Petition — Soo Line Railroad v. Town of East Troy

reme Court, U.S,

80-1174 Loe

N

oO.

AEDS ONT TORE a

JAN 14 1981

2

| MICHAEL RODAK, JR., CLERK

In Tue

Supreme Court of the United States

Ocroser Trrm, 1980

S00 LINE RAILROAD COMPANY,

Petitioner,

vs.

TOWN OF EAST TROY, a municipal corporation,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

REGINALD W. NELSON

2100 Marine Plaza

Milwaukee, Wisconsin 53202

(414) 271-8210

WHYTE & HIRSCHBOECK S.C.

Of Counsel

HUGH C. GRIFFIN

Counsel of Record

115 South LaSalle Street

Chicago, linois 60603

(312) 443-0342

LORD, BISSELL & BROOK

Of Counsel

Attorneys for Petitioner,

Soo Line Railroad Company

Midwest Law Printing Co., Chicago 60501, Financial 6-3988

vad

i

QUESTION PRESENTED FOR REVIEW

May federal grants now be used in conjunction with

the collateral source rule to create fictitious tort

damages and obtain windfall recoveries from third

parties?

ili

TABLE OF CONTENTS

PAGE

QUESTION PRESENTED FOR REVIEW ................ i

TABLE OF AUTHORITIES iv

THE PARTIES 1

OPINIONS BELOW , 2

JURISDICTION . 2

RELEVANT STATUTES 3

STATEMENT OF THE CASB 2 eeeecececceeeceeeeeee 3

REASONS FOR GRANTING THE WRIT:

The Use Of Federal Grants To Generate Fictitious

Damages And Obtain Windfall Recoveries From

Third Parties Should Be Stopped At Onee .............. 8

III *asschsdicbadiciidacatssidtdasunpoed Ruan eatcaatiinaaascaioa tata 11

APPENDIX:

October 8, 1980 Opinion of the Seventh Circuit

LAR OO AT et PO 1

District Court’s April 5, 1979 Order Denying Soo

Line’s Motion for Summary Judgment ................ 19

District Court’s September 5, 1979 Decision and

Order Denying Soo Line’s Post Trial Motions .. 25

Judgment Entered in District Court on June 14,

SE SRE OR RIM OE LPR NAR oT ae 34

Judgment Fntered in Court of Appeals on Octo-

Se I wisiinihsnsndsscsuieicninbnnisliinaliiidatadelibian daouaae ie 35

Court of Appeals’ December 3, 1980 Order De-

ID OO ios visiisiccinisccisicpansinlamiiiaccceaiegieteteae tial 36

Court of Appeals’ December 23, 1980 Order Cor-

recting Order Denying Rehearing .......................... 37

Housing and Community Development Act of 1974,

is I OU ai ecchisdisneccsoieemicctoenniene 39

PREVIOUS PAGE WAS BLANK |

iv

TABLE OF AUTHORITIES

Cases

Civil Aeronautics Board v. American Air Transport,

Ine., 344 U.S. 4, 5 (1952) .. 11

Eichel v. New York Central R.R., 275 U.S. 253 (1963) .. 9

Georgetown v. Alexandria Canal Co., 37 U.S. (12 Pet.)

EE isch aiasndeaehlddinkeeschisteinnmnencasscnceudueapeerens 8

Norfolk & Western R. Co. v. Leipelt, 444 U.S. 490,

494 (1979) ....... wi 10

Roundhouse v. Owens-Illinois, Inc., 604 F. 2d 990 (6th

AE Se ers RM BR ean ee OPP RE OE 9

United States ex rel. Robinson v. J — 316 U.S. 649

IPI : Giesiodissicnicnlieticeinigpeoncteneslianceaasiaand eegialeapietintiaiannsaaae 11

Western Pacific Railroad Case, 345 U.S. 247, 260 n. 20

RRR EEA STS STINE Reaves neeR Ae Oo OU cD RE ON RPP 11

Statutes

Fe EE LED eihesssctin esnegcisecincinincnoniaeeieiniemnnanns 2

Housing and Community Development Act of 1974, 42

ee Oe NG pristsitnntanicitisn ct Atmeicaindapecammaniastinteieniin 3, 6

II paticcaniiccckdsdclascdisdedencbstiledhicsspdbinsédineneyhaninuabighe 5

Miscellaneous

U.S. Supreme Court Rules 17(a) and 17(¢) ..........0......... 2

Maxwell, The Collateral Source Rule in the American

Law of Damages, 46 Minn. L. Rev. 669 (1962) ............ 9

Unreason and the Law of Damages: The Collateral

Source Rule, 77 Harv. L. Rev. 741 (1964) ........02.......... 9

In Tue

Supreme Court of the Anited States

OcrosEer Term, 1980

S00 LINE RAILROAD COMPANY,

Petitioner,

vs.

TOWN OF EAST TROY, a municipal corporation,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Petitioner, Soo Line Railroad Company, respectfully

prays that a writ of certiorari issue to review the judg-

ment and opinion of the United States Court of Appeals

for the Seventh Circuit entered in this proceeding.

THE PARTIES

Petitioner is the Soo Line Railroad Company, a

Minnesota corporation. Respondent is the Town of East

Troy, Wisconsin, a municipal corporation.

oa

OPINIONS BELOW

The opinions of the District Court (App. 19-24, 25-33)

are not contained in any official reporter. The opinion of

the Seventh Circuit Court of Appeals (App. 1-18). has not

yet appeared in the federal reporter system.

JURISDICTION

(i) The judgment of the Seventh Circuit Court of

Appeals was entered on October 8, 1980 (App. 35).

(ii) By a vote of 2-1, the original panel of the Court of

Appeals (two circuit court judges and one district court

judge)! denied rehearing on December 3, 1980 (App. 36).

Petitioner’s Suggestions For Rehearing In Banc was

submitted to a vote among all active members of the

Court of Appeals and was denied by a vote of 4-3 (one

justice abstaining) (App. 37). On December 15, 1980, the

Court of Appeals stayed the mandate until January 15,

1981, pending the filing of this Petition For Certiorari.

(iii) Jurisdiction to review the Court of Appeals judg-

ment is conferred by 28 U.S.C. § 1254(1) and United

States Supreme Court Rules 17(a) and 17(c).

' Honorable William G. East, Sr. United States District

Judge for the District of Oregon, sitting by designation.

—§—

RELEVANT STATUTES

The federal statute relevant to this section ‘s the Hous-

ing and Community Development Act of 1974, 42 U.S.C.

§ 5301 et seg. (relevant sections are reproduced in

Appendix hereto, Ayp. 39-53).

STATEMENT OF THE CASE

Introduction And Summary

The derailment of a Soo Line Railroad train tem-

porarily contaminated the privately-owned shallow wells

of approximately 30 private citizens living in Lake

Beulah, Wisconsin, a rural, unincorporated portion of

the 36 square mile Town (township) of East Troy,

Wisconsin. Each of these private individuals filed suit

against the Railroad. These suits were subsequently

settled by the Railroad for an amount in excess of

$300,000.

After the accident, the Town, which was not supplying

water to these individual plaintiffs or to any other resi-

dent of the Town and had no facilities to do so, used the

occasion to apply to the United States Department of

Housing and Urban Development (HUD) for a Com-

munity Development Grant to build a public water

system. The Town’s application was accepted and the

Town received a $500,000 federal grant which it spent

to study the water tables, form a sanitary district, buy

land, and build a single public well system capable of

serving the Lake Beulah area. The Town then offered

vinta

Lake Beulah residents the opportunity to use the

public well in exchange for a tap-on fee and a monthly

charge for any water used. Some residents elected to use

the new public system and others did not.

The District Court, citing the “collateral source” rule,

held that the Town could also collect an additional $500,-

000 from the Soo Line for the amount of the federal

grant the Town obtained and spent to build the public

well. The Court of Appeals affirmed! The facts in rele-

vant detail are as follows:

Accident

On July 16, 1974, a Soo Line Railroad train derailed

while traveling through an unincorporated area known

as Lake Beulah in the ‘Town (township) of East Troy,

Walworth County, Wisconsin (Tr. 58, 62, 545). The

derailment overturned a tank car containing an in-

dustrial chemical known as carbolic acid or phenol, and

approximately 9,000 gallons of phenol spilled onto the

ground adjacent to the railroad right of way (Def. Ex.

252, p. 1).

Private Property Damage

The area surrounding the accident site contained

scattered homesites, a tavern and a small manufac-

turing plant (Def. Ex. 257A). The owners of each of

these properties obtained water from shallow private

wells that they individually owned and maintained (Tr.

90, 517). There was no County, Town or other public

water supply system in the area (Tr. 90, 517). Shortly

after the accident, it was discovered that some of the

spilled phenol had permeated the ground and temporari-

ly contaminated some of these shallow, privately-owned

wells (Tr. 81, 526, 1065).

—§—

Suit Against The Soo Line

The private individuals whose property was affected

by the phenol spill brought an action for damages

against the Soo Line under the public nuisance statute

of the State of Wisconsin entitling any person, county,

city, village or town to maintain an action to recover

damage for a public nuisance “from which injuries

peculiar to the complainant are suffered”. Wis. Stat.

§ 823.01.2 (R. 3). Prior to trial, the phenol level in the

private wells subsided through natural causes (Tr. 674,

705, 838), and each of the private plaintiffs settled his

claim against the Railroad with a release of all claims

being exchanged for substantial settlement payments

from the Soo Line totalling in excess of $300,000 (R. 3).

Town’s “Claim”

Despite the fact that the owners of all property

affected by the accident settled their claims against the

Railroad, the case proceeded to trial on the “claim” of

the Town. The Town owned no wells, water or property

affected by the accident; no individual plaintiff assigned

any part of his claim to the Town; and the Town was not

attempting to recover anything on behalf of any private

individual. Rather, the Town sought to recover the

amount of a federal grant which it applied for, obtained,

and spent subsequent to the occurrence to build a public

water system for the Lake Beulah area.

2 The Wisconsin Nuisance Statute provides:

§ 823.01 Jurisdiction over nuisances

“Any person, county, city, village or town may maintain

an action to recover damages or to abate a public nuisance

from which injuries peculiar to the pee are suf-

fered, so far as necessary to protect the complainant’s

rene and to obtain an injunction to prevent the same.” -

(Emphasis added.)

~™

In early 1975, the Town and its attorneys had

prepared and submitted an application to the U.S.

Department of Housing and Urban Development for a

$500,000 Community Development Grant to build a cen-

tralized public water supply system to serve the Lake

Beulah area (Offer of Proof, Def. Ex. 26). See 42 U.S.C.

§ 5301 et seg. On July 16, 1975, the Town’s application

was granted and a $500,000 letter of credit was issued

by HUD against which the Town could write checks

(Offer of Proof, Def. Ex. 267; Tr. 713-714). After it

received this $500,000 grant, the Town formed a

sanitary district, purchased land, and engaged various

engineers and contractors to study, plan and build a

public well and related facilities (Tr. 90) (Pl. Exs. 98,

99A, 99B).

No Town resident was obligated to use the Town’s new

system, nor was any resident entitled to do so free of

charge (Tr. 700). Some residents chose to use the system

while others elected not to use the public well (Tr. 700,

995). Those that did elect to use the Town’s well had to

pay the Town a tap-on fee as well as a monthly bill for

all water used (Tr. 91, 682). As built, the Town’s public

system had the capacity of serving not only the existing

Lake Beulah area residents, but also the Lake Beulah

properties not yet developed or owner-occupied (Tr. 699).

The District Court Opinion

The United States District Court for the Eastern Dis-

trict of Wisconsin (Myron L. Gordon, Judge) denied the

Soo Line’s motion for summary judgment, ruling that

the Town’s obtaining and spending of a $500,000 federal

grant to build its new public well that was not even in

existence at the time of the occurrence constituted “an

ae

injury peculiar to the Town” which the Town was en-

titled to recover from the Soo Line and that the

“collateral source” rule prevented the federal grant from

being introduced in evidence or offset against any judg-

ment entered in favor of the Town (App. 23, 26). The

case then proceeded to jury trial, and the jury, having

no knowledge of the federal grant, returned a $500,000

verdict in the Town’s favor (R. 129). The District

entered judgment on the jury verdict (App. 34).

