City of Raton v. Ark. River Power Auth.

• Citation: 760 F.Supp.2d 1132
• Decision Date: 12 March 2009
• Docket Number: No. CIV 08–0026 JB/WDS.,CIV 08–0026 JB/WDS.
• Parties: CITY OF RATON, a municipal corporation and political subdivision of the State of New Mexico, Plaintiff,v.ARKANSAS RIVER POWER AUTHORITY, a public power corporation and political subdivision of the State of Colorado, Defendants.
• Court: U.S. District Court — District of New Mexico

760 F.Supp.2d 1132

CITY OF RATON, a municipal corporation and political subdivision of the State of New Mexico, Plaintiff,

v.ARKANSAS RIVER POWER AUTHORITY, a public power corporation and political subdivision of the State of Colorado, Defendants.

No. CIV 08–0026 JB/WDS.

United States District Court, D. New Mexico.

March 12, 2009.

Luis Stelzner, Nannette M. Winter, Sheehan, Sheehan & Stelzner, P.A., Albuquerque, NM, for Plaintiff.Lynn H. Slade, Erin E. Langenwalter, Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, NM, Craig N. Johnson, Fairfield and Woods P.C., Denver, CO, for Defendants.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on the City of Raton's Motion for Leave to Amend the First Amended Complaint, filed January 9, 2009 (Doc. 100). The Court held a hearing on February 26, 2009. The primary issues are: (i) whether Plaintiff City of Raton's Motion should be denied because of undue delay or prejudice to Defendant Arkansas River Power Authority (“ARPA”); and (ii) whether the City of Raton has pled cognizable theories of rescission for unilateral mistake, mutual mistake, and substantial breach. The issue whether the City of Raton has pled cognizable theories of rescission gives rise to several sub-issues that the Court must address. Those issues are: (i) whether the agreements that the City of Raton wishes to rescind are valid contracts amenable to rescission; (ii) whether the Court should analyze the rescission-of-contract claims under Colorado law or under New Mexico law; (iii) whether there is a cause of action for rescission based on unilateral mistake; (iv) whether the misapprehension about the cost of the Lamar Repowering Project constitutes a mistake that would give rise to rescission under either a unilateral mistake or mutual mistake theory; and (v) whether the rescission claim based on any one of the three theories—unilateral mistake, mutual mistake, or substantial breach—would otherwise survive a motion to dismiss such that allowing an amendment to add the claim would not be futile. The Court finds that there has been no undue delay or prejudice in seeking the amendment. The Court finds that Colorado law applies to the evaluation of the proposed rescission claims and that the City of Raton would be able to survive a motion to dismiss on any one of its three contract-based rescission theories. The Court will therefore grant the Motion and permit the City of Raton to amend its Complaint to add the rescission claim.

FACTUAL BACKGROUND

ARPA is a political subdivision of the State of Colorado, formed by six Colorado municipalities and the City of Raton to provide wholesale electric power to its member municipalities. See Motion at 1. The City of Raton entered into the Organic Contract and the Power Sales Agreement forming ARPA in 1979. See Complaint for Declaratory Judgment, Breach of Contract, Misrepresentation, Violation of the New Mexico Constitution and Permanent Injunctive Relief ¶ 10, at 2, filed January 9, 2008 (“Complaint”). Pursuant to the Organic Contract and the Power Sales Agreement, the City of Raton agreed to “purchase and obtain all [of its] wholesale power and energy requirements from [ARPA].” Complaint ¶ 13, at 3 (internal quotation marks omitted). The New Mexico Department of Finance and Administration (“DFA”) approved the Organic Contract on October 31, 1979. See Complaint ¶ 11, at 2. While the Power Sales Agreement has a choice-of-law provision, the Organic Contract does not. The Power Sales Agreement states: “This agreement shall be interpreted, governed, and construed under the laws of the State of Colorado.” See Exhibit 2 to First Amended Complaint, Power Sales Agreement ¶ 24, at 15, filed June 13, 2008 (Doc. 23–6).

The Organic Contract provides a mechanism for approving projects that ARPA chooses to undertake. See Organic Contract § 2.4, at 7. The Organic Contract states: “[T]he Authority, prior to issuing any bonds in connection with a Project or a Reliability Project, as hereinafter defined, will request the approval of the Municipalities for the financing of the Project or the Reliability Project from the proceeds of bonds.” Organic Contract § 2.4, at 7. Before the issuance or sale of bonds to provide funds for a project, the Organic Contract requires ARPA to submit a written notice to each Municipality. See id. § 2.4.2, at 10. The written notice

shall contain a description of the Project or Reliability Project, the projected sources and uses of funds for all aspects of the construction and testing of the Project or Reliability Project, and a statement that, in the opinion of the Authority, the Project or Reliability Project is economically feasible and is necessary for the Authority to meet its commitment to supply the wholesale power and energy requirements of the Municipalities, together with an explanation of the Authority's basis for this opinion.

