Windsor School District
v. State (2006-082)
2008 VT 27
[Filed 07-Mar-2008]
NOTICE: This opinion is
subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 109
State Street, Montpelier, Vermont 05609-0801
of any errors in order that corrections may be made before this opinion goes to
press.
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Windsor School District
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Supreme Court
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On Appeal from
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v.
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Washington Superior Court
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State of Vermont and
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May Term, 2007
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Department of Corrections
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Alden T.
Bryan, J.
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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.
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PRESENT:
Reiber, C.J., Dooley, Johnson, Skoglund
and Burgess, JJ.
¶ 1.
DOOLEY, J. 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),
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.
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 Managment Act, 10 V.S.A. § 6615(a), and that Windsor was entitled to indemnification of
its reasonable expenses in investigation, removal and remediation of the site
under § 6615(i). 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. 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 (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. 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 person or has made it necessary for that other person
to incur expenses to protect his interests, litigation expenses, including
attorney’s fees, are recoverable.”); accord Bull v. Pinkham Eng’g Assocs., 170 Vt. 450, 460-61, 752 A.2d 26, 34
(2000); Wyatt v. Palmer, 165 Vt. 600, 602, 683 A.2d 1353, 1356-57 (1996)
(mem.); Welch v. LaGue,
141 Vt. 644, 646, 451 A.2d 1133, 1135 (1982).
¶ 11. The
trial court properly applied this exception to hold DOC liable for the expenses
incurred by Windsor
to protect its interests during the cleanup operation. As the trial court
noted, Windsor
played virtually no role in the pollution caused by DOC and had no knowledge of
its presence until July 1995. Nevertheless, as the court further found, Windsor remained a responsible party under the Waste
Management Act, subject to potentially enormous financial liability for the
costs incurred by the State in remediating the site,
regardless of Windsor’s
position that DOC should bear principal responsibility for the cleanup
effort. See 10 V.S.A. § 6615(a)(4) (responsible
party may be liable for “costs of investigation, removal and remedial actions
incurred by the state which are necessary to protect the public health or the
environment”); id. § 6615(b) (party’s failure to comply with State
cleanup requirements could make it subject to penalty of three times the costs
incurred by the State). Indeed, the record shows that DOC refused Windsor’s request to
assume full responsibility for the site, and the State consistently maintained
the position that both DOC and Windsor continued to be liable for the costs of
cleanup expended by ANR.
¶ 12. Accordingly,
Windsor remained actively—and reasonably—involved in monitoring the ongoing
cleanup efforts through its attorney and environmental consultants to protect
its legal interests and to ensure that the work, principally performed by
outside contractors, was thoroughly and efficiently executed. We agree
with the trial court that Windsor
was justified in maintaining a presence at all stages of the investigation and
remediation to ensure that the work was done appropriately and to minimize
exposure to future claims from DOC, the public, or ANR. As the court also
noted, it was the pollution caused by DOC, not by Windsor, that required investigation and
remediation. Therefore, the court correctly applied Albright in
requiring DOC to compensate Windsor
for attorney’s fees incurred during the cleanup process.
¶ 13. The
State’s argument that Albright and its progeny do not apply because DOC
was not found to be at “fault” is unpersuasive. Although the cases
routinely refer to litigation expenses necessitated by the “wrongful act” of
another, their rationale rests on principles of comparative responsibility and
fairness, not fault. In LaGue, for
example, we upheld an award of attorney’s fees to a purchaser of land who had
been compelled to intervene in a lawsuit by a third party that ultimately
invalidated the seller’s title. Although the seller had at all times
“acted in good faith” and was unaware of the third party’s claim at the time of
the conveyance, his failure to convey good title had “of necessity involved”
the innocent buyer in litigation to protect his interests and therefore
entitled the buyer to recover his attorney’s fees. 141 Vt. at 647, 451
A.2d at 1135; see also Bull, 170 Vt. at 461, 752 A.2d at 34 (upholding a
judgment requiring an engineering firm to compensate a property developer for
attorney’s fees incurred in defending a lawsuit brought by the purchasers of a
lot who were misled by the engineering firm’s erroneous survey, notwithstanding
the fact that the purchasers had not prevailed in their action against the firm
and the developer). Nor do we find any meaningful distinction between
fees incurred by a party to prosecute a civil suit and those incurred, as here,
by a party to protect its interests in an administrative enforcement context.
