials that had not been turned over to the city or 

its agent. (Id. at p. 490.) The Supreme Court affirmed the judgment of the Court of 

Appeal but, based on its narrower view of the right of the owner of recyclables to discard 

them, directed the appellate court to direct the trial court to issue a narrower injunction. 

(Id. at p. 491.) Thus, in Waste Management, the reviewing court properly directed the 

trial court to prohibit a governmental entity from enforcing an ordinance to the extent it 

conflicted with state law, after the matter had been litigated in the trial court. That case 

does not stand for the proposition that an appellate court may direct the trial court to enter 

a mandatory injunction on a cause of action that has not yet been litigated, and directing 

equitable relief upon which the trial court has not yet had occasion to exercise its 

discretion. (See Mendez v. Rancho Valencia Resort Partners, LLC (2016) 3 Cal.App.5th 

248, 260 [permanent injunction is determination that plaintiff has prevailed and equitable 

relief is appropriate]; Shapiro v. San Diego City Council (2002) 96 Cal.App.4th 904, 912 

[trial court’s decision to grant permanent injunction rests within its sound discretion].)

The City cites POET, LLC v. State Air Resources Board (2017) 12 Cal.App.5th 52 

as support for its requested remedy but that case is inapposite. There, the Air Resources 

Board failed to comply with a writ of mandate the appellate court directed to be issued

requiring that it comply with CEQA in promulgating certain regulations. (Id. at pp. 79-

83.) The court also found that the Board, in failing to comply with the writ, had not acted 

in good faith. (Id. at pp. 99-100.) The appellate court therefore took the unusual step of 

18
providing detailed orders to clarify the scope and meaning of the writ of mandate 

because, a reversal with a “generic” order reinstating the original writ “would give rise to 

disputes between the parties over how the writ’s provisions should be applied to the 

further proceedings.” (Id. at p. 88.) The court enumerated the probable disputes and 

concluded that “(1) a simple reversal with directions for [the Board] to comply with the 

writ is not appropriate and (2) further orders are needed to clarify matters.” (Ibid.) Thus, 

the court in POET was not adjudicating any matters in the first instance—as we are being 

requested to do—but was clarifying what would constitute compliance with the terms of 

the writ of mandate, and has no application here. 

While we decline the City’s invitation that we craft and direct the trial court to 

impose a particular form of injunctive relief, we also note that the City’s proposal could, 

at least theoretically, provide an elegant framework for resolving this matter and avoiding 

lengthy further proceedings. Counsel have understandably expressed frustration with the 

protracted litigation and the lengthy delays that have beset this matter, and to that we add 

our own concerns about our already overburdened courts. We, accordingly, strongly 

encourage the parties to consider any and all creative approaches that might put an end to 

the litigation.5

 

Finally, nothing we say is intended to prevent the City from urging the trial court 

to impose the injunction it seeks here, or from relying on any admissions Dow and PPG 

might have made in the course of the litigation that a nuisance abatement injunction 

would be a proper remedy.

5

 More specifically, it appears to us that if this decision becomes final there will 

be a finite number of sites at which remediation issues need to be addressed and, although 

the experts in an adversarial setting were far apart in their approaches and cost estimates, 

these differences are not so great as to be incapable of reconciliation or compromise. 

This critical juncture in the case may present the opportune moment for the experts, the 

parties and counsel to craft a structured, yet flexible settlement that could include an 

expeditious fact-finding process. 

19

 
L. Organization of Issues on Appeal

It is common in cases such as this one, where the issues unfold over a lengthy set 

of proceedings below, to address the issues on appeal in the order in which they arose 

below, primarily because it provides an easy-to-follow temporal framework. In this case, 

however, we will organize the opinion by addressing, first, the issue that requires the 

most in-depth discussion—the question of the proper standard of causation to be used for 

Polanco Act claims. The remaining charges of error, which, with a few exceptions, are 

not substantively or legally interrelated, will be discussed in what we hope is a logical 

progression.

IV. DISCUSSION

A. Modesto I and the Causation Standard

Plaintiffs contend that in the Phase IV Polanco Act bench trial, the court erred in 

applying an exceptionally stringent standard of causation based on its erroneous 

interpretation of Modesto I. We agree and our analysis follows.

1. The Precise Issue on Appeal

The judge in Phase IV concluded, based on his reading of Modesto I, that liability 

under the Polanco Act could be established only by direct proof of each link in a very 

specific chain of causation. The City challenges that conclusion and makes a cogent 

argument that its application was prejudicial. In response, defendants endorse the legal 

standard applied by the court but do not argue that, if there was error, prejudice was not 

shown. Further, the parties did not brief, and we are not asked to decide whether the 

evidence presented in Phases III and IV of the trial would support a finding in the City’s 

favor if a different causation and proof standard had been applied. Consequently, we 

address only the narrow legal question presented, viz., whether the trial court applied an 

incorrect causation standard. Because this question is a purely legal one, we apply a de 

novo standard of review. (Orange County Water District v. MAG Aerospace Industries, 

Inc. (2017) 12 Cal.App.5th 229, 240.)

2. The Polanco Act

20
We begin our discussion with a summary of the Polanco Act and then provide a 

more detailed description of how that law was interpreted in Modesto I.

The trial court aptly summarized the Act’s core provisions. “ ‘The Polanco Act 

involves cleanup of the release of hazardous substances in the context of a redevelopment 

project.’ [Citation.] Subject to certain statutory conditions, the Act authorizes a 

redevelopment agency to ‘take any actions that the agency determines are necessary . . . 

to remedy or remove a release of hazardous substances on, under, or from property within 

a project area, whether the agency owns the property or not....’ [Citation.] If an agency 

takes such action, ‘any responsible party or parties shall be liable to the [ ] agency for the 

costs incurred in the action.’ [Citation.] An action for cost recovery under the Act ‘is in 

addition to, and is not to be construed as restricting, any other cause of action available to 

a redevelopment agency.’ [Citation.]” Thus, under the Polanco Act, a redevelopment 

agency is entitled to recover from “any responsible party or parties” the costs it incurs “to 

remedy or remove, or to require others to remedy or remove . . . a release of hazardous 

substance” including “compelling a responsible party through a civil action, to remedy or 

remove a release of hazardous substance.” (§ 33459.4, subd. (a).) 

The term “responsible party” is defined by reference to two other laws. First, the 

Act incorporates a provision of the HSAA (§ 25323.5, subd. (a)(1)), which, in turn, 

incorporates CERCLA’s definition of “covered persons” for purposes of liability 

(42 U.S.C. § 9607(a)).6

 The City does not contend defendants (other than the dry 

cleaners themselves) fall within that definition. Second, the statute incorporates section 

13304, subdivision (a) of the Water Code which provides, in pertinent part, that any 

person who “has caused or permitted, causes or permits, or threatens to cause or permit 

6

 The federal statute provides that four categories of persons or entities are, in 

essence, strictly liable for clean-up costs resulting from hazardous substances: (1) those 

who own or operate the facility; (2) those who previously owned or operated the facility 

when the hazardous substances were released; (3) those who arranged for disposal or 

treatment, or for transportation for disposal or treatment, of the hazardous substances 

found at a treatment facility; and (4) those who accepted hazardous substances for 

transport, disposal or treatment at a site chosen by that person, that results in a release or 

threatened release. (42 U.S.C. § 9607(a).)

21

 
any waste to be discharged or deposited where it is, or probably will be, discharged into 

the waters of the state and creates, or threatens to create, a condition of pollution or 

nuisance” shall be responsible for remedial action. It is this definition that was the 

subject of our prior opinion in this matter. 

3. The Modesto I Decision

Early on in this case, the manufacturer defendants filed a motion for summary 

adjudication of the Polanco Act and negligence per se claims. They argued they were not 

“responsible parties” under the Polanco Act because they neither themselves discharged 

the PCE nor did they control any site where the discharges occurred. The trial court 

granted the motion, ruling that the manufacturers were not “responsible parties” under the 

statute because in order for a party to “cause” a discharge “you have to have some sort of 

physical control or the ability to stop it from happening.” (Modesto I, supra, 119 

Cal.App.4th at p. 36.) Plaintiffs filed a petition for writ of mandate in this court, which 

we granted because we disagreed with the trial court’s conclusion that only those who 

physically engage in a discharge or who control the waste disposal activities of others are 

liable under the Polanco Act.

In the decision, we first rehearsed the statutory language. As we have already 

described, the Polanco Act defines “responsible parties” by reference to Water Code 

section 13304, which provides: “A person . . . who has caused or permitted, causes or 

permits, or threatens to cause or permit any waste to be discharged or deposited where it 

is, or probably will be, discharged into the waters of the state and creates, or threatens to 

create, a condition of pollution or nuisance, shall . . . clean up the waste or . . . take other 

necessary remedial action . . . .” We therefore began our analysis by asking whether the 

word “cause” refers to “a party who was directly involved with a discharge, to anyone 

whose actions were a substantial factor in causing the discharge, or even, as city argued 

below, to anyone who places a hazardous substance into the chain of commerce.” 

(Modesto I, supra, 119 Cal.App.4th at p. 37.) 

To answer that question we noted, first, that environmental legislation by which 

government exercises its traditional power to regulate public nuisances should be 

22
construed in light of common law principles bearing on nuisance, citing Leslie Salt Co. v. 

San Francisco Bay Conservation etc. Com. (1984) 153 Cal.App.3d 605. Determining 

that the Porter-Cologne Water Quality Control Act (Wat. Code § 13000 et seq.) was in 

fact such a legislative scheme (Modesto I, supra, 119 Cal.App.4th at pp. 37-38), we 

identified certain principles which would govern our construction of the statute. 

The first principle, which has “long been the law in California,” is that “ ‘ “[n]ot 

only is the party who maintains the nuisance liable but also the party or parties who 

create or assist in its creation are responsible for the ensuing damages.” ’ [Citation.]”

(Modesto I, supra, 119 Cal.App.4th at p. 38.) Thus, “liability for nuisance does not hinge 

on whether the defendant owns, possesses or controls the property, nor on whether he is 

in a position to abate the nuisance; the critical question is whether the defendant created 

or assisted in the creation of the nuisance. [Citation.]” (Ibid.)

Our second principle was a limiting one. We concluded that, “[w]hile liability for 

nuisance is broad, . . . it is not unlimited” and the “City of San Diego [v. U.S. Gypsum Co. 

(1994) 30 Cal.App.4th 575] established one important limitation.” (Modesto I, supra, 

119 Cal.App.4th at p. 39, fn. omitted.) In that case the city sued the manufacturers, 

distributors and suppliers of asbestos-containing building materials that had contaminated 

the city’s buildings, seeking recovery, inter alia, under a nuisance theory for the costs of 

abatement. The court concluded that the city could not maintain an action based on 

nuisance where it is seeking recovery for a defective product, because it would convert 

almost every products liability action into a nuisance claim. (Ibid.) The court affirmed 

the summary adjudication in favor of the defendants because it was “ ‘a products liability 

action in the guise of a nuisance action’ [citation].” (Ibid.) We agreed with that 

conclusion, expressing the view that the law of nuisance “is not intended to serve as a 

surrogate for ordinary products liability.” (Ibid. fn. omitted.) 

We then proceeded to the next question: Whether, in this case, “the Polanco Act 

claims fall within the realm of nuisance or of products liability;” that is, “has city 

presented evidence that the defendants assisted in the creation of a nuisance, or only that 

they produced or supplied defective products?” (Modesto I, supra, 119 Cal.App.4th at 

23
pp. 39-40 [emphasis added].) We looked first to Selma Pressure Treating Co. v. Osmose 

Wood Preserving Co. (1990) 221 Cal.App.3d 1601 (Selma), disapproved on other 

grounds in Johnson v. American Standard, Inc. (2008) 43 Cal.4th 56, 70. There, the State 

and the Regional Water Quality Control Board sued the operators of a wood treatment 

facility, alleging they improperly disposed of hazardous waste. The plaintiff sought, 

among other things, damages flowing from a nuisance. (Selma, supra, 221 Cal.App.3d at 

p. 1606.) The defendants cross-complained against the company that designed the wood 

treatment technique, installed the equipment, provided training and made 

recommendations on operations that resulted in the wood-treating chemicals being 

deposited into soil overlying an aquifer. Other cross-defendants were chemical suppliers 

that provided “assistance and advice” and knew or should have known that the disposal 

could threaten the safety of the water supply, but failed to warn of those risks.7

 (Id. at pp. 

1607, 1609.) The court concluded that both were potentially liable as persons who 

created or assisted in creating the nuisance. The designer and installer could be liable 

because it had direct involvement in creating the disposal system by which the waste 

products were discharged into an unlined dirt pond, which could threaten the water 

supply. (Id. at p. 1620.) The court also held that the chemical companies could be held 

liable if plaintiffs proved their allegations that “the [operators] were foreseeable users; 

disposal of the chemical residue was a foreseeable use of the product; the chemical 

companies knew or should have known of the dangers of improper disposal of the 

chemicals; the owners did not know of those dangers; the companies failed to warn of the 

dangers; and that failure to warn was a substantial factor in causing the damage. (Selma, 

supra, 221 Cal.App.3d at pp. 1621-1624.)” (Modesto I, supra, 119 Cal.App.4th at p. 40.)

We agreed with the first conclusion—“that those who create or assist in creating a 

system that causes hazardous wastes to be disposed of improperly, or who instruct users 

to dispose of wastes improperly, can be liable under the law of nuisance.” (Modesto I, 

7

 The “assistance and advice” alleged to have been received from the chemical 

suppliers is not described in the opinion and, as we describe below, it does not play any 

part in the court’s liability analysis or its holding. 

24

 
supra, 119 Cal.App.4th at pp. 40-41.) Citing plaintiffs’ evidence that some of the 

defendants instructed the dry cleaners to set up their equipment in a way that water 

containing PCE would be discharged directly into drains and sewers, and other 

defendants “gave dry cleaners instructions to dispose of spilled PERC on or in the 

ground,” we concluded, “these kinds of affirmative acts or instructions could support a 

finding that those defendants assisted in creating a nuisance, and therefore would defeat a 

summary adjudication motion on the Polanco Act cause of action.” (Id. at p. 41.) 

Defendants had argued that liability should be limited to those who “controlled 

either the discharge activity or the premises where the discharge occurred” citing to a 

number of State Water Resources Control Board decisions. We rejected that argument 

because the Board’s decisions did not address “the responsibility of a party that instructs

users to dispose of hazardous wastes in an unsafe manner or a party that creates a system 

that would result in improper disposal of hazardous wastes.” (Modesto I, supra, 119 

Cal.App.4th at p. 41.) We also pointed out that the State Board has concluded that even a 

relatively minor contribution to a discharge may support a finding of responsibility, citing 

In re County of San Diego (Order No. WQ 96-2, Feb. 22, 1996) 1996 Cal. ENV LEXIS at 

p. *14 (Cal.St.Wat.Res.Bd.). 

At the other end of the spectrum, the City had argued that liability for nuisance can 

be fixed by proving only that defendants manufactured and sold solvents to dry cleaners 

with knowledge of the hazards of those substances and without alerting the dry cleaners 

to proper methods of disposal. (Modesto I, supra, 119 Cal.App.4th at p. 42.) We 

rejected that contention as well. We reasoned that “failure to warn [is] not an activity 

directly connected with the disposal of solvents. In our view, such behavior is analogous 

to the manufacture, distribution, and supplying of asbestos-containing materials in City of 

San Diego [v. U.S. Gypsum Co. (1994) 30 Cal.App.4th 575]; it does not fall within the 

context of nuisance, but is better analyzed through the law of negligence or products 

liability, which have well-developed precedents to determine liability for failure to warn. 

[Citations.]” (Ibid.)

25
We, accordingly, held that “those who took affirmative steps directed toward the 

improper discharge of solvent wastes—for instance, by manufacturing a system designed 

to dispose of wastes improperly or by instructing users of its products to dispose of 

wastes improperly—may be liable under [(Wat. Code § 13304, subd (a))] but those who 

merely placed solvents in the stream of commerce without warning adequately of the 

dangers of improper disposal are not liable under that section of the [code].” (Modesto I, 

supra, 119 Cal.App.4th at p. 43, emphasis added.) We issued a writ of mandate directing 

the superior court to reconsider defendants’ motion for summary adjudication of the 

Polanco Act and negligence per se claims “in accordance with the views expressed 

herein.” (Id. at p. 45.)

4. Defendants’ Interpretation of Modesto I is Rejected

On remand, the trial court reconsidered the matter, and issued a tentative decision 

denying the motion. The court explained: “[With regard to t]he solvent manufacturer 

defendants, the Court of Appeal instructed that simply placing this material in the stream 

of commerce without warnings would not be enough, . . . but if there were affirmative 

steps taken by the solvent manufacturers directed towards improper discharges, then that 

would be enough.” The trial court found that plaintiffs had produced sufficient evidence 

to raise fact questions as to whether the manufacturers would be responsible parties under 

the Polanco Act.8

 Seeking to convince the court otherwise, defendants argued that the 

8

 For context, here are examples of the instructions and guidance that was 

provided by Dow for disposal of PCE and PCE waste. Material Safety Data Sheets 

(MSDS’s) were given to dry cleaners through distributors when they purchased PCE. In 

1971 the MSDS’s instructed users to flush large spills to the ground and to mop up small 

spills and bury them. Throughout the rest of the 1970’s, the MSDS’s instructed that if 

there were “small leaks” of PCE the user should “[m]op up, wipe up or soak up 

immediately. Remove to out of doors.” The “disposal method” prescribed for PCE was 

to send it to a reclaimer, but “[i]n some cases it can be transported to an area where it can 

be placed on the ground and allowed to evaporate safely.” Similar instructions regarding 

“small leaks” were provided in MSDS’s issued in the 1980’s. In that period, however, 

the MSDS’s “strongly discouraged” dumping unused PCE “into sewers, on the ground or 

into any body of water.” Dow’s “Dry Cleaning: A Basic Handbook DOWPER Solvents 

for the ‘80s,” providing “information and instruction” about solvent and dry cleaning 

26

 
Modesto I opinion addressed “only the first question in the chain of causation that has to 

be established;” the plaintiffs must also prove, they contended, that the instructions were 

received by the dry cleaners, that the dry cleaners acted in response to those instructions, 

and that their actions in response to the instructions were actions that caused the 

contamination. It was defendants’ position that because Modesto I required an 

“affirmative step[] . . . directed toward improper discharge,” this was a “special 

circumstance . . . where the Court of Appeal did not accept the idea that substantial factor 

itself was sufficient for liability under nuisance or under the Polanco Act.” Hence, 

defendants argued, instead of the standard substantial factor causation test, the plaintiffs 

must prove the instruction gets to the dry cleaner, “[t]he dry cleaner looks at it, acts on it 

and causes the contamination.” 

The trial court pointed out, however, that the question before it was not whether it 

could make findings on causation, but only whether there were sufficient facts that would 

“rationally allow a juror” to make such findings. Rejecting defendants’ arguments, the 

trial court affirmed its tentative ruling, concluding that, under the standard articulated in 

Modesto I, a reasonable juror could find a violation of the Polanco Act based on the 

evidence before the court.9

Defendants renewed their Modesto I causation theory at closing argument in the 

first Polanco Act trial (Phase II). Relying on the word “cause” in the Water Code, 

defendants argued: “Causation is built right into this. So in order to find liability under 

that Water Code section, not only do you have to start with an instruction that’s improper, 

equipment, was among the literature distributed not just to customers, but also at trade 

shows, seminars and by mail. In the discussion on equipment, these handbooks indicate 

that contact water from the water separator is “drawn off and discarded.” 

9

 In their Phase I trial brief (on the strict liability and negligence claims) 

defendants made a similar causation argument. They argued the manufacturer had to be 

directly linked to a release of its product, thence to the pollution. Defendants repeated 

that argument in a motion for nonsuit, in closing argument to the jury, and yet again in 

motions for judgment notwithstanding the verdict. Neither the jury nor the judge were 

persuaded.