Organic Contract § 2.4.2, at 10–11. Unless an extension of time applies, the municipalities are required to give notice of approval or disapproval of a project within sixty days after receiving written notice as described in § 2.4.2. See Organic Contract § 2.4.3, at 11. The Organic Contract deems as approval a municipality's failure to provide the written notice of approval or disapproval within the sixty-day time period. See id.

If a municipality disapproves a project, ARPA can proceed with the project and with the issuance of bonds, provided that certain procedures outlined in the Organic Contract are met. See id. § 2.4.4(b) (outlining the manner in which ARPA may proceed with a project where one or more municipalities has disapproved of a project). If ARPA continues with a project that a municipality has disapproved, ARPA must notify the disapproving municipality of its intent to move forward and to issue bonds for the project. See id. § 2.4.4(c), at 12. A disapproving municipality then has two options:

(i) Option One. If a Municipality elects Option One, it will continue to remain a constituent member Municipality of the Authority and it will be entitled to participate in all future Projects or Reliability Projects approved by the Authority, subject, however, to the provisions of this Section 2.4. A Municipality selecting Option One will continue to be obligated to pay to the Authority its proportionate share of all expenses incurred by the Authority, including debt service, for all Projects, Reliability Projects, Planning, Operation, and Maintenance Expenditures and all other proper and appropriate expenses for which the Authority has become obligated up to the time of the effective date of the selection by the Municipality of Option One. Further, the disapproving Municipality electing Option One shall be obligated to pay its proportionate share of all other expenses incurred by the Authority subsequent to its selection of Option One, except those costs, including debt service, directly allocated to the disapproved Project or Reliability Project, as determined by generally accepted accounting principles and the Uniform System of Accounts.

(ii) Option Two. If a Municipality elects Option Two, it will sever its future relationship with the Authority and will not be entitled to participate in any future Projects or Reliability Projects approved by the Authority. A Municipality Selecting Options Two will be entitled to receive power from any Project or Reliability Project that it participated in prior to the selection of Option Two and will continue to be obligated to pay the Authority its proportionate share of all expenses incurred by the Authority, including debt service, for all Projects, Reliability Projects, Planning, Operation and Maintenance Expenditures and all other proper and appropriate expenses for which the Authority has become obligated up to the time of the effective date of the selection by the Municipality of Option Two. Notwithstanding the foregoing, in the event that all other Municipalities unanimously agree to assume the pre-existing obligations as described above, the disapproving Municipality shall be relieved of any other financial obligations to the Authority.

Organic Contract § 2.4.4(c)(i)-(ii).

In 2004, ARPA's board unanimously approved a plan to “repower” an existing natural gas generation facility in Lamar, Colorado, changing the facility into a coal-fired plant and increasing its capacity to 38.5 megawatts. See Exhibit 3 to Motion, Notice of Intent to Commit Funds to Acquire, Construct, and Install the Lamar Repowering Project at 1, dated July 23, 2004 (Doc. 100–7) (“First Notice of Intent to Commit Funds”). ARPA decided to fund the Lamar Repowering Project through “external means (‘permanent financing’) by the issuance of revenue bonds.” Id. As required under the Organic Contract, the First Notice of Intent to Commit Funds provided a projection of the costs for the Lamar Project: “ Estimated Capital Costs. It is presently contemplated that the engineering, procurement, and construction cost of the project (exclusive of interest during construction and bond issuance costs) will be in the range between $61 and $66 million.” First Notice of Intent to Commit Funds at 3.

In response to the terms of the First Notice of Intent to Commit Funds, the City of Raton passed two city ordinances approving the Project and the issuance of bonds that ARPA proposed. In accordance with the ordinances and with the City of Raton's approval, the Organic Contract was amended to reflect the approval of the Lamar Repowering Project and the issuance of bonds for up to $66 million to fund it. See Exhibit 4 to Motion, Third Amendment to Organic Contract Creating and Establishing the Arkansas River Power Authority as a Separate Governmental Entity, dated November 18, 2004 (Doc. 100–8) (“Third Amendment”).

Nearly a year late, on October 17, 2005, ARPA issued a second notice of intent to commit funds for the Lamar Repowering Project,...