See CNA Insurance Cos., 172 Vt.
at 324, 779 A.2d at 667 (ANR directives requiring responsible parties to
undertake investigative and remedial action to abate contamination were
sufficiently adversarial in nature to constitute a ‘suit’ under insurance policy,
triggering duty to defend). Accordingly, we find no error in the court’s
award of attorney’s fees.
¶ 14. The
State also challenges the sufficiency of the evidence to support the
attorney’s-fee award. Our review of the claim is limited. “When
determining an award of attorney’s fees, the trial court must make a
determination based on the specific facts of each case and, accordingly, we
grant the trial court wide discretion in making that determination.” L’Esperance v. Benware,
2003 Vt. 43, ¶ 21, 175 Vt. 292, 830 A.2d 675.
In deciding what constitutes reasonable attorney’s fees, courts generally start
with the lodestar amount, consisting of the number of hours reasonably
expended, multiplied by a reasonable hourly rate, and then adjusted upward or
downward depending upon various factors. Perez v. Travelers Ins. ex rel. Ames Dept. Stores, Inc., 2006 VT 123, ¶ 10, __ Vt.
__, 915 A.2d 750. The trial court’s decision shows that it painstakingly
reviewed not only the summary of attorney’s fees set forth in Exhibit 302 but
also the somewhat more detailed original attorney’s bills that comprised over
250 pages of Exhibit 542. Based upon its review, the court found that Windsor’s attorney had
billed a total of 1277 hours at $135 per hour (reduced from the attorney’s
usual rate of $150 per hour), plus expenses, for a total charge of
$174,753.17. The court noted that this amount represented only a
quarter of the total legal services provided, the result of a stringent paring
down of charges to those strictly related to the cleanup.
¶ 15. Based
on the exhibits and testimony, the court found that the hours billed were
reasonable and that Windsor’s attorney had exercised considerable prudence in
his billing, charging less than his usual hourly rate and the market
rate. Although the court noted that the time attributed to some telephone
calls may have been somewhat inflated, the court found that other work was not
billed at all. While the court identified several additional problems with
the summary of charges set forth in Exhibit 302 that rendered it a less than
reliable source, it was satisfied from the evidence of the original invoices
that Windsor
was fairly billed for the work performed. The court also found that Windsor’s attorney had handled the matter with
“expertise,” and concluded that Windsor
had received “fair value” for the time shown in the original bills.
Nevertheless, owing to the difficulty of deriving a precise, “accurate to the
hour” figure for the time spent strictly on site management, the court
determined that a reduction of the charges from $172,800 to $150,000 would
reflect a “fair approximation” of the work performed and afford DOC “the
benefit of all possible doubt [and] . . . be more than fair.”
¶ 16. The
State argues that evidence sufficient to demonstrate only a “fair
approximation” of the charges cannot support an award of attorney’s fees.
The argument overlooks the court’s finding that, despite the lack of minute
detail in either the summary or the original bills, it was satisfied from all
of the documentary evidence and testimony that $150,000 reflected a minimum of
charges reasonably incurred for work attributable to site management, a figure
that was “more than fair,” indeed “[p]erhaps too
fair” to the State. We have observed that, “[f]or purposes of an award of
attorney’s fees under Vermont
law, the touchstone is reasonableness.” Perez,
2006 VT 123, ¶ 13 (holding that evidence of attorney’s fees in Vermont “need not reach
the level of detail and justification required in federal bankruptcy
proceedings”). The evidence here was sufficient to allow the court
to reliably determine the minimal amount of work performed by Windsor’s attorney relating to site
management. This is all that the law requires. Id. Accordingly, we find no
basis to disturb the court’s attorney’s-fee award.
