Appellate Court Affirms Liability in North Carolina Nuisance Case; Smithfield Announces Settlement

Originally published by Tiffany Dowell.

 

The United States Court of Appeals for the Fourth Circuit issued a decision recently in McKiver v. Murphy-Brown, LLC, one of the numerous nuisance lawsuits filed in North Carolina involving neighbors claiming nearby hog farms constituted a nuisance.  Shortly thereafter, the defendants announced a settlement had been reached in all of the pending North Carolina hog farm nuisance cases against Murphy-Brown, LLC.

Image by Borko Manigoda from Pixabay

If this is a topic of interest, you’ll want to check out our Ag Law in the Field Podcast.  North Carolina Farm Bureau’s Jake Parker has been a recurring guest on the show to help walk us through these cases.  He was first on Episode #37 in 2018 discussing the lawsuits generally and the first two jury verdicts.  He then returned for Episode #48 in January 2019 to discuss the rundown of the next two appeals and filing of the Fourth Circuit appeal that is the subject of this blog.  Finally–mark your calendars as Jake will be back again on January 7, 2021 to bring us up to speed on the appellate decision, settlement, and the ongoing litigation regarding North Carolina’s amended Right to Farm statute.

Background

Murphy-Brown, LLC (a Smithfield subsidiary) is a commercial hog producer that contracted with Kinlaw Farms (Kinlaw) to operate a hog feeding facility in Balden County, North Carolina.  The growers who contract with Murphy-Brown agree to comply with certain required operating procedures.  Kinlaw had approximately 15,000 hogs annually.  Animal waste was stored in open air pits or lagoons.  As required by Murphy-Brown’s procedures, Kinlaw would periodically drain waste from the lagoons and spread it on fields on the Kinlaw property.  Although this practice is now disallowed in North Carolina, Kinlaw Farm was “grandfathered in” to being allowed to continue this practice under North Carolina law.  Murphy-Brown was also responsible for the Kinlaw trucking schedule and siting the entrance road that passed by the neighboring homes. At times, this resulted in all-night trucking to pick up and deliver hogs.  Murphy-Brown also required that if hogs died, the carcasses be stored in collection areas until collection was scheduled.  The evidence at trial showed that Kinlaw consistently followed Murphy-Brown’s required practices.

In 2014, neighbors of a number of Murphy-Brown contract growers filed suit against Murphy-Brown in the Eastern District of North Carolina claiming nuisance.  In particular, they claimed of odor, flies, noise, and traffic.  The court coordinated these 26 separate cases as part of a Master Case docket to handle a number of procedural issues and consider various motions.  In 2017, the case brought by Kinlaw’s neighbors was the first on the docket for trial.

At the trial, the trial court rejected Murphy-Brown’s request to bifurcate the punitive damage phase from the liability phase of the trial and issued a number of other evidentiary findings.  In the Spring of 2018, the jury ruled in favor of the neighbors, awarding $75,000 in compensatory damages and $5 million in punitive damages.  Because of North Carolina’s punitive damage cap, the punitive award was reduced to $2.5 million by the judge.  Murphy-Brown appealed this decision. At this time, Murphy-Brown terminated its grower agreement with Kinlaw and removed all hogs from the premises.

Appellate Court Opinion

The United States Court of Appeals for the Fourth Circuit addressed seven issues raised by Murphy-Brown on appeal.  In doing so, the court affirmed the jury verdict with regard to liability for compensatory and punitive damages but vacated and remanded the amount of the punitive damage award.

Necessary and Indispensable Party

First, Murphy-Brown claimed the court erred in not finding that Kinlaw was a necessary and indispensable party to the lawsuit.  They argued that Kinlaw has a “significant pecuniary and contractual interests threatened by this litigation” and that it must be made party to the lawsuit to protect its own interest.

The court disagreed.  It noted that Kinlaw had not sought to join the case or otherwise claim an interest in the action.  Additionally, although Kinlaw was affected by the lawsuit in that their contract was terminated post-verdict, that was not a necessary or inevitable consequence of the lawsuit. The jury did not order the termination of that contractual relationship.  Kinlaw was not a necessary party and, even if they were, dismissal is a drastic remedy to be employed where a party was not named, and the facts here would not warrant that action.

