COUNSEL:

John C. Teal, Jr., for Plaintiffs and Appellants.

Smith, Brennan & Dickerson, Donald D. Dickerson and Sterling A. Brennan for Defendants and Respondents.

JOHNSON, J.

This appeal presents the question whether an owner of property contaminated by chemical pollutants can recover post-remediation "stigma" damages on a continuing nuisance theory of liability. California law provides diminution in value damages and damages for future harm may be recoverable in a situation where the nuisance is deemed to be permanent. However, prevailing law holds damages for prospective harm are unavailable where the nuisance is deemed to be continuing and abatable.

Appellants urge this court to "overrule" existing law, claiming it fails to take into account the economic and practical realities associated with properties which have a history of contamination despite successful remediation. To date our Supreme Court has only permitted recovery for diminution of value in cases of permanent nuisance where damage to the property is assessed once for all past, present and future damage. As an intermediate appellate court, we are bound to follow the decisions of our highest court. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455 [20 Cal.Rptr. 321, 369 P.2d 937].) Accordingly, we affirm the judgment denying appellants recovery for diminution in value on a theory of continuing nuisance.

In late 1987, respondents, ARCO Products Company and Atlantic Oil Company (ARCO), arranged to remove underground storage tanks at its service station located at 13460 Firestone Boulevard in Santa Fe Springs. On December 1, 1987, a preliminary soils investigation revealed the tanks had leaked gasoline into the soil and groundwater. On December 7, 1987, ARCO removed the underground storage tanks.

Sometime prior to February 1988, ARCO reported the unauthorized release to the County of Los Angeles Department of Public Works. On February 2, 1988, the department of public works notified ARCO it was referring the matter to the state Regional Water Quality Control Board. These reports became a matter of public record.

Upon discovery of the unauthorized release ARCO engaged environmental consultants to monitor and remediate the soil and groundwater contamination. These remediation efforts are continuing under the jurisdiction of the state Regional Water Quality Control Board.

In 1987 Falcon Pacific Development, Inc. (Falcon Pacific) began negotiations to purchase undeveloped property adjoining ARCO's property from Southern Pacific Transportation Company (Southern Pacific). On September 28, 1987, Falcon Pacific submitted a written proposal to Southern Pacific to purchase the property. Pursuant to the proposal, Falcon Pacific or its nominee, was to conduct and approve "customary engineering and soils tests prior to the close of escrow."

A subsequent contract to purchase the land was accepted by Southern Pacific on April 12, 1988. Conditions precedent to performance of the contract included Falcon Pacific's approval of the soils condition, engineering and/or feasibility studies. Falcon Pacific agreed to purchase the property "as is" and further agreed to "perform and rely solely upon its own independent investigation concerning the physical condition and possible contamination of the property." [FN 1]

[FN 1] Paragraph 7 of the purchase contract is entitled "Conditions Precedent to Final Performance Of This Agreement" and provides in pertinent part:

"7.1 ... [P] B. Buyer's approval of the soils condition, engineering and/or feasibility studies, and any requirements or regulations of the Department of Building and Safety, Health Department or any other city, county, state or federal authority which are pertinent to Buyer's intended use of the Property, which approval shall be given [by Buyer] as provided in paragraph 7.2.

"7.2 Buyer shall deliver to Seller and Escrow Holder Buyer's written approval or disapproval of the matters referred to in ... paragraph 7.1(B) within forty-five (45) days from Seller's acceptance of this offer. In the event such written approval or disapproval is not received by Seller and Escrow Holder on or before the due date, it shall be conclusively presumed that Buyer has unconditionally approved each of said matters."

Paragraphs 9.1, 9.2 and 9.3 of the purchase contract pertain to the physical condition of the land.

"9.1 Buyer acknowledges that it offers and desires to purchase the Property 'as is' and without representation or warranty from Seller with respect to the condition of the Property including, but not limited to, the condition of the soil, presence of hazardous materials or contaminants, and other physical characteristics. Buyer shall perform and rely solely upon its own independent investigation concerning the physical condition of the Property.

"9.2 Seller has not and does not hereby make any representation or warranty to Buyer concerning the Property or its compliance with any statutes, ordinance or regulation. Buyer shall perform and rely solely upon its own independent investigation concerning the Property's compliance with any applicable law.