¶ 17. We
return, however, to the theory on which the award of attorney’s fees was
made. As we discussed above, § 6615(i) allows a
responsible party to obtain indemnity from another responsible party and §
6625(f) maintains remedies provided by existing common law. The trial
court found that Windsor
was entitled to indemnity from DOC for attorney’s fees under § 6615(i) with Albright providing the standard for
liability. We recognize that the right to recover attorney’s fees under
the Albright standard is a form of indemnity for the attorney’s
fees. Because it preexisted the enactment of § 6615(i),
however, and is protected by § 6615(f), liability for the fees under Albright
would exist even if § 6615(i) had never been
enacted. We prefer to hold that Windsor
can recover attorney’s fees, pursuant to § 6615(f), under the Albright
standard. We leave to another day whether indemnification, as provided in
§ 6615(i), includes attorney’s fees, and if so, what
the proper standard for recovery of such fees would be.
¶ 18. As we
said at the outset, the Albright rationale may cover some of the
consultant’s expenses as litigation costs. We conclude, however, that a
second rationale, indemnity under §6615(i), covers
these expenses in full. As we have held on a number of occasions,
indemnity is based on the relationship between the parties and a determination
of differential fault. Thus, “[g]enerally,
indemnity will be imputed only when equitable considerations concerning the
nature of the parties’ obligations to one another or the significant difference
in the kind or quality of their conduct demonstrate that it is fair to shift
the entire loss occasioned by the injury from one party to the other.” White v. Quechee
Lakes Landowners’ Ass’n,
170 Vt. 25,
29, 742 A.2d 734, 737 (1999). The special authorization for
indemnity in §6615(i) indicates a legislative
determination that where there are “significant difference[s] in the kind or
quality of [the] conduct” of responsible parties, indemnity is
appropriate. Id.
It is not unprecedented that differences in the kind and quality of conduct can
give rise to indemnity even for strict-liability torts. Thus, even where
the liability of a manufacturer of a product is based on strict liability in
tort, it is required to indemnify the seller of the product to the consumer if
the seller is found liable to the consumer but is not independently
culpable. See Restatement (Third) of Torts: Apportionment of Liability §
22(a)(2)(ii) (2000); Promaulayko v. Johns
Manville Sales Corp., 562 A.2d 202, 205-06 (N.J. 1989); Lowe v. Dollar
Tree Stores, Inc., 835 N.Y.S.2d 161, 162 (N.Y. App. Div. 2007) (applying
common-law indemnity among distributors in the chain of distribution based on
the policy of “shift[ing] the risk of loss to the
party who can most efficiently control risk and distribute the attendant
costs”); see generally D. Cetkovic, Loss Shifting:
Upstream Common Law Indemnity in Products Liability, 61 Def. Couns. J. 75, 76 (1994) (“Common law indemnity enables the
burden for product safety to be shifted in accordance with free market
principles as well as public policy interests.”). Here, given that
Windsor owns the facility that contains the hazardous waste but had no part in
the disposal of that waste, and given that DOC formerly owned the facility and
was responsible for disposing of the hazardous waste during its ownership,
there is exactly the difference in kind and quality of conduct that gives rise
to indemnity.
¶ 19. DOC
argues, however, that even if indemnity applies, that indemnity does not cover
the expenses incurred by Windsor but instead only the expenses incurred by ANR
and recovered from Windsor pursuant to § 6615(a). In making this
argument, DOC relies particularly on the language that responsible parties can
be liable for “costs of investigation, removal and remedial actions” only if
“incurred by the state.” § 6615(a)(B). In DOC’s view, while the authorization for “costs of
investigation” may cover the consultant expenses here, Windsor cannot recover the expenses from DOC
because Windsor, and not ANR, incurred those expenses.
¶ 20. We
find this to be an overly limited construction of the statutory scheme.
ANR has two options when confronted with a hazardous waste site. It can
investigate the site, take removal and remedial actions, and then bring an
action against the responsible parties to recover its costs. See id.
§ 6615(b). Alternatively, it can order the responsible parties to “take
the necessary removal and remedial actions.” Id. At least initially, ANR
chose the latter course of action, directing the responsible parties to conduct
the necessary investigations. DOC’s argument is
that Windsor could obtain indemnity if ANR
incurred the investigation expenses and sought reimbursement, but not if ANR
ordered Windsor to take the removal and remedial
actions, in which case Windsor
would necessarily incur investigatory expenses to determine how to take the
required actions. See Folino v.
