In the
United States Court of Appeals
For the Seventh Circuit

Nos. 98-2162 and 98-2314

NRC CORPORATION,

Plaintiff-Appellee, Cross-Appellant,

v.

AMOCO OIL COMPANY,

Defendant-Appellant, Cross-Appellee.



Appeals from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 93 C 1448--V. Sue Shields, Magistrate Judge.


Argued April 13, 1999--Decided March 9, 2000



      Before KANNE, ROVNER and DIANE P. WOOD, Circuit
Judges.

      ROVNER, Circuit Judge. For approximately thirty
years, Amoco leased land from NRC for a gasoline
service station. Near the end of the lease
period, the parties discovered that underground
storage tanks installed by Amoco had leaked,
contaminating the property. Amoco ultimately
agreed to remediate the property. NRC sued Amoco
for damages, and after a bench trial, the court
entered judgment for NRC and against Amoco./1
The court ordered Amoco to pay $528,000.81 for
NRC’s loss of use of the property, $13,000 for
NRC’s environmental response costs, and NRC’s
costs of the suit. The court declined to award
attorney’s fees to NRC. Amoco appeals the amount
of the award and NRC cross-appeals the amount of
loss of use damages, the attorney’s fees ruling,
and the court’s refusal to grant punitive
damages.

I.

      NRC owns 35 acres in Hamilton County, Indiana,
at the northwest corner of 96th and Meridian
Streets. In 1959, Amoco leased the very tip of
that large corner property, a .75 acre patch of
land, in order to operate a gasoline service
station. Because of two separate highway projects
completed by the State of Indiana during the
lease period, the parcel was twice reduced in
size through condemnation proceedings, first to
.36 acres and then to .327 acres. Amoco renewed
the lease several times over the years, with the
final lease period ending on March 31, 1989.
Amoco ultimately refused to renew the lease
because it wanted a larger parcel of land on the
same corner so that it could build and operate a
more modern service station. NRC refused to lease
additional land because it had a master plan for
the entire 35 acre parcel that did not include a
service station at that location. Up until that
time, the rest of the 35 acres was not developed
and was used for farming only.

      The lease permitted Amoco to install underground
storage tanks, and Amoco made use of such tanks
throughout the lease period. In December 1986,
thirty gallons of gasoline spilled onto the
property when the tanks were being filled. Amoco
cleaned the spill and reported it to the Indiana
Department of Environmental Management ("IDEM").
Shortly thereafter, Amoco installed monitoring
wells on the property, and although hydrocarbon
odors and gasoline smells were reported at two of
the wells, Amoco did not further investigate
until approximately two years later. In November
1988, well sampling revealed gasoline odors in
one well and three to four inches of "free
product" in two other wells./2 Testing done on
the well samples was completed in March 1989, and
revealed gasoline constituents in four of the six
wells. Amoco reported these results to IDEM that
same month. A hydrogeologist subsequently
recommended that Amoco remove the underground
storage tanks and that Amoco subject the property
to remediation, a process that would take a
minimum of one to three years.

      Amoco hired Soil Exploration Services ("SES") to
remove six underground storage tanks from the
property, five used to store gasoline and one
used to store waste oil. SES reported that there
was significant free product floating on the
water in the tank pit area and removed about 50
gallons from the site at that time. Amoco
installed pumps in the tank pit area to remove
hydrocarbons once a week. The company also
installed more monitoring wells to determine the
extent of the hydrocarbon contamination. The
contamination detected in these wells was
reported to IDEM. In June 1989, NRC asked Amoco
to enter into a written agreement to remediate
the property, and Amoco did not respond. More
wells and additional testing revealed more
contamination in October 1989. The Indiana
Department of Transportation then asked Amoco to
remediate the property and Amoco agreed to do so.
In March 1990, Amoco discharged SES from the
project and hired Groundwater Technology, Inc.
("GTI") to study the problem. GTI continued the
testing that SES had begun and tried to determine
the outer boundaries of the contamination. In
November 1990, NRC again sought a formal
commitment from Amoco to remediate the property,
and Amoco again failed to respond.

