ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Steve Carter George M. Plews
Attorney General of Indiana Brett E. Nelson
Indianapolis, Indiana
David L. Steiner
Frances H. Barrow
Timothy J. Junk
Deputy Attorney Generals
Indianapolis, Indiana
______________________________________________________________________________
In the FILED
Indiana Supreme Court
Dec 09 2008, 10:00 am
_________________________________ CLERK
of the supreme court,
court of appeals and
tax court
No. 49S02-0804-CV-183
THE INDIANA DEPARTMENT OF
ENVIRONMENTAL MANAGEMENT,
Appellant (Defendant below),
v.
RAYBESTOS PRODUCTS COMPANY,
Appellee (Plaintiff below).
_________________________________
Appeal from the Marion Superior Court, No. 49D12-0209-PL-1553
The Honorable Robyn Moberly, Judge
_________________________________
On Petition to Transfer from the Indiana Court of Appeals, No. 49A02-0609-CV-782
_________________________________
December 9, 2008
Boehm, Justice.
We hold that an agreed order for environmental cleanup with the Indiana Department of
Environmental Management (“IDEM”) is an agency action governed by the Indiana Administra-
tive Orders and Procedures Act, not a contract that will support a claim for damages from IDEM.
We also hold that IDEM has authority to approve risk-based cleanups, and IDEM’s communica-
tions with the federal Environmental Protection Agency did not violate its Agreed Order with
Raybestos.
Facts and Procedural History
Raybestos Products Company manufactures brakes and clutches in its Crawfordsville,
Indiana plant. This plant is adjacent to Shelly Ditch, a 5000-foot open earthen drain surrounded
by homes, a school, fairgrounds, and a community swimming pool. In 1995, IDEM identified
polychlorinated biphenyls (“PCBs”) in Shelly Ditch and notified Raybestos of its findings. Ray-
bestos investigated internally and learned that in the late 1960s its corporate predecessor had
used hydraulic oil containing PCBs. Some of this oil spilled and was pumped to a culvert which
discharged into Shelly Ditch.
In 1996, IDEM sent Raybestos a “Special Notice of Potential Liability” for cleanup of
Shelly Ditch, and began negotiating a cleanup plan with Raybestos. IDEM also notified the fed-
eral Environmental Protection Agency (“EPA”) of its findings. IDEM recommended that Shelly
Ditch receive a high priority in the Superfund Hazard Ranking System, but because of IDEM’s
ongoing negotiations, EPA initially assigned the site a low priority.
A December 1996 Statement of Work outlined a plan to “address human health and envi-
ronmental concerns and bring the site to closure such that no future actions are required.” The
Statement of Work called for Raybestos to prepare a Risk Assessment for IDEM’s approval. In
February 1997, IDEM and Raybestos entered an Agreed Order approved by IDEM’s Commis-
sioner incorporating the Statement of Work and requiring Raybestos to remove and dispose of
PCBs in Shelly Ditch. Raybestos submitted a Risk Assessment which concluded that the PCB
levels in Shelly Ditch posed no human health risks. After review by IDEM staff and an outside
risk assessment contractor, IDEM approved the Risk Assessment in March 1998. Neither the
Agreed Order nor the Risk Assessment contained a numerical cleanup level.
In May 1998, based on the approved Risk Assessment, Raybestos submitted a Technical
Memorandum proposing no removal of PCBs from Shelly Ditch. Two months later, IDEM
commented on the proposal and suggested that Raybestos consider a “hot spot” removal, in
2
which high-level areas are cleaned to a specified level but the site is not cleaned to a uniform
level.
In late August 1998, IDEM’s Commissioner, a successor to the Commissioner who
signed the Agreed Order, visited Crawfordsville and publicly promised residents that Shelly
Ditch would be cleaned up promptly. On August 25, 1998, the U.S. Fish and Wildlife Service
identified Shelly Ditch as within the range of the Indiana bat and the bald eagle, at the time re-
spectively endangered and threatened species.
