Laredo Ridge Wind v. Nebraska Public Power District ( 2021 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 20-1956
___________________________
Laredo Ridge Wind, LLC; Broken Bow Wind, LLC; Crofton Bluffs Wind, LLC
Plaintiffs - Appellees
v.
Nebraska Public Power District
Defendant - Appellant
------------------------------
Nebraska Public Power District
Counter Claimant - Appellant
v.
Laredo Ridge Wind, LLC; Crofton Bluffs Wind, LLC; Broken Bow Wind, LLC
Counter Defendants - Appellees
------------------------------
Nebraska Public Power District
Third Party Plaintiff - Appellant
v.
Elkhorn Ridge Wind, LLC, a Delaware Limited Liability Company
Third Party Defendant - Appellee
____________
Appeal from United States District Court
for the District of Nebraska - Omaha
____________
Submitted: March 18, 2021
Filed: August 24, 2021
____________
Before GRUENDER, BENTON, and GRASZ, Circuit Judges.
____________
GRASZ, Circuit Judge.
Nebraska Public Power District (“NPPD”) appeals the district court’s 1 grant
of summary judgment in favor of four of NPPD’s wind-farm affiliates. NPPD argues
that these affiliates breached their power purchase agreements by transferring
control of their parent companys’ ownership interests without NPPD’s written
consent. We affirm.
I. Background
NPPD is a public utility company that provides electric power throughout
most of the state of Nebraska. Starting in 2008, NPPD entered into power purchase
agreements (“PPAs”) with Elkhorn Ridge Wind, LLC (“Elkhorn”); Laredo Ridge
Wind, LLC (“Laredo”); Broken Bow Wind, LLC (“Broken Bow”); and Crofton
Bluffs Wind, LLC (“Crofton”) (collectively, the “Project Entities”). Each Project
Entity owns and operates its own wind-energy-generation facility. Under the PPAs,
1
The Honorable Joseph F. Bataillon, United States District Judge for the
District of Nebraska.
-2-
NPPD agreed to purchase all of the energy produced by the Project Entities for a
period of twenty years.
Each Project Entity sits at the bottom of a multi-tiered ownership structure
that includes many subsidiary holding companies. The Project Entities were initially
built, owned, operated, and maintained by Edison Mission Energy, a Delaware
corporation (“Edison”). From their inception, the Project Entities have outsourced
the performance of their operation and maintenance duties to third parties.
Each of the PPAs contains an identical change-of-control provision requiring
NPPD’s written consent for any Project Entity to transfer a majority of its “direct
ownership interests” to a non-Edison entity. Each PPA also contained anti-
assignment provisions, prohibiting the Project Entity from assigning the PPA “or
any of its rights or obligations under” the PPA.
In 2012, Edison filed for bankruptcy protection. In the course of the
bankruptcy case, NRG Energy, Inc. (“NRG”) purchased Edison and all of the Edison
affiliates tasked with operating the Project Entities. The entities that were sold and
transferred between Edison and NRG were “upstream of the Project Entities by
many tiers of intermediate ownership.” The Project Entities became subsidiaries of
NRG Energy Gas & Wind Holdings, Inc., even though the Project Entities never
obtained NPPD’s written consent for the NRG transaction.
In 2018, NRG sold its Zephyr Renewables LLC2 subsidiary, a parent of the
Project Entities, to Global Infrastructure Partners (“GIP”). The entities transferred
2
NRG Energy Gas & Wind Holdings, Inc. was an upstream parent company
of the Project Entities. At the time of the GIP transaction, JPM Capital Corporation
held 100% of its Class A interests, and NRG Yield Operating LLC acquired 100%
of its Class B interests. After the GIP transaction, NRG Yield Operating LLC
changed its name to Clearway Energy Operating LLC. Clearway Energy Operating
LLC is a subsidiary of Clearway Energy Group, which was formerly named Zephyr
Renewables LLC.
-3-
between NRG and GIP were also “upstream of the Project Entities by many tiers of
intermediate ownership.” The Project Entities never obtained NPPD’s written
consent for the GIP transaction either.
After the GIP transaction, NPPD served notices of default on each Project
Entity, seeking termination of each of the PPAs. NPPD stated that the Project
Entities caused an event of default during both the 2014 NRG acquisition and the
2018 GIP acquisition.
Three of the Project Entities (Laredo, Broken Bow, and Crofton) sued NPPD
seeking (1) a declaratory judgment that they did not breach the change-of-control
provision, and (2) an injunction preventing NPPD from terminating the PPAs.
