Court Opinion

ID: 3033822
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:50:04.65786+00
Date Added: 2024-06-11T11:48:26.502439
License: Public Domain

United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                    ___________

                                No. 02-4024/03-1276
                                   ___________

Highland Industrial Park, Inc.,                  *
      an Arkansas Corporation,                   *
                                                 *
               Appellee,                         *
                                                 *
        v.                                       *
                                                 * Appeals from the United States
BEI Defense Systems Company,                     * District Court for the Western
        a Delaware Corporation,                  * District of Arkansas.
                                                 *
               Appellant.                        *
                                                 *
------------------------------------------------ *
                                                 *
Arkansas Department of Environmental *
        Quality,                                 *
                                                 *
        Amicus on Behalf of Appellant. *
                                          ___________

                              Submitted: September 8, 2003

                                   Filed: February 4, 2004 (Revised: 3/12/2004)
                                    ___________

Before MORRIS SHEPPARD ARNOLD, BEAM, and BYE, Circuit Judges
                         ___________
MORRIS SHEPPARD ARNOLD, Circuit Judge.

       BEI Defense Systems Company appeals from judgments entered against it
after a bench trial on Highland Industrial Park's claims for trespass, negligence,
violations of the Arkansas Hazardous Waste Management Act (AHWMA), and
breach of lease covenants. The district court awarded Highland $500,000 in damages
and $185,000 in attorney's fees. We reverse and remand for the reasons explained
below.

        BEI began leasing property in Highland Industrial Park in 1966, and for
twenty-three years it burned waste from its rocket component production process on
a part of the leased property known as the "burn area." Soil contamination was
discovered in the burn area in 1989 and corrected in 1990 with the assistance of the
Arkansas Department of Pollution Control and Ecology (now the Arkansas
Department of Environmental Quality (ADEQ)). In 1996, BEI informed Highland
of its intention to terminate the lease the following year. Following BEI's notification
of termination, in reports dated June, 1996, and January, 1997, environmental
consultants reported to Highland that the burn area's groundwater was contaminated.

       Highland filed this suit for environmental damages in July, 1999. When BEI
moved for summary judgment, asserting that all of Highland's claims were barred by
the applicable statutes of limitations, the district court denied the motion. The district
court later granted Highland summary judgment with respect to one of several breach
of covenant claims. Following a bench trial, the district court found BEI liable for
negligence, trespass, and violations of the AHWMA.

                                          I.
      We review the district court's determinations of law de novo. Koch Eng'g Co.,
v. Gibralter Cas. Co., 78 F.3d 1291, 1294 (8th Cir. 1995). Since this case is here
under our diversity jurisdiction, we apply the law of Arkansas, the forum state, to

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determine statute-of-limitations issues. See Nettles v. American Telephone &
Telegraph Co., 55 F.3d 1358, 1362 (8th Cir. 1995). Arkansas generally considers
such statutes to be procedural and applies its own statutes of limitations to cases filed
in its courts, see Middleton v. Lockhart, 2003 WL 22969182 (Dec. 18, 2003), and
therefore we apply the limitations statutes of Arkansas.

                                           II.
        Arkansas has a three-year statute of limitations for tort claims, including those
sounding in negligence and trespass. See Ark. Code § 16-56-105. At issue in this
case is when the statute began to run. The district court held that it did not begin to
run until 1997, because it was not until then that Highland knew the nature and extent
of its injury.

        In Arkansas v. Diamond Lakes Oil Co., 347 Ark. 618, 623, 66 S.W.3d 613, 616
(2002), the Arkansas Supreme Court first asserted that "[t]he limitation period found
in § 16-56-105 begins to run when there is a complete and present cause of action,
and, in the absence of concealment of the wrong, when the injury occurs, not when
it is discovered." The court in Diamond Lakes, 347 Ark. at 624-25, 66 S.W.3d at
617-18, nevertheless went on to apply what is called a "discovery rule" even though
there was no active concealment of the injury, partly on the ground that the plaintiff
had not known either the cause or source of his injury until less than three years
before the suit was filed. The court also seems to have held that the statute did not
begin to run until the plaintiff could have known the “scope of the injury,” id.,
347 Ark. at 625, 66 S.W.3d at 618; but in the context we believe that the word
"scope" was not employed in Diamond Lakes as a synonym for "nature and extent."
We believe instead that the Arkansas Supreme Court in Diamond Lakes was saying
that the statute does not begin to run until the plaintiff knows, or reasonably should
have known, that its land had suffered a remediable injury, that is, one that was not
merely technical or nominal. We therefore respectfully disagree with the district
court's conclusion.

