DG Whitefield, LLC v. Cate St. Capital, Inc.
| Decision Date | 10 April 2018 |
| Docket Number | No. 218-2015-CV-01406,218-2015-CV-01406 |
| Parties | DG Whitefield, LLC and Indeck Energy-Alexandria, LLC v. Cate Street Capital, Inc., et al |
| Court | New Hampshire Superior Court |
DG Whitefield, LLC and Indeck Energy-Alexandria, LLC (collectively"Whitefield") have filed a Motion for Partial Summary Judgment on its breach of contract claim against the Defendant, Cate Street Capital ("Cate Street"). For the reasons stated in this Order, the Motion is GRANTED, as against Cate Street.1 Whitefield has also filed a Motion to Approve Interlocutory Appeal Statement. Cate Street objects. Whitefield seeks an order approving an interrogatory appeal of this Court's Order of January 25, 2018, concluding Whitefield may not recover attorney's fees on its claim against Cate Street for breach of a covenant not to sue. For the reasons stated in this Order, the Motion is DENIED.
This litigation arises out of Cate Street's development of a 75 MW wood biomass fueled power plant known as Berlin Station, which is located in Berlin, New Hampshire. The lengthy history of this case is set out in this Court's prior orders — particularly in Cate Street Capital, Inc. v. DG Whitefield, LLC, Merrimack County Superior Ct., No.218-2013-CV-00734, at 25 (Apr. 5, 2016) (Order, McNamara, J.), aff'd No. 2016-0355, 2017 WL 695387 (N.H. Jan. 17, 2017) — and is summarized here.
The Plaintiffs in this action are competitors of Berlin Station. In order to proceed with development of the 75 MW biomass plant, Cate Street needed certain approvals from the New Hampshire Public Utilities Commission. Whitefield intervened in the proceedings before the Public Utilities Commission and objected to the approvals. After lengthy litigation, including an appeal of a Public Utilities Commission order in favor of Cate Street to the New Hampshire Supreme Court, the parties entered into a settlement agreement that contained a release and a covenant not to sue running in favor of Whitefield from Cate Street ("the Settlement Agreement"). The Settlement Agreement resulted in Cate Street obtaining the necessary approvals from the Public Utilities Commission so that plans for the 75 MW wood biomass fueled power plant could go forward. To understand the claims in this case, it is necessary to understand the two actions brought by the parties against each other.
In 2013, Cate Street brought a declaratory judgment action against Whitefield (the "Underlying Litigation") in which it alleged that the price support and sales option agreements intertwined within the Settlement Agreement the parties had executed in 2011 were void. It alleged that both the release and covenant not to sue were invalid on the grounds of economic duress. In its Order on summary judgment dated April 5, 2016, the Court dismissed all of Cate Street's claims in the Underlying Litigation, based upon the release. Cate Street appealed that decision to the New Hampshire Supreme Court,which affirmed the dismissal of the Underlying Litigation.
While the Underlying Litigation was pending in the Merrimack County Superior Court, on December 18, 2015, in the Rockingham County Superior Court Whitefield brought a complaint against the Defendants, alleging breach of contract against Cate Street (Count I), abuse of process against Cate Street (Count II), violation of the Consumer Protection Act against Cate Street (Count III), malicious prosecution against Cate Street (Count IV), and civil conspiracy against all the Defendants (Count V), and seeking enhanced compensatory damages (Count VI) and attorney's fees and costs (Count VII).
The action was transferred to the Merrimack County Superior Court on May 17, 2016. By that time, summary judgment had been granted to Whitefield in Cate Street's suit against it, but a Motion to Reconsider was pending. The Motion to Reconsider was denied in June 2016 and Cate Street filed a Notice of Appeal to the New Hampshire Supreme Court on July 7, 2016. In light of the appeal of the Underlying Litigation, this matter was stayed by Order dated October 12, 2016. The case was reactivated once the New Hampshire Supreme Court affirmed the Order in favor of Cate Street.
