Eplet, LLC v. DTE Pontiac N., LLC

• Citation: 984 F.3d 493
• Decision Date: 05 January 2021
• Docket Number: No. 20-1434,20-1434
• Parties: EPLET, LLC; Racer Properties LLC, Plaintiffs-Appellants, v. DTE PONTIAC NORTH, LLC; DTE Energy Services, Inc., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

984 F.3d 493

EPLET, LLC; Racer Properties LLC, Plaintiffs-Appellants,

v.DTE PONTIAC NORTH, LLC; DTE Energy Services, Inc., Defendants-Appellees.

No. 20-1434

United States Court of Appeals, Sixth Circuit.

Argued: December 2, 2020

Decided and Filed: January 5, 2021

ARGUED: Richard B. Phillips, Jr., THOMPSON & KNIGHT LLP, Dallas, Texas, for Appellants. Peter S. Partee, Sr., HUNTON ANDREWS KURTH LLP, New York, New York, for Appellees. ON BRIEF: Richard B. Phillips, Jr., Michael V. Blumenthal, Bruce J. Zabarauskas, THOMPSON & KNIGHT LLP, Dallas, Texas, Frances Belzer Wilson, DAWDA, MANN, MULCAHY & SADLER, PLC, Bloomfield Hills, Michigan, for Appellants. Peter S. Partee, Sr., Robert A. Rich, HUNTON ANDREWS KURTH LLP, New York, New York, Joel C. Bryant, MILLER, CANFIELD, PADDOCK & STONE, P.L.C., Ann Arbor, Michigan, for Appellees.

Before: MOORE, GILMAN, and GRIFFIN, Circuit Judges.

GRIFFIN, Circuit Judge.

This alleged breach-of-contract case arises out of General Motors's ("GM") bankruptcy. In 2007, GM sold a power plant to an energy company, DTE Energy Pontiac North, LLC ("DTEPN"). GM also leased the land under the plant to DTEPN for ten years. For its part, DTEPN agreed to sell utilities produced at the plant to GM, to maintain the plant according to specific criteria, and to take care of any environmental issues caused by the plant. DTEPN's parent company, DTE Energy Services, Inc., ("DTE Energy")¹ guaranteed that DTEPN would meet GM's utility needs and its environmental and maintenance responsibilities, or DTE Energy itself would step in to fulfill DTEPN's obligations.

Two years later, GM filed for bankruptcy. GM and DTEPN agreed to GM's rejection of the above contracts, but DTEPN exercised its right as a tenant to continue occupying the power plant's grounds. As part of GM's reorganization, an environmental trust was created to assume ownership of some of GM's industrial property, including the land occupied by DTEPN.

DTEPN remained in possession of the premises until the lease expired. At that time, DTEPN turned the land over to the trust, which discovered that DTEPN had allowed the power plant to fall into disrepair and contaminate the trust's property. The trust sued DTEPN and DTE Energy for breach of contract and various other claims.

The trust's claims against DTEPN are not before us. Instead, we focus on the trust's attempts to hold DTE Energy responsible for its subsidiary's alleged wrongs. As relevant here, the district court dismissed the claims against DTE Energy because (1) the trust's allegations did not support piercing the corporate veil under Michigan law, and (2) DTE Energy's guaranty terminated after GM rejected the associated contracts in bankruptcy. We conclude that the district court erred in both of its rulings. Accordingly, we REVERSE the district court's dismissal of Plaintiffs’ amended complaint regarding DTE Energy; REVERSE the district court's dismissal of Plaintiffs’ breach-of-Associated-Agreements claim regarding DTE Energy; and REMAND to the district court for proceedings consistent with this opinion.

I.

A.

GM owned a power plant ("the Powerhouse"), which provided steam, compressed air, and electricity to one of its factories in Pontiac, Michigan. In 2007, GM, DTEPN, and DTE Energy entered into five contracts concerning the Powerhouse's future: (1) an asset purchase agreement wherein DTEPN purchased the Powerhouse and its generation equipment; (2) a ten-year lease of the land under the Powerhouse to DTEPN; (3) a utility services agreement wherein DTEPN agreed to supply utilities to GM and to adhere to certain maintenance and environmental covenants; (4) a guaranty from DTE Energy that DTEPN would fulfill all of its obligations arising from the utility services agreement; and (5) an environmental indemnity agreement wherein DTEPN agreed to indemnify GM for any environmental damage caused by its operation of the Powerhouse. We refer to three of these contracts (the asset purchase agreement, the lease, and the utility services agreement) collectively as the "Associated Agreements." When referring to all five contracts, we use the term "Project Contracts."

