United States District Court, D. Arizona
G. Campbell United States District Judge.
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.
Findings of Fact - Background.
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
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.
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.
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
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.
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.
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”).
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.
GLI's Contract-Related Claims.
Conclusions of Law - Legal Standards.
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.
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
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.
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).
“[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).
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
“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
Findings of Fact.
The Relevant Contracts.
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. 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
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
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.
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.
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).
the Claims Treatment Agreement makes clear that Viad's
environmental liability under the Third Amendment applies
only to liabilities identified before March 1, 1992.
years later, the parties entered into a Settlement Agreement
that added relevant definitions. Ex. 5. The Settlement
Agreement defines “Environmental Obligations” as
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.
Settlement Agreement defines “Notified” as
[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
Id., § 2.4.
Settlement Agreement then revised § 14(a) of the Claims
Treatment Agreement to make it consistent with these new
[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
Id., ¶ 3.1.
“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
The Parties' Interpretations and Arguments.
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 ...