Once the New Hampshire Supreme Court had resolved the Underlying Litigation, Cate Street moved to dismiss in this matter. On July 10, 2017, the Court granted the Motion, as it relates to Counts III and V regarding violations of the Consumer Protection Act and civil conspiracy, and denied the Motion, as it related to Counts I—II and IV. Whitefield has now moved for partial summary judgment on Count I. Whitefield argues Cate Street breached its covenant not to sue contained in the Settlement Agreementwhen it brought the Underlying Litigation and that Cate Street is collaterally estopped from denying that it brought suit against Whitefield and that the covenant not to sue is valid and enforceable.
A covenant not to sue does not relinquish a right or claim or extinguish a cause of action. State Line Steel Erectors v. Shields, 150 N.H. 332, 338 (2003). Rather, a covenant not to sue recognizes the continuation of the obligation or liability but the party making the covenant not to sue agrees not to assert any right or claim based upon the obligation or liability. Id. A covenant not to sue is a contract, and a breach occurs when a party who has executed such a covenant brings suit. See, e.g., Artvale, Inc. v. Rugby Fabrics Corporation, 363 F.3d 1002, 1004 (2d Cir. 1966).
Cate Street denies it brought suit in violation of the covenant not to sue that was determined to be valid in the Underlying Litigation. Cate Street argues that it did not breach the Settlement Agreement by seeking a declaratory judgment as to "the validity of the Release itself." (Opp'n at 6.) However, it provides no authority for the proposition that seeking a judicial declaration as to the validity of the covenant not to sue does not constitute a suit in violation of the covenant. The entire point of the covenant not to sue was to avoid litigation, not to determine whether or not Cate Street's position was meritorious. State Line Steel, 150 N.H. at 338.
More persuasively, Cate Street also argues that res judicata, and not collateral estoppel, applies to this case and bars Whitefield's claims. Res judicata applies to bar a claim if three elements are met: (1) the parties are the same or in privity with one another; (2) the same cause of action was before the court in both instances; and (3) thefirst action ended with a final judgment on the merits. Finn v. Ballantine Partners, LLC, 169 N.H. 128, 147 (2016). A cause of action "encompasses all theories upon which relief could be claimed on the basis of the factual transaction in question." Id. (quoting In re Estate of Bergquist, 166 N.H. 531, 535 (2014)). Cate Street argues that its effort to set aside the Settlement Agreement as the product of economic coercion and Whitefield's claim that Cate Street's effort to do so amounted to a breach of the covenant "are opposite sides of the exact same coin." (Def.'s Mem. at 5.) Therefore, Cate Street argues that Whitefield was required to bring its claims in the Underlying Litigation and, having failed to do so, is barred by res judicata. Finn, 169 N.H. at 148.
A similar claim was made by the Cate Street in its Motion to Dismiss. There, Cate Street asserted that Whitefield was required to file all its claims, except for the malicious prosecution claim (Count IV), as compulsory counterclaims in the Underlying Litigation. New Hampshire Superior Court Rule 10(a) governs compulsory counterclaims and states as follows:
A pleading shall state as a counterclaim any claim which at the time of serving the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties over whom the court cannot acquire jurisdiction.
At the time, Whitefield argued that its claims were not compulsory counterclaims because "they do not arise out of the same 'transactions or occurrences' as those that gave rise to the Underlying Litigation." In its Order of July 17, 2017, the Court focused on the abuse of process and malicious prosecution claims and agreed that Whitefield's claims concerned the Settlement Agreement and actions that occurred prior to the execution of the Settlement Agreement and held that Whitefield's claims in this actiondo not arise out of the same transactions or occurrences that formed the basis of the Underlying Litigation, and were not compulsory counterclaims. See 412 S. Broadway Realty, LLC v. Wolters, 169 N.H. 304, 314 (2016) (); Parker v. Sadler, No. 1:08-CV-57, 2008 WL 2697376, at *2 (E.D. Tenn. July 1, 2008) (); but see Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246, 1252 (9th Cir. 1987) (). The Court also rejected the claim that New Hampshire Superior Court Rule 10 (a) would have required the claims been brought as compulsory counterclaims, considering the Rule was not in effect at the time Whitefield filed its Answer to Cate Street's claim.
In its opposition to the current motion, however, Cate Street focuses on the distinction between the covenant not to sue and cases involving...
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