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Judge Johnston Denies Request for New Trial and Declines to Award Attorneys' Fees in Environmental Indemnification Dispute

January 24, 2018

In Clean Harbors, Inc. v. Union Pacific Corp., C.A. No. N15C-07-081 MMJ CCLD, Judge Johnston decided post-trial motions following a jury verdict in a breach of contract case. Plaintiff Clean Harbors, Inc. had sued defendant Union Pacific Corporation (“UPC”) for breaching an environmental indemnity provision in a stock purchase agreement (“SPA”). Specifically, Clean Harbors sought to recover remediation costs for a hazardous waste facility its predecessor had purchased from UPC. On a previous motion for summary judgment, Judge Johnston held that Clean Harbors was entitled to indemnification under the SPA. Thereafter, a trial was held to determine: (1) the reasonableness of the remediation efforts, (2) whether sufficient notice was provided to UPC, and (3) the appropriate amount of indemnification. At trial, the jury determined that both parties had breached the contract, but solely awarded damages to Clean Harbors. UPC filed a motion for a new trial. Clean Harbors filed post-trial motions for attorneys’ fees, costs, and prejudgment interest.

UPC’s motion for new trial was based on perceived defects in the jury’s verdict, the jury verdict form, and the jury instructions. In support of its motion, UPC argued that the jury’s verdict regarding reasonable remediation costs went against the weight of the evidence presented at trial. Judge Johnston rejected this argument and found no drastic imbalance in the evidence, concluding instead that the case presented a classic battle of the experts.

UPC also argued that the verdict form confused the jury by not including a time period for the calculation of damages. Judge Johnston disagreed. The SPA indemnified Clean Harbors for expenses incurred up to 2014 for clean-up associated with contamination that existed at the time the SPA was executed in 1994. Although Clean Harbors argued that the jury’s verdict may have included costs beyond 2014, Judge Johnston rejected this argument because no party had presented evidence of clean-up costs after 2014. Moreover, both parties reminded the jury to solely consider costs incurred within the indemnification period, only two witnesses mentioned costs incurred after the indemnification period in “minimal, contextualized references to post-2014 expenses,” and the jury instructions provided clear instruction about the time period for which UPC was liable.

Finally, UPC contended that certain deficiencies in the jury instructions warranted a new trial. UPC claimed that Jury Instruction 5 was not reasonably informative and misstated the law because it contained language about substantial performance, but contained neither a definition of substantial performance nor a discussion of material breach. Specifically, Jury Instruction 5 provided: “[T]o establish that Union Pacific breached the contract Clean Harbors must prove that … Clean Harbors substantially performed its obligations under the contract ….” Judge Johnston found the jury instruction appropriate because failing to inform the jury that substantial performance exists when the “substantial purpose of the contract is accomplished” was not misleading according to the standards of verbal communication. Judge Johnston also found that the jury instruction was consistent with the Superior Court’s pattern instructions.

Next, Judge Johnston considered Clean Harbors’ motions for attorneys’ fees and prejudgment interest. In support of these motions, Clean Harbors argued that it was entitled to the fees and costs incurred by suing to enforce its indemnification rights. In considering this argument, Judge Johnston considered Delle Donne & Associates, LLP v. Millar Elevator Service Co., 840 A.2d 1244 (Del. 2004) and Pike Creek Chiropractic Center, P.A. v. Robinson, 637 A.2d 418 (Del. 1994)—cases in which the contracts at issue contained indemnification clauses that were “very broad in scope”—as well as Home Insurance Co. v. American Insurance Group, 2003 WL 22683008 (Del. Super. Ct. Oct. 30, 2003)—a case in which the contract contained a provision expressing the parties’ intent to limit the award of attorneys’ fees to specific situations. With these precedents in mind, Judge Johnston analyzed the indemnification language of the SPA and concluded that “[t]hough the SPA contains broad ‘any and all’ language in a manner similar to the clauses in Pike Creek and Delle Donne, the SPA contains an agreement, like that in Home Insurance, that attorneys’ fees may only be recovered in a particular type of action, which does not include the one at issue here.” The Court deferred ruling on the motion for prejudgment interest until such time as a final judgment was entered.

Analysis: Indemnification provisions related to environmental liabilities are often particularly important in transaction documents and have been the subject of recent litigation in the Superior Court. In the instant case, a trial was needed to establish the appropriate amount of indemnification. Given the large amounts that can be associated with environmental remediation (here nearly $9 million), the CCLD has seen an influx of cases involving environmental indemnification provisions in the past two years.

This case also provides important guidance regarding drafting indemnification provisions in general. The Court recognized that if a party wishes to ensure it can obtain attorneys’ fees in connection with litigation involving indemnification rights, the provision should be drafted broadly and similar to the provisions found in Delle Donne and Pike Creek.

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