The Associated Agreements each contained a provision confirming that the Project Contracts were executed as part of a single "integrated" transaction, and that each agreement was vital to the others:

This Agreement and the other Project Contracts collectively memorialize one integrated transaction that has been set forth in multiple agreements for organizational convenience only. Each Party acknowledges and agrees that each Project Contract is vital to the operation of such transaction and that it would not have entered into any of the Project Contracts if each of the other Project Contracts had not been entered into as well.

Under the asset purchase agreement, GM sold the Powerhouse and its equipment to DTEPN for $2 million. The Powerhouse included, among other things, the building's structure, a coal-fired boiler, a circulating bed boiler, natural gas boilers, air compressors, fuel-handling systems, a steam turbine, cooling towers, and other power-generating equipment.

Under the lease, GM rented the land under the Powerhouse to DTEPN for ten years. Rent was $1 per year as long as DTEPN provided utilities to GM under the utility services agreement. If the utility services agreement terminated, the parties agreed to negotiate a "triple net lease" that would include rent "at fair market values." If these negotiations failed, or stalled for more than 180 days, the lease would terminate. The lease required DTEPN to keep the Powerhouse in "good order, condition and repair, casualty and reasonable wear and tear excepted" and prohibited DTEPN from committing waste on the Powerhouse's grounds or related easements. When the lease ended, DTEPN was required to surrender the Powerhouse's grounds to GM "in the same condition" as when the lease began. The lease also provided that, within 90 days after termination, DTEPN was required to "remove from the [grounds] any portion of the [Powerhouse] and any other equipment and personal property owned by [DTEPN] or parties other than [GM]."

Under the utility services agreement, DTEPN agreed to sell steam, compressed air, and electricity to GM "at the amounts required" by the nearby factory under a set pricing model. GM was also required to pay certain monthly fees "whether or not [it] received [ ] the Utility Services" that month. Once the factory's needs were met, DTEPN could sell utilities to third parties. DTEPN was required to maintain and repair the Powerhouse consistent with an express schedule. DTEPN was solely responsible for "Facility Maintenance" and for the "operation, repair and maintenance" of the Powerhouse. The agreement required DTEPN to operate the Powerhouse "in accordance with Prudent Industry Standards." The agreement also required DTEPN to "comply with all applicable Environmental Laws covering DTEPN's operations" on the Powerhouse's grounds, and to remediate any environmental damage caused by DTEPN's management of hazardous materials on the property.

Only GM and DTEPN signed the utility services agreement. However, DTE Energy executed a parental guaranty in which it "unconditionally and irrevocably guarantee[d] to [GM] and its successors and assigns, the due and punctual performance of, and compliance with, all obligations, covenants, terms and conditions to be performed or complied with by DTEPN, pursuant to [the] Utility Services Agreement."

Under the environmental indemnity agreement, DTEPN agreed to indemnify GM against certain Powerhouse-related costs that arose from any third-party claims against GM, or that were reasonably incurred by GM to comply with environmental laws or protect human life or the environment.

B.

Shortly after the Project Contracts were executed, the Great Recession took its toll on the American car industry. In 2009, GM filed for Chapter 11 bankruptcy. Within two years, GM closed its factory near the Powerhouse. No longer in need of the Powerhouse's services, GM moved in bankruptcy court to reject its utility services agreement with DTEPN under 11 U.S.C. § 365(a).

DTEPN objected to GM's rejection motion, arguing that the utility services agreement could not be rejected alone because the Associated Agreements were a single, integrated contract, the components of which could not be severed from each other under Michigan law. The parties negotiated and ultimately agreed to GM's rejection of the asset purchase agreement, the lease, and the utility services agreement. The bankruptcy court entered an order consistent with this stipulation, deeming these three contracts rejected, which allowed DTEPN to file an unsecured claim for damages arising from GM's breach of the contracts. DTEPN also reserved its right as a tenant to retain possession of the leased premises under 11 U.S.C. § 365(h).

In March 2011, the bankruptcy court confirmed GM's reorganization plan, which included an "Environmental Consent Decree and Settlement Agreement" that had been entered into by GM, its affiliates, and federal, state, and local governments. Under the reorganization plan, the Revitalizing Auto Communities Environmental Response Trust ("RACER")² was created to "cleanup and position for redevelopment certain industrial plants and other properties formerly owned by GM." RACER assumed ownership of some GM properties, including the land leased to DTEPN. Once the property was transferred to RACER, GM had "no further liability, role, or residual interest" in that land.

After the rejection of the Associated Agreements, DTEPN elected to remain in possession of the Powerhouse's grounds under 11 U.S.C. § 365(h)(1)(A)(ii). For the next six years, Defendants "remained in sole and exclusive possession" of the premises. As the end of the lease's term neared, RACER toured the Powerhouse to evaluate its condition. During this inspection, RACER observed lead paint peeling from the walls and asbestos-containing...