Flint Hills Resources Alaska, LLC v. Williams Alaska Petroleum, Inc. , 377 P.3d 959 ( 2016 )

Notice: This opinion is subject to correction before publication in the PACIFIC REPORTER.
Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
corrections@akcourts.us.
THE SUPREME COURT OF THE STATE OF ALASKA
FLINT HILLS RESOURCES )
ALASKA, LLC, )
Supreme Court No. S-15654
)
Appellant, )
Superior Court No. 4FA-10-01123 CI
)
v. ) OPINION
)
WILLIAMS ALASKA PETROLEUM,) No. 7124 – August 26, 2016
INC. and THE WILLIAMS )
COMPANIES, INC., )
)
Appellees. )
_______________________________ )
Appeal from the Superior Court of the State of Alaska,
Fourth Judicial District, Fairbanks, Michael P. McConahy,
Judge.
Appearances: 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.
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 2008 Flint Hills drilled perimeter wells and discovered that sulfolane was
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.
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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
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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
1
The parties were more concerned about two other plumes of chemicals in
the groundwater: a combination of benzene, toluene, ethyl benzene, and xylenes, and
a plume of light non-aqueous phase liquid.
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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
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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
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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
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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
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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
2
Flint Hills claimed that Williams was strictly liable under AS 46.03.822(a)
for damages relating to the release of hazardous substances and that Flint Hills could
seek contribution from Williams for those damages under AS 46.03.822(j).
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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 monitoring well
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
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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
3
Windel v. Mat-Su Title Ins. Agency, Inc., 305 P.3d 264, 270 (Alaska 2013).
4
ConocoPhillips Alaska, Inc. v. Williams Alaska Petroleum, Inc., 322 P.3d
114, 122 (Alaska 2014).
5
Gefre v. Davis Wright Tremaine, LLP, 306 P.3d 1264, 1271 (Alaska 2013).
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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 discretion7 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 Hills’s property. We also
hold that the superior court properly dismissed Flint Hills’s equitable claims and
correctly determined that the Agreement’s damages cap applied to Flint Hills’s claims.
A. It Was Error To Conclude That The Statute Of Limitations Barred
The Contractual Indemnity Claim.
Flint Hills argues that the superior court erred when it concluded that the
three-year contract statute of limitations barred its contractual indemnity claim. It asserts
that “the statute of limitations for indemnification claims does not begin to run until the
party with the duty to indemnify refuses to pay or otherwise breaches its obligation.”
6
Christianson v. Conrad-Houston Ins., 318 P.3d 390, 396 (Alaska 2014).
7
See Wagner v. Wagner, 205 P.3d 306, 309 (Alaska 2009).
8
Moran v. Holman, 501 P.2d 769, 771 (Alaska 1972).
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Thus, it contends that the statute of limitations began to run on March 5, 2010, when
Williams allegedly refused Flint Hills’s requests for indemnification; if this is correct
Flint Hills’s claim would fall well within the statute of limitations because it filed its
complaint on May 10, 2010.9
The superior court disagreed with Flint Hills’s proposed claim accrual
standard and explained in its order that Flint Hills’s claim for contractual indemnity
accrued when Flint Hills first sustained damages or a loss for which indemnification
could have been claimed. The court found that all of the elements of the indemnity claim
existed on April 1, 2004 — when Flint Hills purchased the refinery — because sulfolane
contamination was much greater than disclosed in the Agreement. But it also found that
Flint Hills had no reason to know the extent of the contamination until the July 2004
meeting with the Department, Shannon & Wilson’s September 2004 report, and the
Department’s October 2004 letter. The court therefore determined that the three-year
contract statute of limitations had expired long before Flint Hills filed its complaint.
We have not previously determined when the statute of limitations accrues
on a pure contractual indemnity claim. The two options presented in this appeal are the
date that an indemnifiable loss occurs or the date that a demand for indemnification is
rejected. We begin by analyzing the contractual indemnification claims on which the
parties agreed.
9
In its complaint Flint Hills also alleged that Williams had breached the
retained liabilities clause in the Agreement and asserted a claim for diminution of value.
But at oral argument counsel for Flint Hills clarified that the indemnification clause of
the Agreement required Williams to indemnify Flint Hills for damages including retained
liabilities and diminution of value. We accept counsel’s clarification of the issues; Flint
Hills’s retained liability claim is not a separate claim but instead falls within the
indemnification claims.
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Section 10.3 of the Agreement sets out the Indemnification Procedures.
Section 10.3(a)(I), entitled “Notice of Claims,” identifies the process by which an
Indemnified Party must notify the Indemnifying Party of a claim. Where an
Indemnifying Party could be liable to an Indemnified Party under the Agreement, the
Indemnified Party shall
with reasonable promptness send to the Indemnifying Party
a written [Claim Notice] . . . , provided that a delay or defect
in notifying the Indemnifying Party shall not relieve the
Indemnifying Party of its obligations under this Agreement
except to the extent that (and only to the extent that) the
Indemnifying Party demonstrates such failure shall have
caused the Damages for which the Indemnifying Party is
obligated to be greater than such Damages would have been
had the Indemnified Party given the Indemnifying Party
timely notice.
