Holdgrafer v. Unocal
Filed March 4, 2008, Second District, Division Six,
Cite as 2008 SOS 1451

Punitive Damages Award Reversed, Remanded in Contamination Case

The issue of the case stemmed from multiple claims filed by spouses Garry and Evelyn Holdgrafer (Holdgrafers) against Unocal Corporation, an oil company. The action includes claims for private nuisance, trespass, negligence, and unfair business practices.

The claims arose from a complaint of soil and groundwater contamination under a portion of the Holdgrafers’ property. The contamination was associated with either past pipeline leaks in the area or migration from a nearby tank farm.

Before trial, Unocal sought summary adjudication or negotiation of the punitive damages claims on the ground that ‘there was no clear and convincing evidence that Unocal acted with malice, fraud or oppression in causing or responding to the contamination of the property’.

In response, the Holdgrafers submitted declarations and testimony from other lawsuits related to three spills that occurred on other Unocal pipelines at its Guadalupe and Avila Beach facilities in 1990 and 1992 (the Guadalupe and Avila Beach evidence).

Based on the testimony of the Holdgrafers, there was evidence to prove Unocal’s corporate pattern and practice of leaving contamination in place, concealing known contamination, suppressing its public discovery, and intentionally delaying any meaningful investigation or remediation for as long as possible.

The trial court denied the summary adjudication sought by Unocal.

Further the court ruled, after motions in limine by Unocal, that the Holdgrafers could present evidence regarding the following:

• corrosion damage and leaks on Unocal’s Guadalupe and Avila Beach pipelines


• Unocal’s knowledge of those leaks and its failure to make adequate and timely repairs


• evidence that Unocal concealed leaks or contamination to avoid responsibility for cleaning them up.

In the first phase of trial, the jury found that Unocal was equitably estopped from asserting the statute of limitations as a defense to the lawsuit. The jury also found that the estoppel period began in 1990 when Unocal responded to a demand letter from the Holdgrafers.

In the second phase, the jury found that Unocal’s contamination of the Holdgrafers’ property constituted a permanent nuisance and trespass, and that Unocal was negligent. The Holdgrafers were awarded $564,348 in damages for past economic loss, and $2 million for the diminished value of their property. The Holdgrafers’ unfair business practices claim was settled for an undisclosed amount.

In the third phase, the jury found in favor of the Holdgrafters and awarded punitive damages of $10 million, which the court remitted to $5 million.

In review, the Second District court of appeal reversed in part, holding that the punitive damages award violated Unocal’s due process rights.

The court of appeal initially concluded that Unocal was estopped from asserting limitations as a defense because the company made representations that it would re-negotiate the disputed area consistent with regulatory requirements, and it would also pay any actual future damages.

The punitive damages award, however, violated Unocal’s due process rights. According to the appeals court, the Guadalupe and Avila Beach evidence should have been excluded from trial because it involved deplorable conduct that had nothing to do with the conduct that harmed the Holdgrafers.

Further, the court noted that such conduct was very much different from the conduct in the case, in which Unocal reported an oil spill to the state and all of the affected property owners.

Furthermore, the Guadalupe and Avila Beach evidence was too dissimilar to the evidence presented regarding Unocal’s conduct in causing and responding to the contamination of the Holdgrafers’ property and therefore should have been excluded.

In regard to the reduction of punitive damages, the court admonished Unocal because the challenged evidence eventually proved both entitlement to punitive damages and its amount. Instead, the action had to be remanded for a new trial on punitive damages.

The court held that a punitive damages award violated due process where the jury was effectively invited to punish an oil company for environmental contamination that injured persons not a party to the suit and for disreputable conduct unrelated to that which harmed the plaintiff property owners.

The court held further that in order to comply with due process the proscription against “dissimilar acts” evidence in punitive damages cases must apply to both the jury’s predicate determination of punitive damages liability and its subsequent assessment of the amount of punitive damages to be awarded.

The Second Appellate District therefore reversed a judgment in part and remanded the punitive damages award back to the trial court for determination.