Jaasma v. Shell Oil Co

Opinions of the United

2005 Decisions States Court of Appeals

for the Third Circuit

6-28-2005

Jaasma v. Shell Oil Co

Precedential or Non-Precedential: Precedential

Docket No. 04-2095

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 04-2095

ALICE JAASMA; TRUST UNDER LAST WILL AND

TESTAMENT OF RALPH MCEWAN

Appellants

v.

SHELL OIL COMPANY, a Delaware Corporation;

MOTIVA ENTERPRISES, LLC.

On Appeal from the United States District Court

for the District of New Jersey

(D.C. No. 02-CV-4677)

District Judge: Honorable Williams H. Walls

Argued April 18, 2005

Before: ROTH, FUENTES, and BECKER, Circuit Judges.

(Filed June 28, 2005)

WILLIAM T. SMITH (argued)

ANNE P. WARD

Hook, Smith & Meyer

851 Franklin Lake Road

P.O. Box 128

Franklin Lake, NJ 07417

Attorneys for Appellants

JEFFREY W. MORYAN (argued)

AGNES ANTONIAN

Connell Foley LLP

85 Livingston Avenue

Roseland, NJ 07068

Attorneys for Appellees

OPINION OF THE COURT

BECKER, Circuit Judge.

This is an appeal by plaintiffs Alice Jaasma and the Trust of

Ralph McEwan (hereinafter “Jaasma”) from an order of the

District Court granting judgment as a matter of law against Jaasma

pursuant to Fed. R. Civ. P. 50(a), because Jaasma had not

established that the defendants, Shell Oil Company (Shell) and its

assignee, Motiva Enterprises, LLC (Motiva) had breached their

obligations under a lease agreement to operate a gasoline station or

that she had suffered cognizable damages as a result.

Motiva ceased operating the gasoline station on Jaasma’s

property, and terminated the lease on October 31, 2001. However,

when Motiva removed the gasoline station’s underground storage

tanks one week before the termination of the lease, fuel residue

was discovered on the adjacent soil, which led to a two-and-a-half

year investigation by the New Jersey Department of Environmental

Protection (NJDEP). It was not until February 18, 2004, that

NJDEP issued a final No Further Action (NFA) letter concluding

the investigation. While soil samples taken between October 31,

2001, and February 18, 2004, indicated that the levels of

hazardous compounds were in fact below regulatory standards, it

took over two years of sampling to prove the safety of the property

to the satisfaction of NJDEP.

Jaasma’s suit, which alleged that Shell and Motiva breached

the lease, sought damages for loss of use during the pendency of

the NJDEP investigation. The appeal presents two principal

questions. First, is there is a legally sufficient basis for a jury to

find that Shell/Motiva breached the lease agreement? We

conclude that there is. Second, does New Jersey law recognize

loss of use as a measure of damages for temporary harm to

2

property interests as a result of the uncertainty surrounding a

property’s environmental status which impairs its marketability?

The District Court found that New Jersey law limits the measures

of damages to only permanent diminution in value and cost of

repair or cost of remediation, and therefore does not recognize

damages for such temporary harm. We conclude, however, that

the loss of use described is a cognizable measure of damages under

New Jersey law, and that judgment as a matter of law was

therefore inappropriate because there is sufficient evidence of lost

use for the case to proceed.

Defendants urge that even if loss of use is cognizable,

Jaasma was unreasonable in her mitigation efforts by failing to

immediately market the property. However, because the

reasonableness of mitigation efforts is generally a question of fact,

and because the evidence is sufficient for a jury to find that Jaasma

was reasonable in her efforts to market the property, we decline to

dispose of this case as a matter of law on the grounds of lack of

mitigation.

Finally, we agree with Jaasma that the District Court abused

its discretion by excluding the expert testimony of Gary J. DiPippo

because the Court’s decision was based on a misunderstanding of

the purpose of DiPippo’s testimony. DiPippo’s testimony was

relevant to the measure of damages and to the reasonableness of

Jaasma’s mitigation efforts, and thus the exclusion of his testimony

was not harmless error. Therefore, we will reverse the District

Court’s grant of judgment as a matter of law and the order

excluding DiPippo’s testimony.

Our review of the District Court’s grant of judgment as a

matter of law is plenary. Mosley v. Wilson, 102 F.3d 85, 89 (3d

Cir. 1996). Judgment as a matter of law is warranted only if “there

is no legally sufficient evidentiary basis for a reasonable jury to

find” in favor of Jaasma. Fed. R. Civ. P. 50(a)(1). “The question

is not whether there is literally no evidence supporting the party

against whom the motion is directed but whether there is evidence

upon which the jury could properly find a verdict for that party.”

