Title: Allied Fidelity Ins. Co. v. Environmental Quality Council

State: wyoming

Issuer: Wyoming Supreme Court

Document:

Allied Fidelity Ins. Co. v. Environmental Quality Council1988 WY 63753 P.2d 1038Case Number: 86-259Decided: 04/26/1988Supreme Court of Wyoming
ALLIED FIDELITY INSURANCE 
COMPANY, APPELLANT (PETITIONER),

v.

ENVIRONMENTAL QUALITY 
COUNCIL AND THE DEPARTMENT OF ENVIRONMENTAL QUALITY, APPELLEES 
(RESPONDENTS),

Appeal from the District 
Court, LaramieCounty, Leonard McEwan, 
J.

Raymond W. 
Martin of Godfrey, Sundahl & Jorgenson, Cheyenne, for appellant.

Joseph B. Meyer, 
Atty. Gen., Mary B. Guthrie, Sr. Asst. Atty. Gen., for Environmental Quality 
Council.

John D. Erdmann, 
Sr. Asst. Atty. Gen., for Dept. of 
Environmental Quality.

Before BROWN, C.J., and THOMAS, CARDINE, URBIGKIT 
and MACY, JJ.

URBIGKIT, 
Justice.

[¶1.]     The Environmental 
Quality Council (EQC), the adjudicatory panel of the Department of Environmental 
Quality (DEQ), in performance of its reclamation responsibilities, denied a 
hearing request made by the surety when an insolvent operator ceased business 
and left uncompleted its statutory duty to reclaim mined land. The agency 
determined that the statute which provided a hearing right to the operator did 
not inure to the surety after the operator "bellied up." We reverse on a 
legal-subrogation theory.

[¶2.]     At a time prior to 
1981, DEQ issued to Ogle Petroleum, Inc., a Colorado corporation, mining permit No. 504 
for which in July, 1980 Traveler's Indemnity Company issued a reclamation bond. 
This Ogle Petroleum, Inc. was dissolved in 1981. On July 22, 1982, appellant 
Allied Fidelity Insurance Co. (Allied) issued a performance bond of $441,005.00 
to Ogle Petroleum, Inc. under the same permit to further assure reclamation 
funds for lands disrupted during mining. Although the permit was never 
transferred, the mining interests were assumed by Ogle Resources, Inc. (a 
Delaware corporation), and were further 
assigned to Ogle Petroleum, Inc. (reorganized as a Delaware corporation), and then to Ogle Petroleum, Inc. of 
California, a California corporation. The record does not 
clarify the relation of the dissolved Ogle Petroleum, Inc., the original 
Colorado corporation, to the second Ogle 
Petroleum, Inc., the Delaware corporation, or 
to Ogle Petroleum, Inc. of California. On November 6, 1985, Ogle 
Petroleum, Inc., of California notified DEQ that it was ceasing 
all operations. This finished the mining activity to which the reclamation 
obligations had attached. On that same day, the Attorney General notified the 
various entities of Ogle Petroleum, and the sureties, Traveler's Indemnity and 
Allied Fidelity, that Wyoming would seek forfeiture of both 
reclamation bonds. Ogle Petroleum, as defunct and disinterested, did not ask for 
a hearing. Allied asked to be heard at the EQC meeting in which forfeiture of 
the reclamation bond would be considered. EQC denied Allied's hearing request 
and ordered its bond forfeited. Without the requested hearing, administrative 
action thus far has produced only Allied's appeal first to the district court 
and now here.

[¶3.]     The dispositive appeal 
issue is stated by appellant as:1

"Is Wyoming statute § 
35-11-421(b), W.S. 1977, unconstitutional on its face since it does not provide 
a surety the right to a hearing prior to its bond being forfeited, or in the 
alternative, must the statute be construed to provide both the operator and the 
surety the right to a hearing prior to bond forfeiture?"

