Kinetic Sys., Inc. v. Fed. Fin. Bank
| Decision Date | 11 August 2014 |
| Docket Number | Case No. 12–cv–01619–SC |
| Citation | 65 F.Supp.3d 731 |
| Court | U.S. District Court — Northern District of California |
| Parties | Kinetic Systems, Inc., Plaintiff, v. Federal Financing Bank, Defendant. |
Mathew R. Troughton, Scott E. Hennigh, Sheppard Mullin Richter & Hampton LLP, San Francisco, CA, for Plaintiff.
Steven J. Saltiel, San Francisco, CA, for Defendant.
ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
In September of 2009, the U.S. Department of Energy (“DOE”) and Defendant Federal Financing Bank (“FFB”) entered into a series of agreements with Solyndra FAB 2, LLC (“FAB 2”). FAB 2 was wholly owned by Solyndra, Inc. (“Solyndra”), a now-defunct solar panel technology company. FFB purchased a promissory note from FAB 2 in the amount of $535 million, and DOE guaranteed the note. Plaintiff Kinetic Systems, Inc. (“Kinetics”) is a California contractor. It was hired to perform work on a Solyndra factory in Fremont, California. Kinetics alleges that it performed work worth $2,870,372. Solyndra declared bankruptcy and abruptly ceased operations in August of 2011, and Kinetics claims that it was owed $1,187,950 when Solyndra closed. Kinetics brings this action alleging that FFB holds excess construction funds, and that Kinetics has a right to be paid from those funds. Now before the Court are the parties' cross motions for summary judgment. Both motions are fully briefed,1 and the Court finds them suitable for disposition without oral argument pursuant to Civil Local Rule 7–1(b). For the reasons set forth below, Defendant FFB's motion for summary judgment is GRANTED and Plaintiff Kinetics' motion for summary judgment is DENIED.
These motions are heavily dependent on the context of this case. That background includes the nature of FFB and the specific details of FFB's agreements with DOE and FAB 2. The Court laid out these important facts in its order on Kinetics' motion to remand and FFB's motion to dismiss. See Kinetic Sys., Inc. v. Fed. Fin. Bank, 895 F.Supp.2d 983 (N.D.Cal.2012). Because those same facts are critical to these motions as well, the Court reiterates them—with minor variations and updates—here.
Nearly forty years ago, Congress created FFB by passing the Federal Financing Bank Act of 1973, Pub. L. No. 93–224, 87 Stat. 937 (1973) (“FFB Act”), codified at 12 U.S.C. § 2281 et seq. Congress found that “demands for funds through Federal and federally assisted borrowing programs [were] increasing faster than the total supply of credit and that such borrowings [were] not adequately coordinated with overall Federal fiscal and debt management policies.” 12 U.S.C. § 2281. Federal agencies administering increasingly popular loan-guarantee programs were using private lenders to furnish the loans, which had the unintended effect of increasing costs to the federal government and disrupting private finance markets. The purpose of the FFB Act was “to assure coordination of these programs with the overall economic and fiscal policies of the Government, to reduce the cost of Federal and federally assisted borrowings from the public, and to assure that such borrowings are financed in a manner least disruptive of private financial markets and institutions.” 12 U.S.C. § 2281.2 Congress established FFB as a “body corporate ... subject to the general supervision and direction of the Secretary of the Treasury” and made it “an instrumentality of the United States Government.” Id. § 2283.
Congress conferred on FFB a number of general powers. Id. § 2289. One of these is the power “to sue and be sued, complain, and defend, in its corporate name.” Id. § 2289(1). Another is the power “to enter into contracts, to execute instruments to incur liabilities, and to do all things as are necessary or incidental to the proper management of its affairs and the proper conduct of its business.” Id. § 2289(9). One of the functions of FFB is to purchase or sell any obligation issued, sold, or guaranteed by a federal agency. Id. § 2285(a). “Obligation” is a defined term that includes “any note, bond, debenture, or other evidence of indebtedness,” with certain exceptions not relevant here. Id. § 2282(2). FFB often exercises its power to purchase obligations in order to serve as a lender for programs wherein a federal agency (for example, DOE) guarantees a loan to a private entity (for example, a builder of electrical infrastructure). Generally, FFB provides the financing by purchasing a note which the federal agency then guarantees.
The Energy Policy Act of 2005, Pub. L. No. 109–58, 119 Stat. 594 (2005) ( “Energy Policy Act”), codified at 42 U.S.C. § 16511 et seq., authorizes the Secretary of Energy (“Secretary”) to guarantee loans for certain eligible projects, and appropriates funds to cover the costs of such guarantees. See 42 U.S.C. §§ 16511 –14. When the Secretary guarantees 100 percent of a loan, the loan must be funded by FFB (as opposed to a private bank). See 10 C.F.R. § 609.10(d)(4)(i).
