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Indiana Supreme Court Overturns $16.4 Million Judgment Against IDEM

12.01.2008

By Andy Bowman, Attorney, Bingham Greenebaum Doll LLP

On December 9, 2008, the Indiana Supreme Court published its decision holding that an agreed order for an environmental cleanup between the Indiana Department of Environmental Management (IDEM) and a company performing the cleanup is not a contract that will support a claim for damages arising from breach of contract and alleged bad faith activities by the IDEM. IDEM v. Raybestos Products Company, No. 49S02-0804-CV-183 (December 9, 2008). The Court concluded that the agreed order is an agency action governed by the Indiana Administrative Orders and Procedures Act (AOPA), which provides the exclusive means for review of the order. The Court determined that AOPA does not provide for claims for damages against the IDEM.

In 1997 IDEM and Raybestos entered into an Agreed Order which required Raybestos to remove and dispose of PCBs in Shelly Ditch located in Crawfordsville, Indiana. Raybestos submitted a risk assessment to the IDEM which concluded that the PCBs did not pose a health risk. The IDEM approved the risk assessment, and Raybestos subsequently proposed a cleanup which allowed PCB concentrations up to 238 parts per million (ppm) to remain. IDEM refused to approve the cleanup proposal and withdrew its approval of the risk assessment. The IDEM persuaded the U.S. EPA to issue a unilateral agreed order to Raybestos requiring a cleanup level of no greater than 10 ppm PCBs.

Raybestos filed a lawsuit against the IDEM claiming breach of contract arising from the withdrawal of its approval of the risk assessment and its efforts to have U.S. EPA issue an order requiring more stringent cleanup levels. The trial court ruled that the IDEM breached the Agreed Order and awarded Raybestos $16.4 million in damages and attorney fees. The IDEM appealed and in 2007 the Court of Appeals reversed, holding that the Agreed Order was unenforceable as contrary to public policy because it allowed a cleanup level twenty times higher than the federal requirement.

The Indiana Supreme Court noted that because an agreed order is an agency action, rather than a contract, Raybestos may seek review of the Agreed Order under AOPA by first filing a petition with the Office of Environmental Adjudication, as it did. The Court also ruled that by entering into the Agreed Order the IDEM did not and could not waive its authority to communicate with U.S. EPA. The Court opined that if Raybestos had wanted to preclude the U.S. EPA from overfiling, it could have dealt directly with the U.S. EPA.

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