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Wellons, Inc. v. Eagle Valley Clean Energy, LLC

United States District Court, D. Colorado

May 22, 2017

WELLONS, INC., an Oregon corporation, Plaintiff,
v.
EAGLE VALLEY CLEAN ENERGY, LLC, a Utah limited liability company, EVERGREEN CLEAN ENERGY CORPORATION, a Colorado corporation, CLEARWATER VENTURES, LLC, a Utah limited liability company, DEAN L. ROSTROM, individually, KENDRIC B. WAIT, individually, WESTERN RESOURCES, LLC, a Utah limited liability company, COLORADO FORESTRY FUNDING, LLC, a Delaware limited liability company, and WEST RANGE FOREST PRODUCTS, LLC, a Colorado limited liability company, Defendants. EAGLE VALLEY CLEAN ENERGY, LLC, EVERGREEN CLEAN ENERGY CORPORATION, and CLEARWATER VENTURES, LLC, Counterclaimants,
v.
WELLONS, INC., Counterclaim defendant. EAGLE VALLEY CLEAN ENERGY, LLC, EVERGREEN CLEAN ENERGY CORPORATION, and CLEARWATER VENTURES, LLC, Third-party plaintiffs,
v.
WELLONS GROUP, INC., and MARTIN NYE, Third-party defendants. GCUBE INSURANCE SERVICES, INC., a California corporation, Plaintiff,
v.
WELLONS, INC., an Oregon corporation, Defendant.

          ORDER ON PENDING MOTIONS

          R. Brooke Jackson United States District Judge.

         Defendants move for summary judgment on plaintiff's First, Third, Fifth, Sixth, and Seventh Claims for Relief. ECF No. 246. The motion is granted in part and denied in part. This order also addresses several other pending motions.

         BACKGROUND

         On December 21, 2011 Wellons, Inc. and Eagle Valley Clean Energy, LLC (“EVCE”) entered into an contract for Wellons to design and build a biomass power plant in Gypsum, Colorado. The parties memorialized their agreement in the “Amended and Restated Engineer, Procure, and Construct Contract” (“the EPC contract”), and Wellons began work on the facility.

         On October 20, 2014, after a payment dispute arose, Wellons recorded a mechanic's lien on the facility's property for $14, 441, 874.31 plus interest. ECF No. 246-8 at 1. Wellons recorded an amended lien on December 16, 2014. ECF No. 246-9 at 1.

         On June 12, 2015 Wellons brought this suit against EVCE and several affiliated entities and employees, including Evergreen Clean Energy Corporation (“Evergreen”), Clearwater Ventures, LLC (“Clearwater”), Western Resources, LLC (“Western”), Colorado Forestry Funding, LLC (“CFF”), West Range Forest Products, LLC (“WRFP”), Dean Rostrom, and Kendric Wait. ECF No. 1. Wellons filed its third amended complaint a year later on June 21, 2016. ECF No. 139. This complaint raises seven claims for relief: (1) breach of contract against EVCE; (2) default of a promissory note against Evergreen; (3) foreclosure of a mechanic's lien against EVCE and Clearwater; (4) unjust enrichment against EVCE, Evergreen, and Clearwater; (5) fraudulent transfers against all defendants; (6) civil conspiracy against all defendants; and (7) breach of directors' duties against Mr. Rostrom and Mr. Wait. Defendants now move for summary judgment on Wellons' First, Third, Fifth, Sixth, and Seventh Claims. ECF No. 246. The motion has been fully briefed. See ECF Nos. 281, 287.

         STANDARD OF REVIEW

         The Court may grant summary judgment if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party has the burden to show that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving party must “designate specific facts showing that there is a genuine issue for trial.” Id. at 324. A fact is material “if under the substantive law it is essential to the proper disposition of the claim.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998). A material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court will examine the factual record and make reasonable inferences in the light most favorable to the party opposing summary judgment. Concrete Works of Colo., Inc. v. City & Cnty. of Denver, 36 F.3d 1513, 1517 (10th Cir. 1994).

         ANALYSIS

         I. DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT.

         Defendants move for summary judgment on Wellons' claims for breach of contract, mechanic's lien foreclosure, fraudulent transfers, civil conspiracy, and breach of directors' duties. I will address each issue in turn.

         A. Breach of Contract.

         The validity of Wellons' breach of contract claim depends on the meaning of the EPC contract. The EPC contract specifies that it is governed by Utah law. ECF No. 246-1 at 73. Under Utah law, the primary goal of contract interpretation is to ascertain the intent of the parties at the time of contracting. Equine Assisted Growth & Learning Ass'n v. Carolina Cas. Ins. Co., 266 P.3d 733, 736 (Utah 2011). When contractual language is unambiguous, the parties' intentions are determined from the contract's plain meaning as a matter of law. Reighard v. Yates, 285 P.3d 1168, 1177 (Utah 2012). A contractual term is ambiguous if it is capable of more than one reasonable interpretation. Daines v. Vincent, 190 P.3d 1269, 1275 (Utah 2008). Extrinsic evidence may be admitted to support a plausible claim of textual ambiguity. Id. at 1278. When a contract is ambiguous, summary judgment is appropriate only if the evidence, viewed in the light most favorable to the nonmoving party, leaves no issue of material fact to be resolved. Peterson v. Sunrider Corp., 48 P.3d 918, 927 (Utah 2002).