27

 
you have to get it to the site, somebody has to follow it, a release has to occur as a result, 

and that release has to cause the contamination that’s at issue.” Defendants insisted that 

this was precisely what Modesto I required. 

The trial court again rejected defendants’ interpretation of Modesto I. The judge 

identified the “critical inquiry” as “whether the defendants’ [PCE manufacturers’] 

actions, taken as a whole, ‘created or assisted in the creation of the nuisance.’ ” As that 

court explained, “[t]he appellate Court cited the giving of ‘instructions’ as an example of 

something that may ‘assist in the creation’ of a nuisance, but did not suggest that this is 

the only conduct that would qualify.” The court noted that Modesto I identified one 

limitation on the otherwise broad liability for nuisance viz., that the law of nuisance is not 

intended to serve as a surrogate for ordinary products liability. It then reasoned: If 

“ ‘defendants who fail to warn of the dangers of improper disposal of hazardous materials 

but give no guidance or instructions pertaining to that disposal [pose] a more difficult 

question’ [citing Modesto I],” then “[d]efendants who do give ‘guidance or instruction’ 

do not pose a difficult question—they are covered by the Act.” 

The trial court then quoted the language by which it would be guided. “ ‘[T]hose 

who took affirmative steps directed toward the improper discharge of solvent wastes—for 

instance by manufacturing a system designed to dispose of wastes improperly or by 

instructing users of its products to dispose of wastes improperly—may be liable under the 

statute, but those who merely placed solvents in the stream of commerce without warning 

adequately of the dangers of improper disposal are not liable under that section of the 

[Water Code].’ City of Modesto, 119 Cal.App.4th at 43 (emphasis added).” 

Applying that standard, the court recited its findings: “The manufacturer defendants in 

this case did more than simply place their PCE products into the stream of commerce 

without adequate warnings. Because their PCE products were fungible, the 

manufacturers competed in the marketplace by touting their expertise, professionalism, 

and individualized services. Their customers were relatively high volume businesses that 

used substantial amounts of PCE on a daily basis, and the manufacturers encouraged 

these businesses to rely on the manufacturers’ advice, instructions and expertise. The 

28
manufacturers published newsletters to their customers, provided technical literature to 

their customers, and trained sales personnel to promote reliance by the customers on the 

manufacturers’ expertise. [¶] .... [¶] The evidence included numerous examples of 

manufacturer instructions, advice, and guidance to customers to discharge separator 

water, which the manufacturers knew to contain PCE, into sewers, as well as to release 

waste PCE onto the ground. These kinds of recommendations were repeatedly made and 

reinforced by the manufacturers over the course of many years and led to the 

recommended PCE waste handling and disposal practices being generally followed by 

the customers. The effect of the manufacturers’ recommendations, considered both 

individually and in combination, was that risky waste handling and disposal practices 

became the norm among customers.” The court took note of the fact that a similar course 

of conduct had been found by the jury in Phase I to support liability for the creation of a 

nuisance at one of the dry cleaner sites. 

The court found, in addition, that at the time the manufacturers were holding 

themselves out as experts, they knew that PCE could cause groundwater contamination; 

that Street employees visited Modesto Steam over the course of two decades and during 

those visits poured PCE from “titration tests” into the drain; and that the manufacturers 

delayed too long in correcting their communications to their customers concerning the 

improper waste handling and disposal practices. “The record, taken as a whole,” the 

court concluded, “establishes that the manufacturer defendants are ‘responsible parties’ 

under the Polanco Act . . . because they ‘created or assisted in the creation of a 

nuisance.’ ”

5. Defendants’ Modesto I Causation Theory is Accepted

The trial court’s rejection of defendants’ causation theory in the first Polanco Act 

trial did not deter them from making the same argument in the second Polanco Act trial, 

presided over by a different judge. Describing themselves as “remote manufacturers,” 

defendants again characterized the Modesto I opinion as setting forth a “specific 

instruction test,” which necessitated a showing of “an affirmative recommendation or 

instruction by a defendant to a dry cleaner that in turn was relied upon [] by the dry 

29
cleaner to discharge material to the environment which in turn caused the contamination 

which occurred here.” “It’s not only whether affirmative instructions existed during that 

timeframe[,] . . . it’s whether some dry cleaner came into court and said I read that 

instruction, and I relied on that instruction, and then whether an expert said that conduct 

caused the contamination we’re talking about today.” 

The City, for its part, urged the court not to focus on the manufacturers’ disposal 

instructions in isolation but to look at the totality of defendants’ conduct over decades, in 

addition to the provision of instructions, to determine whether all of their activities in the 

marketplace, including a failure to take corrective action, could be found to have assisted 

in creating the PCE pollution, citing as an example, the findings of the judge in the Phase 

II trial. The City argued that the correct inquiry is “what did defendants do in addition to 

placing PCE into the stream of commerce without adequate warnings that would make 

this case more than simply a failure to warn case, and therefore subject defendants to 

Polanco Act [] liability?” 

In the end, the trial court agreed with defendants. Although the court accurately 

summarized the reasoning and holding of Modesto I, it interpolated into that opinion the 

proof requirements which defendants had championed. Noting that the Polanco Act 

implicitly requires proof that “defendant’s conduct caused the discharge in question,” the 

court observed that Modesto I did not spell out the “kind of factual showing a plaintiff 

must make in order to prove that a solvent manufacturer’s improper disposal 

instruction(s) caused a release of PCE. (Italics added.)” It nevertheless decided that 

specific proof requirements “follow” from Modesto I’s holding: “First, the user must 

have received the instruction(s). Second, the user must have disposed of hazardous waste 

in a manner consistent with the instruction(s). Third, the contamination for which cost 

recovery is sought under the Act must have been caused by a release mechanism 

contained in the instruction(s) and employed by the user[,] . . . since the release could 

have been caused by an operator acting independently of a defendant’s instruction(s) or 

by some other event unrelated to the actions of a defendant. Finally, with respect to the 

release of PCE, the user must have purchased the defendant’s solvent, since the 

30
manufacturers in this case only provided PCE-related information to their customers and 

end users.” 

The trial court specifically rejected the City’s argument that the court should 

consider whether other conduct—including whether defendants touted their expertise and 

individualized services with respect to PCE and its disposal; whether defendants 

promoted reliance by their customers on defendants’ expertise; and whether, once 

defendants knew that PCE could contaminate groundwater, they failed to send out 

corrective information about disposal practices—to determine whether defendants were 

responsible parties. The court concluded that Modesto I neither requires nor even 

suggests that these factors are relevant. The court specifically rejected consideration of 

“whether Defendants’ actions, taken as a whole, created or assisted in the creation of a 

nuisance.” As we explain, this interpretation of Modesto I was incorrect.

6. Analysis

a. Modesto I did not address causation

To begin with, the trial court’s focus on the provision of disposal instructions to 

the exclusion of all other potentially relevant factors is not supported by the holding of 

Modesto I. As the judge in Phase II observed, Modesto I held that “those who merely

placed solvents in the stream of commerce without warning adequately of the dangers of 

improper disposal are not liable,” but that those who take “affirmative steps” toward the 

improper discharge of solvents can be liable. Modesto I did not preclude consideration of 

any other factors that might be relevant to the question of whether such a defendant 

“assisted in the creation of [a] nuisance.” (Modesto I, supra, 119 Cal.App.4th at p. 38.) 

More to the point, Modesto I simply did not address the issue of how causation 

must be proven. Defendants argue that Modesto I requires proof of a special “chain of 

causation,” demonstrating by direct evidence that a specific disposal instruction was 

received, read and acted on by a specific dry cleaner, which act caused contamination at a 

specific site. In support, they cite and emphasize phrases in the Modesto I opinion 

indicating that those whose involvement in discharges is “remote and passive” or who 

have “no active involvement” in activity that is “directly connected with the disposal of 

31
solvents” cannot be liable under the Polanco Act. But these phrases merely explain how 

we construed the term “responsible party” in the statute; they say nothing about proof of 

causation. As the trial court correctly observed, the Modesto I opinion did not address 

the quantum or nature of proof required to prove the causation element of liability. In 

short, nothing in the opinion either states or implies that any unusual or special causation 

test would apply.10 

b. The substantial factor test of causation 

Defendants also contend, however, that the substantial factor causation test 

requires this same heightened standard of proof. Defendants begin by reciting some basic 

legal principles, such as, that liability cannot be premised on a mere possibility of 

causation, nor on probabilities that are, at best, evenly balanced, nor on speculation or 

conjecture, citing Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 775-776 and 

Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 490. No one disputes these principles. 

But this case is not akin to Saelzler, where plaintiff could not prove that additional 

security guards in a 300-unit, 28-building complex would have prevented a criminal 

assault (Saelzler, supra, 25 Cal.4th at p. 777), or Merrill, where plaintiff provided no 

evidence either “direct or circumstantial” that the promotion and marketing of a firearm 

10 In connection with this issue, we asked the parties to address at oral argument 

the nuisance jury instruction relied upon by the court in the Phase II Polanco Act trial, 

because the record suggested that defendants had agreed this was the applicable standard. 

As pertinent here, the instruction states, (1) the City claims “it suffered harm because one 

or more of the defendants created a public nuisance;” (2) to establish that claim the City 

must prove (inter alia) that a defendant “affirmatively instructed users to dispose of 

wastes improperly resulting in a condition that obstructed the free use of city property,” 

and that “the defendant’s conduct was a substantial factor in causing harm to the City.” 

[Emphasis added.] At oral argument, defendants contended the italicized part of the 

instruction separately required a heightened degree of proof of a direct link between a 

disposal instruction and the identified contamination. We disagree. First, as the trial 

court observed in Phase I, based upon this instruction and upon evidence similar to the 

evidence introduced against Dow, the jury found Vulcan liable for nuisance and trespass. 

Beyond that, the language on its face requires no such direct linkage, but only proof that 

defendants’ disposal instructions resulted in obstructing free use of property and that 

defendants conduct was a substantial factor in creating that harm.

32

 
by a manufacturer bore any causal relation to the purchase and use of that firearm by an 

individual to kill various victims. (Merrill, supra, 26 Cal.4th at p. 489.) Defendants 

nevertheless argue that the principles enunciated in Saelzler and Merrill require, in this 

case, direct evidence linking a given instruction to a specific dry cleaner who would 

testify that he read and followed it, thence to expert testimony proving the dry cleaner’s 

act was the mechanism of contamination. Otherwise, they argue, the evidence supports 

only the possibility that a defendant contributed to the contamination in a particular 

location. For example, defendants contend that even the conformance of a dry cleaner’s 

disposal practices to a defendant’s instructions is not sufficient to prove causation 

because “[s]uch happenstance does nothing more than allow for the ‘mere possibility’ 

that the defendant’s instruction had something to do with the drycleaner’s conduct.” We 

do not agree that the substantial factor test of causation requires the kind of 

incontrovertible linkage proposed by defendants. 

“Although a finding of causation may not be based on mere speculation or 

conjecture, such finding may be predicated on reasonable inferences drawn from 

circumstantial evidence.” (Smith v. Lockheed Propulsion Co. (1967) 247 Cal.App.2d 

774, 780.) Direct proof of each link in a chain of causation is not required. 

“[C]ircumstantial evidence of sufficient substantiality” from which reasonable inferences 

can be drawn will support a finding of causation in fact. (Ibid.) “Causation may in many 

instances be inferred from evidence that does not itself constitute direct evidence of 

reliance on an individual basis.” (State ex rel. Wilson v. Superior Court (2014) 227 

Cal.App.4th 579, 608 (Wilson).) “Just as factors such as the magnitude and temporal 

proximity of the unlawful conduct might evidence or negate the existence of fraud, so too 

might many of the same factors influence the extent to which an inference of causation is 

appropriate.” (Id. at p. 605.) 

Defendants cite Viner v. Sweet (2003) 30 Cal.4th 1232 (Viner) for the propositions 

that the substantial factor test subsumes the traditional requirement of “but for” causation, 

and that there can be no liability if any link in the chain of causation is missing. These 

statements are accurate, but do not answer the question posed—whether defendants’ 

33
“specific instruction test” is the only means of proving that defendant’s conduct was a 

substantial factor in causing the PCE pollution. In Viner the trial court ruled that the 

usual test of causation for attorney malpractice—that the plaintiff’s outcome would have 

been better but for the attorney’s negligence—did not apply to malpractice in the 

performance of transactional work. (Viner, supra, 30 Cal.4th at p. 1238.) The court of 

appeal affirmed, holding that “a plaintiff suing an attorney for transactional malpractice 

need not show that the harm would not have occurred in the absence of the attorney’s 

negligence.” (Id. at p. 1240.) The Supreme Court disagreed. The court of appeal 

effectively removed causation from the liability matrix, and that was error. 

In Viner the high court found no reason to except transactional malpractice from 

the traditional “but for” standard applied in malpractice cases. (Id. at pp. 1240-1242.) It 

went on, however, to caution that “the plaintiff need not prove causation with absolute 

certainty. Rather, the plaintiff need only ‘ “introduce evidence which affords a 

reasonable basis for the conclusion that it is more likely than not that the conduct of the 

defendant was a cause in fact of the result.” ’ [Citation.]” (Id. at p. 1243.) And, of 

course, “the plaintiff may use circumstantial evidence to satisfy his or her burden.” (Id.

at p. 1242.) 

So, for example, in Wilson, plaintiff brought a qui tam action against a drug 

company (BMS) alleging it provided lavish gifts to physicians and members of formulary 

committees to induce them to prescribe BMS’s drugs. Plaintiff alleged that “as a result of 

kickbacks BMS provided to them” the physicians and formulary committees selected 

BMS’s drugs, and submitted insurance claims therefor, in violation of a statute 

prohibiting the employment of persons to procure patients to obtain insurance benefits. 

(Wilson, supra, 227 Cal.App.4th at p. 587.) The trial court granted summary adjudication 

on the following question: Assuming BMS provided an “item or service” of value to a 

doctor, and the doctor thereafter prescribed BMS’s drugs, is the statute violated “absent 

proof that the item or service caused the prescription.” (Id. at p. 589.) The trial court 

ruled that it was “not enough to prove that the unlawful conduct was a substantial factor 

resulting in the prescription.” (Id. at p. 590.) 

34
The court of appeal reversed. It concluded the trial court erred when it ruled that 

plaintiffs must establish not only that BMS’s conduct was a substantial factor resulting in 

the prescriptions, but also that it was essential to the result, i.e., “that if the prescription 

would have been written even without BMS’s unlawful inducement, the unlawful 

conduct cannot be found to have caused the prescription and claim.” (Wilson, supra, 227 

Cal.App.4th at p. 607.) The appellate court observed that the trial court’s standard would 

make proof of an unlawful claim almost impossible to establish. (Ibid.) The court also 

noted that but-for causation is not required where there may be, as in that case, 

independent concurrent causes. (Ibid.) 

Similarly, in Stevens v. Parke, Davis & Co. (1973) 9 Cal.3d 51 (Stevens), 

plaintiffs’ family member died after her physician prescribed a drug manufactured by 

Parke, Davis, due to a condition induced by the drug. In addition to suing the prescribing 

physician, plaintiffs successfully sued Parke, Davis for “overpromoting” the drug, and 

“watering down” the warnings concerning the drug’s link to the fatal condition. In the 

supreme court, the drug company argued its overpromotion and watered-down warnings 

were not proven to be the cause of death because the prescribing doctor admitted he was 

aware that the drug had been linked to the condition and that its “prolonged 

administration carried some danger of fatality.” (Id. at pp. 66-67 & fn.15.) The doctor 

had also testified that he obtained that information from articles in medical journals and 

from discussions with fellow physicians, and he could not remember specific instances in 

which he received any information, promotional or otherwise, directly from Parke, Davis, 

although he had received visits from drug salesmen and read journals which contained 

advertisements for the drug. (Id. at p. 68, fn. 16.) 

The court affirmed the jury’s verdict. It concluded there was “adequate 

circumstantial evidence in the record...to support a reasonable inference by the jury that 

[the physician] was induced to prescribe the drug for [the decedent] because of Parke, 

Davis’ overpromotion. Like many others of the profession, he had been exposed to the 

35
promotional tactics employed by Parke, Davis. It is reasonable to assume that the 

company’s efforts consciously or subconsciously influenced him.”11 (Stevens, supra,

9 Cal.3d at p. 68; see also, Toole v. Richardson-Merrell, Inc. (1967) 251 Cal.App.2d 689, 

705 [trial court correctly rejected defendant’s proposed special causation jury instruction 

requiring a direct causal link between plaintiff’s injury and defendant’s violation of law].) 

These authorities support the conclusion here that direct proof of every link in the chain 

of causation, on a site-by-site and instruction-by-instruction basis, is not required. 

Liability can be proven by sufficient circumstantial evidence that would allow a 

reasonable fact-finder to find that all of defendants’ conduct—to include affirmative steps 

toward the discharge of toxic wastes—was a contributing factor to the pollution. As has 

been noted, “the State Water Board has concluded that even a relatively minor 

contribution to a discharge may support a finding of responsibility.” (Modesto I, supra, 

119 Cal.App.4th at p. 41.) 

As in Stevens, the absence of proof that a dry cleaner consciously followed an 

improper disposal instruction—or even a statement that a dry cleaner did not rely on a 

disposal instruction—does not ipso facto break the chain of causation. To be sure, it was 

the dry cleaners and not the manufacturers who discharged the PCE. But “ ‘ “[t]he 

substantial factor standard is a relatively broad one, requiring only that the contribution of 

the individual cause be more than negligible or theoretical.” [Citation.] Thus, “a force 

which plays only an ‘infinitesimal’ or ‘theoretical’ part in bringing about injury, damage, 

or loss is not a substantial factor” (citation), but a very minor force that does cause harm 

is a substantial factor’ (citation).” (Bettencourt v. Hennessy Industries, Inc. (2012) 205 

Cal.App.4th 1103, 1123.) 

11 The court also alluded to expert testimony that advertising and promotion of the 

drug “played a role” in inducing physicians to prescribe the drug when it was not sound 

practice to do so. But the court appeared to conclude that even in the absence of that 

testimony, the jury could find that the doctor’s negligent prescription of the drug was a 

“foreseeable consequence of the extensive advertising and promotional campaign.” 

(Stevens, supra, 9 Cal.3d at p. 69.)

36

 
Defendants also contend that product identification is, itself, always required for 

liability because one manufacturer may not be held liable for the injury resulting from 

another manufacturer’s product. (O’Neil v. Crane Co. (2012) 53 Cal.4th 335 (O’Neil).) 

There are exceptions, however, and one is where “the defendant’s own product 

contributed substantially to the harm...or because the defendant participated substantially 

in creating a harmful combined use of the products.” (Id. at p. 362.) Defendants, in any 

event, are not contending there was no product identification at the Phase IV sites; they 

are contending that it was not proven by direct evidence that during the years their 

product was provably sold at any Phase IV site, an improper disposal instruction was 

disseminated. Connecting those dots is one way to prove causation; but other evidence, 

both direct and circumstantial, can also demonstrate that the manufacturers’ instructions 

and other conduct were substantial factors in causing the pollution. Thus, in keeping with 

common law nuisance principles (Modesto I, supra, 119 Cal.App.4th at p. 38), “[i]n the 

ordinary case, the liability . . . arises because one person’s acts set in motion a force or 

chain of events resulting in the invasion. The acts may be a direct and immediate cause 

of the invasion, ...or they may be an indirect cause of the invasion. . . .” (Rest.2d Torts, 

§ 824, com. 6, p. 116.) 

Finally, defendants argue that permitting abatement liability to be imposed on 

manufacturers without proof of each causal link—“that a specific affirmative instruction 

was received, read, and acted on by a particular drycleaner, and then resulted in 

contamination at a given site”—would be adverse to public policy, citing Ferguson v. 

Lieff, Cabraser, Heimann & Bernstein (2003) 30 Cal.4th 1037 (Ferguson) and O’Neil,

supra, 53 Cal.4th 335. Neither these authorities nor any such policy issues control here. 

