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

502 F.Supp.3d 1199

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 November 23, 2020

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

Edward Tipton Depp, Joseph N. Tucker, Marisa E. Main, Philip E. Cecil, Dinsmore & Shohl LLP, Louisville, KY, Glenn L. Burton, Squire Patton Boggs, Cincinnati, OH, for Defendant.

MEMORANDUM OPINION AND ORDER

Joseph H. McKinley Jr., Senior Judge

This matter is before the Court on ADA-ES, Inc.'s Motion for Summary Judgment and [DN 165] and Big Rivers Electric Corporation's Motion for Summary Judgment [DN 172]. Fully briefed, this matter is ripe for decision. For the following reasons, ADA-ES, Inc.'s Motion for Summary Judgment is GRANTED . Big Rivers' Motion for Summary Judgment is DENIED .

I. BACKGROUND

After three and a half years of litigation, this case hinges on a simple question: Was Big Rivers Electric Corporation allowed to use Mississippi Lime Company's FGT Hydrated Lime when it conducted a performance test of a new Dry Sorbent Injection system at its Wilson Station power plant? If the answer is yes, the Dry Sorbent Injection system designed by ADA-ES did not meet the contractual guarantees. If the answer is no, Big Rivers never conducted a valid performance test and breached the contract when it withheld contract payments. The Court finds that the answer is no.

Power plants emit sulfur trioxide ("SO₃") into the air. If emitted in large amounts, SO₃ can harm the environment. Therefore, government regulations require power plants to reduce SO₃ emissions. Dry Sorbent Injection ("DSI") systems are a popular method to accomplish this SO₃ reduction. DSI systems operate quite simply: as gaseous emissions rise out of a power plant, the DSI system injects a powder called a "dry sorbent" into the emissions. The sorbent mixes with the emissions and neutralizes the SO₃. "Hydrated lime" is a common sorbent in DSI systems, and it is what is at issue in this litigation.

Big Rivers Electric Corporation ("Big Rivers") operates the Wilson Station power plant in Centertown, Kentucky. In 2014, Big Rivers decided to implement a DSI system at Wilson Station. It issued a Request for Quote seeking bids for the project. [DN 172-7; 172-8]. Relevant here, the Request for Quote required any company bidding on the project to (1) reduce SO₃ emissions to five parts per million, and (2) use hydrated lime as the sorbent. [DN 172-7 at 59]. ADA-ES, Inc. ("ADA") bid on the project and the parties began negotiations. [DN 166-5]. After extensive negotiations, Big Rivers selected ADA's bid to design and implement the DSI system. [DN 20-2; 20-5].

The final contract consists of two main documents: a Conformed Request for Quote ("CRFQ") [DN 20-5] and a contract with the technical requirements and performance guarantees ("Technical Contract"). [DN 20-2; 20-3]. These two documents cross-reference each other, and have several provisions that are relevant in this litigation:

1. The Technical Contract states that the dry sorbent "shall be Hydrated Lime" and lists numerical specifications that the hydrated lime must satisfy. [DN 20-2 at 20–21].

2. The Technical Contract stipulates that the DSI system will (1) meet the SO₃ emissions guarantee of 5 ppm and (2) meet the emissions guarantee at a hydrated lime injection rate of 2,475 pounds per hour. [DN 20-3 at 25]. The SO₃ emissions guarantee is a "Make Good" guarantee with no damage cap. The hydrated lime injection rate is subject to liquidated damages capped at ten percent of the contract value. [Seeid. , DN 20-5 at 6, § 1.22; DN 20-5 at 20, § 7.1].

3. The CRFQ states that the performance guarantees in the Technical Contract are "conclusively and finally determined by a successful passing of the agreed performance test." [DN 20-5 at 21, § 7.5.2].

4. The Technical Contract broadly outlines the format of the performance test. It states that the parties would separately agree on specific test protocols to govern the performance test. [DN 20-2 at 25, § 3.02].

