Orchard View Farms, Inc. v. Martin Marietta Aluminum, Inc.

OPINION

HISTORY OF THIS CASE

This diversity case is before the court on remand from the Ninth Circuit Court of Appeals for a retrial on the issue of puni *986 tive damages. Orchard View Farms, Inc. v. Martin Marietta Aluminum, Inc., No. 73 3080 (9th Cir. June 23, 1975).

On March 31, 1971, Orchard View Farms, Inc. (Orchard View) filed this trespass action, seeking compensatory and punitive damages for injuries to its orchards between March 31, 1965 and the filing date. These injuries were alleged to have been caused by fluoride emitted from the aluminum reduction plant operated by Martin Marietta Aluminum, Inc. (the company or Martin Marietta). In April and May, 1973, the case was tried to a jury, which awarded Orchard View $103,655 compensatory damages and $250,000 punitive damages. The company appealed this judgment on numerous grounds.

The Ninth Circuit affirmed the award of compensatory damages but reversed and remanded the punitive damages award because in various rulings at the trial I erroneously admitted evidence of certain events that had occurred before the 1965-71 claim period, events which had been insufficiently linked by the evidence to the company’s conduct and policies during the claim period.

Upon retrial, evidence was presented in various forms. Much testimony was presented through written witness statements. Additional testimony, both on direct and cross-examination, was offered live. Most of the evidence was submitted in October, 1977, but a defense witness and the plaintiff’s responding rebuttal witness testified in 1978, and final arguments were heard in 1979. Both sides submitted pretrial and post-trial memoranda.

Both parties and their counsel are to be complimented for their cooperation with each other and with the court, their observance of the local procedural rules, and the quality of their work.

FACTUAL BACKGROUND

Martin Marietta Aluminum, Inc., is a California corporation that owns and operates aluminum reduction plants, including plants located in The Dalles, Oregon, and Golden-dale, Washington. Harvey Aluminum, Inc. (Harvey) constructed the plant located at The Dalles, and owned and operated it when production began in 1958. In 1968 Martin Marietta Corporation purchased a controlling share of Harvey common stock. It voted its representatives into a majority of the Harvey directorship in 1969. In 1972, the name of Harvey Aluminum, Inc., was changed to Martin Marietta Aluminum, Inc. In 1974 Martin Marietta Aluminum, Inc., became a wholly-owned subsidiary of Martin Marietta Corporation.

Orchard View Farms, Inc., is an Oregon corporation. It operates three orchards with a combined total acreage of approximately five hundred acres. The orchards are located between 2.5 and 5 miles from the aluminum plant. Donald Bailey is the president and treasurer of Orchard View; he, his wife, and five of their children are the sole stockholders. Orchard View owns part of the land; the Baileys own the rest and lease it to Orchard View. The Bailey family operates the orchards.

This case is one of an ever-increasing number filed against Harvey, and later Martin Marietta, by orchardists who charged that fluorides emitted from the plant have damaged their crops. The first such suit, Renken v. Harvey Aluminum, Inc., 226 F.Supp. 169 (D.Or.1963), was filed in May, 1961. It was finally closed in 1966 when the court approved a consent decree providing for arbitration of the growers’ claims and dismissal of the related actions filed in state court during the interim. Since February, 1977, thirteen actions have been filed in the United States District Court. These suits seek compensatory and punitive damages for injury allegedly inflicted by emissions from the plant during the years 1971 through 1977.

OPINION

I. OREGON LAW OF PUNITIVE DAMAGES.

II. SOCIETAL OBLIGATIONS OF BUSINESS ENTERPRISES.

III. EVALUATION OF THE DEFENDANT'S CONDUCT IN LIGHT OF ITS SOCIETAL OBLIGATIONS.

A. Ascertaining the Harm from Plant Emissions.

1. The Company's Efforts.

a. Cherries.

b. Peaches.

c. Pines.

d. Other Vegetation.