Court Of Appeals Opinion

The Court of Appeals in an opinion written by United

States District Court Judge East affirmed the District

Court, noting that the Town had “the power” to apply

for a HUD grant and build a public water system for its

residents (App. 5-6)}—a proposition not disputed by the

Railroad. Most shockingly, the Court concluded that re-

quiring the Railroad to pay the Town for its new

federally-funded public water system, that was neither

damaged by the Railroad nor in existence at the time of

the accident, was “the routine result of application of the

collateral source rule” (App. 15).

~

REASONS FOR GRANTING THE WRIT

THE USE OF FEDERAL GRANTS TO GENERATE

FICTITIOUS TORT DAMAGES AND OBTAIN

WINDFALL RECOVERIES FROM THIRD PARTIES

SHOULD BE STOPPED AT ONCE

We realize that this Court ordinarily will not review

Court of Appeals decisions simply because they are

“wrong”. Nor would the fact that Petitioner has been re-

quired to pay $500,000 for non-existent “damage” that it

did not cause, or the fact that the Court of Appeals total-

ly ignored the “injury peculiar to complainant” require-

ment of the Wisconsin Nuisance Statute,’ necessarily be

sufficient reasons to merit this Court’s attention. But the

instant case is wrong, not only on its own merits, it is

wrong as a precedent which, unless corrected by this

Court, could result in a multiplicity of similar actions

and attempts to use federal grants as a means of

generating fictitious damage claims and _ windfall

recoveries by public bodies. Such a result is totally in-

consistent with the public purpose of all federal grants

and is unsupported by any rule of law including the

“collateral source” rule.

Collateral Source Rule Inapplicable

The collateral source rule holds that where a tortfeasor

has caused actual damage or loss, subsequent reimburse-

ment from a third party source (e.g., insurer, retirement

8 Although this Court has found a similar requirement under

the common law, Georgetown v. Alexandria Canal Co., 37 US.

(12 Pet.) 91 (1838). ng 4 of Georgetown could not maintain

public nuisance action for blockage of Potomac River since it

owned no property affected by the nuisance and thus suffered

no “special injury”.

———

fund, etc.) will not permit the tortfeasor to avoid liabili-

ty for the damage he has caused. For a general discus-

sion of the rule as applied throughout the United States,

see Maxwell, The Collateral Source Rule In The American

Law of Damages, 46 Minn. L. Rev. 669 (1962); Unreason

and the Law of Damages: The Collateral Source Rule, 77

Harv. L. Rev. 741 (1964). This Court re ognized the rule

in Eichel v. New York Central R.R., 275 "J.S. 253 (1963).

Under any view, the Court of Appeals’ decision turns

the rule inside out and makes it a vehicle by which

otherwise non-existent “damages” can be created long

after an accident has occurred. “Collateral source”

might be applicable if the Railroad caused damage to an

existing public improvement and HUD funds were used

for the repair. But the instant accident caused no

damage to the Town for which federal reimbursement

was sought. Here no public improvement was even in

existence, much less damaged by the Railroad.

Nevertheless, the Court of Appeals holds that the Town’s

expenditure of the subsequently obtained federal grant

constitutes “damages” against which the grant cannot be

offset!

The error in the Court of Appeals’ holding is aptly il-

lustrated by the Sixth Circuit Court of Appeals’ opinion

in Roundhouse v. Owens-Illinois, Inc., 604 F.2d 990

(6th Cir. 1979), the onl, other case to consider the

“collateral source” rule in conjunction with a federal

grant. In Roundhouse, defendants sold plaintiffs more

than $250,000 worth of diseased fish. Plaintiffs had te

destroy the fish. Subsequently, plaintiffs received $51,000

in federal funds “as partial compensation for the

destruction of their fish” (604 F.2d at 994). The Court of

Appeals for the Sixth Circuit held that this was a

proper case for application of the collateral source rule

and that the federal funds would not be offset against

ste Sain

the damages actually caused by defendant’s conduct

since “a wrongdoer cannot benefit from payments to the

victim by a third party” (604 F.2d at 995) (emphasis

added).

The rationale of Roundhouse and all other collateral

source rule cases is that a wrongdoer who causes injury

or damage should not benefit because an uninvolved

third party subsequently reimburses the “victim” for all

or part of the actual damage caused by defendant's con-

duct. But the Soo Line did not cause any damage to the

Town for which third party reimbursement was ob-

tained. The only parties who suffered actual loss or

damage in this case were the individual property

owners, each of whom was indemnified by the Railroad’s

settlement payment. The Town was not a “victim” of a

tort, but an opportunist who attempted to use the

collateral source rule and a federal grant obtained un-

der the Community Development Act to place it in a far

better position than it was in prior to the accident so

that:

1) The Town now owns a new permanent public

water system that it did not have prior to the acci-

dent and that was never damaged by the Soo Line.

2) The Town’s system, including all legal work

and engineering studies in connection therewith,

has been fully paid for by the $500,000 federal

grant.

3) The Town receives an extra $500,000 windfall

from the Soo Line.

This result, while sure to enrich the Town’s coffers for

years to come, is a total misuse of the federal grant

system and has no basis in any legal theory. This Court

has recently restated the principle that compensatory

damages are limited to actual “monetary loss”. Norfolk

& Western R. Co. v. Leipelt, 444 U.S. 490, 494 (1979).

We ask this Court to apply the same principle in the in-

stant case and, either by full review or summary rever-

sal, to correct this manifestly dangerous precedent.

CONCLUSION

For the reasons stated herein, Petitioner Soo Line

Railroad Company respectfully requests that its Petition

For Certiorari to the Seventh Circuit Court of Appeals

be granted.

In the alternative and at the very least, we ask the

Court in the exercise of its supervisory power‘ to reverse

the Court of Appeals’ 4-3 decision denying Petitioner’s

Suggestions For Rehearing In Banc and to order that a

rehearing in banc be granted to consider the issues

raised herein.

Respectfully submitted,

REGINALD W. NELSON

2100 Marine Plaza

Milwaukee, Wisconsin 53202

(414) 271-8210

WHYTE & HIRSCHBOECK S.C.

Of Counsel

HUGH C. GRIFFIN

Counsel of Record

115 South LaSalle Street

Chicago, Illinois 60603

(312) 443-0342

LORD, BISSELL & BROOK

Of Counsel

Attorneys for Petitioner,

Soo Line Railroad Company

* See United States ex rel. Robinson v. Johnson, 316 U.S.

gg! Civil Aeronautics Board v. American Air Transport,

ne., 344 U.S. 4, 5 (1952); Western Pacific Railroad Case, 345

U.S. 247, 260 n. 20 (19538).

APPENDIX

App. l

10/8/80 Opinion Of The Seventh Circuit

Court Of Appeals

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 79-2120

TOWN OF EAST TROY, a municipal corporation,

Plaintiff-A ppellee,

v.

Soo LINE RAILROAD COMPANY,

Defendant-A ppellant.

Appeai from the United States District Court for the

Eastern District of Wisconsin.

No. 75-C-122—Myron L. Gordon, Judge.

ARGUED APRIL 30, 1980—DECIDED OCTOBER 8, 1980

Before Cummins and Bauer, Circuit Judges, and East,“

District Judge.

East, District Judge. The Soo Line Railroad Company

(Soo Line) appeals the judgment of the District Court

entered on June 14, 1979 pursuant to a jury verdict of

$500,000 in favor of the Town of East Troy, Walworth

County, Wisconsin (the Town). The verdict was based on

the Town’s costs to remedy a ground water pollution prob-

lem caused by Soo Line’s negligence.

We note jurisdiction under 28 U.S.C. § 1291 and affirm.

* Honorale William G. East, Senior United States District

Judge for the District of Oregon, sitting by designation.

App. 2

BACKGROUND

On July 16, 1974 at about 3:15 P.M., a tank car and 18

other cars being transported by Soo Line through an un-

incorporated area known as Lake Beulah or Beulah Sta-

tion within the limits of the Town derailed. The tank car,

carrying 20,000 gallons of phenol, or carbolic acid, rup-

tured and spilled approximately half its contents onto the

ground. The phenol, manufactured by the Georgia-Pacific

Corporation (Georgia-Pacific) was en route from Georgia-

Pacific’s plant in Louisiana to Borden Chemical Ltd. in

British Columbia. The parties’ stipulation of facts pre-

sented to the jury described phenol:

‘*Phenol is a by-product of quemene which is derived

from benzene which in turn comes from oil. It is a

colorless to light pink crystalline material which melts

at 106° Fahrenheit. The Interstate Commerce Com-

mission lists phenol as a Class B Poison. It is widely

used in commerce and industry in the manufacture of

hospital disinfectants and other drugs and pharma-

ceuticals. It is also used in the manufacture of certain

glues and resins and in some plastics.’’

The Lake Beulah area contains scattered homesites, a

tavern, and a small manufacturing plant. At the time of

the spill, there was no public water supply system. Resi-

dents relied on shallow private wells for domestic water

use. Despite clean-up efforts, including the removal by Soo

Line at the advice of the State Department of Natural

Resources of over one million pounds of contaminated dirt,

residents of the area complained of a bad taste and unusual

smell in their water and experienced headaches, nausea,

mouth sores, diarrhea, and dark urine. A toxicologist with

the Environmental Protection Agency advised that no in-

dividual should be exposed for more than five days to con-

centrations greater than .001 milligrams of phenol per

liter of water. A number of wells close to the spill site

had phenol concentrations in excess of this standard. The

distance the phenol spread and the extent of future haz-

ards are disputed.

The Town is a rural area of 36 square miles and has ap-

proximately 3,000 residents. At the time of the accident,

App. 3

there was no Town Sanitary District and no centralized

water supply for any part of the Town. The only prop-

erties owned by the Town in 1974 were the Town Hall and

some lake landings and roads, none of which were dam-

aged by the spill.

In early 1975, the Town retained private engineering

firms to study the feasibility of constructing a public water

supply system to serve Lake Beulah. The Town then formed

a Sanitary District, purchased land, and engaged various

engineers and contractors to build a centralized deep well

public water system. The Town well was drilled to a deep

aquifer separated by an impermeable layer of shale from

the contaminated aquifer from which the individual prop-

erty owners obtained their water. Those residents who

elected to use the Town’s system paid a tap-on fee and a

monthly bill for water used. The system has the capacity

for serving «ll lots in the Lake Beulah area.

The cost 0. constructing the well and the related mains,

pumps, and pump house was $125,000. The Town paid for

the well and for the services of its engineers, planners,

excavators, chemists, attorneys, geologists, plumbers, hy-

drogeologists, ete. with a $500,000 Community Development

Grant from the U. S. Department of Housing and Urban

Development (HUD).

PROCEEDINGS IN THE DISTRICT COURT

The Town, together with the individuals who claimed

damage from the spill, filed suit against Soo Line and

Georgia-Pacific on February 24, 1975. All individual plain-

tiffs settled, and the claim against Georgia-Pacific was dis-

missed. The case proceeded to trial as a public nuisance

action in which the Town sought to recover $543,000 for

its expenses incurred as a result of the spill. Soo Line’s

motion for summary judgment on the ground that Wis-

consin law does not permit the Town to maintain such

an action or to obtain such a windfall recovery was de-

nied, and Soo Line was precluded from introducing any

evidence of the HUD grant at trial. In a special verdict,

the jury found Soo Line guilty of negligently creating a

public nuisance and awarded the Town $500,000. The jury

rejected the claim that Soo Line was guilty of wilful and

App. 4

wanton conduct. Soo Line’s post-trial motions for judg-

ment notwithstanding the verdict, for an alteration in the

judgment, and for a new trial were denied. This appeal

followed.

ISSUES ON APPEAL

1. Was the Town’s public nuisance action barred by

the ‘‘injury peculiar to the complainant’’ requirement of

§ 823.01 of the Wisconsin Nuisance Statute?

2. Did the Town’s receipt of the HUD grant prevent

recovery of damages against Soo Line?

3. Did various errors in jury instructions and eviden-

tiary rulings entitle Soo Line to a new trial?

DISCUSSION

Issue 1: Town’s Standing to Bring Public Nuisance Action.