In Ferguson, our high court held that allowing plaintiffs in a malpractice action to 

recover, as compensatory damages, the punitive damages their attorneys failed to recover 

from the tortfeasor, would violate public policy in various ways. Primarily, it would 

contravene the entire purpose of punitive damages which is not to compensate the 

plaintiff but to punish the tortfeasor and deter him or her from similar egregious conduct. 

(Ferguson, supra, 30 Cal.4th at p. 1046.) In addition, it would exact too great a social 

37
cost because it would hinder the courts’ ability to manage and resolve mass tort claims, 

increase the cost of malpractice insurance, and discourage the use of mandatory 

non-opt-out class actions for punitive damages. (Id. at pp. 1049-1050.) None of these 

considerations apply here.

In O’Neil, the plaintiff had not been exposed to any asbestos-containing product 

manufactured or sold by the defendant, but only to the products of others used to replace, 

many years later, the packing and gaskets in defendant’s pumps and valves. The court 

declined to impose liability because a manufacturer could not “ ‘reasonably be expected 

to foresee the risk of latent disease arising from products supplied by others that may be 

used with the manufacturer’s product years or decades after the product leaves the 

manufacturer’s control.’ ” (O’Neil, supra, 53 Cal.4th at pp. 364-365.) The court further 

reasoned that imposing a duty on such an attenuated basis would not be consistent with 

public policy, not only because the manufacturer’s conduct was lacking in moral blame, 

but also because such a duty would not be likely to prevent future harm, and it was 

“doubtful that manufacturers could insure against the ‘unknowable risks and hazards’ 

lurking in every product that could possibly be used with or in the manufacturer’s 

product.” (Id. at p. 365.) Again, no such concerns are at play here.

Defendants cite to the principle that “ ‘proximate cause “is ordinarily concerned, 

not with the fact of causation, but with the various considerations of policy that limit an 

actor’s responsibility for the consequences of his conduct.” ’ [Citation.]” (Ferguson,

supra, 30 Cal.4th at p. 1045.) But defendants have not applied that principle to the facts 

of this case nor to their causation argument. Defendants have asserted no policy reasons 

for restricting their liability here; instead they merely repeat their claim that Modesto I 

intended to impose this “restriction[] on nuisance liability.” But we have rejected 

defendants’ interpretation of Modesto I, and it provides no support for defendants’ policy 

argument. If anything, the social costs of limiting the responsibility of chemical 

manufacturers under defendants’ formulation would fall far too heavily on the victims of 

the pollution by setting an almost insurmountable standard for proving liability. (Cf. 

Wilson, supra, 227 Cal.App.4th at p. 607.)

38
The measure of proof for causation should be no different here than that applied in 

any other similar action. As noted previously, the plaintiff need only “ ‘ “introduce 

evidence which affords a reasonable basis for the conclusion that it is more likely than 

not that the conduct of the defendant was a cause in fact of the result.” ’ [Citation.]” 

(Viner, supra, 30 Cal.4th at p. 1243; accord, People v. ConAgra Grocery Products Co.

(2017) 17 Cal.App.5th 51.) 

c. CERCLA Liability Standards Do Not Apply

The City advanced below and advances here an alternative argument to support 

causation. It contends that the Polanco Act incorporated by reference CERCLA’s “scope 

and standard of liability” (§ 33459.4, subd. (c)) and therefore, under CERCLA case law, 

the defendants bear the burden of proving that they did not cause the release that 

triggered the response costs, citing United States v. Alcan Aluminum Corp. (2d Cir. 1993) 

990 F.2d 711, 721 (Alcan). The trial court correctly rejected that argument. As was 

explained in Redevelopment Agency v. Salvation Army (2002) 103 Cal.App.4th 755, 

section 33459.4 of the Polanco Act incorporated CERCLA’s liability standards, “to wit, 

strict liability regardless of knowledge or intent [citation], joint and several liability 

[citation], and retroactive liability [citation].” (Id. at p. 766.) But these liability standards 

do not negate or supplant the requirement to prove causation. As we have explained, the 

Polanco Act incorporates by reference the HSAA/CERCLA categories as one set of 

“responsible parties” but plaintiffs do not contend defendant manufacturers fall within 

any of those categories. The shifting burden of proof found in those schemes only

applies in that context. (See Orange County Water District v. Alcoa Global Fasteners, 

Inc. (2017) 12 Cal.App.5th 252, 306-309 [CERCLA and HSAA govern liability for 

specific categories of defendants; as to those defendants once a plaintiff has proven that a 

release has occurred at a site and has triggered response costs, the burden of disproving 

the provenance of the discharge shifts to the defendant]; see also Asarco LLC v. NL 

Industries, Inc. (E.D. Mo. 2015) 106 F.Supp.3d 1015, 1031 [if a defendant fits into one of 

the four categories of responsible parties “ ‘it is enough that response costs resulted from 

39
“a” release or threatened release—not necessarily the defendant’s release or threatened 

release’ ”].) The HSAA and CERCLA liability standards do not apply here.

7. Conclusion

Defendants and the trial court in Phase IV construed the Modesto I case as creating 

a special causation rule under the Polanco Act for chemical manufacturers, i.e., that 

liability in such a case could be proven only by direct proof that a dry cleaner received 

and read a specific instruction regarding disposal of the product waste; the dry cleaner 

testifies that (s)he followed that instruction; and an expert testifies that that discharge 

caused contamination. This is not a fair reading of the opinion. Had this been the 

holding of Modesto I, we could have provided a special standard for proof of causation. 

Instead we set forth only a standard of liability: “Those [manufacturers] who took 

affirmative steps directed toward the improper discharge of solvent wastes—for 

instance, . . . by instructing users of its products to dispose of wastes improperly—may be 

liable under that statute. . . .” (Modesto I, supra, 119 Cal.App.4th at p. 43.) We excluded 

from that liability those who merely placed solvents in the stream of commerce and failed 

to warn of the dangers of improper disposal. 

The circle of liability for Polanco Act claims was thus drawn to exclude mere 

failure-to-warn product liability, but to include a manufacturer that takes “affirmative 

steps toward disposal,” for example, by providing improper instructions, and whose 

conduct “assists in creating” a nuisance. That formulation does not change the causation 

analysis, which is, considering the evidence as a whole, it is more likely than not that 

defendants’ improper instructions, and any other relevant conduct, were a substantial 

factor in causing the pollution. Because the trial court imposed a far more stringent proof 

of causation requirement in the Phase IV trial, we shall vacate that portion of the 

judgment.

40
Under the substantial factor test there may or may not be sufficient evidence to 

support liability for the Phase IV sites but that question has not been put to us, and will 

have to be resolved on remand.12 

B. Summary Adjudication of the Nuisance and Trespass Claims

As we described in the procedural history, Dow, PPG and others filed a motion for 

summary adjudication on the nuisance and trespass claims which was granted as to Dow 

and PPG. The trial court ruled that liability for nuisance required evidence that the 

defendants had control over the solvent use and disposal activities of the dry cleaner or 

direct involvement in the design of unsafe disposal systems or dry cleaning equipment. 

Proof that the manufacturers were aware of the hazards of solvents and provided 

insufficient or inaccurate instructions and warnings concerning their use and disposal, the 

court determined, was not enough for nuisance liability. The City filed a petition for writ 

of mandate in this court seeking interlocutory review of the ruling, and the petition was 

summarily denied.

Dow, PPG and others then filed a motion for summary adjudication of the Polanco 

Act claim. The trial court granted the motion as to Dow and PPG, again concluding that 

plaintiffs’ evidence did not show that these defendants “either directly participated in or 

exercised authority or control over on-site activities or disposal activities at Modesto dry 

cleaners.”

Plaintiffs again filed a petition for writ of mandate seeking review of the trial 

court’s order. We granted the petition, vacated the trial court’s ruling and remanded the 

matter for a new hearing on the motion. We concluded that the Polanco Act should be 

construed in harmony with the principles of nuisance; that pursuant to those principles 

12 It is reasonable to expect that on remand liability could be found if the correct 

causation standard is utilized. This is because: (1) the vast bulk of the evidence 

pertaining to the Polanco Act bench trials was presented during the preceding jury trials 

(Phases I and III); (2) application of the traditional causation test resulted in a finding of 

liability under the Polanco Act in Phase II based on the evidence in Phase I; and (3) 

according to defendants, the “same facts” were adduced in Phases I and III.

41

 
“ ‘ “[n]ot only is the party who maintains the nuisance liable but also the party or parties 

who create or assist in its creation are responsible for the ensuing damages;” ’ ” and that a 

defendant who provides improper instructions to users regarding the disposal of a toxic 

chemical can therefore be liable under the Polanco Act. 

After remand, the trial court denied Dow and PPG’s motion on the Polanco Act 

claim. It rejected, however, plaintiffs’ request that the court reconsider its order on the 

nuisance motion in light of Modesto I. The court ruled there was no basis for 

reconsideration. It explained, “I don’t think their discussion of nuisance...in the Polanco 

Act matter is new law. . . . They’re analogizing it to existing law, which I assume they 

applied when they denied the writ [on the nuisance ruling].” In effect, the court treated 

our summary denial of the petition challenging the nuisance ruling as a decision on the 

merits. This is manifestly incorrect. (Kowis v. Howard (1992) 3 Cal.4th 888, 897-899.) 

It is also clear from the record that Modesto I rejected the trial court’s rationale for 

granting not just the Polanco Act summary adjudication but the nuisance and trespass 

summary adjudication as well. Accordingly, it was plain error to deny the motion for 

reconsideration after Modesto I was decided.

The City asserts the denial of reconsideration was error, and defendants essentially 

concede the point. Below, defendants did not oppose reconsideration of the ruling but 

only argued that upon reconsideration, the court should reach the same result because 

plaintiffs could not show that defendants were liable under the principles outlined in 

Modesto I. Similarly, on appeal, defendants do not argue that the trial court’s denial of 

reconsideration was not error; rather, they contend the court’s ruling was not prejudicial 

because plaintiffs cannot prove that defendants “caused” the nuisance. This argument is 

based entirely on defendants’ interpretation of Modesto I and their distinct theory of what 

proof is required to prove causation both for nuisance and for the Polanco Act. Because 

we have concluded that neither Modesto I nor traditional causation analysis requires the 

kind of proof advocated by defendants, the trial court’s failure to grant the 

reconsideration motion was manifestly prejudicial, precluding plaintiffs from pursuing a 

key cause of action and remedy against the defendants.

42
We therefore vacate the order denying the motion for reconsideration and remand 

with directions to reconsider and deny the motion for summary adjudication on the 

nuisance claims.13

C. Challenges to Award of Punitive Damages

Both the City and Dow raise challenges to the award of punitive damages. The 

City contends the trial court erred in reducing the jury’s award, and Dow contends 

punitive damages should not have been imposed at all. 

1. Background

After the Phase I trial, the jury awarded to the City its costs of conducting 

environmental investigations, of developing and implementing an appropriate remedy, 

and of past and future well-head filtration costs. The sums awarded were: $1,384,000 for 

City well number 3, $1,659,534 for City well number 21, and $130,300 for Coffee Plaza, 

for a total compensatory damage award of $3,173,834. The jury also found that Dow, 

Vulcan and Street had acted with malice, and assessed $75,000 in punitive damages 

against Street, $75,000,000 against Dow and $100,000,000 against Vulcan. 

Dow, Vulcan and Street separately moved for judgment notwithstanding the 

verdict (JNOV) and for a new trial. We are concerned here only with Dow’s punitive 

damage award. 

In its motion for JNOV, Dow argued, inter alia, that there was no substantial 

evidence to support either a finding of malice or a finding that any malicious act was 

done by an officer, director or managing agent. In its motion for a new trial, Dow also 

argued that the punitive damages award should be vacated or reduced because it was 

excessive. 

The trial court denied the motions for JNOV. The court ruled that there was 

“substantial evidence supported the jury’s findings that, under the standard of clear and

convincing evidence, defendants Vulcan, Dow and Street acted with malice in the 

13 The City’s briefs nowhere request reversal of, or even mention, the summary 

adjudication of the trespass claim. We, therefore, do not consider whether that ruling was 

in error.

43

 
wrongful conduct that caused harm to the City.” It also concluded that there was 

substantial evidence to support a finding, under the clear and convincing standard, “that 

one or more officers, directors, or managing agents of the three corporations (a) 

committed the offending conduct, (b) authorized the conduct with knowledge of its 

malicious nature, or (c) knowing of the conduct and its malicious nature, nevertheless 

adopted or approved it after it had occurred.” Dow appeals that order.

In connection with the motions for new trial, the trial court reduced the award as to 

Dow and Vulcan to a total of $12,695,336, of which $5,441,221 was assessed against 

Dow.14 The court concluded that the jury “clearly” should have reached a different 

verdict on the amount of punitive damages, that this total punitive damage amount—four 

times the compensatory damage award—represented the maximum award consistent with 

the constitutional right to due process and that, in the court’s independent assessment, 

this amount was fair and reasonable. This amount was allocated between Dow and 

Vulcan in proportion to the respective punitive damages awarded by the jury.15 The City 

challenges the trial court’s reduction of the punitive damages award. Because we 

conclude Dow’s JNOV motion should have been granted, the City’s appeal on this issue 

is moot.

2. Legal Standards

Punitive damages may be awarded “where it is proven by clear and convincing 

evidence that the defendant has been guilty of oppression, fraud, or malice.” (Civ. Code, 

§ 3294, subd. (a).) “As defined in the punitive damages statute, ‘[m]alice’ encompasses 

‘despicable conduct which is carried on by the defendant with a willful and conscious 

disregard of the rights and safety of others,’ and ‘[o]ppression’ means ‘despicable 

14 Street also moved for JNOV. The trial court denied Street’s motion as well. 

Street did not move for a new trial. 

15 The jury had awarded punitive damages of $100,000,000 against Vulcan and 

$75,000,000 against Dow. Based on these proportions, the trial court concluded Vulcan 

should bear 57.14 percent of the $12,695,336 total punitive damage award (or 

$7,254,115) and Dow should bear 42.86 percent (or $5,441,221). 

44

 
conduct that subjects a person to cruel and unjust hardship in conscious disregard of that 

person’s rights.’ (Civ. Code, § 3294, subd. (c)(1), (2).).... [¶] Under the statute, ‘malice 

does not require actual intent to harm. [Citation.] Conscious disregard for the safety of 

another may be sufficient where the defendant is aware of the probable dangerous 

consequences of his or her conduct and he or she willfully fails to avoid such 

consequences. [Citation.] Malice may be proved either expressly through direct 

evidence or by implication through indirect evidence from which the jury draws 

inferences. [Citation.]’ [Citation.]” (Pfeifer v. John Crane, Inc. (2013) 220 Cal.App.4th 

1270, 1299; see also College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 725.) 

“ ‘[T]o establish malice, it is not sufficient to show only that the defendant’s 

conduct was negligent, grossly negligent or even reckless. [Citation.] There must be 

evidence that defendant acted with knowledge of the probable dangerous consequences to 

plaintiff’s interests and deliberately failed to avoid these consequences.’ [Citation.]” 

(Gawara v. United States Brass Corp. (1998) 63 Cal.App.4th 1341, 1361; see also 

Simmons v. Southern Pac. Transportation Co. (1976) 62 Cal.App.3d 341, 368 

[“ ‘Mere . . . negligence, even gross negligence is not sufficient to justify an award of 

punitive damages. [Citations.]’ ”].)

Moreover, there are limitations on a corporation’s liability for punitive damages 

flowing from the acts of its employees. As pertinent here, an employer is not liable for 

punitive damages based on the action of an employee “unless the employer . . . 

authorized or ratified the wrongful conduct for which the damages are awarded or was 

personally guilty of oppression, fraud, or malice. With respect to a corporate employer, 

the advance knowledge and conscious disregard, authorization, ratification or act of 

oppression, fraud, or malice must be on the part of an officer, director, or managing agent 

of the corporation.” (Civ. Code, § 3294, subd. (b).) A managing agent must be more 

than a supervisory employee, but can be “someone who exercises substantial 

discretionary authority over decisions that ultimately determine corporate policy.” 

(White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 573 (White).) This element of corporate 

45
liability, as well, must be proven by clear and convincing evidence. (Barton v. Alexander 

Hamilton Life Ins. Co. of America (2003) 110 Cal.App.4th 1640, 1644.)

A jury’s award of punitive damages “must be upheld if it is supported by 

substantial evidence. [Citations.] As in other cases involving the issue of substantial 

evidence, we are bound to ‘consider the evidence in the light most favorable to the 

prevailing party, giving him the benefit of every reasonable inference, and resolving 

conflicts in support of the judgment.’ [Citation.] But since the jury’s findings were 

subject to a heightened burden of proof, we must review the record in support of these 

findings in light of that burden. In other words, we must inquire whether the record 

contains ‘substantial evidence to support a determination by clear and convincing 

evidence. . . .’ [Citation.]” (Shade Foods, Inc. v. Innovative Products Sales & 

Marketing, Inc. (2000) 78 Cal.App.4th 847, 891.)

3. The City’s “Managing Agent” Theory 

The trial court did not specify what conduct it believed the jury found to be 

malicious, nor did it identify under which of the three “managing agent” scenarios—

committed, authorized or ratified—Dow was found to be liable for punitive damages. 

Accordingly, we look to the City’s arguments on appeal to ascertain what evidence it 

contends supported a finding of malicious conduct by an officer, director or managing 

agent of Dow.

The City’s theory can be summarized as follows: Dow employed “product 

stewards” who were responsible for knowing and understanding the health, safety, and 

environmental aspects of the chemicals for which they were stewards. The product 

stewards for PCE were involved in the preparation of MSDS’s and other documents that 

contained the improper instructions pertaining to the use, handling and disposal of PCE. 

The product stewards’ conduct was malicious because they knew, since at least 1978, that 

the instructions for disposal of PCE contained in the MSDS’s would lead to groundwater 

contamination. These product stewards were “managing agents” because they were 

given “ultimate authority and broad discretion” to create the MSDS’s and other Dow 

communications. Therefore, the jury could reasonably find they were effectively 

46
formulating ad hoc corporate policy on Dow’s warnings and instructions concerning 

PCE. 16 Remarkably, the City’s key contention—that the product stewards had “ultimate 

authority” and “broad discretion” to create the MSDS’s and other Dow communications 

is unsupported by a single citation to the record and our own search of the record has 

found none. 

The City correctly states that it is the product steward’s job to “basically know 

everything there was to know about a particular chemical,” and to be “involved in” 

formulating the company’s instructions about PCE disposal. As explained by one 

product steward, his job was to “read and understand health and safety and to some extent 

environmental information associated with the product[] . . . and help develop 

information for communication to folks who might . . . buy or use those products.” 

The City goes on to argue, however, without any citation to the record, that the 

product stewards “were given the ultimate authority and broad discretion to create Dow’s 

communications to all of its customers. They determined Dow’s instructions about the 

handling and disposal of PCE, and made the decisions over more than a decade not to 

warn about environmental hazards they knew about, and to promulgate inadequate and 

16 The trial court denied the defendants’ motions to set aside the finding of malice 

having concluded that the “conduct...found by the jury to be malicious...occurred over 

many years and involved numerous persons within each of the corporations,” and so there 

was “non-speculative circumstantial evidence sufficient to [support a finding by] clear 

and convincing [evidence], that the relevant information in fact ‘moved upward to a point 

where corporate policy was formulated’ [quoting Romo v. Ford Motor Co. (2002)

99 Cal.App.4th 1115, judg. vacated and cause remanded in Ford Motor Company v. 

Romo (2003) 538 U.S. 1028].” The Romo opinion, however, was vacated in its entirety 

by the United States Supreme Court, and therefore is not citable precedent. (See People 

v. Hamilton (1988) 45 Cal.3d 351, 363.) Further, in Romo there was evidence that the 

top executives within one of Ford’s divisions (light trucks) were responsible for the 

malicious decision making involved in that case. Here, in contrast, the trial court ruled 

that conduct involving “numerous persons” over “many years,” without more, supported 

a finding that corporate policy was formulated. 

