
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 92-2276                         ALLENS MANUFACTURING COMPANY, INC.,                                Plaintiff, Appellant,                                          v.                                     NAPCO, INC.,                                 Defendant, Appellee.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF RHODE ISLAND                [Hon. Raymond J. Pettine, Senior U.S. District Judge]                                          __________________________                                 ____________________                                        Before                                 Breyer, Chief Judge,                                         ___________                           Friedman,* Senior Circuit Judge,                                      ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Michael  J. McGovern with  whom Indeglia  & McGovern  was on brief            ____________________            ____________________        for appellant.            Mark A.  Pogue with whom  Deming E. Sherman  and Edwards &  Angell            ______________            _________________      _________________        were on brief for appellee.                                 ____________________                                   August 25, 1993                                 ____________________        _____________________        *Of the Federal Circuit, sitting by designation.                       BREYER,  Chief  Judge.   Allens  Manufacturing Co.                                ____________             brought this  diversity action against Napco, Inc., claiming             that  Napco failed  to  provide it  with  proper "clean  up"             equipment,  as promised, and on time.  Allens adds that this             failure is responsible for a  significant part of a $210,000             fine  that  Allens  has  agreed  to  pay  the  Environmental             Protection  Agency  ("EPA").    After  listening  to Allens'             proposed evidence about damages -- evidence designed to show             for  what portion of the  fine Napco was  responsible -- the                  ____________             district  court   ruled  that   Allens'  evidence   was  not             sufficient to pinpoint Napco-caused damages with "reasonable             certainty."    It then  granted  Napco's  motion to  exclude             evidence of the fine, at which point the parties agreed that             the court should dismiss the complaint for failure to allege             the  jurisdictionally-necessary $50,000  harm.  28  U.S.C.               1332(a). Allens,  having reserved the right  to appeal, does             so.   It asks us to review  the court's evidentiary ruling.              We find the ruling lawful, and affirm the court's judgment.                                          I                                      Background                                      __________                       Our review  of the rather skimpy  record before us             on appeal  suggests the  following: Allens makes  metal belt             buckles, shoe  buckles, and  other items, through  processes                                         -2-                                          2             that   generate  waste  water  containing  pollutants.    In             February  1985  Allens  ordered  from Napco  a  waste  water             treatment system that Napco installed during 1985, and which             began to operate  in early 1986.    In the meantime,  Allens             apparently   violated   federal   environmental  rules   and             regulations,  some  governing  waste  water  discharges  and             others setting forth reporting requirements.                       The record suggests that by 1989, EPA had compiled             a list  of one hundred or more separate violations committed             by Allens, which  took place  in more  than fifty  different             months,  between   September  1981  and  June   1989.    EPA             apparently contemplated possible  fines for these violations             amounting to  $384,000.  Allens' counsel then  wrote to EPA,             pointing  out that Allens had "acted in good faith," was not             "recalcitrant," and  had "cooperated with .  . . authorities             to  achieve compliance  as expeditiously  as possible."   He             suggested a "penalty . . . in the $50,000 to $65,000 range."             EPA  offered to settle with  Allens for a  fine of $125,000,             but Allens refused.                         EPA then referred the  matter to the Department of             Justice  ("DOJ").   DOJ insisted  on considerably  more than             $125,000.  Allens and DOJ ultimately entered into a  consent                                         -3-                                          3             decree, in  which, as we have  said, Allens agreed to  pay a             fine of $210,000.                       Subsequently, Allens filed this  lawsuit, claiming             that  Napco failed  to live  up to  its promises  to install             clean-up equipment, and  seeking reimbursement for the  fine             (and related costs) insofar as the fine reflects "discharge"             violations taking place after September 1985 (by which time,             according to Allens, Napco  should have had proper equipment             operating).                        Before  the case  went  to trial,  Napco told  the             court that  Allens could not show  with reasonable certainty             how much of the fine resulted from Napco's claimed failings.              Without some such showing,  Napco argued, the $210,000 fine             figure was  misleading and prejudicial.   And, it  asked the             court to keep  evidence of that figure from the  jury.   The             court  itself  then heard  Allens'  evidence  on the  matter             (consisting of several EPA documents and the testimony of an             expert).   It agreed with Napco that this evidence failed to             prove damages with  "reasonable certainty,"  and it  granted             Napco's evidentiary motion.  Then, the parties having agreed             that, given  the evidentiary ruling, Allens  could not prove             significant  harm,   the court  dismissed the  complaint for             failure to  set forth  a "matter in  controversy exceed[ing]                                         -4-                                          4             the sum or  value of $50,000."   28 U.S.C.    1332(a).   See                                                                      ___             Gibbs  v. Buck,  307 U.S.  66,  72 (1939)  (plaintiff's good             _____     ____             faith allegation that the  matter in controversy exceeds the             jurisdictional  amount  requirement  suffices  to  meet  the             amount  in  controversy test,  unless challenged);  Dept. of                                            _________________    ________             Recreation & Sports v.  