Charles Alan Wright & Arthur R. Miller, Federal Practice and

Procedure §2524 (1971), quoted in Patzig v. O’Neil, 577 F.2d 841,

3

846 (3d Cir. 1978).1

I. FACTUAL AND PROCEDURAL BACKGROUND

Jaasma owns a 1.3-acre parcel in West Paterson, New

Jersey, which she leased to Shell in 1988. Shell or its franchisees

had been operating a gasoline station at this site since 1961, and

continued to do so after entering into the lease agreement. On

October 31, 1996, Shell exercised an option to extend the lease for

an additional five years, and two years later, Shell assigned the

remainder of the lease to Motiva. In a July 31, 2001, letter, Motiva

stated its intention to leave the property at the end of the lease,

which was scheduled to terminate on October 31, 2001.

Jaasma claims, however, that Motiva and Shell failed to

return the property to its “original state” as required by the lease

terms. Paragraph 20A of the Addendum to the Lease states in

pertinent part:

It is also agreed that all gasoline, waste oil and fuel oil

tanks shall be removed from the Premises at the

expiration of the Lease by Shell and the Premises

restored to its original state.

Shell shall comply with all applicable environmental

laws and shall hold the Lessor harmless and shall

indemnify the Lessor against all claims whatsoever

arising out of any violation of said laws or any

contamination of the subject property by hazardous

substances attributable to Shell.

Additionally, Paragraph 20 of the lease states, “At any

termination of this Lease or any tenancy thereafter, Shell shall

surrender the Premises to Lessor, subject to ordinary wear and tear

. . . .”

Jaasma alleges that the property was contaminated by the

1

The District Court exercised diversity of citizenship

jurisdiction pursuant to 28 U.S.C. § 1332. We have jurisdiction

over Jaasma’s appeal pursuant to 28 U.S.C. § 1291.

4

gas station’s operations during the lease. The environmental

problems on the property first began in November 1989, when,

during the removal of a 25-year-old waste-oil tank, contaminants

were noticed in the adjacent soil. The leak was reported

immediately to NJDEP. Between 1990 and 1997, NJDEP required

Shell and Motiva to remediate the property and to conduct nearly

seven years of sampling of the soil and groundwater to monitor

contaminant levels. On January 7, 1997, NJDEP issued a

conditional NFA, which stated, “Shell has complied with the

existing requirements regarding the remedial investigation and

remedial action for the underground storage tank system,” but

found that levels of contamination remained above the state’s

Ground Water Quality Standards. As a result, NJDEP required

Shell/Motiva to conduct further sampling to ensure that the soil and

groundwater control complied with NJDEP regulations and

restricted the “use of groundwater as a potable water supply

. . . without the proper precautions.”

On October 24 and 25, 2001, one week before the end of the

lease, Shell/Motiva removed the underground storage tanks, and

petroleum discharges were again found in the soil adjacent to the

tanks. On January 31, 2002, three months after the lease

terminated, Motiva prepared an Underground Storage Tank

Closure Remedial Investigation Report, which stated that, while

some discharge was apparent, the tanks were structurally intact,

they had no holes or cracks, and post-excavation soil samples did

not identify any above-level concentrations of regulated

compounds. The Remedial Investigation Report also stated that

nearly 6,500 tons of soil were removed from the property as part of

excavation activities and replaced with clean fill.2

Three months later, on April 5, 2002, NJDEP acknowledged

2

Defendants contend that all environmental remediation

efforts were completed by October 31, 2001. Brief for Appellee at

6. However, the Remedial Investigation Report states that the three

underground storage tanks were not removed until November 23,

2001, and does not specify when the excavation activities took

place. It is therefore unclear from the Remedial Investigation

Report when the tank removal and soil excavation were actually

completed.

5

the receipt of Motiva’s Remedial Investigation Report. The NJDEP

response did not, however, give the property a clean bill of health,

but rather identified certain deficiencies that Motiva still needed to

address. In particular, NJDEP stated that the soil samples had not

been properly prepared and that Motiva needed to resample in

accordance with NJDEP requirements and to install new

monitoring wells.

Motiva claims that it was delayed in completing this testing

because, in June 2003, NJDEP requested that Motiva conduct

further groundwater sampling pursuant to the 2003 amendments to

state environmental regulations. On September 29, 2003, Motiva

submitted the supplemental information requested in NJDEP’s

April 5, 2002, letter. This report confirmed that the contaminants

in the soil and water continued to be below regulated levels.

NJDEP issued a final NFA on February 18, 2004, which reported

that the groundwater and soil met the applicable environmental

standards under N.J.A.C. 7:26E-1.8, and thus, concluded its

oversight of the property.

Defendants maintain that soil and water samples have

consistently demonstrated that the property was in fact

environmentally safe during the period of NJDEP oversight

following the termination of the lease. They contend that, between

October 31, 2001, and February 18, 2004, NJDEP only requested

“additional confirmatory samples,” but no further remediation

measures were taken or required. Moreover, Defendants have

provided records chronicling each sample taken from October 24,

2001 (i.e. before the lease terminated) until July 3, 2003, reflecting

that the soil and groundwater contaminants were below regulated

levels.

