Convergen Energy WI LLC v. L'Anse Warden Electric Company LLC

Background

CEW owns a process for converting waste materials into fuel pellets. L’Anse produces electric power using, in part, those pellets. After Niantic agreed to acquire CEW, and as part of that transaction, CEW and L’Anse entered into a ten-year Supply Agreement effective January 31, 2020. The agreement required CEW to supply at least 40,000 tons of pellets per year and required L’Anse to pay a base price of $50 per ton, subject to adjustment on each anniversary date. L’Anse was required to pay weekly invoices within 30 days.

The parties also entered into collateral assignments with BMO Harris Bank, N.A. Each assigned its rights under the Supply Agreement to BMO as collateral and granted BMO a security interest in those rights and remedies. The agreement required notice to BMO before termination for default and gave BMO a right to cure a default.

On or about April 1, 2020, L’Anse stopped paying CEW, asserting that the Supply Agreement had been obtained through fraud. CEW said L’Anse continued to request and receive pellets without paying and that approximately $300,000 was owed as of June 10, 2020. The agreement required disputes to be arbitrated through the American Arbitration Association but allowed either party to ask a court for temporary or preliminary injunctive relief while arbitration was pending.

CEW filed an arbitration demand seeking payment and separately sought a preliminary injunction requiring L’Anse to continue performing under the Supply Agreement, including paying amounts due and future deliveries. The action was transferred from the Western District of Wisconsin to the Southern District of New York. The parties agreed that the court could decide the motion based on their written submissions, with a hearing limited to oral argument.

Legal Standard

A preliminary injunction is an extraordinary remedy. The party seeking one must show a likelihood of success on the merits, irreparable harm without an injunction, that the public interest supports relief, and that the balance of hardships strongly favors the requested injunction. Irreparable harm means an actual and imminent injury that cannot be adequately repaired after trial with money damages.

Because CEW sought an order that would require L’Anse to perform rather than simply preserve the existing situation, the court explained that a higher standard could apply. The court focused on irreparable harm, which it described as the most important requirement.

Court’s Analysis

CEW argued that the Supply Agreement’s statement that a breach would cause irreparable damage established this requirement. The court rejected that argument, holding that parties cannot decide by contract whether a court’s equitable power should be used or whether irreparable harm exists.

CEW also argued that L’Anse’s nonpayment could cause BMO to withdraw financial support, force CEW to reduce operations, cause employees to leave, damage business relationships, and threaten CEW’s continued existence. The court found those assertions largely conclusory. Although CEW stated that the Supply Agreement represented about 50 percent of its sales, it did not provide evidence that its losses would be difficult to calculate or that they would threaten the existence of its business.

The court found no evidence that BMO had withdrawn or threatened to withdraw its support. It also found no evidence that the parties could not reach an arrangement with BMO, or that CEW could not obtain other credit if necessary. The loss of half of CEW’s sales was substantial, but CEW did not show that the feared follow-on consequences were actual or imminent.

The court also rejected CEW’s argument that the delay in arbitration itself established irreparable harm. CEW had chosen arbitration and then sought court relief. The court concluded that CEW had created the claimed urgency by choosing that course and could not use the resulting delay to obtain what would effectively be mandatory and ultimate relief through a preliminary injunction.

Disposition

The court denied CEW’s motion for a preliminary injunction. Because CEW failed to establish irreparable harm, the court did not decide whether CEW was likely to succeed on the merits of the parties’ contract dispute. Judge Lewis J. Liman entered the order on October 5, 2020.