Jaasma v. Shell Oil Co.

On June 28, 2005, the United States Court of Appeals for the Third Circuit issued a decision in Jaasma v. Shell Oil Co. The matter was appealed to the Third Circuit by the plaintiffs, Alice Jaasma and the Trust of Ralph McEwan after the District Court had dismissed their case against the defendants, Shell Oil Company and Motiva Enterprises, LLC, and granted the defendants a judgment as a matter of law pursuant to Federal Rule of Civil Procedure 50(a). In evaluating whether the District Court’s dismissal of the plaintiffs’ case was appropriate the Third Circuit addressed a number of issues.

First, the Third Circuit inquired into whether a reasonable jury could find that the failure of defendants, who leased and operated a gas station on the premises, to provide landlord with the true environmental status of the leased premises and obtain a No Further Action Letter from the NJ Department of Environmental Protection following termination was a breach of their obligations under the lease to (a) comply with all applicable environmental laws and (b) return the premises to its original state. The Third Circuit answered this first question in the affirmative. According to the Court, based upon the text of the lease agreement and the parties’ course of dealing, a reasonable jury could determine that compliance with all applicable environmental laws includes a duty to produce evidence and reports as necessary for the Department of Environmental Protection to issue an NFA. The Court further stated that a reasonable finder of fact might conclude that the term “original state” required that the property be free from the impediments that would render it unmarketable and that the property could not be fully marketable in the absence of an NFA where one was required by law or regulation.

The second issue that the Third Circuit evaluated was whether New Jersey law recognizes loss of use as a measure of damages for breach of a lease agreement resulting in uncertainty impairing the marketability of real property. Here, as well, the Court answered affirmatively, concluding that the District Court erred by limiting its assessment of damages to diminution of value or cost of environmental remedial work and thereby ignoring damages for temporary loss of use. Indeed, even in the absence of actual discharge, a claim may be recognized under New Jersey law for the period of uncertainty following a pollution incident, especially where such uncertainty is due to an ongoing investigation..

Additionally, the Third Circuit assessed issues related to the mitigation of damages and the exclusion of expert testimony, and determined that the District Court abused its discretion in granting to the defendants a judgment as a matter of law.

In light of the foregoing, the Third Circuit reversed the decision of the District Court and remanded the case for further proceedings.

The decision in Jaasma v. Shell Oil Co. was discussed in the New Jersey Legal Update – Podcast #1 on July 1, 2005. This podcast also discussed other recently issued decisions that will have an impact on real estate in New Jersey.