Indeck Energy Services, Inc. v. DePodesta

• Citation: 2021 IL 125733,183 N.E.3d 746,451 Ill.Dec. 289
• Decision Date: 29 July 2021
• Docket Number: Docket No. 125733
• Parties: INDECK ENERGY SERVICES, INC., Appellee, v. Christopher M. DEPODESTA et al., Appellants.
• Court: Illinois Supreme Court

2021 IL 125733

183 N.E.3d 746

451 Ill.Dec. 289

INDECK ENERGY SERVICES, INC., Appellee,

v.Christopher M. DEPODESTA et al., Appellants.

Docket No. 125733

Supreme Court of Illinois.

Opinion filed July 29, 2021.

Rehearing denied September 27, 2021

Stuart P. Krauskopf, Kurt A. Kauffman, and Jamie S. Ritchie, of Krauskopf Kauffman, P.C., of Chicago, for appellants.

Steven J. Roeder and Thomas D. Gipson, of Roeder Law Offices LLC, of Chicago, and Robert G. Black, of Law Offices of Robert G. Black, P.C., of Naperville, for appellee.

Michael A. Scodro, Brett E. Legner, and Jed W. Glickstein, of Mayer Brown LLP, of Chicago, for amicus curiae Illinois Chamber of Commerce.

CHIEF JUSTICE ANNE M. BURKE delivered the judgment of the court, with opinion.

¶ 1 Plaintiff, Indeck Energy Services, Inc. (Indeck), sued two of its former employees alleging, inter alia , breach of contract, breach of fiduciary duties, and usurpation of a corporate opportunity. On the breach of contract claim (count I) and the usurpation of a corporate opportunity claim (count V), the Lake County circuit court directed findings in favor of defendants. On the breach of fiduciary duties claim (count IV), the court ruled in favor of plaintiff following a bench trial.

¶ 2 On appeal, the appellate court affirmed the trial court's rulings on counts I and IV but reversed on count V. 2019 IL App (2d) 190043, 445 Ill.Dec. 61, 165 N.E.3d 913. Defendants appeal to this court, challenging the appellate court's reversal of the directed finding on count V. Indeck seeks cross-relief on counts I and IV. For the reasons that follow, we reverse the appellate court's judgment in part and affirm in part.

¶ 3 BACKGROUND

¶ 4 Indeck Energy Services, Inc., is a privately held developer, owner, and operator of independent power generation projects. The company develops, owns, and operates both conventional and alternative fuel power plants. Gerald Forsythe is Indeck's owner and Lawrence Lagowski its president.

¶ 5 Defendant, Christopher M. DePodesta, was vice president of business development for Indeck and, thus, an officer of the company from November 2010 until his resignation on November 1, 2013. In this position, DePodesta had overall responsibility for Indeck's electrical generation project development efforts. His duties included "supervising and assembling the research regarding suitable areas and sites within those areas for development of power generation projects; supervising the due diligence concerning the same; investigating the feasibility of developing certain classes or types of projects; and acquiring the sites, permits, and ultimately implementing the same." DePodesta was also responsible for suggesting new business development ideas and opportunities to Lagowski, as well as suggesting potential new business partners. DePodesta had authority to sign documents and contracts on behalf of Indeck, approve expenditures, and make hiring decisions, all for matters under $10,000.

¶ 6 Defendant, Karl G. Dahlstrom, was director of business development for Indeck from 2011 until his resignation on November 4, 2013. Dahlstrom's duties were the same as DePodesta's. Additionally, his "job was to go find opportunities and bring them back" to Indeck, including opportunities "about development of turbines, [and] potential partners."

¶ 7 DePodesta supervised Dahlstrom and Kelly Inns, an engineer. These three comprised Indeck's business development team. Both DePodesta and Dahlstrom signed confidentiality agreements upon their employment with Indeck.

¶ 8 Defendant Halyard Energy Ventures, LLC (HEV), was founded in late 2010 by Dahlstrom. HEV is a consulting, management, and administration firm that develops electrical power generation projects. DePodesta later became a member of HEV.

¶ 9 Merced Capital (Merced) is a privately held investment advisor that specializes in "alternative investment strategies." Merced Partners III, L.P. (Merced III), is an investment fund and an affiliate of Merced. Merced III, in turn, owns Carson Bay Energy Holdings IV, LLC (Carson Bay). Hendrick Vroege worked simultaneously for both Carson Bay and Merced. In 2013 and at the time of trial, Carson Bay owned two "grey market" GE simple cycle gas turbines.¹

¶ 10 Merced III and HEV formed Merced Halyard Ventures, LLC (MHV), in November 2014 after defendants’ resignations from Indeck, to develop, construct, and operate electrical power generation plants.

