Moncada NJ Solar 201, LLC v. ISE Am., Inc. (In re Moncada NJ Solar 201, LLC)

592 B.R. 779

IN RE: MONCADA NJ SOLAR 201, LLC,

Moncada NJ Solar 201, LLC, Appellant,

v.ISE America, Inc. Appellee.

Civil Action No. 18-0110 (FLW)

United States District Court, D. New Jersey.

Signed September 7, 2018

Donald Frederick Campbell, Jr., Giordano Halleran & Ciesla, PC, Red Bank, NJ, Joseph M. Casello, Collins, Vella & Casello, LLC, Farmingdale, NJ, for Appellant.

David J. Sprong, J. Alex Kress, Becker Meisel LLC, Livingston, NJ, for Appellee.

WOLFSON, United States District Judge:

Presently before the Court is the appeal of Moncada NJ Solar, LLC ("Moncada" or "Appellant") from the December 19, 2017 decision of the United States Bankruptcy Court for the District of New Jersey (the "Bankruptcy Court"), granting ISE America, Inc. and ISE Farms, Inc.'s (collectively, "ISE" or "Appellee") motion to dismiss Moncada's Chapter 11 bankruptcy case for cause, pursuant to 11 U.S.C. § 1112(b). During the pendency of this appeal, both parties filed various motions, including ISE's i) motion for sanctions, ii) motion for an order discharging notice of lis pendens , and iii) motion to dismiss appeal as moot. Moncada also moved for motion to stay pending appeal.

For the reasons that follow, the Bankruptcy Court's decision is AFFIRMED . Because of the affirmance, ISE's motion for discharge notice of lis pendens is GRANTED . However, ISE's motion for sanctions is DENIED . All other motions are DENIED as MOOT .

I. BACKGROUND

The background of this dispute was set forth in detail in the December 19, 2017 decision of the Bankruptcy Court, and thus, the Court will only recount the facts relevant to the instant appeal.¹

A. Factual Background

Moncada, a wholly owned subsidiary of PVOne, LLC ("PVOne"), was formed for the sole purpose of developing a solar energy project (the "Project") on a portion of land located in Franklin Township, New Jersey (the "Property"). The Property is owned by ISE, a producer of eggs. The parties' relationship began in July 2010, when PVOne and ISE entered into a Land Lease and Solar Purchase Agreement (the "Land Lease Agreement"). PVOne subsequently assigned its interest under the Land Lease Agreement to Moncada.

Moncada's ability to construct the project was contingent upon securing various land use and financing approvals, including financing under the New Jersey Solar Act (the "Solar Act" or "Act"), N.J.S.A. 48:3-87. To encourage the development of solar renewable energy projects, the Solar Act provides tax credits known as Solar Renewable Energy Certificates ("SRECs") and other financial subsidies for solar renewable energy projects developed on certain land. See generally id. at 48:3-87(q)-(t). Eligibility to receive SRECs is conditioned upon compliance with the Solar Act's regulatory provisions, which are administered by the New Jersey Board of Public Utilities (the "BPU"). Relevant here, parties interested in receiving SRECs for the development of a solar project must file an application with the BPU. See id. at 48:3-87(q)-(r).

The BPU's review process varies based upon the specific "energy year" ("EY") in which the application is submitted. See id. at § 48:3-87(q)-(r). An "energy year" is the "the 12-month period from June 1st through May 31st, numbered according to the calendar year in which it ends." Id. at 48:3-51. Specifically, subsection (q) of the Solar Act governs proposals, such as the application submitted by Moncada, filed during the 2014, 2015, and 2016 EYs. Id. at 48:3-87(q). At the time of Moncada's application, subsection (q) provided:

(1) During the energy years of 2014, 2015, and 2016, a solar electric power generation facility project that is not: (a) net metered; (b) an on-site generation facility; (c) qualified for net metering aggregation; or (d) certified as being located on a brownfield, on an area of historic fill or on a properly closed sanitary landfill facility, as provided pursuant to subsection t. of this section may file an application with the board for approval of a designation pursuant to this subsection that the facility is connected to the distribution system. An application filed pursuant to this subsection shall include a notice escrow of $40,000 per megawatt of the proposed capacity of the facility. The board shall approve the designation if: the facility has filed a notice in writing with the board applying for designation pursuant to this subsection, together with the notice escrow; and the capacity of the facility, when added to the capacity of other facilities that have been previously approved for designation prior to the facility's filing under this subsection, does not exceed 80 megawatts in the aggregate for each year. The capacity of any one solar electric power supply project approved pursuant to this subsection shall not exceed 10 megawatts. No more than 90 days after its receipt of a completed application for designation pursuant to this subsection, the board shall approve, conditionally approve, or disapprove the application. The notice escrow shall be reimbursed to the facility in full upon either rejection by the board or the facility entering commercial operation, or shall be forfeited to the State if the facility is designated pursuant to this subsection but does not enter commercial operation pursuant to paragraph (2) of this subsection.