This case was tried on a public nuisance theory under

the Wisconsin Nuisance Statute. Wis. Stats. § 823.01 reads

as follows:

‘$893.01 Jurisdiction Over Nuisances

‘‘ Any person, county, city, village or town may main-

tain an action to recover damages or to abate a public

nuisance from which injuries peculiar to the complain-

ant are suffered, so far as necessary to protect the

complainant’s rights and to obtain an injunction to

prevent the same.”’

Thus, in order to recover its damages, the Town had to

show that it suffered injuries peculiar to itself.

Soo Line does not appeal the finding that the phenol spill

created a public nuisance. It contends, however, that the

Town can claim damages only if land it owned was injured

by the spill or if some Town function was impaired. It re-

lies on eases decided under predecessor statutes to § 823.01.

See Algoma v. Peterson, 233 Wis. 82, 288 N.W. 809 (1939) ;

Juneau v. Badger Cooperative Oil Co., 227 Wis. 620, 279

N.W. 666 (1938); City of Madison v. Wisowaty, 211 Wis.

23, 247 N.W. 527 (1933); City of Milwaukee v. Milwaukee

and Beloit Railroad Co., 7 Wis. 76 (1858). Soo Line con-

App. 5

tends that the statute does not permit recovery for ex-

penses incurred by the Town in its ‘‘voluntary’’ efforts

to alleviate the public nuisance. See Carey v. Brooks, 1 Hill

365 (S.C. 1833). Soo Line argues that only the individual

property owners had the right to bring actions under the

nuisance statute.

The District Court agreed with Soo Line’s statement of

the question but arrived at a different answer in denying

Soo Line’s motion for summary judgment:

‘*Since the sole relief sought by the town is damages,

the question is whether the town alleges any injuries

peculiar to itself. In my judgment, the town has done

so. The expenses incurred by the town in assisting the

residents affected by the phenol spill are an injury

peculiar to the town; none of the other plaintiffs or

town residents may properly claim those items of in-

jury as their own.

‘*In addition, the water system which the town con-

structed is the result of an injury peculiar to the town,

to the extent such system was necessary to overcome

the damage caused by the phenol spill.’’

There is no question that the Town has the power to

expend money for the public health and welfare. Wis. Stats.

§ 60.18 (Supp. 1979-80) states:

“‘The qualified electors of each town shall have power

at any annual town meeting by vote:

* * a

**(12) ...To direct, by resolution, the town board to

exercise all powers relating to villages and conferred

on village boards by ch. 61, except such power, the

exercise of which would conflict with the statutes re-

lating to towns and town boards. Any such resolution

heretofore adopted pursuant to existing law or here-

after adopted pursuant to this law shall remain in force

until rescinded.’’

The Town passed such a resolution on April 14, 1973 and

has never rescinded it. Wis. Stats. § 60.29(13) vests the

Town board with authority ‘‘[t]o exercise powers relating

to villages and conferred on village boards when lawfully

App. 6

authorized so to do by resolution of the town meeting

adopted pursuant to subsection (12) of section 60.18.”’

Section 61.34 enumerates powers of a village board

which the Town became authorized to exercise upon pas-

sage of its resolution. Section 61.34(1) provides:

‘61.34 Powers of village board

**(1) General grant. Except as otherwise provided

by law, the village board shall have the management

and control of the village property, finances, highways,

streets, navigable water, and the public service, and

shall have power to act for the government and good

order of the village, for its commercial benefit and

for the health, safety, welfare and convenience of the

public, and may carry its powers into effect by license,

regulation, suppression, borrowing, taxation, special

assessment, appropriation, fine, imprisonment, and

other necessary or convenieut means. The powers here-

by conferred shall be in addition to all other grants

and shall be limited only by express language.’’ (Km-

phasis supplied).

Thus, by adopting its resolution, the Town electors au-

thorized their board to act ‘‘for the health, safety, wel-

fare and convenience of the pubiic.’’ The District Court

based its decision on the Town’s power under $§ 60.18(12)

~~ 61.34(1) to protect its residents’ health, safety, and

welfare.

Although Soo Line does not dispute the Town board’s

authority to act, it claims that the board’s gratuitous ex-

enditures cannot bootstrap it into the position of an in-

jured party. The Town argues, however, that it was obli-

gated to exercise its full power to protect the health of

its residents.

When questioned about this obligation at oral argu-

ment, counsel for the Town referred the Court to the

petition process in Chapter 60 of Wisconsin Statutes. Coun-

sel stated that this was the method used to create the

sanitary district here. Sections 60.301-60.303 do empower

the Town board to establish a sanitary district when

specified petition and hearing requirements are met; and

§ 60.306(2) (Supp. 1979-80) provides that the sanitary

App. 7

district commission ‘‘shall project, plan, construct and

maintain a system or systems of waterworks... necessary

for the promotion of the public health, comfort, convenience

or public welfare of such district ....’’ (Emphasis sup-

plied). Although we have no reason to doubt that the peti-

tion procedures specified were properly complied with, the

record before this Court is silent.1 We assume that the

Town made no record of its compliance with the petition

process for creation of a sanitary district because it relied

in the District Court on its authority under its §60.18(12)

resolution to exercise the powers of a village board, rather

than on its § 60.301 authority.

We realize that the Town, as appellee, may urge this

Court to affirm on grounds it did not press before the

District Court. An appellee may

‘“‘urge in support of a decree any matter appearing

in the record, although his argument may involve

an attack upon the reasoning of the lower court or

an insistence upon matter overlooked or ignored by

it.”’ United States v. American Ry. Express Co., 265

U.S. 425, 435 (1924). Accord, LeTulle v. Scofield, 308

U.S. 415, 421 (1940); Morley Const. Co. v. Maryland

Casualty Co., 300 U.S. 185, 191 (1937): Drinan v. A. J.

Lindemann & Hoverson Co., 238 F.2d 72, 74 (7th Cir.

1956).

In this case, however, the record evidence simply does not

establish that the Town was forced by petition of the requi-

site percentage of landowners to create the sanitary dis-

trict. Nonetheless, this gap in the record does not restrain

us from concluding that the Town was, indeed, obligated

to act as it did. Even in the unlikely event that counsel’s

statement that the Town was compelled to act is unground-

ed, it is clear that the Town could have been compelled

to act by 51% of the landowners or by the owners of 51%

of the land in the proposed district. Section 60.302(1). The

record does indicate substantial public pressure on the

Town to eliminate the pollution problem caused by the

phenol spill.

1 The evidentiary record is replete, however, with public pro-

tests and demands for useable domestic water.

App. 8

We do not find it necessary to rely on §$§ 60.301-60.306,

however, because we believe the authority relied on by

the District Court is sufficient in the circumstances pre-

sented here to invoke an obligation on the part of the

Town board to alleviate a threat to the public health.

This being a diversity case, we follow the rule of Erie

R. Co. v. Tompkins, 304 U.S. 64 (1938), and apply the sub-

stantive law of Wisconsin. As this Court stated in Warner

v. Gregory, 415 F.2d 1345, 1346 (7th Cir. 1969), however:

‘‘Erie and its progeny do not require an automatic

application of the last highest state court determina-

tion. Professor Corbin in describing the task of the

federal court in applying state law said:

‘¢*When the rights of a litigant are dependent

on the law of a particular state, the court of the

forum must do its best (not its worst) to deter-

mine what that law is. It must use its judicial

brains, not a pair of scissors and a paste pot. Our

judicial process is not mere syllogistic deduction,

except at its worst. At its best, it is the wise and

experienced use of many sources in combination

—statutes, judicial opinions, treatises, prevailing

mores, custom, business practices; it is history and

economics and sociology, and logic, both inductive

and deductive.’ Corbin, The Laws of Several

States, 50 Yale L.J. 762, 775 (1941).

‘Justice Frankfurter struck the same chords in his

concurring opinion in Bernhardt v. Polygraphic Com-

pany of America, Inc., 350 U.S. 198, 205-212, 76 S.Ct.

273, 100 L.Ed. 199 (1956), where he looked behind the

Vermont Supreme Court’s decisions to determine the

present status of Vermont law.’’

And, of course, we need apply judicial precedents only

‘*to cases which factually require the same legal conclu-

sion, but not to cases involving significantly different

facts.’’ Ohio Casualiy Insurance Co. v. Smith, 297 F.2d

265, 267 (7th Cir. 1962).

In the recent case of McKenna v. Ortho Pharmaceutical

Corp., No. 78-2567 (3d Cir. March 18, 1980), the Court

was faced with a nine-year old Ohio Supreme Court case,

App. 9

which had never been expressly overruled, holding, for

statute of limitations purposes, that a cause of action for

medical malpractice arises at the latest when the physician-

patient relationship terminates. The Court had considered

and rejected the rule recognizing the date when the plain-

tiff discovers the alleged negligence, stating that adoption

vi the discovery rule was for the legislature. Nevertheless,

the McKenna Court, in fulfilling its task of deciding how

the Ohio Supreme Court would rule, concluded that the

Ohio Court would hold that the applicable statutes of lim-

itations were tolled until the plaintiff discovered the cause

of her injuries. The Court stated:

‘In the absence of authority directly on point, deci-

sions by [the Ohio Supreme Court] in analogous cases

provide useful indications of the court’s probable dis-

position of a particular question of law. It is important

to note, however, that our prediction ‘cannot be the

product of a mere recitation of previously decided

cases.’ In determining state law, a federal tribunal

should be careful to avoid the ‘danger’ of giving ‘a state

court decision a more binding effect than would a

court of that state under similar circumstances.’ Rath-

er, relevant state precedents must be scrutinized with

an eye toward the broad policies that informed those

adjudications, and to the doctrinal trends which they

evince.’’ Slip Opinion at 9-10. (Footnotes omitted).

In addition, the Court quoted Becker v. Interstate Prop-

erties, 569 F.2d 1203, 1206 (3d Cir. 1977):

‘A diversity litigant should not be drawn to the fed-

eral forum by the A green of a more favorable out-

come than he could expect in the state courts. But

neither should he be penalized for his choice of the

federal court by being deprived of the flexibility that

a state court could reasonably be expected to show.’’

Id. at 11-12.

Fortified with these teachings, we examine the law of

Wisconsin relevant to the issues here, beginning with the

decisions of the Wisconsin Supreme Court, ‘‘the best au-

thority on its own law.’’ Commissioner v. Estate of Bosch,

387 U.S. 456, 465 (1967).

App. 10

In City of Juneau v. Badger Cooperative Oil Co., 227

Wis. 620, 279 N.W. 666 (1938), the Wisconsin Supreme

Court considered an action to enjoin construction of a

bulk oil storage plant and “— station. The opinion large-

ly concerned itself with invalidating the city’s ordinances

which were designed to keep such facilities outside the

city limits. In one paragraph, however, the Court consid-

ered common law nuisance and the standing of the city

under Wis. Stats. § 280.02, the predecessor to § 823.02,

which provided in pertinent part that an action to abate

a public nuisance must be ‘‘prosecuted ... by the attorney-

general upon his own information, or upon the relation

of a private individual having first obtained leave there-

for from the court.’’ The Supreme Court in City of Juneau

held: ‘‘As leave of the court was not obtained and as the

city is not ‘a private individual’ anyhow, and no special

injury to the city was proved, no case in favor of the

city was established, and the complaint must be dismissed.”’

279 N.W. at 673.

The Court’s statement that the city suffered no special

injury was gratuitous dictum not necessary to the result;

the city clearly could not bring an action under § 280.02

as it was not ‘‘a private individual’’ and it had not ob-

tained leave from the Court. State v. La Crosse Theaters

Co., 232 Wis. 153, 286 N.W. 707, 709 (1939), makes it clear

that special injury is not a requirement under § 280.02.

The Juneau Court may have been implying by its ‘‘spe-

cial injury’’ language that the city would also lack stand-

ing under § 280.01, the predecessor to the statute involved

in the present case. Section 280.01 read: ‘‘ Any person may

maintain an action to recover damages for and to abate

a private nuisance or a public nuisance from which he

suffers injury peculiar to himself, so far as necessary to

protect his rights and to obtain an injunction to prevent

the same.’’ Had the Court expressly considered § 280.01

and had it concluded that the city was a ‘‘person,’’ then

its statement that ‘‘[i]t is not shown that the city has any

property affected by the defendant’s tanks and no other

special injury or interest of the city is shown,’’ 279 N.W.

at 673, would carry more precedential weight. In any event,

the Court implied that not only a property interest, but

any ‘‘other special injury or interest’? was sufficient to

App. 11

maintain a nuisance action. The Court, of course, gave no

indication whether expenditure of funds to clean up a spill

or to put out a fire caused by negligence at defendant’s

plant would constitute a special injury to the city.

