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

• Citation: 377 P.3d 959
• Decision Date: 26 August 2016
• Docket Number: Supreme Court No. S–15654
• Parties: Flint Hills Resources Alaska, LLC, Appellant, v. Williams Alaska Petroleum, Inc. and The Williams Companies, Inc., Appellees.
• Court: Supreme Court of Alaska (US)

377 P.3d 959

Flint Hills Resources Alaska, LLC, Appellant

v.Williams Alaska Petroleum, Inc. and The Williams Companies, Inc., Appellees.

Supreme Court No. S–15654

Supreme Court of Alaska.

August 26, 2016

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 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.

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...