Windsor School Dist. v. State

• Citation: 2008 VT 27,956 A.2d 528
• Decision Date: 07 March 2008
• Docket Number: No. 06-082.,06-082.
• Parties: WINDSOR SCHOOL DISTRICT v. STATE of Vermont and Department of Corrections.
• Court: Vermont Supreme Court

956 A.2d 528

2008 VT 27

WINDSOR SCHOOL DISTRICT v. STATE of Vermont and Department of Corrections.

No. 06-082.

Supreme Court of Vermont.

Motion for Reargument Denied April 15, 2008.

March 7, 2008.

Robert E. Manchester of Manchester Law Offices, P.C., Burlington, for Plaintiff-Appellant/Cross-Appellee.

Samuel Hoar, Jr., Shapleigh Smith, Jr. and Douglas D. Le Brun of Dinse, Knapp & McAndrew, P.C., Burlington, and William E. Griffin, Chief Assistant Attorney General, and Mark J. Di Stefano, Assistant Attorney General, Montpelier, for Defendants-Appellees/Cross-Appellants.

Present: REIBER, C.J., and DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

DOOLEY, J.

¶ 1. This case arises out of a suit by Windsor School District (Windsor) against the State of Vermont and the Vermont Department of Corrections (DOC) to recover expenses related to the environmental cleanup of district property formerly owned by the State. The trial court concluded that Windsor was entitled to be reimbursed for consultant's and attorney's fees incurred in connection with the investigation and remediation of the site. On appeal, Windsor contends that the court erred in rejecting its additional claims for legal expenses incurred in bringing this action, for attorney's fees sustained in a suit against its insurers for coverage and defense costs, and for prejudgment interest. Windsor also asserts that the court erred in rejecting its claims based on the Vermont Groundwater Protection Statute, 10 V.S.A. § 1410, and common-law implied indemnity. The State has also appealed, asserting that the award of consultant's and attorney's fees was improper and unsupported by the evidence and that the trial court erred in declining to offset insurance monies recovered by Windsor against the damage award. We affirm.

¶ 2. This is the second appeal to come before this Court relating to the Windsor hazardous waste site. The basic facts were set forth in State v. CNA Insurance Cos., 172 Vt. 318, 779 A.2d 662 (2001),¹ and may be summarized as follows. The State of Vermont operated a state prison on a parcel of land that it owned in the Town of Windsor until the early 1970s. From about 1954 to 1958, DOC ran a wood treatment facility on the property, which entailed dipping wooden posts into tanks filled with a combination of kerosene and a wood preservative called pentachlorophenol. In 1976, DOC conveyed a portion of the property, including the area where the treatment facility had operated, to Windsor.

¶ 3. Although the wood-treatment facility operated for only a few years, and stopped functioning well before Windsor purchased the property, substantial spillage, combined with periodic floods, resulted in significant contamination of the site. No one associated with Windsor, however, was aware of any pollution at the site until July 1995, when DOC informed the district superintendent that a survey had detected the possibility of hazardous waste. Thereafter, Windsor engaged two environmental consulting firms to investigate and analyze the data collected, which confirmed the presence of pollution. These firms found that the spillage had not affected the Town's water supply or the nearby Mill Brook. In November 1995, Windsor's attorney wrote to DOC informing it that Windsor's investigation was complete and requesting that DOC assume full responsibility for the cleanup. Although unwilling to do so, DOC engaged its own consultant to carry forward the investigation and analysis, while Windsor's engineering experts and attorney continued to monitor the process. Ultimately, the Vermont Agency of Natural Resources (ANR) hired its own consultant and subcontractors to complete the cleanup.

¶ 4. In October 1996, Windsor filed a complaint in superior court against the State and DOC seeking, inter alia, reimbursement for the money spent investigating and remediating the site. Windsor asserted several theories of statutory recovery, including one under the Vermont Waste Management Act, 10 V.S.A. §§ 6601-6632, and the Vermont Groundwater Protection Statute, 10 V.S.A. § 1410, and one based on common-law implied indemnity.² The parties agreed to bifurcate trial on the issues of liability and damages. Following a lengthy bench trial, the court issued a written decision on liability in February 2002. The court concluded that both Windsor and DOC were responsible parties under the relevant provision of the Waste Management Act, 10 V.S.A. § 6615(a),³ and that Windsor was entitled to indemnification of its reasonable expenses in investigation, removal and remediation of the site under § 6615(i).⁴ The court dismissed the statutory-groundwater and common-law-implied-indemnity claims.