In September 2009, FFB and the Secretary entered into a Program Financing Agreement that supplies the general framework for this financing program. See ECF No. 7 (“Willis–Proctor Decl.”) Ex. 1 (“PFA”). The financing process begins when the Secretary designates a borrower. See id. § 2.1. The Secretary's formal designation of a borrower places the Secretary and FFB under three separate commitments: (a) FFB and the Secretary must sign “a Note Purchase Agreement with the particular Borrower ... setting forth the terms and conditions under which FFB will purchase a Note issued by such Borrower”; (b) the Secretary must guarantee the note pursuant to the Energy Policy Act; and (c) FFB must purchase the note pursuant to the FFB Act. Id. § 2.3. Note Purchase Agreements signed by FFB and designated borrowers require the borrower to offer a promissory note to FFB, which FFB then buys, assuming certain preconditions are satisfied. Id. §§ 1.1, 4.1. One of those preconditions is the receipt by FFB of the Secretary's guarantee of the note in the event that a borrower defaults.
The PFA provides that the note shall be a future advance promissory note. Id. § 1.1 (definition of “Note”). The amount of the note represents the maximum amount of financing that a borrower may receive under their particular PFA. Form NPA § 7.3.4.3 The borrower receives the financing by requesting an advance on the note. Id. § 7.2. The borrower usually must specify a third party to receive the advance; in other words, FFB gives money to the borrower's creditors, not to the borrower itself. Id. § 7.2(b).4 The Secretary must approve each request before FFB will disburse the advanced funds. Id. § 7.2(a). Advances may be made “only at such time and in such amount as shall be necessary to meet the immediate payment or disbursing need of the Borrower.” Id.
On September 2, 2009, FAB 2, DOE, and FFB entered into a Note Purchase Agreement. Willis–Proctor Decl. Ex. 2 (“Solyndra NPA”). Under the terms of the Solyndra NPA, FAB 2 agreed to offer FFB a note in the amount of $535 million. The Secretary guaranteed the note and FFB purchased it. The terms of the Solyndra NPA tracked the general terms set forth above. That is, the Secretary guaranteed a $535 million note offered by FAB 2 and purchased by FFB, against which note FAB 2 could request advances of funds which, if approved by the Secretary, FFB would pay directly to FAB 2's creditors according to its “immediate payment or disbursing needs[s],” up to an aggregate maximum of $535 million and repayable with interest.
Kinetics contracted with Solyndra to perform work on a Solyndra factory in Fremont (known as “Building 4,” the “Front–End Project Facility,” or the “Front–End Site”). Kinetics' job was to install tools in the Front–End Site. Kinetics contracted to perform work worth $2,967,762, and had completed work worth $2,870,372 when Solyndra ceased operations. ECF No. 56 (“Mesnickow Decl.”) ¶ 14. Kinetics claims it has been paid $1,682,422, leaving a balance due of $1,187,950, plus interest. Id. ¶ 15. On January 23, 2012, about five months after Solyndra closed, Kinetics served a bonded stop notice upon FFB. ECF No. 1 (“Removal Not.”). A stop notice is “a notice by one who has furnished materials or labor for the construction of improvements, given to the owner of the property, or to a lender of funds to be used for payment of claims against such property, for the purpose of withholding money in the hands of such owner or lender from the contractor so that the materialman or laborer may be paid for his material or services.” See Flintkote Co. v. Presley of N. Cal., 154 Cal.App.3d 458, 462, 201 Cal.Rptr. 262 (1984) (citing Theisen v. Cnty. of Los Angeles, 54 Cal.2d 170, 177–179, 5 Cal.Rptr. 161, 352 P.2d 529 (1960) ); see also Miller & Starr, 10 Cal. Real Est. § 28:78 (3d ed.). A bonded stop notice is a stop notice supported by a bond of 125 percent of the amount of the claim contained in the stop notice.
Kinetics initially brought this action in California Superior Court in Alameda County. FFB removed to federal court. In September of 2012, the Court denied Kinetics' motion to remand, FFB's motion to dismiss, and FFB's alternative motion for summary judgment. ECF No. 41. FFB filed another motion for summary judgment on September 5, 2013, and Kinetics filed its cross-motion the next day. Both motions were fully briefed by the end of September 2013. The Court took the matter under submission and informed the parties that the motions would be decided without oral argument. On October 8, 2013, however, the Court granted FFB's ex parte motion to stay the case during the federal government shutdown. ECF No. 75. The shutdown ended on October 17, but neither party took any action in this case over the next several months. On June 26, the Court directed the parties to file a joint statement regarding the status of...
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