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Waterville Industries v. FAME, revised 10-2-00
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MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2000 ME 138
Docket: Ken-99-426
Argued: December 8, 1999
Decided: July 14, 2000
Panel:CLIFFORD, and RUDMAN, DANA, SAUFLEY, ALEXANDER, and CALKINS, JJ.
WATERVILLE INDUSTRIES, INC.
v.
FINANCE AUTHORITY OF MAINE
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 twenty-three 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., 190 A.2d 369, 372 (N.J. 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 cause of action. We are unpersuaded
by those contentions.
[¶18] "The effect of [a] prior decision upon the present action is a
question of law." Currier v. Cyr, 570 A.2d 1205, 1207-08 (Me. 1990).
Principles of claim preclusion bar relitigation of claims where (1) the same
parties are involved in both actions; (2) the prior action ended with a valid
final judgment; and (3) "the matters present for decision now were, or
might have been, litigated in the prior action." See id. at 1208 (emphasis
added); see also Camps Newfound/Owatonna Corp. v. Town of Harrison, 1998
ME 20, ¶ 11, 705 A.2d 1109, 1113. Although Waterville's state law claims
normally would be barred because they arise from "'the same aggregate of
operative facts'" as the federal claims tried previously, see Camps
Newfound/Owatonna Corp. v. Town of Harrison, 1998 ME 20, ¶ 11, 705 A.2d
at 1113 (quoting Connecticut Nat'l Bank v. Kendall, 617 A.2d 544, 547 (Me.
1992)), they are not barred in the circumstances of this case.
[¶19] Jurisdiction in CERCLA cases is vested exclusively in the federal
courts. See 42 U.S.C.A. § 9613(b) (1995) ("[T]he United States district
courts shall have exclusive original jurisdiction over all controversies arising
under this chapter."). Accordingly, Waterville's only forum for its CERCLA
claims was the federal district court.{8} See id. That court, however, had no
jurisdiction over Waterville's state law breach of contract claim because the
Eleventh Amendment prohibits federal courts from entertaining suits
"commenced or prosecuted against one of the United States by Citizens of
another State." See U.S. Const. amend. XI.{9} Given the jurisdictional
dilemma faced by Waterville, the Superior Court did not err in entertaining
Waterville's claims in this state court action because those claims could not
have been litigated in the federal action. See Camps Newfound/Owatonna
Corp. v. Town of Harrison, 1998 ME 20, ¶ 11, 705 A.2d at 1113;
Restatement (Second) of Judgments § 25 cmt. e (1980) (stating that where
"the court in the first action would clearly not have had jurisdiction to
entertain the omitted theory or ground . . . then a second action in a
competent court presenting the omitted theory or ground should be held
not precluded"); cf. First Interstate Bank v. Central Bank & Trust Co.,
937 P.2d 855, 858 (Colo. Ct. App. 1996) (holding that res judicata does not
apply if it is clear that the federal court in first action would have declined to
exercise pendent jurisdiction on the claims brought in the second action).{10}
[¶20] FAME also argues that this action brought by Waterville is barred
by the doctrine of election of remedies because Waterville chose to pursue
its CERCLA remedies in the federal court. The doctrine of election of
remedies rests on the notion that a party should not be able to rely "'upon
two contradictory principles or theories based upon one and the same set of
facts.'" See Carey v. Cyr, 113 A.2d 614, 616 (Me. 1955) (holding that a
plaintiff who asserted a lien on property in one action could not proceed in a
subsequent action on a theory that he owned the property) (quoting Davis v.
Hauschild, 243 S.W.2d 956, 959 (Mo. 1951)). That doctrine does not apply
to cases like this one where the plaintiff mistakenly believes it has two
remedies but, in reality, has only one. See Marsh Bros. & Co., Ltd., v.
Bellefleur, 108 Me. 354, 357, 81 A. 79, 80 (1911) ("[T]he mistaken
selection of a remedy that never existed and its fruitless prosecution until it
is adjudged inapplicable, does not prevent the exercise of another, if
appropriate, even if inconsistent with that first adopted."); see also Clark v.
