Benson Power, LLC v. North American Fertilizer, LLC

Background

Fibrominn LLC built a biomass-burning facility in Benson, Minnesota, and agreed in 2006 to sell the facility’s ash byproduct to North American Fertilizer, LLC (NAF). Benson Power, LLC later bought the facility and related assets through a receivership in 2015 and continued selling ash to NAF.

Benson Power negotiated a possible sale of the facility and related assets to Northern States Power Company (NSP). In February 2017, Benson Power and NSP signed an asset-sale agreement, subject to several contingencies, including regulatory approvals. Around the same time, Benson Power and NAF signed an Amended and Restated Ash Sale Agreement (the 2017 Agreement).

The 2017 Agreement required negotiation, mediation, and arbitration for disputes arising from or relating to the agreement, including disputes about its breach, termination, validity, interpretation, and performance. It also stated that issues about the scope of the agreement to arbitrate would be submitted to binding arbitration.

NAF later learned about the possible sale to NSP. In September 2017, NAF signed a Consent Agreement allowing Benson Power to assign the 2017 Agreement to NSP when the asset sale closed. The Consent Agreement stated that NSP would assume Benson Power’s obligations arising from and after the closing, but excluded liabilities arising from Benson Power’s pre-closing breach or nonperformance. The sale closed in June 2018, and NSP assumed Benson Power’s post-closing obligations. NSP then notified NAF that it elected to terminate the 2017 Agreement.

In January 2019, NAF sent Benson Power a notice of dispute, alleging that Benson Power fraudulently induced NAF to enter the 2017 Agreement by concealing material information about the NSP negotiations. NAF later sent a mediation notice alleging common-law fraud and seeking damages.

Arguments and analysis

Benson Power filed this action seeking declarations that NAF had consented to the assignment, that Benson Power was not required to arbitrate NAF’s claims, and that Benson Power was not liable for fraud or other alleged wrongful conduct. NAF moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim for relief.

The court held that the 2017 Agreement contained a delegation provision. A delegation provision is a contract term assigning threshold questions about whether an arbitration agreement applies to an arbitrator rather than a court. The court concluded that the agreement’s references to disputes involving the agreement’s “validity” and the “scope of the applicability” of the arbitration requirement clearly and unmistakably assigned those questions to the arbitrator.

Benson Power argued that the delegation provision no longer applied because it had assigned the agreement to NSP. The court said Benson Power did not specifically challenge the delegation provision as improperly formed or invalid when created. Instead, it challenged whether the provision continued to bind Benson Power after the assignment. The court therefore considered whether Benson Power remained bound by it.

The court distinguished an earlier Eighth Circuit decision involving parties that had assigned their arbitration agreements and could no longer enforce them. Here, NAF remained a signatory to the 2017 Agreement and had not assigned its rights under the arbitration and delegation provisions. Also, the Consent Agreement transferred only Benson Power’s post-closing obligations to NSP; it did not transfer or release Benson Power’s pre-closing liabilities.

The court applied the rule that merely assigning a contract does not release the original party from its contractual obligations. Release requires a clearly expressed consent by the other contracting party. The court found that the Consent Agreement did not release Benson Power from pre-assignment responsibilities and expressly excluded liabilities arising from Benson Power’s pre-closing breach or nonperformance. Because NAF’s claims arose before the sale closed, the court concluded that Benson Power remained bound to arbitrate disputes about whether the arbitration provision covered those claims.

Disposition

The court concluded that Benson Power failed to state a claim for relief. Judge Wilhelmina M. Wright granted NAF’s motion to dismiss and NAF’s motion for a one-day extension of time. The order states that the case is dismissed and directs that judgment be entered.