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Greyhound Lines Inc. v. Viad Corp.

United States District Court, D. Arizona

May 30, 2017

Greyhound Lines Incorporated, Plaintiff,
Viad Corporation, Defendant.


          David G. Campbell United States District Judge.

         Plaintiff Greyhound Lines, Inc. (“GLI”) claims that Defendant Viad Corporation failed to satisfy contractual and statutory obligations to pay for environmental contamination at a property in Seattle, Washington. Doc. 30, ¶ 25. Viad asserts a counterclaim to recover money Viad paid GLI for environmental work at the property. Doc. 15 at 10. The Court held a six-day bench trial on May 3-5 and 10-12, 2017. Several witnesses testified and hundreds of exhibits were received in evidence. After reviewing the evidence carefully, the Court finds in favor of Viad on GLI's claims and in favor of GLI on Viad's counterclaims. This order sets forth the Court's findings of fact and conclusions of law under Rule 52 of the Federal Rules of Civil Procedure.

         I. Findings of Fact - Background.

         On December 22, 1986, the parties entered into an Acquisition Agreement under which GLI purchased from Viad more than 100 parcels of real estate along with buses, maintenance equipment, and other assets needed to operate the Greyhound bus lines business. Ex. 1. These assets included the property at issue in this case, 1250 Denny Way, Seattle, Washington (the “Property” or “Seattle Property”).[1]

         Viad owned and operated the Seattle Property as a bus garage from 1948 until it sold the property to GLI. When GLI acquired the Property from Viad, it included 11 underground storage tanks (“USTs” or “tanks”): three diesel fuel USTs (Tanks 1-3) on the west side of the maintenance building in the northwest part of the site; four USTs (Tanks 4-7) on the north side of the maintenance building in the northwest part of the site containing motor oil (Tank 4), antifreeze (Tank 5), water (Tank 6), and diesel fuel (Tank 7); one motor oil UST (Tank 8) to the west of the terminal building in the southwest part of the site; two waste oil USTs (Tanks 9-10) beneath the west end of the terminal building in the southwest part of the site; and one heating oil UST (Tank 11) east of the terminal building. After the purchase, GLI continued to use the Property for bus maintenance purposes, including use of the 11 USTs.

         The Acquisition Agreement between the parties was dated December 22, 1986, but the transaction did not close until March 18, 1987. Before closing, three amendments to the Acquisition Agreement were signed by the parties. The most relevant is the Third Amendment, which addressed possible contamination from leaking USTs at each of the properties GLI acquired from Viad. Ex. 3.

         The Third Amendment provided that Viad would be responsible for 100% of remediation expenses for contamination discovered by GLI during the first year after the sale, provided GLI gave notice to Viad and started site work related to the contamination during the first year. Id., § 3.3. This liability would decrease to 80% for contamination discovered the following year (provided notice was given and work began), and by 20% each year thereafter, disappearing after five years. Id. The parties entered later agreements related to this liability that will be discussed below.

         Between 1992 and 2009, GLI billed and Viad paid $588, 719.54 related to contamination at the Seattle Property. Exs. 735, 736. Pursuant to the parties' agreement for decreasing Viad liability, these payments represented an allocation to Viad of 60% of environmental costs at the Property.

         In 2007, GLI was acquired by FirstGroup plc. Doc. 124, ¶ 10. In 2008, GLI entered into a contract to sell the Property to the City of Seattle in lieu of condemnation. The sale was for a price of $31, 755, 200, but GLI and the City agreed that the price would be reduced by another $5.95 million to account for environmental contamination at the Property. The sale closed on March 13, 2009. The sale contract and related documents provided that the City would stop utilizing the Property as a bus garage and would convert it to a different use. After the sale, the City oversaw and paid for remediation and redevelopment of the site.

         On September 11, 2015, GLI brought this case against Viad seeking declaratory and monetary relief for breach of contract. Doc. 30. Specifically, GLI claims that Viad is liable for 60% of the $5.95 million purchase price reduction GLI incurred when it sold the Property to Seattle. GLI also seeks to recover 60% of $46, 050.85 GLI paid a consultant to investigate possible offsite sources of contamination after the sale closed. GLI further seeks to recover the full $5.95 million price reduction under the State of Washington's Model Toxics Control Act (“MTCA”), and $196, 350 for hazardous substance remediation under the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”).