City of Algoma v. Peterson, 233 Wis. 82, 288 N.W. 809

(1939), was an action to enjoin construction of a gasoline

service station. The City of Algoma’s ordinance, which

was similar to Juneau’s, was likewise struck down; and its

§ 280.02 claim was rejected as follows: ‘‘The city is not a

private individual, nor did it bring the action in the name

of the state,2 nor did it first procure leave of the court

to bring the action. This requires dismissal of the action.’’

288 N.W. at 810. The Court then went on to state:

‘‘The plaintiff has no property that can be affected by

the erection of the gasoline station, and without that

it can not bring an action to restrain either a private

or public nuisance under Sec. 280.01, Stats. See La

Crosse Theatres Co. case, supra.’’ At 810.

La Crosse Theaters, however, does not hold that a § 280.01

plaintiff must have property affected by the alleged nui-

sance. La Crosse Theaters was a § 280.02 case, and its

only comment on the requirements under § 280.01 was to

restate the statute’s own broad requirement that the plain-

a suffer some ‘‘injury peculiar to himself.’’ 286 N.W. at

The Algoma Court then considered the statute relied on

by the trial court in allowing the city to proceed. It was

a broad statute, similar to 4 61.34 relied on by the Town,

which granted power to act ‘‘for the health, safety, and

welfare of the public.’? The Court assumed that this stat-

ute would authorize maintenance of the action but for

§ 280.02 which precluded it, citing Madison v. Wisowaty,

211 Wis. 23, 247 N.W. 527.

2 The Wisconsin Supreme Court, in La Crosse Theaters, 286

N.W. at 709, explained who the named plaintiff must be in

§ 280.01 and § 280.02 suits: ‘“The former section applies to actions

brought by a private person in his own name and right. The

latter applies to actions by the state brought n relation of a

private person.’’

App. 12

In Madison, the defendant had erected structures on

the bed of Lake Monona, which is owned by the state but

situated within the City of Madison. The Wisconsin Su-

preme Court held that the city’s action to abate the nui-

sance was demurrable for failure to state a cause of action:

‘‘[T here is no allegation in the complaint that the

city has suffered any private or special injury peculiar

to itself, or that defendants’ structures encroach upon

or interfere with any property owned by the city or

the exercise of any right vested in it.’’ 247 N.W. at 529.

Since the city had failed to allege any injury to itself or

any interest in the lake bed, it was not the real party in

interest; the state was. Had the city sued in the state’s

name rather than its own under §$ 280.02, there would have

been no problem. The Court even noted a statute giving

the city jurisdiction to bring the action that it believed

satisfied the leave of the court requirement. The Madison

case is largely an instruction on proper pleading; its hold-

ing need not detain us in reaching our result. The broad

language regarding the type of interest or injury neces-

sary to give the city standing implies that an ownership

interest is not necessarily required.

None of the above cases cited by Soo Line are so close

factually to this case as to require the same legal con-

clusion that the Town may not maintain its nuisance ac-

tion. See Ohio Casualty. Nor do we feel constrained by

the supreme court’s brief comments in City of Milwau-

kee v. Milwaukee & Beloit Railroad Co., 7 Wis. 76, 89-90.

These early cases primarily relied on provisions of § 280.02

which barred the actions; those provisions are simply not

involved here. We do not quarrel with the obvious re-

quirement of § 823.01 that the Town show some interest

on its part or some injury peculiar to itself, but we are

not convinced that Wisconsin law requires the Town to

establish a property interest interfered with by the public

nuisance.

Significantly, none of the cited cases involved an actual

present danger to the public health and welfare. The Town

was not a distinterested party contemplating some fature

potentially harmful occurrence. We do not believe that the

Wisconsin Supreme Court would have the Town board sit

App. 13

idly by and wait for the state to take action to abate a

serious threat to the public health when the Town had

the undisputed power to correct the situation and when

the people of the Town were severely inconvenienced, ill,

and clamoring for action. Indeed, the Court has acknowl-

edged the grave problem of water pollution and the power

of a Town board to control it. Town of Norway v. State

Board of Health, 32 Wis.2d 362, 145 N.W.2d 790 (1966),

involved the town of Norway’s standing in judicial re-

view of the State Board of Health’s decision to approve a

sewage treatment facility. The supreme court stated at

145 N.W.2d at 794:

‘*It is conceeded [sic] Norway has no riparian inter-

est in Wind Lake but by authority of Sec. 60.18(12),

Stats., it passed a resolution in 1962 authorizing the

town board of Norway to exercise the powers of a

village board. These powers include the right to man-

age and control navigable water and to act for the

health, safety, welfare and convenience of the public.

Sec. 61.34(1), Stats. The pollution of public waters

is a matter of great public concern and inimical to

public health. State ex rel. Martin v. City of Juneau

(1941), 238 Wis. 564, 572, 300 N.W. 187. This concern

is not exclusively that of the Board and the Committee.

We think this governmental right in the town board

of Norway to prevent and control the pollution of

waters is sufficient legal interest to constitute Norway

an aggrieved person.’’

Although the circumstances giving rise to Town of Norway

are certainly different from the circumstances here, the

language of that decision evinces deference to and en-

couragement of attempts by towns to exercise their gov-

ernmental powers to control water pollution—even absent

any proprietary interest.

Moreover, the Wisconsin legislature has expressed its

desire for municipalities to exercise broad powers on be-

half of the public welfare, and particularly in the area

of water pollution. In 1939, the nuisance statutes were

amended to authorize cities, villages, and towns to bring

nuisance actions. In 1943, they were authorized to bring

suit under § 280.02, now § 823.02, in their own names

App. 14

without obtaining leave from the court. In addition to

these and to the statutes cited above regarding estab-

lishment of sanitary districts and exercising village board

powers, numerous provisions of Wisconsin statutes, not

directly applicable here, indicate that wide latitude is given

to towns in protecting the waters of the state. E.g., § 66.33

(towns authorized to accept federal grants for water pol-

lution prevention or abatement); § 144.025(1) (‘‘It is the

express policy of the state to mobilize governmental ef-

fort and resources at all levels, state, federal and local’’

to protect waters of the state, ‘‘ground and surface, public

and private’’}); § 146.14 (local health officials may abate

nuisances caused by improper sewerage disposal).

We conclude from our analysis of the foregoing that

were the Wisconsin Supreme Court to rule on this case,

it would find a compelling governmental interest and duty

on the part of the Town to do whatever was reasonable

at the time to ameliorate the hazardous situation as quick-

ly as possible and to protect the health of the people.’

All necessary and reasonable expenses that were incurred

in the exercise of the Town’s lawfully delegated powers

are recoverable under § 823.01.4

Tssue 2: HUD Grant.

Soo Line claims that the Town has not suffered any in-

jury and, therefore, cannot recover damages. We have re-

jected, however, its view that recovery under § 823.01 re-

quires injury to the Town’s own property. The jury found

that Soo Line’s negligence was the proximate cause of

the Town’s loss. The District Court held, and we agree,

that this loss is actionable under § 823.01. If the Town has

3 Because of our conclusions regarding this issue, we reject Soo

Line’s challenges to the District Court’s jury instructions on nui-

sance.

4 Soo Line is mistaken, however, in its belief that the necessity

of specific expenses is to be judged with the benefit of hindsight.

The Town cannot be expected, during a public health disaster and

with discrepant professional opinions, to foresee precisely which

— will be successful and which will be cumulative or super-

uous.

App. 15

obtained a windfall, such is the routine result of applica-

tion of the collateral source rule.

In Riamann v. Somerset Public Schools, 83 Wis.2d 571,

266 N.W.2d 326 (1978), reimbursement of medical expenses

by plaintiff’s insurer did not prevent plaintiff’s full re-

covery from defendant. See also Thoreson v. Milwaukee

and Suburban Transport Co., 56 Wis.2d 231, 201 N.W.2d

745 (1972) ; Merz v. Old Republic Insurance Co., 53 Wis.2d

47, 191 N.W.2d 876 (1971); and McLaughlin v. Chicago,

Milwaukee, St. Paul & Pacific Ry. Co., 31 Wis.2d 378, 143

N.W.2d 32 (1966), for the proposition that plaintiff’s re-

covery will not be reduced because of reimbursement by

an independent source for damages caused by defendant.

There is no question that Wisconsin law prefers double

recovery for a plaintiff to allowing a defendant to avoid

aying for the consequences of his or her wrongful acts.

imilarly, in Roundhouse v. Owens-Illinois, Inc., 604 F.2d

990 (6th Cir. 1979), the Sixth Circuit ruled that receipt

of federal funds in partial reimbursement of plaintiff’s

loss did not bar recovery of the full amount of damages

caused by defendant’s conduct.

It is not our task to analyze the wisdom of the collateral

source rule. Having determined that the rule is the law

of the state, it is eminently clear that the Town was en-

titled to recover its full damages and that Soo Line was

properly prevented from possibly creating jury bias in

its favor by mentioning or producing evidence of the HUD

grant to the Town.

Issue 3: New Trial.

Soo Line cites several actions by the District Court which

it claims entitle it to a new trial if this Court rules against

it on Issues 1 and 2. We have already disposed of its al-

legations that the nuisance instructions were improper and

that evidence of the HUD grant should have been admit-

ted. We now conclude that the remainder of Soo Line’s

allegations of error are likewise without merit.

Soo Line’s witness Bertel E. Pearson was prohibited

from giving opinion testimony because he had not been

disclosed as an expert witness in response to the Town’s

App. 16

interrogatories until after the Court-imposed discovery

deadline had passed, thus depriving the Town of the op-

portunity to depose Pearson.5 The Court’s deadline was

reasonable and was applied to both parties. The exclusion

of Pearson’s expert testimony was a proper exercise of

the Court’s discretion.

Soo Line alleges that the District Court erred in giving

a res ipsa loquitur instruction since the Town had pre-

sented evidence of specific negligence. Although Soo Line

acknowledges that Wisconsin law does not preclude the

res ipsa loquitur instruction in all cases involving specific

negligence, it believes this case is sufficiently similar to

Utica Mutual Insurance Co. v. Ripon Cooperative, 50 Wis.

2d 431, 184 N.W.2d 65 (1971), in which giving the res

ipsa loquitur instruction was held to be reversible error,

to require the same result here. We disagree. In that case,

the Court rejected the use of the res ipsa loquitur in-

struction because the plaintiff had offered expert testi-

mony as to ‘‘exactly where, how and why’’ the accident

occurred. 184 N.W.2d at 69. However, the Court generalized

that between the poles of pure conjecture and such sub-

stantial evidence as to constitute a complete explanation

was a middle ground where the giving of the instruction

would be proper. Jd. We agree with the District Court that

this case falls squarely in that middle ground. The giving

of the instruction here was correct.

Soo Line charges further that portions of the deposition

of Harry A. Lloyd read at trial constituted inadmissible

hearsay. Specifically, Lloyd testified that he overheard a

discussion among several railroad employees in which com-

ments were made concerning an excess number of derail-

ments in the area and the improper placement of the empty

cars on the train. The statements were admissions by a

party opponent under Rule 801 of the Federal Rules of

Evidence and were, therefore, not hearsay. The fact that

Soo Line then read portions of Lloyd’s cross-examination

5 We discount Pearson’s deposition of December 1, 1975. Soo

Line even conceded that, though it knew the identity of its ex-

perts shortly prior to the discovery deadline of December 15, 1978,

depositions v vuld not have been meaningful at that time because

its experts had not yet completed their work.

App. 17

in which Lloyd expressed some doubts as to whether the

declarant was definitely a railroad employee does not

render the initial statements inadmissible.

Exclusion of the Southeast Wisconsin Regional Planning

Report indicating that the Town probably would have to

install a public well at some time in the future was proper

because the report was totally irrelevant to the issue of

whether the Town’s installation of a water distribution

system at this time was the result of defendant’s negli-

gence in causing the pollution of the private wells.