Section 
35-11-421(b), W.S. 1977 provides:

"The attorney general 
shall institute proceedings to forfeit the bond of any operator by providing 
written notice to the surety and to the operator that the bond will be forfeited 
unless the operator makes written demand to the council within thirty (30) days 
of his receipt of notice, requesting a hearing before the council. If no demand 
is made by the operator within thirty (30) days of his receipt of notice, then 
the council shall order the bond forfeited."

[¶4.]     This is, at least to 
Wyoming, a 
case of first impression. The question before the court is whether § 
35-11-421(b) must be read to bar a surety from stepping into the shoes of a 
defunct operator to request a forfeiture hearing. Under the facts of this case, 
we hold that the doctrine of legal subrogation will be expanded from our holding 
in Commercial Union Insurance Co. v. Postin, Wyo., 610 P.2d 984, 986 (1980), to 
permit a surety to replace a defunct operator to ask for a bond forfeiture 
hearing for the purpose of determining damages, if any, and to assert policy 
defenses. In so holding, we need not address the due-process challenge to § 
35-11-421(b) under the Fourteenth Amendment to the United States Constitution 
and Art. 1, § 6 of the Wyoming Constitution.

[¶5.]     Subrogation is defined 
in its conventional station:

"The substitution of one 
person in the place of another with reference to a lawful claim, demand or 
right, so that he who is substituted succeeds to the rights of the other in 
relation to the debt or claim, and its rights, remedies, or securities. Home 
Owners' Loan Corp. v. Baker, 299 Mass. 158, 12 N.E.2d 199, 201 [(1937)]; Gerken v. Davidson Grocery Co., 57 Idaho 670, 69 P.2d 122, 
126 [(1937)]." Black's Law Dictionary (5th ed. 1979).

Stearns Law of 
Suretyship, § 7.1 at 200 (5th ed.). See also Arant on Suretyship § 79, The 
Surety's Right of Subrogation (1931). We extend these rights maintainable 
against third parties to the right to defend. See People's Bank v. Loven, 172 
N.C. 666, 90 S.E. 948 (1916).

[¶6.]     Our consideration 
begins with the right to judicial review of administrative actions. See 
Walker v. Board of CountyCommissioners, Albany County, Wyo., 644 P.2d 772, 774 (1982). "Actions of an 
administrative agent are not reviewable unless made so by statute." Holding's 
Little America v. Board of CountyCommissioners of Laramie County, Wyo., 670 P.2d 699, 702 (1983). "`"Each 
statute must be carefully examined to discover the legislature's intent to 
restrict judicial review of administrative action."'" Walker v. Board of County 
Commissioners, Albany County, supra, 644 P.2d  at 774, quoting from U.S. Steel 
Corporation v. Wyoming Environmental Quality Council, Wyo., 575 P.2d 749, 750 
(1978). This appeal requires the examination of two statutes: the 
judicial-review-of-agency-actions statute under the Wyoming Administrative 
Procedure Act, § 16-3-115, W.S. 1977, and the judicial-review statute of the 
Wyoming Environmental Quality Act, § 35-11-101 et seq., W.S. 1977. An 
examination of the two statutes reveals no "clear and convincing evidence" of 
legislative intent to restrict access to judicial review. U.S. Steel Corporation 
v. Wyoming Environmental Quality Council, supra. Finding no bar to judicial 
review of this agency action, the analysis proceeds to the agency decision 
itself.

[¶7.]     "This court has 
consistently recognized the importance of administrative boards and their 
decisions." Shenefield v. Sheridan County School 
District No. 1, Wyo., 544 P.2d 870, 874 (1976). This is 
especially so for the Department of Environmental Quality, which is charged with 
the task of handing to successive Wyoming generations an environment as clean 
and safe as this generation received, in defense against the threat of chemical 
and radioactive pollutants which in an instant can destroy the environment for 
decades. This understanding strengthens our position often stated, that an 
"administrative decision is to be reversed only for errors of law." Id. at 874. The question 
of right to a hearing invokes an error-of-law consideration in both a statutory 
and constitutional sense. Holding's Little America v. Board of County 
Commissioners of Laramie County, supra; J. Ray McDermott & Co. v. Hudson, 
Wyo., 348 P.2d 73 (1960).

