Allied Fidelity Insurance Co. v. Environmental Quality Council

753 P.2d 1038, 1988 WL 39349

• Court: Wyoming Supreme Court
• Decided: April 26, 1988
• Docket: No. 86-259
• Status: Published

Opinions

URBIGKIT, Justice.

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-subro-gation theory.

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.

The dispositive appeal issue is stated by appellant as:¹

“Is Wyoming statute § 35-ll-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-ll-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.”

This is, at least to Wyoming, a case of first impression. The question before the court is whether § 35-ll-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-ll-421(b) under the Fourteenth Amendment to the United States Constitution and Art. 1, § 6 of the Wyoming Constitution.

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).

Steams 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).

Our consideration begins with the right to judicial review of administrative actions. See Walker v. Board of County Commissioners, 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 County Commissioners 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.

“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).

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 undemons-trated 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 la. 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).

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.

In Commercial Union Insurance Co. v. Postín, 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 Ya. 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.” Wyoming Building & Loan Association v. Mills Construction Co., 38 Wyo. 515, 524, 269 P. 45, 48 (1928).

In expanding our holding from Commercial Union Insurance Co. v. Postín, 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.

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 per-mittee. 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 surety-ship 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).

We express no disagreement with appel-lees “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 col-lectibility 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.

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).

Reversed and remanded for an administrative hearing.

THOMAS, J., filed a dissenting opinion.

1 . The adverse real-party-in-interest decision of the trial court was conceded correctly by appel-lees 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.