Appeal
from the Superior Court of the State of Alaska, Fourth
Judicial District No. 4FA-10-01123 CI, Fairbanks, Michael P.
McConahy, Judge.
Leon
T. Vance and Lael A. Harrison, Faulkner Banfield, P.C.,
Juneau, Kathleen M.Sullivan, Quinn Emanuel Urquhart &
Sullivan, LLP, New York, New York, Christopher Tayback,
Valerie Lozano, and Andrew March, Quinn Emanuel Urquhart
& Sullivan, LLP, Los Angeles, California, and Charles F.
Webber, Faegre Baker Daniels, Minneapolis, Minnesota, for
Appellant.
Richard W. Maki, Tindall, Bennett & Shoup, Anchorage, for
Appellees.
Before: Stowers, Chief Justice, Fabe, Winfree, Maassen, and
Bolger, Justices.
OPINION
STOWERS, Chief Justice.
I.
INTRODUCTION
Williams
Alaska Petroleum owned the North Pole refinery until 2004.
Williams knew that the then-unregulated chemical sulfolane, a
solvent, was present in refinery property groundwater, but it
did not know that the sulfolane had migrated off the refinery
property via underground water flow.
Flint
Hills Resources Alaska bought the North Pole refinery from
Williams in 2004 pursuant to a contract that contained
detailed terms regarding environmental liabilities,
indemnification, and damages caps. Almost immediately the
Alaska Department of Environmental Conservation informed
Flint Hills that sulfolane was to be a regulated chemical and
that Flint Hills needed to find the source of the sulfolane
in the groundwater. The Department contacted Flint Hills
again in 2006 with the same message. Meanwhile, Flint
Hills's environmental contractor repeatedly warned Flint
Hills that sulfolane could be leaving the refinery property
and that more work was necessary to ascertain the extent of
the problem.
In
2008FlintHillsdrilledperimeter wellsand discovered
thatsulfolanewas migrating beyond its property and had
contaminated drinking water in North Pole. A North Pole
resident sued Flint Hills and Williams, and Flint Hills
cross-claimed against Williams for indemnification. After
extensive motion practice the superior court dismissed all of
Flint Hills's claims against Williams as time-barred.
Flint
Hills appeals. We hold that the superior court correctly
applied the contract's damages cap provision, but we
conclude that it was error to find that Flint Hills's
contractual indemnification claims and part of its statutory
claims were time-barred. We also affirm the court's
dismissal of Flint Hills's equitable claims.
II.
FACTS AND PROCEEDINGS
A.
Facts
Williams
owned and operated the North Pole refinery from approximately
1977 through 2004. In 2001 Williams discovered sulfolane in
the refinery's groundwater. Sulfolane is a manufactured
chemical developed as a solvent; refiners use sulfolane to
strip out parts of crude oil used to make gasoline. When
Williams discovered the presence of sulfolane in the
groundwater, sulfolane was not a regulated chemical.
Shannon
& Wilson, Williams's environmental contractor,
identified the sulfolane in 2001. At that time no one
recommended that Williams install additional monitoring
infrastructure for sulfolane. Although the Department
directed Williams to continue sampling for sulfolane to
determine its source, Williams stopped sampling in 2002 and
instead attempted to find the leak by performing equipment
inspections.
In
April 2004 Flint Hills purchased the refinery from Williams
through a detailed Asset Sale and Purchase Agreement. Flint
Hills agreed to assume responsibility for "all existing,
known contamination at the [refinery] property specifically
identified in the referenced figures, tables and texts,
" which included a document listing sulfolane
concentrations at various wells on the property. The
Agreement also set out detailed terms regarding
indemnification and damages caps. Flint Hills retained the
majority of Williams's environmental staff and all of its
refinery environmental files.
In
subsequent litigation the superior court found that Flint
Hills "knew and understood that there was sulfolane on
the refinery property as of 2004, and in fact agreed to take
responsibility for the sulfolane that was 'existing,
known[, ]' and disclosed as of that date." At the
time of sale the parties believed that the sulfolane was only
onsite.[1] But the superior court found: "As
everyone is aware of now, the sulfolane released prior to
Flint Hills'[s] assumption of ownership of the refinery
had migrated far beyond the contours of the sulfolane
identified in the disclosure schedule to the [Agreement] and
the plume had already extended off of the refinery
property."