*987 2. Efforts of Others.

a. Cherries.

1) Observation of Trees, Leaves auu Fruit.

2) Scientific Inquiry.

b. Peaches.

c. Pines.

d. Other Vegetation.

3. The Company's Response to Evidence of Harm from the Plant's Emissions.

a. Cherries.

b. Peaches.

c. Pines.

d. Other Vegetation.

4. Conclusion.

B. Efficiently Controlling the Harmful Emissions.

1. Plant Siting.

2. Monitoring.

a. Emissions.

1) Frequency of Monitoring.

2) Accuracy of Monitoring.

a) Selection of Monitoring Location.

b) Duration of Tests.

c) Maintenance of Normal Operating Conditions.

d) Sampling Technique.

3) Overall Evaluation.

b. Ambient Concentrations.

3. Controlling Emissions.

a. Fluoride Evolution at the Cell.

1) Operating Parameters.

2) Selection of Ore.

b. Primary Emission Control System.

1) Collection Efficiency.

a) Cell Hooding.

b) Operating Procedures.

2) Treatment Efficiency.

c. Secondary Emission Control System.

1) Collection Efficiency.

2) Treatment Efficiency.

d. Overall Performance.

4. Mitigation Measures.

a. Tall Stacks.

b. Application of Lime Spray.

5. Conclusion.

C. Arranging to Compensate for the Remaining Harm.

IV. AWARD OF PUNITIVE DAMAGES.

I. OREGON LAW OF PUNITIVE DAMAGES.

The Oregon Supreme Court has provided specific guidance on punitive damage liability in the context of industrial air pollution. In McElwain v. Georgia-Pacific Corporation, 245 Or. 247, 421 P.2d 957 (1966), the court stated:

Although this court has on occasion indulged in the dictum that punitive damages are not “favored in the law,” it has, nevertheless, uniformly sanctioned the recovery of punitive damages whenever there was evidence of a wrongful act done intentionally, with knowledge that it would cause harm to a particular person or persons.... The intentional disregard of the interest of another is the equivalent of legal malice, and justifies punitive damages for trespass. Where there is proof of an intentional, unjustifiable infliction of harm with deliberate disregard of the social consequences, the question of award of punitive damages is for the jury. 245 Or. at 249, 421 P.2d at 958.

The court reversed the trial judge’s withdrawal of the issue of punitive damage liability from the jury because the “defendant knew when it decided to construct its kraft.mill in Toledo, that there was danger, if not a probability, that the mill would cause damage to adjoining property,” 245 Or. at 250, 421 P.2d at 958, and because of “the substantial evidence from which the jury could have found that during the period involved in this action the defendant had not done everything reasonably possible to eliminate or minimize the damage to adjoining properties by its mill.” 245 Or. at 252, 421 P.2d at 959.

In Davis v. Georgia-Pacific Corporation, 251 Or. 239, 445 P.2d 481 (1968), the court remanded a jury’s award of punitive damages because the trial judge had refused to admit evidence pertaining to “the utility of defendant’s operations and its efforts, as compared with others similarly engaged, to prevent damage to surrounding properties.” 251 Or. at 245, 445 P.2d at 484.

In a more recent review of punitive damages liability in Oregon, the court in Harrell v. Travelers Indemnity Company, 279 Or. 199, 567 P.2d 1013 (1977), noted:

One whose business involves the operation of a plant which emits smoke, fumes or “particulates” may also have ... liability for punitive damages, even in the absence of any “wanton” or “fraudulent” conduct, upon the ground that he has “intentionally” permitted fumes, smoke or particles to be released and blown by the wind upon another’s property, for the reason that “[t]he intentional disregard *988 of the interest of another is the legal equivalent of legal malice and justifies punitive damages for trespass.” 279 Or. at 210-11, 567 P.2d at 1018, quoting McElwain, 245 Or. at 249, 421 P.2d at 958 (and adding an additional “legal” to the quotation).

