Allens Manufacturing v. NAPCO, Inc.

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS

                                FOR THE FIRST CIRCUIT

                                 ____________________

No. 92-2276

                         ALLENS MANUFACTURING COMPANY, INC.,

                                Plaintiff, Appellant,

                                          v.

                                     NAPCO, INC.,

                                 Defendant, Appellee.

____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF RHODE ISLAND

[Hon. Raymond J. Pettine, Senior U.S. District Judge]
                                          __________________________

                                 ____________________

                                        Before

                                 Breyer, Chief Judge,
                                         ___________
                           Friedman,* Senior Circuit Judge,
                                      ____________________
                              and Stahl, Circuit Judge.
                                         _____________

                                 ____________________

            Michael  J. McGovern with  whom Indeglia  & McGovern  was on brief
            ____________________            ____________________
        for appellant.
            Mark A.  Pogue with whom  Deming E. Sherman  and Edwards &  Angell
            ______________            _________________      _________________
        were on brief for appellee.

____________________

                                   August 25, 1993
                                 ____________________

        _____________________
        *Of the Federal Circuit, sitting by designation.

BREYER,  Chief  Judge.   Allens  Manufacturing Co.
                                ____________

             brought this  diversity action against Napco, Inc., claiming

             that  Napco failed  to  provide it  with  proper "clean  up"

             equipment,  as promised, and on time.  Allens adds that this

             failure is responsible for a  significant part of a $210,000

             fine  that  Allens  has  agreed  to  pay  the  Environmental

             Protection  Agency  ("EPA").    After  listening  to Allens'

             proposed evidence about damages -- evidence designed to show

             for  what portion of the  fine Napco was  responsible -- the
                  ____________

             district  court   ruled  that   Allens'  evidence   was  not

             sufficient to pinpoint Napco-caused damages with "reasonable

             certainty."    It then  granted  Napco's  motion to  exclude

             evidence of the fine, at which point the parties agreed that

             the court should dismiss the complaint for failure to allege

             the  jurisdictionally-necessary $50,000  harm.  28  U.S.C.  

             1332(a). Allens,  having reserved the right  to appeal, does

             so.   It asks us to review  the court's evidentiary ruling. 

             We find the ruling lawful, and affirm the court's judgment.

                                          I

                                      Background
                                      __________

                       Our review  of the rather skimpy  record before us

             on appeal  suggests the  following: Allens makes  metal belt

             buckles, shoe  buckles, and  other items, through  processes

-2-
                                          2

that   generate  waste  water  containing  pollutants.    In

             February  1985  Allens  ordered  from Napco  a  waste  water

             treatment system that Napco installed during 1985, and which

             began to operate  in early 1986.    In the meantime,  Allens

             apparently   violated   federal   environmental  rules   and

             regulations,  some  governing  waste  water  discharges  and

             others setting forth reporting requirements.

                       The record suggests that by 1989, EPA had compiled

             a list  of one hundred or more separate violations committed

             by Allens, which  took place  in more  than fifty  different

             months,  between   September  1981  and  June   1989.    EPA

             apparently contemplated possible  fines for these violations

             amounting to  $384,000.  Allens' counsel then  wrote to EPA,

             pointing  out that Allens had "acted in good faith," was not

             "recalcitrant," and  had "cooperated with .  . . authorities

             to  achieve compliance  as expeditiously  as possible."   He

             suggested a "penalty . . . in the $50,000 to $65,000 range."

             EPA  offered to settle with  Allens for a  fine of $125,000,

             but Allens refused.  

                       EPA then referred the  matter to the Department of

             Justice  ("DOJ").   DOJ insisted  on considerably  more than

             $125,000.  Allens and DOJ ultimately entered into a  consent

-3-
                                          3

decree, in  which, as we have  said, Allens agreed to  pay a

             fine of $210,000.