Hampden Color & Chem. Co., 832 F. Supp. 757, 763 (D. Vt. 1993)
(“removal” includes actions necessary to monitor, assess and evaluate a release
or threat of release of hazardous substances under CERCLA and 10 V.S.A. §
6615(a)(4)(B)). We think the indemnity provided by §
6615(i) must be coextensive with the responsible
party’s exposure. Thus, we agree with the trial court’s holding that “Windsor’s costs of investigation,
to the extent they are deemed reasonable, are considered response costs.”
¶ 21. We
have a similar reaction to DOC’s final argument that
even if Windsor can recover expenses connected with investigation if it faces a
potential order to clean up the site, it cannot recover those expenses if DOC
or ANR assumed the obligation to investigate the site and determine the method
of remediation, so that Windsor’s expenses were duplicative and incurred only
to advance its position that it should not be required to remediate. The
trial court rejected this argument because DOC refused to accept sole
responsibility for remediation of the site, thus leaving Windsor potentially liable for these expenses
and still under an order from ANR to investigate what was necessary to
remediate it. It held, however, that it would determine whether the
consultant’s expenses were reasonable under the circumstances, considering
whether they were duplicative. The trial court reiterated its holding in its
damages ruling and went through each of the expense items, eventually reducing
the requested amount by $94,400.
¶ 22. We
find the trial court’s ruling to be reasonable under the circumstances.
As long as Windsor remained potentially liable
and under an order to investigate what was necessary to remediate the site, Windsor reasonably
incurred expenses, including those incurred to monitor the work being done on DOC’s behalf, to protect its interests and discharge its
responsibilities. DOC was properly required to indemnify Windsor for those expenses that the trial court found were reasonable.
II.
¶ 23. Windsor next contends
that the court erred in rejecting its alternative theories of liability
premised on the Vermont Groundwater Protection statute, 10 V.S.A. § 1410, and
common-law implied indemnity. We will discuss these claims only briefly
because we conclude that reversal of the trial court decision would grant Windsor no further
relief. Thus, any error in the trial court ruling is harmless as a matter
of law.
¶ 24. As
this case reaches us, Windsor’s
requested relief is reimbursement for the attorney’s fees, consultant’s fees,
and interest that it incurred in connection in investigating the site and
monitoring the remedial action, along with attorney’s fees for this indemnity
action. Except for the attorney’s fees for this action, Windsor obtained the bulk of what it
requested from the trial court. To the extent Windsor did not obtain the full amount it
requested, it was because the trial court found the expenses were not
sufficiently documented, were unreasonable, or were incurred for other
purposes. Recovery under the additional theories Windsor raises would make no difference to
the recovery amount and would not affect the ruling on attorney’s fees for this
action.
¶ 25. In
its complaint, Windsor
initially requested damages for the “depreciation in the market value of its
property.” As the litigation went forward, however, it became clear that
the damages that Windsor
was simply seeking the same fees and expenses claimed under § 6615(i). Windsor’s
brief to this Court makes no mention of depreciation in the value of its
property or any other damages different from those sought for the indemnity
claim. For example, in its reply brief, Windsor
argued that DOC should be liable for “all of [Windsor’s] costs and expenses under Vermont
Groundwater Protection statute.” In appellant’s brief, Windsor seeks only “restitution of each item
of expense itemized on Exhibits 301-305.” Because the relief that could
be obtained under Windsor’s
alternative theories would be duplicative of that already obtained on the
indemnity theories adopted by the trial court and affirmed above, we do not
reach the merits of whether the alternative theories were properly dismissed.
III.
¶ 26. Windsor next contends
that the court erred in denying its claim for attorney’s fees, alleged to be in
excess of $466,000, incurred in prosecuting the instant action. We find
no error. “Our standard for departing from the ‘American Rule’ with
regard to attorney[‘s] fees, under which parties must
bear their own attorney[‘s] fees absent a statutory or contractual exception,
is demanding.” Concord General Mutual Insurance Co. v. Woods, 2003
VT 33, ¶ 18, 175 Vt.
