Alta Wind I Owner Lessor C. v. United States

• Docket Number: 13-402,13-917,13-935,13-972,14-47,14-93,14-174,14-175,17-997
• Decision Date: 20 June 2023
• Parties: ALTA WIND I OWNER LESSOR C, et al., Plaintiffs, v. THE UNITED STATES, Defendant.
• Court: U.S. Claims Court

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ALTA WIND I OWNER LESSOR C, et al., Plaintiffs, v. THE UNITED STATES, Defendant.

Nos. 13-402, 13-917, 13-935, 13-972, 14-47, 14-93, 14-174, 14-175, 17-997

United States Court of Federal Claims

June 20, 2023

NOT FOR PUBLICATION

Steven J. Rosenbaum, with whom were Dennis B. Auerbach and Thomas R Brugato, Covington & Burling LLP, all of Washington, DC for plaintiffs.

James E. Weaver, Trial Attorney, with whom were Miranda Bureau Trial Attorney, Andi Leuszler, Trial Attorney, Arie Rubenstein, Trial Attorney, Bart D. Jeffress, Trial Attorney G. Robson Stewart, Assistant Chief, Court of Federal Claims Section, David I. Pincus, Chief, and David A. Hubbert, Deputy Assistant Attorney General, Tax Division, Department of Justice, all of Washington, DC, for defendant.

OPINION AND ORDER

RYAN T. HOLTE Judge.

Plaintiffs, owners of six windfarm facilities in southern California, allege the government underpaid them by over $200 million pursuant to Section 1603 of the American Recovery and Reinvestment Act of 2009. The government filed a counterclaim, asserting it overpaid plaintiffs by over $59 million. Following a trial on the claims, the previously undersigned judge held for plaintiffs. The Federal Circuit reversed, ruling the trial court improperly calculated the basis of the windfarms at the time plaintiffs purchased them and improperly excluded testimony by the government's expert; many fact-intensive issues remain on remand.^[1] This case was transferred to the undersigned on 29 July 2019. Following transfer of the case, the parties engaged in further discovery. This Opinion and Order addresses a discrete issue raised by plaintiffs in their Motion for Partial Summary Judgment: Whether the Section 1603 cash grants-and the indemnities associated with them-are separate grant-ineligible assets to which purchase price should be allocated pursuant to Section 1060 of the Internal Revenue Code. For the following reasons, the Court denies plaintiffs' Motion for Partial Summary Judgment.

I. Factual and Procedural History^[2]

The following factual and procedural history comes from the Court's 18 June 2021 Opinion and Order on the parties' Joint Motion for the resolution of then pending discovery-related issues. See Joint Mot. for Resolution of Pending Disc.-Related Issues, ECF No. 247 ("Joint Disc. Mot.").

Oak Creek Energy Systems ("Oak Creek") partnered with Allco Wind Energy Management Pt. Ltd. ("Allco") in 2006 "to finance, develop, and construct windfarms in the Tehachapi region of California." Alta Wind I Owner Lessor C v. United States, 897 F.3d 1365, 1370 (Fed. Cir. 2018). Oak Creek and Allco entered into a ["]Master Power Purchase and Wind Project Development Agreement["] with Southern California Edison [('SCE')] later that same year, providing "the Oak Creek/Allco subsidiary would develop multiple wind facilities . . . with all of that output to be sold to [Southern California Edison] for a period of roughly 24 years." Alta Wind I Owner-Lessor C v. United States, 128 Fed.Cl. 702, 709 (Fed. Cl. 2016). As part of this arrangement, [SCE] was to enter into separate power purchase agreements ("PPAs") with each . . . windfarm. Alta Wind I, 897 F.3d at 1370.

By June 2008, Oak Creek and Allco had completed development work on the facilities ("the Alta Facilities") but had not begun construction. "Specifically, . . . they had (1) completed environmental studies; (2) secured key transmission and interconnection queue requests in the Tehachapi Renewable Transmission Project . . . (3) secured land rights; (4) begun the permitting process; (5) completed site analysis for turbines and other major equipment; (6) purchased [General Electric] turbines and executed turbine-related contracts; (7) constructed meteorological towers and collected wind data; and (8) secured the Master PPA with SCE." Alta Wind I, 128 Fed.Cl. at 709. Terra-Gen acquired Allco's U.S. wind energy business that same year and proceeded to "complet[e] the development and construction of the Alta Facilities" and execute Oak Creek and Allco's individual windfarm PPA contracts with [SCE]. Alta Wind I Owner Lessor C, 150 Fed.Cl. 152, 155 (Fed. Cl. 2020); Alta Wind I, 897 F.3d at 1370.

Congress enacted The American Recovery and Reinvestment Act ("ARRA") of 2009, Pub. L. No. 111-5, 123 Stat. 115, 364-66, as part of its efforts to strengthen the economy and invest in the nation's infrastructure. Section 1603 of the ARRA provides "a cash grant to entities that 'place[] in service' certain renewable energy facilities." Alta Wind I, 897 F.3d at 1367-68. The grant amount was determined "using the basis of the tangible personal property of the facility (with certain exclusions)." Id. at 1368 (citing [ARRA] § 1603(b)(1)). "Terra-Gen itself was not qualified to receive a [S]ection 1603 payment, as [S]ection 1603(g)(4) barred a 'pass-thru entity' from receiving a grant if any 'holder of an equity or profits interest' in the entity was a nonprofit, and Terra-Gen had some nonprofit equity holders." Alta Wind I, 897 F.3d at 1370.

