EQT PRODUCTION COMPANY v. TERRA SERVICES, LLC

Filing 306

MEMORANDUM OPINION indicating that, for reasons stated within, Terra's Motion for Partial Summary Judgment as to EQT's Claim for Attorneys Fees and Terra's Motion for Partial Summary Judgment as to EQT's Civil Penalty Claim, (Docket Nos. 262 , 266 ), will be denied. An appropriate Order follows. Signed by Judge Nora Barry Fischer on 2/1/18. (jg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
EQT PRODUCTION COMPANY,
Plaintiff,
v.
TERRA SERVICES, LLC,
Defendant

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Civil Action No. 14-1053
Judge Nora Barry Fischer

MEMORANDUM OPINION
I.

INTRODUCTION
This is an action in which Plaintiff EQT Production Company (“EQT”) seeks to recover

from Defendant Terra Services (“Terra”) for damages stemming from leaks in a natural gas well
site operated by EQT and constructed, in part, by Terra. Presently before the Court is Terra’s
Motion for Partial Summary Judgment as to EQT’s Claim for Attorneys’ Fees and Terra’s Motion
for Partial Summary Judgment as to EQT’s Civil Penalty Claim. (Docket Nos. 262, 266). After
careful consideration of the parties’ positions, and for the following reasons, Terra’s motions will
be DENIED.
II.

FACTUAL BACKGROUND
A. Terra’s Motion for Partial Summary Judgment as to EQT’s Claim for Attorneys’
Fees
The following facts are not contested with respect to Terra’s Motion for Partial Summary

Judgment as to EQT’s claim for attorneys’ fees. EQT owns and operates a natural gas well facility
known as the S-Pad, which until June 2013 included an impoundment (“S-Pit”), located in Duncan
Township, Tioga County, Pennsylvania. (Docket No. 270 at ¶ 1; Docket No. 288 at ¶ 1). EQT’s

1

ESCGP-1 permit application indicated that the S-Pit would be used to store freshwater. (Docket
No. 270 at ¶ 2; Docket No. 288 at ¶ 2). EQT began storing flowback and produced water in the
S-Pit on or around December 20, 2011. (Docket No. 270 at ¶ 3; Docket No. 288 at ¶ 3).
EQT constructed the S-Pit during October and November 2011. (Docket No. 288 at ¶ 1;
Docket No. 294 at ¶ 1). On or about November 4, 2011, Environmental Construction, Inc. supplied
and installed a 40-mil linear low density polyethylene liner in the S-Pit. (Docket No. 288 at ¶ 2;
Docket No. 294 at ¶ 2). On December 21, 2011, EQT signed a Master Services Agreement
(“MSA”) with Terra to treat the water in accordance with the terms of the same. (Docket No. 270
at ¶ 4; Docket No. 288 at ¶ 4). Pursuant to the MSA, Terra agreed “to furnish its best skill and
judgment when discharging its obligations” and “to complete the Work in a good, workmanlike,
safe, expeditious and economical manner, free from defects.” (Docket No. 270 at ¶ 5; Docket No.
288 at ¶ 5; Docket 274 at § 9.1). The MSA further provides that Terra “shall not cause or permit
a violation of, or perform Project Work in a manner that will subject the Project site to any remedial
obligation under any local, state or federal environmental laws” and that Terra “shall indemnify
and hold [EQT] harmless from any costs or damages caused by any breach by [Terra] of this
Article, including, but not limited to, citations, penalties or fines from any applicable governmental
authority.” (Docket No. 270 at ¶ 6; Docket No. 288 at ¶ 6; Docket 274 at § 14.1).
As to attorneys’ fees, the MSA states that “[Terra] shall be liable to [EQT] for all costs
incurred as a result of accelerated or expedited methods in order the meet the original schedule
completion dates, or otherwise mitigate any delay caused by such default and all legal fees and
additional expenses incurred as a result of [Terra’s] default.” (Docket No. 270 at ¶ 7; Docket No.
288 at ¶ 7; Docket 274 at § 6.2.4). The MSA also provides that “[Terra] shall defend, indemnify,

2

and hold harmless [EQT] . . . from and against any and all claims, . . . including attorneys’ fees
and other costs of defense.” (Docket No. 270 at ¶ 8; Docket No. 288 at ¶ 8; Docket 274 at § 6.2.4).
Pursuant to the MSA, “[i]n the event [Terra] or its insurance carrier defaults on any obligation
under this Schedule A or the policies required by this Schedule A, [Terra] agrees that it will be
liable for all reasonable expense and attorneys’ fees incurred to enforce the provisions of this
Schedule A or of the policies.” (Docket No. 270 at ¶ 9; Docket No. 288 at ¶ 9; Docket 274,
Schedule A at ¶ 8). There is no reference to Sections 6.2.4 and 12.2 or to Paragraph 8 of the
MSA’s Schedule A in EQT’s Complaint. (Docket No. 270 at ¶¶ 7-9; Docket No. 288 at ¶¶ 7-9).
At certain dates and times between April 19, 2012 and April 24, 2012, Terra performed
water treatment services at the S-Pit. (Docket No. 270 at ¶ 10; Docket No. 288 at ¶ 10). Terra
recognizes the importance of protecting the integrity of water impoundment liners and admits that
its work at the S-Pit preceded EQT’s discovery of holes in the liner. (Docket No. 288 at ¶¶ 7-9;
Docket No. 294 at ¶¶ 7-9). Terra also admits that the holes in the S-Pit liner caused some leakage
of impaired fluids from the S-Pit into surrounding land and water. (Docket No. 288 at ¶ 10; Docket
No. 294 at ¶ 10).
In July 2014, EQT filed a Complaint against Terra for breach of contract, breach of express
warranty, contractual indemnification, and, in the alternative, common law indemnification.
(Docket No. 270 at ¶ 11; Docket No. 288 at ¶ 11). EQT has alleged that Terra violated the MSA
by failing to use its best skill and judgment in discharging its obligations; failing to complete its
water treatment work in a good workmanlike, safe, expeditious, and economic manner; failing to
use the skill and judgment customarily used in its trade in performing its water treatment work and
to complete it free from defects; improperly causing the S-Pit to sustain several hundred holes; and

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causing or permitting a violation of, or performing its water treatment work in a manner that
subjected the well to remedial obligation under local, state, and/or federal environmental laws.
(Docket No. 288 at ¶ 11; Docket No. 294 at ¶ 11). EQT seeks contractual and common law
indemnification from Terra. (Docket No. 270 at ¶¶ 12-13; Docket No. 288 at ¶¶ 12-13). EQT’s
Complaint and its “wherefore” clause do not include the words “attorneys’ fees.” (Docket No.
270 at ¶ 14; Docket No. 288 at ¶ 14).
EQT served two expert reports addressing attorneys’ fees as an element of EQT’s damages.
(Docket No. 270 at ¶ 15; Docket No. 288 at ¶ 15). William Krieger’s report tabulated attorneys’
fees for three different law firms as damages. (Docket No. 270 at ¶ 16; Docket No. 288 at ¶ 16).
Mark Shepard’s report opined that the attorneys’ fees incurred by EQT were appropriate and
reasonable, but it does not evaluate whether EQT is legally entitled to recover attorneys’ fees.
(Docket No. 270 at ¶¶ 17-18; Docket No. 288 at ¶¶ 17-18).
On or about October 7, 2014, the Department of Environmental Protection (“DEP”) filed
a complaint with the Environmental Hearing Board (“EHB”) for civil penalties against EQT for
violations of the Pennsylvania Clean Streams Law, 35 P.S. §§ 691.1-691.1001 and Pa. Code §
91.34 (the “EHB Proceeding”). (Docket No. 288 at ¶ 12; Docket No. 294 at ¶ 12). The violations
alleged by the DEP were based, in part, upon the contamination caused by the leakage of fluid
from the S-Pit. (Docket No. 288 at ¶ 13; Docket No. 294 at ¶ 13). On May 26, 2017, after a tenday hearing, the EHB issued a written adjudication assessing a civil penalty against EQT totaling
$1,137,295.76. (Docket No. 288 at ¶ 14; Docket No. 294 at ¶ 14).
EQT engaged the services of several law firms to assist with remediation efforts and in
defense of the EHB Proceeding. (Docket No. 288 at ¶ 15; Docket No. 294 at ¶ 15). Babst Calland

