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Fagen, Inc. v. Exergy Development Group of Idaho, LLC

United States District Court, D. Minnesota

February 6, 2015

Fagen, Inc., a Minnesota corporation, and Midwest Ethanol Transport, LLC, a Minnesota limited liability company, Plaintiffs/Counter-Defendants/Third-Party, Plaintiffs,
v.
Exergy Development Group of Idaho, L.L.C., an Idaho limited liability company, and James T. Carkulis, individually, Defendants/Counter-Plaintiffs, and Exergy Development Group of Idaho, L.L.C., and James T. Carkulis, Defendants/Counter-Plaintiffs/Crossclaimants,
v.
Hawley Troxell Ennis & Hawley LLP, Crossdefendants, and Fagen, Inc., Third-Party Plaintiff,
v.
Hawley Troxell Ennis & Hawley LLP, Third-Party Defendant.

Angelo L. Rosa, Marsh Rosa LLP, and Michael F. Cockson, Faegre Baker Daniels, LLP, Counsel for Exergy Development Group of Idaho, LLC and James T. Carkulis.

Keith S. Moheban and Timothy M. Kelley, Stinson Leonard Street, LLP, Counsel for Fagen, Inc. and Midwest Ethanol Transport, LLC.

MEMORANDUM OF LAW & ORDER

MICHAEL J. DAVIS, Chief District Judge.

I. INTRODUCTION

This matter is before the Court on motion for summary judgment by Defendants Exergy Development Group of Idaho, LLC ("Exergy") and James T. Carkulis (collectively "Defendants") on Counts I, II, III and VI of the Amended Complaint. [Docket No. 168] The parties appeared for oral argument on November 21, 2014. For the reasons set forth below, the Court grants Defendants' motion with respect to Counts I, III and VI of the Amended Complaint, but denies the motion with respect to Count II.

II. BACKGROUND

A. Factual Background

1. The Big Blue Project

The instant action arises out of a dispute over a thirty-six megawatt wind farm project near Blue Earth, Minnesota (the "Big Blue Project"). (Declaration of Jennifer A. Johnson ("Johnson Decl.") ¶ 7 [Docket No. 10].)

The Big Blue Project was structured as a series of parent/subsidiary companies. (Id. ¶ 5.) Initially, Defendant Exergy was the sole member of Exergy Minnesota Holdings, LLC ("Exergy Minnesota"). (Id.) Exergy Minnesota was the sole member of Minnesota Wind Partners I, LLC ("Minnesota Wind"), which was in turn the sole member of Big Blue Wind Farm, LLC ("Big Blue"), which owned the Big Blue Project. (Id.) Defendant Carkulis is the sole owner of Defendant Exergy. (Declaration of James T. Carkulis ("Carkulis Decl.") ¶ 1 [Docket No. 170].)

Northern States Power Company ("NSP") contracted to purchase electricity from the Big Blue Project pursuant to a Renewable Energy Purchase Agreement with Big Blue ("PPA"). (Declaration of Keith S. Moheban ("Moheban Decl."), Ex. G [Docket No. 174].)

2. Fagen's Relationship with Exergy

Exergy Minnesota hired Plaintiff Fagen, Inc. ("Fagen") to serve as the general contractor for the Big Blue Project. (Johnson Decl. ¶ 7.) Fagen is a green energy design build construction contractor. (Id. ¶ 2.) Plaintiff Midwest Ethanol Transport, LLC is an affiliate of Fagen owned by the Fagen family. (Id.)

When Exergy was unable to obtain financing for the cost of acquiring, constructing, and operating the Big Blue Project, Fagen provided financing. (Id. ¶¶ 8-9.) The parties entered into a series of agreements related to the transaction. (Id. ¶¶ 8-12.)

a) The Purchase Agreement

The Limited Liability Company Interest Purchase Agreement (the "Purchase Agreement") between Fagen and Exergy is dated February 29, 2012. (Moheban Decl., Ex. A.) In exchange for additional credit and a reduction in Exergy's outstanding obligations to Fagen by approximately $11 million, Exergy "convey[ed] to Fagen ninety-nine (99) units of the 100 outstanding units of membership interest in [Exergy Minnesota], which units constitute 99% of the membership interest in [Exergy Minnesota]." (Id. §§ 2, 3.)

b) The Member Control Agreement

Fagen and Exergy also entered into the First Amended and Restated Member Control Agreement of Exergy Minnesota ("MCA"), effective February 29, 2012. (Moheban Decl., Ex. B.) The MCA confirms Fagen's ownership of 99 out of the 100 outstanding membership units of Exergy Minnesota. (Id. § 2.2.) The MCA provides that:

2.8 Purchase Option. As soon as Exergy has Repayment Capital (defined below), but no later than June 29, 2012, Exergy shall have the obligation and option to purchase the Units owned by Fagen for a purchase price equal to $11, 447, 503.02, together with interest accrued thereon from and after February 29, 2012 at an interest rate equal to 10% per year (the "Option Purchase Price").... If Exergy fails to exercise the purchase in the manner described herein, on or before June 29, 2012, the purchase option shall automatically expire and be of no further force or effect. If the Units owned by Fagen are not repurchased by June 29, 2012, the Units owned by Exergy shall automatically transfer to Fagen, such that Fagen is the owner of one hundred percent (100%) of the Units, and Exergy shall no longer be a Member and shall have no rights as a Member as of such date....