In June
2004 Flint Hills requested a study from Shannon & Wilson
to "gain a comprehensive understanding of the
distribution of subsurface contamination" on the
property. Shannon & Wilson advised Flint Hills that
sulfolane had been discovered in areas previously thought to
be uncontaminated and proposed to "assess [the]
distribution and concentration trends." At the same time
the Department advised Flint Hills that it needed to locate
the sulfolane's sources.
In
September 2004 Shannon & Wilson discovered sulfolane in
samples from a monitoring well in the northern part of the
property; sulfolane was not found there during a 2001
sampling. Shannon & Wilson suggested monthly sampling and
told Flint Hills that "sulfolane was essentially
non-degradable in the anaerobic conditions of the aquifer
under the refinery and that sulfolane is miscible in (mixes
with) water and is not retarded in its subsurface
migration."
In
October 2004 the Department again advised Flint Hills that
"[t]he source(s) of [s]ulfolane in the ground water at
the refinery needs to be determined. The chemical [s]ulfolane
will be considered a regulated contaminant." Flint Hills
was unable to find any release sources for sulfolane, so it
concluded that the sulfolane must have been released by
Williams prior to Flint Hills's assumption of ownership.
In
early 2005 Shannon & Wilson proposed that Flint Hills
install "three groundwater monitoring wells along the
estimated northern boundary of the dissolved benzene
groundwater plume[] to serve as sentry wells capable of
detecting subsurface contaminant migration off the
facility." It also informed Flint Hills that the
sulfolane concentration at one monitoring well was more than
11 times greater than it was in 2001. The Department agreed
with the installation of the new wells. Shannon & Wilson
installed three new groundwater monitoring wells in August
and September 2005. A sample from one of the wells
down-gradient in groundwater flow tested positive for
sulfolane.
In
January 2006 the Department sent another letter to Flint
Hills reiterating that "[t]he source(s) of the
[s]ulfolane in the ground water at the refinery needs to be
determined. The chemical [s]ulfolane will be considered a
regulated contaminant." In April, Shannon & Wilson
proposed a groundwater monitoring program, reminding Flint
Hills that sulfolane was highly soluble and would migrate
with the groundwater.
Samples
from April through June 2006 indicated the continued presence
of sulfolane at levels near or exceeding the cleanup
standard. Shannon & Wilson informed Flint Hills that it
believed sulfolane was constantly leaching into groundwater,
in contrast to an acute surface release. Shannon & Wilson
noted that because it found sulfolane in the northernmost
monitoring wells, "it would be appropriate to identify
the down gradient extent of the sulfolane plume"; it
recommended installing sentry wells at the property's
boundary.
Shannon
& Wilson presented its final results in October 2006. It
again advised Flint Hills that sulfolane is highly soluble
and is likely to travel with groundwater instead of
biodegrading and that there was likely a source of continuous
contamination that was causing the stable readings observed
in the monitoring wells. It concluded that "[t]he extent
of the subsurface sulfolane contamination has not been
determined, and the sources of this contamination remain
poorly defined." It again recommended installing sentry
wells at the property boundary to determine if the sulfolane
had already migrated beyond the refinery property. In
November 2006 the Department sent a letter agreeing with all
of Shannon & Wilson's recommendations. The Flint
Hills engineer responsible for the groundwater program
believed, based on the Department's letter, that the
Department expected Flint Hills to implement Shannon &
Wilson's recommendations, and she thought that boundary
wells were "a necessary addition to the program."
In
December 2006 and January 2007 Shannon & Wilson continued
to reference the need to install the monitoring wells. In
mid-2007 Flint Hills hired Barr Engineering to conduct a
"cold eye review" of Shannon & Wilson's
work. In August 2008 Barr Engineering concluded that the
sulfolane had possibly migrated "beyond [Flint Hills
Refinery] property" and that "[t]o date, it appears
that little effort has been made to characterize the actual
release locations."
Thus in
August 2008 Flint Hills began installing the monitoring
wells; they were completed in October. In September 2008
Flint Hills placed additional monitoring wells at the
property boundary. These wells "promptly confirmed"
that sulfolane had migrated beyond the refinery's
premises. The superior court found that despite some Flint
Hills witnesses' assertions that "they did not know
for certain at that time that sulfolane was offsite, Flint
Hills indisputably knew that sulfolane was offsite at that
point in time, and ha[d] so admitted to th[e] court."
The sulfolane plume was approximately 1, 300 feet wide.
In an
addendum to its"cold eye review, "Barr Engineering
stated in January 2009 that the plume possibly extended
offsite but that it did not know for sure how far offsite.
Wells drilled in 2009 confirmed this.
B.