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Clements and Zomnir, P.C. (“Babst Calland”) primarily represented EQT during the EHB
Proceeding and when EQT sought declaratory relief with the Pennsylvania Commonwealth Court
relating to the EHB Proceeding. (Docket No. 288 at ¶ 16; Docket No. 294 at ¶ 16). Exhibit B to
Mr. Krieger’s expert report identifies the cost of Babst Calland’s representation of EQT through
January 2017 as totaling $1,531,463. (Docket No. 288 at ¶ 17; Docket No. 294 at ¶ 17). Buchanan
Ingersoll and Rooney, P.C. (“BI”) and Duane Morris LLP (“Duane Morris”) also provided legal
advice to EQT. (Docket No. 288 at ¶¶ 18, 20; Docket No. 294 at ¶¶ 18, 20). Exhibit B to Mr.
Krieger’s expert report identifies the cost of BI’s representation of EQT through January 2017 as
totaling $121,997 and the cost of Duane Morris’s representation of EQT through January 2017 as
totaling $84,368, with a total cost for services to EQT amounting to $1,737,828. (Docket No. 288
at ¶¶ 19, 21-22; Docket No. 294 at ¶¶ 19, 21-22).
The EHB Proceeding is ongoing, and EQT will continue to incur attorneys’ fees and costs
associated with that litigation. (Docket No. 288 at ¶ 23; Docket No. 294 at ¶ 23). EQT is claiming
as damages in this case the attorneys’ fees it has and will incur in connection with its remediation
efforts and in defending the EHB Proceedings. (Docket No. 288 at ¶ 24; Docket No. 294 at ¶ 24).
EQT is not seeking its counsel fees incurred in connection with the instant action. (Docket No.
288 at ¶ 25; Docket No. 294 at ¶ 25). EQT put Terra on notice of its intent to seek legal fees and
costs associated with its remediation efforts and the defense of the EHB Proceeding in June 2016
as part of its discovery responses. (Docket No. 288 at ¶ 26; Docket No. 294 at ¶ 26). On June 24,
2016, September 21, 2016, January 23, 2017, and February 10, 2017, EQT made document
productions that included redacted summaries of its legal invoices purportedly relating to
remediation and the EHB Proceeding. (Docket No. 288 at ¶ 27; Docket No. 294 at ¶ 27). Terra

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deposed Mr. Krieger on March 31, 2017, and Mr. Shepard on April 21, 2017. (Docket No. 288 at
¶ 28; Docket No. 294 at ¶ 28).
B. Terra’s Motion for Partial Summary Judgment as to EQT’s Civil Penalty Claim
The following facts are not contested with respect to Terra’s Motion for Partial Summary
Judgment as to EQT’s civil penalty claim. EQT owns and operates an S-Pad, which until June
2013 included the S-Pit located in Duncan Township, Tioga County, Pennsylvania. (Docket No.
268 at ¶ 1; Docket No. 291 at ¶ 1). The S-Pit had a usable volumetric capacity of approximately
5.2 million gallons. (Docket No. 268 at ¶ 2; Docket No. 291 at ¶ 2). The S-Pit occupied an area
of approximately 80,825 square feet. (Docket No. 268 at ¶ 3; Docket No. 291 at ¶ 3).
EQT’s ESCGP-1 permit application indicated that the S-Pit would be used to store
freshwater. (Docket No. 268 at ¶ 4; Docket No. 291 at ¶ 4). EQT began storing flowback and
produced water in the S-Pit on or around December 20, 2011. (Docket No. 268 at ¶ 5; Docket No.
291 at ¶ 5). EQT’s water hauler, BEO, discharged more than 160,000 barrels (or 6,720,000
gallons) of impaired water into the S-Pit between December 2011 and May 2012. (Docket No.
268 at ¶ 6; Docket No. 291 at ¶ 6). On December 21, 2011, EQT signed the MSA with Terra to
treat the water in the S-Pit in accordance with the terms of the agreement. (Docket No. 268 at ¶ 7;
Docket No. 291 at ¶ 7). BEO made at least 1,454 separate discharges of impaired water into the
S-Pit between December 2011 and May 2012. (Docket No. 268 at ¶ 8; Docket No. 291 at ¶ 8).
BEO’s discharge of impaired water to the S-Pit between December 2011 and May 2012 occurred
at a time when EQT allowed water haulers to access the S-Pit at any time without an EQT
representative present to observe the water haulers’ operations. (Docket No. 268 at ¶ 9; Docket
No. 291 at ¶ 9). EQT allowed BEO open access to the S-Pit at all hours of the day and night during

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the period when BEO discharged impaired water into the S-Pit between December 2011 and May
2012. (Docket No. 268 at ¶ 10; Docket No. 291 at ¶ 10). BEO discharged impaired water into the
S-Pit on more than 200 occasions during May 2012. (Docket No. 268 at ¶ 11; Docket No. 291 at
¶ 11).
The EHB determined that it should assess a civil penalty in the amount of $1,137,295.76
against EQT for EQT’s violations of the Pennsylvania Clean Streams Law. (Docket No. 268 at ¶
12; Docket No. 291 at ¶ 12). The EHB included the following, in part, in its adjudication:


“EQT engaged in a pattern of reckless behavior that culminated in the violations in
this case.” (Docket No. 268 at ¶ 13; Docket No. 291 at ¶ 13; see also Docket No.
273 at 90).



A heading on page four of the EHB’s adjudication provides, “EQT Builds Its
Impoundment with an Inadequate Subbase and Liner.” (Docket No. 268 at ¶ 14;
Docket No. 291 at ¶ 14; see also Docket No. 273 at 6).



“[T]he subbase was very irregular in thickness, but it nevertheless covered the
bottom of the pit.” (Docket No. 268 at ¶ 15; Docket No. 291 at ¶ 15; see also
Docket No. 273 at 7 (internal citation omitted)).



“EQT did not screen the material used in the subbase to eliminate rocks.” (Docket
No. 268 at ¶ 16; Docket No. 291 at ¶ 16; see also Docket No. 273 at 7).



“The impoundment did not have a low permeability clay subbase.” (Docket No.
268 at ¶ 17; Docket No. 291 at ¶ 17; see also Docket No. 273 at 8).



“EQT did not construct a proper subbase beneath the synthetic liner inside of its
impoundment, which is an essential practice if the liner is to be secure and
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protected. A ‘clay-like material’ that was insufficient in amount, not tested, and
not screened or properly compacted was used and the material was unacceptably
rocky. The subbase was not as hard, smooth, uniform, and free from debris, rock,
or other material that could puncture, tear, cut or otherwise cause the liner to fail as
it needed to be in order to comply with 25 Pa. Code § 78.56 and good design
standards.” (Docket No. 268 at ¶ 18; Docket No. 291 at ¶ 18; see also Docket No.
273 at 8).


“The limestone screenings were apparent towards the west side of the impoundment
along the liner/subbase interface. However, it appeared that little, if any, had been
applied towards the center and east side of the impoundment.” (Docket No. 268 at
¶ 19; Docket No. 291 at ¶ 19; see also Docket No. 273 at 8).



“Photos showed the subbase to have protruding rocks.” (Docket No. 268 at ¶ 20;
Docket No. 291 at ¶ 20; see also Docket No. 273 at 8).



“EQT’s impoundment was completed in December 2011.” (Docket No. 268 at ¶
21; Docket No. 291 at ¶ 21; see also Docket No. 273 at 9).



“The liner that EQT used was not designed, constructed, and maintained so that the
liner was resistant to physical failure during handling, installation, and use.”
(Docket No. 268 at ¶ 22; Docket No. 291 at ¶ 22; see also Docket No. 273 at 9).



A heading on page seven of the EHB’s adjudication provides, “EQT was Conscious
of the High Risk it was Creating by Building the Impoundment.” (Docket No. 268
at ¶ 23; Docket No. 291 at ¶ 23; see also Docket No. 273 at 9).



“EQT did not install anything at the S Pit impoundment to allow it to determine if
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its liner had been compromised; there was no leak detection system.” (Docket No.
268 at ¶ 24; Docket No. 291 at ¶ 24; see also Docket No. 273 at 13).


“It is not clear exactly who caused the holes or how they were caused, in part
because EQT often did not have any personnel supervising or observing activities
on the site for several days to weeks at a time.” (Docket No. 268 at ¶ 25; Docket
No. 291 at ¶ 25; see also Docket No. 273 at 21).



“A possible cause was hoses used for fluid transfer coming into contact with the
inadequately protected liner.” (Docket No. 268 at ¶ 26; Docket No. 291 at ¶ 26;
see also Docket No. 273 at 21).