         Defendants argue that the undisputed evidence shows Wellons did not perform its own contractual duties and thus cannot maintain an action for breach of contract. A prima facie case for breach of contract requires: “(1) a contract, (2) performance by the party seeking recovery, (3) breach of the contract by the other party, and (4) damages.” Bair v. Axiom Design, L.L.C., 20 P.3d 388, 392 (Utah 2001). Regarding performance by the party seeking recovery, only a material breach will excuse further performance by the other party. McArthur v. State Farm Mut. Auto. Ins. Co., 274 P.3d 981, 987 (Utah 2012). Therefore, “[n]ot every minor failure justifies nonperformance and rescission of the contract.” Saunders v. Sharp, 840 P.2d 796, 806 (Utah Ct. App. 1992). Such a breach “must be something so substantial that it could be reasonably deemed to vindicate the other's refusal to perform; and this is a matter of affirmative excuse or justification, which the party so claiming has the burden of demonstrating.” Zion's Properties, Inc. v. Holt, 538 P.2d 1319, 1321 (Utah 1975). Utah courts have evaluated whether a breach is material by applying the Restatement of Contract's five factors:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; [and]
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Cross v. Olsen, 303 P.3d 1030, 1036 (Utah Ct. App. 2013) (quoting Restatement (Second) of Contracts § 241 (1981)); see also, e.g., Grassy Meadows Sky Ranch Landowners Ass'n v. Grassy Meadows Airport, Inc., 283 P.3d 511, 518 (Utah Ct. App. 2012) (same); GeoNan Properties, LLC v. Park-Ro-She, Inc., 263 P.3d 1169, 1175 n.6 (Utah Ct. App. 2011) (same).

         1. Formal Notice of Final Completion.

         First, defendants assert that Wellons committed a material breach by failing to comply with the EPC contract's process for determining if Wellons has achieved “Final Completion” of the project. Section XI.E.5 of the EPC contract provides that Wellons “shall . . . notify” EVCE in writing when it believes it has achieved Final Completion. ECF No. 246-1 at 57. EVCE must then determine whether Final Completion has been achieved, and it must notify Wellons of its determination. Id. If EVCE informs Wellons that Final Completion has not been achieved, then Wellons must remedy the deficiencies and resubmit notice of Final Completion. Id. The parties may repeat this process until EVCE determines that Final Completion has been achieved, or either party may instead invoke the EPC contract's dispute resolution process. Id.

         Wellons concedes that it did not provide written notice of Final Completion, but it contends that defendants were not prejudiced by its nonperformance of this contractual duty. ECF No. 281 at 4. I agree. Section XI.E.5's written notice requirement was not a material provision of the EPC contract. If Wellons adequately completed the project, then informal notice of this result would not deprive EVCE of the benefit the company expected to receive; informal notice would forfeit Wellons' claim to millions of dollars if it constituted a material breach; and such notice would still comport with the standards of good faith and fair dealing. See Restatement (Second) of Contracts § 241 (1981). It is therefore a “minor failure” rather than a material breach.

         In defendants' view, Wellons' failure to adhere to Section XI.E.5 “deprives [EVCE] of its right to a completed, operational plant before it must pay any final amounts to Wellons.” ECF No. 246 at 7-8. Not so. If Wellons did not substantially perform under the contract, then it is not entitled to final payment. Conversely, if Wellons did substantially perform, then it is entitled to payment less “any cost or other loss that [it] has avoided by not having to perform.” Ford v. Am. Exp. Fin. Advisors, Inc., 98 P.3d 15, 26 (Utah 2004) (emphasis omitted) (quoting Restatement (Second) of Contracts § 347 (1981)). Wellons' compliance with this notice provision might have helped avoid a lawsuit, but, standing alone, it would not have changed the fact that Wellons did or did not achieve Final Completion.

         Defendants also argue that they were disadvantaged because Wellons' repair warranty extends “for a period of one (1) year from the date of Final Completion, ” and its liability insurance “shall be maintained without interruption from the date of commencement of the Work until Final Completion of the Work.” ECF No. 246 at 8 n.8 (quoting ECF No. 246-1 at 54, 61). Yet defendants do not contest that EVCE knew Wellons believed it had achieved Final Completion in the spring of 2014. See ECF No. 287; see also ECF No. 281 at 4; ECF No. 281-10 at 2 (alerting Mr. Rostrom and Mr. Wait on February 27, 2014 that Wellons is “in a safe position to declare final completion . . . once we get through the 30 day test”); ECF No. 283 at 5 (informing Mr. Rostrom and Mr. Wait on March 27, 2014 that the facility successfully completed this 30-day test, and noting that “[t]he facility has been accepted for operation under all project documents”). If EVCE had actual knowledge of Final Completion, then Wellons' failure to provide formal notice had no effect on EVCE's enjoyment of Wellons' repair warranty and liability insurance. And even if defendants claimed that they did not have actual knowledge, then we would have a fact dispute that could not be resolved on summary judgment. Summary judgment is therefore denied on this question.

         2. Achievement of Final Completion.

         Next, defendants contend that Wellons did not achieve Final Completion. The EPC contract states that Wellons cannot achieve Final Completion until the remaining items on a defined “Punch List, ” “taken as a whole and in [EVCE's] commercially reasonable discretion, ” are “not estimated to require a cost to complete in excess of $400, 000.” ECF No. 246-1 at 56. Defendants cite three pieces of evidence for its view that this limit was exceeded.

         First, EVCE's engineer concluded at an unspecified time, presumably in October 2014, that the Punch List items would cost more than $400, 000 to complete. ECF No. 246-2 at ¶ 8. But this opinion is disputed. On February 27, 2014 Wellons told Mr. Rostrom and Mr. Wait that it projected to have some Punch List items remaining, but that the cost of these items would not exceed $400, 000. ECF No. 281-10 at 2. On October 27, 2014 Wellons wrote Mr. Rostrom that some of the items EVCE alleged were incomplete “have either been completed or are not within Wellons' scope of work.” ECF No. 281-14 at 3. And on November 4, 2014 Wellons ...


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