World Boxing Ass'n, 942 F.2d  84, 88             ___________________     __________________             (1st  Cir.  1991) (citing  Gibbs,  307  U.S.  at  72)  (once                                        _____             jurisdictional amount  is  challenged, plaintiff  must  show             facts  sufficient to show that it is not a "legal certainty"             that  the  claim  involves   less  than  the  jurisdictional                                          ____             amount).   See  also 14A  Wright,  Miller &  Cooper  Federal                        _________                                 _______             Practice and Procedure    3702 at 26-28  (favoring policy of             ______________________             according trial judges  broad discretion as  to the mode  of             determining jurisdictional fact issues).                        Allens appeals.    Allens  argues  only  that  its             proposed evidence  is sufficient  to prove damages  with the             requisite degree of certainty.  We have examined that single             claim.  We conclude  that the district court's determination             of  that  evidentiary matter  is legally  correct.   And, as             neither  party raises  any  other objection,  we affirm  the             complaint's dismissal.                                         -5-                                          5                                          II                                     The Evidence                                     ____________                       Allens,  in  its effort  to  show  that Napco  was             responsible for some reasonably  identifiable portion of the             $210,000 fine, presented two EPA documents and the testimony             of  one expert.  The first  document quantifies the economic             "benefit" that Allens obtained as a result of its failure to             follow  EPA rules and  standards.  The  second EPA document,             called a "gravity calculation,"  lists individually each  of             56 months,  refers to Allens' violations  during that month,             and sets forth a possible fine for each month, the amount of             which  varies  with the  number  of  violations during  that             month, their duration, their significance, and the harm they             may have caused.   The "benefit" amounted  to about $94,000.             The "gravity  calculation" totalled $290,000.   Their sum is             approximately $384,000.                         The expert, a former EPA lawyer, interpreted these             documents  in light  of EPA's  "Policy on  Civil Penalties,"             reprinted  in 17  ELR 35,083  (Feb. 16,  1984), and  his own             _____________             experience  at EPA.   He apparently conceded  that the first             document  (showing a  "benefit"  to Allens  of $94,000)  had             little to do with Napco-related violations.  He analyzed the             second  document --  the "gravity  calculation" --  month by                                         -6-                                          6             month.  He added together all penalties for any month (after             September 1985)  that referred only to discharge violations.             He allocated  penalties in  any (post-September  1985) month             that  showed  both "discharge"  and  "reporting" violations,             between those two categories.   He then added up  the total.             He  found  that,  of  the  "gravity calculation"'s  $290,000             total,    approximately   $190,000    reflected   "discharge             violations"  occurring after  September 1985.   He concluded             that Napco-related violations amounted to $190,000, or about             half, of the two documents' $394,000 total.                         The expert recognized that  the final fine was not             $394,000; rather, it  was $210,000.  He  said, however, that             since Napco-related violations accounted for about  half the             two documents' $394,000, they  likely accounted for half the             final  $210,000  fine.    That  is  because,  in  his  view,             adjustments to  the $394,000 figure likely reflected similar             treatment  of  both   Napco-related  and   non-Napco-related             violations.     That is  to  say (in  the words  of  Allens'             brief),  "a reduction  of the  original fine  calculation no             more altered the ratio  of discharge to reporting violations             than  removing a  slice of  mince meat  pie would  alter the             ratio of apples to raisins in the remaining pie."                                         -7-                                          7                                         III                            The Problem with the Evidence                            _____________________________                       The basic  problem with this evidence  lies in the             fact  that  the  EPA  did  not  fine  Allens  a hypothetical             $394,000.  Rather,  it proposed  a fine of  $125,000.   Then             DOJ,  after consulting with EPA, ended up imposing a fine of             $210,000.   The record  does not explain how  the EPA or DOJ             arrived at these latter, actual, fine amounts.   Indeed, the             record  offers no more support  for the pro  rata (or "mince                                                     _________             meat  pie")  theory  than   it  offers  for  other,  equally             plausible  (and  equally  speculative)  theories  that would             produce dramatically different results.                        We concede  that, in  the absence of  any evidence             about  what actually  happened,  one might  believe, as  the             expert suggested,  that the  proposed  $125,000 fine  simply             reflected  the fact  that  EPA's  independent  authority  to             negotiate a  settlement  has a  $125,000 ceiling,  40 CFR                122.41(a)(3), and that EPA  reduced all the elements of  the             $394,000  calculation  pro  rata  in  order  to  reach  this                                    _________             ceiling.  On the other  hand, it is at least as  likely that             EPA,  in reaching  the  $125,000 figure,  attached different             degrees   of  significance  to  different  elements  of  the             $394,000  calculation.   