“EQT did not take appropriate response actions quickly enough during its initial
response to its leaking impoundment.” (Docket No. 268 at ¶ 27; Docket No. 291
at ¶ 27; see also Docket No. 273 at 24).



“[EQT’s environmental consultant] was instructed by EQT to stand down (stop
doing any work) between May 10 and May 21.” (Docket No. 268 at ¶ 28; Docket
No. 291 at ¶ 28; see also Docket No. 273 at 24).



“During operations, EQT personnel had a limited presence on the site, which
resulted in frequently inadequate oversight and supervision of its contractors
relative to the impoundment.” (Docket No. 268 at ¶ 29; Docket No. 291 at ¶ 29;
see also Docket No. 273 at 25).



“On May 31, the Department sent an email to EQT requesting an urgent meeting
and asking EQT to submit a work plan on or before June 8 for characterizing the
contamination at the site.” (Docket No. 268 at ¶ 30; Docket No. 291 at ¶ 30; see
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also Docket No. 273 at 25).


“EQT responded that it was unwilling to meet with the Department at that time and
that it would submit a work plan when it decided it was ready to do so.” (Docket
No. 268 at ¶ 31; Docket No. 291 at ¶ 31; see also Docket No. 273 at 25).



“The Department is unaware of any other case before or since where an operator
refused the Department’s invitation to meet under similar circumstances.” (Docket
No. 268 at ¶ 32; Docket No. 291 at ¶ 32; see also Docket No. 273 at 25).



“EQT believes that the newly discovered holes found in the floor and sidewall of
the liner were most likely caused by Terra Services’ treatment hoses.” (Docket No.
268 at ¶ 33; Docket No. 291 at ¶ 33; see also Docket No. 273 at 27).



“EQT cancelled [a] liner integrity evaluation on June 9, 2012.” (Docket No. 268
at ¶ 34; Docket No. 291 at ¶ 34; see also Docket No. 273 at 28).



“The record does not support a finding that the leaks from the impoundment were
limited to the areas of the Terra Services and ATOS [EQT’s contractor, Aquatic
Transfer and Oilfield Solutions] activities because no full investigation was
conducted or at least disclosed.” (Docket No. 268 at ¶ 35; Docket No. 291 at ¶ 35;
see also Docket No. 273 at 19, 28).



“The concentration of contaminants (e.g. barium, strontium, chloride) in preexcavation samples of the unconsolidated material below the liner but still inside
the pit did not correlate with the area with the highest concentration of holes.”
(Docket No. 268 at ¶ 36; Docket No. 291 at ¶ 36; see also Docket No. 273 at 28
(emphasis in original)).
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

“EQT’s conduct with respect to the construction, operation, and closure of the
impoundment and early remediation of the release was reckless.” (Docket No. 268
at ¶ 37; Docket No. 291 at ¶ 37; see also Docket No. 273 at 40).



“EQT failed to comply with the performance standards set forth in 25 Pa. Code
Chapter 78 that require that, regardless of design, impoundments must not leak.”
(Docket No. 268 at ¶ 38; Docket No. 291 at ¶ 38; see also Docket No. 273 at 40).



“EQT knew right away that the results were indicative of gas well operations.”
(Docket No. 268 at ¶ 39; Docket No. 291 at ¶ 39; see also Docket No. 273 at 41).



“Over the course of the next six weeks, EQT slowly—too slowly in our view—
confirmed that its impoundment had released many thousands of gallons of
impaired water into the underground waters of the Commonwealth at the site.”
(Docket No. 268 at ¶ 40; Docket No. 291 at ¶ 40; see also Docket No. 273 at 41).



“The Board itself actually determines exactly what the penalty should be.” (Docket
No. 268 at ¶ 41; Docket No. 291 at ¶ 41; see also Docket No. 273 at 42).



“EQT did not construct a proper subbase or install a sturdy enough liner to
withstand the abuse to which EQT put it. Given the photos we saw of the subbase,
it is not difficult to imagine the rocky subbase caused other holes.” (Docket No.
268 at ¶ 42; Docket No. 291 at ¶ 42; see also Docket No. 273 at 63).



“Contaminants were found in the subbase at places as far as 100 feet away from the
location of the holes attributed to Terra Services at higher levels than the
contaminant levels found in the area of those holes.” (Docket No. 268 at ¶ 43;
Docket No. 291 at ¶ 43; see also Docket No. 273 at 63).
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

“There was a disturbing history of rocks being found on top of the liner.” (Docket
No. 268 at ¶ 44; Docket No. 291 at ¶ 44; see also Docket No. 273 at 64 (emphasis
in original)).



“[I]n order to comply with Section 91.34(a), EQT needed to take necessary
measures to prevent the impaired waters in its impoundment from ‘directly or
indirectly’ reaching waters of the Commonwealth from any cause. EQT failed to
do that. It failed to design and operate its impoundment in a way that prevented the
impaired water in its impoundment from being released into the underground
waters beneath the impoundment. Its culpability under Section 91.34(a) arises from
the fact that it failed to install a proper subbase, or an adequate liner given the abuse
to which the liner was going to be subjected. It failed to take necessary measures to
prevent pollution by failing to properly manage hoses used in the impoundment. It
failed to have adequate supervision and oversight at the site. It failed to have any
system in place for detecting leaks. It failed to timely conduct an adequate
emergency response once there was evidence that the impoundment was leaking.
It failed to close the leaky impoundment in a timely manner. These failures directly
and proximately resulted in polluting substances reaching waters of the
Commonwealth.” (Docket No. 268 at ¶ 45; Docket No. 291 at ¶ 45; see also Docket
No. 273 at 70).



“EQT failed to take necessary measures when it built its substandard impoundment
in 2011, and its failure started causing pollution as early as April 30, 2012.”
(Docket No. 268 at ¶ 46; Docket No. 291 at ¶ 46; see also Docket No. 273 at 71).
12



“We agree with the Department that EQT engaged in a pattern of reckless behavior
that culminated in the violations in this case.” (Docket No. 268 at ¶ 47; Docket No.
291 at ¶ 47; see also Docket No. 273 at 77).



“EQT decided to tempt the fates. It built a pit to hold millions of gallons of impaired
water from multiple well pads for long periods of time with only one liner and with
no way to tell whether the pit was leaking.” (Docket No. 268 at ¶ 48; Docket No.
291 at ¶ 48; see also Docket No. 273 at 77).



“EQT says it built the impoundment in conformance with all regulatory design
criteria. We disagree.” (Docket No. 268 at ¶ 49; Docket No. 291 at ¶ 49; see also
Docket No. 273 at 78).



“Given the photographic and other evidence of record, we would not be surprised
at all if the rocks caused holes, but the point here is that EQT did not comply with
the regulations and it installed an improper subbase in an impoundment that would
have been risky even if it had been constructed properly.” (Docket No. 268 at ¶ 50;
Docket No. 291 at ¶ 50; see also Docket No. 273 at 78).



“Having constructed an impoundment with no leak detection system whatsoever,
EQT needed to be extremely sensitive to any sign of a leak. We view EQT’s initial
response to the danger signs of such a leak to have been completely unacceptable.”
(Docket No. 268 at ¶ 51; Docket No. 291 at ¶ 51; see also Docket No. 273 at 79).



“EQT inexplicably dragged its feet.” (Docket No. 268 at ¶ 52; Docket No. 291 at
¶ 52; see also Docket No. 273 at 79).



“EQT paid inadequate heed to the alarm bells that were going off.” (Docket No.
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268 at ¶ 53; Docket No. 291 at ¶ 53; see also Docket No. 273 at 80).


“Remarkably, EQT continued to add water to the pit from April 30, 2012, when the
first anomalous field sampling results were detected, until May 21, 2012.” (Docket
No. 268 at ¶ 54; Docket No. 291 at ¶ 54; see also Docket No. 273 at 80).



“To have allowed a hazard to unfold in search of scientific certainty while it was
busy fracking was inexcusable.” (Docket No. 268 at ¶ 55; Docket No. 291 at ¶ 55;
see also Docket No. 273 at 80).



“EQT personnel and consultants conceded that they knew right away after the well
samples came back that there could be a problem with the pit. EQT simply did not
make addressing the problem a priority, and it bears repeating, it continued to fill
the pit.” (Docket No. 268 at ¶ 56; Docket No. 291 at ¶ 56; see also Docket No. 273
at 81).



“EQT did not patch the hundreds of holes that were discovered in the pit until June
15 (after pressure washing the liner with the holes in it).” (Docket No. 268 at ¶ 57;
Docket No. 291 at ¶ 57; see also Docket No. 273 at 81).