At some point, IDEM determined that the Risk Assessment had been approved in error,
and an internal memorandum in September 1998 explored possible ways to require a more strin-
gent cleanup level, including involving EPA. At about the same time, Raybestos proposed a
cleanup that would allow hot spots to contain PCB concentrations up to 238 parts per million
(“ppm”). IDEM responded that this proposal was unacceptable, and in November 1998, IDEM
withdrew its approval of the Risk Assessment and disapproved the Technical Memorandum.
Raybestos filed a Petition for Administrative Review in the Office of Environmental Ad-
judication. IDEM and Raybestos stipulated that the Agreed Order provision in which Raybestos
agreed to “waive its right to administrative review of this Order” had “no effect on the proceed-
ings.” Despite the parties’ stipulation, the Administrative Law Judge dismissed Raybestos’s pe-
tition for review, finding as a matter of law that Raybestos had waived its right to review of
IDEM’s actions.
Raybestos then sought judicial review of IDEM’s actions in the Marion Superior Court
frequently referred to as the “Environmental Court.” The Environmental Court first concluded
that the parties’ stipulation bound the Administrative Law Judge to permit review. The Envi-
ronmental Court then determined that IDEM lacked authority under the Agreed Order to with-
draw approval of the Risk Assessment and that IDEM’s decision to withdraw approval was “ar-
bitrary and capricious” and “not supported by any substantial evidence.” The Environmental
Court found that IDEM’s only reason for withdrawing approval was to avoid setting a precedent
for the cleanup level proposed by Raybestos, and ordered IDEM to reinstate its approval of the
Risk Assessment and to approve the Technical Memorandum. IDEM did not appeal that judg-
ment, and reinstated the Risk Assessment and approved the Technical Memorandum.
3
Meanwhile, beginning in October 1998, IDEM urged EPA to require a more complete
cleanup, and in December 2000, EPA issued a Unilateral Agreed Order (“UAO”) requiring Ray-
bestos to clean up Shelly Ditch to a level of no greater than 10 ppm PCBs. This cleanup was
substantially more expensive than a 238 ppm hot spot cleanup.
In July 2002, Raybestos filed the complaint initiating this lawsuit in Marion Superior
Civil Division, claiming breach of contract by IDEM. Raybestos alleged that the Agreed Order
constituted a contract that IDEM breached by withdrawing approval of the Risk Assessment, dis-
approving the Technical Memorandum, and requesting EPA involvement in ordering a more
stringent cleanup. Raybestos sought damages and a declaratory judgment that IDEM is liable for
any future expenses incurred in remediating Shelly Ditch beyond what was required by the 1997
Agreed Order.
IDEM moved to dismiss under Trial Rules 12(B)(1) and 12(B)(6), asserting that (1) the
trial court lacked subject matter jurisdiction, (2) any damages were caused by EPA, (3) IDEM
did not breach the Agreed Order, and (4) the Agreed Order is not a contract enforceable by a
claim for damages. Raybestos moved for summary judgment, contending that the Environmental
Court’s order established IDEM’s breach and that IDEM had admitted the breach. The trial
court granted partial summary judgment for Raybestos, concluding that as a matter of law,
IDEM’s communications with EPA breached the Agreed Order and IDEM’s right or obligation
to seek EPA enforcement under some circumstances did not justify the breach. The trial court
certified its partial summary judgment order for interlocutory appeal, but the Court of Appeals
denied IDEM’s request to accept an interlocutory appeal.
Damages from the alleged breach then proceeded to a bench trial. On June 12, 2006, the
trial court entered its findings of fact, conclusions of law, and partial judgment. The trial court
found that EPA’s enforcement action was due solely to “IDEM’s persistent and repeated re-
quests” that EPA address Shelly Ditch, and entered a partial judgment for $11,645,321.58—the
difference between the cost of the EPA-required cleanup and the projected costs of a cleanup to
238 ppm—plus post-judgment interest at the statutory rate. IDEM appealed this order and the
trial court’s previous partial grant of summary judgment. On October 30, 2006, after hearing
additional evidence, the trial court entered an additional award of $4,716,691.33 representing
4
future cleanup costs and attorney fees. IDEM also appealed this order, and the Court of Appeals
consolidated the two appeals.