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       We reach this conclusion after an examination of other Arkansas cases of
relevance. In Martin v. Arthur, 339 Ark. 149, 157, 3 S.W.3d 684, 688 (1999), for
instance, the court stated that a statute of limitations begins to run when the damage
occurs. In McEntire v. Malloy, 288 Ark. 582, 586, 707 S.W.2d 773, 776 (1986), the
court held that "[o]nce a prospective plaintiff knows she has been injured by a
wrongdoer her cause of action has occurred," and she can, at this point, "investigate
the extent of the injury ... and present evidence of its present and probable future
extent." In Diamond Lakes itself, moreover, the court noted that the plaintiff was
arguing that the statute did not begin running until the plaintiff "could ascertain the
full nature and extent of the injury," a phrase that the court assiduously avoided using
when it decided the case. Our confidence in our interpretation of Arkansas case law
is buttressed by the fact that we know of no state whatever in which an injured party
must know the full extent of the damages that it may recover before the statute of
limitations begins to run on its claim. Indeed, the cases on this issue are legion. See,
e.g., Goodhand v. United States, 40 F.3d 209, 212 (7th Cir. 1994) (holding that it "is
a general principle of limitations law" that a "statute of limitations begins to run upon
the discovery of the injury, even if the full extent of the injury is not discovered until
much later").

        We are clear that in this case Highland knew enough about its tort claims to
cause the statute of limitations to commence running more than three years before it
filed suit. It knew of the existence of ground contamination by June, 1996, at the
latest, when it received the first environmental report. The report told Highland that
the contaminants in its groundwater exceeded the maximum contaminant levels
established by the Environmental Protection Agency as safe. In 1991, moreover,
because of past soil contamination, a mortgagee refused to extend a loan on the six-
acre burn area even though the contamination had been corrected. Highland was
therefore on notice that soil contamination could seriously affect its property values.
Thus, Highland knew more than three years before it filed its action that a cognizable

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injury, something more than a technical trespass, had occurred. And since it knew by
June, 1996, that BEI was the source of the contaminants, its tort actions are barred.

      The district court correctly noted that the Arkansas Supreme Court has
cautioned that reasonable doubts about when a statute of limitations began to run
ought to be resolved in favor of allowing a claim to proceed. See Dunlap v. McCarty,
284 Ark. 5,7, 678 S.W.2d 361, 363 (1984). Here, however, we think that there is no
reasonable doubt that the latest date that Highland became aware of the cause and
source of a significant injury to its land was June, 1996.

       Highland also argues that even if the injury was "discovered" in June, 1996, the
statute of limitations was tolled because the contamination constituted a continuing
trespass. Under a continuing trespass theory, the statute of limitations would be
tolled as long as the trespass continued. In effect, therefore, if we accept Highland's
argument, the statute of limitations would not begin to run in this case unless the
pollution is actually removed. This makes no sense. The Arkansas Supreme Court,
moreover, has stated that "the continuing-tort theory is not recognized in Arkansas."
Chalmers v. Toyota Motor Sales, 326 Ark. 895, 906, 935 S.W.2d 258, 264 (1996).
Even in the Arkansas Supreme Court's most forgiving statute-of-limitations case,
Diamond Lakes, 347 Ark. at 623-25, 66 S.W.3d at 616-18, the statute eventually
began to run; it was simply tolled until the injured party was on notice as to certain
matters. The Arkansas Supreme Court did not allow the statute of limitations to be
tolled indefinitely. See id., 347 Ark. at 625, 66 S.W.3d at 618.