212, 824 A.2d 572 (quotation omitted). The Waste Management Act is silent
on the issue of attorney’s fees in indemnification actions pursuant to § 6615(i). We have, however, recognized a common-law
exception to the American Rule, based on principles of equity and fair dealing,
to allow a party to be indemnified for legal expenses incurred in litigating a
suit brought about by the actions of a third party. Albright, 138 Vt. at 591, 422 A.2d at 254. The trial court employed this rule in
allowing Windsor to collect the attorney’s fees incurred in connection with its
duties as a responsible party under § 6615(a).
¶ 27. This
principle has not, however, been extended to permit the recovery of attorney’s
fees incurred in prosecuting the action to recover the legal expenses sustained
in defending the third-party action. Like all exceptions to the general
rule that attorney’s fees are the normal incidents of litigation and must be
borne by the party that incurs them, the Albright exception must be
narrowly construed. As the New York Court of Appeals explained in
rejecting a claim similar to Windsor’s: “we could not adopt such a rule without
simultaneously disparaging the fundamental principle that the prevailing
litigant is ordinarily not entitled to collect a reasonable attorney[‘s]
fee from the loser.” Chapel v. Mitchell, 642 N.E.2d 1082, 1084
(N.Y. 1994) (quotation omitted); see also Dale Bland Trucking, Inc. v. Kiger, 598 N.E.2d 1103, 1105 (Ind. Ct. App. 1992)
(holding that, although lease agreement entitled trucking company to be
indemnified by employer for attorney’s fees incurred in defending action by
injured employee, the general rule requiring each party to pay for its own
attorney’s fees precluded the company’s claim for “attorney’s fees incurred in
prosecuting th[e] declaratory indemnity
action”).
¶ 28. Although
we have not previously considered this precise issue, we reached a similar
conclusion, albeit in a slightly different context, in Woods. In
that case, an insurance company instituted a declaratory-relief action against
its insured seeking a declaration that its homeowner’s policy did not cover
certain injuries sustained on the insured’s property. In reversing a
summary judgment for the insurer, we held that the insured was entitled to
coverage, but was not entitled to recover its legal expenses incurred in
defending the declaratory-relief action. Woods, 2003
VT 33, ¶ 18. Our holding was consistent with the widely-held rule
that an insured is not entitled to recover attorney’s fees incurred in a
declaratory-relief action to establish the insurer’s duty to defend or
indemnify. Patterson v. Ins. Co. of N. Am., 85 Cal. Rptr. 665, 669 (Ct. App. 1970); accord Prime Ins.
Syndicate v. B.J. Handley Trucking, Inc., 363 F.3d 1089, 1093 (11th Cir.
2004) (under Alabama law, “insured may not recover attorney[‘s] fees from the
insurer if the fees were incurred in a declaratory judgment action to determine
coverage under a liability policy); W. Am. Ins. Co. v. AV & S, 145
F.3d 1224, 1230-31 (10th Cir. 1998) (applying same rule under Utah law); Reis
v. Aetna Cas. & Sur. Ins. Co., 387 N.E.2d
700, 709 (Il. Ct. App. 1978) (although liable for
legal expenses sustained by insured in defending third party action, insurer
was “not liable for the attorney’s fees incurred by the insured in pursuing the
declaratory judgment action” to establish its duty to defend); see generally J.
Draper, Annotation, Insured’s Right to Recover Attorney’s Fees Incurred in
Declaratory Judgment Action to Establish Existence of Coverage Under Liability
Policy, 87 A.L.R.3d 429 (1978). This same principle applies to bar Windsor’s recovery of
attorney’s fees incurred in bringing suit against DOC.
¶ 29. In a
related vein, Windsor
contends that the trial court erred in denying its claim for attorney’s fees of
approximately $85,000 incurred in suing its insurers Hartford Insurance Company
and CNA Insurance Company for benefits to cover defense costs related to the
cleanup. As discussed above, Windsor
may be indemnified under a narrow exception to the American Rule for the legal
expenses reasonably and necessarily incurred in protecting its interests during
the environmental cleanup process, but attorney’s fees expended in a
declaratory relief action against its insurers are collateral to this end and
are not recoverable.
IV.