The Court of Appeals reversed, holding that even if the Agreed Order were a contract, it
would be unenforceable as “contrary to public policy” because a cleanup level of 238 ppm is
twenty times the level allowed by federal regulations. Ind. Dep’t of Envtl. Mgmt. v. Raybestos
Prods. Co., 876 N.E.2d 759, 763 (Ind. Ct. App. 2007). We granted transfer.
We hold that the Agreed Order is not a contract that will support a claim for damages.
For the reasons explained below, we do not agree that IDEM violated the order by communicat-
ing with EPA, or that IDEM’s original agreement to a less stringent cleanup than EPA regula-
tions prescribe would necessarily contravene public policy.
Standards of Review
IDEM appeals the trial court’s denial of the motion to dismiss, partial grant and partial
denial of summary judgment, and judgment entries dated June 12, 2006 and October 30, 2006
containing findings of fact and conclusions of law. To the extent they involve only legal issues,
we review the trial court’s orders de novo. Charter One Mortgage Corp. v. Condra, 865 N.E.2d
602, 604 (Ind. 2007); Univ. of S. Ind. Found. v. Baker, 843 N.E.2d 528, 531 (Ind. 2006). We
uphold the trial court’s findings of fact unless they are clearly erroneous. Ind. Trial Rule 52(A).
I. Damages for Breach of the Agreed Order
Raybestos seeks damages under Indiana Code section 34-13-1-1 (2004), which permits
claims against the state arising out of express or implied contracts. IDEM responds that Raybes-
tos may not bring a contract action for two reasons: (1) the Agreed Order is an agency action
that is subject to challenge only under the Indiana Administrative Orders and Procedures Act
(“AOPA”), I.C. §§ 4-21.5-1-1 to -7-9 (2004), and (2) the Agreed Order fails to meet the statutory
requirements for a state agency contract. For the reasons explained below, we agree with IDEM
5
and hold that the Agreed Order is not a contract that will support a claim for damages against the
State.1
A. Indiana Administrative Orders and Procedures Act
AOPA “establishes the exclusive means for judicial review of an agency action.” Id. § 4-
21.5-5-1. AOPA exempts several agencies and agency actions from this provision, but neither
IDEM nor the Agreed Order is among them. Ind. Code Ann. §§ 4-21.5-2-4, -5 (West Supp.
2008). Accordingly, if IDEM is an agency and the Agreed Order is an agency action, AOPA is
the exclusive means to review the order.
As a preliminary matter, we address whether IDEM has preserved its claim that AOPA
limits the remedies available to Raybestos. IDEM argued before the trial court that the Agreed
Order is not enforceable by a claim for damages, but IDEM appears to have framed this argu-
ment specifically in terms of AOPA for the first time in its brief to the Court of Appeals. Gener-
ally, an appellate court will not review an issue that was not presented to the trial court. Cavens
v. Zaberdac, 849 N.E.2d 526, 533 (Ind. 2006). Raybestos briefed the issue and does not contend
that IDEM waived the issue of whether AOPA precludes a claim for breach of contract. In any
event, the issue challenges the jurisdiction of the trial court, and for this reason we address it.
See State Bd. of Tax Comm’rs v. Ispat Island, Inc., 784 N.E.2d 477, 482 (Ind. 2003) (“Under
Indiana law, if a party is required by the Administrative Orders and Procedures Act to exhaust its
administrative remedies before an agency prior to obtaining judicial review of the agency deci-
sion, courts are completely ousted of subject matter jurisdiction to hear the case at all.”); Town
Council of New Harmony v. Parker, 726 N.E.2d 1217, 1223 n.8 (Ind. 2000) (lack of subject mat-
ter jurisdiction cannot be waived).