      In July 1992, after discussions between Amoco
and IDEM, and following assorted delays caused by
road construction, Amoco provided NRC with a
corrective action plan that it had submitted to
IDEM nearly a year earlier. Amoco and NRC
subsequently reached an agreement to give Amoco
access to the property to complete the
remediation, and Amoco hired GTI to complete the
task. Because of the delays, though, IDEM
withdrew its support for the corrective action
plan, fined Amoco and required it to submit an
updated plan. GTI developed another corrective
action plan which IDEM approved in December 1993.
After additional testing, Amoco submitted
revisions to the plan, and IDEM approved the
final corrective action plan in March 1994. The
remediation system was installed that same month
and at the time of the district court’s opinion
in April 1998, the system was still operating.
Amoco ultimately concluded through testing that
the contamination was confined to the leased
premises and had not spread to adjacent land or
groundwater.

      NRC sued Amoco for the loss of the use of the
property during the remediation process. After a
bench trial, the district court found that the
property would not attain its full fair rental
value until the cleanup was complete, which was
projected at the time of trial to occur in March
2000. The court found that buyers and renters
alike had difficulty measuring the risk
associated with contaminated property and
therefore avoided it. Lenders are similarly
loathe to deal with the uncertainties posed by
contaminated property, making a sale during
remediation even less likely than a lease. The
court thus ruled that the property was
unmarketable until IDEM approved the corrective
action plan, and remediation had actually begun.
During the remediation period, the court found,
the market demanded a full indemnification
agreement, and as of the time of trial no such
agreement had been reached between Amoco and NRC,
rendering the property unmarketable during that
time as well. The highest and best use of the
property was as part of a multi-acre tract,
according to the district court’s findings:

A reasonably sized area that would bear the brunt
of the stigma of possible contamination is an
area, including the Property, of approximately
two acres. Further, even without the threat of
contamination outside the Property, a prospective
buyer, tenant, or lender would not consider a
two-acre tract that did not include the Property,
because it is the Property’s corner location with
access onto both U.S. 31 and 96th Street that
will dictate the highest and best use if rezoning
is allowed. Thus, NRC has and will continue to
suffer loss of marketability of the two-acre
tract until the Property is remediated within
approved limits.

NRC Corp. v. Amoco Oil Co., No. IP 93-1448-C,
slip op. at 18 (S.D. Ind. April 7, 1998)
(internal cite omitted). The court calculated the
lease price of the two-acre parcel, and
determined that between March 1989 (when the
lease terminated) and March 2000 (when
remediation was projected to be complete), NRC
lost $528,000.81 in rent. Because Amoco agreed in
the lease to fully indemnify NRC for any and all
damages caused by the operation of the gas
station at the site, the court held Amoco liable
for that entire amount. The court also held Amoco
liable for $13,000 in "response costs," the
amount NRC paid to monitor Amoco’s compliance
with the corrective action plan. After allowing
NRC to recover its court costs as well, the trial
court declined to award NRC attorneys’ fees
incurred in the action or punitive damages. Both
parties appeal from the district court’s
judgment.

II.

      Amoco challenges the district court’s finding
that NRC was due damages on any land other than
the leased premises. Amoco contends that the
district court should have limited the damages to
the .327 acre leased parcel because the
contamination did not spread beyond that area.
Amoco also disputes the award of damages for loss
of use, faulting NRC for voluntarily declining to
use the property. According to Amoco, the
property could have been used for a number of
purposes during remediation, and NRC would have
recovered significant rent during that period.
Finally, Amoco claims the district court erred in
awarding damages for the period of time between
March 1994 and March 2000, positing that no
damages should be awarded once the remediation
had begun. NRC cross-appeals the amount of the
damage award, contending that the district court
undervalued the property in light of the
substantial probability that the land would be
rezoned to a higher use. NRC also appeals the
district court’s refusal to grant punitive
damages and attorneys’ fees.

A.