NPPD filed a third-party petition to bring the fourth Project Entity, Elkhorn, into the
case, which the district court granted.
The Project Entities filed a motion for summary judgment. The district court
granted the Project Entities’ summary judgment motion, concluding that the NRG
and GIP transactions involved transfer of ownership interests in the Project Entities’
upstream parents, not the Project Entities themselves, which did not breach the
PPAs. The district court also granted the Project Entities’ request for a permanent
injunction. NPPD now appeals.
II. Discussion
We review the district court’s grant of summary judgment de novo. Johnson
v. City of Shorewood, 360 F.3d 810, 817 (8th Cir. 2004). Summary judgment is
appropriate when, in viewing the evidence in the light most favorable to the
nonmoving party, there is no genuine issue as to any material fact and the moving
party is entitled to judgment as a matter of law. Guardian Fiberglass, Inc. v. Whit
Davis Lumber Co., 509 F.3d 512, 515 (8th Cir. 2007).
-4-
We review the district court’s award of a permanent injunction for abuse of
discretion. Forest Park II v. Hadley, 336 F.3d 724, 731 (8th Cir. 2003). “Abuse of
discretion occurs if the district court reaches its conclusion by applying erroneous
legal principles or relying on clearly erroneous factual findings.” Id.A. Change of Control
1. Contract Interpretation
Nebraska law governs this appeal. Under Nebraska law, “a court faced with
a question of contract interpretation must first determine whether the contract is
ambiguous.” Home Instead, Inc. v. Florance, 721 F.3d 494, 498 (8th Cir. 2013);
accord City of Sidney v. Mun. Energy Agency of Neb., 917 N.W.2d 826, 843 (Neb.
2018). “[T]he determination of whether a contract is ambiguous is a matter of law.”
McCormack v. Citibank, N.A., 100 F.3d 532, 538 (8th Cir. 1996); accord Big River
Const. Co. v. L & H Props., Inc., 681 N.W.2d 751, 756 (Neb. 2004) (“The meaning
of a contract, and whether a contract is ambiguous, are questions of law.”). A court
determines whether ambiguity exists on an objective basis, reviewing the contract
as a whole. See Home Instead, 721 F.3d at 498; accord Big River, 681 N.W.2d at
756 (“A contract must be construed as a whole, and, if possible, effect must be given
to every part thereof.”).
“‘A written contract which is expressed in clear and unambiguous language
is not subject to interpretation or construction,’ and a court simply must give effect
to that language.” Home Instead, 721 F.3d at 498; accord McCormack, 100 F.3d at
538; accord City of Sidney, 917 N.W.2d at 843. “[T]here is a strong presumption
that a written instrument correctly expresses the intention of the parties” and “parties
are bound by the terms of the contract even though their intent may be different from
that expressed in the agreement.” Bedrosky v. Hiner, 430 N.W.2d 535, 539 (Neb.
1988).
-5-
“A contract is only ambiguous ‘when the instrument at issue is susceptible of
two or more reasonable but conflicting interpretations or meanings.’” McCormack,
100 F.3d at 538 (quoting Boyles v. Hausmann, 517 N.W.2d 610, 615 (Neb. 1994));
see also Home Instead, 721 F.3d at 498. Ambiguity in a contract creates a question
of fact. Home Instead, 721 F.3d at 499 (“When it is established that a contract is
ambiguous, the meaning of its terms is a matter of fact to be determined in the same
manner as other questions of fact.”); Bedrosky, 430 N.W.2d at 540 (“When it is
established that a contract is ambiguous, . . . summary judgment is improper.”).
Each of the PPAs contains a “Permitted Transactions” provision stating:
Seller shall not: (a) consolidate or merge with any other Person, or
reorganize, consolidate, Change Control or change the form of [Project
Entities’] business organization from a limited liability company; . . .
or (c) assign this Agreement, or any of its rights or obligations under
this Agreement (each, a “Transaction”) to any Person (the
“Transferee”), whether in a single transaction or series of transactions,
unless such Transaction is expressly approved in writing by NPPD . . .
and any Transaction in the absence of such consent shall be void and of
no legal effect.
“Change Control” means the sale or transfer after the Effective Date of
a majority of the direct ownership interests in Seller. . . .