IDEM is plainly an “agency” as defined by Indiana Code section 4-21.5-1-3, and the
Agreed Order was an action by its Commissioner. AOPA defines “agency action” as “the whole
or part of an order,” “the failure to issue an order,” or “[a]n agency’s performance of, or failure
1
Because we hold that the Agreed Order is not a contract, we do not address Raybestos’s arguments that
rely on application or extension of private contract doctrine: that IDEM breached a contract by prevent-
ing Raybestos’s performance, and that for at least government contracts, we should impose a general duty
of good faith and fair dealing.
6
to perform, any other duty, function, or activity under this article.” I.C. § 4-21.5-1-4. Both the
Agreed Order—an administrative order entered pursuant to section 13-25-4-23—and IDEM’s
communications with EPA are agency actions. If we view this claim as one for failure to comply
with an implied provision of the Order, it seeks relief from an agency action because the order
itself is by definition an “agency action.” If on the other hand the claim is for failure to carry out
an obligation under the Order not to communicate with EPA, it is for “failure to perform” a
“duty, function, or activity under this article.” Indeed, communication with EPA on enforcement
matters and appropriate remedies is a duty or function mandated by federal law. E.g., 40 C.F.R.
§§ 300.505 (2008) (requiring detailed annual consultation about activities), 300.515 (requiring
communication about remedy selection); see also Superfund Memorandum of Agreement Be-
tween the State of Indiana and the United States Environmental Protection Agency Region V
(1992) (outlining agencies’ agreement to communicate regularly, include each other in settle-
ment agreements, and permit changes in lead agency status).
Pursuant to a statute specifically addressing review of IDEM’s actions, the exclusive
means for review of an agency action of the IDEM Commissioner is by petition to the Office of
Environmental Adjudication. I.C. § 4-21.5-7-3. That administrative body must grant relief to a
party who has been prejudiced by agency action that is, among other things, “arbitrary, capri-
cious, an abuse of discretion, or otherwise not in accordance with law,” or “unsupported by sub-
stantial evidence.” Id. § 4-21.5-5-14. The forms of relief available are to “set aside an agency
action and: (1) remand the case to the agency for further proceedings; or (2) compel agency ac-
tion that has been unreasonably delayed or unlawfully withheld.” Id. § 4-21.5-5-15. Money
damages are not authorized, presumably reflecting the General Assembly’s policy judgment that
specific performance is a more appropriate remedy for agency error than a damages award ulti-
mately borne by the taxpayers.
In sum, pursuant to AOPA, exclusive jurisdiction to review the Agreed Order and
IDEM’s obligations and functions under the order lies in the administrative procedure provided
by these statutes, and a claim against the State or its agency for damages is not among the avail-
able remedies.
B. Contract Claims Against State Agencies
7
Raybestos contends that statutory provisions other than AOPA authorize its claim. Spe-
cifically, Raybestos points to Indiana Code section 34-13-1-1(a), which allows claims against the
State for breaches of both express and implied contracts. Raybestos essentially contends that this
provision overrides the exclusive jurisdiction provision of AOPA. We think these statutory pro-
visions are not inconsistent and collectively demonstrate that Raybestos’s claim is not well
founded. Rather than apparently inconsistent provisions, AOPA and the statutes governing state
contracts fit nicely together.