Statute of Limitations

Murphy-Brown argued that the court erred in rejecting its three-year statute of limitations defense.  The issue here was whether the nuisance at issue was a “continuing” nuisance, for which the three-year statute of limitations bars the claim, or a “recurring nuisance” where the three-year statute of limitations limits the amount of damages available, but allows the claim.  The trial court held as a matter of law this was a recurring nuisance, which Murphy-Brown claims was error. Murphy-Brown also claims this question of recurring or continuing nuisance should have been submitted to the jury, not decided as a matter of law.

Under North Carolina law, the distinction between a continuing and recurring trespass or nuisance depends on whether there has been a completed act. The court held that this case involved claims of repeated invasion by odor, noise and pests. Although there was testimony of constant noise or odor, the court held that this testimony did not mean there was literally unending odor, noise or pests.  Additionally, it was not a one-time event that the neighbors complained of; it was the ongoing maintenance of the conditions that caused the harm. The court asked, “Do the harms flow from something done in the past as a single, complete act, or do the harms constitute a renewed, avoidable violation every time they occur?”  Here, the court found recurring events.  It was not error to decide this as a matter of law rather than allow the jury to decide.

Private Nuisance Damages

Next, Murphy-Brown claimed that the court erred in submitting the question of annoyance and discomfort damages to the jury.  In particular, Murphy-Brown argued that North Carolina private nuisance law limits the recovery of compensatory damages to those for reduction of property’s market value or rental value.  In other words, other compensatory damages for annoyance or discomfort damages are prohibited.  This was supported by a 2017 amendment to the North Carolina Right to Farm Act, which expressly stated this rule.  However, since this case was filed in 2014, the amendment did not apply.  The issue before the court, then, was whether (as Murphy-Brown argued) the 2017 amendment merely clarified the law that already existed prior to 2017, or whether (as the neighbors argued) the amendment created new law applicable only once passed in 2017.

Murphy-Brown pointed to the title of the 2017 amendment, “An Act to Clarify the Remedies Available in Private Nuisance Actions Against Agricultural and Forestry Operations” as evidence it was not a change, but a mere clarification. Neighbors argued the Act’s language stating that it is effective when it becomes law “and applies to causes of action commenced or brought on or after that date” as evidence the legislature intended the rule did not previously apply.

The court agreed with the neighbors. Beyond the title, there is no provision in the amendment that indicates it was intended only to clarify.  While the title cannot be ignored, it also does not control over the operative text of the statute. Further, the court looked at the text of the amendment and held that it did not appear to “clarify” the prior statute.  Prior to the 2017 amendment, the Right to Farm Act focused on who could bring nuisance claims but contained no limiting language on the damages available for those claims. Further, case law going back decades showed damages for loss of use and enjoyment of the property were allowed until the 2017 amendment was passed. Lastly, the court noted that policy and justice also outweigh allowing the retroactive application of an amendment.

Expert Testimony

Next, Murphy-Brown claims that the court erred in allowing testimony from the Plaintiffs’ expert, Dr. Shane Rogers, but excluding certain opinions of Murphy-Brown’s expert, Dr. Pamela Dalton.

Dr. Rogers

The judge allowed testimony from Dr. Rogers as “an expert in environmental engineering, animal waste management engineering and technology, and microbiology.”  He testified that DNA marker of hog manure could be found on neighboring homes. Murphy-Brown argued that there were errors in Dr. Rogers’ sample collecting and limited training and experience of his teams.  Additionally, they argued that he utilized the DNA indicator as a proxy for odor leaving the farm, despite not being an expert on how people perceive odor.  Finally, they argued his DNA indicator had not been peer reviewed.

The appellate court upheld the admissibility of Dr. Rogers’ testimony.  Although not peer reviewed, the DNA indicator relied upon has been globally used to trace swine waste and Murphy-Brown’s own expert testified that his method was acceptable in at least some cases.  The court held it was irrelevant that Dr. Rogers is not an expert on how humans perceive odor, as he never claimed to be.  Plaintiffs called him as an expert on tracing how compounds creating odor can travel, for which he was qualified.