Additional guidance, though of less precedential value, is provided by Reynolds Metals Company v. Lampert, 316 F.2d 272 (9th Cir. 1963). The District of Oregon trial judge had withdrawn the issue of punitive damages liability from the jury. The Ninth Circuit reversed and remanded.

Where there is evidence that the injury was done maliciously or wilfully and wantonly or committed with bad motive or recklessly so as to imply a disregard of social obligations, punitive damages are justified. Fisher v. Carlin, 219 Or. 159, 346 P.2d 641.

Here the record discloses that appellants had known for several years that fluorides from their plant were settling on appellees’ land, with resultant damage to appellees’ crops. It thus could have been found that their trespass was done knowingly and wilfully, that it was intentional and in wanton disregard of appellants’ social obligations.

To justify an award of punitive damages, it is not necessary that the act have been done maliciously or with bad motive. Where it has become apparent, as it has here, that compensatory damages alone, while they might compensate the injured party, will not deter the actor from committing similar trespasses in the future, there is ample justification for an award of punitive damages.. .. Accordingly, the issue of punitive damages should have been submitted to the jury. 316 F.2d at 275.

Upon remand a second jury denied any award of punitive damages, and the plaintiff appealed. In Lampert v. Reynolds Metals Company, 372 F.2d 245 (9th Cir. 1967), the court noted that its earlier view of punitive damages had been confirmed in the interim by the Oregon Supreme Court’s McElwain opinion. During the retrial, the District of Oregon judge hearing the case instructed the jury that, “with regard to punitive damages, it should weigh the apparent value to society of plaintiffs’ farming activities.” 372 F.2d at 247. The Ninth Circuit rejected this view, stating:

Without doubt, the operation of the Reynolds Metals Company at Troutdale has social value in that community. But in legal contemplation, the company has no obligation to provide that social value, and certainly no right to do so in disregard of its legal obligation not to cause trespass injuries upon the property of plaintiffs. We find no Oregon decision nor, indeed, any decision from any jurisdiction, which supports the weighing process sanctioned by the trial court. 372 F.2d at 248.

The decision was reversed and the cause remanded for a new trial.

This guidance provided by the Oregon Supreme Court and the Ninth Circuit Court of Appeals, though specific to the context of industrial air pollution, does not define with precision the circumstances justifying the imposition of punitive damage liability. A broad synthesis of these opinions provides the conclusion that punitive damage awards may be imposed for business activities, harmful to others, carried out in disregard of the corporation’s societal obligations. In brief, the issue is whether the defendant has damaged the property of plaintiff by conduct evidencing an “I don’t give a damn” attitude. For a case as complex as this, however, it is important to describe in some greater detail the societal obligations of business enterprises.

II. SOCIETAL OBLIGATIONS OF BUSINESS ENTERPRISES.

In essence, any business -is socially obliged to carry on an enterprise that is a net benefit, or at least not a net loss, to society. The company’s management recognized this obligation in a 1960 letter to the Wasco County Fruit and Produce League.

In closing I [Lawrence Harvey] would like to reemphasize our desire to foster the prosperity of the entire communi *989 ty. . . . We are doing, and will continue to do so, the best scientific job of control that is possible under the circumstances. These are obligations which we consider part of our community responsibility. Ex. 305a at 2.

In a world where all costs of production were borne by the enterprise, determining whether a firm produced a net benefit, or at least not a net detriment, to society would be as simple as examining the company’s balance sheet of income and expenses. In the real world the task is more complex, because enterprises can sometimes shift a portion of their costs of production onto others. In the case of an industrial plant emitting pollution, those harmed by the emissions are, in effect, involuntarily bearing some of the firm’s production costs.

