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Green Plains Renewable Energy Inc. v. Ethanol Holding Company, LLC

Superior Court of Delaware

August 19, 2016

GREEN PLAINS RENEWABLE ENERGY INC., GREEN PLAINS WOOD RIVER LLC, and GREEN PLAINS FAIRMONT LLC, Plaintiffs,
v.
ETHANOL HOLDING COMPANY, LLC, Defendant.

          Submitted: July 21, 2016

          Corrected: January 25, 2017

         Upon Plaintiffs' Motion for Summary Judgment GRANTED IN PART DENIED IN PART.

          John A. Sensing, Esquire, Jesse L. Noa, Esquire, Potter Anderson & Corroon LLP, Omri E. Praiss, Esquire (Argued), Joseph P. Conran, Esquire, Tanya M. Maerz, Esquire, Husch Blackwell LLP, Attorneys for Plaintiffs

          Michael D. DeBaecke, Esquire, Blank Rome LLP, John P. Passarelli, Esquire (Argued), James M. Sulentic, Esquire, Carol A. Svolos, Esquire, Kutak Rock LLP, Attorneys for Defendant

          OPINION

          Mary M. Johnston, Judge

         PROCEDURAL CONTEXT

         Plaintiffs Green Plains Renewable Energy, Inc., Green Plains Wood River, LLC, and Green Plains Fairmont, LLC (collectively "Green Plains") brought this action for declaratory judgment against Defendant Ethanol Holding Company, LLC ("EHC"). Green Plains Renewable Energy, Inc. is an Iowa corporation with its principal place of business in Omaha, Nebraska. Green Plains Wood River, LLC, Green Plains Fairmont, LLC, and EHC are all Delaware limited liability companies.

         On January 27, 2014, Green Plains filed its Complaint, seeking the Court's interpretation and construction of certain provisions of the Asset Purchase Agreement ("APA"), which was entered into between Green Plains and EHC. Green Plains alleged that EHC assumed certain liabilities under the APA, which trigger two post-closing purchase price adjustments.

         On March 24, 2014, EHC filed its Motion to Dismiss. EHC argued that the terms of the APA are unambiguous and that EHC did not assume the alleged liabilities. Oral argument was heard on December 4, 2014.

         By Opinion dated February 9, 2015, the Court denied EHC's Motion to Dismiss. The Court held:

Viewing the pleadings in the light most favorable to Green Plains, the Court finds that it is reasonably conceivable that Green Plains could succeed on the merits of its declaratory judgment action. The Court finds that the APA is ambiguous as to whether EHC assumed liabilities because the APA is reasonably susceptible of two different interpretations. Extrinsic evidence of the parties' intent must be fleshed out during discovery.[1]

         On May 13, 2016, Green Plains filed its Motion for Summary Judgment. Oral argument was heard on July 21, 2016.

         UNDISPUTED FACTS

         This case involves two different contracts between several different parties. Accordingly, many attorneys and company executives are involved. For ease of reference, a chart of the relevant individuals is included below.

Michelle Mapes

Executive Vice President, General Counsel, and Corporate Secretary of Green Plains, who was the co-lead negotiator of the APA on behalf of Green Plains

Christopher Wu

"Team Leader" from Carl Marks Advisory Group, which was retained by EHC's counsel, Kutak Rock LLP, as financial advisor to First National Bank Omaha ("FNB Omaha"), primarily in connection with the negotiation of the Deed in Lieu of Foreclosure Agreement ("DILFA")

Andrew Wong

Works for FNB Omaha and is the President of EHC, who was involved in the negotiation of the DILFA and APA

Joel Wiegert

Attorney from Kutak Rock LLP, who was the lead attorney negotiating the DILFA on behalf of FNB Omaha

         Buffalo Lake Energy, LLC ("Buffalo Lake") and Pioneer Trail Energy, LLC ("Pioneer Trail") were owners and operators of two ethanol production plants. On September 25, 2006, pursuant to a Credit Agreement, certain lenders, including FNB Omaha (collectively, "Lenders"), made loans to Buffalo Lake, Pioneer Trail, and BFE Operating Company, LLC, a wholly-owned subsidiary of BioFuel Energy (collectively, "Borrowers"). These loans financed the acquisition, construction, and operation of two Ethanol Plants.

         Borrowers subsequently defaulted on their loans. Rather than having Lenders foreclose on the assets, Borrowers and Lenders negotiated an arrangement under which the search for a qualified buyer for the Ethanol Plants could be conducted and, ultimately, Borrowers' assets could be transferred in a controlled manner. This conveyance was set forth in the DILFA. Over the course of several months, Lenders and Borrowers negotiated the DILFA. The DILFA was executed on April 11, 2013, and was placed in escrow pending closing. EHC became the acquiring entity under the DILFA. Upon conveyance of the assets to EHC, Borrowers were released from personal liability under the Credit Agreement.

         The DILFA included two Assignments of Contracts-one for Buffalo Lake and one for Pioneer Trail.[2] Section 1 of the Assignments of Contracts provides: "Assignor hereby assigns, conveys, and transfers to Assignee all of Assignor's right, title, and interest" in certain defined contracts. Section 2 provides: "Assignee hereby accepts such assignment of Assignor's right, title, estate and interest in, to and under solely those contracts that are set forth in Schedule I attached hereto."

         When Borrowers executed the Assignments of Contracts, a few items were intentionally left blank and were to be filled in by Lenders' Administrative Agent at a later date. Among the items left blank was the list of contracts to be included in Schedule I. The parties anticipated that the Administrative Agent would identify and provide a list of the assumed contracts some time on or before closing.

