Tractebel Energy Marketing v. Aep Power Marketing

• Decision Date: 22 May 2007
• Docket Number: Docket No. 05-5136-cv(XAP).,Docket No. 05-4985-cv(L).
• Citation: 487 F.3d 89
• Parties: TRACTEBEL ENERGY MARKETING, INC., now known as Suez Energy Marketing NA, Inc. ("TEMI"), and Tractebel, S.A., now known as Suez-Tractebel S.A. ("TSA"), Plaintiffs-Counter-Defendants-Appellants Cross-Appellees, v. AEP POWER MARKETING, INC., American Electric Power Company, Inc. and Ohio Power Company, Defendants-Counterclaimants-Appellees-Cross-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

487 F.3d 89

TRACTEBEL ENERGY MARKETING, INC., now known as Suez Energy Marketing NA, Inc. ("TEMI"), and Tractebel, S.A., now known as Suez-Tractebel S.A. ("TSA"), Plaintiffs-Counter-Defendants-Appellants Cross-Appellees, v. AEP POWER MARKETING, INC., American Electric Power Company, Inc. and Ohio Power Company, Defendants-Counterclaimants-Appellees-Cross-Appellants.

Docket No. 05-4985-cv(L).

Docket No. 05-5136-cv(XAP).

United States Court of Appeals, Second Circuit.

Argued: December 14, 2006.

Decided: May 22, 2007.

Michael Lesch, LeBoeuf, Lamb, Greene & MacRae LLP, New York, N.Y. (Theodore J. Fischkin, Randall M. Fox, Stephanie A. Wilkins, on brief), for Plaintiffs-Counter-Defendants-Appellants-Cross-Appellees.

Steven C. Bennett, Jones Day, New York, N.Y. (Bonnie L. Hemenway, Todd S. Swatsler, Robert W. Hamilton, Michael R. Gladman, on brief), for Defendants-Counterclaimants-Appellees-Cross-Appellants.

Before: SACK, SOTOMAYOR, WESLEY, Circuit Judges.

WESLEY, Circuit Judge.

Tractebel Energy Marketing, Inc. ("TEMI") and AEP Power Marketing, Inc. ("AEP") filed opposing complaints in the District Court for the Southern District of New York, each alleging the other side breached a long-term energy contract entered into by the parties on November 15, 2000. TEMI appeals a January 21, 2005 order of the district court (Baer, J.) granting summary judgment for AEP on that count of TEMI's complaint asserting that the contract was unenforceable. TEMI further appeals the district court's August 12, 2005 judgment awarding AEP $122,992,857, plus prejudgment interest, for TEMI's breach of certain provisions in the contract. AEP cross-appeals the district court's denial of damages caused by TEMI's ultimate repudiation of the contract. We affirm in part, vacate in part, and remand for further proceedings.

BACKGROUND

This dispute arises from a contract for the supply of energy products over a twenty-year period. The record is voluminous and complex. Fortunately, the facts have been succinctly, yet comprehensively, set forth by the district court in Tractebel Energy Marketing v. AEP Power Marketing, Nos. 03-6731, 03-6770, 2005 WL 1863853, 2005 U.S. Dist. LEXIS 15972 (S.D.N.Y. Aug. 8, 2005). We therefore provide only a brief overview of the factual background here, supplementing that background in later sections of the opinion as it becomes relevant.

In 2001, AEP and Dow Chemical Company ("Dow") agreed to develop a gas-fired cogeneration facility ("Facility") at the Dow complex in Plaquemine, Louisiana. "Cogeneration" means that the same turbine generating units that produce electricity also produce steam used in Dow's manufacturing processes. AEP agreed to operate the Facility and committed to purchasing the electricity produced.

The amount of energy AEP committed to take from the Facility was immense, and, accordingly, prior to entering the agreement with Dow AEP sought a guaranteed buyer. On November 15, 2000, AEP and TEMI entered into the contract at issue—the Power Purchase and Sale Agreement ("PPSA"). AEP promised to supply energy products to TEMI from the Facility and, in return, TEMI promised to take a minimum amount of those products and make associated payments at prices stipulated in the contract. The collapse of the energy market in 2001-02 significantly diminished the value of the PPSA to TEMI, and TEMI began examining strategies to free itself of its PPSA obligations. When negotiations with AEP proved unavailing, TEMI began preparing for litigation.

The PPSA set a target commercial operation date ("target COD") of May 1, 2003. Construction at the Facility was delayed and actual commercial operation ("actual COD") did not occur until April 2, 2004. As of target COD, and continuing until actual COD, AEP billed TEMI for replacement energy products pursuant to a provision in the PPSA that, in AEP's view, required TEMI to purchase a minimum amount of energy, from the Facility or external sources. Having no need for replacement energy given the state of the energy market, and disputing its obligation to take energy from external sources, TEMI rejected the products offered by AEP. Ultimately, TEMI repudiated the contract and the parties sought judicial resolution of their dispute.