Flint Hills urges us to adopt the rule we have established in insurance litigation holding
that “[a]n insurance company . . . breaches the duty to defend when it refuses to defend
the insured and the insured is notified of the refusal”10 and that an insurer’s duty to
compensate an insured is breached when the insurer refuses to compensate the insured.11
Williams argues that we should affirm the superior court’s approach and
adopt the accrual standard that we have applied in tort liability indemnity cases; in those
cases the statute of limitations generally begins to run once the indemnified party
actually becomes liable for damages, typically either through a settlement or a court
judgment.12 But that rule seems inapt here because there has been no determination of
10
See Brannon v. Cont’l Cas. Co., 137 P.3d 280, 285 (Alaska 2006).
11
Howarth v. First Nat’l Bank of Anchorage, 540 P.2d 486, 491 (Alaska
1975).
12
This is because tort liability cannot be established without a settlement or
(continued...)
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liability; Flint Hills did settle the lawsuit with West, but the value of that suit was very
small compared to the indemnity amount Flint Hills seeks, and there has been no
determination on Flint Hills’s liability for that amount. Adopting the accrual standard
used in tort cases for contractual indemnity cases would require Flint Hills to bring an
indemnity action only after being found liable for the damages from which it seeks
indemnification. In environmental indemnity cases like this, this is not a workable
solution.
Williams alternatively argues that the facts in this case are similar to
Johnson v. Columbia Properties Anchorage, LP, where a subcontractor waited several
years after performance to send an invoice to a general contractor, who then refused to
pay the subcontractor.13 The Ninth Circuit held that under Alaska law “a cause of action
for breach of contract accrues, thereby triggering [the statute of limitations] when the
breaching party becomes obligated to perform.”14 Although the subcontractor argued
that there was no obligation to pay until he sent the invoice, the court held that “an
Alaska court would likely refuse to excuse this delay in starting the clock for the statute
12
(...continued)
judicial determination. See Hoffman Constr. Co. of Alaska v. U.S. Fabrication &
Erection, Inc., 32 P.3d 346, 352, 356 (Alaska 2001) (holding that the duty to indemnify
“is not triggered until the indemnitee is liable for damages” and finding that one party
had no liability only because the claims were settled without payment); Alaska Gen.
Alarm, Inc. v. Grinnell, 1 P.3d 98, 105 (Alaska 2000) (noting a general rule in tort cases
that the statute of limitations begins to run when a judgment is filed or a settlement is
reached on the underlying tort action that establishes liability for the party seeking
indemnification).
13
437 F.3d 894, 897-98 (9th Cir. 2006).
14
Id. at 900.
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of limitations” because allowing the plaintiff to do so would frustrate such statutes.15 But
importantly, the Ninth Circuit concluded that the contract at issue “obligated Johnson to
send an invoice to Columbia ‘at the conclusion of the project’ ” and that “the invoice or
invoices would be due and payable promptly after submittal.”16 The Agreement between
Flint Hills and Williams contains no such clause; rather, it specifies that “a delay or
defect in notifying the Indemnifying Party shall not relieve the Indemnifying Party of its
obligations under this Agreement.” (Emphasis added.)
On facts similar to those in Johnson the Nebraska Supreme Court found
that the statute of limitations began to run when a party could have demanded payment.17
But like in Johnson, no contractual provision explicitly stated that the indemnified party
would not waive its rights under the contract by waiting to request payment.18 In another
late-invoice case a federal district court held that a party’s cause of action arose when a
demand for payment was made and refused, but it clarified that the demand for payment
must have been made within a reasonable time after the demand lawfully could have
been made.19 As the Alabama Supreme Court explained, “[i]f the time for such
15
Id.
16
Id.
17
Stock v. Meissner, 309 N.W.2d 86, 88 (Neb. 1981) (quoting Luikart v.
Hoganson, 281 N.W. 27, 28 (Neb. 1938)).
18
See id. at 87 (“The grain was to be paid for . . . on demand [pursuant to an
oral contract].”).
19
Cont’l Cas. Co. v. Dr Pepper Bottling Co. of Tex., 416 F. Supp. 2d 497, 507
(N.D. Tex. 2006). That court found that a reasonable period of time will typically
coincide with the statute of limitations period. Id.
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performance is not definitely fixed, a reasonable time, but that only, will be allowed
therefor.”20
Case law from other jurisdictions offers conflicting accrual standards for
the statute of limitations in pure contractual indemnity cases. Some courts have held that
the statute of limitations begins to run once the indemnified party incurs costs or suffers
the damages for which it seeks indemnity.21 But other courts have applied the opposite
rule, holding that a cause of action for breaching an indemnity claim does not accrue
20
Seybold v. Magnolia Land Co., 376 So. 2d 1083, 1086-87 (Ala. 1979).