      Both sides agree that Indiana law governs this
dispute. After a bench trial, we review the
district court’s fact findings with great
deference, reversing only for clear error. See
Fed. R. Civ. Pro. 52(a); Petrilli v. Drechsel, 94
F.3d 325, 329 (7th Cir. 1996). We review
conclusions of law de novo. Petrilli, 94 F.3d at
329. The district court ruled that damages were
due for a two-acre parcel encompassing the .327
acres leased, on the theory quoted above, that
two acres was the smallest parcel that would bear
the brunt of the stigma of contamination, and
that no one would lease those two acres without
the .327 acre leased parcel which was situated on
the very corner of the property. Thus the
district court held Amoco liable for damages
beyond the leased premises. Amoco characterizes
this ruling as both factually and legally
incorrect. It is factually incorrect, according
to Amoco, because the record was insufficient to
support the view that such a two-acre parcel
existed and that NRC ever tried to market such a
parcel. It is legally incorrect, according to
Amoco, because, under Indiana law, stigma damages
are limited to the area leased. We will address
these claims together because the district court
relied on a legal theory that encompasses the
alleged factual deficiency.

      Amoco asks this Court to rely on the general
rule in Indiana that the proper measure of
damages for loss of use of property is the fair
rental value of that property during the time of
the injury. However, the parties bargained for a
different measure of damages when they entered
into a lease agreement with a broad
indemnification clause that held Amoco liable for
any damages to NRC arising from the operation of
the service station. The district court found
that Amoco is liable to NRC for all the damages
NRC incurred as a result of the contamination of
the site based on an indemnity clause in the
lease. The court did not simply rely on the
"unitary" nature of the property in awarding
damages; nor did the court rely on a theory of
stigma created by the contamination. The parties
vigorously contest the appropriateness of the
application of the unitary property theory or the
stigma theory to this case, but the district
court relied on something much simpler and more
straightforward. The lease contained an
indemnification clause that required Amoco to
indemnify and "save harmless the Lessor [NRC]
from all claims, mechanic liens, damages,
demands, actions, costs and charges arising out
of or by reason of the . . . operation of the
business herein authorized on the premises . . .
during the term of this lease." The court found
that the plain language of this clause required
Amoco to reimburse NRC for any damages caused by
the operation of the gas station. The court
concluded that "[t]here is no dispute that the
operation of the Amoco station caused
contamination on the site, and to the extent that
the presence of that contamination caused damages
to NRC, Amoco is liable for that damage." NRC
Corp., slip op. at 19-20. Nothing in this
provision limited Amoco’s liability to harm to
the leased premises, and the court therefore
charged Amoco with liability for all the damage
suffered by NRC due to the contamination.

      Two of NRC’s experts testified that the highest
and best use of the leased land was as part of a
two-acre parcel on the corner. The .327 leased
land provided the only entrance to those 1.673
acres and according to one appraisal expert, "The
Amoco site in itself, whatever remains of it, is
only important to the appraisal problem in my
view because of the fact that it’s an integral
part of a two-acre site that would be demanded in
the market place. It provides the only legal and
physical access that we would have to a corner
location there off of Meridian and 96th Street."
Tr. at 634. As the district court noted, the
contamination of the leased parcel affected the
surrounding 1.673 acres because no one would
lease that space without the road access and
visibility provided by the corner-location leased
parcel. Thus, when Amoco rendered the leased
parcel temporarily unusable, it also eliminated
NRC’s opportunity to lease or sell the
surrounding 1.673 acres. Although the court
borrowed language from the unitary theory, a
legal theory, in reaching this conclusion, this
was really a factual conclusion that Amoco
damaged NRC by reducing its opportunities to sell
or lease not only the .327 acre leased parcel but
also the immediately contiguous land. See United
States v. 105.40 Acres of Land, More or Less, in
Porter County, Indiana, 471 F.2d 207 (7th Cir.
1972) (applying the unitary theory in the eminent
domain context); City of Indianapolis v. Heeter,
355 N.E.2d 429 (Ind. Ct. App. 1976) (same). In
those cases, in order to value the condemned
property, the courts allowed the land owners to
show that the highest and best use of the land
was in combination with contiguous and non-
contiguous parcels. The courts held that the
market value of the condemned parcels should be
set by considering the effects of the surrounding
land on potential uses. Here, in a mirror-image
scenario, the court found that contamination on
the leased parcel affected the owner’s ability to
market surrounding land.