¶ 30. Windsor also claims that
the court erred in denying its request for prejudgment interest. As we
have explained, prejudgment “interest is awarded as of right when the principal
sum recovered is liquidated or capable of ready ascertainment and may be
awarded in the court’s discretion for other forms of damage.” Newport Sand & Gravel Co. v. Miller Concrete Constr., Inc., 159 Vt. 66, 71, 614 A.2d 395, 398 (1992).
The rationale for awarding prejudgment interest as of right is that “where
damages are liquidated or determinable by a reasonably certain standard of
measurement, the defendant can avoid the accrual of interest by simply
tendering to the plaintiff a sum equal to the amount of the damages.” Agency of Natural Resources v. Glens Falls Ins. Co., 169 Vt. 426, 435, 736 A.2d
768, 774 (1999) (quotation omitted).
¶ 31. .The
trial court correctly determined that prejudgment interest was not mandatory in
this case. As the court found, and the record plainly showed, the fees
that Windsor claimed to have incurred for
engineering and legal services were the subject of considerable dispute and
conflicting evidence at trial, and the court ultimately awarded substantially
less than Windsor
sought. See EBWS, LLC v. Britly
Corp., 2007 VT 37, ¶ 37, __ Vt. __, 928 A.2d 497 (holding that prejudgment
interest was not mandatory where amount claimed was the subject of “much
controversy at trial”); Glens Falls, 169 Vt. at 435, 736 A.2d at 774
(plaintiff was not entitled to prejudgment interest as a matter of right where
amount of damages was “the subject of considerable uncertainty and
dispute”). Nor did the court abuse its discretion in determining that
such an award was not required “to avoid an injustice.” Estate of Fleming v. Nicholson, 168 Vt. 495, 500, 724 A.2d 1026, 1029 (1998).
As the court observed, Windsor
had funded its litigation expenses through bank loans and the court awarded the
interest charges on the loans as a separate category of damages totaling
$104,102.52. Accordingly, the court reasonably concluded that there was
no injustice in Windsor’s
remedy. We thus find no basis to disturb the ruling.
V.
¶ 32. Finally,
the State contends that the court erroneously invoked the “collateral-source
rule” in declining to offset Windsor’s damages
against Windsor’s net recovery of insurance
benefits, acknowledged to be in excess of $470,000, from Hartford and CNA. The collateral-source
rule operates “to deny to a defendant a setoff for payment the plaintiff
receives from a third, or collateral, source.” Hall
v. Miller, 143 Vt.
135, 141, 465 A.2d 222, 225 (1983). Most commonly applied where an
insurance company has made a payment to compensate the plaintiff for his or her
injuries, “the collateral[-]source rule prevents the
defendant wrongdoer from benefiting from the plaintiff’s foresight in acquiring
the insurance through any offsetting procedure.” Id. at 141-42, 465
A.2d at 225. While the rule may result in plaintiff’s obtaining a
“double recovery,” id., its essential purpose is not to provide the
plaintiff a windfall but to prevent the wrongdoer from escaping liability for
his or her misconduct. See id. at 142,
465 A.2d at 226 (“The thief who takes my property cannot escape liability to me
simply because some insurance company, or my friends, or neighbors, have
compensated me for my loss. . . .”) (quotation
omitted); see generally J. Branton, The Collateral
Source Rule, 18 St. Mary’s L.J. 883, 889 (1987) (“For those who view [the
rule] objectively, the question becomes, as between a wrongdoer and an innocent
victim, who is to get the alleged ‘windfall.’ “); Note, Unreason
in the Law of Damages: The Collateral Source Rule, 77 Harv.
L. Rev. 741, 748 (1964) (“If there must be a windfall certainly it is more just
that the injured person shall profit therefrom,
rather than the wrongdoer shall be relieved of his full responsibility for his
wrongdoing.”(quotation omitted)).
¶ 33. Observing
that we have not limited the rule to the tort context, the trial court here
opined that the critical “question for the application of the collateral[-]source rule is whether the defendant is
connected with the payment or indemnification in any way” and found that, as
DOC had no connection with the insurance payments, the rule applied to bar a
setoff in this case. DOC contests this finding, asserting a connection to
the insurance proceeds through State financial assistance that facilitated Windsor’s purchase of the
insurance policies. DOC also argues that the collateral source rule should not
apply here where its liability is determined without a finding of fault.