"9.3 Buyer represents that its intended use of the Property is for the construction and operation of a motel facility. Buyer shall perform and rely solely upon its own investigation concerning Buyer's intended use of the Property, the Property's fitness therefore, and the availability of such intended use under applicable statutes, ordinances and regulations."

According to the joint venture agreement, Partners Johansen were to pay the deposit owing to Southern Pacific, provide capital for start-up costs such as soils testing, and pay the remaining $995,000 purchase price for the property. Arnold of Falcon Pacific would design, acquire necessary permits and licenses for, supervise construction of, and market the completed motel project. The parties notified escrow that ownership should vest in Santa Fe Partnership and instructions were modified to reflect Partners Johansen's 67 percent interest and Falcon Pacific's 33 percent interest in the property.

Jim Arnold of Falcon Pacific retained AAKO Geotechnical Engineering Consultants (AAKO) to conduct soils tests on the property. On August 2, 1988, AAKO bored six holes on the property. AAKO's drilling technician recorded certain information in a "boring log" for each hole bored. The technician noted a "petroleum odor" at approximately 15 feet on one bore hole, a "strong petroleum odor" at the same depth at another bore hole, and a "very strong solvent odor" at approximately 20 and 23 feet deep on a third bore hole.

In analyzing the soil samples at AAKO's laboratory a technician observed the petroleum or solvent in one of the soils samples was so strong it melted the PVC tube in the laboratory.

AAKO subsequently prepared a written report of its findings. The drilling technician's findings of petroleum and solvent odors was attached as an appendix to the report. In the body of the report AAKO noted "[m]oderate to high petroleum or solvent odors were encountered in the western half of the site, with the highest concentration appearing to be in the vicinity of Boring B-3 (a solvent order [sic]). Odors were primarily encountered at depths below 14 feet."

The written report is dated August 31, 1988, the day before escrow was scheduled to close. According to AAKO's principal, it is AAKO's policy to verbally inform a client of any abnormal findings, including petroleum or solvent odors, within days of their discovery.

Thereafter, AAKO prepared a revised version of its August 31, 1988, report entitled "31 August 1988 Revised 4 November 1988" report. The revised report deletes all references to petroleum and solvent odors. AAKO's principal testified AAKO would not revise the report on its own and instructions to do so must have come from the client, Falcon Pacific. On November 4, 1988, Falcon Pacific submitted the revised AAKO report and building plans for the motel to the city of Santa Fe Springs for approval.

In May 1990, Santa Fe Partnership entered into escrow to sell the property to a Mr. Chung-Ching Kuo for $5,250,000. Mr. Kuo learned of the petroleum contamination on the property when his environmental consultants uncovered it in performing soils testing and by consulting public agency records. Mr. Kuo refused to close escrow. Santa Fe Partnership then leased the property to a Mr. Satish Patel who operates the motel.

Santa Fe Partnership and Partners Johansen (appellants) filed suit on July 29, 1992, against ARCO on theories of private nuisance, trespass, negligence, strict liability (ultrahazardous activity) and negligence per se. On June 6, 1994, they filed their third, and the operative, complaint in this action.

On December 24, 1995, ARCO filed a motion for summary judgment or, in the alternative, for a summary adjudication of issues. In its motion ARCO pointed out appellants had either actual or imputed knowledge of contamination on the property as early as the summer of 1988. [FN 2] As a result, ARCO argued each of appellants' causes of action was barred by the three-year statute of limitations for injury to property. (Code Civ. Proc., s 338.) ARCO also argued that, in the event appellants' trespass and nuisance claims were deemed to be continuing rather than permanent, and therefore not barred by the three-year statute of limitations, summary judgment was appropriate nonetheless because appellants had not suffered any costs for abatement of the nuisance nor loss of use damages -- the only damages recoverable for continuing trespass and nuisance claims.

[FN 2] Jim Arnold of Falcon Pacific denied receiving AAKO's initial August 31, 1988, report pointing out probable contamination on the property. Subsequent discovery tended to establish the opposite. Partners Johansen claimed they never saw anything other than the revised November 4, 1988, report, and then only after litigation had begun. They later acknowledged Falcon Pacific's acts, omissions and knowledge were imputed to them as their joint venture partner. (Engineering Service Corp. v. Longridge Inv. Co. (1957) 153 Cal.App.2d 404, 411 [314 P.2d 563]; 9 Witkin, Summary of Cal. Law (9th ed. 1989) Partnership, s. 21, pp. 420-421; see also Wilshire Westwood Associates v. Atlantic Richfield Co. (1993) 20 Cal.App.4th 732, 740 [24 Cal.Rptr.2d 562] [presumptive knowledge is sufficient to commence the running of the statute of limitations].)