EPA's  Policy  on  Civil  Penalties                                         -8-                                          8             states that EPA will adjust initially calculated ("benefits"             plus  "gravity") fine amounts,  in light of  such factors as             (1) the violator's history  of cooperation or recalcitrance,             as  "indicated through  pre-settlement action,"  (2) whether             actions  were negligent  or wilful,  and (3)  the violator's             ability  to pay. See 17 ELR 35,083.   And here, Allens could                              ___             make (and Allens'  counsel did make) strong arguments to EPA             that  Allens' discharge violations were unintended and minor                           _________             (not   "exceed[ing]   the   effluent  limitations   by   any             significant degree").   If EPA accepted  these arguments, it             might  have proved  more  willing to  forgive the  discharge             violations than the  reporting violations  for which  Allens             offered  no excuse.   Or, even  if it  did not  accept these             arguments, EPA  might have placed more  weight on forfeiting             "benefits" than on a calculation of "gravity."                       Similarly, EPA  and DOJ might have  arrived at the             final  $210,000 figure  by  increasing pro  rata a  $125,000                                                    _________             figure  (or reducing pro rata the initial $384,000).  But it                                  ________             is just as plausible, if not more plausible, to believe that             they  arrived at  that figure  in light  of Allens'  lack of             cooperation,  or   "recalcitrance"  as  revealed   in  "pre-             settlement  action,"  and  potentially increased  litigation             costs for the government.   And, these factors may  have had                                         -9-                                          9             nothing  to  do with  discharge  violations after  September             1985.                         The upshot  is that we  do not know  what actually             led  EPA  and  DOJ  to  end  up with  a  fine  of  $210,000.             Moreover,  this  uncertainty reflects,  not closely-balanced             evidence, but a lack of evidence, for the record contains no                             ____             evidence about what actually happened, nor does it set forth             evidence of any agency rule, pattern, or practice indicating             that pro rata reduction or increase is the norm.  The result                  ________             is  that we  can only  speculate about  the extent  to which             EPA's "mitigating" or "aggravating" factors may have applied             in  respect  to  each  of   the  many  (1981  through  1989)             violations that  initially called for a fine,  and about the             extent  to which  those factors  may have  played a  role in             determining the ultimate fine  level.  More importantly, the             expert  could do  no  more than  speculate,  for he  had  no             personal  knowledge about  how EPA  calculated the  ultimate             fine,  nor did he have any special reason for believing that             these factors  applied pro rata to  every element identified                                    ________             in the  "benefit" and "gravity" calculations.   Finally, the             experienced trial  judge decided  that the jury,  too, would             have  to  speculate  in  order  to  determine  the  level of             damages.  And,  for the  reasons stated, we  agree with  his                                         -10-                                          10             conclusion   --  that  the  plaintiff's  evidence  does  not             identify those  damages with the "reasonable certainty" that             the law  requires. See National  Chain Co. v.  Campbell, 487                                ___ ___________________     ________             A.2d  132, 134-5  (R.I. 1985)  (damages must  be established             "with reasonable degree of certainty"  and plaintiff "cannot             rely  upon  speculation" in  order  to  prove his  damages);             Restatement (Second) of Contracts   352 (1981) ("Damages are             _________________________________             not recoverable for loss beyond an amount  that the evidence             permits to be established with reasonable certainty").                       Allens raises one final  point.  It says  that the             district court should not  have insisted that it demonstrate             damages to  a "reasonable  certainty," for  in doing  so, it             permits Napco to benefit  from uncertainty caused by Napco's             own  conduct.   See  Eastman  Kodak  Co. v.  Southern  Photo                             ___  ___________________     _______________             Materials  Co., 273  U.S.  359, 379  (1927) ("[A]  defendant             ______________             whose   wrongful  conduct   has   rendered   difficult   the             ascertainment  of  the  precise   damages  suffered  by  the             plaintiff, is not entitled  to complain that they cannot  be             measured  with the  same  exactness and  precision as  would             otherwise be  possible"); U.C.  Castings Co. v.  Knight, 754                                       __________________     ______             F.2d  1363,  1374  (7th  Cir.  1985)  (same).    The  short,             conclusive answer to this claim is that Napco's conduct  did             not create, nor can  one expect Napco to have  foreseen, the                                         -11-                                          11             present problem.  Rather,  Allens has found it  difficult to             prove damages because  EPA will not permit its  officials to             testify, 40  C.F.R.    2.403,  2.404(a), and Allens  did not             insist  that EPA  publicly  explain (perhaps  in the  decree             itself)  the basis for calculating  the fine.   Napco is not             responsible.                       In  sum, the  district  court properly  found that             Allens'   proposed   evidence   about   damages   failed  to             demonstrate  damages to  a reasonable  degree  of certainty.             That being so, the court could  properly exclude evidence of             the  $210,000 fine  (presumably  on  grounds of  "prejudice"             overcoming "relevance,"  see Fed.  R. Evid.  403).   And the                                      ___             parties, in  effect, agree  that, without the  evidence, the             district  court  could  dismiss  the  complaint  for failure             properly  to meet  the  $50,000 jurisdictional  requirement.             For these reasons, the judgment of the district court is                       Affirmed.                       ________                                         -12-                                          12