21
See State v. Next Millenium Realty, LLC, No. CV-03-5985(SJF)(MLO),
2007 WL 2362144, at *18 (E.D.N.Y. Aug. 14, 2007) (“[T]he statute of limitations
accrues when the loss is suffered by the party seeking indemnity.” (quoting McDermott
v. City of New York, 406 N.E.2d 460, 461 (N.Y. 1980))); Sherwin-Williams Co. v.
ARTRA Grp., Inc., 125 F. Supp. 2d 739, 757 (D. Md. 2001) (holding that “the claim
accrues at the time payment [is] made by the party seeking indemnification”); FMC
Corp. v. Northern Pump Co., No. 4-84-1365, 1985 WL 1555, at *3 (D. Minn. Apr. 29,
1985) (“[A] claim for contribution or indemnity does not accrue until the person entitled
to the . . . indemnity has sustained damage by paying a loss or discharging a liability that
should properly be the responsibility of another.” (quoting Leisure Dynamics v. Falstaff
Brewing Corp., 298 N.W.2d 33, 38 (Minn. 1980))); Amoco Oil Co. v. Liberty Auto &
Elec. Co., 810 A.2d 259, 264 (Conn. 2002) (holding that “[w]hen an agreement
indemnifies against both loss and liability . . . the statute of limitations begins to run as
soon as liability is incurred”); Pflanz v. Foster, 888 N.E.2d 756, 759 (Ind. 2008) (holding
that the statute of limitations began to run when the purchasers of property were required
to pay for environmental cleanup where the purchasers were unaware that fuel tanks on
the property were leaking); Lyhane v. Durtschi, 13 N.W.2d 130, 135 (Neb. 1944)
(holding that “[i]t is the rule in the case of indemnity contracts that a cause of action to
recover indemnity does not accrue until a loss occurs, and it follows the statute of
limitation does not commence to run until that time”); Ingersoll-Rand Co. v. Valero
Energy Corp., 997 S.W.2d 203, 210 (Tex. 1999) (holding that an indemnification claim
does not accrue until the damages are “fixed and certain by judgment”).
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until a demand has been made and rejected.22 A third approach maintains that if a party’s
right is dependent on a preliminary act “he cannot suspend indefinitely the running of the
statute of limitations by delaying the performance of the preliminary act, for it is not the
policy of the law to put it within the power of a party to toll the statute of limitations.”23
Because we have never squarely decided the accrual standard for a pure
contractual indemnity clause and because the case law from other jurisdictions conflicts
on this issue, we look to principles of contract interpretation. “Generally, a cause of
action for breach of contract accrues, and the statute of limitations begins to run, ‘at “the
time of the breach of the agreement, rather than the time that actual damages are
sustained as a consequence of the breach.” ’ ”24 Intuitively, a breach of a contractual
indemnity clause occurs when the indemnifying party refuses to honor a request for
indemnity and that breach would then start the statute of limitations. But we note the
superior court’s concern with this approach — the indemnified party may “incur
damages, sit on those damages for as long as [it wants], demand reimbursement of the
damages, and then sue when [it is] refused.”
Although we understand this concern, we find it to be misplaced in light of
the Agreement’s language and the parties’ evident intent. First, the Agreement provides
22
Seaboard Coast Line R.R. v. Tenn. Corp., 421 F.2d 970, 975 (5th Cir. 1970)
(holding that in a claim for indemnification stemming from a train collision, “the cause
of action accrued only after a demand for indemnification had been made and this had
been refused,” although citing no authority for that proposition); Oakview Treatment
Ctrs. of Kan., Inc. v. Garrett, 53 F. Supp. 2d 1196, 1202 (D. Kan. 1999) (holding that a
claim did not accrue until the indemnitee informed the other party within a reasonable
time of specific costs and expenses and sought performance and the defendant refused
a particular payment that had come due).
23
Seybold, 376 So. 2d at 1086.
24
Brannon v. Cont’l Cas. Co., 137 P.3d 280, 284 (Alaska 2006) (quoting
K & K Recycling, Inc. v. Alaska Gold Co., 80 P.3d 702, 725 (Alaska 2003)).
-18- 7124
an incentive for the indemnified party to bring its claim for indemnity as soon as possible
because waiting to pursue its indemnity action would not entitle it to any additional
damages. Under Section 10.3(a), the parties agreed that
a delay or defect in notifying the Indemnifying Party shall not
relieve the Indemnifying Party of its obligations . . . except to
the extent that (and only to the extent that) the Indemnifying
Party demonstrates such failure shall have caused the
Damages for which the Indemnifying Party is obligated to be
greater than such Damages would have been had the
Indemnified Party given the Indemnifying Party timely
notice.
