ADA-ES, Inc. v. Big Rivers Elec. Corp.

465 F.Supp.3d 703

ADA-ES, INC., Plaintiff

v.BIG RIVERS ELECTRIC CORPORATION, Defendant

CIVIL ACTION NO: 4:18-CV-00016-JHM

United States District Court, W.D. Kentucky, Owensboro Division.

Signed June 9, 2020

Anna S. Day, Perry L. Glantz, Ryan M. Sugden, Stinson Leonard Street LLP, Greenwood Village, CO, Daniel E. Fuchs, G. Bruce Stigger, Manion Stigger, LLP, Louisville, KY, Katherine L. Kennedy, Lewis Brisbois Bisgaard & Smith, Cincinnati, OH, Thomas P. Mannion, Lewis Brisbois Bisgaard & Smith, Cleveland, OH, for Plaintiff.

Edward Tipton Depp, Glenn L. Burton, Joseph N. Tucker, Philip E. Cecil, Dinsmore & Shohl LLP, Louisville, KY, for Defendant.

MEMORANDUM OPINION AND ORDER

Joseph H. McKinley Jr., Senior Judge

This matter is before the Court on Defendant's Motion for Partial Summary Judgment [DN 124]. Fully briefed, this matter is ripe for decision. For the following reasons, Defendant's Motion for Partial Summary Judgment is GRANTED in part and DENIED in part .

I. BACKGROUND

According to the Complaint, Plaintiff ADA-ES, Inc. ("ADA") contracted with Big Rivers Electric Corporation ("Big Rivers") for the engineering, manufacturing, and delivery of equipment and materials for a Dry Sorbent Injection System ("DSI System"). [DN 20 ¶ 7]. Pursuant to a requirement of the Request for Quotes ("RFQ"), ADA posted an irrevocable standby letter of credit in the amount of $807,651.00 through CoBiz Bank ("Bank") in Denver, Colorado, to serve as security for performance under the contract. [Id. ¶ 11]. Importantly, the letter of credit, by its express terms, was governed by Colorado law. [Id. ¶ 5].

In accordance with the contract, ADA engineered, manufactured, and delivered a DSI System, which was incorporated into a power plant owned by Big Rivers. [Id. ¶ 13]. The purpose of the system was to inject a powdered sorbent into the power plant system where exhaust gas is produced to bind with, capture, and sequester the pollutant, Sulfur Trioxide gas ("SO₃"), created from the burning of fuel. [Id. ]. In other words, the DSI System was to be used to reduce SO₃ emissions to a specific level. [Id. ].

According to contract documents—the RFQ, the contract, and the purchase order—"Performance Guarantee Test Procedures" were to be mutually agreed upon and provided by ADA 75 days after notice to proceed was granted by Big Rivers. [Id. ¶¶ 14–15]. These procedures were to provide guidelines for Big Rivers' testing of the DSI System after delivery and installation. On or about January 8, 2016, ADA provided Big Rivers with the DSI Performance Test Procedure. [DN 20-7]. Those guidelines were incorporated into the final protocol for the test program, named CleanAir Protocol. [DN 20-8, DN 20-9, DN 20-10].

In March 2016, after the DSI System was installed and the performance test guidelines were finalized, Big Rivers conducted its first performance test on the DSI System. [DN 20 ¶ 19]. Big Rivers claimed the system failed the test by failing to reduce the amount of SO₃ emissions to less than five parts per million (ppm)—the contractually agreed upon reduction—when a specified amount of sorbent was consumed under specified conditions. [Id. ¶ 20]. Thereafter, Big Rivers notified ADA of the failed test. ADA responded that "it disagreed with Big Rivers' conclusions about the test, and informed Big Rivers that the way to cure the alleged problem was to use the High Reactivity Hydrated Lime as called for in the Test Procedures and the CleanAir Protocol." [Id. ¶ 22]. Big Rivers conducted a second test in June 2016 using a sorbent it claimed satisfied the contract's requirement and informed ADA that the system again failed the performance test. [Id. ¶ 23].

Based on the failed performance tests, Big Rivers issued a claim for damages in the amount of $605,458.78, "which constituted its quantification of damages and asserted a right to both actual and liquidated damages for the same alleged performance breach." [Id. ¶ 24]. Big Rivers thereafter withheld $563,382.56 of contract payments. Additionally, Big Rivers withdrew the entire $807,651.00 letter of credit funds, using the same basis it used to justify the withheld contract payments. [Id. ¶ 27].