Jaasma does not dispute that contaminant levels in the soil

and groundwater were, with 20/20 hindsight, compliant with

environmental standards during the period between October 31,

2001, and February 18, 2004. Rather, Jaasma alleges that, due to

the ongoing NJDEP review and the uncertainty surrounding the

environmental status of the property, she was not able to rent or sell

the property at fair market value for the twenty-eight months from

the termination of the lease until NJDEP issued the final NFA.

Thus the problem, according to Jaasma, was not the actual

environmental condition of the property, but her inability to

confirm that the property was in compliance with New Jersey’s

6

environmental regulations and the corresponding lack of an NFA.

Jaasma represents that three different realtors advised that she

would not receive fair market value for the property and could not

warrant the condition of the property to prospective purchasers

without an NFA.

Jaasma alleges that defendants would not communicate

about the status of the property for eight months following the

termination of the lease, notwithstanding three letters sent to them

soliciting information about the removal of the tanks and

compliance with environmental laws. Moreover, Jaasma asserts

that defendants did not transmit the Tank Closure Report until

January 31, 2002, and that she only learned about the ongoing

NJDEP investigation of the property on May 10, 2002. Thus, it is

Jaasma’s position that her use and marketability of the property

was hampered by the lack of an NFA and her inability to ascertain

the true environmental status of the property from defendants.

Jaasma claims that, as a result, she waited to market the

property until May, 2003, when she believed that the issuance of

the NFA was “imminent,” although in reality the NFA was not

issued until nearly a year later. Jaasma acknowledges that she

received several offers to purchase the property in the meantime.

While the offers to buy the property were not consummated for

reasons other than the lack of an NFA, Jaasma points out that each

potential buyer specified that an NFA was a precondition of

closing, or at least conditioned the transaction on proof that the

property was free from contamination.3

Jaasma sued defendants in state court alleging in Count I,

that defendants failed to vacate the property at the termination of

the lease and were holdover tenants; in Count II, that defendants

negligently contaminated the property; and in Count III, that

defendants breached the lease by failing to return the property to its

“original condition.” Defendants timely removed the case to the

District Court for the District of New Jersey and then moved for

summary judgment on all counts. After oral argument, the District

3

At one point, the property was under agreement for $1.5

million—$150,000 above the asking price—but the buyer backed

out (in January 2004) for reasons unrelated to the absence of a

NFA.

7

Court granted summary judgment on the holdover tenancy claim

(Count I) and the negligence claim (Count II).

Just prior to trial on the breach of lease claim (Count III),

the District Court heard oral argument on several motions in limine.

First, the Court granted defendants’ motion to exclude the

testimony of Jaasma’s expert, Gary J. DiPippo, after determining

that his testimony did not meet the requirements of Daubert v.

Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Then,

after reviewing the deposition testimony of Jaasma’s remaining

expert witness, Charles Lanyard, the District Court dismissed the

amended complaint, pursuant to Fed. R. Civ. P. 50(a).4 The Court

concluded that Jaasma could not prove damages, and suggested

that there was no evidence defendants had breached the lease. The

Court stated:

It is undisputed that the market value of the

property has not been [a]ffected. It’s unchallenged. What

is sought by the plaintiffs by way of demonstration is that

in 2003 Mr. Lanyard, who was a real estate salesman

working with the brokerage in commercial real estate,

sought prospective buyers of that property. And he says

they, among other concerns besides the price, was the

4

It was premature for the District Court to have decided this

case under Fed. R. Civ. P. 50(a). The Court may grant judgment

as a matter of law under Rule 50 if the motion is brought “during

a trial by jury” after the non-moving party “has been fully heard on

an issue.” Fed. R. Civ. P. 50(a). The Court’s decision in this case

occurred prior to the commencement of trial and prior to the jury

being sworn, and thus was not determined “during a trial by jury.”

We are also not convinced that Jaasma was given the opportunity

to be “fully heard” on the issue of damages. See Echeverria v.

Chevron USA Inc., 391 F.3d 607, 612 (5th Cir. 2004) (holding that

“it is essential that the nonmoving party be permitted to present all

of its evidence” prior to the entry of judgment as a matter of law

under Rule 50); Francis v. Clark Equip. Co., 993 F.2d 545, 555

(6th Cir. 1993). However, because neither party raises an objection

on procedural grounds in this appeal, we will decide this case on

the merits notwithstanding our concerns about the procedural

posture of the District Court’s determination.

8

property clean or were the[re] environmental conditions

that had to be met. And he spoke generally of the need

for [an] NFA . . . .

I am constrained, reluctantly but I am constrained

to say that’s insufficient legally in this circumstance. And

the defendant is right in its recitation of the law. The

measure of damages would be a diminution of . . . the

market value of the property occasioned by whatever

might be attributable to the unreasonable actions of the

defendant . . . or the cost [of] remediation or the cost of

repair[.] [W]e don’t have . . . any assertion that the market

value has been diminished.

