California Ridge Wind Energy LLC v. United States, 052120 FEDFED, 2019-1463

Docket Nº:2019-1463, 2019-1465
Opinion Judge:TARANTO, CIRCUIT JUDGE.
Party Name:CALIFORNIA RIDGE WIND ENERGY LLC, INVENERGY WIND LLC, BISHOP HILL ENERGYLLC, Plaintiffs-Appellants v. UNITED STATES, Defendant-Appellee
Attorney:John C. Hayes, Jr., Nixon Peabody LLP, Washington, DC, argued for plaintiffs-appellants. Also represented by Brian P. Donnelly. Clint Carpenter, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Bruce R. Ellisen, Richard E. Zucke...
Judge Panel:Before Prost, Chief Judge, Mayer and Taranto, Circuit Judges.
Case Date:May 21, 2020
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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CALIFORNIA RIDGE WIND ENERGY LLC, INVENERGY WIND LLC, BISHOP HILL ENERGYLLC, Plaintiffs-Appellants

v.

UNITED STATES, Defendant-Appellee

Nos. 2019-1463, 2019-1465

United States Court of Appeals, Federal Circuit

May 21, 2020

Appeals from the United States Court of Federal Claims in Nos. 1:14-cv-00250-RHH, 1:14-cv-00251-RHH, Senior Judge Robert H. Hodges, Jr.

John C. Hayes, Jr., Nixon Peabody LLP, Washington, DC, argued for plaintiffs-appellants. Also represented by Brian P. Donnelly.

Clint Carpenter, Tax Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Bruce R. Ellisen, Richard E. Zuckerman.

Before Prost, Chief Judge, Mayer and Taranto, Circuit Judges.

TARANTO, CIRCUIT JUDGE.

California Ridge Wind Energy LLC and Bishop Hill Energy LLC each own a windfarm that was put into service in 2012. Thereafter, each company applied for a cash grant from the federal government, based on specified energy-project costs, under section 1603 of the American Recovery and Reinvestment Tax Act of 2009, Pub. L. No. 111-5, 123 Stat. 306, 364. The United States Department of the Treasury awarded California Ridge and Bishop Hill less than the amounts they had requested, rejecting as unjustified the full amounts of certain development fees included in the submitted cost bases. Each windfarm owner sued the United States in the Court of Federal Claims for the difference between the amounts they had been paid and the amounts allegedly mandated by section 1603. The government counterclaimed, alleging that it had actually overpaid the two firms.

The Court of Federal Claims ruled in favor of the government. California Ridge Wind Energy, LLC v. United States, 143 Fed.Cl. 757, 763 (2019); Bishop Hill Energy, LLC v. United States, 143 Fed.Cl. 540, 545 (2019).1 The sole issue on appeal is whether the two firms proved that their proposed development fees, in the amounts asserted, were properly included in their cost bases. The trial court held that they did not. California Ridge, 143 Fed.Cl. at 762-63. California Ridge and Bishop Hill appeal on that issue, making no separate argument about the amount of development fees ultimately included in the cost basis if the trial court properly rejected their proposed amounts. We affirm.

I

Section 1603 requires the Secretary of the Treasury to "provide a grant to each person who places in service specified energy property to reimburse such person for a portion of the expense of such property . . . ." Pub. L. No. 111-5, § 1603(a). The amount of the grant is the "applicable percentage of the basis of such property," id., § 1603(b)(1), which is the cost of the property, 26 U.S.C. § 1012(a). For "qualified small wind energy property," the applicable percentage is thirty percent. Pub. L. No. 111-5, § 1603(b)(2)(A), (d)(4).

California Ridge and Bishop Hill belong to a family of related entities, which we refer to generally as "Invenergy." Invenergy is in the business of creating windfarms. Generally, Invenergy determines what type of facility will be built, acquires the legal entitlements to construct that facility, and ensures that the facility is properly constructed. Invenergy uses various subsidiaries to perform different functions in the creation task; relevant to this appeal are Invenergy Wind North America LLC (IWNA) and Invenergy Wind Development North America LLC (IWDNA). Invenergy also partly or wholly owns or controls, through various subsidiaries, some of the completed windfarms. California Ridge and Bishop Hill each own a namesake windfarm located in central Illinois. Each firm is controlled by Invenergy and owned through a partnership between Invenergy and Firstar Development (USBank).

Development of the Bishop Hill windfarm began in 2005. Development of the California Ridge windfarm began in 2008. Bishop Hill LLC and California Ridge Wind Energy LLC were formed on August 1, 2006, and September 26, 2008, respectively.

On July 18, 2011, years after development work began, Bishop Hill entered into a development agreement with IWNA. J.A. 14783. The agreement states that "IWNA has provided development services to [Bishop Hill] to assist it in developing the Project," including "negotiating construction financing terms, negotiating the project and operational documents necessary or appropriate for the Project, obtaining permits and performing other services relating to the Project." Id. In exchange for those services, Bishop Hill was obligated to pay IWNA $60 million. Id. California Ridge entered a similar development agreement with IWDNA on February 29, 2012, also long after development of its windfarm began. J.A. 14780. The California Ridge agreement states that "IWDNA has provided and hereby agrees to provide further development services" identical to those listed in the Bishop Hill agreement. Id. In exchange, California Ridge was obligated to pay IWDNA $50 million. Id.

Payment under the Bishop Hill agreement occurred on July 5, 2012-involving a round trip of funds starting and ending with IWDNA. On that day, IWDNA transferred $60 million to Bishop Hill, which then wired $60 million to IWNA-the entity owed the money under the agreement. The same day, IWNA wired $60 million to IWDNA.

Payment under the California Ridge agreement occurred on November 19, 2012-also involving a round trip of funds starting and ending with IWDNA. On that day, IWDNA transferred $50 million to California Ridge, which then wired $50 million back to IWDNA-the entity owed the money under the agreement.

On August 13, 2012, Bishop Hill applied to Treasury for a section 1603 grant totaling $129, 923, 109. To support its request, Bishop Hill submitted a breakdown of its direct and indirect costs. Bishop Hill included the $60 million development fee in the indirect costs of its windfarm and, of that $60 million, allocated $56, 956, 837 to section-1603-qualified property. J.A. 1266.

On November 19, 2012, the same day that it paid IWDNA the development fee, California Ridge applied for a section 1603 grant totaling $136, 858, 980. To support its request, California Ridge submitted a cost breakdown similar to Bishop Hill's. Of the $50 million development fee, California Ridge allocated $49, 315, 067 to section-1603-qualified property. J.A. 1270.

On October 9, 2012, Treasury awarded Bishop Hill $117, 216, 098-which was $12, 707, 011 less than the amount Bishop Hill sought. Treasury explained: The amount requested was reduced because the presented cost basis was higher than open market expectations for projects of this size and in this location and the transaction involved related parties and/or related transactions. The cost basis has been adjusted to allow for base costs plus an appropriate markup (to include reasonable overhead, profit, and, if appropriate, development fees) resulting in a total that more closely...

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