                       Subsequently, Allens filed this  lawsuit, claiming

             that  Napco failed  to live  up to  its promises  to install

             clean-up equipment, and  seeking reimbursement for the  fine

             (and related costs) insofar as the fine reflects "discharge"

             violations taking place after September 1985 (by which time,

             according to Allens, Napco  should have had proper equipment

             operating). 

                       Before  the case  went  to trial,  Napco told  the

             court that  Allens could not show  with reasonable certainty

             how much of the fine resulted from Napco's claimed failings.

              Without some such showing,  Napco argued, the $210,000 fine

             figure was  misleading and prejudicial.   And, it  asked the

             court to keep  evidence of that figure from the  jury.   The

             court  itself  then heard  Allens'  evidence  on the  matter

             (consisting of several EPA documents and the testimony of an

             expert).   It agreed with Napco that this evidence failed to

             prove damages with  "reasonable certainty,"  and it  granted

             Napco's evidentiary motion.  Then, the parties having agreed

             that, given  the evidentiary ruling, Allens  could not prove

             significant  harm,   the court  dismissed the  complaint for

             failure to  set forth  a "matter in  controversy exceed[ing]

-4-
                                          4

the sum or  value of $50,000."   28 U.S.C.    1332(a).   See
                                                                      ___

             Gibbs  v. Buck,  307 U.S.  66,  72 (1939)  (plaintiff's good
             _____     ____

             faith allegation that the  matter in controversy exceeds the

             jurisdictional  amount  requirement  suffices  to  meet  the

             amount  in  controversy test,  unless challenged);  Dept. of
                                            _________________    ________

             Recreation & Sports v.  World Boxing Ass'n, 942 F.2d  84, 88
             ___________________     __________________

             (1st  Cir.  1991) (citing  Gibbs,  307  U.S.  at  72)  (once
                                        _____

             jurisdictional amount  is  challenged, plaintiff  must  show

             facts  sufficient to show that it is not a "legal certainty"

             that  the  claim  involves   less  than  the  jurisdictional
                                          ____

             amount).   See  also 14A  Wright,  Miller &  Cooper  Federal
                        _________                                 _______

             Practice and Procedure    3702 at 26-28  (favoring policy of
             ______________________

             according trial judges  broad discretion as  to the mode  of

             determining jurisdictional fact issues). 

                       Allens appeals.    Allens  argues  only  that  its

             proposed evidence  is sufficient  to prove damages  with the

             requisite degree of certainty.  We have examined that single

             claim.  We conclude  that the district court's determination

             of  that  evidentiary matter  is legally  correct.   And, as

             neither  party raises  any  other objection,  we affirm  the

             complaint's dismissal.

-5-
                                          5

II

                                     The Evidence
                                     ____________

                       Allens,  in  its effort  to  show  that Napco  was

             responsible for some reasonably  identifiable portion of the

             $210,000 fine, presented two EPA documents and the testimony

             of  one expert.  The first  document quantifies the economic

             "benefit" that Allens obtained as a result of its failure to

             follow  EPA rules and  standards.  The  second EPA document,

             called a "gravity calculation,"  lists individually each  of

             56 months,  refers to Allens' violations  during that month,

             and sets forth a possible fine for each month, the amount of

             which  varies  with the  number  of  violations during  that

             month, their duration, their significance, and the harm they

             may have caused.   The "benefit" amounted  to about $94,000.

             The "gravity  calculation" totalled $290,000.   Their sum is

             approximately $384,000.  

                       The expert, a former EPA lawyer, interpreted these

             documents  in light  of EPA's  "Policy on  Civil Penalties,"

             reprinted  in 17  ELR 35,083  (Feb. 16,  1984), and  his own
             _____________

             experience  at EPA.   He apparently conceded  that the first

             document  (showing a  "benefit"  to Allens  of $94,000)  had

             little to do with Napco-related violations.  He analyzed the

             second  document --  the "gravity  calculation" --  month by

-6-
                                          6

month.  He added together all penalties for any month (after

             September 1985)  that referred only to discharge violations.

