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Benson Power, LLC v. North American Fertilizer, LLC

United States District Court, D. Minnesota

January 14, 2020

Benson Power, LLC, Plaintiff,
v.
North American Fertilizer, LLC, Defendant.

          ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

          Wilhelmina M. Wright United States District Judge

         In this contract dispute, Defendant North American Fertilizer, LLC (NAF) moves to dismiss Plaintiff Benson Power, LLC's (Benson Power) amended complaint. (Dkt. 14.) For the reasons addressed below, NAF's motion to dismiss is granted.

         BACKGROUND

         In or about 2006, Fibrominn LLC constructed a facility in Benson, Minnesota, for the purpose of burning biomass (the Facility). Fibrominn and NAF executed an Ash Sale Agreement in November 2006 (2006 Agreement), whereby Fibrominn agreed to sell to NAF the ash byproduct generated by the Facility. The Facility subsequently became subject to a receivership, and Benson Power purchased the Facility and related assets in 2015. Benson Power continued to sell ash byproduct to NAF pursuant to the 2006 Agreement.

         In addition to selling ash byproduct to NAF, Benson Power sold power from the Facility to Northern States Power Company (NSP). Between late 2015 and early 2017, Benson Power negotiated a potential sale of the Facility to NSP. These negotiations were subject to a confidentiality agreement that prohibited Benson Power from disclosing information about the potential sale. In February 2017, Benson Power and NSP executed an Asset Purchase and Sale Agreement, whereby Benson Power agreed to sell the Facility and related assets to NSP (Asset Sale). The agreement between Benson Power and NSP included multiple contingencies that had to be met before the Asset Sale could occur, including certain regulatory approvals from governmental authorities.

         Meanwhile, Benson Power and NAF negotiated potential amendments to the 2006 Agreement and executed an Amended and Restated Ash Sale Agreement in March 2017 (2017 Agreement). The 2017 Agreement includes a dispute-resolution provision that requires negotiation, mediation, and arbitration of “[a]ny dispute arising out of or relating to this Agreement, including the alleged breach, termination, validity, interpretation and performance thereof.” The 2017 Agreement also provides that “issues related to the scope of applicability of this Agreement to arbitrate shall be submitted to binding arbitration.” Approximately one month after executing the 2017 Agreement, NAF became aware of Benson Power's potential sale of the Facility and related assets to NSP. Around this time, Benson Power and NSP entered a letter agreement waiving certain confidentiality obligations, thereby permitting Benson Power to disclose certain details of the Asset Sale negotiations to NAF. Among other things, Benson Power disclosed to NAF that NSP likely would close on the Asset Sale in early 2018 after obtaining certain regulatory approvals and that NSP intended to shut down the Facility in 2018.

         NAF's president signed a consent agreement (Consent Agreement) in September 2017, whereby NAF agreed to Benson Power's assignment of the 2017 Agreement to NSP “upon the [c]losing” of the Asset Sale. NAF acknowledges in the Consent Agreement that the terms of the 2017 Agreement will remain unchanged after the assignment to NSP. The Consent Agreement also provides that, after the Asset Sale closes, Benson Power will be released from all obligations under the 2017 Agreement “arising from and after” the closing of the Asset Sale, “excluding liabilities arising from any breach or nonperformance by Benson [Power] under the [2017 Agreement] occurring prior to” the Asset Sale.

         In June 2018, after all contingencies had been fulfilled, Benson Power and NSP closed on the Asset Sale. As a result, NSP assumed Benson Power's obligations under the 2017 Agreement. Shortly thereafter, NSP notified NAF via letter of NSP's election to terminate the 2017 Agreement.

         In January 2019, NAF provided Benson Power a “Notice of Dispute” pursuant to the dispute-resolution provision of the 2017 Agreement. NAF claimed that Benson Power fraudulently induced NAF to enter into the 2017 Agreement by concealing material facts about Benson Power's negotiations with NSP. NAF subsequently delivered a Notice of Mediation to Benson Power's counsel alleging common-law fraud and seeking damages.

         Benson Power commenced this action against NAF in April 2019 and filed an amended complaint in June 2019. Benson Power seeks a judgment declaring, among other things, that NAF consented to the assignment of the 2017 Agreement to NSP, Benson Power is not required to arbitrate NAF's claims, and Benson Power is not liable to NAF for fraud or any other wrongful act alleged by NAF. NAF moves to dismiss the amended complaint, arguing that the 2017 Agreement requires mediation and arbitration of NAF's claims against Benson Power notwithstanding Benson Power's assignment of the 2017 Agreement to NSP.[1]

         ANALYSIS

         NAF moves to dismiss the amended complaint for failure to state a claim on which relief can be granted, Fed.R.Civ.P. 12(b)(6), arguing that the 2017 Agreement requires arbitration of the underlying issues, including disputes pertaining to the scope of the applicability of the arbitration provision. Benson Power counters that it is no longer bound by the arbitration provision in the 2017 Agreement.

         Because an arbitration agreement precludes a court “from granting judicial relief on any issue within the scope of the applicable arbitration clause, ” courts evaluate the applicability of an arbitration agreement under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim on which relief can be granted. Minn. Supply Co. v. Mitsubishi Caterpillar Forklift Am. Inc., 822 F.Supp.2d 896, 905 n.10 (D. Minn. 2011); accord City of Benkelman, Neb. v. Baseline Eng'g Corp., 867 F.3d 875, 881-82 (8th Cir. 2017). If a complaint fails to state a claim on which relief can be granted, dismissal is warranted. See Fed. R. Civ. P. 12(b)(6). When determining whether a complaint states a facially plausible claim, a district court accepts the factual allegations in the complaint as true and draws all reasonable inferences in the plaintiff's favor. Blankenship v. USA Truck, Inc., 601 F.3d 852, 853 (8th Cir. 2010). Factual allegations must be sufficient to “raise a right to relief above the speculative level” and “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). Legal conclusions couched as factual allegations may be disregarded. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq., requires courts to enforce written agreements to arbitrate disputes and reflects a “liberal federal policy favoring arbitration agreements, ” Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). “[C]ontract provisions directing arbitration shall be enforceable in all but limited circumstances.” Kelly v. Golden, 352 F.3d 344, 349 (8th Cir. 2003). In addition, contracting parties may include a “delegation provision” by which they agree to have an arbitrator decide threshold questions of arbitrability, such as the validity or scope of the arbitration agreement. Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010); Shockley v. PrimeLending, 929 F.3d 1012, 1018 (8th Cir. 2019). A ...


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