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Exelon Generation Acquisitions, LLC v. Deere & Co.

Supreme Court of Delaware

December 18, 2017

EXELON GENERATION ACQUISITIONS, LLC, Defendant Below, Appellant/Cross-Appellee,
DEERE & COMPANY, Plaintiff Below, Appellee/Cross-Appellant.

          Submitted: October 4, 2017

         Court Below: Superior Court of the State of Delaware C.A. No. N13C-07-330

         Upon appeal from the Superior Court. REVERSED.

          David J. Margules, Esquire, BALLARD SPAHR LLP, Wilmington, Delaware; Matthew E. Price, Esquire, (argued), JENNER & BLOCK LLP, Washington, D.C.; Geoffrey A. Kahn, Esquire, Matthew A. White, Esquire, Of Counsel, BALLARD SPAHR LLP, Philadelphia, Pennsylvania, Attorneys for Defendant Below, Appellant/Cross-Appellee.

          Peter J. Walsh, Jr., Esquire, (argued), Matthew F. Davis, Esquire, Jacob R. Kirkham, Esquire, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware, Attorneys for Plaintiff Below, Appellee/Cross-Appellant.

          Before STRINE, Chief Justice; VALIHURA, SEITZ, and TRAYNOR, Justices; and GLASSCOCK, Vice Chancellor, [*] constituting the Court en banc.


         When Exelon Generation Acquisitions purchased Deere & Company's wind energy business, it agreed to make earn-out payments to Deere if it reached certain milestones in the development of three wind farm projects that were underway at the time of the sale. One of the projects was the Blissfield Wind Project, which was defined in the parties' Purchase Agreement as "the wind project under development in Lenawee County, Michigan, by Blissfield Wind Energy, LLC with a nameplate capacity of 81 megawatts."[1] Included in the sale of the Blissfield Wind Project was a "Power Purchase Agreement"-a binding commitment Deere had secured from a local utility to purchase energy from the wind farm once it commenced operations.

         It is undisputed that Exelon was unable to bring the Lenawee County site to fruition because of civic opposition. But shortly thereafter, Exelon managed to acquire another nascent wind farm from a different developer, this time at a site in Gratiot County, Michigan, about a hundred miles away from the site of the Blissfield Wind Project. Exelon managed to persuade the local utility to transfer the Power Purchase Agreement there, and this time, the wind farm was successful.

         Deere caught wind of Exelon's success with the new site (and its use of the Power Purchase Agreement) and filed suit to recover the earn-out payment, claiming that "Exelon had simply relocated the Blissfield Wind Project to Gratiot County"[2] and that the earn-out payment obligation had traveled with it. Exelon denied that it had relocated the project, contending that, after it was prevented from developing the Blissfield Wind Project by forces beyond its control, it acquired and developed, at great expense, a new project in Gratiot County with different counterparties, developers, equipment manufacturers, landowners, townships, counties, and permits.

         On cross-motions for summary judgment, the Superior Court sided with Deere's interpretation of the Purchase Agreement and ordered Exelon to pay the $14 million earn-out payment for successfully developing a wind farm in Gratiot County. We disagree with the Superior Court's interpretation of the Purchase Agreement and therefore reverse.



         In August of 2010, Exelon agreed to acquire all of the limited liability company interests of John Deere Renewables, LLC, a wholly owned subsidiary of Deere & Company that held its wind assets. The base purchase price was $860 million.

         One of the subsidiary LLCs that Exelon acquired was Blissfield Wind Energy, LLC, of which Deere owned a 50% interest, the other 50% being held by a separate entity called Great Lakes Wind, LLC. At the time of the transaction, Blissfield was developing a wind farm called the Blissfield Wind Project, which the Purchase Agreement between Exelon and Deere defined as "the wind project under development in Lenawee County, Michigan, by Blissfield Energy, LLC, with nameplate capacity of 81 megawatts."

         Just two months before the sale, Deere had succeeded in securing a power purchase agreement (PPA) for the Blissfield Wind Project with Consumers Energy Company, an electric utility in Michigan. Under the PPA, which stipulated that the Blissfield Wind Project would be located in Lenawee County, Michigan, Consumers agreed to purchase energy generated by the Project for twenty years at a fixed rate schedule. It is undisputed that a PPA is a valuable asset that helps to ensure the viability of a wind farm.

         At the time of the sale, Blissfield was one of three wind farms under development in Michigan for which Deere had secured PPAs, which the Purchase Agreement collectively referred to as the Michigan Wind Projects. As a condition of the sale, Exelon agreed that if those three Projects were to achieve certain development milestones, it would pay Deere an additional amount, above the base purchase price, for each Project that achieved the milestones (a so-called earn-out payment). Whether Exelon owes Deere an earn-out payment for the Blissfield Wind Project is at the center of this dispute.


         When the Purchase Agreement was executed, the parties were aware that there was civic opposition to the development of a wind farm in Lenawee County. And although Deere represented in the Agreement that it "reasonably believe[d] that all material Permits necessary for the development, construction, ownership, maintenance, use and/or operation of the [three] Michigan Wind Projects... [could] be obtained in the ordinary course, "[3] one of Deere's disclosure schedules that was attached to the Agreement warned of the possibility of a moratorium on wind energy projects in Riga Township, the planned location in Lenawee County for the Blissfield Wind Project.[4] In fact, an internal Deere memorandum revealed that Deere believed that the vice chair of the Riga Township Planning Commission "[was] actively working with the opponents of the [Blissfield] project to prevent the wind projects in Riga from becoming a reality."[5] Against this backdrop, Exelon and Deere executed the Purchase Agreement.