AOPA does not completely foreclose contract claims against state agencies. For exam-
ple, exempted from AOPA’s coverage are agency contracts for the acquisition, leasing, or dispo-
sition of property, or the procurement of goods or services. Ind. Code Ann. § 4-21.5-2-5(11)
(West Supp. 2008). This exemption mirrors the provisions found in Indiana Code sections 4-13-
2-14.1 and 4-13-2-14.2, which require contracts with state agencies to be in writing and ap-
proved by the Commissioner of the Indiana Department of Administration, the Director of the
Indiana State Budget Agency, and the Attorney General. IDEM asserts that the Agreed Order
does not meet these requirements, and Raybestos concedes this point but responds that the re-
quirements do not apply to its claim because these formalities apply only to contracts for pur-
chases of goods or services. Raybestos argues that the limited application of these requirements
to contracts for goods or services is shown by their placement in a chapter labeled “Administra-
tive Management of State Services, Employees, Purchases, and Property.” To the extent Ray-
bestos argues that the chapter name requires a particular interpretation, the General Assembly
has instructed that the descriptive headings of titles, articles, and chapters “are intended for or-
ganizational purposes only and are not intended to affect the meaning, application or construc-
tion of the statute they precede.” I.C. § 1-1-1-5(f). But assuming these requirements apply only
to contracts for goods or services, this merely reflects the point that the very same contracts are
exempted from the exclusive judicial review provisions. In other words, presumably because a
contract for the purchase of goods or services will support a claim for damages, it is exempted
from the exclusive jurisdiction provision of AOPA. Raybestos concedes the Agreed Order is not
such a contract. It therefore is not exempted from AOPA.
II. IDEM’s Authority to Approve Risk-Based Cleanups
8
Because we hold that under AOPA the Agreed Order does not support a claim for dam-
ages, we need not decide whether public policy precludes the construction of the Agreed Order
urged by Raybestos. However, because the Court of Appeals reversed the trial court’s judgment
on this issue, we briefly turn to IDEM’s authority to order risk-based cleanups, cleanups above
or below the numerical level set by regulation.2 The Court of Appeals concluded that IDEM
lacked authority to approve a cleanup level that did not meet the applicable federal standard of
10 ppm. For this conclusion, the Court of Appeals relied on the federal PCB Spill Cleanup Pol-
icy, 40 C.F.R. §§ 761.120–761.135 (2008), which provides that “[s]oil contaminated by the spill
will be decontaminated to 10 ppm.” Id. § 761.125(c)(4)(v). Even if applicable to this cleanup,3
that policy also gives EPA “flexibility to allow less stringent or alternative decontamination
measures based upon site-specific considerations.”4 Id. § 761.120(c). We agree with Raybestos
that the policy therefore does not constrain IDEM from agreeing to less stringent measures.
III. IDEM’s Actions Did Not Violate the Agreed Order
We respectfully disagree with the trial court’s conclusion that money damages are neces-
sary to further the “interest in the government abiding by its promises” which facilitates cleanup
2
Raybestos argues that the Environmental Court order precludes IDEM from claiming that it lacked au-
thority to approve a cleanup that did not reduce PCBs to 10 ppm. The order concluded that IDEM lacked
authority to withdraw the Risk Assessment. It did not specifically address whether IDEM had authority
to approve a cleanup above 10 ppm.
In any event, claim preclusion applies only when the party against which it will be applied had a
full and fair opportunity to litigate the issues or when application would be unfair given the
circumstances. Tofany v. NBS Imaging Sys., Inc., 616 N.E.2d 1034, 1038 (Ind. 1993) (citing Parklane
Hosiery Co., Inc. v. Shore, 439 U.S. 322 (1979)). It would be unfair to preclude IDEM from arguing its
authority because the previous action was for administrative relief, not money damages, and by that time
EPA had already ordered a more stringent cleanup. Id. (“[U]nfairness to the defendant against whom an
estoppel is asserted may result . . . where the defendant had little incentive to vigorously litigate the first
action either because the damages were small or nominal, or because future suits were not foreseeable.”
(quoting Parklane Hosiery, 439 U.S. at 330–31)).
3
The parties dispute whether the 10 ppm standard applies to Shelly Ditch. That standard does not apply
to pre-1987 spills, 40 C.F.R. § 761.120(a)(1), and the parties dispute whether the spill occurred in the late
1960s or continuously through 1996.