We don’t have any assertion as to any cost of

remediation visited upon the plaintiff and we don’t have

any assertion of what any reasonable fact finder could

conclude would be an unreasonable delay by Shell in

doing what it was supposed to do in regard to enforcing,

by enforcing I mean living up to the two paragraphs that

I spoke of . . . .

Thus, by limiting the measure of damages to diminution in

value or cost of remediation or repair, the District Court implicitly

rejected Jaasma’s argument, presented during the oral argument on

the Rule 50 motion, that New Jersey law recognizes damages due

to temporary impairment of the use or marketability of property

caused by uncertainty over its environmental status.

II. BREACH OF THE LEASE AGREEMENT

We must first address the difficult question whether

defendants breached the lease agreement. While the District Court

relied essentially on the damages issue in granting judgment as a

matter of law, the Court also suggested that defendants may not

have breached their obligations under the lease.5 We conclude,

5

A district court exercising diversity jurisdiction must apply

the substantive law of the state whose law governs the action.

Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1373 n. 15 (3d

Cir. 1996) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78

9

however, that a jury could reasonably find that defendants violated

the lease.

Under New Jersey law, a commercial lease is governed by

traditional contract principles, see Ringwood Assocs. v. Jack’s of

Rte. 23, Inc., 398 A.2d 1315, 1320 (N.J. Super. Ct. App. Div.

1979); Matter of Barclay Indus., Inc., 736 F.2d 75, 78 (3d Cir.

1984), under which “[d]iscerning contractual intent is a question

of fact unless the provisions of a contract are ‘wholly

unambiguous.’” Id. at 78 n.3 (citations omitted). Thus, only where

the terms are unambiguous is judgment as a matter of law

appropriate. St. Paul Fire & Marine Ins. Co. v. Lewis, 935 F.2d

1428, 1431 (3d Cir. 1991). To interpret a contract, courts will

consider the “actual words of the agreement themselves, as well as

any alternative meanings offered by counsel, and extrinsic

evidence offered in support of those alternative meanings,” id.,

reading contract terms in context. See Barco Urban Renewal

Corp. v. Housing Auth. of Atlantic City, 674 F.2d 1001, 1009 (3d

Cir. 1982); Restatement (Second) of Contracts § 202(2) (1981).

Additionally, where the contractual language is ambiguous, we

may look to the conduct of the parties following the execution of

the lease to interpret the ambiguous lease provisions. See

Michaels v. Brookchester, Inc., 140 A.2d 199, 204 (N.J. 1958)

(“Where ambiguity exists, the subsequent conduct of the parties in

the performance of the agreement may serve to reveal their original

understanding.”).

There are two phrases in Paragraph 20A of the Addendum

to the Lease Agreement that could support Jaasma’s claim that

Defendants breached their obligations under the lease: first, the

lease states that Shell “shall comply with all applicable

environmental laws”; and second, the agreement states that the

(1938)). “When the state’s highest court has not addressed the

precise question presented, a federal court must predict how the

state’s highest court would resolve the issue.” Id. But “[a]bsent a

definitive statement of the applicable law by the state’s highest

court, a district court may also consider the decisions of state

intermediate appellate courts in order to facilitate its prediction.”

Paolella v. Browning-Ferris, Inc., 158 F.3d 183, 189 (3d Cir.

1998).

10

property shall be returned “to its original state.”

Under the lease agreement, it was Shell’s responsibility to

comply with all applicable environmental laws. The pertinent

environmental regulations include both substantive and reporting

requirements. Thus, the regulations governing underground

storage tanks not only require physical remediation, but also

contain a series of sampling and reporting requirements in the

wake of a reported discharge of petroleum contaminants. See

N.J.A.C. 7:26E-1.1 et seq. Although there is no explicit obligation

for Shell to obtain an NFA or to provide information to Jaasma

about the environmental condition of the property after the

termination of the lease, we believe that a reasonable factfinder

might determine that compliance with “all applicable

environmental laws” includes the obligation to produce the

evidence and reports necessary for NJDEP to issue an NFA.

Evidence of custom and practice in the trade might also support

such a finding. See VRG Corp. v. GKN Realty Corp., 641 A.2d

519, 523 (N.J. 1994) (looking to, inter alia, custom and usage as

evidence of the parties’ intention).

Second, Defendants had a contractual duty to return the

property to its “original state.” Jaasma argues that this obligation

encompasses not only a duty to leave the property free from

physical contamination, but also a duty to leave the property in

marketable condition. Under this view, even if defendants had

successfully remediated the soil and groundwater prior to the

termination of the lease agreement, after the contamination was

discovered, an NFA was a crucial aspect of returning the property

to the “original state” so that the property could be freely marketed

for sale or lease.