Unable to receive the [Section] 1603 grants, Terra-Gen proceeded to sell five of the windfarms (Altas I-V) to plaintiffs over a two-year period from 2010 to 2012. Id. at 1371. These sales were sale-leaseback transactions, whereby the windfarms were purchased and then leased back to Terra-Gen by the plaintiffs. Id. Terra-Gen sold a sixth facility outright to one of the plaintiffs in 2012. Id. [After acquiring the six Alta facilities,] "[p]laintiffs appear to have placed each facility into service within weeks of its acquisition" and proceeded to apply for over $703 million in grants through [Section] 1603 "using the unallocated method to determine basis." Id. The Treasury Department required "companies applying for a [S]ection 1603 grant provide an opinion from an independent auditor validating the claimed grant-eligible costs," for which plaintiffs retained KPMG. Id. "KPMG certified that plaintiffs' allocations were fairly stated." Id. The Treasury Department ultimately awarded plaintiffs cash grants of approximately $495 million based on the costs of the facilities' grant-eligible construction and development, instead of plaintiffs' method of allocation using each facility's unallocated basis. Alta Wind I, 150 Fed.Cl. at 156.

"In June 2013, plaintiffs filed separate claims against the government, which were later consolidated, 'seeking over $206 million in additional [S]ection 1603 grants.'" Id. (quoting Alta Wind I, 897 F.3d at 1371[)]. On 31 October 2016, the Court "awarded Plaintiffs damages in the amounts equal to the shortfall between the grant amounts to which Plaintiffs were entitled and the Government awarded." Id. at 722. The Federal Circuit vacated and remanded the case on appeal, holding the purchase prices paid for the Alta Facilities should be "allocated using the residual method" under [IRC Section] 1060. Alta Wind I, 897 F.3d at 1376.

Alta Wind I Owner Lessor C v. United States, 154 Fed.Cl. 204, 207-09 (2021).

On 14 June 2013, plaintiffs filed separate complaints against the government. The complaints, later consolidated, allege the government underpaid plaintiffs pursuant to [Section] 1603 grants. See Compl., ECF No. 1; [6 June 2024] Order, ECF No. 27 [(Wheeler, J.)]; [19 Dec. 2018] Order, ECF No. 196 [Hodges, J.)].^[3] In December 2015, the government counterclaimed, alleging overpayment to plaintiffs in the amount of $58,884,366. Def.'s Mot. to Amend the Pleadings to Add Countercls. Based on Expert Op. [at 10], ECF No. 75 . . . . Th[is] [c]ourt began a nine-day trial on 9 May 2016, and heard the testimony of eleven witnesses, including James Pagano, George Revock, Damon Huplosky, Anthony Johnston, Dr. Edward Maydew, and Dr. Colin Blaydon. Alta Wind I, 128 Fed.Cl. at 707. Th[is] [c]ourt excluded the government's expert, Dr. Parsons, from testifying during the trial after the previously undersigned judge concluded he "attempted to conceal articles he wrote for Marxist and East German publications" and "thereby provided untruthful testimony under oath to the Court." Id. On 24 October 2016, the previously undersigned judge found "the [g]overnment should have used [p]laintiffs' purchase prices, subject to reasonable allocations . . . as basis in calculating [p]laintiffs grants under Section 1603" and awarded plaintiffs $206,833,364. Id. at 722-24. The government appealed, and on 27 July 2018, the Federal Circuit [vacated] and remanded the case to this court. Alta Wind I, 897 F.3d at 1382-83. In remanding the case, the Federal Circuit stated "reassignment [of the case] is appropriate on remand" to "preserve the appearance of fairness." Id. (remanding the case for reassignment pursuant to [Rule] 40.1 [of the Rules of the Court of Federal Claims ('RCFC')]). . . .

On 29 July 2019, this case was reassigned to the undersigned Judge. See Order [Reassigning Case], ECF No. 197. The government filed a motion to dismiss for lack of subject matter jurisdiction on 21 January 2020, and the Court held oral argument on the government's [M]otion on 17 July 2020. See Def.'s Mot. to Dismiss for Lack of Subject Matter Jurisdiction and Memorandum in Support, ECF No. 208[;] Order [Setting Oral Argument ('Arg.')], ECF No. 234. On 17 July 2020[,] the Court further ordered the parties to "file a joint motion for resolution of pending discovery-related issues" . . . . See [17 July 2020] Order, ECF No. 240. . . . The parties filed their "Joint Motion for Resolution of Pending Discovery-Related Issues" on 4 August 2020. See [Joint Disc. Mot.].

. . . The Court denied the government's [M]otion to [D]ismiss on 21 October 2020. See Opinion and Order, ECF No. 264.

Id. at 209-10. The Court granted plaintiffs' discovery requests in its 18 June 2021 Opinion and Order. Id. at...