Based on the express language of the Agreement, Flint Hills would not benefit from
waiting to seek indemnity if Williams demonstrated that the delay caused Flint Hills’s
damages to increase beyond what they would have been had it given Williams timely
notice.
And second, “[w]hen interpreting a contract, our duty is to ‘ascertain and
give effect to the reasonable intentions of the contracting parties.’ ”25 Flint Hills and
Williams are two sophisticated parties and were represented by attorneys when they
negotiated and drafted the Agreement.26 The Agreement explicitly states that “a delay
or defect in notifying the Indemnifying Party shall not relieve the Indemnifying Party of
its obligations under this Agreement.” Holding that Flint Hills’s claims were barred by
the statute of limitations would directly contradict the parties’ clearly expressed intent.
25
Estate of Polushkin ex rel. Polushkin v. Maw, 170 P.3d 162, 167 (Alaska
2007) (quoting Western Pioneer, Inc. v. Harbor Enters., Inc., 818 P.2d 654, 656 (Alaska
1991)).
26
Cf. Renaissance Alaska, LLC v. Rutter & Wilbanks Corp., 263 P.3d 35, 41
(Alaska 2011) (finding parties’ status as sophisticated actors weighed in favor of reading
their agreement strictly).
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We therefore hold, in the context of a pure claim for breach of a contractual
term of indemnification, that the statute of limitations begins to run when the
indemnifying party refuses the indemnified party’s request for indemnification.27
Because the claim is contractual in nature, it is subject to a three-year statute of
limitations under AS 09.10.053. Accordingly, we reverse the superior court’s finding
regarding the statute of limitations’ accrual date for the contractual indemnity claim.
B. It Was Error To Conclude That Some Statutory Claims Were
Time-Barred.
Flint Hills seeks to hold Williams strictly liable under AS 46.03.822(a) for
damages both from sulfolane discharged on the refinery property during Williams’s
ownership and for the sulfolane that migrated onto nearby properties.28 The superior
court dismissed this claim as barred by the two-year limitation for statutory claims,29
27
We note that, although a claim for indemnification may be made after an
unreasonable period of time, we are not presented with this question in this appeal, and
we therefore do not address it. Our holding also does not address the question of serial
demands — whether the statute of limitations restarts each time a demand for payment
is made — because Flint Hills’s complaint requested the damages “that Flint Hills has
incurred or will incur in the future in connection with the [c]ontamination.”
28
Alaska Statute 46.03.822(a) provides that “the owner and the operator of
a . . . facility, from which there is a release . . . of a hazardous substance” are “strictly
liable, jointly and severally, for damages, for the costs of response, containment,
removal, or remedial action incurred by the state, a municipality, or a village.” “The
statute creates a private cause of action.” Maddox v. Hardy, 187 P.3d 486, 491 n.7
(Alaska 2008) (citing Fed. Deposit Ins. Corp. v. Laidlaw Transit, Inc., 21 P.3d 344, 356
(Alaska 2001)). “The statute applies when two elements are met. First, there must have
been an ‘unpermitted release of a hazardous substance’ that caused damages. Second,
the party being sued must own the hazardous substance at the time of the release.” Id.
at 491 (quoting AS 46.03.822(a)).
29
Alaska Statute 09.10.070(a) provides in part: “Except as otherwise
provided by law, a person may not bring an action . . . (5) upon a liability created by
(continued...)
-20- 7124
holding that “the nature of the injury alleged arises from the [Agreement], not a trespass
on land or even a trespass on the case, and therefore a two[-]year[] statute of limitations
applies to Flint Hills’[s] strict liability claims.” Flint Hills argues that the superior court
erred in dismissing its strict liability statutory claim and maintains that the six-year
limitations period for trespass is more appropriate than the two-year limitations period
for statutory claims.30
We agree with the superior court that Flint Hills’s strict liability statutory
claim is time-barred by the two-year statute of limitations under AS 09.10.070(a) with
respect to sulfolane contamination on the refinery property. But we hold that Flint
Hills’s potential liability to owners of properties beyond the refinery’s boundaries is
subject to the six-year statute of limitations for trespass claims under AS 09.10.050.
In determining the applicable statutes of limitations, we look to the
language of the statutes. Alaska Statute 09.10.070(a) provides that a “liability created
by statute” is timely if claimed within two years, and AS 09.10.050 provides that
“[u]nless the action is commenced within six years, a person may not bring an action for
waste or trespass upon real property.” The six-year statute of limitations typically
applies in tort trespass and nuisance cases.31
29
(...continued)
statute, . . . unless the action is commenced within two years of the accrual of the cause
of action.”
30
Alaska Statute 09.10.050 provides: “Unless the action is commenced
within six years, a person may not bring an action for waste or trespass upon real
property.”