On May 11, 2017, ADA filed an Amended Complaint alleging Fraud (Count I), Unjust Enrichment (Count II), Breach of U.C.C. Warranties (Count IV), Breach of Contract (Count V), and seeking Declaratory Judgment as to seven claims (Count III). [DN 20 ¶¶ 35–77]. On December 6, 2019, ADA moved for leave to amend its complaint and attached its proposed amended complaint. [DN 118; DN 118-9]. Big Rivers, in response, filed a Motion for Partial Summary Judgment on ADA's claims for fraud and breach of U.C.C. warranties—two claims related to the letter of credit asserted in the operative complaint. [DN 124]. Therein, Big Rivers explained that its opposition to ADA's Motion for Leave to Amend required it to brief the legal and factual issues related to the draw on the letter of credit. [Id. ¶ 7]. That being the case, Big Rivers stated "[t]hat discussion of letter of credit law [would] necessarily show that ADA's fraud and breach of U.C.C. warranties claims fail as a matter of law." [Id. ¶ 9]. Accordingly, Big Rivers sought, and was granted, the right to file a combined memorandum in opposition to ADA's Motion to Amend as well as in support of its independent Motion for Partial Summary Judgment on ADA's pending letter of credit claims. [DN 156; DN 124; DN 125].

Although the Court permitted Big Rivers' arguments regarding the Motion to Amend and Motion for Partial Summary Judgment to be filed together in a single memorandum, the Court addresses these two motions independently as they require the application of different standards of review.

Turning to the instant motion, Big Rivers argues that it is entitled to summary judgment on two of ADA's existing claims. [DN 124; DN 125]. Big Rivers' primary basis for its motion is the contention that its draw on the letter of credit was proper as a matter of law. [DN 125 at 41–49]. Accordingly, Big Rivers argues it is entitled to summary judgment. [Id. ]. ADA responds that understanding Big Rivers' draw is not as simple as Big Rivers' briefing makes it seem. Further, ADA argues that questions of material fact pervade each of its claims such that summary judgment is improper. [DN 136].

II. STANDARD OF REVIEW AND LAW

Before the Court may grant a motion for summary judgment, it must find that there is no genuine dispute as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial burden of specifying the basis for its motion and identifying the portion of the record that demonstrates the absence of a genuine issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the moving party satisfies this burden, the non-moving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Although the Court must review the evidence in the light most favorable to the non-moving party, the non-moving party must do more than merely show that there is some "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Instead, the Federal Rules of Civil Procedure require the non-moving party to present specific facts showing that a genuine factual issue exists by "citing to particular parts of materials in the record" or by "showing that the materials cited do not establish the absence ... of a genuine dispute[.]" Fed. R. Civ. P. 56(c)(1). "The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Anderson , 477 U.S. at 252, 106 S.Ct. 2505.

III. DISCUSSION

A. Fraud (Count I)

ADA's first claim for relief alleges that Big Rivers "came into possession of the Letter of Credit Funds by making materially false and deceptive statements to the Bank." [DN 20 ¶ 36]. As support, ADA points to Big Rivers' statement in the draw request that ADA breached the contract and failure to cure. ADA claims this statement is untrue. [Id. ¶ 37]. Additionally, ADA's operative complaint alleges that Big Rivers is liable for making false statements by omission when it failed to mention that it had already withheld payments under the contract that would have reduced the amount it could claim, if any, against the letter of credit. [Id. ¶ 38]. Relatedly, ADA asserts that Big Rivers' draw far exceeded any amount of damages Big Rivers had asserted, or even ascertained, at the time. [Id. ¶ 41]. In its Response to Big Rivers' Motion for Summary Judgment, ADA reduces its fraud claim to two primary arguments—(1) that Big Rivers falsely represented to the Bank that ADA breached the contract and thereafter failed to cure its non-performance and (2) that by submitting the draw request for the entire letter of credit, Big Rivers misrepresented that the draw was being used to purchase substitute performance. [DN 136 at 41–43].

Big Rivers moves for summary judgment and claims that neither argument can sustain ADA's claim. [DN 124]. As to the argument that its statement to the Bank—that ADA breached the contract and failed to cure—can for the basis of a fraud claim, Big Rivers maintains that it was not a statement of material fact, as is required to prove fraud, but rather it was Big Rivers' legal opinion and conclusion regarding ADA's performance under the contract. [DN 125 43–44; DN 147 at 16–21]. And, as to the claim that Big Rivers misrepresented to the Bank that the draw was to purchase substitute performance, Big Rivers argues that ADA has no evidence that it made an affirmative statement to the Bank of what it intended to do with...