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Flint Hills Resources Alaska, LLC v. Williams Alaska Petroleum, Inc.

Supreme Court of Alaska

August 26, 2016

FLINT HILLS RESOURCES ALASKA, LLC, Appellant,
v.
WILLIAMS ALASKA PETROLEUM, INC. and THE WILLIAMS COMPANIES, INC., Appellees.

         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 ...


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