47

 
improper disposal instructions.”17 (Emphasis added.) The City repeats this assertion 

verbatim, 13 pages later, again without citing to the record. 

Yet a third time, responding to Dow’s contention that there was no evidence the 

“product stewards had authority to set corporate policy or to disregard [Dow’s] product 

stewardship policies,” the City argues that “the jury . . . could have reasonably found to 

the contrary based on the broad authority and discretion of product stewards in issuing 

Dow’s PCE instructions.” (Emphasis added.) Again, no record citation is provided for 

this assertion. 

“In sum,” the City concludes, “ ‘a reasonable jury could have found by clear and 

convincing evidence that product stewards had the authority to form corporate policies 

regarding the warnings for Dow’s products, and thus had ‘substantial independent 

authority and judgment over decisions that ultimately determine corporate policy.’ 

(White, supra, 21 Cal.4th 563, 573.)” 

We have searched the record in vain for anything other than a few snippets of 

support for the City’s contention that Dow’s product stewards had “broad discretion” and 

“ultimate authority” over the warnings and disposal instructions contained in the MSDS’s 

or in any other Dow literature. Stanley Dombrowski, who was product steward and later 

chief product steward for inorganic chemicals, described his involvement with the Dow 

documents in this way: “With the help of technical experts in individual fields, like 

toxicologists or physicians or epidemiologists or environmental chemists . . . [I authored] 

17 The City elsewhere argues that “product[] stewards were given broad authority 

by Dow’s president to determine what was communicated as Dow policy to all customers 

about PCE disposal and environmental issues. By virtue of the authority given and their 

function, product stewards were managing agents.” The only record cite to evidence (as 

opposed to argument) is to the testimony of a product steward that the City characterizes 

as describing his “broad authority over Dow’s communications to customers.” The

actual testimony, however, was that the product steward’s job was to “facilitate and 

participate in the process of developing the information and communication process to 

purchasers and users of those chemicals.” (Emphasis added) There is no evidence that 

Dow’s president conferred any authority on product stewards to be the decision makers 

with respect to the content of Dow’s communications on any subject.

48

 
summations of information in layman language with their help and guidance for inclusion 

in literature, published product literature, maybe even personal letter of 

communications.” With respect to the MSDS’s in particular, Dombrowski was asked 

whether, as product steward or chief product steward, he had “either direct responsibility 

for preparing Material Safety Data Sheets for perc, or supervising others.” He responded 

only that he was “directly involved in the[ir] preparation. . . .” 

Another product steward, Laurence Lee, was asked how MSDS’s were reviewed 

and approved by the company before they were released to customers. He stated, “they 

would be created by our regulatory group that had access to the tox[icology] data, to the 

environmental data. A Safety Data Sheet draft would be created, it would be routed to 

the Environmental Health and Safety group. It would be routed to the product steward. 

It would be routed to several other people in the corporation. And comments would be 

taken and then . . . any discrepancies or differences would be resolved, and then it would 

be released for publication.” 

Janet Hickman, the PCE product steward since 1991, testified that her job was to 

“help facilitate carrying out [Dow’s] Product Stewardship Program” and that part of her 

work was “viewing documents that are provided to Dow customers,” including MSDS’s 

and Spotnews. She was listed on “some of the documents” as someone customers can 

contact to get information. When asked if she was “basically the clearinghouse” for calls 

from PCE purchasers, she responded, “[p]eople can certainly call me, yes.” She stated 

that she works with toxicologists, medical doctors (“periodically”) and environmental 

scientists (“periodically”). She is not the person “in charge of giving answers to 

customers” but she is the person “in charge of developing answers. Many people can 

give the answers.” With respect to a 1995 MSDS, Hickman was asked, “[a]nd this was 

prepared by a number of Dow employees to make sure that it was accurate, including 

toxicologists and medical doctors and so on? A. Yes, a number of people reviewed this. 

Q. Including professionals in the disciplines I mentioned? A. Correct.” 

We see nothing in this evidence to support the City’s contention that the product 

stewards had either “broad discretion,” or “ultimate authority,” or decision making power 

49
over Dow’s communications about the handling and disposal of PCE. In short, there is 

no evidence to support the City’s assertion that the product stewards “made the decisions

over more than a decade not to warn about known environmental hazards, and to 

promulgate inadequate and improper disposal instructions.” (Emphasis added.) From the 

testimony one can conclude, at most, that product stewards were charged with being 

knowledgeable about PCE, and were involved in preparing MSDS’s and other 

communications. The evidence simply cannot be described as substantial evidence to 

support a finding, by clear and convincing evidence, that the product stewards 

“ ‘exercised authority that resulted in the ad hoc formulation of corporate policy’ on

Dow’s warnings and instructions about PCE [quoting Davis v. Kiewit Pacific Co. (2013) 

220 Cal.App.4th 358, 373 (Davis)].” 

Nor has the City cited to any evidence showing that the information included in 

the MSDS’s was known to, authorized by or ratified by any officer, director or managing 

agent. So far as we can ascertain, the record is silent on this question, as it relates to 

Dow. This is in contrast to evidence pertaining to Vulcan’s issuance of MSDS’s which, 

apparently, required the signature of multiple high-level management persons: “These are 

all the executives, managers, vice-presidents who had to sign off on one Material Safety 

Data Sheet going out to the customers, including the vice-president of marketing, the 

vice-president of research and engineering, the vice-president of manufacturing, [and] the 

division president.”18 

The City relies on Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809 

(Egan), and Davis v. Kiewit Pacific Co., supra, 220 Cal.App.4th 358 to support its 

contention that an employee need not be in a “high-level policy making” position to be a 

managing agent. But while the cited principle is true, the facts of Egan and Davis are 

inapposite. 

18 We say “apparently” because Vulcan is not a party to the appeal, and so, much 

of the evidence relating to Vulcan is not included in the record. The quoted statement is 

from the City’s closing argument to the jury. 

50

 
In Egan, the plaintiff’s disability claim was denied in bad faith by two employees 

of the insurance company. (Egan, supra, 24 Cal.3d at pp. 816-817.) On appeal, the 

insurance company challenged the punitive damages awarded in the trial court on the 

ground, inter alia, that the individuals responsible were not managing agents because 

“neither was involved in ‘high-level policy making.’ ” (Id. at p. 822.) The court rejected 

that argument stating that the critical inquiry was not the employees’ level in the 

corporate hierarchy, but “the degree of discretion the employees possess in making 

decisions that will ultimately determine corporate policy. When employees dispose of 

insureds’ claims with little if any supervision, they possess sufficient discretion for the 

law to impute their actions concerning those claims to the corporation.” (Id. at 

pp. 822-823.) The record showed that one of the employees was the manager of the 

Benefits Department who had “ultimate supervisory and decisional authority regarding 

the disposition of all claims . . . [in] the Los Angeles office.” (Id. at p. 823.) Although 

the other employee claimed he had acted “at the direction of some higher authority,” he 

could not recall who gave him that direction, the files contained no written directive, and 

there was no “identifiable person in authority at [the] home office to receive and review 

[his] reports.” (Id. at p. 817.) The court, accordingly, concluded the record showed he 

also had the kind of broad discretion and authority that “necessarily results in the ad hoc 

formulation of policy.” (Id. at p. 823.)

In Davis, the plaintiff was part of Kiewit’s 100-person construction crew working 

on a 12-mile segment of canal excavation and construction. (Davis, supra, 220 

Cal.App.4th at p. 360.) She was subjected to discriminatory treatment and harassment 

both by her foreman and other workers. (Id. at p. 361.) The plaintiff complained to the 

project manager, who was defendant’s “highest ranking employee on the site” about the 

difficulty of accessing portable toilets, which were often located “miles from the work 

area.” The project manager stated he would look into it, but neither he nor anyone else 

followed up on the issue. (Ibid.) After one particularly serious incident of harassment 

she complained to her foreman and to the day shift superintendent, who in turn reported it 

to his superior. The project manager learned of the incident on the following day, but no 

51
one investigated the matter to determine who was responsible. (Ibid.) The plaintiff also 

complained to Kiewit’s equal employment opportunity (EEO) officer regarding both 

matters and expressed concern about retaliation because she had lodged a complaint with 

Cal-OSHA about the toilets. The EEO officer did not take any action to prevent 

retaliation. (Ibid.) Shortly thereafter Kiewit laid off most of the excavation crew, 

including the plaintiff, but one week later selectively rehired a full day shift. Davis was 

not rehired. Davis sued for compensatory and punitive damages. (Id. at pp. 361-362.)

Defendant successfully moved for summary adjudication on the claim for punitive 

damages, relying on declarations from the project manager and the EEO officer that they 

had no “substantial discretionary authority over decisions that determine [Kiewit’s]

corporate policy.” (Davis, supra, 220 Cal.App.4th at p. 362.) The court of appeal 

reversed. Plaintiff’s opposing evidence showed that the project manager was “Kiewit’s 

top management employee in charge of the $170 million project;” that all managers on 

the project reported to him; that his duties included contract administration, operations 

and personnel oversight, and meeting with project stakeholders; and that he had “broad 

discretion relating to personnel issues and the allocation of resources to meet project 

goals.” (Id. at p. 367.) Further, there was no evidence that “management of a $170 

million project with supervision of 100 employees is an insignificant part of Kiewit’s 

business.” Accordingly, the court concluded, “a trier of fact could reasonably infer from 

the above evidence that [the project manager] ‘exercised substantial discretionary 

authority over [significant] aspects of [Kiewit’s] business’ and therefore was a managing 

agent of Kiewit. [Citing White, supra, 21 Cal.4th at p. 577.]” (Id. at p. 370.) 

As for the EEO officer, Kiewit’s policy manual expressly made him responsible 

for “the investigation of any complaint of discrimination and the implementation of any 

necessary corrective action, the dissemination of the EEO Policy . . . , [and] the periodic 

review of [Kiewit’s] employment records and practices to assure that [Kiewit’s] . . . EEO 

Policy [is] being administered on a nondiscriminatory basis. . . .” (Davis, supra, 220

Cal.App.4th at p. 373.) The EEO officer himself testified that it was his duty was to 

“administer[] Kiewit’s policies that prevent discrimination, retaliation, and harassment 

52
based on gender and other protected groups for the Northwest District,” and that he 

trained supervisory personnel, responded to employee complaints, and conducted or 

oversaw investigations regarding alleged discrimination, retaliation, and harassment. (Id. 

at pp. 372-373.) Based on all of the evidence, the court concluded a jury could find that 

the EEO officer had “authority and discretion” in making, interpreting, and applying 

Kiewit’s policies, that he exercised his authority and discretion to not enforce Kiewit’s 

policy against retaliation and/or to not protect the plaintiff from retaliation, “and, in so 

doing, exercised authority that resulted in the ad hoc formulation of corporate policy.” 

(Id. at p. 373.)

These cases stand for the proposition that a managing agent is not only a person 

who sits high in the corporate hierarchy and devises formal corporate policies; if the 

evidence shows that a person has actual, unsupervised authority and broad discretion to 

implement (or ignore) corporate policy then he or she can, in this manner, be formulating 

“ad hoc corporate policy.” But we have found no evidence that the product stewards 

were either given or exercised “ultimate authority” or “broad discretion” in formulating 

Dow’s warnings and disposal instructions in its communications about PCE. The 

evidence showed this was a collaborative exercise, and there is no evidence that the 

product stewards had decision-making power over the content. 

Finally, the City argued that “[t]hese were instructions issued for decades along 

with Dow’s products, as part of Dow’s claimed expertise on its products.” Therefore, the 

City argues (quoting from Dow’s brief), “[t]his case is far from one involving only 

‘transitory decision-making on individual items’ where ‘ “[n]o evidence was presented 

regarding [the]...duties or authority” ’ of the employee alleged to be a managing agent. 

[Citations.]” The portion of Dow’s brief from which the City drew this quotation, in turn, 

quoted Gelfo v. Lockheed Martin Corp. (2006) 140 Cal.App.4th 34, 63 (Gelfo).

In Gelfo, the appellate court upheld a directed verdict in favor of defendant on the 

issue of punitive damages. It concluded that there was insufficient evidence to support a 

finding that a “corporate decision maker” had been involved in improperly rescinding 

plaintiff’s job offer. Although the individual who withdrew the offer had the title of vice53
president, “Gelfo did not introduce any evidence to establish his position in Lockheed’s 

corporate hierarchy. No evidence was presented regarding [his] duties or authority, let 

alone substantial evidence, that [he] ‘exercise[d] substantial discretionary authority over 

decisions that ultimately determine corporate policy.’ [Citation.]” (Gelfo, supra, 

140 Cal.App.4th at p. 63.) The City cannot distinguish Gelfo. While the City did 

introduce evidence of the product stewards’ duties, there was no evidence to establish 

their position in the corporate hierarchy—in a company with 40,000 to 50,000 

employees—and “[n]o evidence[,] . . . let alone substantial evidence, that [they] 

‘exercise[d] substantial discretionary authority over decisions that ultimately determine 

corporate policy.’ ”19 (Ibid.)

We are loath to overturn a jury’s finding under any circumstances, and particularly 

a finding that punitive damages should be imposed due to the reprehensible conduct of a 

corporate actor. But we must operate within the bounds of the record that has been 

provided and within controlling legal principles. 

As to the law, the legislature has determined that, for a corporation to be liable for 

exemplary damages, the wrongful acts giving rise to those damages must be committed 

19 The jury may have been swayed by the City’s closing argument, in which 

counsel explained that, “[w]ithin Dow, just like within Vulcan, there’s a process for these 

communications to be cleared with their customers, the Material Safety Data Sheet. They 

had, according to the evidence, environmental scientists, industrial hygienists, 

toxicologists, medical doctors as part of a committee, along with a product steward, 

review these communications” and the president of Dow said “to this group of executives

doing MSDS’s: Do the right thing, I’m giving you the power to make these decisions.” 

(Emphasis added.) The evidence, however, showed that the MSDS’s were “routed” to 

technical experts and “others” before they were released. There is no evidence that there 

was a “committee,” that the so-called committee was comprised of a “group of 

executives” or that the president told the persons working on the MSDS’s that he was 

giving them “the power to make these decisions.” There is also no evidence that Dow’s 

process was the same or similar to Vulcan’s, whereby a number of corporate officers 

signed off on the MSDS’s before they were released. 

In this same vein, it is worth noting that, on essentially the same evidence against 

Dow in Phase III (in which Vulcan was not a party) the jury, on a 10 to 2 vote, found no 

malice. 

54

 
(or authorized, or ratified) by an “officer, director, or managing agent.” (Civ. Code 

§ 3294, subd. (b).) This was to “avoid imposing punitive damages on employers who 

were merely negligent or reckless and to distinguish ordinary respondeat superior liability 

from corporate liability for punitive damages. [Citations.]” (White, supra, 21 Cal.4th at 

p. 572.) 

As to the record, the City failed to substantiate its claim that the product stewards 

were managing agents. While the record amply supports the findings of corporate 

liability, it lacks clear and convincing evidentiary support for one of the elements 

necessary to support the imposition of punitive damages on Dow, and we must, 

accordingly, vacate that portion of the jury’s verdict.

D. Directed Verdict Based on “No Present Injury”

1. Procedural History

During the Phase III jury trial, defendants filed a motion for directed verdict, 

arguing (among other things) that the City’s appropriative interest in its groundwater had 

not suffered a present injury, but only a possible future injury at 18 sites, and therefore 

could not be a basis for claiming damages at those sites under negligence and product 

liability theories. Defendants relied on County of Santa Clara v. Atlantic Richfield Co.

(2006) 137 Cal.App.4th 292, 325 (Santa Clara) and Aas v. Superior Court (2000) 24 

Cal.4th 627, 649 (Aas). To set the stage, we take a brief detour to summarize those cases.

In Santa Clara, the plaintiffs (a number of governmental entities) sued various 

manufacturers of paint that contained lead. Among other things, the plaintiffs sought 

damages for injuries to their buildings, under negligence and products liability theories, 

based on the presence of lead paint on the walls, which would have to be tested and 

removed. (Santa Clara, supra, 137 Cal.App.4th at p. 320.) Defendants successfully 

demurred to these causes of action. A majority of the court of appeal affirmed. It 

concluded that plaintiffs’ damage claims “do not include any allegations of physical 

injury . . . and therefore their causes of action for negligence and strict products 

liability . . . have never accrued.” (Id. at p. 318.) The court followed the holding in 

55
Aas that homeowners may not sue contractors and developers for the cost of repairing 

construction defects under a negligence theory if the defects have not caused property 

damage. (Aas, supra, 24 Cal.4th at p. 632.) The Santa Clara court reasoned: The 

plaintiffs did not allege that the presence of lead paint caused any damage to or 

deterioration of the walls or floors of the structure “other than the lead paint [itself]” 

(Santa Clara, at p. 325), and so the damages allegations could “only be characterized as 

seeking the cost of repairing [their] buildings” which is a purely economic loss (id. at p. 

321); therefore, plaintiffs failed to allege the final element under the negligence or strict 

liability causes of action—physical injury. (Id. at p. 325.)20

Upon these authorities, defendants argued below that the City had not made a 

prima facie case for its negligence and strict liability claims because there was no 

evidence of physical damage to the City’s property, i.e., the PCE contamination was not 

interfering with its sewers or easements nor with its appropriative right to acquire 

groundwater. With respect to the groundwater, defendants took the position that, because 

the State owns all water in trust for the people, and because state agencies, such as the 

Regional Water Quality Boards are charged with protecting water quality, regulating and 

avoiding the discharge of contaminants, and overseeing cleanup of contamination—and 

the City is not so charged—the City’s property interest in the groundwater is limited to 

that which it actually or imminently pulls into its wells. Acknowledging that the City’s 

right “may be interfered with in the future” defendants argued there had, as yet, been no 

“present injury” to the City’s appropriative water rights because the PCE contamination 

20 The dissent in Santa Clara took the position that Aas, a construction defect 

case, was inapplicable; that “appreciable harm” can occur without actual physical or 

personal injury where “contamination” results from defendant’s product, citing San 

Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1333 

(SFUSD); and that the measure of damage (economic losses due to costs of repair) should 

not be confused with the nature of the injury (physical harm from contamination), citing 

Transwestern Pipeline Co. v. Monsanto Co. (1996) 46 Cal.App.4th 502, 527 

(Transwestern). (Santa Clara, supra, 137 Cal.App.4th at pp. 338-340.)

56

 
emanating from (most of) the Phase 3 sites was not a current threat to any of the City’s 

wells.21 

With respect to the soil contamination, defendants contended there had been no 

proof of any damage to the sewer system, or the wastewater system, and no incident 

where any special precautions needed to be taken by City workers due to PCE 

contamination. 

In response, the City argued that it had a property interest in, and power over, not 

just in the water it actually uses, but all of the groundwater over which it holds 

appropriative rights. The City pointed to Water Code section 106.5—providing that a 

municipality’s right to acquire and hold rights to the use of water “should be protected to 

the fullest extent necessary for existing and future uses”—and to cases holding that the 

right to the use of underground waters by the overlying appropriator is a protectable 

property interest. (Fullerton v. State Water Resources Control Bd., (1979) 90 Cal.App.3d

590, 598-599; Rank v. Krug (S.D. Cal. 1950) 90 F.Supp. 773, 788.)22 The City also 

pointed to Public Utilities Code section 10153 which provides that a city has the right to 

take “any waters belonging to the State.” 

21 Defendants conceded there was evidence that contamination at some sites did 

threaten contamination at a City well, and as to those sites, the court denied the motion 

for directed verdict. 