Soo Line asserts that the Town did not prove the rea-

sonableness of its expenses. It is true that the Town did

not produce expert testimony as to the reasonableness of

every itemized expense. Nevertheless, it did present, in

addition to bills and cancelled checks, sufficient evidence

of the nature of the work done by the various profession-

als, the time involved, and the rate of compensation, there-

by enabling the jury to determine the reasonableness of

the expenses. The engineer with the highest fees did tes-

tify as to the reasonableness of his fees. Soo Line did not

challenge the Town’s expenses as being unreasonable. Al-

though the expenses clearly must be reasonable, Soo Line

has cited no case supporting its view that the plaintiff

must present expert testimony on reasonableness of fees

even if the record contains substantial evidence on which

the jury could determine reasonableness. On the contrary,

in the cases relied on by Soo Line, the supreme court ac-

tually found there was no evidence in the record from

which the fact-finder could determine if the claimed ex-

enses were reasonable. Nimlos v. Bakke, 223 Wis. 473,

1 N.W. 33, 34 (1937); Tullgren v. Karger, 173 Wis. 288,

181 N.W. 232, 234 (1921). Furthermore, in Gerbing v. Mc-

Donald, 201 Wis. 214, 218-19 (1930), in which the Court

allowed recovery of relatively small medical bills without

proof of reasonableness, the Court said:

‘‘The weight of authority seems to be that where the

character of the injury and of the treatment and the

services of the physician and the amount paid for the

service are fully proved, this constitutes evidence from

which the jury may allow damages although there is

no proof of either necessity or the reasonable value

of the services.’’

App. 18

As the yer court said in Reinke v. Woltjen, 32 Wis.

2d 653, 146 N.W.2d 493, 494 (1966), quoting Mack Trucks,

1868) Sunde, 19 Wis.2d 129, 135-36, 119 N.W.2d 321, 324

1963) :

‘‘ A verdict approved by a trial court must be sustained

if there is credible evidence which under any reasonable

view admits of an inference that supports the jury’s

findings.”’

Finally, we reject Soo Line’s claim that the District

Court erroneously admitted evidence concerning the dan-

gers of phenol in its undiluted form and in combination

with chlorinated water. This testimony was relevant to

the existence and extent of the public health hazard to

which the Town was responding.

Soo Line’s arguments for a new trial leave us uncon-

vinced. Having failed to agree with any of Soo Line’s

— of error, we affirm the judgment of the District

ourt.

AFFIRMED.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

App. 19

District Court’s 4/5/79 Order Denying

Soo Line’s Motion For Summary Judgment

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF WISCONSIN

TOWN OF East Troy, et al.,

Plaintiffs,

No. 75-C-122 V.

Soo LINE RAILROAD COMPANY, et al.,

Defendants.

DECISION and ORDER

This action is before me on the motion of the defend-

ant Soo Line Railroad, joined by the defendant Georgia

Pacific Corporation, for summary judgment pursuant to

Rule 56, Federal Rules of Civil Procedure, dismissing

the claim of the plaintiff Town of East Troy.

The action arises out of the derailment of one of the

railroad’s trains in the Town of East Troy in July, 1974.

It is alleged that the derailment caused carbolic acid

manufactured by and transported for Georgia Pacific to

leak from a railway tanker car, resulting in the con-

tamination of the water wells and septic systems of

many individuals residing in the Lake Beulah area of

the town. Many of these individuals have joined as

plaintiffs in this action and seek damages for injuries of

various kinds as a result of the allegedly wrongful con-

duct of the defendants.

The instant motion involves the claims of the plaintiff

Town of East Troy. The town’s claims, as narrowed by

the court’s decisivn on a prior motion to dismiss reported

at 409 F. Supp. 326 (1976), include a claim that the

railroad was negligent in several respects and that its

negligence produced a public nuisance in the form of

App. 20

water pollution and septic system contamination to the

prejudice of the “health, comfort, safety and property of

certain of the residents, school children, property

owners, taxpayers, tourists and guests of the plaintiff

town. .. .” The town seeks in excess of 1 million dollars

in damages for the cost of a new water system in the

affected area and for other miscellaneous expenses it

incurred as a result of the acid spill. The town also seeks

the same damages from Georgia Pacific, which allegedly

failed to investigate and take corrective measures after

the acid spill occurred.

FACTS

For purposes of the instant motion, the following per-

tinent facts are undisputed. A Soo Line train suffered a

derailment on July 16, 1974; a railway tanker car con-

taining carbolic acid (phenol) was damaged in the derail-

ment, and portions of its contents leaked onto the

ground. The derailment occurred in the Town of East

Troy adjacent to an unincorporated rural residential

area known locally as “Lake Beulah.”

As a result of the derailment, several privately-owned

shallow wells in the Lake Beulah area were contami-

nated. There was no municipal water distribution sys-

tem in the Lake Beulah area at the time of the derail-

ment. Privately owned shallow wells were used by the

residents for drinking water and all other purposes. Ap-

proximately 60 private wells .are alleged to have been

affected.

There is no claim that any property owned by the

town was affected or threatened by the phenol contami-

nation, although the town does allege injury to the

“health, comfort, safety and property” of residents and

other members of the public as recited above.

Subsequent to the derailment and consequent contami-

nation, the town determined that it would undertake the

function of furnishing water to residents of the Lake

Beulah area. The town secured a granted of $500,000

from the United States Department of Housing and

App. 21

Urban Development (HUD) to finance the construction

and development of its municipal water system to serve

the residents of the area. The grant was applied for and

approved under the Housing and Community Develop-

ment Act of 1974 (Public Law 93-383, 88 Stat. 638).

Upon approval of such grant, HUD issued a letter of

credit to the town and bills were paid by the town in

connection with the municipal water system by making

draws against the letter of credit to cover invoices as

they were received. The town charges users for

supplying water by means of its new municipal water

system.

In addition to the cost of the new water system, the

town seeks to recover damages for expenses it incurred

for various services it performed and for employees it

hired for the purpose of aiding persons affected by the

phenol spill.

DISCUSSION

The defendants urge that they are entitled to sum-

mary judgment dismissing the town’s claim for damages

allegedly caused by a public nuisance created by the de-

fendants’ wrongful conduct. This argument rests upon

section 280.01, Wis. Stats. (1973), now renumbered as

section 823.01, Wis. Stats., which provides:

“Any person, county, city, village or town may

maintain an action to recover damages or to abate a

public nuisance from which injuries peculiar to the

complainant are suffered, so far as necessary to

protect the complainant’s rights and to obtain an

injunction to prevent the same.”

The defendants’ primary contention is that the town is

not authorized to maintain a damage suit for a public

nuisance in the absence of proof of “injuries peculiar to”

itself “so far as necessary to protect” its rights, within

the meaning of section 823.01. In addition to the

unambiguous terms of the statute, Wisconsin cases sup-

port the premise that municipalities which do not suffer

injuries peculiar to themselves may not commence

App. 22

actions for relief due to a public nuisance. Madison v.

Wisowaty, 211 Wis. 23, 247 N.W. 572 (1933); see also

Juneau v. Badger Cooperative Oil Company, 227 Wis.

620, 279 N.W. 666 (1938), and City of Algoma v. Peter-

son, 233 Wis. 82, 288 N.W. 809 (1939). A town is

authorized to prosecute an action to enjoin a public

nuisance in its own name, without alleging any injury

peculiar to itself, pursuant to section 823.02, Wis. Stats.,

but it is clear that the same is not the case in an action

for damages or for abatement of the nuisance.

Since the sole relief sought by the town is damages,

the question is whether the town alleges any injuries

peculiar to itself. In my judgment, the town has done so.

The expenses incurred by the town in assisting the resi-

dents affected by the phenol spill are an injury peculiar

to the town; none of the other plaintiffs or town resi-

dents may properly claim those items of injury as their

own.

In addition, the water system which the town con-

structed is the result of an injury peculiar to the town,

to the extent such system was necessary to overcome the

damage cause by the phenol spill. The town passed a

resolution pursuant to § 60.1812), Wis. Stats.,

authorizing the town board to exercise the powers of a

village board. One of the powers of a village board

under section 61.34(1), Wis. Stats., is “to act for ... the

health, safety, welfare and convenience of the public.”

The town was faced with a situation where the private

wells of its residents were contaminated, leaving them

without a safe water source, and it properly acted to

protect its residents’ health, safety and welfare in

procuring the new water system.

I find unpersuasive the defendants’ argument that the

town is not authorized to recover damages for the cost of

the municipal water system because such recovery

would be inconsistent with the purpose behind federal

grants under the Housing and Community Development

Act of 1974, 42 U.S.C. § 5301 et seq. To the extent that

the argument is based on the potential double recovery

that the town may obtain, the argument is foreclosed by

App. 23

the collateral source rule. Rixmann v. Summerset

Public Schools, 88 Wis.2d 571, 266 N.W.2d 326 (1978).

To the extent that the argument rests on the contention

that such recovery would violate the Housing and Com-

munity Development Act of 1974, I do not believe that

the defendants have standing to raise the argument; if

the federal government is aggrieved by the town’s

recovery of these damages, the argument is the govern-

ment’s to make.

Also, I find unconvincing the defendants’ suggestion

that the town incurred no contractual liability to

contractors who built the water system due to the mode

of payment through draws against a HUD letter of

credit. The town’s claim is based on injuries sustained as

a result of allegedly tortious conduct by the defendants;

the manner by which the town financed the construction

of the water system is wholly immaterial to this claim.

The defendants also argue that even if the town may

properly prosecute an action for damages on a public

nuisance theory, summary judgment dismissing the

claim must be granted because the phenol spill did not

produce a public nuisance.

The Wisconsin supreme court discussed the theory of

public nuisance in State v. Michels Pipeline Construc-

tion, Inc., 63 Wis.2d 278, 217 N.W.2d 339, 219 N.W.2d

308 (1974). There the court observed that “Wisconsin

cases define public nuisance in terms of the scope of the

injury and not in terms of the type of injury.” 63 Wis.2d

at 286. The Wisconsin court has rejected the notion that

the injury must be to an interest common to the general

public; instead, the plaintiff must show injury to a suf-

ficiently large sector of the public community. Jd, at

288. The court also noted that “whether the results of

conduct are so common as to amount to a public

nuisance is a question of fact for the jury.” Jd.

For these reasons, I disagree with the defendants’

position that they are entitled to summary judgment.

The town filed a motion for leave to file a brief in re-

joinder in connection with the instant motion. Although

App. 24

the defendants oppose ...e town’s motion, they availed

themselves of the opportunity to respond to the brief in

rejoinder. Accordingly, the town’s motion for leave to

file its brief in rejoinder will be granted.

Therefore, IT Is ORDERED that the plaintiff Town of

East Troy’s motion for leave to file a brief in rejoinder

be and hereby is granted.

It Is ALSO ORDERED that the motion of the defendant

Soo Line Railroad Company for summary judgment dis-

missing the claim of the plaintiff Town of East Troy,

joined in by the defendant Georgia Pacific Corporation,

be and hereby is denied.

— at Milwaukee, Wisconsin, this 5 day of April,

1979.

/s/ MyYRonN L. GORDON

U. S. District Judge

App. 25

District Court’s 9/5/79 Decision And Order

Denying Soo Line’s Post Trial Motions

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF WISCONSIN

Town OF East Troy,

Plaintiff,

No. 75-C-122 Vv.

Soo LINE RAILROAD CoMPANY,

Defendant.

DECISION and ORDER

This action is before me on the alternative post-trial

motions of the defendant Soo Line Railroad for judg-

ment notwithstanding the verdict, for an alteration in

the judgment, and for a new trial. All of these motions

will be denied.

This action arose out of the derailment of one of the

railroad’s trains in the town of East Troy in July, 1974.

The plaintiffs alleged that the derailment caused car-

bolic acid manufactured by Georgia Pacific to leak from

Soo Line’s railway tanker car, resulting in the con-

tamination of the water wells and septic systems of

—_ individuals residing in the Lake Beulah area of

the town.

Prior to trial, the individual plaintiffs settled their

claims and the defendant Georgia Pacific was dismissed

from the suit, leaving the town and the railroad as the

only parties at trial. The town’s allegations included a

claim that the railroad was negligent in several

respects. Such negligence allegedly ee a public

nuisance in the form of water pollution and spetic

system contamination to the prejudice of the “health,

App. 26

comfort, safety and property of certain of the residents,

school children, property owners, taxpayers, tourists and

guests of the plaintiff town... .” Subsequent to the

derailment and consequent contamination, the town un-

dertook the function of furnishing water to residents fo

the Lake Beulah area who had previously obtained

water from private wells. In this suit the town sought in

excess of 1 million dollars in damages for the cost of the

new water system and for other miscellaneous expenses

it incurred as a result of the acid spill.