No assignment or transfer of this Agreement shall relieve a Party of its
obligations hereunder.
Further, each PPA states that a change-of-control transaction performed
without NPPD’s written approval qualifies as an event of default.
2. Ownership Interests
NPPD argues the change-of-control provision is ambiguous because the term
“direct ownership interests” is subject to multiple interpretations. The Project
Entities counter that the term “direct ownership interests” has a common,
-6-
unambiguous meaning, which was properly considered by the district court in its
decision to grant summary judgment in the Project Entities’ favor. We conclude that
the term “direct ownership interests” is unambiguous.
It is undisputed that the PPAs do not define “direct ownership interests.”
However, the law supports the Project Entities’ argument that here “ownership
interests” and certainly “direct ownership” can only be reasonably interpreted to
mean ownership of membership units in a limited liability company.
NPPD primarily relies on the dissent in Dole Food Co. v. Patrickson, 538 U.S.
468 (2003), to argue that ownership encompasses a wide variety of interests.
NPPD’s argument is misplaced for two reasons. First, as a dissenting opinion it is
not controlling precedent. We will not conjure up ambiguity from the Dole dissent
when none exists. Second, the Dole majority opinion, while helpful in identifying
the common meaning of “ownership,” has limited value due to the term’s
interpretation solely within the context of the Foreign Sovereign Immunities Act of
1976 (“FSIA”).
Ownership of a corporation or LLC is generally defined by the legal right of
possession of stock or membership units, not control. In Dole, the Supreme Court
addressed the issue of whether a party’s ownership of shares of a parent company
(several entities removed from the subject company) qualified as “direct ownership.”
Dole, 538 U.S. at 470–74. However, the Dole analysis was in the context of
interpreting the FSIA to determine whether a lawsuit could be removed to federal
court. Id.In stating that ownership of an entity several levels removed from the target
entity did not qualify as direct ownership for purposes of the FSIA, the Dole majority
stated that “[a]n individual shareholder, by virtue of his ownership of shares, does
not own the corporation’s assets and, as a result, does not own subsidiary
corporations in which the corporation holds an interest.” Dole, 538 U.S. at 475. “A
basic tenet of American corporate law is that the corporation and its shareholders are
-7-
distinct entities.” Id. at 474. Further, “[a] corporate parent which owns the shares
of a subsidiary does not, for that reason alone, own or have legal title to the assets of
the subsidiary; and, it follows with even greater force, the parent does not own or
have legal title to the subsidiaries of the subsidiary.” Id. at 475.
NPPD relies on comments raised in the Dole dissent as the basis for its
argument that “ownership interests” is an ambiguous term. The Dole dissent
recognized that owning the shares of a corporate parent differs from owning the
shares of a corporate subsidiary. Dole, 538 U.S. at 481. The Dole dissent argued
instead that the term “ownership” should be interpreted to apply to ownership
interests of a corporation’s parent entity. That interpretation, they argued, aligns
with the Court’s historically expansive use of the term “ownership” to apply to a
variety of ownership situations. Id. at 481–82.
Next, NPPD argues GIP’s ownership of the Project Entities’ parent
corporations improperly manifested itself in GIP’s control over the Project Entities
themselves. NPPD’s argument finds some support in the Supreme Court’s case law.
The Court has explained that a corporate parent often has a degree of control over
its subsidiaries:
[A] parent and a wholly owned subsidiary always have a complete
‘unity of purpose or a common design interest. They share a common
purpose whether or not the parent keeps a tight rein over the subsidiary;
the parent may assert full control at any moment if the subsidiary fails
to act in the parent’s best interests.
Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 771–72 (1984) (referring to
the Sherman Act); see also United States v. Bestfoods, 524 U.S. 51, 61 (1998) (“It is
a general principle of corporate law deeply ‘ingrained in our economic and legal
systems’ that a parent corporation (so-called because of control through ownership
of another corporation’s stock) is not liable for the acts of its subsidiaries.”)
(emphasis added) (citations omitted).
-8-
But Dole clarified that control and ownership are distinct concepts. See Dole,
538 U.S. at 477; see also Janvey v. Libyan Inv. Auth., 840 F.3d 248, 259 (5th Cir.
2016). “[A] parent corporation and its subsidiary are separate corporate forms.” In
re Packaged Seafood Prod. Antitrust Litig., 338 F. Supp. 3d 1118, 1143 (S.D. Cal.
