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

District Court, S.D. New York·Decided October 5, 2020·No. 1:20-cv-05240·Unknown

Opinion

USDC SDNY DOCUMENT SOUTHERN DISTRICT OF NEW YORK DOC #: annonces nana nna sansa nnscn KK DATE FILED:_ 10/5/2020 CONVERGEN ENERGY WI, LLC, : Plaintiff, : -V- : 20-cv-5240 (LJL) L’ANSE WARDEN ELECTRIC COMPANY, LLC, : OPINION AND ORDER Defendant. :

LEWIS J. LIMAN, United States District Judge: Plaintiff Convergen Energy WI, LLC (‘Plaintiff’ or “CEW”) moves, pursuant to Fed. R. Civ. P. 65, for a preliminary injunction compelling Defendant L’ Anse Warden Electric Company, LLC (“Defendant” or “L’ Anse”) to continue to perform under a supply agreement pursuant to which CEW supplies fuel pellets to L’ Anse, including to compel L’ Anse to pay for amounts currently due and for future fuel pellet deliveries. BACKGROUND The background facts of this case have been laid out in the Court’s prior opinions.! Plaintiff owns a proprietary process to convert waste materials, such as paper and plastic, into a coal substitute fuel pellet. Dkt. No. 7 (“Hansen Decl.”) § 3. Defendant is a subsidiary of Convergen Energy, LLC (“Convergen’”) that produces electric power utilizing, in part, the CEW pellets as fuel. Prior to January 31, 2020, L’Anse and CEW were under the common ownership of Convergen, and ultimately of a conglomerate named Libra Group. /d. {| 4-5; Dkt. No. 22 (“Patrignani Decl.”) § 3.

' See Convergen Energy LLC v. Brooks, 2020 WL 55490339, at *1-4 (S.D.N.Y. Sept. 16, 2020); id., 2020 WL 4500184, at *1-3 (S.D.N.Y. Aug. 5, 2020); id., 2020 WL 4038353, at *1-2 (S.D.N.Y. July 17, 2020).

On November 5, 2019, NianticVista Energy, LLC (“Niantic”) made an offer to Convergen for CEW. The offer letter stated: “As a condition to closing, a supply agreement between the Company and its affiliate, the L’Anse Warden Electric Company, must be executed under standard market terms.” Patrignani Decl. ¶ 11. Effective January 29, 2020, Convergen, CEW, and Niantic signed an agreement to sell CEW to Niantic for $5.5 million (the “Acquisition

Agreement”). The sale closed on January 31, 2020 (the “Acquisition”). See Convergen Energy, 2020 WL 5549039, at *1-2. On January 31, 2020, concurrent with the Acquisition and as contemplated by it, L’Anse entered into a supply agreement with CEW (the “Supply Agreement”). Dkt. No. 4 ¶ 2; Hansen Decl., Ex. A (the Supply Agreement). The Supply Agreement provided that CEW, as the seller, would supply to L’Anse, as the buyer, a minimum quantity of 40,000 total tons per year of engineered fuel pellets in return for L’Anse’s agreement to pay CEW a base price of $50 per ton, to be adjusted on each anniversary date of the effective date of the Supply Agreement. Hansen Decl., Ex. A at 2. L’Anse was required to pay invoices no later than 30 days after receipt of each

weekly invoice. Id. at 3. The Supply Agreement was signed by Gregory Merle on behalf of CEW and by Fidel Andueza on behalf of L’Anse. Id. at 4. Prior to the Supply Agreement, there was no contract for fuel pellets between CEW and L’Anse. L’Anse ordered pellets at its sole discretion and CEW billed L’Anse via invoice. As part of the sale transaction and pursuant to the Supply Agreement, CEW agreed to sell to L’Anse and L’Anse agreed to purchase from CEW specified quantities of fuel pellets at specified prices over a ten-year time period. CEW produces the fuel pellets in Green Bay, Wisconsin and then ships them to a Michigan warehouse or directly to the L’Anse facility. L’Anse receives the fuel pellets from that warehouse for use or directly from CEW’s Green Bay facility, and CEW bills L’Anse for pellets received. Title to the goods transfers when L’Anse receives the pellets at its facility. Prior to the sale of CEW, L’Anse and CEW were co-borrowers under a credit facility with BMO Harris Bank, N.A. (“BMO”). The facility included a term loan, a line of credit, and a letter of credit which was placed as an operating security under a provision of a power purchase

agreement to which L’Anse was a party. Hansen Decl. ¶ 8. Simultaneous with the execution of the Supply Agreement, CEW and L’Anse each entered into a Collateral Assignment with BMO, dated January 31, 2020, pursuant to which each party collaterally assigned to BMO all of its rights, title, and interest of, in, and to the Supply Agreement and granted to BMO a security interest in the rights and remedies of such party under the Supply Agreement. Hansen Decl., Ex. A at 1. To that end, each party to the Supply Agreement agreed that they would not terminate the Supply Agreement without providing a notice of default to BMO and agreed further that in the event of a default, BMO would have a right to cure the default. Id. CEW and L’Anse agreed that upon BMO succeeding to a party’s

interest under the Supply Agreement pursuant to the Collateral Assignment of such party, the other party would treat BMO as a party to the Supply Agreement and to be bound by and perform all of the obligations and conditions imposed upon such other party under the Supply Agreement. Id. at 1-2. The events of default include a material breach or threatened material breach of the Supply Agreement that has not been cured within a commercially reasonable time not to exceed 30 days following the receipt of written notice of the breach or threatened breach. Id. at 1. On or about April 1, 2020, L’Anse ceased making any payments to CEW due to its contention that the Supply Agreement was procured by fraud. Hansen Decl. ¶ 11. CEW claims that as of June 10, 2020, L’Anse owed CEW roughly $300,000, with that amount continuing to increase with each shipment of payments. Id. L’Anse claims to be operating under the status quo prior to the alleged fraud and seeks to offset its damages against the amounts it owes to CEW. Patrignani Decl. ¶ 5; Dkt. No. 20 at 8. Despite not making payments, L’Anse continues to request and receive pellets at its

facility and has not raised any issues with the quality of the pellets or otherwise suggested that CEW has not performed its obligations under the Supply Agreement. Hansen Decl. ¶ 13. CEW has sent invoices and otherwise made repeated demands that L’Anse pay its debt. Id. ¶ 15; id., Ex. C. L’Anse also has not given notice of default to BMO as is required if any party seeks to terminate the agreement for default. Id. ¶ 16; id., Ex A at 1. Pursuant to the Supply Agreement, disputes under the agreement are to be resolved using binding arbitrations through the American Arbitration Association (“AAA”). Hansen Decl., Ex. A at 6. At the same time, the Supply Agreement explicitly preserves the right of any party to approach the Court to seek injunctive relief. Under “Additional Terms and Conditions,” the

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