22 Defendants also relied on Fullerton to support their argument that the City’s 

appropriative rights are limited to the groundwater the City actually appropriates for 

delivery to its customers. Defendants pointed to Fullerton’s recitation of the general rule 

that an appropriation consists of “[t]he intent to take [water], accompanied by some open, 

physical demonstration of the intent, and for some valuable use,” meaning that actual 

diversion or control over the water seeking to be appropriated is a necessary element to 

an appropriative right. (Fullerton, supra, 90 Cal.App.3d at pp.598-599, [“The significant 

common element of all of these forms of possession is some physical act with respect to 

the water by the appropriator to manifest the possessory right”].) While this is a correct 

statement of the law it is not applicable here. In Fullerton, the petitioner was seeking to 

establish a new “appropriative” right without proposing to divert or take control over the 

water. (Id. at p. 594.) Here, no one disputes that the City has long since established an 

appropriative right in the Modesto’s groundwater by its diversion and control over that 

groundwater.

57

 
The City also argued that the introduction of contamination to the City’s 

easements was itself considered “damage” under tort law, citing Transwestern, supra, 

46 Cal.App.4th at p. 531. Finally, the City pointed out the trial court had already ruled, 

in an earlier motion, that (1) Santa Clara is distinguishable because it pertains to the 

presence of lead paint in buildings, not the presence of a chemical contaminant in soil and 

water, and (2) “[d]efendants [had not cited] any authority holding that water and/or soil 

contamination does not constitute ‘physical damage’ for purposes of . . . products liability 

law. . . .”

The court, it should be noted, had previously been asked to determine whether the 

City could even pursue tort claims for contamination of its groundwater if it had not yet 

entered any wells. The court ruled that the City “has the right to bring an action to 

remediate contamination of [the water in the aquifer] even though it has not yet entered 

the City’s wells,” and therefore, “[d]efendants’ argument that the City cannot sue in 

products liability and negligence because the City’s right to the aquifer water has not 

been perfected misses the point and is simply not persuasive.” It further concluded—on 

the question of whether the City had suffered “appreciable harm” as a result of the release 

of PCE—“the City alleges that there is currently a PCE plume in the aquifer. [Citation to 

transcript.] If the jury agrees and finds that the plume ‘caused [the City] to act, or 

reasonably should have caused it to act, in response to the contamination’ [citing In re 

Methyl Tertiary Butyl Ether Products Liability Litigation (MTBE) (S.D.N.Y. 2006) 

475 F.Supp.2d 286, 293], then the City has suffered ‘appreciable harm’ under the rule set 

forth in MTBE.” 

In spite of this earlier ruling, the court granted defendants’ motion for directed 

verdict as to 14 of the 18 sites. The court again concluded that the City has a statutory 

right to acquire and use groundwater for municipal purposes and that this right includes 

the “duty to provide drinking water to City residents and to protect water destined for 

City wells from contaminating those wells.” And the court again rejected the limitations 

of Santa Clara, stating that neither Santa Clara nor any other case prevents a 

municipality from suing in tort for “interference with or damage to its usufructuary rights 

58
in groundwater . . . [including] under the strict products liability theory it advances[]” 

(again, citing In re Methyl Tertiary Butyl Ether Products Liability Litigation (S.D.N.Y. 

2006) 457 F.Supp.2d 455, 461). 

Observing that neither party had cited authority that defined what would constitute 

interference with or damage to appropriative rights (and apparently rejecting its previous 

reliance on the standard of “appreciable harm” set forth in MTBE), the court crafted its 

own definition. It concluded that, while the City would not be required to prove the PCE 

had actually reached its wells, “[a]t a minimum, there would have to be an imminent

threat to a municipality’s drinking water in order for a jury to conclude that the 

municipality’s rights in that water have been damaged or interfered with.” (Italics 

added.) The court therefore directed a verdict for defendants with respect to 14 of the 18 

sites because the City’s own evidence showed there was no threat to municipal wells as a 

result of the contamination at those sites. The court also concluded (contrary to its prior 

ruling that contamination constitutes “physical damage”) there was no evidence from 

which a jury could conclude that there had been any actual interference with or damage 

to the City’s easements, e.g., the City had not shown the contamination had caused any 

damage to the sewer or wastewater systems, or any City property. 

2. Arguments on Appeal

Challenging this ruling on appeal the City argues, as an initial matter, that case law 

is more protective of appropriative rights than the trial court allowed, providing recourse 

to legal remedies if there is any “substantial infringement” of those rights, including the 

right to have the water preserved “in its natural state of purity, so far as may be 

necessary” for the appropriator’s purposes, citing City of Pasadena v. City of Alhambra

(1949) 33 Cal.2d 908, 926 and Town of Antioch v. Williams Irrigation Dist. (1922) 188 

Cal. 451, 457-458. The City also relies on Wright v. Best (1942) 19 Cal.2d 368 (Wright), 

in which the court restated the “established rule” that “[a]ny material deterioration of the 

quality of the stream by subsequent appropriators or others without superior rights

entitles [the earlier appropriator] to both injunctive and legal relief.” (Id. at p. 378,

italics added.) 

59
The City more pointedly argues there is ample authority for its claim that the 

release of hazardous waste into the environment itself constitutes harm to property. For 

this proposition, the City cites AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 842 

(AIU); Aerojet-General Corp. v. Superior Court (1989) 211 Cal.App.3d 216, 229 

(Aerojet); and Transwestern, supra, 46 Cal.App.4th at p. 524.

In Aerojet and AIU the insureds were companies that became liable for costs 

incurred by, or required by, governmental agencies for remediation of polluted soil and 

groundwater. One question posed was whether these costs were covered by their general 

liability policies, pursuant to the “property damage” clause.23 Among other arguments, 

the insurance companies asserted that agency-imposed liability for the cost of cleaning up 

pollution released into the environment is not “property damage.” (Aerojet, supra, 211 

Cal.App.3d at pp. 223-224, 227-230; AIU, supra, 51 Cal.3d at pp. 821, 830, 831, 834-

835.) The courts rejected this claim. As the court in Aerojet explained: “The state’s 

property interest in groundwater, . . . is no less usufructuary than that of private 

ownership, and public waters may be duly used, regulated and controlled in the public 

interest. [Citations.] .... [¶] Pollution of the ground and river waters is damage to public 

property, as well as a direct injury to public welfare. [Citations.] [T]he great weight of 

authority hold[s] environmental contamination to be ‘property damage.’ [Citation.]” 

(Aerojet, supra, 211 Cal.App.3d at pp. 229-230; AIU, supra, 51 Cal.3d at p. 842 

[contamination of the environment is property damage].) 

In Transwestern, a transporter of natural gas in pipelines sued Monsanto, the 

manufacturer of a product containing polychlorinated biphenyls (PCB’s), for indemnity. 

Transwestern delivered natural gas to Southern California Gas (SoCalGas). Monsanto’s 

product, used by Transwestern in its gas compressor, leaked into its pipes ultimately 

23 In AIU the contract provided coverage for “ ‘all sums which [the insured] shall 

be obligated to pay by reason of the liability...imposed upon [the insured] by law...for 

damages, . . . and expenses, . . . on account of . . . property damages. . . .’ ” (AIU, supra, 

51 Cal.3d at pp. 814-815.) The Aerojet contract provided coverage for “ ‘all sums which 

the Insured shall become legally obligated to pay as damages because of injury 

to...property.’ ” (Aerojet, supra, 211 Cal.App.3d at p. 222 [emphasis removed].)

60

 
resulting in PCB pollution of SoCalGas’s pipelines. Although PCB posed no danger 

from its mere presence in the pipes, it mixed with condensation naturally found in the 

pipes, which had to be removed from the pipes on a regular basis. Consequently, the gas 

company was required by federal regulations to take special precautions when removing 

and disposing of the condensate and to monitor PCB levels. (Transwestern, supra, 46 

Cal.App.4th at p. 510.) Transwestern and SoCalGas reached a settlement as to how to 

share the additional costs of handling the polluted material and of monitoring the PCB’s. 

Transwestern then successfully sued Monsanto for equitable indemnity for the past and 

future expenses related to the PCB pollution upon the theories of strict products liability 

and negligence (failure to warn). (Id. at p. 511.) 

Monsanto argued on appeal that the costs of managing the pollution were 

economic losses, and not compensation for property damage. Monsanto contended that 

the presence of PCB’s from its product in the pipes did not “cause damage to SoCalGas’s 

property because “[t]he pipes still piped, the pumps still pumped and the meters still 

metered just as well as they had before. The only harm to SoCalGas was the increased 

cost of performing the routine business operation of collecting, storing and disposing of 

the pipeline condensate once it was discovered the condensate contained PCB’s. In other 

words, the ‘damage’ to SoCalGas was to its profits, not its property.” (Transwestern,

supra, 46 Cal.App.4th at p. 524.) After reviewing cases from California and other state 

and federal courts (id. at pp. 527-530), the court rejected Monsanto’s argument, 

concluding that the harm to SoCalGas “was clearly in the nature of property damage

because the PCB’s contaminated the SoCalGas pipelines and the condensate within the 

pipelines, both of which were the property of SoCalGas.” (Id. at p. 530.) Monsanto, the 

court concluded, was confusing the measure of damages with the nature of the damage. 

In explanation, the court quoted from Northridge Co. v. W.R. Grace and Co. (Wis. 1991) 

471 N.W.2d 179, 186, a Wisconsin Supreme Court case which affirmed that costs of 

removal and replacement of asbestos were recoverable under a negligence theory. “ 

‘While economic loss is measured by repair costs, replacement costs, loss of profits or 

diminution of value, the measure of damages does not determine whether the complaint is 

61
for physical harm or economic loss. . . . In other words, the fact that the measure of the 

plaintiff’s damages is economic does not transform the nature of its injury into a solely 

economic loss. . . . Physical harm to property may be measured by the cost of repairing 

the buildings to make them safe.’ [Citation].” (Transwestern, at p. 531.) SoCalGas 

attempted to remove the PCB’s from the pipe walls, but could not, and so had to use 

special precautions in handling and disposing of the condensate. “[T]he costs of both 

activities are recoverable as property damage. . . .” (Ibid.; and see, SFUSD, supra, 37 

Cal.App.4th at p. 1333 [costs incurred for remediation of contamination resulting from 

friable asbestos is actionable under negligence and strict liability theories].) 

The Transwestern court also affirmed the award for future costs of remediation. 

Monsanto claimed they were speculative, but the court concluded that it was “reasonably 

certain” SoCalGas would incur those expenses in the foreseeable future, and the exact 

amount of those expenses need not be capable of precise measurement. “Courts in 

similar cases have routinely awarded damages for the projected costs of remedying 

pollution. [Citations.].” (Transwestern, supra, 46 Cal.App.4th at pp. 532-533.)

Based upon this triad of cases the City argues that contamination of the 

groundwater over which the City holds an appropriative property right, as well as 

contamination of its property (easements) is, itself, physical harm. Consequently, the 

City contends, the trial court incorrectly ruled that the contamination must pose a present 

threat to its municipal supply wells, or interfere with the use of its easements, in order to 

prove that it has been harmed. 

In its responding brief defendants claim only that the City “erroneous[ly]” 

characterized the trial court’s ruling. According to defendants, the City is incorrectly 

asserting that the court “limit[ed] the City to damage claims where PCE exceeded the 

MCL in City water wells . . . or would do so imminently,” when in fact the court 

“broadly” allowed the City to claim damages “wherever groundwater to be used by City 

residents imminently threatened to exceed the MCL.” This contention is at best 

confusing. In making that claim defendants do not cite to the trial court’s ruling, but to 

isolated excerpts from the lengthy oral argument on the motion and to the jury instruction 

62
used to define “[h]arm to City property.” But, for the directed verdict motion, the 

court—at defendants’ urging—used a different definition of harm to the City’s property: 

it ruled that, for a jury to find the City’s water rights had been damaged or interfered 

with, the City must show “[a]t a minimum, there would have to be an imminent threat to 

a municipality’s drinking water” meaning, to municipal supply wells. Later in the brief, 

defendants more accurately (but inconsistently) state that the nonsuit was granted because 

contamination at the ten sites did not then threaten municipal supply wells. 

With respect to contamination of the easements, defendants do not counter the 

City’s legal argument that the soil contamination is itself property damage, but merely 

restate the trial court’s finding that the City had not shown “harm from PCE to its sewers, 

streets, or soil.”

3. Analysis

As a preliminary matter, we are troubled by what appears to be a procedural 

whipsaw. Prior to trial, the court squarely ruled that a City can prove “appreciable harm” 

if the City convinces a jury that there was PCE contamination in the aquifer that “caused 

[the City] to act, or reasonably should have caused it to act, in response to the 

contamination.” 24 At trial, the City presented evidence that there is PCE exceeding the 

MCL in the soil at all of the sites and in groundwater at most of the sites, and the City’s 

expert testified that these levels of contamination, pursuant to state standards, required 

remediation. Only after the evidence was closed, and defendants filed their motion for 

directed verdict, did the judge conclude that reasonable actions taken in response to 

contamination, alone, were not enough. 

Further, on this record, it appears the trial court should not have taken the issue 

away from the jury because the agreed-upon jury instruction on “harm” was not the same 

24 In fact, the defendants sought to exclude evidence of any damages for 

“[p]otential [f]uture [c]ontamination of [w]ater [w]ells,” and the City made clear it was 

seeking damages only for “ ‘the costs of remediating actual, appreciable, measurable 

quantities of PCE present in soil and groundwater on City property,’ ” and “ ‘[n]o expert 

has proposed to testify regarding “fear of future wellhead treatment costs.” ’ ” 

63

 
as that applied by the court in directing a verdict. The instruction read: “Harm is present 

physical injury to City property. The City does not own any groundwater. Rather, in this 

case, the City has a property interest in groundwater that will be delivered to City 

residents. This property interest is harmed when the groundwater to be used by City 

residents exceeds or is imminently threatened to exceed a PCE concentration of five parts 

per billion. . . .” (Italics added.) This is different from the court’s directed verdict 

standard which required an imminent threat to the city’s drinking water— specifically, to 

its municipal supply wells. While the jury might have concluded that “groundwater to be 

used by City residents” actually meant only groundwater that was in, or imminently about 

to enter a well, such a conclusion was not compelled by the evidence nor by the wording 

of the instruction. 

Neither of these issues, however, has been briefed so we will not consider them as 

grounds for reversal of the court’s order. 

As to the merits of the appeal, defendants have chosen not to meet the legal issue 

raised in the opening brief, viz., whether contamination of groundwater in which a city 

has appropriative rights, and contamination of a city’s other property interests (i.e., its 

easements) itself constitutes harm, irrespective of whether the contamination constitutes 

an imminent threat to wells, and irrespective of whether the contamination has caused 

separate damage to the city’s infrastructure or interfered with the use of its easements.25 

Defendants do not explain why the holdings in Santa Clara and Aas—which were 

rejected twice by the trial court as inapposite (even while granting defendants’ motion)—

should nevertheless apply here, rather than AIU, Aerojet, and Transwestern, cited by the 

City, which hold that contamination of soil and groundwater is property damage. (See 

also, SFUSD, supra, 37 Cal.App.4th at p. 1335 [appreciable harm occurs when asbestos

becomes friable and causes “contamination”].) Instead, defendants simply repeat the trial 

25 Defendants do point out that nonsuits were granted on other grounds with 

respect to some defendants as to five of the disputed sites, and the City concedes the 

point.

64

 
court’s conclusion that the directed verdict was properly ordered because the evidence 

showed the contamination in and around the 14 sites did not threaten any wells. As we 

are “not required to examine undeveloped claims or to supply arguments for the litigants” 

(Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 52), we will treat the legal 

points as conceded, and vacate the order granting the directed verdict.26

E. Statute of Limitations for Claims Regarding Elwood’s Sites

1. Procedural Background

At the Phase 3 trial, the jury heard evidence about PCE contamination from many 

dry cleaning sites, including a group of three sites referred to as the Elwood’s Group. 

Defendants contended the City’s claims as to this group of sites was barred by the threeyear statute of limitations for injury to real property. (Code Civ. Proc., § 338, subd. (b).) 

In the verdict forms, the jury was asked in question 1.1, “Have the defendants proved that 

the City’s claimed harm in relation to the Elwood’s Group occurred before December 3, 

1995?” The jury unanimously answered, “Yes.” The jury was then asked in question 1.2 

whether the City knew, before December 3, 1995, of facts that would cause a reasonable 

person to know or suspect that someone’s wrongful conduct caused harm to Modesto 

groundwater intended for use by Modesto residents, that the harm consisted of 

contamination of the groundwater with PCE concentrations “exceeding or imminently 

threatened to exceed 5 ppb,” and that the harm actually existed before December 3, 1995. 

The jury was unable to reach a verdict as to this question. As to damages, the jury found 

the City’s reasonable costs for investigating and developing an appropriate remedy were 

$320,000, and that its future remediation costs would be $18 million. 

26 With respect to contamination of the soil in the City’s easements, defendants 

merely repeat the trial court’s finding that the City failed to “present evidence of harm 

[other than contamination itself] from PCE to its sewers, streets, or soil.” Having 

presented no contrary argument to plaintiffs’ legal theory, we need not address this 

further. 

Upon remand these issues may become moot if, as the City has hinted, it proceeds 

only on the reinstated nuisance and Polanco Act causes of action. 

65

 
The City brought a motion for judgment notwithstanding the verdict (JNOV) as to 

question 1.1, contending defendants had failed to submit expert testimony to support their 

statute of limitations defense. The trial court denied the motion.27 The City contends this 

ruling was erroneous. 

“ ‘ “ ‘The scope of appellate review of a trial court’s denial of a motion for 

judgment notwithstanding the verdict is to determine whether there is any substantial 

evidence, contradicted or uncontradicted, supporting the jury’s conclusion and where so 

found, to uphold the trial court’s denial of the motion.’ ” [Citation.]’ [Citation.]” 

(Carrau v. Marvin Lumber & Cedar Co. (2001) 93 Cal.App.4th 281, 289.)

The jury was instructed on harm as follows: “Harm is present physical injury to 

City property. The City does not own any groundwater. Rather, in this case, the City has 

a property interest in groundwater that will be delivered to City residents. This property 

interest is harmed when the groundwater to be used by City residents exceeds or is 

imminently threatened to exceed a PCE concentration of five parts per billion, the legal 

maximum of water that can be distributed for human consumption.” The evidence 

showed that one of the Elwood’s sites is approximately 2,000 feet from the nearest well, 

Well 2.28 The City contends that, as a matter of law, the jury could not find that it 

suffered harm before December 1995, as defined in the instruction, in the absence of 

expert testimony about the rate of migration of PCE through soil and into groundwater to 

help it determine whether PCE contamination had spread far enough by that date to 

27 The trial court also granted defendants’ motion for judgment as to question 1.2, 

ruling that the City had failed to plead or prove facts showing how and when it 

discovered its claim with respect to the Elwood’s sites. The City contends on appeal that 

this motion should have been denied as moot because the delayed discovery rule applies 

only if accrual would otherwise bar an action, but does not raise any substantive 

challenges to this ruling. 

28 The evidence often refers to only one of the three Elwood’s sites. For purposes 

of the question before us, it is not necessary to identify which site is being referred to. 

However, it appears only two of the sites were being considered as sources of 

contamination. 

66

 
threaten imminent exceedance of the MCL in Well 2. The City does not dispute that the 

jury received expert evidence regarding PCE contamination at the Elwood’s site and its 

effect on Well 2, but contends that evidence did not sufficiently address the effects of the 

contamination before December 1995. 

2. Evidence at Trial

The trial exhibits include two reports regarding PCE contamination as a result of 

activities at the Elwood’s site. The first of them, entitled “City of Modesto GroundWater Investigation,” dated October 30, 1989, was prepared by Radian Corporation for 

the Toxic Substances Control Division of the State Department of Health Services (the 

Radian report). This report indicated that PCE had been found in samples taken from 

Well 2 at concentrations of 0.98 and 1.0 parts per billion. The Elwood’s site had elevated 

soil vapors of 183 parts per billion of TCE and greater than 100 parts per million 

(100,000 parts per billion) of PCE. 

