Allianz Risk Transfer Limited v. High Lonesome Wind Power LLC

Background

Allianz Risk Transfer (Bermuda) Limited and High Lonesome Wind Power, LLC entered into a proxy revenue swap in October 2018. The transaction required payments based on the hypothetical revenue of a wind farm project operated by High Lonesome in Texas. The calculation depended principally on electricity prices and wind speed, and the parties selected REsurety, Inc. as the independent calculation agent.

After Winter Storm Uri in February 2021, electricity prices and wind speeds were high while High Lonesome’s turbines were not operating. REsurety calculated a first-quarter 2021 cash settlement amount of $129,833,815, following an interim report that calculated proxy revenue of $125,023,165 for February. High Lonesome disputed most of the amount. The opinion states that High Lonesome paid the undisputed portion.

Section 10 of the parties’ confirmation established a dispute-resolution process. It required a disputing party to provide a written notice, required the parties to try to resolve the dispute, and then required submission to an independent consultant if they could not resolve it. If the parties could not agree on a consultant, the agreement provided for additional consultant-selection steps and, ultimately, use of the American Arbitration Association to select a third consultant. The independent consultant’s written decision would be conclusive and binding. Section 10 also stated that this process was the exclusive procedure for disputes concerning the calculation agent’s actions, calculations, and determinations.

The parties began that process but could not agree on an independent consultant. Their disagreement continued, including disputes over payment, a letter-of-credit draw, alleged defaults, and whether the swap should be terminated. Allianz filed this case, and High Lonesome later moved to compel arbitration of the disputed calculation amount and to stay related litigation.

The parties’ arguments

High Lonesome argued that the agreement’s use of the word “any” required arbitration of every dispute involving a calculation agent’s determination. It argued that the reference to disputes made “in good faith” described the timing and notice requirements, rather than limiting which disputes could be arbitrated. High Lonesome also argued that it had not given up its arbitration right.

Allianz argued that only good-faith disputes were covered. It contended that a dispute inconsistent with the agreement’s plain language was not made in good faith. Allianz also argued that High Lonesome had repudiated, or given up, its right to arbitrate by allegedly placing conditions on its participation in the dispute-resolution process.

Court’s analysis

Judge Woods applied New York contract law and held that Section 10 was unambiguous. The provision stated that the process was the exclusive procedure for resolving “any dispute” related to the calculation agent’s determinations. The court concluded that this language covered the dispute over the first-quarter 2021 cash settlement amount.

The court rejected Allianz’s reading of the “good faith” language. It reasoned that the language appeared in a provision describing when and how a party must deliver a dispute notice, and did not limit the broader statement requiring resolution of any dispute through Section 10. The court also noted that the agreement separately referred to payment of an “undisputed portion” when a calculation was under dispute, without adding a good-faith limitation.

The court treated Allianz’s argument that High Lonesome had repudiated its arbitration right as a procedural gateway issue. Unlike the question whether the dispute fell within the arbitration agreement, which the court decided, the court held that the repudiation issue was presumptively for the arbitrator to decide.

Disposition

The court granted High Lonesome’s motion to compel arbitration of the disputed determinations. It stayed all litigation related to those determinations pending arbitration. The parties were ordered to submit a joint status letter by April 11, 2024 addressing how any remaining issues could be litigated. The Clerk was directed to terminate the motion at docket entry 22.