Following nine days of trial, the jury found that the

railroad was negligent with regard to the operation of

the train and the maintenance of the tracks in question

and that this negligence was a proximate cause of a

public nuisance. The jury also found that $500,000

would reasonably compensate the town for “any

damages it reasonably incurred as a result of the derail-

ment and phenol acid spill.” Judgment in that amount

was entered in favor of the plaintiff on June 14, 1979.

I. MOTION FoR JUDGMENT NOTWITHSTANDING

THE VERDICT

The defendant’s motion for judgment notwithstanding

the verdict is based on two contentions: (1) that any ex-

penses incurred by the plaintiff do not constitute in-

juries peculiar to the town of East Troy within the

meaning of § 823.01, Wis. Stats., and (2) that the entire

amount of expenses incurred by the town was covered

by a grant made to the town by the United States

Department of Housing and Urban Development. In

connection with the railroad’s pretrial motions, I con-

sidered and rejected these arguments in a written deci-

sion and order dated April 5, 1979. Since I find no

reason to change the conclusion reached in that decision,

the railroad’s motion for judgment notwithstanding the

verdict will be denied.

I note that subsequent to my decision of April 5, 1979,

a decision has been rendered which supports my conclu-

sion that the collateral source doctrine applies to funds

App. 27

given to a plaintiff by a government agency. In Round-

house v. Owens-Illinois, Inc., ..... ge. oe (6th Cir.,

August 16, 1979), the plaintiff fish farmers were forced

to destroy sick fish sold to them by the defendant. The

court held that compensation received by the plaintiffs’

from the state of Michigan did not justify reducing the

plaintiffs’ recovery from the defendant, since under the

collateral source doctrine, money received from an in-

dependent source will not diminish recovery from a

wrongdoer.

II. MOTION To ALTER JUDGMENT

The defendant railroad has moved the court to change

the answer to question 6 of the special verdict by strik-

ing the answer $500,000 and inserting instead an

amount not in excess of $125,000. The railroad contends

that the plaintiff failed to introduce sufficient evidence

to justify greater damages and that as a result, the

jury’s answer was based on speculation and conjecture. I

disagree.

The spilling of a dangerous acid which contaminated

the water table in East Troy required that the town take

difficult remedial action. In the course of taking such

action, the town retained the services of a myriad of

professionals: engineers, planners, excavators, chemists,

attorneys, geologists, plumbers and _ hydrogeologists,

among others.

With regard to the compensation of these people as

well as other expenses incurred by the town, the plain-

tiff introduced a substantial quantum of evidence at

trial. The plaintiff introduced bills, cancelled checks

demonstrating the payment of those bills, and itemized

statements indicating the type of work done by different

people, the amount of the time spent on such work, and

the rate of compensation charged for the work. One of the

engineers who spent time working for the town testified

as to the reasonableness of the fees he charged, which

were the highest of any charged by engineers working

on the acid spill. Finally, several witnesses testified as to

App. 28

the remedial steps that were taken by the town. The

railroad did not introduce any evidence indicating that

the professional fees in this case were unreasonable. In

my opinion, this evidence was sufficient to allow the jury

to make a rational judgment as to the reasonableness of

the expenses incurred by the town. Moreover, I find that

the figure of $500,000 arrived at by the jury was ade-

quately supported by the evidence.

The defendants rely on two arguments in challenging

the jury’s findings as to damages. They briefly argue

that at least one of the engineering firms retained by the

town made recommendations of action which either

were not followed or were ultimately abandoned. On this

basis, the defendant suggests that some of the expenses

incurred by the plaintiff were “unnecessary.” The

damage to East Troy’s water supply which the jury

found resulted from the railroad’s negligence required

remedial action, the course of which was not clear even

to experts. The town was entitled to compensation for

expenses incurred as a result of reasonable remedial

steps, even if by hind-sight some of those steps may have

been missteps. Since the railroad has not demonstrated

that any of the approaches taken by the town or its ex-

perts were unreasonable, the town is entitled to the com-

pensation it received from the jury.

The railroad also argues that Wisconsin law requires

that the reasonableness of the fees charged by

professionals retained by the town could not be es-

tablished except by expert testimony as to that subject.

The railroad’s position is supported by neither law nor

logic. None of the cases relied on by the defendant over-

turned a jury’s finding as to damages which was based

on reasonable evidence. In two of the cases, the Wiscon-

sin supreme court overturned jury. verdicts in which the

jury had apparently ignored the uncontradicted

testimony of experts regarding the value of professional

services. Estate of Watzek, 211 Wis. 50 (1933); Brust v.

First National Bank, 184 Wis. 15 (1924). In the third

case, a finding by the trial judge of the value of

professional services was overturned by the supreme

App. 29

court when it found no evidence in the record to support

the trial judge’s finding. Tullgren v. Karger, 173 Wis.

288 (1921).

None of the foregoing cases requires the conclusion

that a jury finding regarding the value of professional

services, which is in fact supported by substantial

evidence, must be overturned simply because an expert

has not testified regarding the reasonableness of the fees

charged by each professional. Moreover, the defendant’s

contention regarding Wisconsin law is refuted by the

case of Gerbing v. McDonald, 201 Wis. 214 (1930), in

which the court stated:

“Error is claimed because the court permitted the

jury to assess doctor’s bills as an element of plain-

tiffs damages in the absence of evidence of the

reasonable value or necessity of the services charg-

ed for. The weight of authority seems to be that

where the character of the injury and of the treat-

ment and the services of the physician and the

amount paid for the service are fully proved, this

constitutes evidence from which the jury may allow

damages although there is no proof of either

necessity or the reasonable value of the services.

(Citations omitted). Mere proof of injury and

employment of and treatment by a physician en-

titles the jury to make an award for the service, in

the absence of evidence of necessity for or the value

of the service. (Citations omitted).” Id. at 218-19.

While the fees in the instant case are significantly

higher than those in Gerbing, they are substantiated by

the record and “do not appear beyond the bounds of

reason.” Id.

III. Morion For A NEW TRIAL

The railroad has moved for a new trial on a number of

grounds with which I will deal separately.

App. 30

A. Damages

The railroad urges that a new trial be granted

because the damages found by the jury are allegedly

“excessive, unsupported by requisite evidence, and con-

trary to the weight of the evidence.” For the reasons

stated above, I find that the jury’s finding as to damages

was reasonable in light of the evidence, and thus a new

trial is not justified on this ground.

B. Jury Instructions

The railroad also claims that its motion for a new trial

should be granted because of errors in the jury instruc-

tions. The first such instruction dealt with the doctrine

of res ipsa loquitur. The railroad, while admitting that

the doctrine is generally applicable to derailment cases,

maintains that the court erred in giving an instruction

based on that doctrine, because there was direct

evidence of the railroad’s negligence in the record. In

Utica Mutual Insurance Co. v. Ripon Cooperative, 50

Wis.2d 431, 439 (1971), the court discussed the factual

context in which giving an instruction on res ipsa lo-

quitur is proper:

“When both parties have rested and the case is

ready for the jury, either of two conditions may ex-

ist which would render it error to give the res ipsa

loquitur instruction. The plaintiff may have proved

too little or he may have proved too much. For ex-

ample, if, on the one hand, there has been no

evidence which would remove the causation ques-

tion from the realm of conjecture and place it

within the realm of reasonable inferences, then the

plaintiff has proved too little, and the doctrine of

res ipsa loquitur is of no avail, and the case must be

dismissed.

“On the other hand, it is possible that the plain-

tiff’s evidence of negligence in a given case has been

so substantial that it provides a full and complete

explanation of the event, if the jury chooses to

accept it. In that case, causation is no longer a

App. 31

mystery, and the res ipsa loquitur instruction would

be superfluous and erroneous. Fehrman v. Smirl,

(1964), 25 Wis.2d 645, 131 N.W.2d 314; Puls v. St.

Vincent Hospital (1967), 36 Wis.2d 679, 154 N.W.2d

308; and Knief v. Sargent, supra.

“There is, of course, a middle ground between

these two extremes where the giving of the instruc-

tion would be proper. Prosser describes that situa-

tion as follows:

‘... the introduction of some evidence which

tends to show specific acts of negligence on the part

of the defendant, but which does not purport to fur-

nish a full and complete explanation of the oc-

currence does not destroy the inferences which are

consistent with the evidence, and so does not

deprive the plaintiff of the benefit of res ipsa lo-

quitur.’ Prosser, Law of Torts (Hornbook Series) (3d

ed.), ch. 6, p. 236, sec. 40.”

In my opinion, the evidence introduced by the plaintiff

at trial fell into the “middle ground” discussed above,

thereby entitling the town to the res ipsa loquitur in-

struction. The plaintiff's expert, Paul Jones, testified as

to a number of acts done by the railroad which could

have been fairly construed by the jury to have been

negligent or even wilfull. However, Mr. Jones’ testimony

neither established which of those acts, if any, actually

led to the derailment of the train in question nor

precluded the possibility that other acts on the part of

the railroad might have caused the derailment. Thus,

while I found that the plaintiff had submitted sufficient

evidence to remove the question of causal negligence

from the “realm of conjecture,” since that evidence did

not completely explain the reason for the derailment, the

instruction on res ipsa loquitur was appropriate. Lee v.

Milwaukee Gas Light Co., 20 Wis.2d 333 (1963).

The railroad also challenges instructions given regard-

ing the definition of public nuisance, the police power

of a town board, the right of a town to recover damages

from nuisance, and the duty of the town to take steps to

App. 32

obviate injury. I considered these issues both at trial and

before trial on the railroad’s motion for summary judg-

ment, and I find no reason now to change my conclusion

regarding them.

C. Evidentiary Rulings

The railroad argues that various types of evidence

were improperly excluded at trial. As to the testimony

of experts, my decision and order of March 23, 1979, ex-

plains my rationale for barring the testimony of experts

whose identities as experts were not revealed until after

the discovery deadline had passed. The court’s require-

ment regarding the disclosure of experts was applied to

both parties; one of the plaintiff's experts as well as

several of the railroad’s experts were barred from

testifying as a result of the court’s order of March 23,

1979. I find no merit in the railroad’s other contentions

regarding the admissibility of evidence at trial.

D. Sufficiency of the Evidence With Regard to Public

Nuisance

The jury was instructed that for a public nuisance to

exist a large number of people must be affected. State v.

Michels Pipeline Construction Co., 63 Wis.2d 278 (1974).

The evidence indicates that hundreds of people were

threatened by the spilling of the phenol acid that

resulted from the train derailment, and thus the jury’s

finding of a public nuisance is supported by the

evidence.

F. Depositions

The railroad maintains that the plaintiff read portions

of certain depositions out of context and thereby prej-

udicially distorted the testimony contained therein.

Since the railroad’s attorneys had in each instance the

opportunity to read to the jury those portions of the

depositions in question which they felt were pertinent, I

do not believe that the plaintiff's use of those depositions

resulted in any unfairness to the railroad.

App. 33

IV. CONCLUSION

Therefore, IT Is ORDERED that the alternative motions

of the Soc Line Railroad Company for judgment

notwithstanding the verdict, an order altering the judg-

ment or for a new trial be and hereby are denied.

Dated at Milwaukee, Wisconsin, this 5th day of

September, 1979.

/s/ MyYRon L. GORDON

USS. District Judge.

App. 34

Judgment Entered In District Court

On June 14, 1979

UNITED STATES DISTRICT COURT

FOR THE

EASTERN DISTRICT OF WISCONSIN

TOWN OF EAST TRoy,

Plaintiff,

No. 75-C-122 v.

Soo LINE RAILROAD COMPANY,

Defendant.

JUDGMENT

This action came on for trial before the Court and a

jury, Honorable Myron L. Gordon, United States

District Judge, presiding, and the issues having been

duly tried and the jury having duly rendered its verdict,

It is Ordered and Adjudged

That the plaintiff, Town of East Troy, recover

$500,000, plus its costs, against the defendant, Soo

Line Railroad Company.