31
See Fernandes v. Portwine, 56 P.3d 1, 5-6 (Alaska 2002) (holding that
nuisance claims were encompassed by AS 09.10.050 due to the broad definition of
trespass in the statute of limitations context as any “unlawful interference with one’s
person, property, or rights”).
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Flint Hills argues that the statute of limitations for this claim should be
governed by Federal Deposit Insurance Corp. v. Laidlaw Transit, Inc., where we
accepted a certified question from the federal district court regarding private parties’
rights to bring claims under AS 46.03.822(a) and whether timeliness could serve as a
defense.32 In Laidlaw the FDIC acquired a parcel of contaminated property through
receivership and brought a strict liability hazardous substance claim under
AS 46.03.822(a).33 We held that the statute created a private right of action.34 We also
noted:
The defendants assert, without elaboration, that this case is
governed by AS 09.10.070(a), which establishes a two-year
limit for “an action . . . upon a liability created by statute.”
But it seems that this case might alternatively be governed by
AS 09.10.050, which specifies a six-year limit for “an action
for waste or trespass upon real property.”[35]
But we declined to decide the issue because “the federal court’s certification order only
ask[ed] us to address FDIC’s claim that no statute of limitations defense [was] available
for a direct cause of action under AS 46.03.822(a).”36 Flint Hills suggests that our
comment in Laidlaw “reflected [our] approach of looking to ‘the nature of the injury
32
21 P.3d at 345-46.
33
Id.
34
Id.
35
Id. at 350 n.23.
36
Id.
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alleged, rather than to the technical cause of action’ in determining which limitations
period applies to a given claim.”37 In this regard Flint Hills is correct.
Looking to the nature of the injury alleged here, we observe that the claim
Flint Hills asserted against Williams for contaminating the refinery property it purchased
is not trespassory. Williams had contaminated its own property. Flint Hills then
purchased the property and continued contaminating it. There is nothing to suggest that
the contamination by Williams, then by Flint Hills, was at any time trespassory. The
claim for contamination on refinery property is therefore subject to AS 09.10.070(a)’s
two-year statute of limitations. On the other hand, Flint Hills’s claim asserted against
Williams for contamination beyond the refinery property — on neighboring properties
not owned by Flint Hills — is trespassory and therefore subject to a six-year statute of
limitations under AS 09.10.050.38
Based on this distinction, we conclude that Flint Hills’s AS 46.03.822(a)
claim for contamination on its refinery property is barred by the applicable two-year
statute of limitations. A claim under AS 46.03.822(a) accrues where a party causes an
unpermitted release of a hazardous substance that causes damage.39 Under the discovery
rule, the statute of limitations will not begin to run until a reasonable person has enough
information to be on notice for a potential cause of action or to inquire into the extent of
the injury.40
37
McDowell v. State, 957 P.2d 965, 968 (Alaska 1998).
38
See id. (“[N]egligent contamination of real property is an injury to land in
the nature of trespass.”).
39
Maddox v. Hardy, 187 P.3d 486, 491 (Alaska 2008).
40
John’s Heating Serv. v. Lamb, 129 P.3d 919, 923-24 (Alaska 2006); Sopko
v. Dowell Schlumberger, Inc., 21 P.3d 1265, 1272 (Alaska 2001) (“[U]nder the discovery
(continued...)
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Flint Hills sued Williams on May 10, 2010. To be timely under the two-
year statute of limitations, this claim must have accrued no earlier than May 10, 2008.
The superior court made several findings regarding Flint Hills’s knowledge of the
sulfolane contamination on its property: (1) Flint Hills should have been on notice of the
scope of the contamination since Shannon & Wilson’s 2004 data review; (2) “Flint Hills
actually incurred costs regarding Shannon & Wilson’s work after [July 2004],
specifically after the 20 July 2004 proposal”; (3) after Shannon & Wilson found
sulfolane in a new well on the northern end of the property in September 2004, “Flint
Hills should have drawn the conclusion that the sulfolane extended beyond the sampling
disclosed as part of the [Agreement] and that it had the basis for an indemnification claim
arising from the diminution of the refinery’s value”; (4) the Department contacted Flint
Hills in 2004, and that “[i]f it was not already apparent, the meeting and the letter should
have put Flint Hills on notice that sulfolane was an issue and that further investigation
was needed”; and (5) “[o]ver the course of the next two years, Shannon & Wilson
repeatedly provided Flint Hills with information sufficient to inform it that the refinery
had . . . sulfolane contamination and that it should conduct an investigation into the scope
of that contamination.”
The superior court found that Flint Hills reasonably should have concluded
“long before May 10, 200[8]” that sulfolane had migrated beyond the sampling disclosed
in the Agreement. We conclude these findings are not clearly erroneous, that Flint Hills
had sufficient knowledge of contamination on its own property, and that it should have
filed its strict liability statutory claim under AS 46.03.822(a) within two years of
40
(...continued)
rule it is irrelevant if the full scope of injury is not known immediately.”); Wettanen v.