             He allocated  penalties in  any (post-September  1985) month

             that  showed  both "discharge"  and  "reporting" violations,

             between those two categories.   He then added up  the total.

             He  found  that,  of  the  "gravity calculation"'s  $290,000

             total,    approximately   $190,000    reflected   "discharge

             violations"  occurring after  September 1985.   He concluded

             that Napco-related violations amounted to $190,000, or about

             half, of the two documents' $394,000 total.  

                       The expert recognized that  the final fine was not

             $394,000; rather, it  was $210,000.  He  said, however, that

             since Napco-related violations accounted for about  half the

             two documents' $394,000, they  likely accounted for half the

             final  $210,000  fine.    That  is  because,  in  his  view,

             adjustments to  the $394,000 figure likely reflected similar

             treatment  of  both   Napco-related  and   non-Napco-related

             violations.     That is  to  say (in  the words  of  Allens'

             brief),  "a reduction  of the  original fine  calculation no

             more altered the ratio  of discharge to reporting violations

             than  removing a  slice of  mince meat  pie would  alter the

             ratio of apples to raisins in the remaining pie."

-7-
                                          7

III

                            The Problem with the Evidence
                            _____________________________

                       The basic  problem with this evidence  lies in the

             fact  that  the  EPA  did  not  fine  Allens  a hypothetical

             $394,000.  Rather,  it proposed  a fine of  $125,000.   Then

             DOJ,  after consulting with EPA, ended up imposing a fine of

             $210,000.   The record  does not explain how  the EPA or DOJ

             arrived at these latter, actual, fine amounts.   Indeed, the

             record  offers no more support  for the pro  rata (or "mince
                                                     _________

             meat  pie")  theory  than   it  offers  for  other,  equally

             plausible  (and  equally  speculative)  theories  that would

             produce dramatically different results. 

                       We concede  that, in  the absence of  any evidence

             about  what actually  happened,  one might  believe, as  the

             expert suggested,  that the  proposed  $125,000 fine  simply

             reflected  the fact  that  EPA's  independent  authority  to

             negotiate a  settlement  has a  $125,000 ceiling,  40 CFR   

             122.41(a)(3), and that EPA  reduced all the elements of  the

             $394,000  calculation  pro  rata  in  order  to  reach  this
                                    _________

             ceiling.  On the other  hand, it is at least as  likely that

             EPA,  in reaching  the  $125,000 figure,  attached different

             degrees   of  significance  to  different  elements  of  the

             $394,000  calculation.   EPA's  Policy  on  Civil  Penalties

-8-
                                          8

states that EPA will adjust initially calculated ("benefits"

             plus  "gravity") fine amounts,  in light of  such factors as

             (1) the violator's history  of cooperation or recalcitrance,

             as  "indicated through  pre-settlement action,"  (2) whether

             actions  were negligent  or wilful,  and (3)  the violator's

             ability  to pay. See 17 ELR 35,083.   And here, Allens could
                              ___

             make (and Allens'  counsel did make) strong arguments to EPA

             that  Allens' discharge violations were unintended and minor
                           _________

             (not   "exceed[ing]   the   effluent  limitations   by   any

             significant degree").   If EPA accepted  these arguments, it

             might  have proved  more  willing to  forgive the  discharge

             violations than the  reporting violations  for which  Allens

             offered  no excuse.   Or, even  if it  did not  accept these

             arguments, EPA  might have placed more  weight on forfeiting

             "benefits" than on a calculation of "gravity."

                       Similarly, EPA  and DOJ might have  arrived at the

             final  $210,000 figure  by  increasing pro  rata a  $125,000
                                                    _________

             figure  (or reducing pro rata the initial $384,000).  But it
                                  ________

             is just as plausible, if not more plausible, to believe that

             they  arrived at  that figure  in light  of Allens'  lack of

             cooperation,  or   "recalcitrance"  as  revealed   in  "pre-

             settlement  action,"  and  potentially increased  litigation

             costs for the government.   And, these factors may  have had

-9-
                                          9

nothing  to  do with  discharge  violations after  September

             1985.  