(2) If the proposed solar electric power generation facility does not commence commercial operations within two years following the date of the designation by the board pursuant to this subsection, the designation of the facility shall be deemed to be null and void, and the facility shall not be considered connected to the distribution system thereafter.

Id. at 48:3-87(q)(1)-(2)(emphasis added). On July 21, 2017, the New Jersey legislature amended subsection (q) (the "Amendment") by adding the following provision:

(3) Notwithstanding the provisions of paragraph (2) of this subsection, a solar electric power generation facility project that as of May 31, 2017 was designated as "connected to the distribution system," but failed to commence commercial operations as of that date, shall maintain that designation if it commences commercial operations by May 31, 2018.

Id. at 48:3-87(q)(3). Subsection (r) of the Solar Act governs all proposals to receive SRECs outside of those approved pursuant to subsection (q). Id. at 48:3-87(r).

On October 15, 2013, PVOne and a firm operating as Hanwha Q CELLS USA Corp. ("Hanwha") applied for SRECs to finance the Project under subsection (q). In connection with that proposal, Hanwha posted a $326,000 escrow deposit with the BPU (the "Escrow Deposit"). On February 14, 2014, the BPU conditionally approved PVOne and Hanwha's application for SRECs in EY 2016 (the "SubQ Award"). The SubQ Award was subsequently assigned to Moncada. In the SubQ Award, the BPU designated the Project as "connected to the distribution system" as of June 1, 2015, and thus, pursuant to the pre-Amendment version of subsection (q) that governed at the time of the Award, the deadline to "commence commercial operations" for the Project was May 31, 2017.

In August 2014, Moncada and ISE terminated the Land Lease Agreement. On December 2, 2014, Moncada and ISE entered into a new agreement for the sale of real estate (the "Land Contract"). Pursuant to the Land Contract, Moncada purchased certain portions of land from ISE, and Moncada was to lease that property to a developer for the purpose of constructing the Project. The Land Contract contained various contingencies and imposed certain obligations on Moncada. Relevant here, the Land Contract required Moncada to obtain various land use approvals, and set a closing date of December 15, 2015. Subsequent amendments to the Land Contract extended the closing date, but provided that either party could terminate the Land Contract if closing did not occur by April 1, 2016.

The Project was beset by delays, including Moncada's failure to secure a developer, and thus, closure did not occur by April 1, 2016. As a result, ISE served Moncada with a notice of termination of the Land Contract (the "Termination Notice") on July 29, 2016. In connection with the Termination Notice, ISE returned the deposit that Moncada had made on the Land Contract, and Moncada cashed the deposit check. Moncada disputes the validity of the Termination Notice, arguing that the parties agreed to extend the closing date to August 15, 2016.

Following the Termination Notice, no work was done on the Project, despite the statutory requirement that the Project "commence commercial operations" by May 31, 2017. N.J.S.A. § 48:3-87(q)(2). Additionally, while the subsequent Amendment to subsection (q) extended the statutory deadline to May 31, 2018, see id. at § 48:3-87(q)(3), it is undisputed that the Project did not commence commercial operations by that date. Indeed, as of the date of the instant appeal, Moncada had yet to break ground on the Project. Significantly, Moncada concedes that it has never formally petitioned the BPU for an extension of either the May 31, 2017 or May 31, 2018 deadlines for the Project to commence commercial operations. See Moncada's Reply Brief ("Moncada Rep."), at pp. 14-15 (admitting that Moncada never made a formal request for an extension to the BPU, but arguing that such a request was unnecessary).

B. The Bankruptcy Court Proceedings

On December 16, 2016, Moncada filed a Chapter 11 petition for bankruptcy protection. At the time it commenced its bankruptcy case, Moncada received no income and had no employees, sales, products or physical address. At that time, the SubQ Award was the only asset held by Moncada that would potentially make plan confirmation feasible.

On April 13, 2017, ISE filed a motion to dismiss Moncada's bankruptcy petition, pursuant to 11 U.S.C. § 1112(b), arguing that: (i) the petition was filed in bad faith; and (ii) that there was no reasonable likelihood of rehabilitation. On May 31, 2017, the Bankruptcy Court denied ISE's motion, finding that the bankruptcy filing...