      Under the indemnification clause, the court
found that Amoco was liable for all damages
caused by Amoco’s use of the leased land as a
service station, not just the damages to the
leased parcel itself. Again, although the court
used the word "stigma" in finding that the
contamination affected the contiguous parcel, the
court did not find that the damages were based on
stigma, and the stigma cases are thus
inapplicable. See Adams v. Star Enterprise, 51
F.3d 417 (4th Cir. 1995) (land owners could not
recover under Virginia law under nuisance or
negligence theories for stigma caused by
underground oil spill without showing physical
impact on owner’s property or physical injury);
Berry v. Armstrong Rubber Co., 989 F.2d 822 (5th
Cir. 1993), cert. denied, 510 U.S. 1117 (1994)
(property owners could not establish nuisance,
trespass, or stigma action under Mississippi law
without evidence of physical damage to the
owner’s land). The fact that NRC could not prove
contamination beyond the boundaries of the leased
parcel was irrelevant to the district court’s
finding that the contamination on that parcel
eliminated NRC’s ability to sell or lease the
surrounding property. The court relied on the
indemnification clause and Amoco did not
challenge that reliance on appeal. Amoco thus
waived any challenge to that theory of damages,
and we affirm on that ground alone. United States
v. Neely, 980 F.2d 1074, 1082 (7th Cir. 1992) (to
preserve an issue for appellate review, a party
must alert the district court to the specific
grounds for the party’s argument).

B.

      Amoco also challenges the award of damages
because NRC could have been using the property
during remediation for any number of uses. Amoco
faults NRC for voluntarily declining to market
the property. For example, Amoco itself wanted to
lease the property to build and run a larger,
more modern service station. Amoco also argues
that the property could have been used as a
parking lot or landscaping while remediation went
on just below the surface. The district court
took a different view of the evidence, and we
reverse the district court’s fact findings for
clear error only. Petrilli, 94 F.3d at 329.
According to the district court’s findings,
before the corrective action plan was approved,
it was impossible for potential buyers, lessees,
and lenders to assess the risks associated with
the contamination, and thus the property was
unmarketable until that time. Even after a
corrective action plan is approved and
remediation has begun, the district court found
that "the market demands a full indemnification
agreement in order to make contaminated property
marketable." NRC Corp., slip op. at 16. Because
the parties had not entered into a formal
indemnification agreement (for the post-lease
period), the property was unmarketable until
remediation was complete. Amoco contends that
there is no support in the record for the
proposition that the market demands a full
indemnification agreement.

       NRC counters with substantial evidence
supporting the decreased value of contaminated
property, both before and during remediation. For
example, Amoco’s appraiser agreed that
contamination blocks marketability, and that
prospective purchasers, developers and lenders
will require evidence that the remediation has
been completed and approved by IDEM. Experts
testified consistently that until the corrective
action plan was approved in March 1994, the
property was unmarketable. After that time, while
the property was undergoing remediation,
uncertainty remained. Testimony demonstrated that
lenders would be reluctant to get behind the
property without guarantees that remediation was
working. During the remediation, the progress
reports Amoco submitted to IDEM showed
fluctuations in contaminant levels. Sometimes
levels were lower, but sometimes they were
higher, so that during the process there was
uncertainty as to the effectiveness of the
remediation. The district court did not stretch
far in inferring that the market would demand
indemnity during this period in order to make the
property marketable. Because the district court’s
finding is supported by the evidence, we find no
error.

C.

      We now turn to NRC’s cross-appeal. NRC
complains that the district court undervalued the
two-acre parcel. The district court projected
revenue for the parcel, setting the value at
$3.95 per square foot in 1989, and increasing
that amount 5% per year. The court agreed with
one expert that the fair market value of a two-
acre tract would have been $12.54 per square foot
as of March 1989 had there been a change in
zoning for the property. The court further found
that a "change in zoning is highly probable, and
this probability enhances the square foot value
of the Property by 20%." NRC Corp., slip op. at
18. NRC urges us to find that if the chance of
rezoning was "highly probable," then the court
should have valued the land at $12.54 per square
foot as of March 1989, with a 5% increase for
each subsequent year.

      NRC’s reasoning is faulty, however. In order
for the district court to grant full value for
the rezoning, the probability would have to be
100% that the land would be rezoned. Clearly, the
court did not agree with this assessment, finding
that the high probability was approximately 20%.
A "high probability" does not mean 100% or even
more than 50%. It is a subjective term that the
district court rendered objective by assigning it
a value of 20% under the facts of this case. This
is a fact finding, and we reverse the district
court’s findings of fact for clear error only.
NRC fails to convince us that the district court
erred in finding that there was less than a 100%
probability that the land would be rezoned. We
reject NRC’s claim for damages for lost
opportunity cost for the same reason. The
district court’s decision was based on fact
findings, and lost opportunity cost is an
inherently speculative amount that the district
court was well within its discretion to reject as
an element of damages on these facts.