         In August 2013, Christopher Wu, on behalf of Lenders, contacted Michelle Mapes, general counsel to Green Plains, to inquire about a possible purchase of the Ethanol Plants. On November 4, 2013, EHC and Green Plains entered into the Asset Purchase Agreement ("APA"), wherein Green Plains agreed to purchase assets from EHC, specifically, the ethanol production assets transferred from Borrowers to EHC under the DILFA. In Section 4.11 of the APA, EHC represented that the DILFA "is in full force and effect and is the valid and binding obligation of the Seller enforceable according to its terms." Under the Bill of Sale associated with the APA, Green Plains agreed to pay all obligations and liabilities of Seller with respect to the purchased assets arising and relating to periods after the effective date.

          The APA also included a "true-up" provision. Section 2.03 provided that Green Plains would pay $101 million (the purchase price) plus the value of the Inventory and raw materials as of the Closing Date, less a Shortfall Amount (amount by which accounts payable[3] exceeded accounts receivable), or plus an Excess Amount (amount by which accounts receivable exceeded accounts payable).

         On November 20, 2013, Joel Wiegert, the lead attorney who negotiated the DILFA on behalf of FNB Omaha, emailed Mapes and attached various draft conveyance documents: (1) from the Borrowers to the Lenders; and (2) from the Lenders to Green Plains. The Assignments of Contracts were included among these documents. For the first time, the Assignments of Contracts included a Disclaimer Provision. The Disclaimer Provision was inserted into Schedule I. Schedule I had been left blank for the purpose of listing assumed contracts.

         The Disclaimer Provision provided: "[EHC's] acceptance of the Assignor's[4]assignment of the foregoing contracts shall not constitute an assumption by [EHC] of the obligations thereunder." Mapes was not specifically informed about the addition of the Disclaimer Provision. Additionally, no one from EHC sent Mapes a copy of the Assignments of Contracts with the completed Schedule I containing the Disclaimer Provision.

         On November 22, 2013, Andrew Wong, President of EHC, executed the Assignments of Contracts, which included the Disclaimer Provision, on behalf of EHC. On the same date, Lenders and Borrowers closed on the DILFA, and EHC and Green Plains then closed on the APA.

         On December 23, 2013, pursuant to Section 2.06 of the APA, Green Plains sent its calculation of the Shortfall Amount to EHC. Green Plains calculated the Shortfall Amount to be $11, 835, 475.18, thereby resulting in $5, 517, 284.75 owed by EHC to Green Plains.

         EHC contends that there is no provision in the APA, DILFA, or Assignments that required EHC to assume a liability that would survive the closing. Accordingly, EHC argues that the Accounts Payable Amount does not exceed the Accounts Receivable Amount, and thus the Shortfall Amount is zero.

         STANDARD OF REVIEW

         Summary judgment is granted only if the moving party establishes that there are no genuine issues of material fact in dispute and judgment may be granted as a matter of law.[5] All facts are viewed in a light most favorable to the non-moving party.[6] Summary judgment may not be granted if the record indicates that a material fact is in dispute, or if there is a need to clarify the application of law to specific circumstances.[7] When the facts permit a reasonable person to draw only one inference, the question becomes one for decision as a matter of law.[8] If the non-moving party bears the burden of proof at trial, yet "fails to make a showing sufficient to establish the existence of an element essential to that party's case, " then summary judgment may be granted against that party.[9]

         ANALYSIS

         Disclaimer Provision

         Parties' Contentions

         Green Plains

         Green Plains contends that the Disclaimer Provision is invalid and unenforceable because FNB Omaha, as Administrative Agent, did not have authority to unilaterally amend Schedule I to the Assignments of Contracts. Green Plains asserts that the Disclaimer Provision is a substantive term that materially alters the DILFA. Green Plains argues that in order to comply with the DILFA's Anti-Amendment provision, the amendment must have been in writing and signed by both parties-FNB Omaha and Borrowers. Green Plains contends that permitting FNB Omaha to unilaterally amend the DILFA would render the anti-amendment clause a "mere surplusage" in violation of Delaware law.

         Green Plains claims that FNB Omaha only had the right to fill in the blanks of the Assignments of Contracts-adding the date, the name of the assignee, and the list of assigned contracts. Green Plains contends that by inserting the Disclaimer Provision, FNB Omaha exceeded its scope of authority as Administrative Agent. Green Plains points to the depositions of both Wu and Wong. Both testified that FNB Omaha "would simply provide a list of those assumed contracts and identify them under Schedule I. .. ."[10]

         EHC

         EHC argues that the Court, in its February 9, 2015 Opinion, already has found that the APA is ambiguous. EHC contends that the resolution of the ambiguity is a trial issue for the jury and, therefore, summary judgment is inappropriate and the case must proceed to trial.

         In the alternative, EHC argues that if the Court determines that the APA is unambiguous, it should find that the Disclaimer Provision in the DILFA is valid and enforceable. EHC contends that the Administrative Agent was authorized to populate any incomplete schedules to the DILFA before closing. EHC states that when the Borrowers signed the DILFA, the circumstances related to the assumption of liabilities under the contracts that would be listed in Schedule I were unknown by the parties. Section 2 of each Assignment of Contracts provides: "Assignee hereby accepts such assignment of Assignor's right, title, estate and interest in, to and under solely those contracts that are set forth in Schedule I attached hereto." EHC argues that Section 2 purposely omitted language that would address whether EHC would or would not ...


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