We need not decide, as an abstract proposition, whether an

NFA per se is required; we do however believe that a reasonable

fact finder could determine that the duty to return the property to

its “original state” encompasses the duty to leave the property free

from the kind of impediments that would render it unmarketable.6

Based on the deposition testimony of Charles Lanyard (who served

6

Obviously, the legal conclusions reached in this part of the

opinion are our prediction of what the New Jersey Supreme Court

would likely hold. Orson, Inc., 79 F.3d at 1373 n. 15.

11

as both a fact and expert witness for Jaasma), on Jaasma’s proffer

that three realtors told her that she could not sell the property at

market price without an imminent NFA, and on the evidence that

prospective buyers made an NFA a precondition for sale, we

believe that a factfinder could reasonably find that the property

was not fully marketable prior to the issuance of the NFA.7

Finally, New Jersey courts have given “great weight” to the

parties’ course of conduct in discerning the intent of the parties.

See Joseph Hilton & Assoc., Inc. v. Evans, 492 A.2d 1062, 1070

(N.J. Super. Ct. App. Div. 1985); Savarese v. Corcoran, 709 A.2d

829, 832-33 (N.J. Super. Ct. 1997). Where the contract terms are

ambiguous, New Jersey courts have been willing to infer

contractual duties based on the conduct of the parties. For

example, in Michaels, 140 A.2d at 200, tenants sued their landlord

for failure to repair a cabinet door’s hinge, which gave way,

injuring one of the tenants. The New Jersey Supreme Court found

that the lease “contain[ed] no clearcut promise by the tenant or

landlord with respect to repair of the defect[ive cabinet door] . . . .”

Id. at 204. Nevertheless, the court found that “[w]hen we look to

the actual performance of the parties, we find conduct which

persuasively justifies the conclusion that the parties did intend by

the writing that the landlord make repairs” because the landlord

generally furnished a maintenance crew, had made repairs on prior

occasions in response to tenants’ calls, and “readily agreed to

repair the cabinet door” when asked. Id. at 205-06.

The parties’ course of conduct in this case supports the view

7

At his deposition, Lanyard was asked whether the property

would be unmarketable if the contamination was removed before

the tenant left the site and all that remained was ongoing testing.

Lanyard testified, “Once there is a no further action [letter],

[potential buyers] know—they feel they can proceed without a

problem. But if there is [sic] some other concerns or some

monitoring problems that might occur or future question as to . . .

whether or not they can build on the property, it’s going to come

up; the issue will, in fact, be raised.” Even if the property could be

built upon immediately, Lanyard stated, “somebody would have a

higher comfort level. But I’m sure that . . . they would still look for

the final cleanup, especially on buy situation . . . .”

12

that it was defendants’ obligation under the lease not only to clean

up the property, but also to engage in the sampling and reporting

necessary to obtain an NFA and to restore the property to fully

marketable status. Jaasma has adduced evidence which shows

that, following the first spill in 1989, defendants took full

responsibility for dealing with NJDEP regulatory procedures by

conducting all of the physical remediation, and by taking the

necessary samples, submitting the data, and handling the

regulatory processes in order to obtain a conditional NFA.

Moreover, as in Michaels, during the events which gave rise to this

litigation, defendants have apparently never disputed that they

were responsible for obtaining an NFA and they have in fact done

so. The parties’ course of dealing thus further justifies submitting

the breach element to the jury.

In sum, given the varying interpretations offered by Jaasma

and defendants of the contractual language, see St. Paul Fire &

Marine Ins., 935 F.2d at 1431 (looking to “alternative meanings

offered by counsel” to discern contractual intent), we cannot say

that the lease is “wholly unambiguous” as to defendants’

contractual duties. And we conclude that the language of the lease

and the parties’ course of dealing present a jury question whether

defendants had a duty under the lease to obtain an NFA following

the discharge of contaminants from defendants’ underground

storage tanks and to render the property fully marketable by the

conclusion of the lease term.

III. DAMAGES

A. Loss of Use as a Measure of Damages

As a threshold matter, we must determine whether New

Jersey law recognizes loss of use as a measure of damages for

breach of lease resulting in uncertainty impairing the marketability

of real property. Jaasma contends that the District Court erred as

a legal matter in holding that, under New Jersey law, the only two

measures of damages for breach of lease are diminution in value

and cost of repair or remediation. It is clear, however, that New

Jersey recognizes lost rental income as a standard measure of

damages for breach of a lease. See McGuire v. City of Jersey City,

593 A.2d 309, 315 (N.J. 1991); River Road Assocs v. Chesapeake

13

Display & Packaging Co., 104 F. Supp. 2d 418, 425 (D.N.J. 2000)

(“Under New Jersey law, a commercial landlord may recover for

lost rental income resulting from a tenant’s breach of a lease.”).