Approved MyYRON L. GORDON

U.S. District Judge

we at Milwaukee, Wisconsin, this 14th day of June,

79.

RuTH W. LA FAVE

Clerk of Court

App. 35

Judgment Entered In Court Of Appeals

On October 8, 1980

OPINION BY DISTRICT JUDGE EAST

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

CHICAGO, ILLINOIS 60604

October 8, 1980.

Before

HON. WALTER J. CUMMINGS, Circuit Judge

HON. WILLIAM J. BAUER, Circuit Judge

HON. WILLIAM G. EAST, District Judge*

Town OF EAsT Troy,

a municipal corporation, et al.,

Plaintiffs-Appellees,

No. 79-2120 v.

Soo LINE RAILROAD COMPANY,

Defendant-Appellant.

Appeal from the United States District Court for the

Eastern District of Wisconsin.

No. 75-C-122—Myron L. Gordon, Judge.

This cause came before the Court for decision on the

record from the United States District Court for the

Eastern District of Wisconsin, and was argued by

counsel.

On consideration whereof, it is ordered and adjudged

by this Court that the judgment of the said District

Court in this cause appealed from be, and the same is

hereby, AFFIRMED, with costs, in accordance with the

opinion of this court filed this date.

* Honorable William G. East, Senior United States District

Judge for the District of Oregon, is sitting by designation.

App. 36

Court Of Appeals’ 12/3/80 Order

Denying Rehearing

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

CHICAGO, ILLINOIS 60604

December 3, 1980.

Before

HON. WALTER J. CUMMINGS, Circuit Judge

HON. WILLIAM J. BAUER, Circuit Judge

Hon. WILLIAM G. EAST, Senior District Judge*

TOWN OF EAST TROY, et al.,

Plaintiffs-Appellees,

No. 79-2120 v.

Soo LINE RAILROAD COMPANY,

Defendant-Appellant.

Appeal from the United States District Court for the

Eastern District of Wisconsin.

No. 75-C-122—Myron L. Gordon, Judge.

ORDER

On consideration of the petition for rehearing and sug-

gestion for rehearing en banc filed in the above-entitled

cause by defendant-appellant Soo Line Railroad

Company, a vote of the active members of the Court was

requested, and a majority** of the judges on the original

panel have voted to deny a rehearing. Accordingly,

IT Is ORDERED that the aforesaid petition for

rehearing be, and the same is hereby, DENIED.

* The Honorable William G. East, Senior District Judge of

the District of Oregon, is sitting by designation.

** Judge Cudahy re himself from participation in

voting, = on the petition for rehearing and Judges Pell, Bauer

ood voted to grant the petition for rehearing en banc.

App. 37

Court Of Appeals’ 12/23/80 Order Correcting

Order Denying Rehearing

CORRECTED

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

CHICAGO, ILLINOIS 60604

December 23, 1980.

Before

HON. WALTER J. CUMMINGS, Circuit Judge

HON. WILLIAM J. BAUER, Circuit Judge

HON. WILLIAM G. EAST, Senior District Judge*

TOWN OF EAST TROY, et al.,

Plaintiffs-A ppellees,

No. 79-2120 v.

Soo LINE RAILROAD COMPANY,

Defendant-Appellant.

Appeal from the United States District Court for the

Eastern District of Wisconsin.

No. 75-C-122—Myron L. Gordon, Judge.

ORDER

The Court’s December 3 order denying the petition for

rehearing in this case should be amended to read as

follows:

On consideration of the petition for rehearing and sug-

gestion for rehearing en banc filed in the above-entitled

* The Honorable William G. East, Senior District Judge of

the District of Oregon, is sitting by designation.

App. 38

cause by defendant-appellant Soo Line Railroad Com-

pany, a vote of the active members of the Court was

requested, and a majority* of the active members of the

Court have voted to deny a rehearing en banc. A

majority of the judges on the original panel has voted to

deny a rehearing. Accordingly,

It Is ORDERED that the aforesaid petition for

rehearing be, and the same is hereby, DENIED.

* Judge Cudahy disqualified himself from participation in

voting on the petition for rehearing, and Judges Pell, Bauer

and Wood voted to grant the petition for rehearing en banc.

App. 39

HOUSING AND COMMUNITY DEVELOPMENT

ACT OF 1974

(Relevant Sections)

PUBLIC LAW 93-383; 88 STAT. 633

[S. 3066]

An Act to establish a program of community development block grants, to

amend and extend laws releting to housing and urban development, and

for other purposes.

Be it enacted by the Senate and House of Representatives

of the United States of America in Congress assembled

That:

This Act may be cited as the “Housing and Communi-

ty Development Act of 1974”.

TITLE I—COMMUNITY DEVELOPMENT

FINDINGS AND PURPOSE

Sec. 101. (a) The Congress finds and declares that

the Nation’s cities, towns, and smaller urban com-

munities face critical social, economic, and environmen-

tal problems arising in significant measure from—

(1) the growth of population in metropolitan and

other urban areas, and the concentration of persons

of lower income in central cities; and

(2) inadequate public and private investment

and reinvestment in housing and other physical

facilities, and related public and social services,

resulting in the growth and persistence of urban

slums and blight and the marked deterioration of

the quality of the urban environment.

(b) The Congress further finds and declares that the

future welfare of the Nation and the well-being of its

citizens depend on the establishment and maintenance of

viable urban communities as social, economic, and

political entities, and require—

(1) systematic and sustained action by Federal,

State, and local governmerts to eliminate blight, to

App. 40

conserve and renew older urban areas, to improve

the living environment of low- and moderate-income

families, and to develop new centers of population

growth and economic activity;

(2) substantial expansion of and greater con-

tinuity in the scope and level of Federal assistance,

together with increased private investment in sup-

port of community development activities; and

(3) continuing effort at all levels of government

to streamline programs and improve the func-

tioning of agencies responsible for planning, im-

plementing, and evaluating community develop-

ment efforts.

(c) The primary objective of this title is the develop-

ment of viable urban communities, by providing decent

housing and a suitable living environment and expanding

economic opportunities, principally for persons of low

and moderate income. Consistent with this primary ob-

jective, the Federal assistance provided in this title is

for the support of community development activities

which are directed toward the following specific

objectives—

(1) the elimination of slums and blight and the

prevention of blighting influences and the de-

terioration of property and neighborhood and com-

munity facilities of importance to the welfare of

the community, principally persons of low and

moderate income;

(2) the elimination of conditions which are

detrimental to health, safety, and public welfare,

through code enforcement, demolition, interim

rehabilitation assistance, and related activities;

(3) the conservation and expansion of the Na-

tion’s housing stock in order to provide a decent

home and a suitable living environment for all per-

sons, but principally those of low and moderate in-

come;

(4) the expansion and improvement of the quan-

tity and quality of community services, principally

App. 41

for persons of low and moderate income, which are

essential for sound community development and for

the development of viable urban communities;

(5) a more rational utilization of land and other

natural resources and the better arrangement of

residential, commercial, industrial, recreational,

and other needed activity centers;

(6) the reduction of the isolation of income

groups within communities and geographical areas

and the promotion of an increase in the diversity

and vitality of neighborhoods through the spatial

deconcentration of housing opportunities for per-

sons of lower income and the revitalization of de-

teriorating or deteriorated neighborhoods to attract

persons of higher income; and

(7) the restoration and preservation of properties

of special value for historic, architectural, or

aesthetic reasons.

It is the intent of Congress that the Federal assistance

made available under this title not be utilized to reduce

substantially the amount of local financial support for

community development activities below the level of

such support prior to the availability of such assistance.

(d) It is also the purpose of this title to further the

development of a national urban growth policy by con-

solidating a number of complex and overlapping

programs of financial assistance to communities of vary-

ing sizes and needs into a consistent system of Federal

aid which—

(1) provides assistance on an annual basis, with

maximum certainty and minimum delay, upon

which communities can rely in their planning;

(2) encourages community development ac-

tivities which are consistent with comprehensive

local and areawide development planning;

(3) furthers achievement of the national housing

goal of a decent home and a suitable living environ-

ment for every American family; and

App. 42

(4) fosters the undertaking of housing and com-

munity development activities in a coordinated and

mutually supportive manner.

DEFINITIONS

Sec. 102. (a) As used in this title—

(1) The term “unit of general local government”

means any city, county, town, township, parish,

village, or other general purpose political subdivi-

sion of a State; Guam, the Virgin Islands, and

American Samoa, or a general purpose political

subdivision thereof; a combination of such political

subdivisions recognized by the Secretary; the Dis-

trict of Columbia; the Trust Territory of the Pacific

Islands; and Indian tribes, bands, groups, and

nations, including Alaska Indians, Aleuts, and Es-

kimos, of the United States. Such term also includes

a State or a local public body or agency (as defined

in section 711 of the Housing and Urban Develop-

ment Act of 1970), community association, or other

entity, which is approved by the Secretary for the

purpose of providing public facilities or services to

a new community as part of a program meeting the

eligibility standards of section 712 of the Housing

and Urban Development Act of 1970 or title IV of

the Housing and Urban Development Act of 1968.

(2) The term “State” means any State of the

United States, or any instrumentality thereof

approved by the Governor; and the Commonwealth

of Puerto Rico.

(3) The term “metropolitan area” means a stan-

dard metropolitan statistical area as established by

the Office of Management and Budget.

(4) The term “metropolitan city” means (A) a

city within a metropolitan area which is the central

city of such area, as defined and used by the Office

of Management and Budget, or (B) any other city,

within a metropolitan area, which has a population

of fifty thousand or more.

App. 43

(5) The term “city” means (A) any unit of

general local government which is classified as a

municipality by the United States Bureau of the

Census or (B) any other unit of general local

government which is a town or township and which,

in the determination of the Secretary, (i) possesses

powers and performs functions comparable to those

associated with municipalities, (ii) is closely settled,

and (iii) contains within its boundaries no incor-

porated places as defined by the United States

Bureau of the Census.

(6) The term “urban county” means any county

within a metropolitan area which (A) is authorized

under State law to undertake essential community

development and housing assistance activities in its

unincorporated areas, if any, which are not units of

general local government, and (B) has a combined

population of two hundred thousand or more (ex-

cluding the population of metropolitan cities

therein) in such unincorporated areas and in its in-

cluded units of general local government (i) in

which it has authority to undertake essential com-

munity development and housing assistance ac-

tivities and which do not elect to have their popula-

tion excluded or (ii) with which it has entered into

cooperation agreements to undertake or to assist in

the undertaking of essential community develop-

ment and housing assistance activities.

(7) The term “population” means total resident

population based on data compiled by the United

States Bureau of the Census and referable to the

same point or period in time.

(8) The term “extent of poverty” means the

number of persons whose incomes are below the

poverty level. Poverty levels shall be determined by

the Secretary pursuant to criteria provided by the

Office of Management and Budget, taking into ac-

count and making adjustments, if feasible and ap-

propriate and in the sole discretion of the Secretary,

for regional or area variations in income and cost of

App. 44

living, and shall be based on data referable to the

same point or period in time.

(9) The term “extent of housing overcrowding”

means the number of housing units with 1.01 or

more persons per room based on data compiled by

the United States Bureau of the Census and

referable to the same point or period in time.

(10) The term “Federal grant-in-aid program”

means a program of Federal financial assistance

other than loans and other than the assistance

provided by this title.

(11) The term “program period” means the

period beginning January 1, 1975, and ending June

30, 1975, and the period covering each fiscal year

thereafter.

(12) The term “Community Development

Program” means a program described in section

104(a)(2).

(13) The term “Secretary” means the Secretary

of Housing and Urban Development.

(b) Where appropriate, the definitions in subsection

(a) shall be based, with respect to any fiscal year, on the

most recent data compiled by the United States Bureau

of the Census and the latest published reports of the Of-

fice of Management and Budget available ninety days

prior to the beginning of such fiscal year. The Secretary

may by regulation change or otherwise modify the

meaning of the terms defined in subsection (a) in order

to reflect any technical change or modification thereof

made subsequent to such date by the United States

Bureau of the Census or the Office of Management and

Budget.

(c) One or more public agencies, including existing

local public agencies, may be designated by the chief ex-

ecutive officer of a State or a unit of general local

government to undertake a Community Development

Program in whole or in part.