“EQT at times seemed to exhibit an unhealthy disdain for the Department. While
the Department sensed that a crisis was underway and asked EQT to meet and
discuss the measures that were being taken to address that crisis, EQT simply
refused to meet.” (Docket No. 268 at ¶ 58; Docket No. 291 at ¶ 58; see also Docket
No. 273 at 82).



“The conduct that needs to be deterred is failing to build and operate storage
facilities with great care, and failing to take necessary measures to prevent them
14

from leaking. Building and operating must be closely supervised from start to
finish, which repeatedly did not happen here. EQT simply did not exercise enough
oversight, supervision, and control over the construction and operation of its
impoundment.” (Docket No. 268 at ¶ 59; Docket No. 291 at ¶ 59; see also Docket
No. 273 at 84).


“In pits, an adequate subbase must be installed. Water should not be added or
removed carelessly.” (Docket No. 268 at ¶ 60; Docket No. 291 at ¶ 60; see also
Docket No. 273 at 84).



“It may be necessary to spend a few extra dollars for expedited samples. A
potentially compromised pit should not continue to be filled.” (Docket No. 268 at
¶ 61; Docket No. 291 at ¶ 61; see also Docket No. 273 at 84).



“Rather than acknowledging that mistakes were made, EQT has offered any
number of poor excuses. First, virtually everything is the fault of its contractors,
even though EQT knows as the permittee it bears full responsibility.” (Docket No.
268 at ¶ 62; Docket No. 291 at ¶ 62; see also Docket No. 273 at 85).



“It would be inconsistent with the goals expressed in the Clean Streams Law to
allow an operator such as EQT to hire contractors to perform virtually all of the
activities on a site and then attempt to wash its hands of any liability by blaming
everything on those contractors.” (Docket No. 268 at ¶ 63; Docket No. 291 at ¶ 63;
see also Docket No. 273 at 85).



“The severe harm resulted from EQT’s reckless conduct.” (Docket No. 268 at ¶
64; Docket No. 291 at ¶ 64; see also Docket No. 273 at 87). 

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

“The consequences of [EQT’s] reckless conduct extended through September 27[,
2012].” (Docket No. 268 at ¶ 65; Docket No. 291 at ¶ 65; see also Docket No. 273
at 87). 


EQT denies that the statements or any other findings or conclusions made by EHB are
material to determining whether Terra caused the holes in the liner or whether EQT is entitled to
recover the EHB Penalty, in whole or in part, from Terra as an element of damages in this litigation.
(Docket No. 291 at ¶¶ 12-65). EQT further notes that it has filed a Petition for Review from the
EHB’s adjudication in which it disputes the EHB’s underlying findings and conclusions in the
EHB adjudication. (Id.).1
As to EQT’s Concise Statement of Additional Material Facts in Opposition to Terra
Services, LLC’s Motion for Partial Summary Judgment, the following facts are not contested.
EQT constructed the S-Pit during October and November in 2011. (Docket No. 291 at ¶ 1; Docket
No. 296 at ¶ 1). Hawbaker Engineering, LLC designed the S-Pit, and Trumbull Corporation built
it. (Docket No. 291 at ¶ 2; Docket No. 296 at ¶ 2). On or about November 4, 2011, Environmental
Construction, Inc. supplied and installed a forty-mil linear low density polyethylene liner in the SPit. (Docket No. 291 at ¶ 3; Docket No. 296 at ¶ 3). Terra performed water treatment services at
the S-Pit beginning on April 19, 2012, and concluding on April 24, 2012. (Docket No. 291 at ¶ 4;
Docket No. 296 at ¶ 4). On April 30, 2012, EQT observed elevated levels of conductivity in
groundwater monitoring wells that it had previously installed in the vicinity of the S-Pit. (Docket
No. 291 at ¶ 5; Docket No. 296 at ¶ 5). Following the completion of Terra’s water treatment work,

The Court’s review of the EHB’s docket entries reveals that a petition has been filed and that the certified record
was filed on August 4, 2017. No further updates as to the petition’s current status are available.
1

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EQT discovered hundreds of holes in the S-Pit liner. (Docket No. 291 at ¶ 6; Docket No. 296 at ¶
6). The holes in the S-Pit liner caused leakage of impaired fluid from the S-Pit into surrounding
land and water, resulting in contamination of the environment. (Docket No. 291 at ¶ 7; Docket
No. 296 at ¶ 7).
EQT has alleged that Terra violated the MSA by failing to use its best skill and judgment
in discharging its obligations; failing to complete its water treatment work in a good workmanlike,
safe, expeditious, and economic manner; failing to use the skill and judgment customarily used in
its trade in performing its water treatment work and to complete it free from defects; improperly
causing the S-Pit to sustain several hundred holes; and causing or permitting a violation of, or
performing its water treatment work in a manner that subjected the well to remedial obligation
under local, state, and/or federal environmental laws. (Docket No. 291 at ¶ 8; Docket No. 296 at
¶ 8). As noted above, on or about October 7, 2014, the DEP filed a complaint with the EHB for
civil penalties against EQT. (Docket No. 291 at ¶ 9; Docket No. 296 at ¶ 9). On May 26, 2017,
the EHB issued an adjudication assessing a $1,137,295.76 civil penalty against EQT. (Docket No.
291 at ¶ 10; Docket No. 296 at ¶ 10). On June 22, 2017, EQT filed a Petition for Review from the
EHB’s adjudication. (Docket No. 291 at ¶ 11; Docket No. 296 at ¶ 11).
III.

PROCEDURAL HISTORY
Terra filed its Motions for Partial Summary Judgment and supporting briefing on June 28,

2017, along with sealed supporting documents on June 29, 2017. (Docket Nos. 626-274). EQT
filed its briefs in opposition and sealed supporting documents on July 28, 2017. (Docket Nos. 281292). On August 11, 2017, Terra filed its replies and sealed supporting documents. (Docket Nos.
293-298). EQT filed its sur-replies and a sealed supporting document on August 25, 2017.

17

(Docket Nos. 299-301). The Court heard oral argument on September 5, 2017. (Docket Nos. 302,
303). Subsequently, the parties filed their respective supplemental briefing on October 18, 2017.
(Docket Nos. 304, 305).
IV.

LEGAL STANDARD
Summary judgment may only be granted “if the movant shows that there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.” FED. R.
CIV. P. 56(c). Pursuant to Rule 56, the Court must enter summary judgment against the party “who
fails to make a showing sufficient to establish the existence of an element essential to that party’s
case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477
U.S. 317, 322 (1986). A motion for summary judgment will only be denied when there is a genuine
issue of material fact, i.e., if the evidence is such that a reasonable jury could return a verdict for
the non-moving party. McGreevy v. Stroup, 413 F.3d 359, 363 (3d Cir. 2005). The mere existence
of some disputed facts is insufficient to defeat a motion for summary judgment. Anderson v.
Liberty Lobby, 477 U.S. 242, 247-48 (1986).
In determining whether the dispute is genuine, the court’s function is not to weigh the
evidence, to determine the truth of the matter, or to evaluate credibility. The court is only to
determine whether the evidence of record is such that a reasonable jury could return a verdict for
the non-moving party. McGreevy, 413 F.3d at 363; Simpson v. Kay Jewelers, 142 F.3d 639, 643
n.3 (3d Cir. 1998) (citing Fuentes v. Perskie, 32 F.3d 759, 762 n.1 (3d Cir. 1994)). In evaluating
the evidence, the court must interpret the facts in the light most favorable to the non-moving party,
and draw all reasonable inferences in its favor. Watson v. Abington Twp., 478 F.3d 144, 147 (3d
Cir. 2007). As to materiality, the relevant substantive law identifies which facts are material.

18

Anderson, 477 U.S. at 248. “Only disputes over facts that might affect the outcome of the suit
under the governing law will properly preclude the entry of summary judgment.” Id. “Factual
disputes that are irrelevant or unnecessary will not be counted.” Id.
V.

