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Legal Watch: Volume 8

Prepared by William H. Bode
Bode & Grenier, LLP
1150 Connecticut Ave., NW
Washington, D.C. 20036
Telephone: 202-862-4300 | Email: wbode@bode.com

TESORO ORDERED TO PAY FOR REPAIRS AT TERMINAL WHEN LEASE EXPIRED

Case Summary: The Port O'Connor terminal on the Intercoastal Canal was leased first in 1969 under a 5-year, renewable lease. The lease was renewed four times, when in 1994 the fifth and final lease extension was made by Coastwide Marine Services. Thereafter, Tesoro Marine Services acquired Coastwide Marine and vacated the terminal site in 2001 when the lease expired. The Lessor then claimed that Tesoro had breached the lease by failing to return the premises "in as good condition and state of repair, reasonable wear and tear expected," as required by the lease. After a trial, a Texas judge ordered Tesoro to pay the Lessor $260,000, mainly to repair the bulkhead at the terminal, plus interest and attorney fees. On appeal, Tesoro contended that the baseline date for determining the condition of the facility should have been 1994, when the final lease extension by Coastwide Marine occurred, and not back to 1969. Tesoro also argued that the Lessor's expert testimony on damages was unreliable. The appeals Court rejected both positions. The Court reasoned that what date is used was without consequence: if the lease were terminated in 1994, the premises would have to be in the same condition (less normal wear and tear) as they had been in 1969. The Court also ruled that the expert's testimony on the need to shore-up the bulkhead was admissible because even a lay person could understand that soil washout behind the bulkhead could dangerously weaken the structure.

LESSON: Lease renewals can have long tails. Leasees should be aware that they could be required to return leased premises to its original condition decades later. (Tesoro Marine Services Inc. v. Bagby)

$5 MILLION IN PUNITIVE DAMAGES AWARDED TO INDIAN SIKHS CALLED "RAGHEADS" BY TERMINAL MANAGER, REDUCED ON APPEAL

Case Summary: The three Bains brothers were religiously observant Sikhs who wore turbans and long beards. Their Flying B Company owned 5 ARCO retail outlets in Okanogan, Washington, and a truck transport. Their investment put the Bains brothers in an excellent position when the Olympic pipeline ruptured in March of 2000 and ARCO needed help in hauling fuel. The Flying B Company began hauling fuel for ARCO in June of 2000, and quickly bought three more trucks. ARCO terminated them on October 30, 2000, after 600 loads totaling 6.5 million gallons of gasoline. During this period, the brothers picked up gasoline at ARCO's rack in Seattle, Washington. There they were routinely greeted by the terminal manger with salutations such as, "diaperhead," "stupid Indian," "motherf***ing Indian," "raghead," and "towelhead." The Flying B drivers were subject to lengthy security checks that other drivers were not; made to wait long periods to get papers signed, and were assigned to the slowest pumps. When they complained to the terminal supervisor, they were terminated. Flying B sued and a jury awarded them $50,000 on a breach of contract claim; one dollar in compensatory damages and $5 million in punitive damages on their civil rights claim; and $440,000 in attorney fees. On appeal, the Ninth Circuit Court of Appeals grappled with recent Supreme Court precedent holding that punitive damages in civil rights cases may not exceed nine-times the compensatory damages award, except in cases involving bodily injury. This precedent applied to the jury award would mean that that the punitive damages awarded should be reduced to $9.00. But the Ninth Circuit ruled that the breach of contract damages flowed from the same facts of discriminatory conduct. Therefore, the Court reasoned, it was appropriate to determine allowable punitive damages by multiplying the breach of contract damages ($50,000) by nine to arrive at a new punitive damages figure of $450,000. All other aspects of the jury decision were sustained.

LESSON: It is essential today that employers instruct employees on the severe consequences that can result from behavior that is deemed to be discriminatory, or violate the Civil Rights laws. A Company can be insulated from damages in civil rights suits if it installs an internal complaint system that adequately responds to complaints of discrimination. Finally, if a vendor (or employee) is terminated, the Company should "paper" the decision, fully explaining the bona fide business considerations supporting the decision. (Bains LLC v. ARCO Products Company)

Please address any comments or questions to Mr. Bode at 202-862-4300 or wbode@bode.com.

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