Our society has not demanded that such externalized costs of production be completely eliminated. Instead, we tolerate ex-ternalities such as pollution as long as the enterprise remains productive: that is, producing greater value than the total of its internalized and externalized costs of production. A business that does not achieve net productivity is harmful to society, detracting from the standard of living it is designed to enhance. Because firms can sometimes impose a portion of their production costs upon others, the mere fact that a company continues to operate at a profit is not in itself conclusive evidence that it produces a net benefit to society.

Our system of law attempts to ensure that businesses are, on balance, socially beneficial by requiring that each enterprise bear its total production costs, as accurately as those costs can be ascertained. A fundamental means to this end is the institution of tort liability, which requires that persons harmed by business or other activity be compensated by the perpetrator of the damage. In the context of pollution, however, the tort system does not always operate smoothly to impose liability for compensatory damages. Among the difficulties encountered are: (1) that the harm may be gradual or otherwise difficult to perceive; (2) that the cause of the harm may be difficult to trace to the pollution and from the pollution to its source; and (3) that the harm may be inflicted in small amounts upon a large number of people, none of whom individually suffer sufficient damage to warrant the time and expense of legal action and whose organization into a plaintiff class is hindered by what has come to be known as the tragedy of the commons. 1

Because of these impediments to smooth operation of the tort system and to ensuring that each enterprise bears its own costs of production, the law imposes upon businesses a societal obligation not to obstruct legal procedures designed to provide compensation to persons harmed by externalized costs of production. Enterprises must cooperate with their neighbors in ascertaining the nature, severity and scope of the harm and in arranging to prevent the damage or to neutralize it through some form of compensation.

A breach of societal obligations justifies the imposition of punitive damages to deter uncooperative behavior that impedes the legal system from ensuring that enterprises produce a net benefit to society.

III. EVALUATION OF THE DEFENDANT’S CONDUCT IN LIGHT OF ITS SOCIETAL OBLIGATIONS.

Although the company did not fail to carry out its societal obligations in every respect, I have concluded that the overall conduct of the business with respect to ascertaining the harm from the plant’s emissions, efficiently controlling the harmful *990 emissions and arranging to compensate for the remaining harm constitutes breach of societal responsibility sufficient to justify the imposition of punitive damages.

A. Ascertaining the Harm from Plant Emissions.

A business enterprise has a societal obligation to determine whether its emissions will result in harm to others. Because the damage from pollution can be difficult to perceive due to its subtle or incremental nature, and because it can be difficult to trace to its cause, the obligation of the enterprise extends not only to observation of property in the surrounding region but also to initiation and completion of unbiased scientific studies designed to detect the potential adverse effects of the substances emitted. I find that the company failed to fulfill this obligation before or during the 1965-71 claim period by taking less than full cognizance of the damage inflicted upon the orchards and by generally shirking its responsibility to undertake competent scientific inquiry into the adverse effects of its emissions.

1. The Company’s Efforts.

The company did not maintain throughout the 1965-71 period a regular program of inspecting the nearby orchards to detect damage that might have been caused by fluoride emissions from the plant. Since late 1961 the company has maintained its own orchard in the vicinity, operated by Frederick Scholes, as a means of monitoring the effects of the plant’s emissions upon fruit crops. Ex. 933 at 4. During the spring and summer of 1965 the neighboring orchards were inspected on several occasions by Scholes, Joseph Byrne (the company’s environmental control officer) and two consultants hired by the company to evaluate orchard conditions, Michael Treshow and Earle Blodgett. Similar inspections were carried out in 1966 by these same persons accompanied by three additional hired consultants: O. C. Taylor, Leonard Weinstein and R. F. Brewer. Treshow and Blodgett continued their inspections during the spring and summer of 1967 and were joined in August 1967 by Neis Benson of Washington State University. Neither company personnel nor hired consultants inspected the orchards during the years 1968-70, after the arbitration committee established by the 1966 Renken consent decree began its scrutiny of the surrounding vegetation. Scholes and two hired consultants, Treshow and David MacLean, visited the orchards in August, 1971, some four months after the close of the plaintiff’s March 31, 1965-71, claim period. Timothy Facteau of the Oregon State University Mid-Columbia Agricultural Experiment Station (MCAES) agreed that during these years the company did call in many recognized experts on the effects of fluoride exposure to fruit crops. TR 747. 1 2