Heath, 101 Me. 530, 532, 64 A. 913, 913-14 (1906). As the First Circuit's
opinion makes clear, Waterville never had any remedy against FAME
pursuant to CERCLA. See Waterville Indus. v. Finance Auth. of Me., 984 F.2d
549, 554 (1st Cir. 1993). Accordingly, Waterville's claim is not barred by
the doctrine of election of remedies.
III. SOVEREIGN IMMUNITY
[¶21] FAME also contends that Waterville's claim against FAME is
barred because of sovereign immunity. A claim against the State will be
dismissed "unless the State, acting through the Legislature, has given its
consent that the present action be brought against it." See Drake v. Smith,
390 A.2d 541, 543-44 (Me. 1978). On September 20, 1983 when the
parties entered into the contract, the Legislature had given its consent to
suits against the MGA for breach of contract. At that time, the enabling law
for MGA provided that MGA could "[s]ue and be sued in its own name . . . and
plead and be impleaded." See 10 M.R.S.A. § 1005(4) (Supp. 1983), repealed
by P.L. 1983, ch. 519, § 6 (effective Sep. 23, 1983).{11} That provision clearly
subjected the MGA to suits for breach of contract. FAME's contention that
later amendments to the statute have limited the scope of FAME's liability to
suit is unavailing as "[i]t is well settled that the law in effect at the time of
the execution of a contract becomes part of that contract." See Portland Sav.
Bank v. Landry, 372 A.2d 573, 575 (Me. 1977), quoted in Clark v. Rust Eng'g
Co., 595 A.2d 416, 419 (Me. 1991).
IV. DECLARATORY RELIEF
[¶22] FAME argues that the trial court erroneously granted
declaratory relief in this case both because the case was not yet ripe for
adjudication and because it was not an appropriate case for declaratory relief.
Whether a case is ripe for decision is a question of law which we review de
novo. See generally Wagner v. Secretary of State, 663 A.2d 564, 567 (Me.
1995). "Ripeness concerns the fitness of the issue for judicial decision and
the hardship to the parties of withholding court consideration." Id. A case
is fit for judicial decision when there exists a genuine controversy between
the parties that presents a "concrete, certain, and immediate legal
problem." See id.
[¶23] Waterville's breach of contract claim is particularly well suited
to declaratory relief because it presents a concrete issue of liability for
breach of contract and a claim by Waterville that as a result of the breach it is
suffering continuing damage as it incurs additional costs in its efforts to
clean up the property.{12} Moreover, Waterville would suffer severe hardship
if the court refused to consider its claim. Waterville filed its complaint in
1989 seeking declaration that a breach had occurred in 1983. If Waterville
had been unable to file its claim at that time, the claim would have been
barred by the six year statute of limitations. See 14 M.R.S.A. § 752 (1980).
That hardship outweighs the potential cost of duplicative litigation in this
case. Cf. Patrons Oxford Mut. Ins. Co. v. Garcia, 1998 ME 38, ¶ 10, 707 A.2d
384, 387 (balancing the possibility of duplicative litigation against the
hardship to the plaintiff in delaying relief to determine whether declaratory
relief was appropriate). Accordingly, the case was ripe for adjudication.
[¶24] We must also determine whether the trial court's granting of
declaratory relief is, as FAME contends, beyond its discretion. The trial
court's "exercise of discretion in granting or denying [declaratory relief] is
accorded deference on appeal." See Perry v. Hartford Accident and Indem.
Co., 481 A.2d 133, 135 (Me. 1984). The deference accorded, however, "is
less than that accorded many other rulings made by a court of first instance,
such as findings of historical fact based on testimony or discretionary rulings
on the admissibility of evidence." See id. at 136.
[¶25] We have said that a court, in deciding whether to grant
declaratory relief, should construe the declaratory judgment statute liberally
"'to effectuate its salutary purpose.'" See id. (quoting King Resources Co. v.
Environmental Improvement Comm'n, 270 A.2d 863, 867 (Me. 1970)). A
court, however, "should exercise its authority to issue such a declaration
only when some useful purpose will be served." Dodge v. Town of
Norridgewock, 577 A.2d 346, 347 (Me. 1990). Although we vacate the
judgment on evidentiary grounds, the use of a declaratory judgment in this
case was appropriate because it purported to determine both liability for
breach of contract and the scope of damages resulting from that breach.