Moreover, in both T&E Indus., Inc. v. Safety Light Corp.,

587 A.2d 1249, 1263 (N.J. 1991), and Silgato v. State, 632 A.2d

837, 842 (N.J. Super. Ct. App. Div. 1993), New Jersey courts

recognized that loss of use is one of several possible measures of

damages for tortious harm to real property. This comports with the

common law of property, which includes loss of use or lost rental

value as a proper measure of damages when land is temporarily

unusable, but then later returned to its original state. Thompson on

Real Property states:

Loss of rental value may be the appropriate measure of

damages, if the property itself is not harmed but its

usefulness has been impaired . . . . If temporary damages

are recovered for harm to property, those damages are

measured by the loss of the rental value or loss of use

value of the property as a result of or during the

continuance of the nuisance.

8 Thompson on Real Property § 67.06(a)(2), at 119-20 (David A.

Thomas ed. 1994); see also 9 Powell on Real Property § 64.07[3],

at 64-42 (Michael Allan Wolf ed., Matthew Bender) (“When the

harm caused by a nuisance is only temporary and can be abated,

the measure of damages normally is the depreciation in the rental

or use value of the affected property.”).

The more difficult question, presented here, is whether

damages for loss of use are available during the period of

uncertainty which may occur after the clean-up is physically

completed, but before the property has been certified as compliant

with all environmental regulations. Jaasma argues that, even if the

property did not in fact require any further environmental

remediation after the termination of the lease, she suffered

damages so long as the cloud of uncertainty from the prior

contamination lingered.

We are satisfied that New Jersey law does recognize

damages for the uncertainty that follows in the wake of

environmental contamination. More specifically, Bahrle v. Exxon

Corp., 652 A.2d 178 (N.J. Super. Ct. App. Div.1994), supports the

14

proposition that New Jersey law recognizes an injury due to the

temporary uncertainty surrounding the environmental status of

property created by NJDEP investigation. In Bahrle, adjoining

landowners sued the proprietors of a gasoline service station under

a nuisance theory for groundwater contamination due to alleged

spills from the station’s underground storage tanks. The trial judge

had dismissed the claims of seventeen plaintiffs whose water never

registered as contaminated, but who lived within the “redlined”

area where NJDEP prohibited new wells. The Appellate Division

reversed, finding that even though these landowners’ wells were

not contaminated in fact, there was foreseeable damage caused by

the redlining itself, including plaintiffs’ hesitancy to use the water

for drinking or showering during the pendency of the

investigation. Id. at 194.

NRC Corp. v. Amoco Oil Co., 205 F.3d 1007 (7th Cir.

2000), is also instructive. Amoco had leased land from NRC for

a gasoline station. At the end of the lease period, it was discovered

that the underground storage tanks were leaking and had

contaminated the property. NRC sued Amoco for the loss of the

use of the property during the remediation period, and the district

court awarded the full fair rental value from the time of the

termination of the lease until the Indiana Department of

Environmental Management approved the corrective action plan

and remediation was completed. Id. at 1013.

Amoco claimed that NRC could have used the property

during the remediation and argued that NRC had voluntarily

declined to market the property. The Seventh Circuit disagreed,

concluding that the evidence established that “until the corrective

action plan was approved . . . the property was unmarketable.

After that time, while the property was undergoing remediation,

uncertainty remained. Testimony demonstrated that lenders would

be reluctant to get behind the property without guarantees that

remediation was working.” Id. We find this case persuasive.

We conclude that the District Court erred by limiting its

assessment of damages to diminution of value or cost of

remediation and thereby ignoring damages for temporary loss of

use. Moreover, in light of Bahrle, we find that, even in the

absence of actual pollution, a claim is cognizable under New

Jersey law for the period of uncertainty following a pollution

incident, particularly where that uncertainty is due to ongoing

15

investigation by the state environmental agency.8

B. Mitigation of Damages

Defendants argue that Jaasma is entitled to loss of use

damages only if she can establish that she reasonably mitigated her

damages. See McGuire, 593 A.2d at 314; Fanarjian v. Moskowitz,

568 A.2d 94, 98 (N.J. Super. Ct. App. Div. 1989) (extending the

mitigation of damages requirement to commercial leases). The

issue of mitigation was not reached by the District Court because

the Court disposed of the case on the issue of availability of

damages; however, as it has been properly raised and could

dispose of the case, we will address it on appeal. See Storey v.

Burns Intern. Sec. Svcs, 390 F.3d 760, 761 n.1 (3d Cir. 2004) (“An

appellate court may affirm a result reached by the district court for

reasons that differ from the conclusions of the district court if the

record supports the judgment.”).

Under New Jersey law, “Whether the landlord’s efforts to

8

During oral argument on defendants’ Rule 50 motion, the

District Court questioned whether the delay in obtaining the NFA

may have been due to “state bureaucracy,” rather than caused by

any failure on the part of defendants. The question of contractual

liability for governmental delay is governed by the usual principles

of consequential damages. New Jersey has adopted the traditional

rule of Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854),

that consequential damages are available for those delays that may

“fairly and reasonably be supposed to have been in the

contemplation of the parties to the contract at the time it was made,

as the probable result of the breach.” Sandvik, Inc. v. Statewide

Sec. Sys, Div. of Statewide Guard Servs, Inc., 469 A.2d 955, 958

(N.J. Super. Ct. App. Div. 1983). Liability for bureaucratic delay

following a breach of contract, like all consequential damages,

therefore, is limited by reasonable foreseeability. Among the

things that might be considered on remand is whether the delays

incurred in this case were a foreseeable consequence of waiting to

remove the tanks until one week before the lease terminated and

whether such delays were contemplated by the parties when they

executed the Addendum to the lease agreement.