(Id. § 2.8 (emphasis added).)

The parties designated Exergy as Managing Member, Carkulis as the President and Chief Financial Officer, and Elizabeth Woolstenhulme as Secretary of Exergy Minnesota. (Id. §§ 3.1, 3.5.7.) They agreed that:

Fagen shall have the right to remove Exergy as the Managing Member of the Company and elect or appoint a new Managing Member upon the occurrence of any of the following events:
...
(e) Exergy does not timely exercise its option to purchase the Units owned by Fagen contained herein;...

(Id. § 3.4.1.) Also:

Any officer may be removed as such, either with or without cause, by the Managing Member at any time. Any vacancy occurring in any office of the Company may be filled by the Managing Member.

(Id. § 3.5.10.)

The MCA is governed by Minnesota law. (Id. § 9.3.)

3. Fagen Asserts Ownership of Exergy Minnesota

When Exergy failed to exercise the purchase option by June 29, 2012, Fagen took the position that Exergy's remaining one percent interest in Exergy Minnesota was transferred to Fagen and Fagen asserted sole ownership of Exergy Minnesota. (Johnson Decl. ¶ 13.) Fagen later transferred ownership of Exergy Minnesota to Midwest. (Id. ¶ 16.)

On August 29, 2012, Fagen, acting as the sole member of Exergy Minnesota, adopted a written resolution removing Exergy as Managing Member of Exergy Minnesota and Carkulis and Woolstenhulme as officers pursuant to sections 3.4.1(e) and 3.5.10 of the MCA. ( Id., Ex. E.) The same day, Fagen notified Exergy that it had been removed as Managing Member and that Carkulis and Woolstenhulme were no longer officers. (Moheban Decl., Ex. D.) In the notice, Fagen demanded that Carkulis, Woolstenhulme, and Exergy "immediately cease taking any action on Exergy Minnesota's behalf and cease holding [themselves] out as the managing member or officers of Exergy Minnesota." (Id.) Fagen further demanded the return of Exergy Minnesota's stock certificates, business records, construction plans, and corporate documents in Exergy's possession by September 5, 2012. (Id.)

Defendants returned boxes of documents to Fagen, including unpaid invoices that were due and payable. (Johnson Decl. ¶ 15.) On September 5, 2012, Exergy sent Fagen an invoice for more than $2.6 million relating to the "Development of Big Blue Wind Farm" for "71 months of development." (Moheban Decl., Ex. F.)

4. Telephone Call with NSP

According to Exergy, in late August/early September 2012, Exergy began receiving telephone calls from NSP regarding the Big Blue Project, demanding to speak to Carkulis. (Carkulis Decl. ¶¶ 2-3.) Carkulis claims that he was reluctant to speak to NSP based on Fagen's control of the project and advice of counsel. (Id. ¶ 4.) However, after Exergy employees "insisted it was imperative that NSP hear from [Carkulis], " he participated in a telephone call with NSP representatives by the names of "Howard" and "Dana." (Id. ¶ 5.)

Carkulis contends that NSP questioned him about a letter sent by or on behalf of Fagen to NSP. (Id. ¶ 6.) Carkulis responded that he did not know the contents of the referenced letter. (Id.) NSP replied that the letter was confidential or Fagen's attorneys said the contents could not be revealed. (Id.)

According to Carkulis, when NSP asked him about a change in ownership of the Big Blue Project, he responded that he "did not know who owned the project." (Id. ¶ 7; Id . Ex. B., Deposition of James T. Carkulis ("Carkulis Dep.") 172.) When told that the letter from Fagen implied that Fagen owned the Big Blue Project, Carkulis stated that he was "unsure of the status without knowing what the letter specifically stated." (Carkulis Decl. ¶ 7.)

Carkulis admits that at that time of this telephone call, he was aware that he had been removed as Exergy Minnesota's Managing Member, that Fagen was asserting sole ownership of the Big Blue Project and that Fagen had instructed him not to take any actions on behalf of the Big Blue Project. (Id.; Carkulis Dep. 169-170.) Nonetheless, he maintains that at the time of the call, he was unsure of the ownership status of the project because Exergy's legal counsel told him that Fagen was required to foreclose on its ownership interest before assuming ownership of the Big Blue Project. (Carkulis Decl. ¶ 8; Carkulis Dep. 170-171.) According to Carkulis, his response was also influenced by NSP's suggestion that if the representations in the letter sent by Fagen were true, they could trigger potential violations of the change ...


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