ARCO's experts did not know when remediation would be complete. Appellants' expert testified he expected remediation efforts to successfully remove all contamination from the property in due course. Appellants acknowledged they had not suffered any costs of abatement because ARCO had been remediating the contamination on the property at its own expense. In addition, appellants acknowledged they had not suffered, and probably would not suffer, any loss of use of their property because the contamination did not interfere with the motel operations. Thus, appellants concluded the only damage they could allege at trial were postcleanup stigma damages. However, they acknowledged California law did not allow an award of damages for diminution in value on a continuing trespass or continuing nuisance theory.

Rather than proceed to trial, the parties stipulated to entry of judgment in ARCO's favor in order to immediately seek review in this court to request an extension of the law which would entitle them to recover damages for diminution in value on a theory of continuing trespass or nuisance.

In Mangini v. Aerojet-General Corp. (Mangini II) (1996) 12 Cal.4th 1087 [51 Cal.Rptr.2d 272, 912 P.2d 1220] our Supreme Court held the landowners' suit, filed more than three years after their property had been contaminated by toxic wastes, was time-barred based on their failure to present evidence the contamination could be characterized as a continuing nuisance, i.e., proof the contamination was remediable at a reasonable cost. (12 Cal.4th at p. 1090.) The Mangini court limited its decision to the statute of limitations issue and expressly declined the opportunity to reach the related issues "whether a plaintiff-landowner has a power to elect whether to characterize a nuisance as continuing or permanent for statute of limitations purposes and whether the same characterization should apply for both limitations and damages purposes...." (12 Cal.4th at p. 1104, fn. omitted.)

However, past decisions of our Supreme Court have specified the types of damages allowed in nuisance actions depend on whether the nuisance is characterized as permanent or continuing. These decisions have determined the types of remedies available in each action based on principles of fairness, public policy and judicial economy. Perhaps the most articulate expression of these principles is found in Justice Traynor's opinion for the court in Spaulding v. Cameron (1952) 38 Cal.2d 265 [239 P.2d 625]. In Spaulding the plaintiff's property was inundated with mud from loose fill her neighbor had pushed over the side of a slope while leveling his property. The trial court awarded an amount for physical damage to plaintiff's home and a separate amount for diminution in value due to the threat of future inundations. The trial court also ordered the defendant to abate the nuisance. The Supreme Court held the damages awarded were inconsistent and therefore improper.

"In early decisions of this court it was held that it should not be presumed that a nuisance would continue, and damages were not allowed for a decrease in market value caused by the existence of the nuisance but were limited to the actual physical injury suffered before commencement of the action. [Citations.] The remedy for a continuing nuisance was either a suit for injunctive relief or successive actions for damages as new injuries occurred. Situations arose, however, where injunctive relief was not appropriate or where successive actions were undesirable either to the plaintiff or the defendant or both. Accordingly, it was recognized that some types of nuisances should be considered permanent, and in such cases recovery of past and anticipated future damages were allowed in one action. [Citations.]

"The clearest case of a permanent nuisance or trespass is the one where the offending structure or condition is maintained as a necessary part of the operations of a public utility. Since such conditions are ordinarily of indefinite duration and since the utility by making compensation is entitled to continue them, it is appropriate that only one action should be allowed to recover for all the damages inflicted. It would be unfair to the utility to subject it to successive suits and unfair to the injured party if he were not allowed to recover all of his probable damages at once. [Citation.]

"A more difficult problem is presented, however, if the defendant is not privileged to continue the nuisance or trespass but its abatement is impractical or the plaintiff is willing that it continue if he can secure full compensation for both past and anticipated future injuries. To attempt categorically to classify such a nuisance as either permanent or not may lead to serious injustice to one or the other of the parties. Thus, if the plaintiff assumes it is not permanent and sues only for past damages, he may be met with the plea of res judicata in a later action for additional injury if the court then decides the nuisance was permanent in character from its inception. [Citation.] Similarly, if the initial injury is slight and plaintiff delays suit until he has suffered substantial damage and the court then determines that the nuisance was permanent, the defendant may be able to raise the defense that the statute of limitations ran from the time of the initial injury. [Citation.] On the other hand, if the defendant is willing and able to abate the nuisance, it is unfair to award damages on the theory that it will continue. [Citations.]