App. 45

AUTHORIZATION TO MAKE GRANTS

Sec. 103. (a1) The Secretary is authorized to make

grants to States and units of general local government to

help finance Community Development Programs ap-

proved in accordance with the provisions of this title.

The Secretary is authorized to incur obligations on

behalf of the United States in the form of grant

agreements or otherwise in amounts aggregating such

sum, not to exceed $8,400,000,000, as may be approved

in an appropriation Act. The amount so approved shall

become available for obligation on January 1, 1975, and

shall remain available until obligated. There are

authorized to be appropriated for liquidation of the

obligations incurred under this subsection not to exceed

$2,500,000,000 prior to the close of the fiscal year 1975,

which amount may be increased to not to exceed an

aggregate of $5,450,000,000 prior to the close of the

fiscal year 1976, and to®’* not to exceed an aggregate of

$8,400,000,000 prior to the close of the fiscal year 1977.

Subject to the limitations contained in the preceding

sentence, appropriations for—

ane grants under title VII of the Housing Act of

1;

(B) grants under sections 702 and 703 of the

Housing and Urban Development Act of 1965; and

(C) supplemental grants under title I of the

Demonstration Cities and Metropolitan Develop-

ment Act of 1966,

may be used, to the extent not otherwise obligated prior

to January 1, 1975, for the liquidation of contracts

entered into pursuant to this section.

* * *

(c) Sums appropriated pursuant to this section shall

remain available until expended.

(d) To assure program continuity and orderly plan-

ning, the Secretary shall submit to the Congress timely

87a. So in original. Probably the word “to” should be omitted.

App. 46

requests for additional authorizations for the fiscal years

1978 through 1980.

APPLICATION AND REVIEW REQUIREMENTS

Sec. 104. (a) No grant may be made pursuant to

section 106 unless an application shall have been sub-

mitted to the Secretary in which the applicant—

(1) sets forth a summary of a three-year com-

munity development plan which identifies com-

munity development needs, demonstrates a com-

prehensive strategy for meeting those needs, and

specifies both short- and long-term community

development objectives which have been developed

in accordance with areawide development planning

and national urban growth policies;

(2) formulates a program which (A) includes the

activities to be undertaken to meet its community

development needs and objectives, together with the

estimated costs and general location of such ac-

tivities, (B) indicates resources other than those

provided under this title which are expected to be

made available toward meeting its identified needs

and objectives, and (C) takes into account ap-

propriate environmental factors;

(3) describes a program designed to—

(A) eliminate or prevent slums, blight, and

deterioration where such conditions or needs

exist; and

(B) provide improved community facilities

and public improvements, including the

provisions of supporting health, social, and

similar services where necessary and ap-

propriate;

(4) submits a housing assistance plan which—

(A) accurately surveys the condition of the

housing stock in the community and assesses

the housing assistance needs of lower-income

persons (including elderly and handicapped

App. 47

persons, large families, and persons displaced

or to be displaced) residing in or expected to

reside in the community,

(B) specifies a realistic annual goal for the

number of dwelling units or persons to be

assisted, including (i) the relative proportion of

new, rehabilitated, and existing dwelling units,

and (ii) the sizes and types of housing projects

and assistance best suited to the needs of lower-

income persons in the community, and

' (C) indicates the general locations of

proposed housing for lower-income persons,

with the objective of (i) furthering the

revitalization of the community, including the

restoration and _ rehabilitation of stable

neighborhoods to the maximum extent possible,

(ii) promoting greater choice of housing oppor-

tunities and avoiding undue concentrations of

assisted persons in areas containing a high

proportion of low-income persons, and (iii)

assuring the availability of public facilities and

services adequate to serve proposed housing

projects;

(5) provides satisfactory assurances that the

program will be conducted and administered in

conformity with Public Law 88-352 and Public Law

90-284; and

(6) provides satisfactory assurances that, prior to

submission of its application, it has (A) provided

citizens with adequate information concerning the

amount of funds available for proposed community

development and housing activities, the range of ac-

tivities that may be undertaken, and other impor-

tant program requirements, (B) held _ public

hearings to obtain the views of citizens on com-

munity development and housing needs, and (C)

provided citizens an adequate opportunity to par-

ticipate in the development of the application; but

no part of this paragraph shall be construed to

App. 48

restrict the responsibility and authority of the

applicant for the development of the application

and the execution of its Community Development

Program.

(bX1) Not more than 10 per centum of the estimated

costs referred to in subsection (a)(2) which are to be in-

curred during any contract period may be designated

for unspecified local option activities which are eligible

for assistance under section 105(a) or for a contingency

account for activities designated by the applicant pur-

suant to subsection (a)(2).

(2) Any grant under this title shall be made only on

condition that the applicant certify to the satisfaction of

the Secretary that its Community Development Pro-

gram has been developed so as to give maximum

feasible priority to activities which will benefit low- or

moderate-income families or aid in the prevention or

elimination of slums or blight. The Secretary may also

approve an application describing activities which the

applicant certifies and the Secretary determines are

designed to meet other community development needs

having a particular urgency as specifically described in

the application.

(3) The Secretary may waive all or part of the re-

quirements contained in paragraphs (1), (2), and (3) of

subsection (a) if (A) the application for assistance is in

behalf of a locality having a population of less than 25,-

000 according to the most recent data compiled by the

Bureau of the Census which is located either (i) outside a

standard metropolitan statistical area, or (ii) inside such

an area but outside an “urbanized area” as defined by

the Bureau of the Census (or as such definition is

modified by the Secretary for purposes of this title), (B)

the application relates to the first community develop-

ment activity to be carried out by such locality with

assistance under this title, (C) the assistance requested is

for a single development activity under this title of a

type eligible for assistance under title VII of the Hous-

ing Act of 1961 or title VII of the Housing and Urban

Development Act of 1965, and (D) the Secretary deter-

App. 49

mines that, having regard to the nature of the activity to

be carried out, such waiver is not inconsistent with the

purposes of this title.

(4) The Secretary may accept a certification from the

applicant that it has complied with the requirements of

paragraphs (5) and (6) of subsection (a).

(c) The Secretary shall approve an application for an

amount which does not exceed the amount determined

in accordance with section 106(a) unless—

(1) on the basis of significant facts and data,

generally available and pertaining to community

and housing needs and objectives, the Secretary

determines that the applicant’s description of such

needs and objectives is plainly inconsistent with

such facts or data; or

(2) on the basis of the application, the Secretary

determines that the activities to be undertaken are

plainly inappropriate to meeting the needs and ob-

jectives identified by the applicant pursuant to sub-

section (a); or

(3) the Secretary determines that the application

does not comply with the requirements of this title

or other applicable law or proposes activities which

are ineligible under this title.

* * *

(e) No grant may be made under this title unless the

application therefor has been submitted for review and

comment to an areawide agency under procedures es-

tablished by the President pursuant to title II of the

Demonstration Cities and Metropolitan Development

Act of 1966 and title IV of the Intergovernmental

Cooperation Act of 1968.

* * *

COMMUNITY DEVELOPMENT PROGRAM ACTIVITIES

ELIGIBLE FOR ASSISTANCE

Sec. 105. (a) A Community Development Program

assisted under this title may include only—

App. 50

(1) the acquisition of real property (including air

rights, water rights, and other interests therein)

which is (A) blighted, deteriorated, deteriorating,

undeveloped, or inappropriately developed from the

standpoint of sound community development and

growth; (B) appropriate for rehabilitation or conser-

vation activities; (C) appropriate for the preserva-

tion or restoration of historic sites, the beautifica-

tion of urban land, the conservation of open spaces,

natural resources, and scenic areas, the provision of

recreational opportunities, or the guidance of urban

development; (D) to be used for the provision of

public works, facilities, and improvements eligible

for assistance under this title; or (E) to be used for

other public purposes;

(2) the acquisition, construction, reconstruction,

or installation of public works, facilities, and site or

other improvements—including neighborhood

facilities, senior centers, historic properties,

utilities, streets, street lights, water and sewer

facilities, foundations and platforms for air rights

sites, pedestrian malls and walkways, and parks,

playgrounds, and recreation facilities, flood and

drainage facilities in cases where assistance for

such facilities under other Federal laws or

programs is determined to be unavailable, and

parking facilities, solid waste disposal facilities, and

fire protection services and facilities which are

located in or which serve designated community

development areas;

(3) code enforcement in deteriorated or

deteriorating areas in which such enforcement,

together with public improvements and services to

be provided, may be expected to arrest the decline

of the area;

(4) clearance, demolition, removal, and

rehabilitation of buildings and improvements

(including interim assistance and financing

rehabilitation of privately owned properties when

incidental to other activities);

App. 51

(5) special projects directed to the removal of

material and architectural barriers which restrict

the mobility and accessibility of elderly and handi-

capped persons;

(6) payments to housing owners for losses of ren-

tal’ income incurred in holding for temporary

periods housing units to be utilized for the reloca-

tion of individuals and families displaced by

program activities under this title;

(7) disposition (through sale, lease, donation, or

otherwise) of any real property acquired pursuant

to this title or its retention for public purposes;

(8) provision of public services not otherwise

available in areas where other activities assisted un-

der this title are being carried out in a concentrated

manner, if such services are determined to be

necessary or appropriate to support such other ac-

tivities and if assistance in providing or securing

such services under other applicable Federal laws

or programs has been applied for and denied or not

made available within a reasonable period of time,

and if such services are directed toward (A) im-

proving the community’s public services and

facilities, including those concerned with the

employment, economic development, crime preven-

tion, child care, health, drug abuse, education,

welfare, or recreation needs of persons residing in

such areas, and (B) coordinating public and private

development programs;

(9) payment of the non-Federal share required

in connection with a Federal grant-in-aid program

undertaken as part of the Community Development

Program;

(10) payment of the cost of completing a project

funded under title I of the Housing Act of 1949;

(11) relocation payments and assistance for in-

dividuals, families, businesses, organizations, and

farm operations displaced by activities assisted un-

der this title;

App. 52

(12) activities necessary (A) to develop a com-

prehensive community development plan, and (B) to

develop a policy-planning-management capacity so

that the recipient of assistance under this title may

more rationally and effectively (i) determine its

needs, (ii) set long-term goals and short-term objec-

tives, (iii) devise programs and activities to meet

these goals and objectives, (iv) evaluate the progress

of such programs in accomplishing these goals and

objectives, and (v) carry out management, coordina-

tion, and monitoring of activities necessary for

effective planning implementation; and

(13) payment of reasonable administrative costs

and carrying charges related to the planning and

execution of community development and housing

activities, including the provision of information

and resources to residents of areas in which com-

munity development and housing activities are to be

concentrated with respect to the planning and ex-

ecution of such activities.

(b) Upon the request of the recipient of a grant un-

der this title, the Secretary may agree to perform ad-

ministrative services on a reimbursable basis on behalf

of such recipient in connection with loans or grants for

the rehabilitation of properties as authorized under sub-

section (a)\4).

* * *

DISCRETIONARY FUND

Sec. 107. (a) Of the total amount of authority to

enter into contracts approved in appropriation Acts un-

der section 103(aX1) for each of the fiscal years 1975,

1976, and 1977, an amount equal to 2 per centum

thereof shall be reserved and set aside in a special dis-

cretionary fund for use by the Secretary in making

grants (in addition to any other grants which may be

made under this title to the same entities or for the

same purposes)—

App. 53

(1) in behalf of new communities assisted under

title VII of the Housing and Urban Development

Act of 1970 or title IV of the Housing and Urban

Development Act of 1968;

(2) to States and units of general local govern-

ment which join in carrying out housing and com-

munity development programs that are areawide in

scope;

(3) in Guam, the Virgin Islands, American

Samoa, and the Trust Territory of the Pacific

Islands;

(4) to States and units of general local govern-

ment for the purpose of demonstrating innovative

community development projects;

(5) to States and units of general local govern-

ment for the purpose of meeting emergency com-

munity development needs caused by federally

recognized disasters; and

(6) to States and units of general local govern-

ment where the Secretary deems it necessary to

correct inequities resulting from the allocation

provisions of section 106.

(b) Not more than one-fourth of the total amount

reserved and set aside in the special discretionary fund

under subsection (a) for each year may be used for

grants to meet emergency disaster needs under subsec-

tion (a)(5).

* * *