[¶8.]     The State's posture is 
curious. Surely it cannot seriously anticipate ultimate payment without 
litigation if the surety denies an obligation to pay. We foresee either a 
hearing, as requested by appellant, conducted by the administrative agency 
which, in making a decision, creates the factual record, or in court, where 
liability will be decided between the surety and the beneficiary, changing DEQ 
from an administrative agency into a normal party litigant with jury-trial 
exposure. Otherwise the constitutional issue is clearly presented, and DEQ here 
will also have intentionally achieved the posture involuntarily effectuated by 
the Wyoming Highway Commission in Brasel and Sims Construction Co., Inc. v. 
State Highway Commission of Wyoming, Wyo., 655 P.2d 265 (1982), where right to 
adjudicate was denied, and then upon civil court trial, State Highway Commission 
of Wyoming v. Brasel & Sims Construction Co., Inc., Wyo., 688 P.2d 871 
(1984) resulted in an unfavorable judgment of $1,945,520.84. Whatever res 
judicata is occasioned by the requested administrative action, it would seem 
preferable to the agency than final disposition by civil lawsuit. It is a 
curious assumption by the agency that with liability apparently denied by the 
surety and total damages undemonstrated by the agency, that demand would be 
followed by unlitigated payment.2 See Note, Liability of Sureties - 
Extent to Which Liability Established Against Principal Determines the Liability 
of Surety, 21 N.C.L. Rev. 310 (1943). See also United States Fidelity & 
Guaranty Co. v. Town of Dothan, 174 Ala. 480, 56 So. 953 (1911); Greenwood v. Greenwood, 44 
Ga. App. 848, 163 S.E. 318 (1932); Benson v. 
Alleman, 220 Ia. 731, 263 N.W. 305 (1935); 
Boylston Bottling Co. v. O'Neill, 231 Mass. 
498, 121 N.E. 411 (1919); Randall v. Gunter, 181 Miss. 332, 179 So. 362 (1938); Chozen 
Confections, Inc. v. Johnson, 221 N.C. 224, 19 S.E.2d 866 
(1942).

[¶9.]     From a categorical 
application of the statute, we understand how the agency concluded they could 
choose to deny a hearing to Allied. By name, the surety was not 
there.

"Where the language of a 
statute is plain and unambiguous and conveys a clear and definite meaning, we do 
not resort to rules of statutory construction. Thomson v. Wyoming In-Stream Flow Committee, Wyo., 651 P.2d 778 
(1982). Neither this Court, nor the agency charged with administering the 
statute has a right to look for and impose another meaning." Wyoming Insurance 
Department v. Avemco Insurance Co., Wyo., 726 P.2d 507, 510 
(1986).

In the peculiar 
nature of this administrative issue presented, this opinion imposes onto the 
statute in question no new meaning. We only determine that because of the 
equitable doctrine of legal subrogation, the ability of the surety existed, 
under these facts, to step into the shoes of the defunct operator. We assure its 
right to be heard in an administrative adjudication to contest the amount of 
legally guaranteed loss or to deny liability.

[¶10.]  In Commercial Union Insurance Co. v. 
Postin, supra, 610 P.2d  at 986, we said, "the right to legal subrogation occurs 
upon the payment of the debt by the subrogee for the subrogor." The equitable 
doctrine of legal subrogation is responsive to the demands of natural justice. 
"This doctrine is not dependent upon contract, nor upon privity between the 
parties; it is the creature of equity, and is founded upon principles of natural 
justice." Federal Land Bank v. Joynes, 179 Va. 394, 18 S.E.2d 917, 920 (1942). What is 
established here is the right in the administrative proceeding for the surety to 
defend in the name of the disingenuous principal in order to resist or determine 
the amount of obligation.

