Paris Utility District v. A.C. Lawrence Leather Co., Inc.

Citations: 861 F.2d 1; 1988 WL 115767Docket: 88-1287

Court: Court of Appeals for the First Circuit; November 14, 1988; Federal Appellate Court

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The case involves a contract dispute between the Paris Utility District (plaintiff-appellee) and A.C. Lawrence Leather Co. (defendant-appellant) regarding an indemnity agreement stemming from a 1976 contract. The Paris Utility District, a quasi-municipal entity providing water and sewer services in South Paris, Maine, had an agreement with Lawrence's predecessor, Estech, Inc., to construct a sewage treatment plant and manage industrial waste from Lawrence's tannery. Under the contract, Lawrence allowed the District to use part of its premises for sludge disposal and included an indemnity clause stating that the District would hold Lawrence harmless against liabilities arising from its activities on the premises.

The District utilized the designated area for sludge disposal, despite a previous denial from Maine's Board of Environmental Protection (BEP) regarding the site's suitability for such use due to high soil permeability. Although the BEP had instructed the District to find an alternative site and granted temporary permits, these permits expired in 1979. The District failed to submit a required closure plan and only submitted a groundwater monitoring plan in 1985. Throughout this period, Lawrence was aware of the BEP's findings and the District's noncompliance with applicable laws. The sludge deposited included waste from Lawrence’s operations, and Lawrence's Environmental Affairs Director indicated that securing another landfill site would be cost-prohibitive for the company. The appeal primarily examines the implications of the indemnity agreement between the parties.

Since March 1985, Lawrence has engaged an engineering firm to monitor groundwater contamination at a landfill on its premises to comply with Bureau of Environmental Protection (BEP) requirements, incurring over $60,000 in costs by October 1986. The primary legal question is whether Lawrence can recover these costs from the District under the indemnity clause of their 1976 contract, which the district court determined it cannot. The applicable law, as established in *Emery Waterhouse Company v. Lea*, indicates that indemnity clauses designed to protect a party from damages due to its own negligence are generally disfavored and must clearly express mutual intent to indemnify for such negligence. The indemnity provision in the contract does not meet this standard, as it lacks clear language indicating that the District intended to indemnify Lawrence for losses arising from its own negligence. Lawrence argues that the intent of the parties should be considered in light of the circumstances at the time the contract was executed, asserting that the District intended to assume risks associated with landfill use, given its prior knowledge of Lawrence's operations since 1955.

Lawrence relies on the case Whit Shaw Associates v. Wardwell, 494 A.2d 1385 (Me.1985) to support its argument regarding an indemnity clause in a brokerage agreement for a bakery sale. The disputed indemnity clause required the Owner to indemnify the Broker for losses stemming from errors or misrepresentations in a brochure prepared by the Broker. The Maine Supreme Judicial Court found the term "Owner" ambiguous, necessitating extrinsic evidence to clarify the indemnity responsibility, and reiterated that contract interpretation should reflect the parties' intentions based on the agreement's language and context.

However, the court clarified that Whit Shaw does not alter the Emery Waterhouse precedent regarding indemnity agreements, which does not prioritize the parties' intent when the indemnity clause is clear. In the current case, the indemnity agreement explicitly obligates the District to indemnify Lawrence for claims arising from the District's activities on Lawrence's property, indicating no ambiguity exists.

Lawrence attempts to differentiate its case from Emery Waterhouse to argue its inapplicability, but the court maintains that without modification from the Maine Supreme Judicial Court, Emery Waterhouse's general rule on indemnity agreements must be followed, as no Maine case has limited its scope. Additionally, Lawrence claims its actions were not tortious or negligently active, which the district court is set to evaluate concerning the necessity of groundwater monitoring.

Lawrence exhibited at least negligent conduct regarding its landfill operations, having been aware since 1975 of the site's unsuitability for permanent landfill use due to soil permeability threatening groundwater. Despite repeated warnings and knowledge of the need for groundwater monitoring as early as 1977, Lawrence failed to take action to stop the landfill's use after October 1, 1979, when it became illegal, nor did it address the risks of groundwater contamination from its tannery operations, which contributed significantly to landfill waste. The court determined that Lawrence did not exercise ordinary care to mitigate contamination risks, necessitating groundwater monitoring. The findings of negligence were not clearly erroneous, as supported by relevant legal standards. Lawrence's argument that its negligence was 'passive' and thus exempt from the Emery Waterhouse ruling is rejected, as the cited case did not involve an indemnity agreement and does not establish a 'passive' negligence exception. The court affirmed the ruling, with costs awarded to the appellee.