16

mitigate its damages were reasonable is a question of fact.” See

Harrison Riverside Ltd. P’ship v. Eagle Affiliates, Inc., 707 A.2d

490, 493 (N.J. Super. Ct. App. Div.1998). Moreover, New Jersey

courts have recognized that landowners do not have an obligation

to mitigate when such efforts would be fruitless. See Borough of

Fort Lee v. Banque Nat’l de Paris, 710 A.2d 1, 7 (N.J. Super. Ct.

App. Div. 1998).9

Defendants submit that Jaasma did not exercise the requisite

diligence in attempting to market the property for lease or sale

after the termination of the lease. Jaasma did not place the

property on the market until May 2003, at which time she received

three offers above the asking price and a lease offer for over

$5,000 a month more than defendants had been paying.

Jaasma, on the other hand, testified that she approached

three realtors about marketing the property, each of whom told her

that she would be “very unlikely to seize [sic] any money until we

had . . . specific and clear evidence . . . from Shell that there was

no further action required with respect to any contamination.”

SA2. Jaasma represents that for the first eight months, defendants

would not provide her with any information about the

environmental status of the property, and that she was unable to

get confirmation even that the tanks had been removed.

Additionally, Jaasma received NJDEP’s April 5, 2002, letter,

which established that the soil samples were clean, but which also

required defendants to continue testing—a process that entailed the

installation of monitoring equipment on the property and could

have led to additional remediation requirements.

Jaasma further claims that the defendants’ first disclosure

was not until June 2002, at which time the defendants provided

only the Tank Closure report, but not further information about the

9

In Borough of Fort Lee, the Court found that a tenant’s

holdover “so chilled the leasing market for the property that it

would have been fruitless [to mitigate damages by conducting

necessary repairs] until [the landowner] could be assured that

tenant would vacate.” 710 A.2d at 7. Therefore, the Court held

that the landlord was not obligated “to risk lowering the long term

value of the property by leasing to less discriminating class C

tenants.” Id.

17

status of the environmental investigation of the property. Jaasma

therefore argues that it was not until May 2003 that she reasonably

believed that the NFA was sufficiently imminent that she could

successfully market the property.

New Jersey regulations do not require that an NFA be issued

prior to the sale of a retail gasoline station. See N.J.A.C. 7 § 26B-

1.4. Nevertheless, retail gasoline stations are subject to the

technical requirements for site remediation which must continue

until NJDEP issues an NFA. See N.J.A.C. 7:26C-2.6 (setting forth

the prerequisites for obtaining an NFA). Jaasma represents that,

once she listed the property with a realtor, all serious bidders

required an NFA or assurances of environmental safety as a

condition of closing, which she could not provide during the

pendency of the NJDEP investigation. Thus, she claims that the

offers cited by defendants were made on the express precondition

that an NFA would be obtained.

After evaluating the record, we find that Jaasma has

adduced sufficient evidence that a jury could find that she made

reasonable efforts to mitigate, given the uncertainty surrounding

the property’s environmental status. Moreover, even if Jaasma

made insufficient mitigation efforts, that fact might not foreclose

her entire claim, but would only diminish the damage award by the

amount that she could have received if she had engaged in

reasonable mitigation. See Harrison Riverside Ltd. P’ship, 707

A.2d at 492 (holding that plaintiff’s failure to mitigate does not

preclude all recovery, but bars a landlord’s recovery against the

breaching tenant only to the extent that damages reasonably could

have been avoided). Because the mitigation issue is fact-bound,

and given the evidence of the futility of mitigation efforts during

the period of ongoing NJDEP investigation, we conclude that

judgment as a matter of law is not appropriate on the grounds of

lack of reasonable mitigation.

IV. EXCLUSION OF GARY J. DIPIPPO’S TESTIMONY

Jaasma argues that the District Court erred in excluding the

testimony of her expert, Gary J. DiPippo. The District Court

concluded that DiPippo would not be able to give a reliable opinion

regarding the environmental status of the property in 2001 because

the only available soil and groundwater data was from 1996 and

18

2003. Therefore, the Court found that “[a]ny conclusion that the

health hazard existed at the end of the lease term is . . . too

speculative to be admissible, particularly in the context of later

tests in 2003, two years later, indicating that there is no health

hazard apparently or benzine is not present.” We review the

decision to admit or reject expert testimony under an abuse of

discretion standard. Schneider ex rel. Estate of Schneider v. Fried,

320 F.3d 396, 404 (3d Cir. 2003); see also United States v. Trala,

386 F.3d 536, 541 (3d Cir. 2004).

To qualify as an expert under Fed. R. Evid. 702, a witness

must have sufficient qualifications in the form of knowledge,

skills, and training. In re Unisys Sav. Plan Litig., 173 F.3d 145,

155 (3d Cir. 1999). In addition, expert testimony must satisfy the

standards set forth in Daubert v. Merrell Dow Pharmaceuticals

Inc., 509 U.S. 579 (1993), that the expert testimony (1) must be

based on sufficient facts and data; (2) must be the product of a

reliable methodology; and (3) must demonstrate a relevant

connection between that methodology and the facts of the case.