On September 5, 2003, the parties filed complaints against each other in the district court. AEP alleged that TEMI first breached the PPSA by not paying for replacement products, and then repudiated the contract altogether. AEP sought damages for replacement products and for the profits it expected to make had the contract been performed. TEMI claimed that it was under no obligation to pay for replacement products or to compensate AEP for repudiating the contract because the contract was unenforceable. TEMI argued the PPSA was unenforceable for three reasons: (1) the parties were unable to agree to an operations protocol that was expressly contemplated by the PPSA; (2) AEP violated the covenant of good faith and fair dealing; and (3) AEP did not use "reasonable efforts" to obtain Qualified Facility ("QF") certification from the Federal Energy Regulatory Commission ("FERC"), as required by the PPSA. TEMI further argued that, even if the PPSA were enforceable, TEMI was under no obligation to take and pay for replacement energy and capacity prior to actual COD. TEMI also made a motion for a primary-jurisdiction referral to FERC to determine the validity of the Facility's QF certification.

After a hearing, the district court, in an order entered November 3, 2004, denied TEMI's motion for a primary-jurisdiction referral. Although the court did not explain its reasoning in the order, it suggested during the hearing that the only issue before it was whether AEP had exerted "reasonable efforts" to obtain QF status, a matter it was competent to decide without input from FERC. On September 22, 2004, AEP made a motion for summary judgment with respect to Count I of TEMI's complaint—that the PPSA was nothing more than an unenforceable agreement to agree—and, on January 21, 2005, the district court granted the motion. The district court held that the PPSA was an enforceable contract, despite the failure to reach agreement on the protocol. Subsequently, the district court conducted a bench trial in March and April 2005. During the trial, the court granted judgment for AEP pursuant to Federal Rule of Civil Procedure 52(c) on the QF status issue. It concluded that AEP had exerted reasonable efforts to obtain and maintain QF status because it had successfully obtained this status and had not used fraudulent means to do so. At the close of trial, the court rejected TEMI's remaining contentions, finding that AEP did not act in bad faith at any point during its relationship with TEMI. The court held, therefore, that TEMI was not free from obligation under the PPSA. The district court awarded AEP damages for replacement products, but declined to award AEP further damages for lost profits incurred as a result of TEMI's repudiation of the contract, reasoning that such profits were not determinable with a sufficient degree of certainty.

On appeal, TEMI asserts that the district court erred in finding that (1) the PPSA was enforceable, (2) AEP did not breach the covenant of good faith and fair dealing, (3) AEP used reasonable efforts to obtain QF certification, and (4) TEMI was liable for replacement products in the pre-COD period. In its cross-appeal, AEP claims it is entitled to damages for TEMI's repudiation of the PPSA. For the reasons stated below, we affirm in part, vacate in part, and remand to the district court.

DISCUSSION

I. Whether the PPSA is Enforceable

Section 9.1 of the PPSA directs the parties to enter into a "mutually agreeable" Dispatch/Operations Coordination Protocol ("Protocol") that "set[s] forth the detailed requirements for notice, forecast, scheduling, dispatch, operation, maintenance, maintenance coordination, approvals and other matters related to the operations and maintenance (including outages) of the Project and the sale and delivery of the Products to Buyer." PPSA § 9.1. Count I of TEMI's complaint sought declaration that the PPSA was unenforceable because the parties never agreed to a Protocol. Compl. ¶ 24. TEMI argues that the essential purpose of the PPSA—the sale and delivery of energy products to TEMI—could not be accomplished without agreement on the logistical details the Protocol was to address. In TEMI's view, the details reserved for the Protocol were material terms. In the absence of agreement on these terms, TEMI argues, the PPSA was merely an unenforceable "preliminary agreement."

The district court found that the PPSA was "comprehensive" and "incorporate[d] all material terms of the 20-year power purchase agreement." Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., Nos. 03-6731, 03-6770, 2005 WL 146807, at *4, 2005 U.S. Dist. LEXIS 869, at * 12 (S.D.N.Y. Jan. 21, 2005). "It contains no less than 165 defined terms, clearly specified products, delivery, prices, payment, credit guaranties, as well as terms relating to the operations and maintenance of the facility. Perhaps more importantly, the PPSA sets out both conditions precedent and subsequent and termination rights— none of which mention[s] the failure to agree upon a Protocol." Id. The district court also noted that in three separate locations the PPSA indicates that it is a binding agreement.¹ Id. at *5, 2005 U.S. Dist. LEXIS 869, at *13. Upon AEP's motion, the district court granted summary judgment on Count I of TEMI's complaint.

Summary judgment is appropriate where there is no genuine issue of material fact and, based on the undisputed facts, the moving party is entitled to judgment as a matter of law. Beth Israel Med. Ctr. v. Horizon Blue Cross and Blue Shield of New Jersey, Inc., 448 F.3d 573, 579 (2d Cir.2006). We review a grant of summary judgment de novo. Id. On the question of whether the PPSA is enforceable, neither party claims...