Waterville Industries v. FINANCE AUTH.

• Decision Date: 14 July 2000
• Citation: 758 A.2d 986,2000 ME 138
• Parties: WATERVILLE INDUSTRIES, INC. v. FINANCE AUTHORITY OF MAINE.
• Court: Maine Supreme Court

758 A.2d 986

2000 ME 138

WATERVILLE INDUSTRIES, INC. v. FINANCE AUTHORITY OF MAINE.

Supreme Judicial Court of Maine.

Argued December 8, 1999.

Decided July 14, 2000.

As Amended on Reconsideration in Part September 27, 2000.

Jotham D. Pierce Jr., Esq., (orally), Pierce Atwood, Portland, for plaintiff.

Martha C. Gaythwaite, Esq., (orally), Friedman Babcock & Gaythwaite, Portland, Elizabeth L. Bordowitz, Esq., Finance Authority of Maine, Augusta, for defendant.

Panel: CLIFFORD, and RUDMAN, DANA, SAUFLEY, ALEXANDER, and CALKINS, JJ.

CLIFFORD, J.

[¶ 1] The Finance Authority of Maine (FAME) appeals from a judgment entered in the Superior Court (Kennebec County, Marden, J.)¹ in favor of Waterville Industries, Inc. The judgment reflects a jury's determination that FAME breached the purchase and sale contract it had with Waterville Industries for the purchase of a mill in Waterville, and it subjects FAME to pay $150,000 in damages as well as further damages to be determined in the future. FAME contends (1) that the contract merged into the deed conveying the mill, barring claims for breach of the contract; (2) that the action is barred by claim preclusion; (3) that Waterville is prevented from pursuing this state law remedy because it elected to pursue a federal action to judgment; (4) that the claim is barred by sovereign immunity; (5) that the case was unripe for adjudication at the time of trial; (6) that there were serious evidentiary errors at trial; and (7) that the trial court applied the wrong measure of damages. Because we agree that the trial court improperly excluded material evidence on a critical issue in the case, we vacate the judgment and remand to the Superior Court.

[¶ 2] In 1971, First Hartford Corporation built a wool processing mill in Waterville, Maine. Adjacent to the mill were two large wastewater lagoons. After building the facility, First Hartford transferred title to the mill and the twentythree acres of land on which it sat to a local development company, the Waterville Textile Development Corporation (WTDC). WTDC then leased the property back to First Hartford.

[¶ 3] In 1972, the Maine Guarantee Authority (MGA), FAME's predecessor, guaranteed a mortgage loan from the Society for Savings to WTDC.² The loan was secured by the mill, and both WTDC and First Hartford were responsible for the loan payments.

[¶ 4] On March 14, 1980, WTDC and First Hartford defaulted on their loan obligations and MGA took a deed in lieu of foreclosure on the mill.³ MGA leased the property back to First Hartford, and First Hartford continued to operate the mill.

[¶ 5] Soon after signing the lease agreement, First Hartford filed for Chapter 11 protection in the United States Bankruptcy Court, District of Maine, and it ceased operations at the mill on October 6, 1981. Subsequently, MGA decided to offer the property for sale at public auction.

[¶ 6] Prior to conducting the auction, MGA received three letters from the Attorney General's office relating to the Department of Environmental Protection's (DEP) rules regarding closure of the wastewater lagoons. The first letter, dated February 2, 1983, informed MGA that "DEP rules require that lagoons which are no longer used be closed out, in accordance with technical closure requirements set forth in the rules. Closure of the lagoons is long overdue." That letter also informed MGA that it was required to remove several drums of hazardous waste stored on the property.⁴

[¶ 7] The second letter, dated April 14, 1983, reminded MGA that closure of their lagoons was overdue and that all extensions had expired. The letter also responded to a request by MGA to estimate the cost of closure: "The staff [at the DEP], stressing that it was very hard for them to estimate those costs, suggested the figure of $15,000."

[¶ 8] The final letter, dated July 7, 1983, reiterated that closure was "long overdue" but added that "the Department understands that the lagoons are potentially an asset in the sale of the facility and so [the Department] will not press for immediate closure at this time." The DEP did request, however, that MGA either close the lagoons itself or require closure as a condition of sale.⁵

[¶ 9] The public auction was held in August of 1983. After receiving bids and conducting further negotiations, MGA accepted a cash bid of $655,000 from MKY Realty. The purchase and sale agreement, drafted by MKY, provided:

2. Real Estate Subject to: The real estate will be conveyed subject to any and all laws, rules, ordinances, regulations, and orders of all state, federal and municipal bodies and that Seller has received no notices of violations of any such laws, rules, regulations, or ordinances.