In short, an expert must have the requisite “qualifications,

reliability, and fit.” Unisys Sav. Plan, 173 F.3d at 156.

The District Court does not appear to have questioned

DiPippo’s qualifications, and it seems clear from the record that

DiPippo’s qualifications pass muster. He is a civil and

environmental engineer who is registered in New Jersey and is a

manager of an environmental consulting firm. He has been

working in environmental engineering for thirty years and has

extensive experience in the area of environmental remediation and

regulatory compliance.

The District Court instead used the reliability calculus to

exclude DiPippo’s testimony. The Court apparently believed that

DiPippo was going to testify to the actual condition of the property

as of October 31, 2001, based on extrapolations from the available

data. Jaasma correctly contends that the Court misunderstood the

purpose of DiPippo’s testimony. Jaasma’s proffer was not that

DiPippo would have testified to the actual condition of the

property in 2001, but rather that he would have established the

uncertainty surrounding the environmental status of the property

between the termination of the lease in 2001 and the issuance of

the NFA in 2004. He also would have offered his opinion that

Jaasma’s decision to delay marketing the property was reasonable

19

because, even in the face of below-regulation levels of hazardous

substances in 1996, the data left open the potential for danger in

2001.

In his deposition testimony, DiPippo offered several reasons

why Jaasma might reasonably worry about the environmental

safety of the property at the time the lease was terminated,

notwithstanding that the 1996 test data (the most recent testing

available as of 2001) revealed that the concentrations of

contaminants were below regulatory levels. First, he stated that it

was not clear from the 1996 groundwater and soil samples that

there was no “continuous source” of contamination because “two

of the highest concentrations noted for benzene . . . in the vicinity

of the tanks . . . occurred in the later years.” Thus, DiPippo

represented that he could not definitively determine from the 1996

data whether the concentrations of benzene, for example, would

continue to decline after 1996. In addition, he could not say,

without further information, whether certain compounds had

degraded or would continue to degrade during that time.

Second, DiPippo testified that the samples taken October

30, 2001, were “of inadequate size to do volatiles analysis . . . So

that while I look at these numbers and they all are below those

cleanup criteria, there is still this question lingering about whether

those results should be relied upon at this point.” Finally, DiPippo

stated that, even considering the data from the most recent

sampling in 2003, “there are some lingering questions on the site”

as to the risk of “vapor intrusion” because the concentrations

previously thought safe are now considered to have been too

permissive.

In Jaasma’s submission, this testimony is highly relevant to

her damages claim and to the reasonableness of her caution in

marketing the property once the petroleum leak was discovered.

We agree with Jaasma that, while it may have been speculative for

DiPippo to testify to the actual condition of the property in 2001,

there appears to be nothing unreliable about DiPippo’s testimony

regarding the uncertainty surrounding the property during that

time.

Defendants’ main counterargument is that DiPippo’s report

is “merely a summary of the environmental documents submitted

by defendants” which was not based on “independent testing.”

This argument has no support. We do not require an expert to base

20

his or her opinions on independent data collection or field

research; rather, the question is “whether an expert’s data is of a

type reasonably relied on by experts in the field . . . [and] whether

there are good grounds to rely on this data to draw the conclusion

reached by the expert.” In re TMI Litigation, 193 F.3d 613, 697

(3d Cir. 1999); see also Fed. R. Evid. 703 . There is no doubt that

the data DiPippo relied upon was reliable. Instead the question

was whether DiPippo was justified in making conclusions about

the uncertainty surrounding the environmental status of the

property in 2001 based on 1996 and 2003 data.

In sum, DiPippo’s testimony satisfies the Daubert standard.

He clearly has the requisite qualifications. His proposed testimony

“fits” as it goes to the risks associated with remediation efforts,

which are relevant to Jaasma’s claim for damages and her

mitigation argument. Because the District Court’s decision to

exclude DiPippo was based on a misunderstanding of the purpose

of the expert testimony, and because the testimony appears to meet

the Daubert standard, we find that the Court abused its discretion.

V.

For the foregoing reasons, we will reverse the decision of

the District Court granting defendants judgment as a matter of law

and excluding Jaasma’s expert, Gary J. DiPippo, and will remand

this case for further proceedings consistent with this opinion.

21