Neither before nor during the 1965-71 period did the company undertake or sponsor any scientific inquiry into the effects of fluoride upon vegetation. Ex. 339 at 178-80; TR 678-84, 873, 886. The company’s sole contribution seems to have been the donation of a $12,000 automatic material sample analyzer to Oregon State University to expedite analysis of the Mid-Columbia Agricultural Experiment Station (MCAES) fluoride fumigation experiments with cherry tree limbs in 1966. Ex. 339 at 163; TR 127, 805.

a. Cherries.

In 1960 the company hired a consultant, Burton Richards, to inspect the orchards. Ex. 305a. Along with Scholes and Byrne, Richards in 1961 was shown stylar dimpled cherries in the orchards. TR 387-88 (Bailey).

During their 1965 inspections the company’s orchard observers noticed damage of various sorts but did not attribute any of it to fluoride exposure. See Exs. 501a-d, *991 502a-c, 503a-e. 3 None of the inspectors in 1966 attributed the damage they observed, including cherry blossom petal browning and necrosis, to fluorides except for Brewer, who commented that a small amount of interveinal leaf chlorosis might have been associated with fluoride toxicity. Ex. 506c; see Exs. 501h, 502d, 503f-k, 505a-d, 507. Taylor reported that “no fluoride type symptoms were observed on foliage of sweet cherry in the 34 orchards inspected,” though he did find some chlorosis, leaf bronzing and rolling in all of the orchards and petal necrosis in several. Ex. 505a, 505d at 2.

Treshow and Blodgett in 1967 again reported no fluoride-induced injury, although Treshow mentioned “marginal chlorosis and cupping which reminded somewhat of fluoride symptoms” before concluding that “fluorides were not involved.” Ex. 5031; see Exs. 501e-g, 5031-n.

Byrne observed stylar dimple in the Hendricks orchard in 1969 but did not attribute this to fluoride exposure. TR 908-09.

The company did not conduct orchard inspections again until August, 1971, when Scholes, Treshow and MacLean did not report any observed fluoride injury to cherries. Exs. 502d, 503o, 504a. Scholes considered the cherry crop from the company’s orchard to be “good” in 1970 and “satisfactory” in 1971. Ex. 933 at 17.

b. Peaches.

In 1965 the company’s orchard inspection team found no significant fluoride-induced harm to peaches, Exs. 501a-d, 502a-c, 503a-e, although Scholes noted “several light cases” of soft suture in the Curtis orchard. 4 Ex. 502c.

In 1966 Taylor reported 3-4% soft suture in the Francois and Curtis orchards, where “the combined injuries from split pit and soft suture may have affected as much as 20% of the crop.” Ex. 505d at 2. Other orchards showed less than 1% soft suture. Ex. 933 at 12 (Scholes). Taylor noted that soft suture was present only where the peach crops had earlier been reduced by the cold weather immediately following the blossoming period. Ex. 505d at 2. From the notes of the other company-hired observers, only Brewer also mentioned this soft suture. 5 Ex. 506d.

In 1967 Treshow noted one instance of soft suture at the Myers orchard and a trace of that type of injury in the Hazen and Curtis orchards. Ex. 503n; see Exs. 5031-m. Blodgett reported some soft suture in a sample of peaches provided by the plaintiff and well over 50% soft suture in the Fleck orchard. Benson considered 52 of 64 Fleck peaches to be stricken (81%); Blodgett stated that only about 40-42 had “really convincing symptoms” (63-66%). Ex. 501g at 1; see Ex. 342 at 60; TR 200, 379-80. He considered this high incidence of injury relatively insignificant because the orchard’s crop was too light to justify harvesting anyway. He found a few soft sutured peaches in the Francois orchard and less than 5% soft suture at the Myers orchard. He summarized as follows:

... It would appear that, considering the orchards observed, there was no significant injury to peach fruit in The Dalles area from Fluorine this year except in the Fleck, Company and possibly the Bill Myers orchards. Ex. 501g at 3.

