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On Matter Of First Impression, Northern District Court Of Alabama Holds That Remediation Costs Are Recoverable, Even Where They Exceed Diminution Of Value Damages, Where There Is A Legal Duty To Remediate

Plaintiff KMG-Bernuth, Inc., (“KMG”) operates a pentachlorophenol (“penta”) plant in Tuscaloosa which produces and stores liquid penta, an industrial wood preservative.  Penta is a hazardous pesticide subject to Environmental Protection Agency (“EPA”) regulations.  Defendant Ranger Environmental Services, LLC’s (“Ranger”) is an industrial cleaning and environmental services company based in Tuscaloosa, Alabama.  

On May 19, 2019, a fire destroyed KMG’s warehouse containing solid blocks of penta. Tuscaloosa Fire and Rescue helped extinguish the fire by using approximately 20,000 gallons of water and causing a penta spill.

While employees of Ranger were cleaning the debris from the fire using a vacuum truck, one of the Ranger supervisors inadvertently pulled the wrong lever on the truck.  Between one thousand and two thousand gallons of contaminated water spilled onto the parking lot. The water that spilled onto the parking lot included various debris, as well as chunks of melted penta and penta-contaminated water.

Due to penta’s hazardous nature and it being highly regulated, KMG was under obligation by EPA regulations to clean up the spill immediately by removing the hazardous material that was in the parking lot.  KMG excavated the spill area and sent the material to Port Arthur, Texas where it was incinerated.  KMG spent nearly $6.3 million to remediate the parking. 

KMG filed suit against Ranger alleging negligence and breach of contract arising from the spill.

Ranger moved for summary judgment on the grounds that (1) there no breach of the standard of care, as there was no written contract defining the applicable standard of care, and (2) KMG’s damages are limited to diminution of value damages and it cannot recover costs of remediation.  The Northern District of Alabama held that the lack of a written contract does not constitute the lack of an express contract.  Where there is no written contract setting forth the standard of care, “the law imposes a duty to exercise due care.” Bailey v. Liberty Mut. Ins. Co., 451 So. 2d 279, 281 (Ala. 1984).

As to the second argument, Ranger contended that KMG was limited to diminution of value damages for the property – not remediation damages.  The Northern District of Alabama noted that under Alabama law, “when dealing with damages for injury to real property, ‘[t]he measure of damages…is generally the difference between the reasonable market value of the property before and after the injury” or “diminution of value damages.” Poffenbarger v. Merit Energy Co., 972 So. 2d 792, 801 (Ala. 2007). 

Under a similar case involving an oil spill, the Plaintiff was limited to the $6,000 diminution of value damages rather than the $2,608,740 remediation costs damages. Id. at 801–02. However, the Northern District noted that the Alabama Supreme Court left the door open to possible exceptions. Id. at 801.

The Northern District of Alabama distinguished Poffenbarger and other cases holding that diminution of value damages were the only available measure of damage.  The Court noted that “unlike Poffenbarger, KMG had a legal duty to remediate the property. KMG operates a penta plant. Penta is a hazardous waste and is highly regulated.”  The Alabama Supreme Court in Poffenbarger specifically noted that the Plaintiff had the option to sell the property tainted by the oil spill for only $6,000 less in lieu of cleaning up the oil.  The Northern District Court found that this option was unavailable to KMG, who was required by EPA regulations to clean up the penta.

The Court further noted that prior cases were inapplicable because KMG had already remediated the spill.  The Poffenbarger Court held that diminution of value damages were appropriate because if remediation costs were recoverable, similar plaintiffs would “have little or no incentive to spend those moneys to repair land that, even upon full remediation, will be worth only a small fraction of the money so expended.” Id. at 801-02.  The Northern District Court held that no such windfall was possible in the case at hand.

Finally, the Northern District of Alabama noted that Wisconsin has similar case law to Alabama’s, and it carved out an exception that provides for an award of remediation costs where “the plaintiff has been ordered by the government to make the repair (or, in a pollution case, to eliminate the pollution), so that it has no choice between incurring the cost of repair and accepting the diminished value of its property, it has a right to sue for that cost.” Wisconsin Power & Light Co. v. Century Indem. Co., 130 F.3d 787, 793 (7th Cir. 1997). 

This case seriously increases exposure for chemical spills in Alabama.  The Northern District Court of Alabama’s holding that remediation costs may be recovered where there is a legal requirement that plaintiff remediate the spill is a good day for land owners.