DISCUSSION
A. Terra’s Motion for Partial Summary Judgment as to EQT’s Claim for Attorneys’
Fees
Terra argues that EQT is not entitled to attorneys’ fees for several reasons. Terra first

asserts that Section 14.1 of the MSA does not entitle EQT to attorneys’ fees. (Docket No. 271 at
5-7). Section 14.1 of the MSA provides, in part, that “[Terra] shall indemnify and hold [EQT]
harmless from any costs or damages caused by any breach by [Terra] of this Article including, but
not limited to, citations, penalties or fines from any applicable governmental authority.” (Docket
No. 274 at 66). Relying upon supporting case law, Terra insists that the phrase “any costs or
damages” in Section 14.1 does not encompass attorneys’ fees. (Docket No. 271 at 6-7). Terra
next argues that the express terms of the other inapplicable provisions of the MSA reinforce the
proper interpretation of Section 14.1. (Id. at 7-10). Specifically, Terra maintains that because
Section 6.2.4, Section 12.2, and Paragraph 8 of Schedule A of the MSA provide for the recovery
of legal fees, Section 14.1 excludes the recovery of attorneys’ fees. Section 6.2.4 provides, in part,
that “[Terra] shall be liable to [EQT] for all costs incurred as a result of accelerated or expedited
methods in order to meet the original schedule completion dates, or otherwise mitigate any delay
caused by such default and all legal fees and additional expenses incurred as a result of [Terra’s]
default.” (Docket No. 274 at 62). Section 12.2 states, in part, that “[Terra] shall defend, indemnify,
and hold harmless [EQT] . . . from and against any and all claims, demands, causes of action,
damages, liabilities, judgments, losses, fines, awards, penalties, costs and expenses, including
19

attorneys’ fees and other costs of defense arising out of or resulting from any infringement or claim
of infringement.” (Id. at 65). Paragraph 8 of Schedule A provides that “[i]n the event [Terra] or
its insurance carrier defaults on any obligation under this Schedule A or the policies required by
this Schedule A, [Terra] agrees that it will be liable for all reasonable expenses and attorneys’ fees
incurred by [EQT] to enforce the provisions of this Schedule A or of the policies.” (Id. at 74).
Terra argues that the absence of the terms “attorneys’ fees,” “legal fees,” or “costs of defense” in
Section 14.1 establishes that the same does not include attorneys’ fees. (Docket No. 271 at 10).
In response, EQT asserts that the mere fact that the phrase “attorneys’ fees” does not appear
in the MSA does not prevent the Court from finding that there was a valid, enforceable agreement
to assess the same. (Docket No. 287 at 16). EQT points out that Section 14.1 states that “[Terra]
shall not cause or permit a violation of, or perform Project Work in a manner that will subject the
Project site to any remedial obligation under any local, state or federal environmental laws.”
(Docket No. 274 at 66). EQT contends that, as a result, “[t]he only logical interpretation of a
provision referencing violations of laws and regulations is that the remedy therefore would involve
the defense of legal proceedings.” (Docket No. 287 at 16). In reply, Terra counters that EQT has
failed to offer any support or analysis for its conclusory assertion and argues that “remedial
obligation” involves clean-up of the site, not the defense of legal proceedings. (Docket No. 298
at 4). Terra maintains that because Section 14.1 is clear and unequivocal, it must be strictly
construed against EQT as the drafter of the MSA. (Id. at 3). In its sur-reply, EQT contends that
its remedies are not limited to those available in Section 14.1 because its claims against Terra are
based upon its breach of multiple Articles of the MSA. (Docket No. 301 at 5).

20

Terra also argues that EQT’s alleged attorneys’ fees are not consequential damages.
(Docket No. 271 at 10-11). Terra asserts that the American Rule applies to EQT’s request for fees
because there are no statutes, agreements, or exceptions creating an entitlement to attorneys’ fees.
(Id.). In response, EQT contends that the American Rule does not bar recovery of fees and costs
incurred in actions brought by third parties. (Docket No. 287 at 10-11). Relying upon Section 334
of the Restatement of Contracts, EQT maintains that attorneys’ fees are recoverable because
Terra’s breach of contract is the cause of litigation between EQT and third parties and because
Terra had reason to foresee such litigation when the contract was signed. (Id. at 11-13). EQT
further argues that the record demonstrates the foreseeability of a DEP enforcement action because
Terra understood that its hoses could tear the S-Pit liner and cause a leak. (Id. at 14). In reply,
Terra contends that Section 334 is inapplicable because comment “a” provides that it does not
apply to the interpretation of express contracts of indemnity, and EQT relies upon Section 14.1 of
the MSA, which is an express contract of indemnity, to recover attorneys’ fees. (Docket No. 298
at 7-8). In its sur-reply, EQT argues that comment “a” to Section 334 has not been adopted by any
courts in Pennsylvania and that the MSA is not an indemnity agreement. (Docket No. 301 at 4-5).
EQT maintains that because its claims against Terra are based upon breaches of multiple articles
of the MSA, its remedies are not limited to those included in Article 14. (Id. at 5).
Generally, Pennsylvania state courts follow the American Rule in determining whether to
award attorneys’ fees in a given case. “‘[U]nder the American Rule, applicable in Pennsylvania,
a litigant cannot recover counsel fees from an adverse party unless there is express statutory
authorization, a clear agreement of the parties, or some other established exception.’” Sayler v.
Skutches, 40 A.3d 135, 140 (Pa. Super. Ct. 2012) (quoting Trizechahn Gateway LLC v. Titus, 976

21

A.2d 474, 482-83 (Pa. 2009)). EQT’s claims against Terra rely upon the MSA, and none of the
other recognized exceptions to the “American Rule” are relevant here. Therefore, consistent with
Pennsylvania law, it is EQT’s burden to demonstrate that the MSA constitutes “a clear agreement”
between EQT and Terra as to attorneys’ fees. In re Farnese, 17 A.3d 357, 370 (Pa. 2011). The
Supreme Court of Pennsylvania has also clarified that the mere fact that a written contract contains
an ambiguity does not, by itself, dictate whether such an agreement may constitute a “clear
agreement of the parties” because Pennsylvania contractual principles permit the introduction of
extrinsic and parole evidence to define ambiguous terms. Trizechahn Gateway LLC v. Titus, 976
A.2d 474, 482-83 (2009). To the extent that such evidence is to be considered, EQT retains the
burden to demonstrate that a clear agreement of the parties as to attorneys’ fees was consummated.
Id.
Pennsylvania rules of contract interpretation require this Court to “ascertain and give effect
to the intent of the contracting parties.” Murphy v. Duquesne Univ. of The Holy Ghost, 777 A.2d
418, 429 (Pa. 2001). Such intent is to be determined from reading the entire agreement as a whole
and “[c]ourts do not assume that a contract’s language was chosen carelessly, nor do they assume
that the parties were ignorant of the meaning of the language they employed.” Id. “When a writing
is clear and unequivocal, its meaning must be determined by its contents alone.” Id. (internal
quotations omitted). If the terms of a contract are unambiguous, the plain meaning of the terms of
the agreement will be enforced. Id. To this end, Pennsylvania courts generally enforce the
unambiguous terms of agreements between sophisticated parties that are freely negotiated at arm’s
length in order to allow the parties to such agreements the benefits of their bargains. See McMullen
v. Kutz, 985 A.2d 769, 778 (Pa. 2009) (“[F]reely negotiated agreements entered into at arm’s length

22

are generally enforced according to their terms to allow parties the benefit of their bargains.”); see
also John B. Conomos, Inc. v. Sun Co., Inc., 831 A.2d 696, 708 (Pa. Super. Ct. 2003) (“[C]ourts
should not [generally] set aside terms on which sophisticated parties agreed.”).
Importantly, as both parties acknowledge, there are no provisions set forth in Section 14.1
of the MSA which expressly state that the parties agreed that Terra would be liable for attorneys’
fees. (See Docket No. 274 at 66). The absence of such express language in an agreement between
two sophisticated entities, each represented by able counsel, strongly suggests that the parties had
not agreed to the coverage of attorneys’ fees. See McMullen, 985 A.2d at 778. The Court’s opinion
is fully supported by the other provisions in the MSA because, as Terra has pointed out, Section
6.2.4, Section 12.2, and Paragraph 8 of Schedule A of the MSA expressly provide for the recovery
of legal fees. (Id. at 62, 65, 74). Indeed, as Terra has emphasized, Section 14.1 provides for the
recovery of “any costs or damages.” (Docket No. 274 at 66). From this language, the Court
concludes that, consistent with Pennsylvania law, attorneys’ fees are not included in Section 14.1.
See, e.g., Post v. St. Paul Travelers Ins. Co., 691 F.3d 500, 520 (3d Cir. 2012) (“The ‘cost of the
proceedings involved in the suit’ includes ‘court reporter’s, arbitrator’s, and mediator’s fees,’ not
attorneys’ fees. Attorneys’ fees traditionally are distinguished from costs.”); 48-50 Enters. v.
Rimmeir, No. 01-775, 2002 Bankr. LEXIS 1623, at *19-25 (Bankr. E.D. Pa. Dec. 31, 2002)
(holding that a broad provision for recovery of “any and all damages, costs, and expenses” was
insufficient for the recovery of attorneys’ fees).
The remaining language in Section 14.1 also supports the Court’s conclusion, as it provides
for costs or damages caused by any breach by Terra “including, but not limited to, citations,
penalties or fines from any applicable governmental authority.” (Docket No. 274 at 66). Such

