Cobon Energy Llc v. Agtc Inc.

264 P.3d 219

692 Utah Adv. Rep. 9

2011 UT App 330

CoBON ENERGY, LLC, et al., Plaintiffs and Appellees,

v.AGTC, INC., Alpine Coal Co., Inc., et al., Defendants and Appellants.

No. 20100236–CA.

Court of Appeals of Utah.

Sept. 29, 2011.

E. Scott Savage, Stephen R. Waldron, and Kyle C. Thompson, Salt Lake City, for Appellants.Evan A. Schmutz and William Kelly Nash, Provo, and Anthony W. Schofield and Peter C. Schofield, Orem, for Appellees.Before Judges ORME, THORNE, and VOROS.

OPINION

VOROS, Judge:

¶ 1 This appeal asks whether, by releasing its claims against Robena LLC in consideration for payment of $60,000 in unpaid consulting fees, Appellants Alpine Coal Co., Inc. and AGTC, Inc. (collectively, Alpine) also released a claimed $22 million in unaccrued claims against CoBon Energy, LLC (CoBon), Robena LLC's general partner and .01% owner. We hold that Alpine did not and, therefore, reverse.

BACKGROUND

¶ 2 The Crude Oil Windfall Profit Tax of 1980, see 26 U.S.C. § 29 (1988) (current version at 26 U.S.C. § 45K (2006)), enacted a tax credit for producers of qualifying alternative energy sources (the Section 29 program). See id. One such alternative energy source was synthetic fuel from coal (synfuel). CoBon had acquired the right to use technology needed for converting coal to synfuel; Alpine was knowledgeable in the coal industry and had experience developing and marketing coal products. In December 1996, Alpine and CoBon entered into a consulting agreement (the 1996 Consulting Agreement) for the purpose of developing facilities for the production and sale of synfuel, thus generating significant tax credits under the Section 29 program.

¶ 3 Pursuant to the 1996 Consulting Agreement, Alpine agreed to provide consulting services and project development assistance. In exchange, CoBon agreed to pay Alpine 30% of the proceeds received from tax credits generated by the facilities. The facilities had to be completely developed by July 1, 1998, to qualify for the tax credit. Any facility developed before that date could generate tax credits until the end of 2007, at which time the Section 29 program expired.

¶ 4 The parties worked on nine separate projects for the development of synfuel facilities. Three of those projects resulted in the timely development of six synfuel facilities. These generated over $66 million for CoBon under the Section 29 program. About $5 million of those proceeds were generated by the Robena facility. The Robena facility was managed by Robena LLC, which originally was wholly owned by CoBon.

¶ 5 On March 27, 1998, Alpine, doing business as Viron Energy (Viron), sent CoBon a letter offering to identify, evaluate, and obtain raw materials for the operation of the Robena facility in exchange for a monthly fee. CoBon responded that Alpine was already required to provide this service under the 1996 Consulting Agreement. CoBon also expressed confusion over who Viron was, indicating that the March 27 letter was the first CoBon had heard of Viron.

¶ 6 After further negotiation, on May 8, 1998, CoBon sent Alpine a letter of understanding (the 5/8/98 LOU) agreeing to pay Viron $15,000 per month for identifying, evaluating, and obtaining suitable raw materials for the Robena project. However, in the 5/8/98 LOU CoBon reserved the right to offset payments made to Viron against its obligations to Alpine under the 1996 Consulting Agreement. On May 18, 1998, CoBon sent Alpine a second letter of understanding (the 5/18/98 LOU) stating that Robena “will hereafter enter into a consulting agreement for Viron's reasonable and necessary assistance and consultation in identifying, evaluating, and obtaining raw material resources suitable for the [Robena] project.” Like the 5/8/98 LOU, this letter contained a reservation of rights. Representatives of both CoBon and Alpine signed this letter.

¶ 7 The following month, CoBon sold Robena LLC to an entity owned 99.99% by Providian Services LLC (Providian) and .01% by CoBon. CoBon retained its position as general partner and manager. On July 1, 1998, Robena LLC, then under control of Providian, sent Viron a letter, stating that “Robena hereby retains Viron's reasonable and necessary assistance and consultation in identifying, evaluating, and obtaining raw material resources suitable for the [Robena] Project,” in exchange for a $15,000 monthly fee to Viron (the 1998 Retainer Agreement). The 1998 Retainer Agreement superseded the 5/18/98 LOU according to CoBon's President, who signed both. It also contained a reservation of rights.

