City Pays for Shutdown

A company whose building permit had been summarily suspended by a city official was rightfully awarded $5 million, according to a ruling by a federal appeals court. [Tri County Industries, Inc. v. District of Columbia, et al., No. 99-7028, D.C. Cir., Jan. 18, 2000.]

Tri County obtained a building permit from D.C. authorities to convert a warehouse into a facility for decontaminating soil tainted with hazardous materials, but it did not begin operations immediately due to slow delivery of equipment. During the delay, the city issued a citation to the company for storing soil at the facility without a required certificate of occupancy. Officials later issued a stop-work order.

Meanwhile, community opposition to the project intensified. At a noisy public meeting, a D.C. official was applauded when he announced that he was suspending the company's permit. For its part, Tri County did not challenge the citation, stop-order or suspension. As the company saw things, an appeal would cost about $1 million, a prompt hearing could not be assured, and the review process would be politically influenced. Instead, Tri County abandoned its project.

Thereafter, the company sued the city in federal court arguing that the suspension violated the company's right to procedural due process. Initially, a jury awarded the company $5 million. After the company declined the substituted verdict of $1 million, the judge ordered a new trial. He gave three reasons for doing so: Tri County's failure to mitigate its losses; the company's "speculative and remote" evidence of lost profits; and the "grossly excessive" jury verdict. The second trial, where the judge allowed evidence that had been excluded from the first trial, resulted in a jury award of $100.

On appeal, a three-judge panel annulled the second trial and reinstated the original jury verdict.

The appellate court stated that what the company did (or did not do) to avoid further injury and reduce its loss, was properly submitted to the first jury. From the evidence, however, the jury could have believed that D.C. officials would yield again to community pressure and that an appeal would have been slow and expensive.

Second, because the suspension affected the company's ability to present actual revenue and cost figures to support a lost profits projection, "it would be a perversion of ... justice to deny all relief," said the appeals court. "Although a court will not permit ... damages based on 'mere speculation and guess,' the fact that an estimate is uncertain or inexact will not defeat recovery," continued the opinion.

In fact, Tri County presented evidence of its costs and expenses, together with unchallenged expert testimony from several witnesses on projected operations and productivity, accessible markets, and anticipated profitability, which the appeals court characterized as "sufficiently well-founded" and not speculative.

Finally, as the company received less than half of the future profits estimate, excluding costs, the appeals court found that the jury award was within the "reasonable range."