      The district court cited only one case, Sewell v. Phillips Petroleum Co.,
197 F. Supp. 2d 1160, 1168 (W.D. Ark. 2002), supporting the validity of the
continuing trespass theory in Arkansas. That opinion in turn relied on the holding in
Coleman v. United Fence Co., 282 Ark. 344, 668 S.W.2d 536 (1984). At issue in
Coleman was whether a trespasser could be transformed into an invitee or a licensee
without the owner's consent. The mention of a continuing trespass theory in

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Coleman, 282 Ark. at 345-46, 668 S.W.2d at 537, was unrelated to a statute-of-
limitations issue; it concerned the trespasser's status for purposes of determining what
duty a landowner owed him. The case furnishes no basis for tolling a statute of
limitations in this or any other case.

                                             III.
        The Arkansas Supreme Court has not determined which statute of limitations
applies to actions brought under the AHWMA. When the forum state's highest court
has not decided an issue, federal courts sitting in diversity must attempt to predict
how the state's highest court would resolve the question. United Fire & Cas. Ins. Co.
v. Garvey, 328 F.3d 411, 413 (8th Cir. 2003). In this case, the district court held that
the statute of limitations for private suits under the AHWMA was three years because
Arkansas law provides a three-year statute of limitations to "[a]ll actions founded on
any ... liability, expressed or implied," Ark. Code § 16-56-105. We agree.

      The district court erred, however, in finding that the three-year period for the
AHWMA claim had not expired. As we have said, Highland learned of the existence
and source of groundwater environmental quality violations in June, 1996, and that
is when Highland's private right of action accrued. Highland's AHWMA claim was
therefore barred when it filed suit in July, 1999.

                                        IV.
       Arkansas law provides a five-year statute of limitations for claims for breach
of a written contract. Ark. Code § 16-56-111. An action for breach of contract
"accrues the moment the right to commence an action comes into existence, and the
statute of limitations commences to run from that time." Ray & Sons Masonry
Contractors v. United States Fid. & Guar. Co., 353 Ark. 201, 216, 114 S.W.3d 189,
198 (2003). In other words, the statute begins to run when the breach occurs. See
Foreman Sch. Dist. No. 25 v. Steele, 347 Ark. 193, 203, 61 S.W.3d 801, 807 (2001).

                                          -6-
       According to Highland, BEI broke covenants in its lease by violating state and
federal laws, by not maintaining the property and by returning it in a deteriorated
condition, and by failing to indemnify Highland. The district court granted Highland
summary judgment on two lease provisions requiring compliance with state statutes
and regulations. Those claims, however, were barred by the statute of limitations
which began to run when BEI violated state environmental laws. Any violations of
these provisions ceased when BEI stopped illegal dumping and burning at the burn
area by February, 1989. Thus, the statute of limitations for a claim based on these
violations expired in 1994 at the latest.

       Because it did not need to, the district court did not address the question of
whether BEI had violated the lease covenant obligating BEI to surrender the property
to Highland in as good a condition and state of repair as when received, ordinary wear
and tear excepted. Highland's claim that this lease covenant was broken is not barred
by the five-year statute of limitations because the covenant could not have been
broken until BEI vacated the property: This is when Highland would first have a
complete cause of action against BEI for violating this provision. See Ray & Sons,
353 Ark. at 216, 114 S.W.3d at 198. At common law, this kind of covenant was
called a future covenant, not because it was not binding when made, but because it
could not be broken until some time after it was made, in this case when the lease
expired. Since BEI terminated its lease in 1997 and Highland filed suit in 1999, this
claim was plainly made within the five-year statute-of-limitations period.