V. EXCLUDED EVIDENCE AND MEASURE OF DAMAGES
[¶26] FAME contends that the court erred when it refused to allow
FAME to present evidence that MKY would have chosen to purchase the mill
even if it had known about the letters from the Attorney General that were
not disclosed at the time of the sale. We agree.
[¶27] We review evidentiary rulings for clear error and an abuse of
discretion, see Kay v. Hanover Ins. Co., 677 A.2d 556, 558 (Me. 1996), and
we will only vacate a judgment if the evidence excluded "'was relevant and
material to a critical issue and if it can with reason be said that such
evidence, if admitted, would probably have affected the result or had a
controlling influence on a material aspect of the case.'" See Minott v. F.W.
Cunningham & Sons, 413 A.2d 1325, 1329 (Me. 1980) (quoting Towle v.
Aube, 310 A.2d 259, 264 (1973)); see also Todd v. Andalkar, 1997 ME 59,
¶ 7, 691 A.2d 1215, 1218.
[¶28] The real issue in this case appears to be whether the failure of
FAME's predecessor, the MGA, to notify MKY of the letters from the
Attorney General was a sufficiently material breach of the contract that would
allow Waterville to recover any damages as a result of the breach. As a way of
determining that materiality, the trial court instructed the jury as follows:
If you find that Waterville Industries' predecessor, MKY Realty,
would not have purchased the property if not for a breach of
contract on the part of the Maine Guaranty Authority or FAME,
then you should award all damages which have arisen to date
because the property was purchased.
That instruction served as a kind of proxy for the issue of materiality. It
essentially allowed the jury to determine materiality by focusing on MKY's
intent at the time it purchased the property. If MKY would not have bought
the property had it known of the contents of the letters from the Attorney
General, the breach was material. If MKY would have purchased regardless
of the knowledge, the breach was not material. Waterville presented
evidence that the purchase price for the property was $655,000, and it also
offered testimony from Mr. Salvadore, MKY's president, that MKY would not
have bid on the property had it known of the letters from the Attorney
General.
[¶29] To rebut that testimony, FAME offered the following evidence:
(1) the asking price for the property prior to the auction; (2) the amount of
money FAME lost on the sale; (3) Waterville's income from the property in
the years following the purchase; and (4) a statement by Mr. Salvadore
regarding the tax assessment of the property at the time of sale and his
statement that the property was worth substantially more than $655,000.
The court excluded the evidence.
[¶30] FAME contends that the purchase price for the Waterville mill
was substantially less than its true value, and that the nondisclosure was not
material because MKY would have purchased the property even if it had been
made aware of the Attorney General's letters. Because the parties agreed
that MKY's intent was crucial to this issue, the court erred in limiting
FAME's cross-examination of Mr. Salvadore on the issue of whether MKY
would have purchased the property with knowledge of the letters, see
Pendleton v. Sard, 297 A.2d 889, 891 (Me. 1972) (holding that "deprivation
of the right of cross-examination on a material issue constituted prejudicial
error"), and in excluding other relevant evidence regarding the value of the
property at the time it was sold. Because FAME was deprived of introducing
evidence on an issue critical to the case, we vacate the judgment and
remand for a new trial.
[¶31] We need not address the extent to which there is merit to FAME's
argument that the trial court applied the wrong measure of damages,
allowing Waterville to recover the entire cost of cleanup if the jury found
that MKY would not have purchased the property had it known of the letters
from the Attorney General. It is sufficient to say that on remand, Waterville
should be required to establish not only that the failure to disclose the
letters from the Attorney General was a material breach of the purchase and
sale agreement by MGA, but also that the damages it is seeking to recover
would naturally flow from this breach of the contract, or were reasonably
within the contemplation of the contracting parties when the agreement
was made.{13} See Thomas v. Dingley, 70 Me 100, 102-104 (1879).
The entry is:
Judgment vacated. Case remanded for further
proceedings consistent with this opinion.
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