Blodgett also noted the presence of soft suture in peaches in the Mosier vicinity (approximately 12 miles northwest of the plant), “out of the contaminated area.” Ex. 501g at 3.

*992 The August, 1971, reports of Scholes, Treshow and MacLean did not mention any injury to peaches. Exs. 502d, 503o, 504a. Scholes stated that since 1963 he had seen “only a few instances” of soft suture in The Dalles area. Ex. 933 at 4.

c. Pines.

There is no evidence that the company undertook systematic observation of pine trees in the area around the plant either before or during the 1965-71 claim period.

d. Other Vegetation.

Scholes mentioned that he might have observed apricot leaf necrosis “on a small basis” in the company’s orchard during 1964-66. TR 689. Blodgett mentioned some insignificant prune leaf necrosis in 1965 he thought “not typical” of similar symptoms caused by fluoride. Ex. 501e at 2. In September, 1965, Treshow reported “trace amounts of fluoride-type necrosis ... on apricot foliage in the Folehn and Ericksen orchards.” Ex. 503e at 1. In 1966 Taylor noted “very light fluoride-type necrosis at the tips of some [apricot] leaves” in the Ericksen orchard. Ex. 505d at 3. No other damage to vegetation attributed to fluoride was reported by the company-hired inspectors.

2. Efforts of Others.

a. Cherries.

1) Observation of Trees, Leaves and Fruit.

Walter Mellenthin, O. C. Compton and others at MCAES made surveys of the amount of fluorine in vegetation in The Dalles area within six miles of the plant site in 1953 and twice during each growing season from 1957 through 1967. See Exs. 119-24. The plant began operating on July 26, 1958, after the MCAES July, 1958, survey. These studies reported average fluorine contents of sweet cherry foliage and forage in parts per million as follows (figures in parentheses are average fluorine contents at sampling locations 1-2 miles from the plant):

At least part of the dramatic decrease in leaf fluorine content between 1962 and 1963 may be attributed to the initiation in 1963 of the practice of washing the leaves prior to crushing and analysis, see Ex. 342 at 97-98, although the first mention of this procedure in the reports appears in association with the 1965-67 data. Ex. 124 at 2. Each of these surveys found that the fluorine content of cherry leaves generally increased with proximity to the plant.

None of these reports mentioned the observation of damage to cherry leaves or fruit from fluoride exposure. Nevertheless, Mellenthin testified that he first noticed scorching of cherry leaves and stylar dimpling of cherries in The Dalles area in 1959 and 1960. Ex. 342 at 20-21. In 1960 and 1961 he photographed scorched cherry leaves and dimpled cherries at the Hendricks, Myers and other orchards but did not know then what had caused these conditions. Ex. 342 at 40-47. U. S. Department of Agriculture inspector Warren Cyrus noticed stylar dimpling around 1960, a condition he had not seen during previous periods of cherry inspection in Medford, MiltonFreewater and Hood River. Ex. 330 at 2007. The cherries from The Dalles area were not dimpled every year but were so afflicted during about four of the six following years. Ex. 330 at 2008, 2022.

In August, 1960, the Wasco County Fruit and Produce League complained in a letter to the company that the plant’s emissions were causing “severe damage to the fruit set, fruit, and foliage of our cherry trees.” Ex. 305b at 1.

This year the general pattern of production showed that the farther away *993 from Harvey Aluminum plant our cherry orchards were located, the better was our production..... Most of the distant orchards had a good crop while those close in generally had less than half a crop. The district was short of a normal crop by several thousand tons with the resultant loss in value of approximately $1,000,-000.

Some of the fruit from orchards near your plant which was picked up for