"The right of subrogation 
may arise and sometimes must arise from contract. This is conventional 
subrogation. The right is sometimes given in the absence of contract, is then a 
creation of the court of equity and is given when otherwise there would be a 
manifest failure of justice. This is legal subrogation. * * * This principle, 
adopted from the Roman law and at first sparingly exercised, has come to be one 
of the great principles of equity of our jurisprudence and courts incline to 
extend it rather than restrict it." WyomingBuilding & Loan Association v. Mills Construction 
Co., 38 Wyo. 
515, 524, 269 P. 45, 48 (1928).

[¶11.]  In expanding our holding from Commercial 
Union Insurance Co. v. Postin, supra, to allow a right by subrogation to deny 
liability prior to payment of the debt derived from guarantee, we approach the 
federal position assumed in Allen v. See, 196 F.2d 608, 610 (10th Cir. 1952), 
"[t]he right to subrogation does not depend upon whether the surety pays the 
principal creditor before or after an adjudication in bankruptcy. In either 
event, he is entitled to subrogation."

"`Subrogation not being a 
matter of strict right, but purely equitable in its nature, dependent upon the 
facts and circumstances of each particular case, no general rule can be laid 
down which will afford a test in all cases for its application.'" Federal Land 
Bank v. Joynes, supra, 18 S.E.2d  at 920, quoting from 25 R.C.L. 1322, 
1323.

[¶12.]  The circumstances compelling application 
of equity lie in factual assertions of the appellant not comprehensively 
answered by appellees. Appellant contends that DEQ, Land Quality Division, prior 
to 1981, issued a permit to mine to Ogle Petroleum, Inc., a Colorado corporation. 
Because the permit (No. 504) was never transferred to any other corporation, 
only Ogle Petroleum, Inc., a Colorado corporation, was the permittee. The 
corporation was dissolved in 1981. Allied issued a reclamation performance bond 
to Ogle to cover the reclamation costs for mine permit No. 504. Appellant argues 
that Ogle Petroleum, Inc., a Colorado corporation, was the only entity 
bonded in obligation to provide the reclamation. Interesting issues of corporate 
and suretyship law sounding both in law and in fact are suggested. Noteworthy 
also is the unresolved determination of actual reclamation cost compared to the 
amount of obligation if the entire bond total may be encumbered. Since the 
Traveler's bond was paid to the agency and apparently spent, amounts of 
additional costs, incurred or conjectural, are not now established. J.E. McCoy 
& Son v. Atkins, 172 Ark. 365, 288 S.W. 886 
(1926).

[¶13.]  We express no disagreement with appellees 
"that the extinguishment of a right by the happening of a condition to which the 
right has always been subject is not a denial of due process." Baton Rouge Rice Mill v. Fairbanks, Morse & Co., Inc., 
164 La. 729, 
114 So. 633 (1927), writ denied 278 U.S. 564, 49 S. Ct. 35, 73 L. Ed. 508 
(1928). Surely, however, the surety in this case has the right to argue the 
condition asserted is not the condition to which the right has always been 
subject. Appellant argues it repeatedly asked DEQ for information about the 
status of its insured, without response until the State moved for bond 
forfeiture.

"Where a surety has 
guaranteed the collectibility of a principal's debt, the creditor has the duty 
of giving the surety reasonable notice of his inability to enforce performance, 
and if such notice is not given, the surety is discharged to the extent of 
resulting prejudice." Restatement of the Law of Security, Surety and Creditor, 
Ch. 5, § 137, p. 369 
(1941).

When the surety 
asks a state agency if, in the eyes of the state, there are any problems with 
the insured, and no response is made, there may be some resulting prejudice. By 
this statement, we invoke only an assumption of possible conflict of fact; 
resolution remains with the hearing tribunal.

[¶14.]  It appears to us a manifest failure of 
justice under this circumstance to allow appellees to deny appellant's request 
for a hearing posited for it to deny liability, contest coverage, or ascertain 
damage. Res judicata is not supported by denying the surety his requested 
administrative hearing. Speight Box & Panel Co. v. Ipock, 217 N.C. 375, 8 S.E.2d 243 (1940); State ex rel. Emsheimer v. Duggan, 102 W. Va. 312, 135 S.E. 270 
(1926).

[¶15.]  Reversed and remanded for an 
administrative hearing.