Cowper, 749 P.2d 362, 365 (Alaska 1988) (“[C]ommencement of the statute [of
limitations] will not be put off until one learns the full extent of his damages.”)
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receiving this knowledge.41 Because this claim accrued well before May 10, 2008, it is
barred by the two-year statute of limitations.
But as explained above Flint Hills’s statutory claim for contamination on
neighboring properties is subject to the six-year statute of limitations. Flint Hills’s claim
was timely because it was filed within the six-year period commencing in July 2004.
Flint Hills also seeks contribution from Williams under AS 46.03.822(j),
which was amended in 2006 to allow a party to seek “contribution from any other
person . . . liable under [AS 46.03.822(a)] during or after a civil action under
[AS 46.03.822(a)] or after the issuance of a potential liability determination by the
[D]epartment.”42 The superior court found 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.” Because “potential liability determinations”
preceded the amendment, the court concluded that passage of the amendment on
April 27, 2006 triggered the statute of limitations.43
We conclude these findings are not clearly erroneous and the superior
court’s legal analysis is sound. Because we determined that Flint Hills’s
AS 46.03.822(a) claim for contamination on the refinery property is subject to a two-year
statute of limitations, we conclude that Flint Hills’s AS 46.04.822(j) claim is also subject
41
See Christianson v. Conrad-Houston Ins., 318 P.3d 390, 396-97 (Alaska
2014) (“Under the discovery rule, a cause of action accrues when the plaintiff has
‘information sufficient to alert a reasonable person to the fact that he has a potential
cause of action.’ ” (quoting Preblich v. Zorea, 996 P.2d 730, 734 (Alaska 2000))).
42
Ch. 15, § 1, SLA 2006. This amendment provides that AS 46.03.822(j)
“appl[ies] to liability for the release . . . of a hazardous substance that occurred . . . before
the effective date of this Act.” Id. § 3.
43
Id. § 4.
-25- 7124
to a two-year statute of limitations under AS 09.10.070(a). We similarly conclude that
Flint Hills’s AS 46.03.822(j) contribution claim for contamination beyond the refinery
property is subject to a six-year statute of limitations under AS 09.10.050. Based on
these conclusions and the statutory contribution right created by the 2006 amendment
to AS 46.03.822(j), Flint Hills’s May 10, 2010 claim for contribution for contamination
off of the refinery property was timely filed within the six-year statute of limitations.44
To summarize, we hold that Flint Hills’s contribution claim for damages
beyond its premises is not time-barred, but its contribution claim for damages on its own
property is barred by a two-year statute of limitations.
C. The Superior Court Did Not Err In Dismissing Flint Hills’s Equitable
Claims.
In addition to its contractual indemnity and statutory claims, Flint Hills
sought declaratory judgment and specific performance. Flint Hills requested an order
declaring its rights under the Agreement and its statutory rights, and it sought to compel
Williams to perform the contract.
The superior court denied Flint Hills’s equitable claims on two grounds.
First, it held that equitable claims were not available because Flint Hills had an adequate
legal remedy, notwithstanding that its legal claims were time-barred; “equitable relief is
only available in the absence of an adequate legal remedy.”45 Second, the court
concluded that even if Flint Hills were entitled to assert equitable claims, the equitable
44
Because Flint Hills’s AS 46.03.822(a) claim for contamination on the
refinery property is time-barred, we do not need to determine whether Flint Hills’s
AS 46.03.822(j) claim is timely because the claims that would have been subject to
contribution are barred.
45
See Knaebel v. Heiner, 663 P.2d 551, 553 (Alaska 1983) (“One who seeks
the interposition of equity must generally show that he either has no remedy at law or
that no legal remedy is adequate.”).
-26- 7124
doctrine of laches barred these claims because Flint Hills waited an unreasonable period
of time and that “this delay prejudiced Williams.” The court found “the memories of
witnesses have faded, and as evidenced by their testimony at the hearing, they were
unable in numerous instances to remember important information.”
Flint Hills does not address on appeal the superior court’s holding that its
equitable claims are barred because it had an adequate remedy at law. But it argues that
the superior court erred in applying the doctrine of laches because it did not
unreasonably delay seeking relief; Flint Hills also argues that even if it did unreasonably
delay in seeking relief, Williams suffered no prejudice.
We agree with the superior court that Flint Hills’s equitable claims are
coextensive with its legal claims and that Flint Hills therefore had (and given our reversal
on the contractual indemnification and off-site statutory claims, still has) an adequate
legal remedy. Flint Hills sought a judgment from the court declaring that Williams must
indemnify Flint Hills under the Agreement and that Williams “is obligated to contribute
to Flint Hills all [s]tatutory [d]amages that have resulted . . . from the [c]ontamination.”
Flint Hills also sought an order requiring Williams to perform under the terms of the
Agreement.