Proceedings
In
January 2010 a North Pole homeowner, James West, filed suit
against both Flint Hills and Williams, alleging that he
suffered damages from sulfolane contamination in his drinking
water. In May 2010 Flint Hills filed a cross-claim against
Williams for expenses incurred in remediation efforts. The
parties eventually settled West's claims, but Flint Hills
and Williams continued litigating the cross-claim.
In
November 2011 Williams filed two summary judgment motions.
The first argued that Williams had no obligation to indemnify
Flint Hills because under the Agreement Flint Hills assumed
responsibility for all disclosed contamination, including
sulfolane. The second argued that Flint Hills had been on
notice of sulfolane's presence since 2004 but had failed
to bring suit until 2010 and that the three-year statute of
limitations for contract claims had expired long before Flint
Hills brought its claim.
Flint
Hills filed a contemporaneous motion for partial summary
judgment, seeking judgment in its favor on six main issues:
(1) the refinery was the sole source of the sulfolane; (2)
the sulfolane plume was an "Environmental
Condition" under the Agreement; (3) the sulfolane that
had migrated off the premises as of Flint Hills's
purchase was attributable to Williams; (4) Williams did not
disclose in the Agreement that sulfolane had migrated beyond
refinery property; (5) Williams was required to indemnify
Flint Hills for any damages Flint Hills incurred remediating
the sulfolane that had migrated beyond property boundary
before Flint Hills's purchase; and (6) Williams's
liability to Flint Hills was not subject to the
Agreement's "Environmental Cap."
Flint
Hills filed a second amended complaint in March 2012 adding
claims for statutory damages, breach of contract for retained
liabilities, and claims under the Guaranty (an attendant
document to the Agreement). It also responded to
Williams's motion for summary judgment based on the
statute of limitations and argued that a finding that Flint
Hills's claims were time-barred would violate the
Agreement.
In
April 2012 the superior court ruled on three of Flint
Hills's requests for summary judgment. The court held
that the North Pole refinery was the only source of sulfolane
in the area, that the offsite sulfolane was an
"Environmental Condition" under the Agreement, and
that the sulfolane off the refinery premises at the time of
Flint Hills's purchase was attributable to Williams. The
court did not address which party was responsible for the
cleanup or Flint Hills's inaction. And the court denied
summary judgment on Williams's argument that Williams had
no obligation to indemnify Flint Hills under the Agreement
because it determined the Agreement was ambiguous on this
issue and subject to different interpretations regarding its
scope.
The
superior court also ruled on Williams's motion for
summary judgment on Flint Hills's contractual indemnity
claim based on the statute of limitations. The court held
that under Alaska law the statute of limitations on
contractual indemnity claims began running when "Flint
Hills first incurred liability or a monetary obligation
attributable to the offsite sulfolane contamination."
The court explained this was in accord with Alaska's
approach to tort indemnification claims. But the court found
that there were unresolved issues of fact regarding "(1)
when Flint Hills first paid damages relating to the sulfolane
contamination and (2) when Flint Hills first was placed upon
inquiry notice that sulfolane contamination had moved beyond
the refinery's property (thereby triggering the
three-year statute of limitations)." The court ordered
an evidentiary hearing to resolve these questions of fact.
Williams
and Flint Hills both moved for reconsideration. Williams
asked for clarification on whether payments for onsite
damages and onsite diminution in value would trigger the
limitations period. Flint Hills, on the other hand,
completely changed its legal position, asserting that
"[f]urther research ha[d] persuaded [it] that it was
wrong about the Supreme Court of Alaska not having addressed
the time of accrual of a contractual-indemnification
claim." Flint Hills cited to insurance cases and argued
that the statute did not begin to run until Flint Hills asked
Williams for indemnification and Williams refused to
indemnify Flint Hills. And it argued that the diminution in
value claim was part and parcel of the indemnification claim,
so the statute of limitations should not have started running
on this claim until Flint Hills had demanded indemnification
and Williams had refused to pay.
The
superior court denied Flint Hills's motion for
reconsideration, explaining that Flint Hills's new
authority did "not support [the] proposition that a
party can incur damages, sit on those damages for as long as
they want, demand reimbursement of the damages, and then sue
when they are refused without violating the statute of
limitations." The court distinguished Flint Hills's
new cases because they involved insurance and contracts of
adhesion. The court agreed with Flint Hills that the
diminution in value claim was an indemnification claim and
subject to the same limitations period as the other
indemnification claims. But the court held that "[t]he
statute of limitations began to run when Flint Hills had
sufficient information to alert it of a potential cause of
action [for] the refinery's value."
