U.S. v. Great Plains Gasification Associates
| Citation | 819 F.2d 831 |
| Parties | 4 UCC Rep.Serv.2d 1442 UNITED STATES of America and Berton J. Roth, As Substitute Trustee Under the Mortgage Dated |
| Decision Date | 15 January 1982 |
| Court | United States Courts of Appeals. United States Court of Appeals (8th Circuit) |
Robert A. Helman, Chicago, Ill., for appellants.
Dean S. Cooper, Dept. of Justice, Washington, D.C., for appellees.
Nicholas Spaeth, Atty. Gen., Bismarck, N.D., for intervenor/appellee State of N.D.
Before ROSS, Circuit Judge, FLOYD R. GIBSON, Senior Circuit Judge, and CAHILL, * District Judge.
This appeal is related to a recent decision by this court in United States v. Great Plains Gasification Associates, 813 F.2d 193 (8th Cir.1987). Both appeals arose out of the financing, construction and operation of the Great Plains Coal Gasification Plant in North Dakota, a facility which converts lignite coal into synthetic gas (the project). In this appeal we affirm the district court's 1 order granting summary judgment in favor of the United States which had sued to enforce certain Gas Purchase Agreements on which the future of the project depends.
Great Plains Gasification Associates (Great Plains), a North Dakota partnership formed by four subsidiaries of major energy companies, and an additional investor, built and operated the plant and served as seller of the gas produced by the project. ANR Gasification Properties Company (ANR), MCN Coal Gasification Company (MCN), Tenneco SNG Inc. (Tenneco), Transco Coal Gas Company (Transco) and Pacific Synthetic Fuel Company were the Great Plains partners. The first four of these partners are affiliated with pipeline companies which undertook to buy all of the gas produced by the project. The pipeline companies which entered into Gas Purchase Agreements with Great Plains for this purpose were ANR Pipeline Company (affiliate of ANR), Natural Gas Pipeline Company of America (affiliate of MCN), Tennessee Gas Pipeline Company (affiliate of Tenneco) and Transcontinental Gas Pipe Line Corporation (affiliate of Transco). ANG Coal Gasification Company (ANG), an affiliate of ANR and ANR Pipeline Company, served as project administrator.
Great Plains financed construction of the project through $536 million in equity contributions by its partners and a $1.5 billion loan from the Federal Financing Bank (FFB). The United States Department of Energy (DOE) guaranteed the FFB loan pursuant to the Federal Nonnuclear Energy Research and Development Act of 1974, 42 U.S.C. Secs. 5901-5920 (1982 and Supp.1985).
The Gas Purchase Agreements, all dated January 2, 1982 and virtually identical in content, obligated each of the four pipelines to "take or pay" for a fixed share of the gas produced by the project. Similarly, Great Plains was required to sell all of the gas produced by the facility to the four pipeline companies. The Loan Guarantee Agreement by which the United States through DOE undertook to guarantee the FFB loan expressly conditioned issuance of the guarantee on execution of the Gas Purchase Agreements, among other conditions. 2
Article XIX of the Gas Purchase Agreements entitled Great Plains to "abandon its services" as seller at any time it determined "in its sole good faith judgment, that it [was] not feasible to continue such service" for certain enumerated reasons "or any other reason."
Section 5.03 of the Partners Consent and Agreement between the Great Plains partners and the United States entitled the Great Plains partners to terminate their participation in the project. The only liability to the terminating partners in this event was the loss of equity contributions previously made.
The four pipeline companies and the United States through DOE entered into a Pipeline Affiliates Agreement, dated January 29, 1982. Section 2.02 of this agreement provided that if Great Plains defaulted under the Gas Purchase Agreements, DOE could notify the pipelines that the United States was electing to take over the project and assume Great Plains' obligations. Such notice would suffice to reinstate the Gas Purchase Agreements between the pipelines and the Secretary of DOE or his designee.
By July 1985, the project, although producing synthetic gas, was in financial difficulties primarily because of decreasing market prices for energy. On July 30, 1985, DOE rejected a proposal by the Great Plains partners to restructure the project debt with financial assistance from the United States Synthetic Fuels Corporation.
On August 1, 1985 Great Plains defaulted on its loan payment to the FFB. The Great Plains partners invoked section 5.03 of the Partners Consent and Agreement and terminated their participation in the project. The United States then stepped in, paid the FFB and directed the project administrator, ANG, to continue operations until further notice.
On August 19, 1985, appellant Natural Gas Pipeline Company of America (Natural) sued the United States in two courts, taking the position that the Great Plains partners' termination of their participation in the project had rendered the Gas Purchase Agreement between Great Plains and Natural void and ineffective from and after August 1, 1985. In addition, Natural argued, as it does in this appeal, that certain press releases by DOE personnel during the two weeks after DOE took over the project reflected a policy decision to abandon the project prior to completion of a twenty-five year period which Natural asserts was the contract term under the Gas Purchase Agreements. Natural accordingly sought to return the gas it had taken since July 31, 1985 or, alternatively, to pay the market price for that gas.
On August 23, 1985, the United States exercised its right under section 2.02 of the Pipeline Affiliates Agreement to notify the pipelines that the Gas Purchase Agreements were reinstated, effective August 1, 1985, with DOE substituted as seller. On August 29, 1985, the United States filed this lawsuit against the pipelines and others seeking to enforce the Gas Purchase Agreements and to require Natural to pay amounts then overdue for gas taken from the project in July 1985.
In a letter dated August 30, 1985, Natural denied that the United States could invoke section 2.02 of the Pipeline Affiliates Agreement to reinstate Great Plains' Gas Purchase Agreement with Natural. The primary basis for Natural's position was that DOE personnel after August 1 1985 had made statements to the press suggesting less than a long-term commitment to continue operating the project. Accordingly, Natural also demanded assurance of due performance from DOE under ILL.REV.STAT. ch. 26, Sec. 2-609, 3 stating:
However, assuming that it would be possible for someone to retract Great Plain's [sic] repudiation of the Gas Purchase Agreement and that the Secretary could credibly assume the obligations of Great Plains under the Gas Purchase Agreement despite his prior statements, Natural would still have reasonable grounds for insecurity with respect to the Secretary's performance. Natural therefore demands, pursuant to Ill.Rev.Stat. ch. 26, Sec. 2-609, adequate assurance that the Secretary will in fact assume each and every obligation of Great Plains under the Gas Purchase Agreement. Specifically, Natural demands adequate assurance that the Secretary intends to operate the Gasification Plant on a long-term basis and that the Secretary will be liable for supplying the required amount of gas to Natural from the Gasification Plant for 25 years.
The district court, on the motion of the United States for summary judgment, decided that the Gas Purchase Agreements unambiguously require the pipelines...
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