These equitable remedies are identical to the legal remedies Flint Hills
sought in its statutory and contractual claims. As discussed above, Flint Hills’s legal
claims sought to compel Williams to indemnify Flint Hills under the contract and to
contribute to Flint Hills’s damages under AS 46.03.822. Because Flint Hills’s equitable
claims seek identical relief, the superior court did not err when it dismissed Flint Hills’s
-27- 7124
equitable claims.46 And because equitable remedies are not available, we do not need to
determine whether the superior court properly applied the doctrine of laches.
D. The Superior Court Did Not Err In Holding That The Damages Cap
Applied.
The Agreement between the parties sets out a damages cap — the minimum
and maximum amounts eligible for indemnification. Flint Hills asks us to hold that the
damages cap does not apply to the damages it seeks from Williams; it argues that at a
minimum the Agreement’s provisions are ambiguous and cannot be resolved as a matter
of law. Williams agrees with the superior court, which determined that the Agreement’s
damages cap unambiguously applies to the environmental claims for which Flint Hills
seeks indemnity.
Section 10.4 of the Agreement sets out the damages cap:
Notwithstanding anything to the contrary contained in this
Agreement, and except with respect to claims for breaches of
the covenants and obligations stated in Articles II, III, VI, or
XI, the maximum amount of indemnifiable Damages which
may be recovered by any Buyer . . . arising out of, resulting
from or incident to the matters enumerated in Section 10.2(a)
or Section 10.2(b) shall be the Environmental Cap with
respect to any and all Environmental Claims and the General
Cap with respect to any and all claims for indemnity other
than Environmental Claims, but in no event shall the amount
of all indemnifiable Damages of any type . . . pursuant to this
Section 10.4(b) exceed the Aggregate Cap.
46
We conclude that Flint Hills’s on-site contamination contractual indemnity
and statutory contribution claims, though time-barred, remain adequate legal remedies
for purposes of this analysis. McIntyre v. Plummer Assocs., 375 A.2d 1083, 1084
(Me. 1977) (“[A]n equitable remedy such as specific performance will not be
granted . . . where an adequate legal remedy, once available, has been lost by the failure
of the party seeking equitable relief to pursue that remedy in a timely manner.”); see also
Baldwin Cty. Welcome Ctr. v. Brown, 466 U.S. 147, 151 (1984) (“One who fails to act
diligently cannot invoke equitable principles to excuse that lack of diligence.”).
-28- 7124
This Section references the “Disclosure Schedule,” Schedule 10.2(a)(iv),
which provides: “Buyer has agreed to assume full responsibility for all existing, known
contamination at the Real Property specifically identified in the referenced figures,
tables[,] and text described below.” Flint Hills “acknowledge[d] that the levels of
Hazardous Materials measured in monitoring wells and contained in the figures, tables[,]
and text described below will vary over time, and that Buyer is responsible for such
normal variations, as well as any changes in such contamination resulting from Buyer’s
actions or omissions after the Effective Time.” The Schedule also states that data from
the wells “can be used to support reasonable conclusions about present contaminant
concentrations at the locations sampled and contaminant contours outside these
locations.” The Schedule lists reports prepared by Shannon & Wilson detailing sulfolane
levels on the refinery property.
The superior court concluded that Flint Hills’s claims for indemnification
were subject to the damages cap. The court noted that the “crux of Flint Hills’[s]
argument is that Section 2.3 encompasses environmental liabilities relating to the offsite
sulfolane.”47 But the court observed that Section 10.4 — the damages cap
47
Section 2.3(e) states: “Except as otherwise expressly stated in this
Agreement, Seller shall retain, and shall pay and discharge, all Liabilities to the extent
relating to or arising out of the use, ownership, or operation of the Assets prior to the
Effective Time.” Section 2.3 goes on to describe Williams’s retained liabilities,
including:
(e) . . . any Liabilities arising from, relating to or
incident to the possession, use, ownership, operation or
existence of the Assets, . . . including all of the Liabilities
associated with, resulting from or incident to:
....
(xvii) Environmental Liabilities to the extent arising in,
(continued...)
-29- 7124
section — “unambiguously states that any environmental claims for damages arising out
of matters” in Section 10.2(a) — the indemnification section — are covered by the
damages cap. The court noted Flint Hills’s argument “that the procedure set forth in
[Section 10.2(a)(iv)] applies but that the result set forth in Section 2.3 should govern.”
(Emphasis in original.) The court disagreed, explaining that “[t]he parties negotiated a
procedure by which indemnification claims would be handled and the parties negotiated
a maximum amount of indemnifiable damages.” The court concluded that sulfolane fell
under the framework set out in Section 10.2, the indemnification section, and that even
if sulfolane could fall under Section 2.3, Flint Hills’s argument would still fail because
Section 2.3 “defers to other sections of the [Agreement],” excepting specifically “the
[environmental] liabilities set forth in Section 10(a)(iv).” (Emphasis in original.)