The second report is the “Modesto Well Investigation Summary,” dated January 7, 

1992, prepared by the Central Valley Region of the California Regional Water Quality 

Control Board (the RWQCB report). The purpose of the RWQCB’s investigation was 

“to determine sources of tetrachloroethylene (PCE) contamination” in various Modesto 

wells, including Well 2. The report noted that Elwood’s had been in business since 1953, 

that it used PCE as a dry cleaning agent, and that wastewater containing PCE was 

discharged to the sewer.29 The Elwood’s site was contaminated. 

The RWQCB had conducted soil surveys around Well 2 in 1991, and found 

several “PCE plumes.” Plume 1, which originated near Elwood’s, turned southwest 

toward Well 2. A chart indicated the plume was approximately one mile in length. The 

report explained that Plume 1 and Plume 2, “are really one plume (Plume 1-2) that starts 

in the general area between Deluxe Cleaners and Elwood’s Dry Cleaning Service. The 

29 Another Elwood’s site began operations in 1980. According to an expert, 

multiple, large releases of PCE emanated from that location. The contamination was 

calculated to have traveled 1,500 feet in 15 years, based on estimates of groundwater 

velocities. 

67

 
results also corroborate previous findings by staff that PCE comes out of sewer lines, 

either in gaseous or aqueous phase or both, and contaminates ground water.” Elwood’s 

was identified as one of two sources of Plume 1-2, “which is the probable source of PCE 

contamination in Well 2.” A map in the report graphically depicts the edge of a massive 

plume almost touching Well 2. 

Anthony Brown, an expert for the City, testified at trial that the releases at the 

Elwood’s site threatened Well 2, which was the closest well in a downgradient direction. 

The Elwood’s site contained concentrations of PCE “orders of magnitude” higher than 

the threshold for requiring remediation. Brown explained that, “The higher the 

concentration of the contaminant, the larger the sources of contaminant which can impact 

the groundwater. Therefore, there is more pollution in the actual groundwater.” A 

greater concentration of the contaminant leads to a longer plume of contamination, which 

is more likely to reach a drinking water well. 

Brown’s testimony was primarily based on conditions between 2000 and 2003, 

when he conducted an investigation on behalf of the City. However, when questioned 

about the Radian report, Brown confirmed that the soil gas concentration in 1989 was 

more than 14 times greater than it was in 2000 to 2003. The jury also heard other expert 

testimony that, generally, PCE vapors can sink into the water table and condense, 

contaminating groundwater. 

3. Analysis

As we discussed in connection with the directed verdict motion, the City has taken 

the position that “appreciable harm” occurs not just when the PCE in a well has exceeded 

or is about to exceed the MCL, but when the contamination in the aquifer from which 

Modesto draws its water and in the soils in the City’s easements is at such a high 

concentration as to require remediation in order to protect the drinking water supply and 

exposure to PCE in and around the easements. The City has nonetheless argued on 

appeal that defendants did not present sufficient evidence to prove that the PCE in Well 2

would exceed or imminently exceed the MCL before December 1995. The City candidly 

acknowledged at oral argument that under its own definition of “appreciable harm” it 

68
would be very difficult to avoid a statute of limitations defense at the Elwood’s sites, but 

did not concede the point. We shall, accordingly, adjudicate the issue as it has been 

presented to us.

The City contends the evidence summarized above is insufficient to support the 

jury’s finding that its harm in relation to the Elwood’s sites occurred before December 3, 

1995. Rather, the City argues, it was incumbent upon defendants to provide expert 

testimony on the migration of PCE through soil and into groundwater, and the rate and 

timing of contamination necessary to become an imminent threat to Well 2. We reject 

this contention. As we have already described, the jury was instructed that the City’s 

property interest was harmed when “the groundwater to be used by City residents 

exceeds or is imminently threatened to exceed a PCE concentration of five parts per 

billion,” and the City does not challenge this instruction. There was evidence, both in the 

form of the Radian report and Brown’s expert testimony, that PCE levels in the soil at the 

Elwood’s site in 1989 were extremely high. As of 1991, a long plume of PCE 

contamination in the soil had formed, moving to the area around Well 2. Expert 

testimony explained how PCE traveled through soil and into groundwater, and in fact, by 

1989 PCE was present, albeit below the MCL, in samples of water in Well 2. This 

evidence is sufficient to support the jury’s finding.

The case of Bowman v. City of Berkeley (2004) 122 Cal.App.4th 572, cited by the 

City, does not require a different result. In Bowman, neighbors asserted an environmental 

impact report (EIR) should have been prepared for a proposed project in their 

neighborhood. One argument was that an adjacent parcel had been contaminated by 

leaking underground storage tanks, and examination of the impacts of hazardous material 

on the project was required. (Id. at p. 582) The record, however, contained reports 

showing that the site had been remediated and that monitoring over a seven-year period 

indicated the remaining contamination was confined to the site. (Id. at p. 581.) The 

neighbors interpreted the reports differently and opined it was reasonable to assume the 

contamination might have spread to the project site. (Id. at p. 582.) This court concluded 

that the neighbors’ interpretation of the reports did not constitute substantial evidence to 

69
support a fair argument that an EIR was required, because “a complex scientific issue 

such as the migration of chemicals through land calls for expert evaluation” and the 

neighbors had no such expertise. (Id., at p. 583; see also McCoy v. Gustafson (2009) 180 

Cal.App.4th 56, 100 [lay opinion on subject of migration of hydrocarbons through soil 

and interpretation of soil borings properly excluded].) 

Here, in contrast, we are not examining whether the lay opinions of individuals 

should be given credence, or whether a lay witness can opine on scientific matters. 

Instead, we are reviewing the fact-finding of a jury which heard weeks of testimony, 

including expert evidence and reports describing the nature and extent of the soil 

contamination, how contamination moves through the subsurface, into the groundwater, 

and eventually to City wells, and the speed at which the contaminants can move with the 

groundwater. If, as a matter of law, more specific expert testimony was required in order 

for the jury to answer the question submitted to it by the parties—whether PCE 

contamination of the “groundwater to be used by City residents” was exceeding or on the 

verge of exceeding legal limits before December of 1995—the City was free either to 

supply that expert testimony or to seek a directed verdict based on insufficiency of the 

evidence. It did neither, and we are not permitted to overturn a jury’s verdict if there is 

any substantial evidence to support it. (Hope v. California Youth Authority (2005) 134 

Cal.App.4th 577, 589.) Consequently, in the absence of legal error the verdict must be 

affirmed. 

F. Equitable Remedies at Phase II Sites

In its 2007 statement of decision at the conclusion of the Phase II trial, the court 

ruled that the RDA had proven its Polanco Act claim against defendants at the Modesto 

Steam site. As part of its statement of decision, the court directed that, when judgment 

was entered it would include an order enjoining Modesto Steam, Dow, Street and others 

to “comply with all future PCE remediation orders of the DTSC and the Regional Water 

Quality Control Board at the Modesto Steam site, subject to the right to challenge such 

orders in this Court, under such procedures as may be set forth in the injunction.” The 

court explained: “Injunctive relief compelling defendants to remove or remediate 

70
contamination is appropriate under [Civil Code section 3422], particularly given the fact 

that future costs would be extremely difficult to ascertain at sites where regulatory 

agencies are acting but have not yet approved a final plan.” Moreover, according to the 

court, “In the absence of injunctive relief, Modesto Steam is free to abandon voluntary 

efforts and force new litigation in order to obtain a remedy,” and “[t]he manufacturer 

defendants have consistently denied any responsibility for contamination at the Modesto 

Steam site, and injunctive relief is therefore both necessary and warranted with respect to 

these defendants.” 

The court also found the City had proven its HSAA claims against Halford’s, and 

ruled that, “at the appropriate time” the court will enter a declaratory judgment that 

Halford’s will be liable to the City for its future remediation costs, if any, at that site, and 

will “enjoin [Halford’s] to comply with all future PCE remediation orders issued by [state 

agencies] . . . subject to [its] right to challenge such orders in this Court. . . .” 

In 2011, in Phase V of this case, the trial court heard evidence as to whether 

equitable relief with respect to the Modesto Steam and Halford’s sites was still necessary. 

The court issued its statement of decision on November 14, 2011. It noted that in the 

years since the Phase 2 decision, Modesto Steam had made significant remediation 

efforts under the oversight of the Regional Board, and that the EPA was acting as the 

primary remediating party at the Halford’s site, a federal Superfund site. Thus, the court 

concluded, the issue before it was whether there was a present need for equitable relief 

under Civil Code section 3422.30 

The dispute as to the continuing necessity of injunctive relief as to the Halford’s 

site centered on the City’s future liability for potential contamination of the City’s 

30 Civil Code section 3422 authorizes injunctive relief “to prevent the breach of an 

obligation existing in favor of the applicant: [¶] 1. Where pecuniary compensation 

would not afford adequate relief; [¶] 2. Where it would be extremely difficult to ascertain 

the amount of compensation which would afford adequate relief; [¶] 3. Where the 

restraint is necessary to prevent a multiplicity of judicial proceedings; or, [¶] 4. Where 

the obligation arises from a trust.”

71

 
Municipal Well number 7 (Well 7), and its future liability in general. As to Well 7, the 

court concluded, “equitable relief is appropriate only if plaintiffs demonstrate it is 

presently warranted by establishing all three of the following facts: 1) Well 7 will likely 

be contaminated by the Halford’s plume; 2) the EPA will not remediate this 

contamination; and 3) settlement credits attributable to the Halford’s site are insufficient 

to cover future response costs.” The court reviewed the evidence and concluded Well 7 

was not likely to be threatened by the Halford’s plume.31 The court also noted that 

“[e]ven if plaintiffs establish Well 7 will likely be contaminated by the Halford’s plume, 

equitable relief is only warranted if the EPA’s ongoing remediation efforts will not 

already address such contamination,” and pointed to the evidence that the EPA was likely 

to “finish the job.” 

Finally, the court stated, even if Well 7 was contaminated by the Halford’s plume 

and the EPA failed or refused to remediate Well 7, the available settlement credits of 

$3.36 million attributable to the Halford’s site would be sufficient to cover those costs. 

The trial court also found the City had not shown it was likely to face responsibility for 

remediation costs at the Halford’s site in general through future litigation. The court

concluded: “[P]laintiffs have not indicated whether any amount of pecuniary 

compensation would be necessary to afford adequate relief, whether such compensation 

would be difficult to ascertain, or whether the absence of equitable relief would lead to a 

multiplicity of judicial proceedings, thereby failing to establish any of the Section 3422 

factors. In contrast, defendants have established the improbability that Well 7 will be 

contaminated or that plaintiffs would face future litigation. Defendants have also 

established the probability that the EPA will complete remediation of the Halford’s 

plume, thereby demonstrating how the status quo substantially achieves the Phase 2 

Decision’s goal to shield plaintiffs from future response costs at the Halford’s site. 

Accordingly, the Court declines to grant any equitable relief at the Halford’s site.” 

31 The court found plaintiffs’ witnesses on this issue unpersuasive. 

72

 
The court next considered the necessity of injunctive relief regarding the MSL

site, which had contaminated the City’s Municipal Well number 3 (Well 3). The court

noted that plaintiffs had received an award of $1,079,000 in Phase 1 for the past and 

future costs of treating Well 3, and $349,808.05 in Phase 2 for past response costs, and 

that these awards were “within the ballpark of the City’s actual costs.” Moreover, MSL 

had been carrying out soil remediation under the Regional Board’s oversight, and this 

remediation was “virtually complete.” The evidence showed that filtering Well 3 could 

remediate the groundwater plume, and plaintiffs had “an award for future costs for Well 3 

as well as millions of dollars in settlements attributable to this site.” Accordingly, the 

court concluded, equitable relief as to the MSL site was unnecessary. 

Our review of the court’s ruling is highly deferential. “The grant or denial of a 

permanent injunction rests within the trial court’s sound discretion and will not be 

disturbed on appeal absent a showing of a clear abuse of discretion.” (Horsford v. Board 

of Trustees of California State University (2005) 132 Cal.App.4th 359, 390.) “[A]

change in circumstances which renders injunctive relief unnecessary justifies denial of 

the remedy. [Citation.]” (East Bay Mun. Utility Dist. v. Department of Forestry & Fire 

Protection (1996) 43 Cal.App.4th 1113, 1126.) 

The City does not challenge the standard of review, but argues only that “a 

discretionary ruling, ‘reasonable’ on its own terms, is subject to reversal ‘when it starts 

from a mistaken premise....’ [Citation].” The problem with the City’s argument is that it 

has not identified a legally sound “mistaken premise.” 

Against the trial court’s detailed findings, the City makes a single, cursory 

argument: that “[t]he trial court’s test for equitable relief was whether Modesto faced a 

sufficient risk of future clean-up costs to warrant equitable protection from that risk,” and 

that it is “unconscionable” to deny equitable relief if there is any such risk. The City cites 

no authority for the proposition that the trial court must grant injunctive relief if there is 

any risk, however slight, that it will be subject to cleanup costs in the future, and we may 

accordingly treat the issue as forfeited. (See Nickell v. Matlock (2012) 206 Cal.App.4th 

934, 947 [conclusory assertion unsupported by authority treated as forfeited].) 

73
In any case, we are not persuaded. The court explained in detail that the Halford’s 

site was unlikely to contaminate Well 7, that the EPA could be expected to complete the 

remediation it had begun, and plaintiffs had not shown the settlement money attributable 

to the Halford’s site would be insufficient in the event Well 7 was contaminated and the 

EPA did not remediate it. It also explained that the soil remediation at the MSL site was 

nearly complete, that the City had been awarded money to cover the costs of remediating 

the groundwater plume by filtering Well 3, and that “millions of dollars” in settlement 

funds were also available.32 The City does not challenge these factual findings, and it has 

not shown that the trial court abused its discretion in concluding that, in light of these 

facts, there was no present need for injunctive relief. 

G. Allocation of Settlement Credits

The City asserts as error the trial court’s decision to grant to defendants credit for 

100 percent of the settlement funds for all contaminated sites against defendants’ liability 

at only three sites. The City argues that the majority of the settlement funds were 

allocated to specific sites, and should be applied exclusively to those locations. 33 

Because we have reversed some of the Phase III and all of the Phase IV rulings, 

the matter of credits, like the issue of costs, must necessarily be vacated as well. The 

issue, however, is likely to arise again after further proceedings, so we address it here for 

the guidance of the trial court. 

32 The parties dispute how settlement credits should be allocated (see § IV.G, 

post) and in our view it is unlikely that “millions” of dollars would be available to the 

City from the settlement funds allocated to the MSL site. It was the City’s position 

below that there was $2.277 million in settlement funds allocable to MSL, against which 

defendants would be entitled to credits for the damages awarded against them. The City, 

however, makes no argument with respect to this issue nor does it contend that the 

settlement funds will not cover the potential future costs at Well 3.

33 Although the focus of the City’s argument in its opening brief was that the 

citywide injunction it requested should reflect the proper allocation of settlement credits, 

the City also asked us to correct the trial court’s ruling on settlement credits “no matter 

how else [we] decide[] this appeal.” Although we will not order the injunctive relief the 

City seeks, we conclude this issue is properly before us, and we will address it for the 

guidance of the trial court on remand.

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1. Procedural Background

As has been described in various parts of this opinion, the City sued defendants for 

the contamination they allegedly caused at numerous dry cleaner sites throughout 

Modesto. Defendants Dow, PPG and Street were sued for damages at all of the sites. 

The extensive record reflects, and the parties do not dispute, that the case was litigated on 

a site-by-site basis. So, for example, in Phase I the parties litigated most of the claims 

relating to only six sites, and the jury verdict was rendered on a site-by-site basis. The 

alleged damages at approximately 40 other sites were litigated in Phase III. In that phase, 

various nonsuit and directed verdict rulings as well as jury findings were all made on a 

site-by-site basis. It will be recalled that the appealing defendants were found liable for 

damages at only four sites, MSL, Halford’s, Ideal and Coffee Plaza. 

During the course of the litigation, the City entered into settlement agreements 

with many of the defendants. Most of those settlement proceeds were expressly allocated 

to particular sites, but some were not. We shall assume—as it has been neither argued 

nor contested—that the settlements that were allocated received the court’s imprimatur as 

having been made in good faith, pursuant to the provisions of Code of Civil Procedure 

section 877 et seq. As to the settlements that were not allocated, it appears the issue of 

allocation had not been raised at the time these were presented to the court for good faith 

approval. 

One of the issues the trial court faced in the Phase V trial was what portion of the 

settlement proceeds were available to the non-settling defendants as credits. Plaintiffs 

took the position that “settlements . . . allocated to specific sites should be honored[, and 

w]here settlements were not specifically allocated . . . the Court should apply the same 

formula used by the settling parties . . . [which] formula was approved by the Court when 

it entered good faith orders approving settlements with allocations.” Defendants argued 

that, because they were “ ‘potentially liable for the same injury to the plaintiff[s]’ ” as 

were the settling defendants, no allocation was needed, quoting Alcal Roofing & 

Insulation v. Superior Court (1992) 8 Cal.App.4th 1121, 1124 (Alcal). Defendants also 

contended that all settlement proceeds could be reallocated from the sites where 

75
defendants were exonerated from liability to the sites where they were found liable, citing 

El Escorial Owners’ Assn. v. DLC Plastering, Inc. (2007) 154 Cal.App.4th 1337, 1350-

1351 (El Escorial).

The trial court agreed with defendants. It reasoned that under Code of Civil 

Procedure section 877, offsets “are ultimately claimed by parties and not by sites,” and 

concluded, “defendants were manufacturers or distributors of products throughout 

Modesto who were potentially liable for the torts of all settling parties.[] Thus, 

defendants...may claim an offset of all settlements up to a total of $37,225,000.00, which 

reflects the sum of settlements by sixteen defendants, . . .” 

2. Legal Principles

Code of Civil Procedure sections 877 and 877.6 established two competing 

policies: (1) the equitable sharing of costs among the parties at fault and (2) the 

encouragement of settlements. 34 (Erreca’s v. Superior Court (1993) 19 Cal.App.4th 

1475, 1487 (Erreca’s).) “ ‘Section 877 establishes that a good faith settlement bars other 

34 Code of Civil Procedure section 877 provides, in pertinent part: “Where a 

release...is given in good faith before verdict or judgment to one or more of a number of 

tortfeasors claimed to be liable for the same tort, or to one or more other co-obligors 

mutually subject to contribution rights, it shall have the following effect: [¶] (a) It shall 

not discharge any other such party from liability unless its terms so provide, but it shall 

reduce the claims against the others in the amount stipulated by the release, the dismissal 

or the covenant, or in the amount of the consideration paid for it, whichever is greater. 

[¶] (b) It shall discharge the party to whom it is given from all liability for any 

contribution to any other parties. . . .”

As relevant here, Code of Civil Procedure section 877.6 provides: “(a) Any party 

to an action in which it is alleged that two or more parties are joint tortfeasors or coobligors on a contract debt shall be entitled to a hearing on the issue of the good faith of a 

settlement entered into by the plaintiff or other claimant and one or more alleged 

tortfeasors or co-obligors....” [¶] (2) In the alternative, a settling party may give notice 

of settlement to all parties and to the court, together with an application for determination 

of good faith settlement and a proposed order. The application shall indicate the settling 

parties, and the basis, terms, and amount of the settlement. .... If none of the nonsettling 

parties files a motion [within a specified period] the court may approve the settlement. 

.... [¶] .... [¶] (c) A determination by the court that the settlement was made in good 

faith shall bar any other joint tortfeasor or co-obligor from any further claims against the 

76

 
defendants from seeking contribution from the settling defendant [citation], but at the 

same time provides that the plaintiff’s claims against the other defendants are to be 

reduced by “the amount of consideration paid for” the settlement [citation]. Thus, while 

a good faith settlement cuts off the right of other defendants to seek contribution or 

comparative indemnity from the settling defendant, the nonsettling defendants obtain in 

return a reduction in their ultimate liability to the plaintiff.’ [Citation.]” (Id. at pp. 1487-

1488.) 

In a typical one-plaintiff, multiple-defendants personal injury action, all tortfeasors 

are potentially liable for the same injury to the plaintiff, and so the entire amount of any 

settlement by one of the defendants will offset a judgment against the other tortfeasors. 