                       The upshot  is that we  do not know  what actually

             led  EPA  and  DOJ  to  end  up with  a  fine  of  $210,000.

             Moreover,  this  uncertainty reflects,  not closely-balanced

             evidence, but a lack of evidence, for the record contains no
                             ____

             evidence about what actually happened, nor does it set forth

             evidence of any agency rule, pattern, or practice indicating

             that pro rata reduction or increase is the norm.  The result
                  ________

             is  that we  can only  speculate about  the extent  to which

             EPA's "mitigating" or "aggravating" factors may have applied

             in  respect  to  each  of   the  many  (1981  through  1989)

             violations that  initially called for a fine,  and about the

             extent  to which  those factors  may have  played a  role in

             determining the ultimate fine  level.  More importantly, the

             expert  could do  no  more than  speculate,  for he  had  no

             personal  knowledge about  how EPA  calculated the  ultimate

             fine,  nor did he have any special reason for believing that

             these factors  applied pro rata to  every element identified
                                    ________

             in the  "benefit" and "gravity" calculations.   Finally, the

             experienced trial  judge decided  that the jury,  too, would

             have  to  speculate  in  order  to  determine  the  level of

             damages.  And,  for the  reasons stated, we  agree with  his

-10-
                                          10

conclusion   --  that  the  plaintiff's  evidence  does  not

             identify those  damages with the "reasonable certainty" that

             the law  requires. See National  Chain Co. v.  Campbell, 487
                                ___ ___________________     ________

             A.2d  132, 134-5  (R.I. 1985)  (damages must  be established

             "with reasonable degree of certainty"  and plaintiff "cannot

             rely  upon  speculation" in  order  to  prove his  damages);

             Restatement (Second) of Contracts   352 (1981) ("Damages are
             _________________________________

             not recoverable for loss beyond an amount  that the evidence

             permits to be established with reasonable certainty").

                       Allens raises one final  point.  It says  that the

             district court should not  have insisted that it demonstrate

             damages to  a "reasonable  certainty," for  in doing  so, it

             permits Napco to benefit  from uncertainty caused by Napco's

             own  conduct.   See  Eastman  Kodak  Co. v.  Southern  Photo
                             ___  ___________________     _______________

             Materials  Co., 273  U.S.  359, 379  (1927) ("[A]  defendant
             ______________

             whose   wrongful  conduct   has   rendered   difficult   the

             ascertainment  of  the  precise   damages  suffered  by  the

             plaintiff, is not entitled  to complain that they cannot  be

             measured  with the  same  exactness and  precision as  would

             otherwise be  possible"); U.C.  Castings Co. v.  Knight, 754
                                       __________________     ______

             F.2d  1363,  1374  (7th  Cir.  1985)  (same).    The  short,

             conclusive answer to this claim is that Napco's conduct  did

             not create, nor can  one expect Napco to have  foreseen, the

-11-
                                          11

present problem.  Rather,  Allens has found it  difficult to

             prove damages because  EPA will not permit its  officials to

             testify, 40  C.F.R.    2.403,  2.404(a), and Allens  did not

             insist  that EPA  publicly  explain (perhaps  in the  decree

             itself)  the basis for calculating  the fine.   Napco is not

             responsible.

                       In  sum, the  district  court properly  found that

             Allens'   proposed   evidence   about   damages   failed  to

             demonstrate  damages to  a reasonable  degree  of certainty.

             That being so, the court could  properly exclude evidence of

             the  $210,000 fine  (presumably  on  grounds of  "prejudice"

             overcoming "relevance,"  see Fed.  R. Evid.  403).   And the
                                      ___

             parties, in  effect, agree  that, without the  evidence, the

             district  court  could  dismiss  the  complaint  for failure

             properly  to meet  the  $50,000 jurisdictional  requirement.

             For these reasons, the judgment of the district court is

                       Affirmed.
                       ________

-12-
                                          12