The
parties also moved for summary judgment on the statutory
claims.[2]Flint Hills argued that the statutory
claims sounded in trespass and interference with property and
therefore should be subject to a six-year statute of
limitations; Williams argued that the claims should be
governed by the two-year statute of limitations for claims
created by statute. The superior court concluded that the
two-year limitations period applied to the statutory claims
because the "nature of the injury alleged arises from
the [Agreement], not a trespass on land or even a trespass on
the case." But the court found that the actual accrual
date was a question of fact. Responding to Flint Hills's
earlier summary judgment motion arguing that the sulfolane
damages were not subject to the damages cap, the court held
that because the sulfolane contamination was an Environmental
Damage under the Agreement, it was subject to the
Agreement's damages cap.
The
superior court held a five-day evidentiary hearing and
subsequently issued a 50-page order granting summary judgment
to Williams on all of Flint Hills's claims. The court
reiterated its prior rulings that the indemnification claim
arose under the Agreement and was thus governed by a
three-year contract statute of limitations and that the
statutory claims were governed by a two-year statute of
limitations. The court noted that under the "discovery
rule" the statute of limitations begins to run on
"the date when a reasonable person has enough
information to alert that person that he or she has a
potential cause of action or should begin an inquiry to
protect his or her rights." The court found:
Based on all the information available to it, including [the
Department's]directives, the results from the
monitoringwell sampling, and Shannon & Wilson's
reports and recommendations, Flint Hills reasonably should
have concluded long before May 10, 2007, that sulfolane had
migrated beyond the sampling disclosed as part of the
[Agreement] and off the refinery property. Such information
would have supported Flint Hills's claim for diminution
of the refinery's value attributable to the sulfolane.
It thus
concluded Flint Hills's contractual claims were barred by
the three-year statute of limitations.
Turning
to the statutory claims, the superior court held that Flint
Hills's claim under AS 46.03.822(a) for damages from the
release of hazardous substances was also time-barred. It
found that the claim accrued along with the indemnification
claims and that the two-year statute of limitations was
triggered when sulfolane became a regulated chemical in
October 2004. On Flint Hills's AS 46.03.822(j) statutory
contributions claim, the court held that the Department's
2004 and 2006 letters qualified as "potential liability
determinations" because they "gave clear notice of
[the Department's] interest in the release of sulfolane,
and both letters advised Flint Hills of the need to clean up
the sulfolane." The court did not rule on Flint
Hills's motion regarding its equitable claims.
Flint
Hills filed a motion for reconsideration regarding the
court's failure to rule on its equitable claims,
including its claims for specific performance and declaratory
judgment and that Williams was obligated to retain and
discharge liabilities. In its responsive order the superior
court held that because the "equity" that Flint
Hills requested "was for Williams to pay the same
monetary value as [it] would have under the contract claims,
" "the equitable claims [were] barred based on the
legal principle that equitable relief is only available in
the absence of an adequate legal remedy." The court
explained that "Flint Hills had an adequate legal
remedy, but lost it due to delay in bringing its
claims." The court additionally found Williams had met
its burden to show that Flint Hills's equitable claims
were barred by laches, "expressly finding that Flint
Hills delayed asserting [its] equitable claims for an
unconscionable period of time, and that this delay prejudiced
Williams."
Flint
Hills appeals.
III.
STANDARD OF REVIEW
We
review a grant of summary judgment de novo and may affirm on
any grounds supported by the record.[3] "Contract
interpretation is a question of law subject to de novo
review."[4] We also review de novo the question of
which accrual standard to use in determining when a claim
accrues.[5] "When the superior court holds an
evidentiary hearing to resolve factual disputes about when a
statute of limitations began to run, we review the resulting
findings of fact for clear error."[6] We review the
decision to grant equitable relief for an abuse of
discretion[7] because equitable relief is "a matter
addressed to the sound discretion of the trial
court."[8]
IV.
DISCUSSION
On
appeal Flint Hills argues that (1) the statute of limitations
on the contract claims did not begin to run until its request
for indemnification was rejected; (2) the statutory claims
were not triggered until Flint Hills received a liability
decision from the Department after the statute was
amended in 2006; (3) the Agreement's damages cap does not
apply to its claims; and (4) the doctrine of laches did not
bar its equitable claims. We hold that it was error to
conclude that the contractual indemnification claims were
time-barred; we conclude a six-year statute of limitations
applies for statutory claims arising from sulfolane leakage
off-property but we also conclude that a two-year statute of
limitations applies for sulfolane remaining on Flint
...