But in other cases, the amount of the offset is uncertain, for example, where there are 

“multiple plaintiffs or causes of action with different damages,” or where defendants 

have “settl[ed] claims for separate injuries not all of which would be attributable to

conduct of the remaining defendants.” (Alcal, supra, 8 Cal.App.4th at p. 1124; see also,

L. C. Rudd & Son, Inc. v. Superior Court (1997) 52 Cal.App.4th 742, 750 (L. C. Rudd) 

[“Where there are multiple defendants, each having potential liability for different areas 

of damage, an allocation of the settlement amount must be made”].) Such issues often 

arise in construction defect cases where there are different categories or sites of damage 

for which different sets of defendants may be either singly or jointly liable. (See, e.g., 

Regan Roofing Co. v. Superior Court (1994) 21 Cal.App.4th 1685, 1705, fn. 8 (Regan

Roofing) [explanation of a pro rata formula used to allocate settlement proceeds among 

the various categories of defects in 24 separate homes].) Such allocations are arrived at 

under a set of principles enunciated in Alcal and its progeny. 

In Alcal, a construction defect case, the developer settled with the plaintiff 

homeowners association for $4.4 million, and settled with most of the subcontractors, 

who agreed to contribute almost $1.3 million toward the total. The developer sought, and 

obtained, approval of the settlement agreement’s allocation of only $100,000 to roofing 

settling tortfeasor or co-obligor for equitable comparative contribution, or partial or 

comparative indemnity, based on comparative negligence or comparative fault.” 

77

 
issues, and the sole nonsettling defendant, a roofer, challenged the allocation. (Alcal, 

supra, 8 Cal.App.4th at p. 1123.) The appellate court first explained that, “[i]n a situation 

where the cash amount of the settlement does not dictate the amount of the offset, the 

settling parties must include an allocation or a valuation in their agreement.” (Id. at pp. 

1124-1125.) Alcal then laid down the rule that “a party seeking confirmation of a 

settlement must explain to the court and to all other parties not only who has settled with 

whom and for what dollar amount, but whether any settlement is allocated and how the 

allocation has been made between issues and/or parties.” (Erreca’s, supra, 19 

Cal.App.4th at p. 1488.) To this rule Erreca’s added the requirement that the party must 

also explain to the court and all other parties “the evidentiary basis for any allocations . . . 

and must demonstrate that the allocation was reached in a sufficiently adversarial manner 

to justify the presumption that a reasonable valuation was reached. [Citation]” (Id. at pp. 

1495-1496.) 

The allocations calculated at the time of the good faith settlement proceedings, 

although presumptively reasonable, may be reallocated when credits are determined after 

trial. (El Escorial, supra, 154 Cal.App.4th at p. 1351 [trial court may adjust offsets in 

response to evidence adduced at trial].) In considering those credits, however, the court 

“must take into account not only the policy issues of the good faith settlement approval 

process (i.e., equitable apportionment of liability and promotion of settlements [citation]), 

but also another policy interest, ‘the maximization of recovery to the plaintiff for the 

amount of . . . injury to the extent that negligence or fault of others has contributed to it.’ 

[Citation.] Thus, while the nonsettling defendant is entitled to a fair setoff, the injured 

plaintiff also has a right that the setoff not be excessive.” (Erreca’s, supra, 19 

Cal.App.4th at p. 1500.) 

3. Analysis

The trial court relied on the principles that (a) offsets under Code of Civil 

Procedure section 877 are claimed by parties, rather than sites, and (b) joint tortfeasors 

may appropriately claim offsets. From this, the court concluded defendants were entitled 

to claim credits against all settlements for all the sites. We disagree with this approach, 

78
first, because it ignores the fact that the site allocations were made during the good faith 

settlement process, and are therefore presumptively reasonable. The nonsettling 

defendants have thus been protected by the requirement that any settlement must have 

been made in good faith as the product of adversarial negotiation, and that the allocation 

itself also must have been made in good faith. (Dillingham Construction, N.A., Inc. v. 

Nadel Partnership, Inc. (1998) 64 Cal.App.4th 264, 279-281.) In addition, while a trial 

court has the latitude to make reallocations based on evidence adduced at trial, we do not 

think it has the discretion to eliminate or disregard wholesale all allocations on the sole 

basis that the defendants were potentially (but not actually) liable at all sites. El Escorial 

does not compel a different result. 

In that construction defect case, the court approved a number of good faith 

settlements entered into by the primary contractor, Investec, and other contractors and 

subcontractors but no allocations were made at the time of the settlements. Instead, the 

parties agreed to a procedure by which the court, over the course of the trial, would hold 

hearings on apportionment, after which it would make decisions on the allocations. (El 

Escorial, supra, 154 Cal.App.4th at p. 1345.) The court thereafter, in a series of 

hearings, approved allocations of the settlement amounts, including an allocation for 

toxic mold. (Id. at pp. 1350-1351.) But after trial, the court found that plaintiff had 

failed to prove its claim that defendants were responsible for toxic mold contamination; it 

therefore removed toxic mold as a category of damages and reallocated the amount 

previously allocated to toxic mold to four other settlement categories. (Id. at p. 1347.) 

The plaintiffs challenged that ruling, claiming that allocations could not be modified once 

they were approved. (Id. at p. 1351.) The appellate court rejected that argument, 

reasoning that, since the plaintiff had “received a settlement on a claim for which there 

was no liability,” it was entirely appropriate for the court to adjust the credits. (Id. at 

p. 1352.) 

In this case, the court did not find that the City had “received a settlement on a 

claim for which there was no liability” nor did it remove any category of damages or 

sites. Rather, the court simply concluded that the nonsettling defendants would receive 

79
credit for the allocations for all other sites because they were found not liable for those 

sites. This result is not supported by El Escorial nor by the realities of settlement 

allocations in this case. Defendants do not claim that the other sites were not damaged by 

the wrongful acts of the settling defendants, so there is no justification for, in effect, 

reallocating those settlement proceeds to the three sites where defendants were held 

liable. This would be contrary to the policy of “ ‘the maximization of recovery to the 

plaintiff for the amount of...injury to the extent that negligence or fault of others has 

contributed to it.’ ” (Erreca’s, supra, 19 Cal.App.4th at p. 1500.) It would also run 

contrary to the policy of encouraging settlements. (Id. at p. 1495.) As plaintiffs 

persuasively argue, without reliable allocations it would be “too risky for many plaintiffs 

to settle.” 

The trial court’s reasoning was faulty for other reasons as well. Contrary to the 

court’s theory, nothing in the law prevents the parties to an action from giving credits for 

settlement proceeds by sites (as well as by parties) where the evidentiary record identifies 

damages by site. (See, e.g., Regan Roofing, supra, 21 Cal.App.4th at p. 1704.) In 

addition, to the extent the allocated settlement funds were paid by parties who did not 

face liability for the total amount of damages, but only for the sites to which the funds 

were allocated, those defendants were not jointly liable with defendants as to the other 

sites at issue. 

Defendants point out that in both L. C. Rudd and Regan Roofing, the settling 

defendant was a development company, which was potentially liable for all damages, and 

it was the subcontractors—who faced liability for only a portion of the damages—who 

challenged the allocations. (L. C. Rudd, supra, 52 Cal.App.4th at p. 750; Regan Roofing, 

supra, 21 Cal.App.4th at pp. 1693-1694.) Because the case before us raises a different 

factual scenario—in which the nonsettling parties were potentially liable for all the 

damages—defendants contend there should be a different result. They argue that, 

because they faced potential liability for all damages claimed by the City, the settlement 

amounts allocated to specific sites should be credited to their actual liability without 

limitation. We have not found any cases raising this fact pattern, and the parties have 

80
drawn our attention to none. Nor have defendants offered any support in either law or 

policy for their theory, which runs counter to the articulated policies supporting good 

faith settlements. 

We thus conclude that, in the absence of some legally justifiable basis for 

reallocation, defendants are not entitled to credit at the sites for which they were found 

liable unless a good faith settlement agreement allocated funds to that site.35 

As to unallocated settlement sums, because neither party has addressed this issue 

in the briefs on appeal, we shall leave to the trial court the proper treatment of this 

question as it reconsiders the credit issue in its entirety, after all other issues on remand 

have been adjudicated. 

H. Challenges to Cost Awards

1. Background

The trial court initially entered judgment on November 15, 2011. The judgment 

included separate prevailing party determinations for Phases I through IV, including the 

following: (1) Plaintiffs City and the RDA were prevailing parties in Phases I and II, 

entitled to recover costs of suit on the complaints from defendants MSL, Halford’s, Dow, 

Street, and PPG. (2) Defendants MSL, Halford’s, Dow, Street, and PPG were prevailing 

parties in Phases III and IV, entitled to recover costs on the complaints from plaintiffs 

City and the RDA. (3) Cross-defendants City, the RDA, and the Sewer District were 

prevailing parties in Phases I and II, entitled to recover their costs on the crosscomplaints from cross-plaintiffs MSL, Halford’s, Dow, Street, and PPG. (4) The RDA 

was entitled to recover attorneys’ fees as costs of suit under the Polanco Act, which were 

not eligible for settlement offsets, from MSL, Halford’s, Dow, Street, and PPG. 

Defendants moved to set aside and vacate the judgment (Code Civ. Proc., § 663,

subd. (1)) and to correct clerical mistakes in the judgment (Code Civ. Proc., § 473, subd. 

35 The trial court’s ruling also considered settlement credits for three other 

nonsettling defendants; two of those, MSL and Halford’s, were each liable as to only one 

site. Those defendants are parties to this appeal for only a limited purpose, and their 

allocations are not challenged. 

81

 
(d)) on November 30, 2011. In the motion to vacate, defendants argued that all 

defendants were prevailing parties as against the RDA and the Sewer District in all 

respects, and that MSL, Halford’s, and PPG were prevailing parties as against the City in 

all respects. 

The City filed a notice of appeal of the judgment on January 4, 2012.36 

Defendants’ motion was argued the following day, January 5, 2012. The trial court 

entered an amended judgment on May 23, 2012. The amended judgment altered the 

prevailing party determinations in the numerous respects. 

2. Jurisdiction

The first question we face is whether the January 4, 2012 appeal effected an 

automatic stay of the trial court proceedings, such that the trial court lacked jurisdiction 

to rule on defendants’ motion to vacate or set aside the judgment. An appeal “stays 

proceedings in the trial court upon the judgment or order appealed from or upon the 

matters embraced therein or affected thereby, . . . but the trial court may proceed upon 

any other matter embraced in the action and not affected by the judgment or order.” 

(Code Civ. Proc., § 916, subd. (a).) The purpose of this automatic stay “ ‘is to protect the 

appellate court’s jurisdiction by preserving the status quo until the appeal is decided. The 

[automatic stay] prevents the trial court from rendering an appeal futile by altering the 

appealed judgment or order by conducting other proceedings that may affect it.’ 

[Citation.]” (Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 189 

(Varian).) For this reason, “section 916, subdivision (a) stays all further trial court 

proceedings ‘upon the matters embraced’ in or ‘affected’ by the appeal. In determining 

whether a proceeding is embraced in or affected by the appeal, we must consider the 

appeal and its possible outcomes in relation to the proceeding and its possible results. 

‘[W]hether a matter is “embraced” in or “affected” by a judgment [or order] within the 

meaning of [section 916] depends on whether postjudgment [or postorder] proceedings 

36 As cross-defendant, the City filed a notice of appeal on January 17, 2012. 

82

 
on the matter would have any effect on the “effectiveness” of the appeal.’ [Citation.] ‘If 

so, the proceedings are stayed; if not, the proceedings are permitted.’ [Citation.]” (Ibid.) 

However, “[t]he fact that the postjudgment or postorder proceeding may render the 

appeal moot is not, by itself, enough to establish that the proceeding affects the 

effectiveness of the appeal and should be stayed under section 916. Rather, something 

more is needed. For example, the trial court proceeding must directly or indirectly seek 

to ‘enforce, vacate or modify [the] appealed judgment or order.’ [Citation.]” (Varian, 

supra, 35 Cal.4th at p. 189, italics added.) For this last example, our high court quoted 

Elsea v. Saberi (1992) 4 Cal.App.4th 625, 629, which stated, “The trial court’s power to 

enforce, vacate or modify an appealed judgment or order is suspended while the appeal is 

pending.” (Varian, 35 Cal.4th at pp. 189-190; see also Betz v. Pankow (1993) 16 

Cal.App.4th 931, 938 [because vacation of judgment would affect its enforcement, “it 

could not be considered a collateral matter over which the trial court could retain 

jurisdiction”].) 

Consistent with this rule, the court in Copley v. Copley (1981) 126 Cal.App.3d 248 

(Copley) concluded that a trial court may not rule on a motion to vacate a judgment while 

an appeal is pending. There, judgment was entered in a trust litigation, and the trustees 

filed a timely notice of appeal. Two other parties thereafter filed a motion to vacate the 

judgment pursuant to Code of Civil Procedure sections 473 and 663. The appellate court 

concluded, “At this time the court lacked jurisdiction to hear the matter because the 

perfecting of an appeal stays proceedings in the trial court upon the judgment appealed 

from [citation]. During the pendency of an appeal, the trial court is without power to hear 

a motion to vacate judgment from which an appeal has been taken [citations].” (Copley, 

supra, at p. 298.) Relying on Copley, the court in Ehret v. Congoleum Corp. (1999) 73 

Cal.App.4th 1308, 1317 (Ehret), explained, “When an appeal was filed, the effect was to 

‘ “remove[] from the jurisdiction of the superior court the subject matter of the judgment. 

[Citations.]” ’ [Citations.] ‘During the pendency of an appeal, the trial court is without 

power to hear a motion to vacate judgment from which an appeal has been taken 

[citations].’ (Copley[, supra, 126 Cal.App.3d at p. 298].) The point of the rule is to 

83
preserve the status quo while the appeal is decided. [Citation.]” (See also Lippman v. 

City of Los Angeles (1991) 234 Cal.App.3d 1630, 1634 (Lippman) [“This avenue . . . was 

not open to [the parties] because the same day they filed their motion to vacate the 

judgment, PAC filed its notice of appeal thereby depriving the court of jurisdiction to 

vacate its judgment”]; Socol v. King (1949) 34 Cal.2d 292, 295 [recognizing that by filing 

notice of appeal, appellant deprived trial court of jurisdiction to act on statutory motion to 

vacate].)

Defendants attempt to distinguish Copley and Ehret on the ground that they 

involved “long delays before a trial court declined amendment.” This distinction is 

unavailing. The rule of those cases was not based on the length of delay, but on the trial 

court’s loss of jurisdiction once a notice of appeal had been filed. 

Defendants also point out that the Legislature created three post-judgment 

motions—the motions for judgment notwithstanding the verdict (Code Civ. Proc., § 629), 

for a new trial (id., § 657), and to set aside and vacate the judgment (id., § 663). They 

note that new trial motions are treated as collateral to the judgment and are allowed to 

proceed despite an appeal from the judgment, and argue that statutory motions to vacate 

the judgment should be treated the same way. (See Varian, supra, 35 Cal.4th at p. 191 

[“[A] motion for a new trial is collateral to the judgment and may proceed despite an 

appeal from the judgment”]; accord Neff v. Ernst (1957) 48 Cal.2d 628, 634 [“A motion 

for new trial is recognized to be a matter collateral to the judgment and the trial court 

retains jurisdiction to hear and determine a motion for new trial after an appeal has been 

taken from the judgment”].) Similarly, it was held in Foggy v. Ralph F. Clark & 

Associates, Inc. (1987) 192 Cal.App.3d 1204, 1210-1213, that a trial court had 

jurisdiction to enter a JNOV while an appeal was pending. The court noted that a new 

trial motion was considered collateral to the judgment, and reasoned, “We are at a loss to 

understand how a motion for judgment notwithstanding the verdict can be considered as 

concerned with ‘matters embraced’ in or ‘affected’ by the judgment appealed from, while 

a motion for new trial is not. It is for this reason that we hold a motion for judgment 

notwithstanding the verdict is, just as a motion for new trial, a matter collateral to the 

84
judgment. This ruling, just as the Legislature intended, enables the trial court to consider 

both a motion for judgment notwithstanding the verdict and a motion for new trial at the 

same time and avoids what would otherwise be the absurd result of depriving a party of a 

postjudgment remedy authorized by the Legislature.” (Id. at p. 1213.)

Defendants argue this analysis should apply with equal force to a statutory motion 

to set aside or vacate a judgment. Whether or not that is so, we are constrained by the 

rule enunciated by our high court in Varian, as well as by lower courts in Copley and 

Ehret, that a trial court loses jurisdiction to vacate or amend a judgment upon the 

perfecting of an appeal. (Varian, supra, 35 Cal.4th at pp. 189-190; Copley, supra, 126 

Cal.App.3d at p. 298; Ehret, supra, 73 Cal.App.4th at p. 1317.) Indeed, the court in 

Lippman observed, “unlike the motion to vacate [the judgment], the trial court does not 

lose jurisdiction to grant a motion for new trial when a notice of appeal is filed.” 

(Lippman, supra, 234 Cal.App.3d at p. 1634.)37 We are also constrained by the language 

of Code of Civil Procedure section 916, subdivision (a), which provides that an appeal 

stays trial court proceedings “upon the judgment or order appealed from or upon the 

matters embraced therein or affected thereby.” A motion to vacate or set aside a 

judgment seeks to have a court set aside a judgment and have a different judgment 

entered. (Code Civ. Proc., § 663.) On its face, such a motion is a proceeding upon the 

judgment, or upon “matters embraced” or “affected” by the judgment. (Lippman, supra, 

at p. 1634.)

In light of this consistent authority, we conclude the trial court lacked jurisdiction 

to rule on defendants’ motion to vacate or set aside the judgment. The operative 

judgment is the original judgment dated November 15, 2011.

3. Prevailing Parties in Phases I and II

37 Lippman explained that the reason for the distinction was that a motion for a 

new trial was a collateral matter, but a motion to vacate the judgment concerned “matters 

embraced” or “affected” by the judgment. (Lippman, supra, 234 Cal.App.3d at p. 1634, 

fn. 3, citing Weisenburg v. Molina (1976) 58 Cal.App.3d 478, 486.) The court went on: 

“While the logic of this rationale is questionable [citation], we are bound by its result. 

[Citation.]” (Ibid.)

85

 
In their cross-appeal, defendants argue that if we conclude—as we do—that the 

trial court lacked jurisdiction to enter the amended judgment, the original judgment’s 

prevailing party determinations should be reversed in significant part. In particular, 

defendants challenge the original judgment’s conclusions that the RDA was a prevailing 

party entitled to costs in Phases I and II. They point out that the damage awards were 

fully offset by settlement credits and that the judgment did not award any equitable or 

other relief to RDA. Because RDA failed to obtain relief, they argue, defendants are the 

prevailing parties as a matter of law.

Code of Civil Procedure section 1032, subdivision (a)(4) defines a prevailing party 

to include “[1] the party with a net monetary recovery, [2] a defendant in whose favor a 

dismissal is entered, [3] a defendant where neither plaintiff nor defendant obtains any 

relief, and [4] a defendant as against those plaintiffs who did not recover any relief 

against that defendant. If any party recovers other than monetary relief and in situations 

other than as specified, the ‘prevailing party’ shall be as determined by the court, and 

under those circumstances, the court, in its discretion, may allow costs or 

not . . .” Thus, a party who fits into one of the four specified categories is entitled to 

recover costs as a matter of right. (Goodman v. Lozano (2010) 47 Cal.4th 1327, 1333, 

1338, fn. 4 (Goodman); accord Charton v. Harkey (2016) 247 Cal.App.4th 730, 738.) 

Otherwise, the trial court has discretion to determine the prevailing party. (Goodman, 

47 Cal.4th at p. 1338, fn. 4.) “Whether a party falls within one of the four categories 

authorizing the recovery of costs as a matter of right is a question of law we review de 

novo. [Citations.] We otherwise review a trial court’s cost award for abuse of discretion. 

