Strategic Energy Concepts, LLC v. Otoka Energy, LLC

Background

Strategic Energy Concepts, LLC formed in 2004 to invest in and advise renewable-energy projects. It arranged to acquire and convert an idle lignite power plant in California into a biomass plant. Otoka Energy, LLC later invested in the project. In 2009, Otoka and Strategic Energy created Buena Vista Biomass Development, LLC (BVBD), with Otoka owning two-thirds and Strategic Energy owning one-third. BVBD owned Buena Vista Biomass Power, LLC (BVBP), which owned the plant.

In June 2012, Strategic Energy, BVBD, and Otoka entered into a Membership Interest Purchase Agreement (MIPA). Otoka bought Strategic Energy’s one-third interest in BVBD and became its sole owner. The MIPA required BVBD or Otoka to pay Strategic Energy $1.1 million when proceeds from a related State Street transaction became available to BVBD or Otoka and were not required for reserves or payments to other parties. The MIPA also stated that BVBD or Otoka would not borrow money or make capital calls to fund that payment.

The related tax-equity transaction involved Antrim Corporation, an affiliate of State Street Bank and Trust Company. Antrim agreed to invest $35 million in three payments: $25 million at closing and two later $5 million installment payments. The first $5 million installment payment was to be used in part to pay Strategic Energy. The installment payments were conditioned on the plant meeting specified requirements, including achieving commercial operation by July 31, 2012, and receiving confirmation from the Sacramento Municipal Utility District.

The plant did not achieve commercial operation by July 31, 2012. It eventually achieved commercial operation on October 24, 2012, after additional extensions. State Street did not make either $5 million installment payment. Otoka instead loaned $10 million to Amador Biomass, LLC, another project entity, to fund repairs and operations.

Strategic Energy’s remaining claims included breach of contract against Otoka and BVBD; breach of fiduciary duty against Otoka; breach of the implied covenant of good faith and fair dealing against Otoka and BVBD; tortious interference with contract against Amador, State Street, and Antrim; unjust enrichment against BVBP, Amador, State Street, and Antrim; and aiding and abetting against State Street and Antrim. The defendants moved for summary judgment, which asks whether the undisputed evidence requires judgment as a matter of law rather than a trial.

Choice of Law

The court applied Minnesota law to the claims against Otoka and the related defendants. State Street and Antrim argued that New York law applied to the claims against them, while Strategic Energy argued for Minnesota law. The court concluded that Minnesota and New York law were the same for the relevant claims, so the choice of law would not affect the result and no further choice-of-law analysis was necessary.

Rulings on Strategic Energy’s Claims

Breach of Contract

The court granted summary judgment to Otoka and BVBD on Count 1. It interpreted the MIPA as making the $1.1 million payment conditional on two events: proceeds from the State Street transaction had to be available to BVBD or Otoka, and those proceeds could not be required for reserves or payments to other parties under the transaction documents.

The court found that the first $25 million payment was required for the project’s outstanding debt and expenses and did not provide $1.1 million available for Strategic Energy. Because State Street never made either installment payment, no funds became available under the MIPA to trigger Otoka and BVBD’s payment duty. The court also found no evidence that Otoka or BVBD deliberately prevented the condition from occurring.

The court rejected Strategic Energy’s argument that an earlier order required a different result. It explained that the earlier order did not identify receipt of the $5 million installment as an explicit condition precedent, but the MIPA did contain the separate condition that qualifying funds be received and available. The court held that this condition was not met.

The court also rejected Strategic Energy’s attempt to assert a breach-of-contract theory against State Street and Antrim based on an alleged principal-agent relationship with Otoka. The amended complaint did not assert that theory, and Strategic Energy raised it for the first time in opposition to summary judgment after discovery had closed. The court stated that allowing the new theory would prejudice the State Street defendants. It further held that the record contained no evidence supporting the required degree of control for an agency relationship.

Breach of Fiduciary Duty

The court granted summary judgment to Otoka on Count 2. It held that Otoka owed Strategic Energy a fiduciary duty while they co-owned BVBD, but that duty ended when Strategic Energy sold its interest under the MIPA on June 26, 2012.

Strategic Energy claimed that Otoka had secretly planned with the State Street defendants to move the payment from the initial $25 million closing payment to the later installment payment. The court found that the parties engaged in represented, arm’s-length negotiations about the MIPA and that Strategic Energy was involved in and informed about the change. The court found no evidence that Otoka secretly made the decision before the MIPA was signed or otherwise breached a fiduciary duty during the negotiations.

Implied Covenant of Good Faith and Fair Dealing

The court dismissed Strategic Energy’s claim against BVBD under Count 3 because BVBD was not a party to the November 2012 Member Loan Agreement and Strategic Energy did not explain how BVBD breached the duty.

The court granted summary judgment to Otoka on the remaining part of Count 3. It held that there was no viable underlying breach-of-contract claim against Otoka and no evidence that Otoka’s $10 million loan to Amador unjustifiably hindered Strategic Energy’s rights or was made in bad faith to avoid paying Strategic Energy. The evidence instead showed that Otoka had sought additional funding from the State Street defendants, was refused, and then loaned its own money to keep the plant operating.

Tortious Interference with Contract

The court rejected Count 4 against Amador, State Street, and Antrim. A tortious-interference claim requires an underlying breach of contract, and the court had already found that Otoka and BVBD did not breach the MIPA.

The court also found no evidence that the defendants intentionally procured a breach or acted without justification. It held that moving the planned payment from the closing payment to a later installment did not violate the MIPA, which anticipated payment no later than the second installment date. Antrim also had no obligation to make the first installment because the plant had not achieved commercial operation by the contractual deadline. The court further found that the State Street defendants exercised contractual rights and had an economic interest in using available project funds for repairs and operations rather than paying Strategic Energy.

Unjust Enrichment

The court rejected Count 5 against BVBP and Amador because Strategic Energy identified no implied or quasi-contract with those entities, and the challenged benefits were received under express written agreements. The court also stated that Strategic Energy’s regret about the MIPA’s negotiated terms did not establish unjust enrichment.

The court rejected the claim against State Street and Antrim based on the investment tax credits and other tax benefits Antrim received. Under the transaction documents, Antrim was entitled to the tax benefits in exchange for its investment. The court found that Strategic Energy did not confer those government-provided tax benefits on the State Street defendants, was not harmed by their receipt, and could not show that allowing them to retain the benefits was unjust.

Aiding and Abetting

The court granted summary judgment to State Street and Antrim on Count 8. It stated that the aiding-and-abetting claim failed because the underlying tortious-interference claim had been dismissed.

Disposition

The court granted the Otoka defendants’ motion for summary judgment and granted State Street Bank and Trust Company’s and Antrim Corporation’s motion for summary judgment. It ordered that the amended complaint be dismissed with prejudice. The opinion states that Otoka’s counterclaims had not been the subject of motion practice.