¶ 11 In 2011, Indeck's board of directors provisionally approved the development of natural gas power plant projects in a region of Texas known as the Electrical Reliability Council of Texas (ERCOT). Lagowski directed DePodesta and Dahlstrom to determine "whether or not it made sense to develop natural gas [projects] and, if so, where to go to develop." The two, along with Inns, prepared a "Natural Gas Development Plan" (Plan) recommending Indeck develop plants in ERCOT. Defendants identified a site for development in Wharton County, Texas. Additionally, they identified four other sites for development in ERCOT. On February 20, 2012, Lagowski advised the business development team they must speak with him before signing any contract on the Texas projects.

¶ 12 In 2013, Indeck submitted initial screening studies to ERCOT for several potential sites to develop natural gas power generation projects. On March 5, 2013, Indeck and Carson Bay entered into a mutual confidentiality agreement (MCA),² which was signed by DePodesta on behalf of Indeck. The MCA set forth the parties’ intentions in entering into it: "The Parties wish to enter into discussions regarding the development by Indeck of simple cycle gas turbine projects in the Electric Reliability Council of Texas and an opportunity to be presented by the Company [Carson Bay] to Indeck." The MCA precluded the parties from soliciting or hiring each other's employees. On March 7, Dahlstrom sent an e-mail to Daniel Barpal, manager of Carson Bay, copying in DePodesta, stating "Dan, the [MCA] has been executed! Let's build some power plants together." It was Barpal's understanding that Indeck was looking to purchase the turbines. However, at trial, he testified Indeck was only 1 of 100 leads for their sale. Based on this e-mail, a conference call was held the next day between DePodesta, Dahlstrom, Barpal, Vroege, and another Merced employee, Eric Werwie.

¶ 13 In the beginning of March 2013, Lagowski, DePodesta, Dahlstrom, and William Garth, Indeck's director of finance, all understood they would attend the Platts Conference in Las Vegas, Nevada, starting April 8. DePodesta represented to Lagowski that he and Dahlstrom would make initial contacts on behalf of Indeck in contacting suppliers of financial products, potential development partners or project buyers, private equity firms, and grey market turbine providers at the conference. Carson Bay was identified as one of the private equity firms and a grey market turbine opportunity provider. One day after confirming their presence at the conference in Las Vegas with Lagowski, DePodesta and Dahlstrom scheduled a meeting with Vroege, Werwie, and Barpal in Houston for April 9, 2013. They did not advise Lagowski of this change in plans or their scheduled meeting.

¶ 14 On March 28, Lagowski e-mailed the development team advising them that Forsythe and the Indeck board of directors had approved going ahead with the Wharton site as a "proof of concept."

¶ 15 On April 9, DePodesta and Dahlstrom attended the dinner in Houston with Vroege, Barpal, and Werwie. According to Vroege, DePodesta and Dahlstrom told him that Indeck wanted a "free option" on the turbines Carson Bay sought to sell. According to Lagowski's testimony, neither were authorized to state this demand. Lagowski further testified (credibly, according to the circuit court's findings) that Indeck was not looking for a free option, which was an unreasonable position, and he could not think of a quicker way to kill a deal. Vroege, either at the Houston meeting or shortly thereafter, advised DePodesta and Dahlstrom that Merced was interested in contributing the turbines, then worth approximately $60 million, as equity in an Indeck project, in lieu of selling them. Lagowski testified that DePodesta did not advise him of this interest. Instead, DePodesta told Lagowski that Carson Bay would agree to take its turbines off the market for 30 to 60 days for use in an Indeck project if Indeck made a substantial, 10-15% nonrefundable down payment.³ Lagowski testified this option did not make sense because Indeck did not know whether it had a viable project yet and, at this time, Indeck was not in a position to purchase the turbines. At some point, DePodesta advised Carson Bay that Indeck could not "swing" the down payment. On April 16, Dahlstrom e-mailed Barpal, Vroege, Werwie, DePodesta, and Garth, stating Indeck was not able to move forward with the opportunity. Rather, Indeck was looking for a free option to acquire the turbines at a given price during a given time period.

¶ 16 On June 13, 2013, DePodesta, Dahlstrom, and Inns traveled to Texas for meetings to kick off the Wharton project the following day. On this same day, DePodesta e-mailed Dahlstrom an outline of capital startup requirements to start their own company to develop natural gas power generation projects. The following morning, Dahlstrom told Inns she should look for a new job because "he did not think Indeck was committed to development."

¶ 17 On July 22, 2013, Dahlstrom sent an e-mail to Garth requesting "the most up to date pro forma"⁴ for the Wharton project. Garth sent the requested document to Dahlstrom. Dahlstrom then e-mailed Vroege asking if he had time to "catch up regarding the GE equipment." The two spoke later that same day. The trial court found that Dahlstrom's ultimate goal in discussing the turbines was to gauge Carson Bay's interest in partnering with defendants, not Indeck, on the development of bigger power plants. On July 23, Dahlstrom sent an...