¶ 8 Viron performed services pursuant to the 1998 Retainer Agreement and was paid for those services through April 1, 1999. After that date, Robena LLC stopped paying Viron. Two months later, Providian replaced CoBon with Palmer Management Corporation as the general manager of Robena LLC; CoBon remained a general partner. Viron continued to perform services under the 1998 Retainer Agreement through August 1999. On September 1, 1999, owed $60,000 in back payments for four months of services, Viron stopped work.

¶ 9 Viron sued Robena LLC in the Commonwealth of Pennsylvania for breach of contract, seeking damages of $60,000 in back payments (the Pennsylvania Action). Viron's complaint was signed and verified by Mark J. Rodak, an engineer and Viron's president.¹ The complaint relied on the 5/8/98 LOU with CoBon as the basis for the breach of contract claim and attached a copy. Robena LLC sought dismissal, noting that Viron had attached a letter of understanding with CoBon, not Robena LLC, and alleged that Viron had thus failed to establish a contract between Viron and Robena LLC.

¶ 10 Robena LLC and Viron settled in June 2000. Robena LLC paid Viron the $60,000 Viron sued for, and Viron signed the release that is the subject of this appeal (the Release). The Release released all “Released Parties” from “any and all claims ... and causes of action which relate to or arise out of any consulting services which have been performed by Viron regarding the Robena Synthetic Fuel Plant including, without limitation, claims asserted in, or that could have been asserted in, the [Pennsylvania] Action.”

¶ 11 The settlement of Viron's suit against Robena LLC had no apparent effect on CoBon's payments to Alpine under the 1996 Consulting Agreement. CoBon made payments to Alpine both before and after execution of the Release. In May 2000, before the execution of the Release, CoBon paid Alpine $10,000 based on anticipated distributions under the Section 29 program. In November and December 2001, after the execution of the Release, CoBon paid Alpine $408,000 in consulting fees under the 1996 Consulting Agreement based on tax credits received.

¶ 12 In the fall of 2002, Alpine demanded payment of additional distributable proceeds under the 1996 Consulting Agreement; CoBon responded by filing suit in Utah. CoBon sought a declaration that the 1996 Consulting Agreement had been rendered unenforceable by “tax laws and other circumstances,” and that therefore Alpine was not entitled to further payments. Alpine counterclaimed for payments due—approximately $22 million by Alpine's tally—under the 1996 Consulting Agreement. The parties settled that dispute, agreeing to dismiss the claims and start anew.

¶ 13 In October 2006, CoBon again filed suit in Utah against Alpine seeking declaratory relief. However, CoBon abandoned its claim based on a change in tax law and instead alleged breach of contract for Alpine's refusal to perform services under the 1996 Consulting Agreement. Alpine counterclaimed for payments due and future distributions under the 1996 Consulting Agreement and for a declaration that the 1996 Consulting Agreement was enforceable. CoBon answered the counterclaims but did not identify the Release as an affirmative defense.

¶ 14 In 2008, CoBon filed a motion for summary judgment, asserting for the first time that the language of the Release executed in June 2000 between Viron and Robena LLC released CoBon from all claims by Alpine under the 1996 Consulting Agreement. The trial court granted CoBon's motion for partial summary judgment, ruling that the Release embraced Alpine's claims against CoBon. The trial court relied largely on three factors: in executing the 1998 Retainer Agreement on behalf of Robena LLC, CoBon had reserved its right to assert that Alpine was obligated to perform the duties Robena LLC was contracting with Viron to perform; in suing on the 1998 Retainer Agreement, Viron had attached the 5/8/98 LOU, which CoBon had signed, to its complaint; and the Release identified CoBon as a “Released Party.” This court granted permission for Alpine to appeal the trial court's interlocutory order. See Utah R.App. P. 5(a).

ISSUE AND STANDARD OF REVIEW

¶ 15 Alpine contends that the trial court erred by construing the Release to bar Alpine's claims against CoBon under the 1996 Consulting Agreement and granting partial summary judgment on that ground. We “review [ ] a trial court's legal conclusions and ultimate grant or denial of summary judgment for correctness and view[ ] the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party.” Bingham v. Roosevelt City Corp., 2010 UT 37, ¶ 10, 235 P.3d 730.

ANALYSIS

¶ 16 Summary judgment is appropriate where “there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law.” Utah R. Civ. P. 56(c). The parties agree that, pursuant to the terms of the Release, this case is governed by Pennsylvania law.

¶ 17 “The courts of Pennsylvania have traditionally determined the effect of a release using the ordinary meaning of its language and interpreted the release as covering only such matters as can fairly be said to have been within the contemplation of the parties when the release was given.” Vaughn v. Didizian, 436 Pa.Super. 436, 648 A.2d 38, 40 (1994) (emphasis, citation, and internal quotation marks omitted)....