         Viad claims that it learned during this lawsuit that GLI had improperly billed it for $547, 177 in environmental costs at the Seattle Property - costs for which it is not liable. Viad seeks to recover this amount for breach of contract.

         II. GLI's Contract-Related Claims.

         A. Conclusions of Law - Legal Standards.

         The contracts at issue in this case are governed by Arizona law. Doc. 124. The parties entered into the following stipulations regarding the relevant law. Id.

         1. GLI and Viad entered into the Acquisition Agreement as amended by the Third Amendment, the Claims Treatment Agreement, and the Settlement Agreement, each of which is a valid and binding contract.

         2. For GLI to recover from Viad for breach of contract, GLI must establish by a preponderance of the evidence that (1) GLI and Viad entered into a valid and binding contract, (2) GLI satisfied conditions precedent under the contract, (3) Viad materially breached the contract, and (4) the breach resulted in damage to GLI.

         3. For GLI to recover for breach of the implied covenant of good faith and fair dealing, GLI must establish that (1) GLI and Viad are parties to a valid and binding contract, (2) Viad prevented GLI from receiving the benefits of the contract, and (3) GLI suffered damages as a direct and proximate result. United Dairymen of Arizona v. Schugg, 128 P.3d 756, 762 (Ariz.Ct.App. 2006).

         4. “[I]n Arizona, a court will attempt to enforce a contract according to the parties' intent.” Taylor v. State Farm Mut. Auto. Ins. Co., 854 P.2d 1134, 1138 (Ariz. 1993).

         5. Arizona does not adhere to the view “that ambiguity must exist before parol evidence is admissible.” Id. at 1140. Rather, “the judge first considers the offered evidence and, if he or she finds that the contract language is ‘reasonably susceptible' to the interpretation asserted by its proponent, the evidence is admissible to determine the meaning intended by the parties.” Id.

         6. “The acts of parties under a contract, before disputes arise, are the best evidence of the meaning of doubtful contract terms.” Associated Students of the Univ. of Ariz. v. Arizona Bd. of Regents, 584 P.2d 564, 569 (Ariz.Ct.App. 1978).

         B. Findings of Fact.

         1. The Relevant Contracts.

         The Acquisition Agreement signed in 1986 makes Viad liable for “any claim, action, proceeding, damage, liability, loss, cost, expenses, judgment, fine, penalty or deficiency . . . arising out of, resulting from or related to . . . [a]ny liability or obligation of [Viad].” Ex. 1, § 10.2. GLI has not shown that this agreement imposed any environmental liabilities on Viad. Bill Halliman, a former in-house attorney at Viad and the lead lawyer for Viad in formation of the Acquisition Agreement, testified that all properties were sold to GLI “as is.” Section 4.7 of the agreement confirms this fact, stating that the “Sale Assets” are sold “in an as is” condition.[2] Ex. 1, § 4.7. This was done, Halliman explained, so that environmental liabilities would transfer to GLI with the properties. GLI has identified no portion of the 64-page Acquisition Agreement that says anything about Viad retaining environmental liabilities. Indeed, the parties paid little attention to the Acquisition Agreement during trial, instead focusing their attention on the Third Amendment.

         GLI claims that Viad is liable for breaching § 3.3 of the Third Amendment. GLI claims that Viad is liable for 60% of environmental liabilities incurred at the Property, a percentage limit set in the Third Amendment for contamination discovered during the third year after the sale.[3]

         The Third Amendment was entered on March 18, 1987, three months after the Acquisition Agreement. Ex. 3. Bill Halliman testified without contradiction that the Third Amendment's environmental provisions arose because, during the three months after signing the Acquisition Agreement, GLI and its lenders became concerned that USTs on the properties could give rise to environmental liabilities. Article III of the Third Amendment therefore established a procedure for the parties to share this environmental risk in a way both sides found acceptable. Halliman testified credibly that Article III was not intended to include environmental liabilities other than leaks from USTs. Ken Ries, Viad's in-house environmental manager who was responsible for administering the Third Amendment for more than 25 years, also understood that Article III applied only to UST leaks.