¶ 34. We
start with the second argument. Like other tort principles, the
collateral-source rule is premised on certain policy goals. As suggested
earlier, foremost among these is the fundamental tenet that a defendant should
be required to pay for his or her wrongdoing. Indeed, this has been
the touchstone of the rule in Vermont
for more than a century. As we observed in Harding v. Town of
Townshend, 43 Vt.
536, 539 (1871): “as between the insurer and the wrong-doer,
. . . . [t]he party whose wrongful act or culpable negligence caused the
injury ought to make compensation and bear the loss.” Thus, as courts and
commentators have observed, one of the essential elements of the rule has
always been its punitive nature. See, e.g., Dennison v. Head Constr. Co., 458 A.2d 868, 875 (Md. Ct. App. 1983)
(“The collateral source rule is punitive.”); Hubbard Broad., Inc. v. Loescher, 291 N.W.2d 216, 222 (Minn. 1980) (observing of the collateral
source rule that “its purpose is punitive”); Restatement (Second) of Torts, §
920A, cmt. b (noting the
“element of punishment of the wrongdoer involved” in the collateral-source
rule).
¶ 35. A
close corollary of this policy goal is the related goal of deterring
wrongdoing. As the Wisconsin
Supreme Court recently explained: “The collateral[-]source
rule, like other tort principles, also aims at deterring a tortfeasor’s
negligent conduct. Accordingly, it makes the tortfeasor
fully responsible for damages caused as a result of tortious
conduct.” Leitinger v. DBart, Inc., 2007 WI 84, ¶ 33,
736 N.W.2d 1; see also State Farm Mut.
Auto. Ins. Co. v. Nalbone, 569 A.2d 71, 73 (Del.
1989) (“The rationale for the collateral[-]source rule
appears to emphasize the deterrent and quasi-punitive functions of tort law.”);
Cook v. Jefferson Parish Hosp., 900 So.
2d 865, 866 (La. Ct. App. 2005) (“The major policy reason for applying the
collateral[-]source rule to damages has been, and continues to be, tort
deterrence.”); State ex rel. Stacy v. Batavia
Local Sch. Dist., 829 N.E.2d 298, 307 (Ohio 2005)
(observing that the collateral source rule “is intended to have both a punitive
and deterrent effect on the tortfeasor”); J. Moorhouse, et al., Law and Economics and Tort Law: A
Survey of Scholarly Opinion, 62 Albany L. Rev. 667, 688 (1998) (observing
that the first major justification of the collateral-source rule is that “tortfeasors must pay the full costs of their actions”);
Note, Preserving the Collateral Source Rule: Modern Theories of Tort Law and
a Proposal for Practical Application, 47 Case W. Res. L. Rev. 1075, 1078
(1997) (“unless the defendant is made to pay for the damages caused, the
deterrent purpose of tort liability will be undermined”); Note, The
Collateral Source Rule in Georgia: A New Method of Equal Protection Analysis
Brings a Return to the Old Common Law Rule, 8 Ga. St. U. L. Rev. 835, 840
(1992) (the collateral-source rule developed out “of recognition that punitive
measures against the tortfeasor would promote
deterrence of tortious conduct”).
¶ 36. DOC
relies on those principles, arguing that since it has been found strictly
liable, but not negligent, application of the collateral-source rule to it
would be inconsistent with the policies behind it. DOC asserts that,
absent any finding of fault or wrongdoing on its part, no punitive or deterrent
purpose would be served by requiring that it reimburse Windsor for damages already received from
another source. See Dennison v. Head Constr.
Co., 458 A.2d 868, 874 (Md. Ct. Spec. App. 1983) (holding that, because an
award of workers’-compensation benefits “does not involve questions of
wrongdoing,” the collateral-source rule did not prevent the State from reducing
state benefits where the worker received federal benefits for the same
injuries); Batavia Local Sch. Dist., 829 N.E.2d
at 308 (holding that application of collateral-source rule to offset backpay award against state retirement benefits would have
no deterrent effect where award resulted from violation of collective
bargaining agreement which involved “neither discrimination nor tortious conduct”); see generally V. Schwartz, Tort Law
Reform: Strict Liability and the Collateral Source Rule Do Not Mix, 39 Vand. L. Rev. 569, 572 (1986) (observing that, because “the
collateral[-]source rule is a fault-based concept,” it
has no application when damages are based on strict liability).