Dr. Dalton

While the trial judge allowed Murphy-Brown’s expert, Dr. Dalton, to testify, it limited the scope of the testimony.  She was prohibited from testifying about her odor monitoring study and her opinion regarding lack of odor emanating from Kinlaw.   The court was concerned it would mislead the jury.

The appellate court affirmed. The appellate court held that Dr. Dalton’s testimony differed from Dr. Rogers because she sought to opine as to whether the odors constituted a nuisance and at what level odors could be detected.  The appellate court noted that odor was a highly subjective experience and there was no dilution to threshold ratio under North Carolina law to determine if an odor is objectionable.

Jury Instruction on Vicarious Liability for Nuisance

Murphy-Brown then challenged the jury instruction given regarding vicarious liability.  The judge told the jury that a party can be vicariously liable for nuisance if “it employs an independent contractor to do work which that party knows or has reason to know to be likely to involve the creation of a nuisance.”  This instruction came from the Restatement (Second) of Torts, and Murphy-Brown claims this misstated North Carolina law because this language from the Restatement has never expressly been adopted by the North Carolina Supreme Court.  Plaintiffs agree it has not been expressly adopted but argued that the North Carolina Supreme Court would likely do so.

Again, the Fourth Circuit affirmed the trial court relying on an intermediate appellate court case where similar language was cited and adopted by the court, and in the absence of any Supreme Court case addressing the issue.

Punitive Damages

Murphy-Brown argued that the issue of punitive damages never should have gone to the jury and the court erred in not dismissing that claim due to lack of evidence to support a punitive damage award.

In North Carolina, to qualify for punitive damages, a plaintiff must prove either fraud, malice, or willful or wanton conduct by a defendant. Here, the neighbors alleged willful or wanton conduct by Murphy-Brown.  Murphy-Brown made several arguments against any willful action.

Lack of Knowledge

Murphy-Brown claims it did not know of the conditions at Kinlaw, and that the neighbors made no complaints to Murphy-Brown. The appellate court disagreed, finding that because Murphy-Brown’s corporate policies were part of the harm, they had knowledge. The fact that the lagoon and sprayfield practice was legal for Kinlaw under North Carolina law did not serve to shield Murphy-Brown from liability for nuisance. The appellate court said that “Murphy-Brown was specifically aware of the risks associated with its chosen policies…”  Further, due to weekly inspections of the facility, Murphy-Brown did know the status of Kinlaw based on their own observations.

Beyond lack of knowledge, the appellate court also held Murphy-Brown showed conscious disregard for the conditions at Kinlaw. This was based on news stories and public comment generally about hog farming. Additionally, Murphy-Brown was aware of better technologies that could have been implemented, and they did not ever attempt to assess the impact of Kinlaw on its neighbors.

Proactive Measures by Parent Companies

Murphy-Brown argued that actions taken by its parent companies such as taking certain proactive steps to reduce costs and some odors could have been viewed by a jury as being done for economic reasons, not to abate the issues facing neighbors.

Participation in or Condoning Misconduct

Lastly, Murphy-Brown argued that because its officers, directors, or managers did not participate in misconduct, punitive damages were unwarranted.  Again, the court disagreed. Here, it was Murphy-Brown’s own corporate policies that led to the harm and there was evidence the officers and managers had notice of the damage caused by these policies.  Murphy-Brown actually required the actions complained of in this lawsuit.

In light of this, the court said a jury could have found the requirements to impose punitive damages based upon the evidence presented and affirmed the ruling.

Financial Evidence

Murphy-Brown’s final argument relates to the admission of financial information of Murphy-Brown’s parent companies and by refusing to bifurcate the liability and punitive damage portions of the trial.

First, the court determined that the financial information was relevant to the question of whether Murphy-Brown could have feasibly taken effective remedial measures. This was particularly true when Murphy-Brown sought to bring up evidence related to remedial steps taken by the parent companies. Additionally, North Carolina allows a jury to compare the community’s benefit to the neighbor’s harm, which relates to how much the community benefitted from the Kinlaw operation.