D.

       The district court granted Amoco’s motion for
judgment on the evidence on NRC’s claim for
punitive damages at the close of NRC’s case-in-
chief. The district court found that, even
accepting as true all of NRC’s allegations of
Amoco’s conduct, "that still does not rise to the
level of conduct that is necessary for punitive
damages." Tr. at 836. NRC contends that the trial
court relied on USA Life One Ins. Co. of Indiana
v. Nuckolls, 682 N.E.2d 534 (Ind. 1997), which
was inapplicable. Instead, NRC urges us to find
that it should have been allowed to prove
punitive damages under Gray v. Westinghouse
Electric Corp., 624 N.E.2d 49 (Ind. Ct. App.
1993).

      Under Nuckolls, punitive damages may be awarded
in a contract case only if the plaintiff pleads
and proves an independent tort and only if there
is clear and convincing evidence that the
defendant acted with "malice, fraud, gross
negligence, or oppressiveness which was not the
result of a mistake of fact or law, honest error
or judgment, overzealousness, mere negligence, or
other human failing." 682 N.E.2d at 541. Gray was
a nuisance case, not a contract case, and NRC
thus argues that it is more applicable than
Nuckolls. Under Gray, punitive damages may be
awarded if the plaintiff proves the defendant
acted with a quasi-criminal state of mind or
wilful and wanton misconduct, which under
existing conditions, the defendant knows will
result in injury. "Willful and wanton misconduct
need not include malice or intent to injure.
Further, conduct which is oppressive or amounts
to gross negligence justifies punitive damages."
624 N.E.2d at 54-55. Interestingly, Gray cites a
breach of contract case for the standard for
punitive damages, and we therefore doubt that
Gray is good law after the Indiana Supreme Court
ruled in Nuckolls. In any case, this was a breach
of contract case, and the court awarded damages
under the indemnity clause of the lease contract.
The court specifically stated that Amoco’s
conduct did not rise to the level necessary under
Nuckolls, and we will not overturn that finding
unless clearly erroneous. Nothing in the record
suggests error, and so we affirm the district
court’s denial of punitive damages.

E.

      Finally, we address NRC’s claim for attorneys’
fees. NRC claims that the same conduct justifying
an award of punitive damages justifies an award
of attorneys’ fees under the indemnification
clause. According to NRC, Indiana law allows an
indemnitee to recover from the indemnitor the
costs of prosecuting the indemnity action,
including attorneys’ fees. In the district court,
NRC sought attorneys’ fees under two statutory
provisions and under the common law. The district
court rejected those theories and NRC does not
challenge those rulings on appeal, instead
relying on the indemnification agreement as the
source of fees. But NRC did not raise that
argument below and therefore waived it. Neely,
980 F.2d at 1082. Even had NRC preserved this
argument, however, the result would be the same.
The indemnity case on which NRC primarily relies
was founded on an agreement containing an express
provision for attorneys’ fees. There is no such
express provision in this indemnity agreement,
and thus NRC is not entitled to fees under the
lease. See Zebrowski & Assoc., Inc. v. City of
Indianapolis, 457 N.E.2d 259 (Ind. Ct. App.
1983). We thus affirm the district court’s
refusal to grant attorneys’ fees to NRC.

III.

      In sum, the district court did not clearly err
in finding Amoco liable under the lease for all
of the damages caused by contamination of the
leased premises, including damages for NRC’s
inability to lease or sell the property
immediately surrounding the leased parcel. Nor
did the district court err in awarding damages
for the period of time after remediation had
begun, while there was still great uncertainty as
to the success of the remediation process. We
also affirm the district court’s measure of
damages for the property, which the court
enhanced based on a 20% probability that the land
could be rezoned. Finally, we find that the court
did not err is refusing to award punitive damages
or attorneys’ fees.

AFFIRMED.
/1 The parties consented to a trial before a
magistrate judge pursuant to 28 U.S.C. sec.
636(c).

/2 "Free product" refers to gasoline and its
constituents.