2018). Thus, ownership of intermediate corporate entities is not direct ownership.
The Supreme Court of Nebraska has not interpreted the term “direct
ownership interest” in analyzing a contract. However, in interpreting a Nebraska
statute, that court has defined “direct” as “‘stemming immediately from a source,’
‘natural, straightforward,’ ‘marked by absence of an intervening agency,
instrumentality, or influence,’ ‘characterized by close logical, causal, or
consequential relationship’ and ‘free from extraneous influence; immediate.’”
Jacobitz v. Aurora Coop., 865 N.W.2d 353, 359–60 (Neb. 2015) (cleaned up); see
also State v. Gilliam, 874 N.W.2d 48, 57 (Neb. 2016) (“We often turn to dictionaries
to ascertain a word’s plain and ordinary meaning.”). Eighth Circuit precedent has
also used the phrase “direct ownership” when referring to ownership of stock.
Wright v. United States, 482 F.2d 600, 609 (8th Cir. 1973).
In this case, we give the “direct ownership” contemplated under the change-
of-control provision its common meaning. We interpret the direct ownership
interests to mean ownership interest in the Project Entities themselves, and we
conclude that ownership in any of the Project Entities’ parent companies constitutes
an indirect ownership interest.3
3. Sale Transactions
Next, we must determine whether the NRG and GIP transactions caused the
Project Entities to violate the PPAs. Based on the PPAs’ plain terms, we conclude
3
In this case, we apply the same principles to LLCs as used in cases dealing
with corporations. Streck, Inc. v. Ryan Fam., L.L.C., 901 N.W.2d 284, 293 (Neb.
2017) (“[W]e have generally treated actions by a member of an LLC in the same
manner as actions by a shareholder of a corporation.”).
-9-
that the Project Entities did not transfer their direct ownership interests to NRG or
GIP and did not violate the change-of-control provision of the PPAs.
The transfer of the ownership interests of the Project Entities’ parent
companies did not trigger the change-of-control provision in the PPAs. Engel v.
Teleprompter Corp., 703 F.2d 127, 134 (5th Cir. 1983) (“[T]ransfer of the stock of
a parent corporation does not affect the ownership of assets held by a subsidiary.”).
Traditionally, a corporate parent who owns shares of a subsidiary does not own or
have legal title over the subsidiary’s assets. See Janvey, 840 F.3d at 263–64 (“A
corporate parent which owns the shares of a subsidiary does not, for that reason
alone, own or have legal title to the assets of the subsidiary.”). Corporate parents
are separately established and must be treated accordingly. See Engel, 703 F.2d at
134 (“[O]wnership of the stock of a corporation is not synonymous with ownership
of the corporate assets.”); Janvey, 840 F.3d at 263–64 (“Subsidiaries that are
‘established as juridical entities distinct and independent . . . should normally be
treated as such.’”) (abrogated on other grounds).
We conclude that the transfer of the Project Entities’ parent companies, from
Edison to NRG to GIP, did not transfer the “direct ownership interests” of each of
the Project Entities. Thus, we conclude that the Project Entities did not need to
obtain NPPD’s written consent for each of the transactions involving its upstream
parent companies, and that the transfer of the ownership interests at the parent-
company level did not trigger a change of control under the PPAs.
B. Assignment
NPPD also argues that the PPAs include anti-assignment clauses that
prevented the Project Entities from assigning or delegating any of their rights or
obligations under the PPAs without NPPD’s consent. According to NPPD, the
Project Entities violated these anti-assignment clauses (and thus breached the PPAs)
by delegating to third-party affiliates the performance of, and control over, tasks the
Project Entities agreed to perform. For example, NPPD maintains that the Project
-10-
Entities failed to fulfill their contractual duties to “operate and maintain the Plant
and Site” and abdicated their responsibilities by turning over the day-to-day
operations and management to a third party with whom NPPD had no contractual
agreement.
In response, the Project Entities contend they did not assign away their rights
or obligations because (1) they delegated (not assigned) tasks under the PPAs; (2)
delegation of tasks was not expressly prohibited by the PPAs; and (3) the Project
Entities have remained directly liable for their obligations under the PPAs. We agree
with the Project Entities interpretation of the anti-assignment clause.