Second, the court did agree with Murphy-Brown that the court erred in refusing to bifurcate the trial.  Although the judge did not err in admitting the parent company financial evidence, doing so posed a real risk of prejudice to Murphy-Brown with regard to punitive damages.  With regard to the amount of punitive damages, although the parent company information may have been relevant, that relevance was outweighed by the risk of prejudice to Murphy-Brown because juries exposed to the high-dollar value of companies could apply that information in assessing the proper amount of punitive damages.  Thus, the court vacated the verdict with regard to the amount of punitive damages and issued a limited remand so that the amount of the punitive damage award could be considered without the parent financial information being considered by the jury.

Judge Wilkinson Concurring Opinion

Judge Wilkinson issued a concurring opinion extremely critical of the hog industry as a whole, agreeing with Judge Thatcher’s majority opinion, but intended to “highlight the facts in this case that support the jury’s finding that liability for compensatory and punitive damages in some amount was warranted.”  Additionally, he said, “It is past time to acknowledge the full harms that the unreformed practices of hog farming are inflicting.”  He notes the importance of the hog industry to the North Carolina economy. He also states that he believes the portion of the North Carolina Right to Farm Act that limits recoverable damages and the state statute capping punitive damages as being “within [the legislature’s constitutional policy powers.”  He then goes on to discuss the “outrageous conditions at Kinlaw and questions what could have been done differently to avoid the issues at hand. He discusses various practices including pen size, waste management, disease prevention, disposal of hog carcasses and potential negative impact on water quality.  He then concludes that much of the plaintiffs’ “suffering–stemming from Murphy-Brown’s mistreatment of its hogs–was avoidable” and notes a number of alternative practices that could have been utilized.  He then concluded the opinion with a discussion of Charlotte’s Web and the interconnectedness of life.

Judge Agee Concurring in Part and Dissenting in Part 

Judge Agee issued an opinion concurring in part and dissenting in part.  While he agreed with much of the majority opinion, Judge Agee disagreed with three issues:  the admission of parent company financial information, the evidence of Chinese ownership, and the rulings related to admissibility of expert testimony.

Judge Agee stated that “the issue of whether it’s appropriate to hold a corporate parent responsible for the conduct of its subsidiary arises only when a plaintiff has named the corporate parent as a defendant in the action and it can be done only after the plaintiff satisfies distinct principles applicable to this cases of liability.” Here, the case was filed against Murphy-Brown alone; no parent companies were named. Judge Agee referred to this as “implicit veil-piercing” between subsidiaries and non-party corporate parents.  Further, the judge held that the value of this evidence was substantially outweighed by the unfair prejudice it caused to Murphy-Brown.

Judge Agee also believed the trial court abused its discretion by allowing Plaintiffs to introduce and emphasize testimony that a Chinese corporation with $2 billion in profits owned Murphy-Brown. This information, he believed, was “largely irrelevant” and as it was used “created unacceptable risk that the jury’s verdict would be based on anti-China bias. He concluded that the combined effects of admitting the evidence of parent financial status and the risk of anti-China bias affecting the verdict, the case should be vacated and remanded for a new trial on liability and damages.

Next, Judge Agee turned to the expert testimony of Dr. Rogers.  First, he did not believe the court provided enough analysis with regard to the scientific validity of Dr. Rogers’ testimony.  Second, he believed there as a disconnect between Dr. Rogers testimony and his expertise.  Although he was designated as an expert in environmental engineering, animal waste management engineering, technology and microbiology, the court allowed him to testify about odors and how humans perceive odors.  His qualifications in these areas were not readily apparent in the record and his testimony was so prejudicial that Judge Agee would reverse the verdict and remand for a new trial. Third, he noted that his opinion regarding the detection of pig2bac and how that may have constituted odor that impacts the plaintiffs is scientifically unsound.

Lastly, the dissent addressed the exclusion of Dr. Dalton’s testimony. Judge Agee believes that the court should not have limited her testimony. He found her proposed testimony to be scientific, objective, and helpful to the jury. It was not a harmless error and, again, the court would have vacated the verdict and ordered a new trial.

What’s Next

Based upon the Fourth Circuit opinion, the case would have been remanded for a new trial on the amount of punitive damages.  Alternatively, either party could have appealed to the United States Supreme Court.  However, within hours of the opinion being issued, Smithfield announced it had reached a confidential settlement in the 26 cases.  Read article here.

 

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