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Transwestern Pipeline Co. v. Monsanto Co.

6/17/1996

JOHNSON, J.


Plaintiff, whose business is the interstate transportation of natural gas, contaminated the Southern California Gas Company's pipeline with gas containing polychlorinated biphenyls (PCB's). After settling the gas company's damage claim, plaintiff sought equitable indemnity from the PCB manufacturer on several theories including strict liability for design defect and negligent failure to warn of the environmental hazards of PCB's. A jury found the manufacturer 37.5 percent responsible for the PCB contamination and awarded plaintiff damages accordingly.


We conclude the PCB manufacturer cannot avoid liability based on the conflicting terms of purchase and invoice forms exchanged by the parties and that plaintiff is not guilty of laches. On the merits, we find contamination of the gas company's pipeline system constituted property damage, not economic loss, and therefore the PCB manufacturer is liable to plaintiff for equitable indemnity based on the jury's finding of comparative negligence. We also uphold the award of future damages based on plaintiff's continuing legal obligation to contribute to the gas company's remediation costs.


FACTS AND PROCEEDINGS BELOW


The Transwestern Pipeline Company (Transwestern) is in the business of transporting natural gas from Texas and Oklahoma to California where its pipes connect with pipes belonging to the Southern California Gas Company (SoCalGas). On its way to California the gas passes through stations which compress it, thus allowing more gas to be transported through the pipeline. In 1968, a Transwestern compressing station in New Mexico was destroyed in a gas explosion. In the process of rebuilding the station Transwestern installed a new turbine-driven gas compressor. The compressor used a lubricant manufactured by the Monsanto Company (Monsanto) known as Turbinol. Turbinol is a synthetic fire-resistant lubricant consisting mostly of PCB's.


The Texas Eastern Transmission Company (Texas Eastern), Transwestern's parent company, began using Turbinol in the late 1950's or early 1960's as a substitute for flammable petroleum-based lubricants in its gas compressors. Texas Eastern was among the first companies to use Turbinol and participated in its development. The Turbinol used in Transwestern's new compressor came from supplies Texas Eastern purchased from Monsanto. We discuss the facts surrounding the sales agreements between Texas Eastern and Monsanto in part I below.


In 1966, Monsanto learned PCB's were turning up in the environment. Traces were found in plants, animals and humans. Although no one was sure at the time how much of a risk this chemical posed, its presence in the environment was a serious concern to Monsanto. In 1970, Monsanto began placing a supplemental warning label on some of its products containing PCB's but not on drums of Turbinol. Not until 1972 did Monsanto reveal to Texas Eastern and Transwestern that PCB's posed a substantial risk of environmental contamination. At the same time, Monsanto also informed Texas Eastern and Transwestern it was going to stop making Turbinol. It offered to sell its remaining Turbinol to the two companies but only if they signed an agreement to indemnify and hold Monsanto harmless for any damages Turbinol caused them or their customers. Texas Eastern and Transwestern refused to sign the agreement. In late 1972 Transwestern found and began using a substitute for Turbinol which did not contain PCB's.


PCB's were first discovered in residential gas lines in 1981. As a result, all natural gas pipeline companies in the United States tested for PCB contamination. When SoCalGas tested its pipelines it discovered they were contam

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