3. Building "AS IS" AND ABSENCE OF WARRANTIES. BUYER AGREES THAT [IT] IS PURCHASING SAID REAL ESTATE "AS IS" AND "WHERE IS". EXCEPT AS SELLER OR ITS AGENTS HAVE OTHERWISE EXPRESSLY STATED IN WRITING.

The agreement did not explicitly state that it would bind the parties after the closing. MGA did not insist that MKY include a provision in the agreement requiring MKY to close the lagoons as a condition of sale. In fact, MGA never raised the issue of the lagoons and did not inform MKY of the letters it had received from the Attorney General's office.

[¶ 10] The purchase and sale agreement was signed by MGA and MKY on September 20, 1983. Pursuant to legislation, FAME succeeded MGA on September 23, 1983. See P.L.1983, ch. 519, § 6 (effective Sept. 23, 1983). MKY assigned its rights under the contract to GANO Associates at some point after September 20, 1983. Therefore, when FAME conveyed the property on November 15, 1983, the named grantee was GANO Associates. Sometime later, Waterville Industries succeeded GANO Associates.⁶

[¶ 11] Waterville did not use the wastewater lagoons, nor did any of the tenants of the mill building. In 1987, the United States Environmental Protection Agency (EPA) filed an administrative compliance order and assessment of penalties against Waterville for failure to comply with EPA regulations contained in 40 C.F.R. pt. 265 and Me. Dep't of Env. Protection Reg. 855 (Mar. 23, 1983) (regarding licensing and closure of hazardous waste facilities).⁷ In 1989, Waterville and the EPA entered into a consent agreement requiring Waterville to clean up the property and pay a civil penalty. At the time the case was tried, Waterville had incurred substantial costs by hiring engineers and consultants to develop a compliance plan.

[¶ 12] On July 7, 1989, Waterville filed the complaint in this case, for declaratory relief and damages against FAME in the Superior Court, seeking damages for breach of the purchase and sale agreement. On September 6, 1989, Waterville filed a complaint seeking declaratory relief and damages, also against FAME, in the United States District Court, District of Maine. That complaint contained two counts. In Count I, Waterville claimed that FAME was liable for the cleanup costs as a "responsible party" pursuant to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). See 42 U.S.C.A. § 9607(a)(1) (1995). Count II also relied on CERCLA and sought contribution from FAME as a former owner of the property. See 42 U.S.C.A. § 9613(f) (1995).

[¶ 13] Although Waterville was successful in the United States District Court, judgment in its favor having been entered after a trial, the First Circuit Court of Appeals reversed the judgment following FAME's appeal. See Waterville Indus., Inc. v. Finance Auth. of Me., 984 F.2d 549 (1st Cir.1993)

. The First Circuit held that FAME had never been an "owner" of the property for CERCLA purposes because CERCLA excepted from liability owners who acquired title for the sole purpose of protecting their security interest in the property. See id. at 554; see also 42 U.S.C.A. § 9601(20)(A) (1995). Accordingly, FAME was not liable pursuant to CERCLA. See Waterville Indus. v. Finance Auth. of Me., 984 F.2d at 554.

[¶ 14] Having been unsuccessful in its claims in federal court, Waterville pursued its state law claims in the Superior Court. FAME filed a motion for summary judgment claiming that the state law action was barred by principles of res judicata. The motion was denied, and the case was tried before a jury in November of 1993.

[¶ 15] The jury returned a verdict in favor of Waterville, finding damages to be $150,000 as of the time of the verdict. This represented the amount Waterville had spent before trial in complying with the consent decree. After a delay of several years, judgment in this case was finally entered on April 16, 1998. After its post-trial motions were denied by the trial court, FAME filed this appeal.

I. MERGER

[¶ 16] As an initial matter, FAME contends that the doctrine of merger bars any claims arising pursuant to the purchase and sale agreement. We disagree. Collateral agreements in a purchase and sale contract do not merge into the deed. See Wimmer v. Down East Properties, Inc., 406 A.2d 88, 91 (Me.1979)

(holding that an agreement to construct a house was collateral to an agreement to convey land). An agreement is collateral if it is not "connected with the title, possession, quantity, or emblements of the land." See Caparrelli v. Rolling Greens, Inc., 39 N.J. 585, 190 A.2d 369, 372 (1963). In this case, the agreement to provide information as to notices of violations of rules and regulations was wholly separate from the issues of "title, possession, quantity, or emblements" of the property. Accordingly, that agreement did not merge with the deed.

II. CLAIM PRECLUSION

[¶ 17] FAME further contends that because Waterville's state law action arises out of the same transaction that formed the basis for Waterville's federal court action, which ultimately resulted in a judgment in favor of FAME, the state law action is barred by the principles of claim preclusion and the doctrine of election of remedies. FAME also maintains that Waterville impermissibly split its...