¶ 5. Thereafter, following additional briefing, the court issued a decision on the law relating to damages, ruling that it would allow Windsor to recover its "site engineering" and "site management expenses," along with its consultant's and attorney's fees, as well as interest on the bank loans that Windsor had taken out to finance these services. However, the court did not permit recovery of so-called liability apportionment expenses, including the legal expenses that Windsor incurred in bringing suit against DOC. After an additional two-day trial on damages, the court issued a third decision, awarding Windsor damages of $297,346.16 in consultant's expenses and $150,000 in attorney's fees. In so doing, the court rejected Windsor's request to be reimbursed for attorney's fees incurred in an earlier declaratory-relief action against its insurers CNA and Hartford for coverage of expenses and defense costs, and reaffirmed its ruling denying reimbursement of the legal expenses that Windsor incurred in bringing the action against DOC. The court subsequently issued a fourth and final order, rejecting Windsor's request for prejudgment interest. Reduced by an unconditional payment of $300,000 from the State, the final judgment awarded Windsor damages of $228,981.03.⁵ Separate appeals by Windsor and DOC followed.

I.

¶ 6. As noted, both Windsor and DOC challenge various aspects of the court's rulings on liability and damages. For organizational purposes, we shall address their claims jointly, according to the category of damages or liability to which they principally relate, beginning with consultant's and attorney's fees. DOC contends that the court erred in awarding damages to reimburse Windsor for expenses incurred after November 1995, when Windsor's attorney wrote a letter to the DOC stating that its investigation of the site was complete and assigning responsibility for all past and future investigation, risk assessment, and remediation solely to [DOC]. Although, as noted, DOC and ANR subsequently assumed primary responsibility for the investigation and remediation of the site, Windsor continued to retain the services of an attorney and environmental consultants to advise it and protect its interests during the remaining phases of the cleanup project.

¶ 7. At the outset, we note that the court's judgment involves three types of expenses: (1) attorney's fees, (2) consultant's expenses, and (3) interest on bank loans to fund the attorney's fees and consultant expenses. DOC has not independently challenged recovery of the third type of expenditure, the interest on the bank loans. Thus, we treat this interest expense as part of the cost of the attorney's fees and the consultant's expenses and do not consider it separately.

¶ 8. We also note that the superior court lumped the attorney's fees and consultant's expenses together, using the rationale for recovery of the attorney's fees to also cover the consultant's expenses. While we agree that some of the consultant's expenses can be justified by this rationale, we conclude that there is an independent rationale for the consultant's expenses and discuss that rationale later. We begin, however, with the issue of attorney's fees.

¶ 9. DOC maintains that the correct standard for determining the propriety of an award of attorney's fees in this context is that set forth in Key Tronic Corp. v. United States, 511 U.S. 809, 819, 114 S.Ct. 1960, 128 L.Ed.2d 797 (1994). In Key Tronic, the United States Supreme Court held that, under the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. §§ 9601-9675, attorney's fees could be recovered in an action for contribution between the parties responsible for the contamination of a landfill if the legal work was "closely tied to the actual cleanup." Id. at 820, 114 S.Ct. 1960. DOC argues that, under this standard, fees incurred by Windsor to protect its interests after it relinquished principal responsibility for the investigation and remediation are not "closely tied" to the cleanup and hence cannot be recovered.

¶ 10. The trial court correctly held, however, that this case was an action under state law and was governed by state statutory and common-law principles. Although the Waste Management Act is silent on the issue of attorney's fees, it does provide generally that a responsible party may obtain "contribution or indemnification" from another responsible party, 10 V.S.A. § 6615(i), and further provides that this remedy is not intended to "preclude ... any other civil or injunctive remedy" but rather is "in addition to those provided by existing statutory or common law." Id. § 6615(f). Although the general rule in Vermont, as elsewhere, is that parties bear their own attorney's fees and costs of litigation absent a statutory or contractual provision to the contrary, this Court has recognized an exception, rooted in principles of equity and fair dealing, when the wrongful act of one person has made it necessary for another person to become involved in litigation with a third party to protect his or her interests. See Albright v. Fish, 138 Vt. 585, 591, 422 A.2d 250, 254 (1980) ("[W]here the wrongful act of one person has involved another in litigation with a third...