[Citations.]” (Charton, supra, 247 Cal.App.4th at p. 739.)

As we have already explained, in 2007, after the Phase II trial, the trial court ruled 

that, when it rendered final judgment, it would enjoin (among others) MSL, Dow, Street, 

and PPG to comply with remediation orders and would enter an order declaring that 

defendants will be liable for any future remediation costs incurred by the RDA. 

However, in 2011, after Phase V, the court concluded injunctive relief was no longer 

necessary. Thus, the judgment did not order equitable or injunctive relief. After 

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applying offsets for settlement credits, the November 2011 judgment did not award 

economic damages to plaintiffs. 

The trial court found, in the operative judgment, that the City and the RDA were 

prevailing parties in Phases I and II, entitled to recover costs from MSL, Halford’s, Dow, 

Street, and PPG. As to Phase II, the court noted that the 2007 statement of decision 

awarded equitable relief to plaintiffs. In the statement of decision accompanying the 

2011 judgment, the trial court explained that, although defendants were liable for 

damages in Phases I and II, plaintiffs were not automatically prevailing parties because 

the damages were wholly offset by settlements.38 The court then concluded that even if 

all the damage awards were offset to zero, it had discretion pursuant to Goodman to 

determine the prevailing parties. The court went on: “Plaintiffs are prevailing parties as 

a matter of law as to defendants Dow and Street because of the punitive damage award

against them. As to defendants Modesto Steam, [Halford’s], and PPG, plaintiffs did not 

attain equitable relief or retain a net monetary recovery. However, plaintiffs received 

settlements totaling $37.225 million from 16 defendants, favorable verdicts and decisions

in Phases 1 and 2 that covered plaintiffs’ exposure for past and future treatment costs, and 

Phase 2 Polanco Act attorneys’ fees that are not subject to settlement credits. Thus, the 

Court finds plaintiffs are prevailing parties with respect to defendants Modesto Steam, 

[Halford’s], and PPG because they have substantially achieved their litigation 

objectives.” 

The question we face is whether, as defendants contend, they were prevailing 

parties as a matter of law in Phases I and II, or whether the trial court had discretion to 

determine plaintiffs—including the RDA—were prevailing parties. The procedural 

posture of this case is unusual. Plaintiffs achieved success in Phase II in 2007, after 

prolonged litigation, only to have the trial court decline to order equitable relief nearly 

five years later, based on changes in circumstances that had occurred during the 

38 The court also explained that plaintiffs retained a net monetary recovery against 

Dow and Street because of the award of punitive damages. Because we have reversed the 

punitive damages award against Dow, we do not consider it as to Dow. 

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intervening years. The parties have drawn our attention to no case involving analogous 

facts, and our own research has disclosed none.

Defendants contend this case falls within two of the mandatory categories on Code 

of Civil Procedure section 1032: they argue they are both “ ‘a defendant where neither 

plaintiff nor defendant obtains any relief,’ ” and “ ‘a defendant as against those plaintiffs 

who do not recover any relief against that defendant.’ ” Therefore, they argue, the trial 

court did not have discretion to treat the RDA as a prevailing party.

We disagree and we are guided by Goodman. The plaintiffs there sued several 

defendants and settled with all but two of them, for a total of $230,000. (Goodman, 

supra, 47 Cal.4th at p. 1331.) At trial, plaintiffs were awarded $146,000 against the 

remaining defendants. The trial court exercised its discretion to find the nonsettling 

defendants were the prevailing parties because they paid nothing under the judgment. 

(Ibid.) On review, our high court considered whether plaintiffs fell within the terms of 

Code of Civil Procedure section 1032, subdivision (a)(4)’s provision that the party with 

the “net monetary recovery” is the prevailing party entitled to costs as a matter of right. 

The court concluded that, “when a plaintiff’s prior settlement is more than the award 

received at trial, the plaintiff ultimately recovers nothing. [Citation.] In other words, the 

net recovery is zero.” (Id. at pp. 1334-1335, fn. omitted.) The court explained: “Our 

holding today is simply that a plaintiff whose damage award is offset to zero by a prior 

settlement does not categorically qualify as a prevailing party (‘the party with a net 

monetary recovery’) as a matter of law. Unless a party otherwise fits into one of the 

remaining three categories of prevailing party under section 1032(a)(4), a trial court will 

have the discretion to make the determination as to a prevailing party under the section.” 

(Id. at p. 1338, fn. 4.) The court then analyzed whether the trial court had abused its 

discretion in finding the defendants were prevailing parties, and concluded its finding 

was within the bounds of its discretion. (Id. at pp. 1338-1339.)

Plaintiffs did not receive a net monetary recovery in Phase II, and—except as to 

punitive damages from Street—will not receive a net monetary recovery in Phase I either. 

They therefore do not fall within the mandatory provision of Code of Civil Procedure 

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section 1032, subdivision (a)(4) for parties who achieve a “net monetary recovery.” 

Defendants argue that because plaintiffs failed to obtain a net monetary recovery or 

equitable relief, defendants fall within two other mandatory categories of that section—“a 

defendant where neither plaintiff nor defendant obtains any relief,” and “a defendant as 

against those plaintiffs who do not recover any relief against that defendant.” This 

argument stands the rule of Goodman on its head. The effect of this position would be 

that where a plaintiff obtains a damage award, but the award is offset by settlement 

credits, the defendant—who was found liable for the plaintiff’s damages—would be the 

prevailing party as a matter of law. But that is not what Goodman teaches. Rather, the 

rule of Goodman is that in such a case, the trial court has discretion to determine the 

prevailing party. 

The trial court properly did so here. As the court noted in the November 2011 

judgment, plaintiffs had received favorable verdicts in Phases I and II that ensured their 

remediation costs would be covered, either through damages or through equitable relief. 

More litigation then ensued—relating to other sites—for almost five years after the 

conclusion of Phase II. During that time, due to continued remediation at the Phase II 

sites and other circumstances, by the time the Phase V proceedings went forward, the trial 

court had determined equitable relief was no longer necessary. But this fortuity does not 

entitle defendants to be treated as prevailing parties as a matter of law, and the trial court 

acted entirely within its discretion in concluding plaintiffs, including the RDA, achieved 

their litigation goals and prevailed in Phases I and II.39

4. Cross-Defendants’ Appeal: Allocation of Costs to City as Cross-

 Defendant

In their capacity as cross-defendants, the City and the Sewer District (collectively, 

City) have cross-appealed solely on the ground that the trial court erred when—in the 

39 We recognize the trial court based its prevailing party determination against 

Dow and Street in Phase I on the award of punitive damages, which—as to Dow—we are 

reversing. However, the trial court’s rationale for the prevailing party determination 

against the other defendants in Phase I manifestly applies to Dow as well. 

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amended judgment—it found Dow, Street, and PPG prevailing parties entitled to recover 

costs from the City in their capacity both as plaintiffs and as cross-defendants in Phases 

III and IV. The City points out that, although it lost on the complaint in those phases, it 

was found not liable on the cross-complaints: the trial court granted non-suit on the 

cross-complaints in Phase III, and the cross-complaint was dismissed as moot in Phase IV 

after the trial court found defendants were not responsible parties under the Polanco 

Act.40 

The parties disagree on how the trial court should determine the prevailing parties 

in those circumstances: Defendants contend they are prevailing parties in those phases 

without limitation, and the City (in its capacity as cross-defendant) contends that while it 

is not the prevailing party on the complaint, it is the prevailing party on the crosscomplaints.41

a. Preliminary Matters

Preliminarily, we address three matters. First, we have already concluded the trial 

court lacked jurisdiction to enter the amended judgment. The operative judgment, dated 

November 15, 2011, did not assess costs against the City in its capacity as crossdefendant. Further, we have vacated the directed verdict in Phase III and the ruling in 

40 In the cross-complaints, defendants sought contribution and indemnity from the 

City based on the City’s allegedly improper operation and maintenance of its sewer 

system. The City’s insurers undertook the defense of the cross-complaints, and the City 

was represented by separate counsel with respect to the cross-complaints. As explained 

by a brief filed on behalf of the City as cross-defendant, “Cross-Defendant City has 

tendered its defense and indemnification for the cross-complaints against various liability 

insurers, some of whom are defending and some of whom are at interest/at risk for a 

judgment against Cross-Defendant City on the cross-complaints. Those interests and 

risks are not represented by counsel for the plaintiffs, but rather by separate counsel for 

Cross-Defendant City.” In the cross-appeal, the City acknowledges its inconsistent 

interests in its two capacities: in its capacity as plaintiff, its interest was in recovering 

damages from defendants, but in its capacity as cross-defendant, its interest was in 

minimizing the damages that could be apportioned to it. 

41 Curiously, the City does not seek its own costs incurred in defense of the crosscomplaints, but merely asks us to amend the cost orders to provide that “Cross-Defendant 

City of Modesto” not pay any of defendants’ costs. 

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Phase IV, and so the related cost awards must also be vacated. However, we shall 

address the issue the City raises to guide the trial court on remand.

Second, defendants contend the City was entitled to file only one notice of appeal 

(rather than two—one in its capacity as plaintiff, and one in its capacity as crossdefendant) and only one appellant’s opening brief (rather than one in each capacity). 

(Cal. Rules of Court, rule 8.200(a)(1).) On this basis, they ask us to dismiss the City’s 

second notice of appeal and disregard the opening brief filed on behalf of the City as 

cross-defendant. We decline this invitation. Whether or not the City was authorized to 

file a second notice of appeal, there is no doubt it is now before us on appeal from the 

judgment. And even assuming the appellant’s brief filed on the City’s behalf in its 

capacity as cross-defendant was improper, we decline to strike it. (See Keep Our 

Mountains Quiet v. County of Santa Clara (2015) 236 Cal.App.4th 714, 728 [declining to 

strike improperly filed brief].)

Third, defendants contend the City’s challenge to the allocation of costs in its 

capacity as cross-defendant is non-justiciable in this appeal, because it is, in essence, a 

dispute between the City and its insurers, who are not parties to this action, rather than 

between the City and defendants. In the interest of judicial economy, and because the 

trial court will have to address the allocation of costs on remand, we will address this 

issue now.

b. The Merits

As we have discussed, Code of Civil Procedure section 1032 sets forth four 

categories of prevailing parties who are entitled to recover costs as a matter of right. 

Among them is “a defendant where neither plaintiff nor defendant obtains any relief.” 

(Code Civ. Proc., § 1032, subd. (a)(4).) Also of note, “unless the context clearly requires 

otherwise,” the term “ ‘defendant’ includes a cross-defendant.” (Id. subd. (a)(2).) The 

question before us is whether this definition applies where, as here, a party obtains no 

relief on a complaint as plaintiff, but the defendant obtains no relief against the same 

party on a cross-complaint.

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This question arose in McLarand, Vasquez & Partners, Inc. v. Downey Savings & 

Loan Assn. (1991) 231 Cal.App.3d 1450 (McLarand). The plaintiff there, an 

architectural design firm, brought a breach of contract action against the defendant. The 

defendant, in turn, filed a cross-complaint against the plaintiff seeking damages. Neither 

party was awarded relief at trial, and each party sought costs. (Id. at pp. 1452-1453.) 

The plaintiff took the position that “when a defendant files a cross-complaint against a 

plaintiff, and neither party prevails on its action, both parties are ‘prevailing parties’ 

under section 1032 and both are entitled to an award of costs.” (Id. at p. 1453.) The 

court disagreed. It reasoned, “The phrase ‘a defendant where neither the plaintiff nor the 

defendant obtains any relief’ cannot be interpreted as [plaintiff] urges. A defendant 

cannot obtain relief unless it files a cross-complaint against the plaintiff because 

affirmative relief cannot be claimed in the answer. [Citation.] The statute, therefore, 

already contemplates that when neither the plaintiff nor the defendant who has filed a 

cross-complaint prevails, the defendant is the prevailing party entitled to costs.” (Id. at p. 

1454.) The court also noted that its decision was consistent with two earlier cases, 

Schrader v. Neville (1949) 34 Cal.2d 112 (Schrader) and Gerstein v. Smirl (1945) 70 

Cal.App.2d 238 (Gerstein), and held “[t]he phrase ‘a defendant where neither plaintiff 

nor defendant obtains any relief’ compels the conclusion that a defendant in this context 

does not include the plaintiff as a cross-defendant.” (McLarand, 231 Cal.App.3d at 

p. 1455, fn. omitted.) (Accord, Cussler v. Crusader Entertainment, LLC (2012) 

212 Cal.App.4th 356, 370-371; Building Maintenance Service Co. v. AIL Systems, Inc.

(1997) 55 Cal.App.4th 1014, 1025-1027.) McLarand is on point, and it is controlling.

The City attempts to distinguish McLarand on the ground that the defendant there 

was compelled to file a cross-complaint or lose its right to assert its claim against the 

plaintiff, but that in our case, defendants would have been free to assert their claim for 

contribution and indemnity in a separate action. We are not persuaded. Schrader and 

Gerstein, upon which the McLarand court relied, both considered personal injury actions 

in which both the plaintiffs and the defendants were injured, and neither plaintiffs nor 

defendants obtained any relief against the other. (Schrader, supra, 34 Cal.2d at p. 113; 

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Gerstein, supra, 70 Cal.App.2d at p. 239.) In deciding the defendants were the prevailing 

parties, the two courts reasoned in part that, had the plaintiffs not commenced the 

litigation by filing their complaint, the defendants might never have filed suit; but that 

once the action was filed, the defendants were compelled to assert their claims in the 

same action. (Schrader, supra, 34 Cal.2d at p. 115; Gerstein, supra, 70 Cal.App.2d at 

p. 240.) Rather than militating against the application of the same rule here, that 

reasoning is perhaps even more compelling on the facts of this case: If the City had not 

brought its action against defendants seeking damages and equitable relief for the harm 

caused by defendants’ products, defendants would have had no cause to bring their 

claims against the City, seeking contribution and indemnity based on their potential 

liability to the City for that very injury. In any event, the compulsory nature of the crosscomplaint was not the basis of the court’s reasoning in McLarand; rather, the court 

concluded that the statutory language compelled the conclusion that the defendant was 

entitled to costs where neither the plaintiff nor the cross-complaining defendant 

prevailed. (McLarand, supra, 231 Cal.App.3d at p. 1450.)

Contrary to the City’s contention, the case of Hearn Pacific Corp. v. Second 

Generation Roofing, Inc. (2016) 247 Cal.App.4th 117 (Hearn Pacific) does not dictate a 

different result. There, the cross-complainant, Hearn, assigned to its insurer all of 

Hearn’s “rights and interests” under its contract with the cross-defendant. (Id. at p. 125.) 

The insurance company then pursued the contract action against the cross-defendant and 

expressly alleged in an amended cross-complaint that it was doing so “ ‘in the 

name of . . . HEARN’ ” but on its own behalf. (Id. at p. 126.) The cross-defendant 

prevailed and, pursuant to the provisions of the contract, secured an award for prevailing 

party costs and fees. It then moved the court to add the insurance company as a judgment 

debtor. (Id. at pp. 126-127.) The trial court denied the motion (id. at p. 128), and the 

appellate court reversed. It concluded that, although Code of Civil Procedure 

section 368.5 allows a transferee party to continue the litigation in the name of the 

transferor, the transferee is nonetheless the real party in interest, and the device of 

93
continuing the litigation in the name of the transferor does not operate as a shield to 

protect the real party from liability for adverse outcomes. (Id. at p. 134.) 

Hearn Pacific has nothing to do with Code of Civil Procedure section 1032 or the 

determination of who is a prevailing party under the circumstances of this case. The City 

nevertheless argued that Hearn Pacific was applicable here for two reasons. First, the 

City asserted, Hearn Pacific teaches that “in determining the obligation for costs” the 

court should consider “the interest of an insurer that has been transferred rights from its 

insured who is a party to the litigation.” So, here, City argued, the cross-defendants were 

defended by the insurer, and, under the principles of equitable subrogation they have “an 

interest to protect” with respect to costs. Second, the City argued, Hearn Pacific states 

the principle that, in awarding costs, the court should consider “fairness” and “equitable 

considerations” and, although in Hearn Pacific those equitable factors weighed against 

the insurer, here they do not. The City’s reliance on Hearn Pacific for these principles is 

too much of a stretch. The court there concluded that the insurance company cannot 

accept the benefits of the assignment without also being subject to its burdens (Hearn 

Pacific, supra, 247 Cal.App.4th at p. 134); the court did not rely on equitable 

considerations or fairness in determining that, as a legal matter, the insurance company 

should be added as a judgment debtor, it being the real party in interest. Nothing in 

Hearn Pacific suggests that an insurer’s interest in its costs of suit should be considered 

separately in determining who is the prevailing party, even when the insurer is the real 

party in interest, much less here, where the City is the real party.

V. DISPOSITION

The order denying reconsideration of the summary adjudication of the nuisance 

claims is vacated and the matter is remanded with directions to deny the motions for 

summary adjudication on the nuisance claims and to conduct further proceedings.

The punitive damages award against Dow in the Phase I proceeding is reversed.

The order granting the Motion for Directed Verdict Re Property Damage in the 

Phase III proceeding is vacated, except as to any of those sites for which nonsuit was 

granted on other grounds, and the matter is remanded for further proceedings

94
The decision and order denying relief in the Phase IV proceeding is reversed and 

the matter is remanded for further proceedings.

The amended judgment is vacated as void.

The prevailing party determinations with respect to Phases III and IV are vacated 

as a result of our decision to vacate the Phase III directed verdict and the Phase IV 

decision and order.

The order allocating settlement credits is vacated.

In all other respects we affirm the judgment entered on November 15, 2011. 

All parties shall bear their own costs on appeal except for those costs comprised of 

attorney’s fees to which a party may be entitled pursuant to statute, which shall be 

determined in the first instance in the trial court.

_________________________

Rivera, J.

We concur:

_________________________

Ruvolo, P.J.

_________________________

Streeter, J.

95
City of Modesto et al. v. The Dow Chemical Company et al. (A134419)

City of Modesto et al. v. The Dow Chemical Company et al. (A134419)

 Trial Court: San Francisco County Superior Court

 Trial Judge: Honorable Ernest H. Goldsmith

Counsel for Plaintiffs and 

Appellants, City of Modesto et 

al.:

Miller, Axline & Sawyer, Duane C. Miller and 

Michael D. Axline; Bien & Summers, Elliot L. Bien 

and Jocelyn S. Sperling; Susan Alcala Wood and 

Adam U. Lindgren, City Attorneys of Modesto; 

Roland R. Stevens, Special Counsel.

Counsel for Plaintiff and 

Appellant, City of Modesto 

Redevelopment Agency:

Brown & Winters, William Douglas Brown.

Counsel for Plaintiff and 

Appellant, City of Modesto 

Sewer District No. 1:

Davidovitz & Bennett and Cooper & Scully, Moris 

Davidovitz; Davidovitz & Bennett, Charles H. 

Bolcom and Coreal Riday-White.

Counsel for Defendant and 

Respondent, The Dow 

Chemical Company:

King & Spalding, Gennaro A. Filice III and Paul R. 

Johnson.

Counsel for Defendant and 

Respondent, Axiall 

Corporation, successor in 

interest to PPG Industries, Inc.:

Beveridge & Diamond, Gary J. Smith and Mark A. 

Turco; Beveridge & Diamond and Katten Muchin 

Rosenman, Lily N. Chinn.

Counsel for Defendant and 

Respondent, R.R. Street & Co.:

Hicks Thomas, Eric A. Grant and John B. Thomas.

Counsel for Defendant and 

Respondent, Halford’s 

Cleaners:

Schuering Zimmerman & Doyle, Keith D. Chidlaw 

and Andrew S. Larsen.

Counsel for Defendant and 

Respondent, Modesto Steam 

Laundry & Cleaners:

Bassi Edlin Huie & Blum, William Noel Edlin and 

Antonio P. Garcia, Jr.

96