THOMAS, J., filed a dissenting 
opinion.

FOOTNOTES

1 The adverse 
real-party-in-interest decision of the trial court was conceded correctly by 
appellees in their brief, and will not be considered as a present issue here. 
Erb v. Erb, Wyo., 573 P.2d 849 
(1978).

2 With Allied Insurance 
Company presently under insolvency liquidation in the state of Indiana, this present 
litigative activity may sustain more sound and fury than economic 
realism.

THOMAS, Justice, 
dissenting.

[¶16.]  I experience a two-fold disappointment in 
the opinion of the court in this case. First, I am disappointed by the necessity 
to assume that Allied Fidelity Insurance Company (Allied) is a subrogee, when 
the facts are contrary. Secondly, I am disappointed by the attempt of the 
majority to apply the law of subrogation to these facts. This creative 
jurisprudence might be understandable if there were some valid goal 
accomplished. I see none.

[¶17.]  The majority quite correctly recognizes 
that the doctrine of legal subrogation is being expanded. It is expanded in much 
the same way that the vintage aircraft was expanded into the moonlander. The 
majority cites Commercial Union Insurance Company v. Postin, Wyo., 610 P.2d 984 
(1980), in defining subrogation. That case is entirely consistent with the 
general rule that one becomes subrogated under the doctrine of legal or 
equitable subrogation upon the payment of the debt by the subrogee for the 
principal. See, e.g., Martin v. National Surety Corporation, 437 Pa. 159, 262 A.2d 672 (1970); Walker Process Equipment 
Company, Inc. v. Cooley Building Corporation, 129 Vt. 333, 278 A.2d 714 
(1971); 83 C.J.S. Subrogation § 57 at 694 (1953), and cases cited therein; 73 
Am.Jur.2d Subrogation § 54 at 632 (1974), and cases cited therein. There is 
nothing in this record to indicate that Allied paid anything upon the obligation 
for which it served as surety, and, in the absence of payment, there was no 
subrogation.

[¶18.]  The majority quotes the definition of 
subrogation from Black's Law Dictionary only in part, and a subsequent portion 
of that definition is consistent with the requirement of payment of the 
obligation. The definition goes on to say:

"* * * The lawful 
substitution of a third party in place of a party having a claim against another 
party. Insurance companies, guarantors and bonding companies generally have the 
right to step into the shoes of the party whom they compensate and sue any party 
whom the compensated party could have sued.

"The right of one who has 
paid an obligation which another should have paid to be indemnified by the 
other. Olin Corp. (Plastics Division) v. Workmen's Compensation Appeal Bd., 14 
Pa.Cmwlth. 603, 324 A.2d 813, 816." Black's Law Dictionary 1279 (5th ed. 
1969).

[¶19.]  The only authority cited in justification 
of the extension of subrogation to a right to a hearing in this instance is 
People's Bank v. Loven, 172 N.C. 666, 90 S.E. 948 (1916). Properly analyzed, 
People's Bank v. Loven, supra, only holds that one who is sued as a surety (the 
endorser of a promissory note) fits within the language of a statute which 
provided:

"`* * * [I]n any action 
brought in any court of competent jurisdiction to recover upon any such note or 
other evidence of debt, it shall be lawful for the party against whom the action 
is brought to plead as a counterclaim the penalty above provided for, to wit, 
twice the amount of interest paid as aforesaid, and also the forfeiture of the 
entire interest.'" People's Bank v. Loven, supra, 90 S.E.2d  at 
949.

The case simply 
holds then that the surety, by invoking the statute, demonstrated that the claim 
against the principal had been discharged. The case has nothing to do with the 
claim by Allied to a right to a hearing under the Wyoming 
statute.