23

language does not contemplate attorneys’ fees. See, e.g., McClellan v. Health Maint. Org. of Pa.,
686 A.2d 801, 805 (Pa. 1996) (“It is widely accepted that general expressions such as ‘including,
but not limited to’ that precede a specific list of included items should not be construed in their
widest context, but apply only to persons or things of the same general kind or class as those
specifically mentioned in the list of examples.”); cf. Sloan & Co. v. Liberty Mut. Ins. Co., 653 F.3d
175, 186-87 (3d Cir. 2011) (holding that the term “expenses and costs” included attorneys’ fees
and other litigation-related expenses and costs when used “in a paragraph discussing procedural
mechanisms for lawsuits and other dispute resolution proceedings”) (emphasis added). Although
the language of the MSA is clear and unambiguous, the Court notes that it would construe
ambiguous language against EQT as the drafter of the agreement. Viera v. Life Ins. Co. of N. Am.,
642 F.3d 407, 418 (3d Cir. 2011). Accordingly, the Court concludes that there is no express
provision in Section 14.1 of the MSA providing for the recovery of attorneys’ fees.
Moving on to the parties’ arguments with respect to consequential damages, the Court finds
that summary judgment is precluded. Section 351 of the Restatement (Second) of Contracts
provides:
§ 351 Unforeseeability and Related Limitations on Damages
(1) Damages are not recoverable for loss that the party in breach did not have reason
to foresee as a probable result of the breach when the contract was made.
(2) Loss may be foreseeable as a probable result of a breach because it follows from
the breach
(a) in the ordinary course of events, or
(b) as a result of special circumstances, beyond the ordinary course of
events, that the party in breach had reason to know.
(3) A court may limit damages for foreseeable loss by excluding recovery for loss
of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it
concludes that in the circumstances justice so requires in order to avoid
disproportionate compensation.

24

RESTATEMENT (SECOND) OF CONTRACTS § 351. Section 334 of the Restatement of Contracts states
that “[i]f a breach of contract is the cause of litigation between the plaintiff and third parties that
defendant had reason to foresee when the contract was made, the plaintiff’s reasonable
expenditures in such litigation are included in estimating his damages.” RESTATEMENT

OF

CONTRACTS § 334. Section 334 has been incorporated as comment “c” to Section 351 of the
Restatement (Second) of Contracts, which provides:
c. Litigation or settlement caused by breach. Sometimes a breach of contract results
in claims by third persons against the injured party. The party in breach is liable
for the amount of any judgment against the injured party together with his
reasonable expenditures in the litigation, if the party in breach had reason to foresee
such expenditures as the probable result of his breach at the time he made the
contract. This is so even if the judgment in the litigation is based on a liquidated
damage clause in the injured party’s contract with the third party. A failure to notify
the party in breach in advance of the litigation may prevent the result of the
litigation from being conclusive as to him. But to the extent that the injured party’s
loss resulting from litigation is reasonable, the fact that the party in breach was not
notified does not prevent the inclusion of that loss in the damages assessed against
him. In furtherance of the policy favoring private settlement of disputes, the injured
party is also allowed to recover the reasonable amount of any settlement made to
avoid litigation, together with the costs of settlement.
RESTATEMENT (SECOND) OF CONTRACTS § 351, cmt. c (internal citations omitted).
Courts in Pennsylvania have consistently held that a party may seek recovery of legal
expenses incurred in third-party litigation. See C. J. Langenfelder & Son, Inc. v. Commonwealth,
Dep’t of Transp., 44 Pa. Commw. 585, 599 (Pa. Commw. Ct. 1979) (explaining that attorneys’
fees are recoverable under Section 334 of the Restatement of Contracts “when the breach of
contract caused the litigation in which the expenses incurred”); Millette v. Barrett, 1962 Pa. Dist.
& Cnty. Dec. LEXIS 89, at *5-8 (Pa. C.P. 1962) (holding that attorneys’ fees incurred in a suit
with a third party were recoverable under Section 334 of the Restatement of Contracts); see also
River Gap Builders v. Tomasello, 2007 Pa. Dist. & Cnty. Dec. LEXIS 486, at *2 (Pa. C.P. 2007)
25

(“[W]here the claim for attorney’s fees arises from a matter ancillary to but arising out of the
claimant’s dispute, such a claim is cognizable under the theory that such expenses are recoverable
as consequential damages.”); Commonwealth, Dep’t of Revenue, Bureau of State Lotteries v. Irwin,
82 Pa. Commw. 266, 271 (Pa. Commw. Ct. 1984) (“[L]itigation expenses incurred in a third party
suit may be recovered in an action for breach of contract if the defendant had reason when the
contract was made to foresee that a breach would cause the litigation.”). The parties dispute
whether courts in Pennsylvania have followed comment “c” to Section 351 of the Restatement
(Second) of Contracts. However, the Eastern District followed comment “c” in Krupp v. Lincoln
University, 663 F. Supp. 289, 293-94 (E.D. Pa. 1987). Further, as noted above, Pennsylvania has
expressly adopted Section 334 of the Restatement of Contracts.
The Court finds meritless Terra’s argument that Section 334 of the Restatement of
Contracts is inapplicable because comment “a” provides that Section 334 does not apply to the
interpretation of express contracts of indemnity. As EQT has pointed out, no Pennsylvania court
has adopted comment “a” to Section 334 of the Restatement of Contracts. Further, the MSA as a
whole is not an indemnity agreement. Rather, it is an agreement between EQT and Terra for
Terra’s services. The Court also finds inapposite the cases upon which Terra relies in support of
its argument that consequential damages are inapplicable. Specifically, while PODS Enterprises,
LLC v. Almatis, Inc., No. 16-CV-993, 2016 U.S. Dist. LEXIS 178580 (W.D. Pa. Dec. 27, 2016)
and Lewis v. Delp Family Powder Coatings, Inc., No. 08-CV-1365, 2011 U.S. Dist. LEXIS 34908
(W.D. Pa. Mar. 31, 2011), included a discussion of third-party litigation costs, the cases do not
apply to the instant matter because the court in each case dismissed the plaintiff’s claim for
attorneys’ fees after finding that it had failed to provide a basis upon which to recover the fees.

26

PODS Enterprises, LLC, 2016 U.S. Dist. LEXIS 178580, at *10; Lewis, 2011 U.S. Dist. LEXIS
34908, at *21. Here, in contrast, EQT has provided a legal and factual basis upon which to recover
attorneys’ fees. Indeed, it is well settled that “the award of consequential damages is factually
intensive under Pennsylvania law.” SMS Demag, Inc. v. ABB Transmissone & Distribuzone,
S.P.A., No. 05-CV-466, 2008 U.S. Dist. LEXIS 25637, at *45 n.16 (W.D. Pa. Mar. 31, 2008).
Given Terra’s admissions that it recognized the importance of protecting the integrity of water
impoundment liners; that its work at the S-Pit preceded EQT’s discovery of holes in the liner; and
that the holes in the S-Pit liner caused some leakage of impaired fluids from the S-Pit into
surrounding land and water, (Docket No. 288 at ¶¶ 7-10; Docket No. 294 at ¶¶ 7-10), the trier of
fact could determine that EQT’s damages in the EHB Proceeding were foreseeable under Section
334 of the Restatement of Contracts. Thus, because there are issues of fact as to whether EQT’s
damages in the EHB Proceeding were foreseeable, the Court will deny Terra’s Motion for Partial
Summary Judgment as to EQT’s Claim for Attorneys’ Fees.
B. Terra’s Motion for Partial Summary Judgment as to EQT’s Civil Penalty Claim
Terra argues that EQT may not recover the civil penalty either as damages or as an element
of indemnification. (Docket No. 272 at 9-13). Specifically, Terra asserts that EQT is precluded
from challenging the EHB’s determinations on the basis of the doctrine of res judicata. (Id. at 912). Terra also contends that EQT’s common law indemnification claim fails because the EHB
found that EQT’s own conduct caused or contributed to the civil penalty. (Id. at 12-13). In
response, EQT argues that the EHB adjudication is inadmissible hearsay. (Docket No. 290 at 67). EQT also asserts that the doctrine of res judicata is inapplicable because the issues considered
by the EHB are not identical to the issues presented in the instant matter. (Id. at 7-12). EQT