“When interpreting a contract, [the court’s] duty is to ‘ascertain and give
effect to the reasonable intentions of the contracting parties.’ ”48 The court ascertains the
parties’ reasonable intentions by looking “to the language of the disputed provision and
other provisions, relevant extrinsic evidence, and case law interpreting similar
provisions.”49 “It is not necessary to find that an agreement is ambiguous before looking
to extrinsic evidence as an aid in determining what it means.”50 “The rules in aid of
47
(...continued)
relating to or accruing in periods up to and including the
Effective Time, other than the Environmental Liabilities set
forth on Section 10.2(a)(iv) of the Disclosure Schedule.
48
Estate of Polushkin ex rel. Polushkin v. Maw, 170 P.3d 162, 167 (Alaska
2007) (quoting Western Pioneer, Inc. v. Harbor Enters., Inc., 818 P.2d 654, 656 (Alaska
1991)).
49
Western Pioneer, Inc., 818 P.2d at 656.
50
Estate of Polushkin, 170 P.3d at 167.
-30- 7124
contract interpretation are set out in section 202 of the Restatement (Second) of
Contracts. The first and generally most important rule is that ‘[w]ords and other conduct
are interpreted in the light of all the circumstances, and if the principal purpose of the
parties is ascertainable it is given great weight.’ ”51 “Moreover, interpretation of a
contract term does not take place in a vacuum, but rather requires consideration of the
provision and agreement as a whole.”52
Flint Hills agrees that its claims are “Environmental Claims,” but it argues
that they are environmental claims that are not subject to the damages cap. Flint Hills
argues that because the claims were brought as “retained liabilities” under Section 2.3,
which does not mention a damages cap, these claims do not have a damages cap. It
contends that this position does not conflict with Section 10’s sweeping damages cap
language because Section 10 excepts claims made under Section 2 and Flint Hills’s
claims are retained liabilities under Section 2. Alternatively, Flint Hills argues that the
Agreement is ambiguous. Williams argues that the superior court was correct: sulfolane
is an environmental condition that neatly falls within the Agreement’s damages cap for
environmental claims. Williams argues that even though Section 10 excepts claims
arising under Section 2, Section 2 itself creates an exception for environmental claims,
referring them back to Section 10 and to the damages cap.
The superior court did not err in its analysis. First, reading the Agreement
as a whole convinces us that the parties bargained for all environmental liabilities to be
subject to a damages cap. Section 10.4(b) unambiguously states that “the maximum
amount of indemnifiable Damages which may be recovered . . . arising out of [claims for
51
Id. at 168 (alteration in original) (quoting RESTATEMENT (SECOND) OF
CONTRACTS § 202(1) (1981)).
52
Mahan v. Mahan, 347 P.3d 91, 95 (Alaska 2015).
-31- 7124
indemnification brought under Section 10.2] shall be the Environmental Cap with respect
to any and all Environmental Claims.” (Emphasis added.) At oral argument Flint Hills
was unable to cite an example of an environmental liability that would be subject to the
damages cap but that would not also be considered a retained liability subject to
Section 2.3. The damages cap would lose all effect if all environmental damages subject
to the cap under Section 10.4 were also exempt from the cap under Section 2.3. It is
clear to us that the parties intended contractual indemnification claims, such as those in
this case, to be subject to the damages cap. Flint Hills is bound to the terms of the
Agreement.
Second, from the structure and interplay of the two provisions, Williams
is correct that environmental claims are “the exception to the exception” for Section 2.
Even if Flint Hills’s claims are retained liabilities under Section 2.3, the wording of that
section expressly refers back to Section 10. Section 2 covers “Environmental Liabilities
to the extent arising in, relating to or accruing in periods up to and including the
Effective Time, other than the Environmental Liabilities set forth on Section 10.2(a)(iv)
of the Disclosure Schedule.” (Emphasis added.) Sulfolane on the property is covered
by Section 10.2(a)(iv) of the Disclosure Schedule. And the environmental portion of
Section 2 covers claims “[e]xcept as otherwise expressly stated in this Agreement,”
which refers back to Section 10’s more detailed and specific language relating to
environmental liabilities.
The superior court did not err when it concluded that the damages cap
applies to Flint Hills’s indemnity claims.
IV. CONCLUSION
We REVERSE the superior court’s conclusions that Flint Hills’s
contractual indemnity clause claim and its statutory claim for off-site damages are time-
barred. We AFFIRM the court’s conclusion that the statute of limitations bars Flint
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Hills’s statutory claims for sulfolane contamination on its property, AFFIRM the court’s
dismissal of Flint Hills’s equitable claims, and AFFIRM the court’s conclusion that the
damages cap applies to Flint Hills’s indemnity claim. We REMAND for further
proceedings consistent with this opinion.
-33- 7124