¶ 37. The
problem with DOC’s argument is that this is an
indemnity action, not a strict- liability action under the Waste Management
Act. Thus, Windsor is able to recover at
least part of its expenses because there is a difference between the kind or
quality of DOC’s conduct and that of Windsor. The trial court found that Windsor was an entirely
innocent and unknowing owner of the property. DOC, on the other hand,
created and used the dipping operation that caused the hazardous waste and
passed the property on to Windsor
without informing it of the existing pollution. Whether or not DOC is
found negligent, it is clearly more at fault than Windsor,
and that is the basis for the liability ruling requiring DOC to indemnify Windsor.
¶ 38. The
circumstances here are comparable to those in Hall v. Miller. In
that case, plaintiff farmer bought diseased cows from defendant, cattle dealer,
and they had to be destroyed. Plaintiff brought a breach-of-warranty
action and prevailed, but defendant sought to reduce the judgment by the amount
plaintiff received from state and federal indemnification programs. Just
like DOC, defendant argued that he was not a “wrongdoer,” because “this is not
a tort action but one based on contract” and the disease was “latent” so that
the breach of warranty was not “shown to be intentional or even
manifest.” Hall, 143 Vt.
at 143, 465 A.2d at 226. We rejected that
argument:
[T]he
collateral[-]source rule should apply to actions
sounding in contract, as well as in tort. The breaching party in a
contract action or, as here, a breach of warranty action, may not be a
wrongdoer in the same sense as the tortfeasor.
Nonetheless, as between the two parties, it is better that the injured
plaintiff recover twice than that the breaching defendant escape liability
altogether.
Just as the
application of the collateral source rule was based on differential fault in Hall,
it applies because of differential fault here.
¶ 39. DOC
makes two other arguments about why the collateral source rule should not
apply. The first is that the rule should not allow a double recovery,
particularly where DOC gave the property to Windsor for a dollar and DOC assumed the full
obligation for the clean-up. While we understand DOC’s
view that its liability has become excessive, we find nothing in the policy
behind the collateral-source rule that would deny its applicability for the
reasons stated by DOC.
¶ 40. Finally,
we reject DOC’s second argument that the
collateral-source rule should not apply because the state education department
has given grants to Windsor
under applicable state aid to education formulas. For this reason, DOC
argues, the insurance policies from which Windsor
received payments were not a source “wholly independent from the
defendants.” Id.
at 144, 465 A.2d at 227. While we understand
that the State has subsidized the operating expenses of school districts, we
cannot say that the insurance was purchased because of that
subsidization. In circumstances where an agency of the federal government
was the tortfeasor, the federal courts have generally
applied the collateral-source rule to social security benefits because of the
plaintiff’s contribution to the creation of those benefits. See Berg
v. United States,
806 F.2d 978, 984 (10th Cir. 1986). An important
consideration behind the collateral-source rule is that a wrongdoer should not
benefit “from the plaintiff’s foresight in acquiring the insurance.” Hall,
143 Vt. at 141-42, 465 A.2d at 225; see My
Sister’s Place v. City of Burlington, 139 Vt. 602, 613, 433 A.2d 275, 281 (1981) (“tortfeasor should not reap the benefits of a victim’s
providence”). While the State may have subsidized Windsor’s
operating expenses, the decision to purchase the insurance was entirely that of
Windsor.
We conclude that the provision of state aid to education does not make Windsor’s insurance
benefits other than a collateral source.
¶ 41. For
the above reasons, we agree with the trial court that Windsor’s insurance proceeds were a
collateral source. Under the collateral-source rule, DOC may not reduce
its indemnity liability to Windsor by the amount
of Windsor’s
insurance proceeds.
Affirmed.
FOR
THE COURT:
__________________________________________
Associate
Justice