27

contends that the penalty imposed by the EHB is a consequential damage because the same was
foreseeable at the time the parties entered the MSA. (Id. at 12-14). As to its contractual indemnity
claim, EQT insists that pursuant to Section 14.1 of the MSA, Terra would be liable for the burden
of damages flowing from its conduct. (Id. at 14-15). In reply, Terra counters that because EQT
seeks to introduce the penalty assessed by the EHB as an element of damages, it may not exclude
from evidence the document that assesses and explains the penalty. (Docket No. 297 at 2-3). Terra
maintains that the doctrine of collateral estoppel applies to the penalty assessed by EHB. (Id. at
5-6). Terra contends that the penalty assessed by the EHB does not constitute a consequential
damage because EQT must prove that Terra’s breach caused the penalty. (Id. at 7). In its surreply, EQT argues that the EHB’s findings are inadmissible hearsay because Terra will offer the
same for the purpose of their truth. (Docket No. 300 at 3-4).
“Res judicata bars a party from initiating a subsequent suit against the same adversary
based on the same cause of action as a prior suit.” Marmon Coal Co. v. Dir., Office of Workers’
Comp. Programs, 726 F.3d 387, 394 (3d Cir. 2013). For a res judicata defense to succeed, the
proponent must establish that: “(1) a final judgment on the merits in a prior suit involving (2) the
same parties or their privies and (3) a subsequent suit based on the same cause of action.” Id.
(internal quotations omitted). Identifying a “cause of action” for res judicata purposes turns on the
“essential similarity of the underlying events giving rise to the various legal claims.” Id. (internal
quotations omitted). The parties dispute whether the instant action is based upon the EHB’s
adjudication.
Although there is no simple test to be used in determining what constitutes a cause of action
for res judicata purposes, a court looks “to whether there is an ‘essential similarity of the

28

underlying events giving rise to the various legal claims,’” rather than the specific legal theory
involved. Corestates Bank, N.A. v. Huls Am., Inc., 176 F.3d 187, 194 (3d Cir. 1999) (quoting
United States v. Athlone Indus., 746 F.2d 977, 984 (3d Cir. 1984)); see also Lubrizol Corp. v.
Exxon Corp., 929 F.2d 960, 963 (3d Cir. 1991) (explaining that “the term ‘cause of action’ cannot
be precisely defined, nor can a simple test be cited for use in determining what constitutes a cause
of action for res judicata purposes”) (internal quotations omitted); Davis v. United States Steel
Supply, Div. of United States Steel Corp., 688 F.2d 166, 171 (3d Cir. 1982) (noting that res judicata
does not rest on “the specific legal theory invoked”). This principle is “in keeping with ‘the present
trend . . . of requiring that a plaintiff present in one suit all the claims for relief that he may have
arising out of the same transaction or occurrence.’” Athlone, 746 F.2d at 984 (quoting JAMES WM.
MOORE ET AL., MOORE’S FEDERAL PRACTICE ¶ 0.410 (2d ed. 1983)).
In examining whether there is “an essential similarity of the underlying events,” factors to
be considered include “‘whether the acts complained of were the same, whether the material facts
alleged in each suit were the same, and whether the witnesses and documentation required to prove
such allegations were the same.’” Lubrizol, 929 F.2d at 963 (quoting Athlone, 746 F.3d at 984).
Mere reliance on different statutes in each action, the assertion of different theories of recovery,
or the request for different forms of relief does not, in and of itself, render a party’s claims different
causes of action for res judicata purposes. See Athlone, 746 F.2d at 984; see also Seamon v. Bell
Telephone Co., 576 F.Supp. 1458, 1460 (W.D. Pa. 1983) (“[Res judicata] will operate to bar not
only identical repetitive suits, but also to prevent the assertion of a different legal theory which
arises from the same liability creating conduct, and which the party had reasonable opportunity to
present in the original suit.”).

29

Here, it is clear that the EHB solely adjudicated the assessment of a civil penalty as to EQT.
The EHB did not address the culpability of EQT’s contractors. Indeed, the EHB stated that “EQT,
as the permittee, was responsible for the acts of its contractors and subcontractors.” (Docket No.
273 at 90). The EHB also stated that “[t]he real issue in dispute in this case with respect to liability
is not whether EQT has some liability; the issue is the duration of that liability.” (Id. at 47
(emphasis in original)). Thus, the issue of Terra’s potential liability has not been decided. The
Court’s conclusion is further supported by Third Circuit case law. See, e.g., Athlone, 746 F.2d at
986-87 (holding that an action filed by the Consumer Product Safety Commission and a subsequent
civil penalty action “involved different statutes, different acts, different wrongs, and necessitated
different evidence to support the different material facts alleged” and finding that the District Court
had erred by granting summary judgment on the basis of res judicata); see also Dici v.
Pennsylvania, 91 F.3d 542 (3d Cir. 1996) (holding that a state administrative agency’s
determination in a worker’s compensation hearing did not preclude a subsequent claim of Title
VII discrimination); Baughman v. Bradford Coal Co., 592 F.2d 215 (3d Cir. 1979) (holding that
the EHB is not a court and that the District Court had jurisdiction despite the EHB’s earlier
assessment of civil penalties against the defendant); United States v. Pa. Envtl. Hearing Bd., 377
F. Supp. 545 (M.D. Pa. 1974) (refusing to decline jurisdiction where the EHB allowed civil
penalties against the United States for violations of the Clean Stream Law and the United States
sought a declaration that the civil penalties were invalid).
Without providing any persuasive authority, EQT argues that EHB’s adjudication cannot
be offered for its truth. (Docket No. 290 at 6-7; Docket No. 300 at 4-5). As Terra notes, EQT
cannot introduce the EHB adjudication as an element of its damages and also seek to exclude the

30

explanation of the penalty. Builders Supply Co. v. McCabe, 77 A.2d 368, 372 (Pa. 1951) (“Having,
therefore, in the present action, placed the record of the Ohio suit in evidence for the purpose of
proving that judgment was obtained against it for the sum now claimed, it cannot repudiate the
basis, shown in the record, on which that judgment was recovered; to allow it to do so would be to
permit it to recover from defendant because of a judgment which, in would now be obliged to
assert, was incorrect and unjust and based upon a false finding of fact.”). Further, while EQT’s
argument would be better addressed as a motion in limine, the EHB’s adjudication will likely be
admissible. See, e.g., Zeus Enters. v. Alphin Aircraft, Inc., 190 F.3d 238, 243 (4th Cir. Va. Aug.
17, 1999) (holding that an ALJ’s decision was admissible hearsay under Federal Rule of Evidence
803(8)(C)).
C. Issues Raised at Oral Argument
At oral argument on September 5, 2017, the parties agreed to file supplemental briefing
with respect to two issues: (1) whether public policy considerations permit penalties to be passed
off and (2) whether an entity can be indemnified where it engaged in reckless, willful, or wanton
conduct.

(Docket No. 302; Docket No. 303 at 21-26).

Having considered the parties’

supplemental briefing, and having conducted its own independent research, the Court finds that
Terra’s motion must be denied. (Docket Nos. 304, 305).
With respect to the second issue, Terra argues that EQT may not seek indemnification for
its own recklessness. (Docket No. 305 at 6-8). In its supplemental brief, EQT states that it “is not
seeking indemnity for damages caused by its own conduct, reckless or otherwise. EQT is only
seeking to recover those damages that were the direct and foreseeable result of Terra’s breach of