       In a summary judgment motion, BEI asserted that its activities in the burn area
constituted ordinary wear and tear. The district court denied summary judgment on
this ground because, it said, whether the "wear and tear" that occurred was "ordinary
and reasonable" involved a question of disputed material fact that made summary
judgment inappropriate. Cf. United Fire & Cas., 328 F.3d at 414; Luschen Bldg.
Ass'n v. Fleming Cos., 226 Neb. 840, 848-49, 415 N.W.2d 453, 458-59 (1987). BEI,
however, did not move for summary judgment with respect to Highland's ability to

                                         -7-
prove what condition the land was in before the commencement of the lease. It
appears to us on the present record that Highland is unable to produce this evidence,
and without it this claim obviously cannot survive. But since BEI did not move for
summary judgment on this ground, we will remand the case to the district court for
full consideration of this claim.

        The final claim for breach of covenant is based on a provision in the lease
requiring BEI to hold Highland harmless against any third parties. Highland,
however, has not incurred any liability for the groundwater contamination. In fact,
ADEQ is not requiring remediation but is recommending natural attenuation, the very
solution that BEI proposed to deal with the groundwater contamination. At this time,
therefore, it appears that there is no one to indemnify Highland against. "An action
... for indemnity accrues when the indemnitee is subjected to damage on account of
its own liability ... [T]here must be a loss. An indemnitor's obligation to reimburse
against loss does not become due until after the indemnitee has paid damages to a
third party." Ray & Sons, 353 Ark. at 216, 114 S.W.3d at 198 (citations omitted).
Highland has not been fined for the groundwater contamination on the property
leased by BEI nor has the contamination plume migrated onto others' property. Until
and unless Highland is found responsible to a third party for groundwater
contamination caused by BEI, this claim for breach of covenant is not ripe.

                                          V.
       Having found BEI liable for damage to the property, the district court awarded
Highland $500,000 in damages. The district court correctly noted that in Arkansas
the measure of damages in tort for injury to land depends on whether the injury is
remediable: "[W]here the injury to real property is permanent, the measure of
damages is the difference in market value before and after the injury. ... [W]here the
injury to real property is temporary, the measure of damages ... is the cost of
restoration to [the property's] condition prior to the injury." Benton Gravel Co. v.
Wright, 206 Ark, 930, 933-34, 175 S.W.2d 208, 209 (1943); see also Diamond Lakes,

                                         -8-
347 Ark. at 625-26, 66 S.W.3d at 618. Since the burn area's groundwater can be
treated and remediated, the district court awarded Highland full restoration costs of
$500,000 even though the difference in the property's fair market value with and
without the groundwater contamination was only $50,000.

       The district court's damage award cannot stand because, for reasons that we
have already indicated, the claims on which it was based are barred. The only claim
that remains actionable is the one based on BEI's contractual duty to leave the leased
property no worse off than it was at the beginning of the lease. "In general, damages
recoverable for breach of contract are those damages which would place the injured
party in the same position as if the contract had not been breached." Dawson v. Temps
Plus Inc., 337 Ark. 247, 258, 987 S.W.2d 722, 728 (1999). An award of the costs of
restoration in this case on the remaining contract claim would therefore not be
appropriate. A damage award of the difference between the fair market value of the
burn area without groundwater contamination and the value of the burn area with the
contamination will make Highland whole. If the claim of the breach of covenant
proceeds to judgment in Highland's favor, it is this measure of damages that the
district court must employ.

                                         VI.
      Arkansas law provides that "in any civil action to recover on ... [a] breach of
contract, ... the prevailing party may be allowed a reasonable attorney's fee to be
assessed by the court and collected as costs." Ark. Code § 16-22-308; see also
Barnhart v. City of Fayetteville, 335 Ark. 57, 62, 977 S.W.2d 225, 227-28 (1998);
Security Pac. Hous. Servs., Inc. v. Friddle, 315 Ark. 178, 186, 866 S.W.2d 375, 379
(1993). The district court awarded Highland $185,000 in fees because it was the
prevailing party and its claims sounded primarily in contract. Since the underlying
judgment in favor of Highland must be reversed, the fees award is vacated. If

                                         -9-
Highland prevails on its remaining breach of contract claim, the district court may
reassess the propriety of awarding a fee at that time.

                                          VII.
        For the reasons indicated, we reverse the judgments of the district court, vacate
its fee award, and remand for further proceedings not inconsistent with this opinion.
                        ______________________________

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