In re Calpine Corporation, Case No. 05-60200 (BRL) (Bankr. S.D.N.Y. 5/7/2009), Case No. 05-60200 (BRL)
| Decision Date | 07 May 2009 |
| Docket Number | No. 08-1251(BRL),Case No. 05-60200 (BRL),08-1251(BRL) |
| Parties | In re: CALPINE CORPORATION, et al., Chapter 11 Case, Debtor. CALPINE ENERGY SERVICES, L.P., Plaintiff, v. RELIANT ENERGY ELECTRIC SOLUTIONS, L.L.C., Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Michael S. Etkin, John K. Sherwood, John R. Middleton Jr., LOWENSTEIN SANDLER PC, Attorneys for Defendant, Reliant Energy Electric Solutions, L.L.C.
Richard M. Cieri, David R. Seligman (admitted pro hac vice) KIRKLAND & ELLIS LLP, Citigroup Center, New York, Attorneys for Plaintiff, Calpine Energy Services, L.P.
Before the Court is the motion for summary judgment (the "Motion") filed by Reliant Energy Electric Solutions, L.L.C. ("Reliant"), defendant in the above-captioned adversary proceeding, seeking to dismiss the adversary complaint (the ") of Calpine Energy Services, L.P. ("Calpine") arising out of a Master Power Purchase and Sale Agreement (the "Master Agreement"). Reliant contends that pursuant to section 5.5 of the Master Agreement, Calpine failed to timely challenge its calculation of damages, and is thereby precluded from bringing any causes of action challenging Reliant's claims. Calpine objects to Reliant's Motion and asserts, inter alia, that section 5.5 of the Master Agreement is unenforceable and does not bar any claims asserted by Calpine against Reliant. For the reasons set forth below and at the hearing held on May 6, 2009, the Motion is denied.
On March 1, 2003, Reliant and Calpine entered into the Master Agreement. The Master Agreement specified the general terms and conditions under which Calpine and Reliant could execute forward transactions for the purchase and sale of various energy products ("Transactions"). Pursuant to the Master Agreement, Reliant and Calpine entered into six Transactions whereby Reliant would receive specified energy products and ancillary services from Calpine in return for specified capacity and energy payments. Both parties acknowledged in the Master Agreement that each was a "forward contract merchant" and that each Transaction was a "forward contract" as defined by section 101 of the Bankruptcy Code (the "Code").
The terms of the Master Agreement currently at issue are set forth in Article 5. Section 5.2 of the Master Agreement allowed either party to terminate all Transactions upon an "Event of Default," defined to include, inter alia, the bankruptcy of either party. Reliant and Calpine agreed that upon an Event of Default, the Non-Defaulting party could declare an Early Termination Date, accelerate all amounts due, and liquidate and terminate all executed Transactions. Master Agreement, § 5.2.
Article 5 also established the procedure by which the parties would reconcile and resolve their outstanding rights and obligations under the Transactions in the event of an Early Termination Date. First, section 5.2 of the Master Agreement directed "[t]he Non-Defaulting Party [to] calculate, in a commercially reasonable manner, a Settlement Amount1 for each such Terminated Transaction as of the Early Termination date." Master Agreement, § 5.2 (emphasis added). Next, the Non-Defaulting Party was required to net out the Settlements due to both the Non-Defaulting Party and the Defaulting Party to a single liquidated amount (the "Termination Payment"). Master Agreement, § 5.3. More importantly, section 5.4 of the Master Agreement required the Non-Defaulting Party to disclose the amount of the Termination Payment to the Defaulting Party, and provide "a written statement explaining in reasonable detail the calculation" of the Termination Payment. Master Agreement, § 5.4 (emphasis added).
Finally, Article 5 set forth the procedure and timetable for raising any disputes with respect to the Termination Payment. In particular, section 5.5 provided that:
If the Defaulting Party disputes the Non-Defaulting Party's calculation of the Termination Payment . . . the Defaulting Party shall, within two (2) Business Days of receipt of Non-Defaulting Party's calculation of the Termination Payment, provide the Non-Defaulting Party a detailed written explanation of the basis for such dispute . . . .
Master Agreement, § 5.5 (emphasis added).