31

the [MSA].” (Docket No. 304 at 5 (emphasis in original)). Given EQT’s clarification, the Court
finds that the second issue is now moot.
With respect to the first issue, it is well settled that “‘[t]he public policy of the government
is to be found in its statutes, and, when they have not directly spoken, then in the decisions of the
courts and the constant practice of the government officials.” Simmons v. United States, 120 F.
Supp. 641, 648 (M.D. Pa. 1954) (quoting United States v. Trans-Missouri Freight Ass’n, 166 U.S.
290, 340 (1897)). The purpose of the Clean Streams Law provides:
(1) Clean, unpolluted streams are absolutely essential if Pennsylvania is to attract
new manufacturing industries and to develop Pennsylvania’s full share of the tourist
industry;
(2) Clean, unpolluted water is absolutely essential if Pennsylvanians are to have
adequate out of door recreational facilities in the decades ahead;
(3) It is the objective of the Clean Streams Law not only to prevent further pollution
of the waters of the Commonwealth, but also to reclaim and restore to a clean,
unpolluted condition every stream in Pennsylvania that is presently polluted;
(4) The prevention and elimination of water pollution is recognized as being
directly related to the economic future of the Commonwealth; and
(5) The achievement of the objective herein set forth requires a comprehensive
program of watershed management and control.
35 Pa.C.S. § 691.4.
Without providing persuasive authority, Terra submits that “[a]llowing a company like
EQT to pass off its civil penalty obligations when it violates the Clean Streams Law would obstruct
the express goal of the Clean Streams Law to protect Pennsylvanians and their water resources.”
(Docket No. 305 at 3). The cases upon which Terra primarily relies are outside this Court’s
jurisdiction, do not interpret Pennsylvania’s Clean Streams Law, and are distinguishable. (Id. at
3-4 (citing United States v. B.P. Exploration & Prod. Inc., 753 F.3d 570 (5th Cir. 2014); In re Oil
Spill by the Oil Rig, 841 F. Supp. 2d 988 (E.D. La. 2012); Chevron Pipe Line Co. v. PacifiCorp,
No. 12-CV-287, 2017 U.S. Dist. LEXIS 11778 (D. Utah Jan. 27, 2017)). In B.P. Exploration, the
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Fifth Circuit did not address any public policy considerations, and the issue in the case was whether
statutory liability should be shifted in its entirety to the third party, not whether damages could be
recovered from the third party. 753 F.3d at 575 (finding that the federal Clean Water Act “leaves
no room for civil-penalty defendants to shift liability via allegations of third-party fault”). In In re
Oil Spill by the Oil Rig, the Eastern District of Louisiana applied an indemnity provision, not
provisions in a contract like the MSA at issue. 841 F. Supp. 2d at 994-97. Further, the public
policy considerations in the case focused upon indemnification for gross negligence, which is not
an issue in this matter because EQT does not seek indemnification for damages caused by its own
gross negligence but, rather, seeks to recover damages that were the direct and foreseeable
consequence of Terra’s alleged breach of contract. Id. at 998-1003. Finally, Chevron Pipe Line
Co. is inapplicable because, unlike the circumstances here, the plaintiff had no contractual
relationship with the third party and, therefore, could not recover contribution. 2017 U.S. Dist.
LEXIS 11778, at *10 (finding that the plaintiff’s claim was “essentially a claim for contribution
under tort law”).
As EQT argues, “[t]here is no public policy recognized by the Pennsylvania courts or
[legislation] that prevents Terra from being held responsible for a civil penalty that [may be] the
direct and proximate result of its breach of contract.” (Docket No. 304 at 2). There is, however,
clear law favoring the enforcement of contracts. Indeed, it is well settled that “[p]ublic policy
favors the validity of contracts freely entered into.” De Angelis v. Scott, 337 F. Supp. 1021, 1024
(W.D. Pa. 1972); see also Yellowbook Inc. v. Always in Serv., No. 11-CV-4526, 2013 U.S. Dist.
LEXIS 113078, at *24 (E.D. Pa. Aug. 12, 2013) (“[P]ublic policy favors freedom of contract,
which presupposes that individuals are capable of entering into and fulfilling their own

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agreements.”) (citing Dep’t of Transp. v. Paoli Const. Co., 386 A.2d 173, 175 (Pa. Commw. Ct.
1978)); McMullen, 985 A.2d at 778 (“[F]reely negotiated agreements entered into at arms length
are generally enforced according to their terms to allow parties the benefit of their bargains.”);
Simmons, 120 F. Supp. at 648 (stating that “[o]nly in clear cases may a contract be declared illegal”
as in violation of public policy). To this end, it is similarly well settled that Pennsylvania courts
generally enforce the unambiguous terms of agreements between sophisticated parties that are
freely negotiated at arm’s length in order to allow the parties to such agreements the benefits of
their bargains. See, e.g., Gustine Uniontown Assocs., Ltd. v. Anthony Crane Rental, Inc., 892 A.2d
830, 840-41 (Pa. Super. Ct. 2006) (explaining that “[t]he stated policy of our Supreme Court is to
enforce clear contract language” and that Pennsylvania courts enforce the plain language of
contracts between sophisticated commercial entities because such parties are fully capable of fairly
negotiating the terms of the contracts with the benefit of legal counsel); John B. Conomos, Inc.,
831 A.2d at 708 (“[C]ourts should not [generally] set aside terms on which sophisticated parties
agreed.”).
Terra contends that EQT should not be permitted to recover its civil penalty obligations as
a matter of public policy based upon “‘legal precedents, governmental practice, or obvious ethical
or moral standards.’” (Docket No. 305 at 4 (quoting Tayar v. Camelback Ski Corporation, 47
A.3d 1190, 1199 (Pa. 2012)). (Docket No. 305 at 4). In Tayar, the Supreme Court of Pennsylvania
stated that “avoidance of contract terms on public policy grounds requires a showing of overriding
public policy from legal precedents, governmental practice, or obvious ethical or moral standards.”
47 A.3d at 1199 (emphasis added). Here, as discussed above, Terra has not cited any Pennsylvania
legal precedent, governmental practice, or obvious ethical or moral standard that would preclude

34

EQT from potentially recovering a civil penalty that may be the direct and proximate result of
Terra’s breach of contract.2
The other Pennsylvania case law upon which Terra relies is inapplicable to instant facts.
(Docket No. 305 at 5). Specifically, Terra cites to case law for the general proposition that
individuals cannot “‘abridge police powers which protect the general welfare and public interest.’”
(Id. (quoting Carlino v. Whitpain Investors, 453 A.2d 1385 (Pa. 1982), and citing Mun. Auth. of
Blythe v. Pa. Pub. Util. Comm’n, 185 A.2d 628 (Pa. Super. Ct. 1962); Takacs v. Indian Lake
Borough Zoning Hearing Bd., 11 A.3d 587 (Pa. Commw. Ct. 2010), for same)). The cases to
which Terra cites are unpersuasive, as Carlino and Takacs related to illegal contract zoning and
Municipal Authority of Blythe involved the issue of whether charges made by a borough for
furnishing water beyond its corporate limits constituted “rates” that were within the jurisdiction of
the Public Utility Commission. Terra also relies upon Central Dauphin School District v.
American Casualty Co., 426 A.2d 94 (Pa. 1981), in support of its argument that an agreement “is
unenforceable on grounds of public policy if legislation provides that it is unenforceable or if the
interest in its enforcement is clearly outweighed in the circumstances by a public policy against
the enforcement of such terms.” (Id. (emphasis added)). As the Court has discussed, there is no
legislation providing that EQT is precluded from potentially recovering the civil penalty.
Further, Terra primarily argues that “[a]llowing EQT to pass off the EHB Penalty to Terra
would defeat [the Clean Streams Law’s] purpose, particularly where EQT’s pattern of reckless
To this end, the jury will weigh EQT’s and Terra’s conduct and make the determination as to whether the penalty is
ultimately Terra’s to bear. See, e.g., Windsor Shirt Co. v. New Jersey Nat’l Bank, 793 F. Supp. 589, 595 (E.D. Pa.
1992) (“The jury must weigh the evidence, if the evidence is in dispute, because ‘evaluation of witness credibility is
the exclusive function of the jury.’”) (quoting Bhaya v. Westinghouse Elec. Corp., 832 F.2d 258 (3d Cir. 1987)); see
also Phinizy v. Pharmacare, 569 F. Supp. 2d 512, 517 (W.D. Pa. 2008) (“[C]ourts may not invade the jury’s province
by making credibility determinations or weighing the evidence.”).
2

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conduct, as adjudicated by the EHB, formed the basis for the EHB Penalty.” (Id. at 6). As
previously explained, EQT does not seek indemnity for damages caused by its own reckless
conduct but, rather, seeks to recover only those damages that were the direct and foreseeable result
of Terra’s breach of the MSA. Accordingly, the Court concludes that public policy considerations
do not prevent EQT from seeking the recovery of the civil penalty that may be the direct and
proximate result of Terra’s breach of contract.
VI.

CONCLUSION
Based on the foregoing, Terra’s Motion for Partial Summary Judgment as to EQT’s Claim

for Attorneys’ Fees and Terra’s Motion for Partial Summary Judgment as to EQT’s Civil Penalty
Claim, (Docket Nos. 262, 266), will be DENIED. An appropriate Order follows.

s/ Nora Barry Fischer
Nora Barry Fischer
United States District Judge
cc/ecf: All counsel of record.

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