         The language of the Third Amendment is consistent with the testimony of Halliman and Ries. Section III is titled “Environmental Matters” and states that “the Parties desire to make certain arrangements with respect to certain underground storage tanks on properties [covered by the Acquisition Agreement].” Id., § 3.1. Section 3.3 provides that, “[n]otwithstanding any provision of the Acquisition Agreement to the contrary, [Viad] shall be obligated to bear a proportionate share of any costs, fees, expenses, fines, penalties and governmental levies associated with remediation done in respect of leaks from the Tanks, and the actual costs or expenses of remediation of the properties where the Tanks are located . . . (collectively, the ‘Remediation Expenses').” Id., § 3.3. “[Viad's] proportionate share” for these UST expenses “shall be 100% of the Remediation Expenses for a period of one year after the Closing Date, and shall decrease linearly 20% every year thereafter, such that the Seller is not responsible for any Remediation Expenses from and after five years after the Closing Date.” Id. The Third Amendment thus included a step-down process under which Viad's liability for UST remediation decreased each year, reaching zero after five years. Section 3.3 places on GLI “the remaining share of the Remediation Expenses.” Id.

         In August 1991, the parties entered into the Claims Treatment Agreement. Ex. 4. Section 14(a) provides that “[t]he environmental indemnities in the Acquisition Agreement” - which is defined to include the Third Amendment - “shall be modified as follows: [Viad] shall have no obligation to indemnify [GLI] for any liabilities for environmental matters or claims, regardless of when the acts giving rise to liability occurred, and [GLI] shall assume all such environmental obligations and indemnities, except . . . indemnities arising from liabilities which are identified prior to March 1, 1992.” Ex. 4, § 14(a). The Claims Treatment Agreement further provides that the liabilities identified before March 1, 1992 “shall continue to be governed by the Acquisition Agreement” (id.), as amended by the Third Amendment (id., Recital A).

         Thus, the Claims Treatment Agreement makes clear that Viad's environmental liability under the Third Amendment applies only to liabilities identified before March 1, 1992.

         Eight years later, the parties entered into a Settlement Agreement that added relevant definitions. Ex. 5. The Settlement Agreement defines “Environmental Obligations” as follows:

The term “Environmental Obligations” shall mean any and all liabilities and obligations, whether statutory, regulatory, contractual, legal, financial or otherwise, relating to the physical or environmental condition of a Property (as defined below), including but not limited to the presence, use or release of Hazardous Materials (as defined below) at a Property, the migration of Hazardous Materials to or from a Property, the transportation of Hazardous Materials from a Property, or off-site disposal of Hazardous Materials which were kept, used or stored at a Property, regardless of whether such liability or obligation is predicated upon tort, contract, strict liability, warranty, Superfund . . . or any other state or federal statute, law, ordinance, or other basis of liability for damage to the environment.

Id., § 2.1.

         The Settlement Agreement defines “Notified” as follows:

[Viad] shall have been “Notified” about an Environmental Obligation only if: (a) the existence or nature of the Environmental Obligation has been reasonably disclosed in writing: (i) by [GLI] to [Viad], or (ii) by a state or federal environmental regulatory agency to [Viad], or (b) [Viad] has addressed or has been addressing such Environmental Obligations by way of site assessment, testing or remediation.

Id., § 2.4.

         The Settlement Agreement then revised § 14(a) of the Claims Treatment Agreement to make it consistent with these new definitions:

[Viad] shall have no obligation to indemnify [GLI] for any liabilities for Environmental Obligations with respect to Properties, regardless of when the acts giving rise to liability occurred, and [GLI] shall assume all such Environmental Obligations and indemnities with respect to all Properties, except (A) indemnities arising from Environmental Obligations which [Viad was] Notified about prior to the Effective Date. The foregoing exception (A) shall continue to be governed by the Amended Acquisition Agreement[.] . . . In addition, [GLI] shall indemnify [Viad] with respect to Environmental Obligations relating to Properties sold to [GLI] which [Viad was] not Notified about prior to the Effective Date.

Id., ¶ 3.1.

         The “Effective Date” is the cut-off date established in the Claims Treatment Agreement - March 1, 1992. The Settlement Agreement made the cut-off more precise by stating that Viad must have been “Notified” of the liability by March 1, 1992, as opposed to the Claims Treatment Agreement's provision stating that the liability merely needed to be “identified” by that date.

         2. The Parties' Interpretations and Arguments.

         GLI argues that the Third Amendment makes Viad liable for the relevant percentage of all remediation costs at properties where GLI gave the required notice. GLI asserts that it gave notice and triggered Viad's liability for subsurface contamination at the Seattle Property in 1989, making Viad liable for 60% of the remediation costs GLI billed to Viad between 1990 and ...

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