4
This federal PCB Spill Cleanup Policy has been incorporated by reference in the Indiana Administrative
Code, 329 I.A.C. 4.1-5-1 (2000), and provides IDEM the same flexibility afforded to EPA by federal reg-
ulation. This policy was promulgated as part of the solid waste management regulations, which the
IDEM Commissioner can enforce by lawsuit or agreed order. I.C. §§ 13-14-2-6, -20-15-7, -30-3-3. We
do not address whether it applies to this action instituted under the Hazardous Substances Response Trust
Fund provisions, id. §§ 13-25-4-1 to -28.
9
agreements. Our holding today does not remove the incentive to enter into voluntary cleanup
agreements with IDEM. If IDEM unjustifiably violates an agreement or acts arbitrarily, its per-
formance can be compelled—as Raybestos demonstrated by seeking judicial review of IDEM’s
withdrawal of approval of the Risk Assessment.
On the other hand, the public interest is not served by enforcing promises that were never
made. We accept the trial court’s finding that EPA would not have acted absent IDEM’s prod-
ding, and we recognize the practical difficulties EPA’s intervention caused Raybestos. For better
or worse, federal “overfiling”—EPA’s initiation of a cleanup after a state has brought an en-
forcement action—is a risk known to parties negotiating a cleanup with a state agency.5 If Ray-
bestos wished to foreclose EPA action, it needed to deal with EPA. At no time did IDEM prom-
ise not to involve EPA. The Agreed Order does not purport to forbid IDEM’s communication
with EPA, and IDEM could not bind itself to fail to carry out its statutory obligations, including
compliance with the federal regulations requiring communication between the agencies. E.g., 40
C.F.R. §§ 300.505 (2008) (requiring detailed annual consultation about activities), 300.515 (re-
quiring communication about remedy selection). Moreover, the Agreed Order itself acknowl-
edged the potential applicability of federal authority and directs compliance with the most strin-
gent cleanup requirements: “In the event of a conflict in the application of Federal, state, or local
laws, ordinances and regulations, [Raybestos] shall comply with the most stringent of said laws,
ordinances, or regulations, unless provided otherwise in writing by IDEM.” Finally, the Agreed
Order provides that “IDEM and [Raybestos] reserve all rights and defenses they may have pur-
suant to any available legal authority unless expressly waived herein.” In short, IDEM did not
and could not waive its authority to communicate with EPA, and did not commit to do more than
suspend its own enforcement efforts.
5
See Clifford Rechtschaffen & David L. Markell, Reinventing Environmental Enforcement and the
State/Federal Relationship 109–11 (2003) (describing a judicial split on the issue of whether EPA has
authority to overfile, with most courts holding that overfiling is appropriate); Hubert H. Humphrey III &
LeRoy C. Paddock, The Federal and State Roles in Environmental Enforcement: A Proposal for a More
Effective and More Efficient Relationship, 14 Harv. Envtl. L. Rev. 7, 14 (1990) (“After an overfiling, the
regulated entities quite understandably become concerned that, without involving EPA, they cannot be
sure a compliance schedule or a penalty amount agreed to by a state is final.”); Christopher J. Redd,
Comment, The Adversarial Relationship Between the States and EPA: Conflict Over State Authority
Under CERCLA, 3 Dick. J. Envtl. L. & Pol’y 101, 105 (1993) (“From the perspective of a responsible
party, settlement with state officials does not necessarily represent the end of the matter, or the limit of
their liability.”).
10
Conclusion
Because the Agreed Order does not support a claim for damages and was not violated by
IDEM’s actions, the trial court’s orders denying IDEM’s motions to dismiss and for summary
judgment are reversed. This case is remanded with instructions to vacate the judgments in favor
of Raybestos and dismiss the complaint for lack of subject matter jurisdiction.
Shepard, C.J., and Dickson, Sullivan, and Rucker, JJ., concur.
11