[¶20.]  I would have no quarrel with a conclusion 
that Allied, if sued by the State of Wyoming, could invoke any defenses available 
to Ogle Petroleum, Inc. (Ogle). That is standard surety law. The majority, 
however, applies the law of subrogation backward. Once Allied pays the claim of 
the State of Wyoming, it will be subrogated to the extent 
of its payment to the right of the State to recover from Ogle. Having available 
a defense if sued, however, and being afforded an affirmative right by virtue of 
a subrogation theory is a clear mixture of apples and oranges. The latter right 
could be acquired by Allied upon an assignment of the permit, but nothing 
indicates that the right to a hearing was so important to Allied that it wanted 
to assume Ogle's other obligations under the permit.

[¶21.]  The majority expresses concern with 
respect to the function of § 35-11-421, W.S. 1977. That statute authorizes the 
director of the Environmental Quality Council to request the attorney general to 
begin bond forfeiture proceedings. It then provides that he shall institute 
proceedings to forfeit the bond by "providing written notice to the surety and 
to the operator that the bond will be forfeited unless the operator makes 
written demand to the council within thirty (30) days after his receipt of 
notice, requesting a hearing before the Council." The statute obviously does not 
afford a right of hearing to the surety, but the majority is concerned about the 
potential of collateral estoppel. Correctly construed, that statute does nothing 
more than provide for the initiation of a claim by the State of Wyoming, which 
is not much different from the usual requirement of a declaration of a 
forfeiture when the obligations of a purchaser under a contract for deed have 
not been met. The Environmental Quality Council would not have any greater 
authority to adjudicate its claim of forfeiture than the State Highway 
Commission. Brasel & Sims Construction Company, Inc. v. State Highway 
Commission of Wyoming, Wyo., 655 P.2d 265 
(1982). Consequently, there would be no effect of res judicata or collateral 
estoppel attaching to the administrative proceeding which really is nothing more 
than an invitation to the permittee to explain to the Environmental Quality 
Council why the forfeiture of the bond should not be pursued. I note that a 
subsequent provision in the statute provides for an action to recover the cost 
of the reclamation. While the tenor of the bond may not afford much in the way 
of a defense if the operator has not performed its obligations under its permit, 
it does not appear to me that the statute is 
self-executing.

[¶22.]  Consequently, there is no particular goal 
to be accomplished by insisting that the surety company have a right to a 
hearing under this statute when the statute does not so provide. Even after the 
hearing, there is no requirement that the surety pay over the amount of the 
bond, and, in every instance, litigation still would be a potential 
event.

[¶23.]  The rule to be distilled from this 
majority opinion is that Allied is entitled to be subrogated to the right of 
Ogle to a hearing to attempt to justify no action to initiate the claim against 
Ogle, even though Allied must pay the claim on behalf of Ogle before it can be 
subrogated to the claim of the State against Ogle. I have to confess that the 
logic of this rule as a legal proposition escapes me. Its necessity is even more 
remote from my ken.

[¶24.]  I dissent and would affirm the 
administrative agency in this instance.

ORDER DENYING PETITION 
FOR REHEARING

[¶25.]  Appellees Environmental Quality Council 
and the Department of Environmental Quality having filed with this Court their 
Petition for Rehearing together with Brief in Support of Petition for Rehearing, 
and the Court having reviewed the file and record of the Court, it 
is

[¶26.]  ORDERED that Appellees' Petition for 
Rehearing be and it hereby is denied.

THOMAS, J., 
dissenting.

THOMAS, Justice, 
dissenting.

[¶27.]  I would grant the Petition for Rehearing. 
One of the classic justifications for granting a petition for rehearing is a 
reasonable probability that the court may have arrived at an erroneous 
conclusion. Elmer v. State, Wyo., 466 P.2d 375 (1970), cert. denied 400 U.S. 845, 91 S. Ct. 90, 27 L. Ed. 2d 82 (1970). In this instance, there is far more 
than a reasonable probability that the court may have arrived at an erroneous 
conclusion. In light of the rationale of the court's opinion, an erroneous 
conclusion is an absolute certainty as the Environmental Quality Council and the 
Department of Environmental Quality have pointed out in their Brief in Support 
of Petition for Rehearing. Whether the court's decision could be justified in 
any other way is problematical, but the invocation of the doctrine of 
subrogation constitutes a grievous error.