The procedures governing the performance test are at the heart of the parties' dispute. After the DSI system was installed, ADA provided proposed performance test procedures to Big Rivers. [DN 20-7]. Big Rivers took ADA's proposed procedures and developed the final performance test protocols, called the CleanAir Protocol. [DN 166-20]. The CleanAir Protocol largely mirrors the Technical Contract, with a few key differences. The relevant difference here is the Technical Contract only specified "Hydrated Lime" as the sorbent to be used with the system, while the final CleanAir Protocol specified that "High Reactivity Hydrated Lime" was to be used during performance testing. [Id. at 5].

Big Rivers conducted its first performance test in March 2016. [DN 166-30]. The DSI system failed the test—it did not reduce SO₃ emissions to 5 ppm. Big Rivers ran the performance test with FGT Hydrated Lime ("FGT Lime"), a hydrated lime produced by Mississippi Lime Company. When Big Rivers notified ADA of the failed test, ADA claimed the test was not valid because FGT Lime was not a "High Reactivity Hydrated Lime," as required by the CleanAir Protocol. Big Rivers claimed the Technical Contract permitted the use of FGT Lime. [See DN 166-48].

Three months later, in June 2016, Big Rivers ran another performance test. [DN 166-29]. It used FGT Lime again. Same result—the DSI system failed the test. ADA again balked at Big Rivers' use of FGT Lime. Big Rivers again claimed FGT Lime was acceptable. ADA countered that even if FGT Lime was acceptable, ADA's proposed "cure" for the failed test was to use Mississippi Lime Company's "premium" hydrated lime, High Reactivity Hydrated Lime ("HR Hydrated Lime"). Big Rivers refused. [See DN 166-39].

After the second failed performance test, Big Rivers withheld its final contract payment of $563,382.56 and sought another $58,851.42 from ADA. This was approximately twenty percent of the $2.7 million contract value. [DN 125-21]. A few months later, Big Rivers withdrew the entire $807,651 letter of credit that ADA had posted with a bank as security for performance under the contract. [DN 166-49]. Big Rivers claimed ADA had breached the contract and failed to cure.

ADA sued. In its Amended Complaint, it alleged Fraud (Count I), Unjust Enrichment (Count II), a Declaratory Judgment as to seven claims (Count III), Breach of U.C.C. Warranties (Count IV), and Breach of Contract (Count V). [DN 20]. Big Rivers filed a Counterclaim that alleged Breach of Contract (Counterclaim I), Breach of Express Warranties (Counterclaim II), Breach of Covenant of Good Faith and Fair Dealing (Counterclaim III), and Declaration of Rights for Attorneys' Fees (Counterclaim IV). [DN 74].

Earlier in the case, this Court made a few decisions that narrow the issue presented now. It held that four documents would be construed together when determining the performance test requirements: CRFQ, Technical Contract, ADA's proposed test procedures, and CleanAir Protocol. ADA-ES, Inc. v. Big Rivers Elec. Corp. (ADA-ES I), No. 4:18-cv-16, 2019 WL 332412, at *5 (W.D. Ky. Jan. 25, 2019). It held there is no damage cap for a breach of the SO₃ emissions guarantee because it is a "Make Good" guarantee. Id. at *6–7. It held that the contract documents are ambiguous regarding lime quality and extrinsic evidence is required to assist the Court's interpretation. Id. at *7–8. More recently, the Court determined the letter of credit is documentary, and genuine issues of fact precluded summary judgment on ADA's two causes of action related to the letter of credit—Counts I and IV. ADA-ES, Inc. v. Big Rivers. Elec. Corp. (ADA-ES II), 465 F. Supp. 3d 703, 709–16 (W.D. Ky. 2020).

Discovery recently closed and both parties now move for summary judgment. ADA seeks summary judgment on its contract-related claims (Counts II and V) and all Big Rivers' counterclaims. [DN 165]. ADA does not seek summary judgment on its claims related to the letter of credit (Counts I and IV). Big Rivers seeks summary judgment on all its counterclaims and all ADA's causes of action. [DN 172].

II. STANDARD OF REVIEW

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 that 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 nonmoving 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 nonmoving party, the nonmoving 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 nonmoving 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 [nonmoving party's] position will be insufficient; there must be...