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ATTORNEYS FOR APPELLANT Steve Carter Attorney General of Indiana David L. Steiner Frances H. Barrow Timothy J. Junk Deputy Attorney Generals Indianapolis, Indiana

ATTORNEYS FOR APPELLEE George M. Plews Brett E. Nelson Indianapolis, Indiana

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In the

FILED
Dec 09 2008, 10:00 am
of the supreme court, court of appeals and tax court

Indiana Supreme Court
_________________________________ No. 49S02-0804-CV-183 THE INDIANA DEPARTMENT OF ENVIRONMENTAL MANAGEMENT,

CLERK

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 Administrative 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. Raybestos 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 federal 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 environmental 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 Commissioner 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

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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 respectively 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 stringent 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 Adjudication. 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 proceedings." Despite the parties' stipulation, the Administrative Law Judge dismissed Raybestos's petition 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 Environmental Court then determined that IDEM lacked authority under the Agreed Order to withdraw approval of the Risk Assessment and that IDEM's decision to withdraw approval was "arbitrary 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 judgment, 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 Raybestos 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, disapproving 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 requests" 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

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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 communicating with EPA, or that IDEM's original agreement to a less stringent cleanup than EPA regulations 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 Raybestos 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.

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