Under Nebraska law “parties should generally be free to assign rights and
delegate duties as they see fit, subject to certain limitations.” Eques. Ridge
Homeowners Assoc. v. Eques. Ridge Estates II Homeowners Assoc., 953 N.W.2d 16,
35 (Neb. 2021). “At common law ‘[c]ontract duties are generally delegable, unless
prohibited by statute, public policy or the terms of the contract.’” Id. (quotation
omitted). 4
Here, NPPD claims the delegation of certain obligations violated section
10.2.1(c) of the PPAs, which, as relevant, provide that the Project Entities “shall not
assign [the PPA] or any of its rights or obligations under [the PPA] . . . unless such
transaction is expressly approved in writing by NPPD[.]” But two observations lead
us to reject NPPD’s position.
First, we note the plain language of the anti-assignment provision does not
prohibit the delegation of duties, but instead only the assignment of obligations. It
is not at all clear that, by including this imprecise phrase, the parties intended to
forbid the delegation of the performance of all tasks. A more plausible interpretation
4
“Contractual duties are also not delegable if they involve the personal
qualities or skills of the obligor, in the absence of consent by the obligee.” Eques.
Ridge, 953 N.W.2d at 35 (quotation omitted). We see no basis to conclude the
operation of an energy producing wind facility was a personal service.
-11-
of the anti-assignment provision is that the parties intended to prohibit the Project
Entities from transferring their legal obligations to perform duties as specified in the
PPAs. There is no evidence in the record that the Project Entities transferred any of
their legal obligations under the PPAs. To the contrary, at all times the Project
Entities were obligated to perform their obligations as set forth in the PPAs—
whether or not they had other entities assist in performing certain duties in operating
the wind facilities.
Second, examination of the specific contractual obligations that NPPD claims
were improperly turned over to third parties reveals that the Project Entities’
delegation of tasks to affiliates was consistent with the terms of the PPA. 5 For
example, NPPD highlights the fact that third parties operated and maintained the
wind facilities. But section 4.2 of the PPAs obligated the Project Entities “to
construct, solely own, operate and maintain the [wind facility] in a manner which
will at all times meet the requirements of [the PPAs].” As the district court aptly
recognized, “[a]t no point did the Project Entities delegate the ultimate responsibility
for these duties to any third party. If the PPAs were intended to require the Project
Entities to ‘solely’ meet each enumerated obligation, such as operation of the [wind
facility], then the term ‘solely’ would have preceded each such verb or headed the
list of verbs.” But the PPAs were not written in such a manner, revealing the parties
did not understand the PPAs to forbid the Project Entities from delegating certain
tasks, so long as they remained ultimately responsible for their promised contractual
obligations.
For these reasons, we agree with the district court’s conclusion that “the
Project Entities did not violate section 10.1 or 4.2 by delegating performance of
5
Indeed, as NPPD explained at oral argument, the parties performed with the
understanding that tasks associated with running the wind facilities would be
delegated to upstream affiliates of the Project Entities. Oral Arg. 39:14-40:00. The
problem, in NPPD’s view, was only that the upstream affiliates to which tasks were
delegated became Clearway Energy Group. Id.
-12-
certain duties, because the Project Entities remain ultimately responsible for their
obligations.”
C. Injunction
NPPD also argues for reversal of the district court’s permanent injunction
order. The court reviews issuance of permanent injunctions for abuse of discretion.
Forest Park II, 336 F.3d at 731. An issuing court must consider: “(1) the threat of
irreparable harm to the movant; (2) the state of balance between this harm and the
injury that granting the injunction will inflict on other parties; (3) whether the
movant proves actual success on the merits; and (4) the public interest.” Id.We conclude that the district court did not abuse its discretion in issuing a
permanent injunction to prevent NPPD from terminating the PPAs. The Project
Entities convincingly argued that termination of the PPAs would cause irreparable
harm by both creating events of default with the Project Entities’ multiple investors
and requiring the Project Entities to immediately pursue bankruptcy relief. Second,
in balancing the harms, the Project Entities bear the greater weight of the harm, as
termination of the PPAs would eliminate the Project Entities’ only customer, NPPD,
and only source of income. Third, for the reasons discussed above, the Project
Entities have proven success on the merits because they did not breach the express
terms of the PPAs. Finally, there is a strong argument that the public interest favors
the preservation of the Project Entities over allowing NPPD to escape the benefit of
the bargain. Accordingly, we uphold the district court’s permanent injunction.
III. Conclusion
The judgment of the district court is affirmed.
______________________________
-13-