Why Exxon Case Will Likely Become A Plaintiff Favorite

For decades, commentators have warned that California’s discovery rule exception has been swallowing statutes of limitations. See, e.g., Stephen V. O'Neil, Accrual of Statutes of Limitations: California's Discovery Exceptions Swallow the Rule, 68 Cal. L. Rev. 106 (1980).

The state's Second District Court of Appeal recently took another step along this digestive path in Alexander v. Exxon Mobil, No. B242458 (Sept. 24, 2013), expanding the discovery rule exception in toxic tort cases involving allegations of personal injury. The decision will likely become a favorite of the toxic tort plaintiffs’ bar because of the Catch-22 it creates for responsible property owners who want to do the right thing and clean up their properties.

To understand why, some background is needed. Under California law, the discovery rule delays the accrual of the statute of limitations until “the plaintiff suspects or should suspect that [his or] her injury was caused by wrongdoing, that someone has done something wrong to [him or] her.” (Jolly v. Eli Lilly & Co., 44 Cal. 3d 1103, 1110 (1988).)

In the toxic tort context prior to Alexander, the “something wrong” has been the existence of contaminants in the environment. See CAMSI IV v. Hunter Technology Corp., 230 Cal. App. 3d 1525 (1991), and Mangini v. Aerojet-General Corp., 230 Cal. App. 3d 1125 (1991). Thus, the rule has been that the statute of limitations starts running when the plaintiff has sufficient information to put a reasonable person on notice of the existence of the contamination.

Alexander held that such notice may be insufficient under certain circumstances. Most of the plaintiffs in the Alexander case were residents of an apartment complex near Los Angeles County. From 1924 to 1962, various Mobil Oil Corporation-related entities operated an above-ground storage tank farm adjacent to the apartment complex. The plaintiffs alleged that hydrocarbon releases from the tank farm caused a wide range of personal injuries and property damage.

It was undisputed that approximately 100 of the Alexander plaintiffs knew of the contamination more than two years (the applicable statute of limitations) before filing suit. As a result, the trial court sustained defendants’ demurrers without leave to amend.

Fifty-eight of the dismissed plaintiffs appealed the trial court’s ruling, and the appeals court reversed, concluding that a trier of fact might find that although the plaintiffs knew of the contamination, they did not know or have reason to know that the contamination “was capable of causing them physical injury.” P. 26.

In reaching this conclusion, the court distinguished CAMSI IV and Mangini, supra, two leading cases in which appellate courts held that notice of the existence of environmental contamination foreclosed the application of the discovery rule to save time-barred property damage claims.

The court noted that the “injury” in both of these cases “was the existence of the pollutants, which devalued their property.” In contrast, the Alexander plaintiffs’ personal injury claims required them to link the existence of the pollutants to the alleged adverse health effects. The information that the plaintiffs possessed in April 2008, two years before their complaint was filed, was not as a matter of law sufficient to make such a connection.

On its face, this seems a logical conclusion based on the distinction between property damage cases, where contamination is the injury, and personal injury cases, where contamination may or may not cause an injury.

A closer reading, however, shows how this creates a Catch-22. As part of the tank farm cleanup, the Alexander defendants/respondents notified the plaintiffs, residents of the apartment complex, of the contamination:

“residents were specifically informed that the contaminants posed no risk to their health. Indeed, respondents maintain that … residents have always been told that the contamination poses no risk to human health because, in [respondents’] view, it has never posed any such risk.” P. 21.

But telling the truth — that respondents believed the contamination did not pose a health risk — is precisely what caused defendants/respondents to lose on appeal: The appellate court found that the “no risk” statement made it “improper to presume that any reasonably prudent person ... would, as a matter of law, suspect that the contamination posed a risk to human health.” P. 27.

Again, this seems logical at first blush, but what is the responsible property owner engaged in a cleanup to do? Issue a notice that says, “The property is contaminated; we are cleaning it up; we do not believe it poses a risk, but you should hire a lawyer to make sure?”

The complaint in Alexander indicated that once the plaintiffs’ lawyer was contacted, he immediately began investigating and within the same month, produced “a factual basis for [plaintiffs’] claims.” P. 19, fn. 8. Less than two years later, over 700 plaintiffs filed suit. P. 2.

The choice is unenviable. Either effectively waive the statute of limitations or send hundreds of plaintiffs into the arms of the toxic tort plaintiffs’ bar even though the best available information indicates the contamination poses no risk.

Assuming the best available information turns out to be right, and leaving aside the obvious anguish and unrecoverable legal expense inflicted on the responsible property owner as a consequence of the Alexander rule, why should any of the rest of us care?

The answer lies in the fact that the majority of contaminated property cleanups are performed voluntarily, that is, without governmental compulsion. The risk imposed by Alexander will be one more factor weighing against making a voluntary decision to perform such a cleanup, and society will end up with more othballed underproductive properties, an unwelcome result anytime, but especially in light of the current fragile economy.

Unless and until there is a response to Alexander from the Legislature or a higher court, it will be difficult for responsible property owners in personal injury toxic tort suits to win based on the statute of limitations at the demurrer stage. What it will take — in the wake of Alexander — to win at the summary judgment stage remains to be seen.