On December 20, 2005, Calpine Corporation and its affiliate debtors filed their voluntary chapter 11 bankruptcy petitions. Shortly thereafter, on December 30, 2005, Reliant provided written notice to Calpine declaring the filings an Event of Default as defined by the Master Agreement, and designated January 4, 2006 as the Early Termination Date of the six prepetition Transactions (the "Terminated Transactions").
Consistent with the Master Agreement, on January 26, 2006, Reliant sent Calpine a letter ("Termination Payment Letter") stating that it had calculated the Settlement Amount for the Terminated Transactions to be $62,270,804.00. The Termination Payment Letter further stated that the Termination Payment due to Reliant from Calpine was $2,041,232.00, which represented the difference between Reliant's calculation of the liquidated value of the Terminated Transactions, and amounts Reliant owed to Calpine ($60,279,572.00) for power and services Capline provided to Reliant as of the Early Termination Date. Most importantly, the letter did not provide any information regarding the methodology used by Reliant in calculating the Termination Payment. Instead, the letter simply listed the alleged value of each Terminated Transaction.
The next day, on January 27, 2006, Calpine sent a letter to Reliant acknowledging receipt of the Termination Payment Letter and expressly reserving its right to dispute the Termination Payment. Thereafter, on July 27, 2006, Reliant filed an unsecured, non-priority, proof of claim in the bankruptcy proceeding.
Calpine's Dispute Of The Commercial Reasonableness Of Reliant's Termination Payment Calculation And Efforts Between The Parties To Resolve Their Dispute.
Shortly after Calpine received the Termination Payment Letter, the parties began to engage in informal discussions aimed at resolving their dispute with respect to the Termination Payment amount. See Pl.'s Mem. of Law in Opp'n ("Opposition"), Ex. 10. Ultimately, in June 2007, at Reliant's request, Reliant and Calpine entered into a Non-Disclosure Agreement (the "NDA") to govern the exchange of the parties' respective proprietary information concerning the methodology used to calculate the Termination Payment. The NDA's stated purpose was to facilitate "discussions regarding the methodology used to calculate the Termination Payment" and "negotiate a potential settlement" of Reliant's claims. NDA, § 1.
Consistent with the NDA, on September 29, 2007, Reliant sent Calpine an email with attachments containing files supporting Reliant's calculation of the Termination Payment. The email specifically stated that the information was "being provided with a view toward resolution" of the parties' dispute, and invited Calpine to respond with its own Termination Payment calculation. Opposition, Ex. 13. In response, Calpine provided Reliant with its own calculation of the Termination Payment, along with supporting documentation, which purported to establish that Reliant in fact owed Calpine over $10 million. Opposition, Ex. 14—15. Upon receipt, Reliant informed Calpine that its structuring group was analyzing Calpine's calculation. Opposition, Ex. 16.
Unable to resolve its dispute with Reliant, Calpine filed its Complaint in June 2008. The Complaint disputes Reliant's calculation of the Termination Payment and objects to Reliant's proof of claim. Calpine alleges that Reliant breached the Master Agreement by failing to calculate the Termination Payment in a "commercially reasonable manner" and asserts that Calpine is due at least $10,570,532.00 from Reliant. In response, Reliant argues in its motion for summary judgment that Calpine's claims are barred because it failed to dispute the Termination Payment calculation within two business days of receipt pursuant to section 5.5 of the Master Agreement.
Rule 56 of the Federal Rules of Civil Procedure, made applicable herein by Rule 7056 of the Federal Rules of Bankruptcy Procedure, governs the filing of motions for summary judgment and states, in relevant part, that "[t]he judgment sought should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Morenz v. Wilson-Coker, 415 F.3d 230, 234 (2d Cir. 2005).
The moving party bears the burden of demonstrating the absence of any genuine issue of material fact, and all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Celotex Corp., 477 U.S. at 323; see also In re Northwest Airlines Corp., 383 B.R. 283, 291 (Bankr. S.D.N.Y. 2008); Ames Dep't Stores, Inc., 161 B.R. 87, 89 (Bankr. S.D.N.Y. 1993). A fact is considered material if it might affect the outcome of the suit under governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Once the moving party has established its initial burden, the nonmoving party must come forward with competent summary judgment evidence of the existence of a genuine issue of material fact. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); In re WorldCom, Inc., 377 B.R. 77, 85 (Bankr. S.D.N.Y. 2007).
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