Tioga Public School District 15 of Williams County, State of North Dakota v. United States Gypsum Company

984 F.2d 915, 1993 WL 15212
Court of Appeals for the Eighth Circuit·Decided March 11, 1993·No. 90-5447·Published·Cited by 68 cases

Opinions

BOWMAN, Circuit Judge.

United States Gypsum Co. (USG) appeals from a final judgment entered in the District Court upon a jury verdict in favor of Tioga Public School District No. 15 (Tioga). For the reasons set forth below, we reverse the judgment of the District Court and remand the case for a new trial.

I.

During the 1950s and 1960s, USG manufactured an acoustical plaster known as Audicote that contained asbestos. Tioga constructed two of the three schools that it currently operates between 1957 and 1961. Tioga specified that plaster be used on the ceilings of the two schools, and the architect in charge of the construction selected Audicote from the various acoustical plasters available. Some of the acoustical plasters available at that time contained asbestos although others did not. Tioga does not appear to have known that the architect selected Audicote, or that Audicote contained asbestos. Tioga paid approximately $1,600.00 for the Audicote.

In the early 1980s, the Environmental Protection Agency (EPA) sent schools notices requiring them to identify asbestos-containing materials in the schools and warning them of the potential risks associated with asbestos. The Audicote ceilings were still in place in the two Tioga schools, although certain portions of the plaster had crumbled and there were a number of spots where contact with the ceilings had gouged the plaster. Following receipt of the EPA notices, Tioga determined that the plaster contained asbestos and that it was friable. A friable material is one that, “when dry, [917] may be crumbled, pulverized, or reduced to powder by hand pressure.” 40 C.F.R. § 763.83 (1992). Friable asbestos-containing materials are of particular concern because asbestos fibers may be released from such materials.

Upon discovering that the ceilings in the two schools contained asbestos and that the plaster was friable, Tioga spent approximately $15,000.00 “encapsulating” the Au-dicote. Essentially, this involved painting the ceilings with latex paint to prevent the release of asbestos fibers from the plaster. Tioga introduced evidence at trial that it encapsulated the Audicote as an interim measure, since it lacks the funds to pay for removal of the asbestos.

Removal of asbestos-containing materials is extremely costly because of the complicated procedures that must be followed to avoid contamination of the building from which the materials are being removed and to prevent the removal workers from being exposed to asbestos fibers. USG’s evidence at trial tended to show that the cost of removal would be in the neighborhood of $400,000.00, while Tioga’s evidence suggested a cost of approximately $1,100,-000.00. Although current regulations do not require immediate removal of asbestos-containing materials in schools, they do require that such materials be removed when a building is renovated or demolished. 40 C.F.R. § 61.145 (1992).

Encapsulation of the Audicote ceilings has not completely contained the asbestos. Tioga introduced evidence that tended to show that the Audicote remained friable, that contact with encapsulated ceilings can result in the release of asbestos fibers, and that in some instances fissures had developed in the latex paint and in other instances the encapsulant had been punctured to repair leaks or by accident. Tioga also introduced evidence that dust samples collected in the schools a number of years after the encapsulation was completed contained higher than background levels of asbestos and that this asbestos had come from the Audicote ceilings. Finally, although the issue was hotly disputed, Tioga presented evidence that even low level exposure to asbestos presents health risks.

II.

Tioga originally brought this suit in North Dakota state court seeking to recover the cost of removing the Audicote. Tio-ga asserted theories of negligence, strict liability, fraud and misrepresentation, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, breach of express warranty, nuisance, restitution, and indemnity. USG removed the case to the District Court pursuant to 28 U.S.C. § 1441(a) (1988).

USG moved for a directed verdict at the close of plaintiffs case and again at the close of all evidence. The District Court dismissed several of Tioga’s claims, and submitted the case to the jury on five theories: negligence, strict liability, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, and nuisance. The District Court denied USG’s request to submit special verdict forms to the jury. The jury returned a general verdict for Tioga and awarded Tioga compensatory damages in the amount of $756,906.22. After the parties were given an opportunity to introduce additional evidence on the issue of punitive damages, the jury also awarded Tioga punitive damages of $75,000.00.

USG moved for a judgment notwithstanding the verdict or for a new trial. The District Court denied the motion. On appeal, USG argues that the District Court erred in: 1) allowing Tioga to recover in tort for economic loss; 2) submitting to the jury Tioga’s nuisance claim; 3) improperly charging the jury with respect to Tioga’s implied warranty claims; 4) refusing to charge the jury regarding USG’s state-of-the-art defense and excluding evidence relevant to that defense; and 5) improperly charging the jury regarding punitive damages.1 As a federal court sitting in diversi[918] ty, this Court applies state substantive law, American Home Assurance Co. v. Major Tool & Mach., Inc., 767 F.2d 446, 447 (8th Cir.1985), in this case, the law of North Dakota. This Court reviews de novo the trial court’s determinations of North Dakota law. Salve Regina College v. Russell, — U.S. -, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991).

III.

USG first argues that the economic loss doctrine bars Tioga from recovering the damages it seeks in tort. The economic loss doctrine was adopted by the North Dakota Supreme Court in Hagert v. Hatton Commodities, Inc., 350 N.W.2d 591 (N.D.1984). The scope of the doctrine, and the logic underlying it are set out in the landmark case of Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965), which was cited approvingly in Hagert, and in cases such as East River Steamship Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986) (holding that the economic loss doctrine applies in admiralty cases), and Miller v. United States Steel Corp., 902 F.2d 573 (7th Cir.1990).

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Tioga Public School District 15 of Williams County, State of North Dakota v. United States Gypsum Company, 984 F.2d 915, 1993 WL 15212 (8th Cir. 1993).

984 F.2d 915 (Tioga Public School District 15 of Williams County, State of North Dakota v. United States Gypsum Company) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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