"Because of these difficulties it has been recognized that in doubtful cases the plaintiff should have an election to treat the nuisance as either permanent or not. [Citations.] If the defendant is not privileged to continue the nuisance and is able to abate it, he cannot complain if the plaintiff elects to bring successive actions as damages accrue until abatement takes place. [Citations.] On the other hand, if it appears improbable as a practical matter that the nuisance can or will be abated, the plaintiff should not be left to the troublesome remedy of successive actions. [Citations.]" (Spaulding v. Cameron, supra, 38 Cal.2d at pp. 267-269, italics added.)

Based on these characterizations of a nuisance as either permanent or continuing, and the types of remedies available to a plaintiff in each of these ontexts, the Supreme Court concluded the trial court erred in both ordering the defendant to abate the nuisance (impliedly finding the nuisance was abatable and therefore of a continuing nature) and in awarding damages for diminution in value (appropriate only in a situation where the nuisance is unabatable as a practical matter and is therefore deemed to be permanent). "The findings and conclusions of the trial court on these conflicting contentions are inconsistent. The court found that plaintiff's property had been permanently damaged because of the continuing threat of future injury. It also found, however, that this threat would continue unless corrective measures were taken, and by ordering that such measures be taken impliedly found that they were feasible. It is clear that plaintiff cannot have both remedies. If defendant obeys the injunction and takes such measures that "'the property of the plaintiff will not be endangered or threatened by the existence of such deposits of loose dirt,'" there will no longer be a threat to depreciate the value of the property. Plaintiff would obtain a double recovery if she could recover for the depreciation in value and also have the cause of that depreciation removed." (Spaulding v. Cameron, supra, 38 Cal.3d at p. 269, italics added.)

The Supreme Court remanded the matter for a determination whether the nature of the nuisance was permanent or continuing and to fashion relief accordingly.

Thus, the decision in Spaulding v. Cameron, supra, 38 Cal.2d 265 stands for the proposition a plaintiff-landowner cannot recover damages for future or prospective harm, including damages for diminution in value, in a case where the nuisance is deemed to be continuing and abatable.

Subsequent decisions of our Supreme Court have held to the distinction of the remedies available depending on whether the nuisance is continuing or permanent. For example, in Baker v. Burbank-Glendale-Pasadena Airport Authority (1985) 39 Cal.3d 862 [218 Cal.Rptr. 293, 705 P.2d 866] the court reiterated the principle that how the nuisance was classified dictated the nature of remedies available to the plaintiff-landowner. "Two distinct classifications have emerged in nuisance law which determine the remedies available to injured parties and the applicable statute of limitations. On the one hand, permanent nuisances are of a type where '"by one act a permanent injury is done, [and] damages are assessed once for all."' (Williams v. Southern Pacific R.R. Co. (1907) 150 Cal. 624, 626 [89 P. 599].) ... In such cases, plaintiffs ordinarily are required to bring one action for all past, present and future damage within three years after the permanent nuisance is erected....

"On the other hand, if a nuisance is a use which may be discontinued at any time, it is considered continuing in character and persons harmed by it may bring successive actions for damages until the nuisance is abated. (Phillips v. City of Pasadena (1945) 27 Cal.2d 104, 107-108 [162 P.2d 625].) Recovery is limited, however, to actual injury suffered prior to commencement of each action. Prospective damages are unavailable." (Baker v. Burbank-Glendale-Pasadena Airport Authority, supra, 39 Cal.3d 862, 868-869, italics added; see also Kornoff v. Kingsburg Cotton Oil Co. (1955) 45 Cal.2d 265, 268-269 [288 P.2d 507]; City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 464 [115 Cal.Rptr. 797, 525 P.2d 701, 76 A.L.R.3d 1223].)

Decisions of the Courts of Appeal have necessarily followed these distinctions. In Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d 1125 [281 Cal.Rptr. 827] (Mangini I) plaintiffs brought suit for damage to their property caused by the dumping of toxic waste on adjoining land. The trial court sustained the defendant's demurrer without leave to amend. The Court of Appeal reversed the judgment of dismissal finding, among other things, the plaintiffs could amend their complaint to plead facts showing a continuing nuisance and trespass.