         Only eleven months after they signed the Purchase Agreement, Riga Township passed a zoning ordinance that rendered development of the Blissfield Wind Project "impossible" from a regulatory perspective.[6] Consequently, Exelon provided Consumers Energy with a notice of a force majeure event under the PPA, [7]which suspended Exelon's obligations and jeopardized its chance to use the PPA.


         After the setback in Lenawee County, Exelon began to devise ways to salvage the PPA. Within a month of declaring the force majeure event, Exelon informed Consumers that it was "pursuing several alternatives, "[8] including the possibility of submitting a request to the Riga Township authorities for a new zoning ordinance to allow the development to go forward, acquiring additional parcels in nearby Ogden Township and constructing a wind farm there, which would have satisfied the PPA's requirement that a wind farm be built in Lenawee County, and assessing the feasibility of "moving the Project" to an "alternative site ... in a nearby county within Michigan."[9] Exelon ultimately decided to pursue the last of these alternatives, hopeful that Consumers would be willing to amend the PPA to allow the wind farm to be built in either Gratiot or Ionia County, rather than Lenawee. To that end, Exelon sent a draft letter to Consumers stating that, while it could not proceed with the "Blissfield Wind project ... at the current Plant Site"[10] (i.e., Lenawee County), Exelon believed that the PPA could be amended with Consumers' consent to allow the wind farm to be built in an area in Michigan with a more favorable political climate for wind development.

         Consumers was initially reluctant to amend the PPA, [11] but eventually agreed, subject to the necessary regulatory approvals. This modification did not come without a cost to Exelon: it agreed to reimburse Consumers for tax credits Consumers might lose if the project were not completed before the credits expired. This amounted to approximately $16 million in new risk for Exelon, although, as will be seen, that risk never came to fruition. In due course, the amended PPA received regulatory approval.

         Around that same time, Exelon purchased a wind farm development known as the Beebe Wind Farm from another developer, Nordex USA, Inc., for $10.3 million. This development was located in less wind-hostile Gratiot County, about a hundred miles from Lenawee County, and this time, there was no civic opposition that prevented Exelon from bringing the wind farm online. With the amendment that Exelon and Consumers had made to the PPA, the Beebe Wind Farm satisfied the PPA's milestones, and Exelon succeeded in getting to use a PPA that seemed all but lost when development faltered in Lenawee County.

         Exelon did continue its efforts to develop a wind farm in other parts of Lenawee County, but because the other townships were as opposed as Riga to having a wind farm in their backyards, those efforts were unsuccessful. So in May 2012, citing the restrictive wind energy ordinances passed by officials in Lenawee County, Exelon notified Deere that it was abandoning the Blissfield Wind Project. Section 2.6(b) of the Purchase Agreement contained a mechanism for Exelon to release itself from its contractual obligation to continue to develop the Project if further development were to become commercially infeasible, and Exelon invoked that mechanism here:

In the event [Exelon] reasonably determines that continuing to proceed with any one or more of the Michigan Wind Projects would not be commercially reasonable and therefore determines to permanently cease development of and abandon such Michigan Wind Project(s), [Exelon] shall so inform [Deere], including the reason therefor and thereafter [Exelon] shall have no further obligation to [Deere] in connection with such development. .. .[12]


         Deere has never contested Exelon's assertion that it was not commercially reasonable to proceed with the development of the Blissfield Wind Project in Lenawee County. Instead, Deere contends that, despite the notice of abandonment, Exelon did not actually abandon the Project-it merely relocated it to the Beebe Wind Farm in Gratiot County and satisfied the earn-out-triggering milestones there. Although Deere admits that the Purchase Agreement describes the Blissfield Wind Project as the "wind project under development in Lenawee County" and that the parties, "at the time of negotiating and executing the agreement[] intended the Blissfield Wind Project to be developed in Lenawee County and did not anticipate .. . that it would be moved, " Deere contends that there is "nothing in the Purchase Agreement that prevented the Blissfield Wind Project from being moved outside of Lenawee County."[13]

         In Exelon's view, the Blissfield Wind Project was not moveable-it was a wind farm development in Lenawee County that Exelon reasonably abandoned in favor of another development. In other words, the Blissfield Wind Project was, as the Purchase Agreement says, "the wind project under development in Lenawee County, Michigan, " and whether the Beebe Wind Farm achieved the Purchase Agreement's development milestones is of no consequence because it is not that same wind project.



         "The proper construction of any contract... is purely a question of law, "[14]so we review questions of contract interpretation de novo.[15] Our objective is to determine the intent of the parties from the language of the contract.[16] This inquiry should focus on the parties' shared expectations at the time they contracted, [17] but because Delaware adheres to an objective theory of contracts, the "contract's construction should be that which would be understood by an objective, reasonable third party."[18] If a contract is unambiguous, extrinsic evidence may not be used to interpret the intent of the parties, to vary the terms of the contract, or to create an ambiguity."[19]


         We begin with the Purchase Agreement's plain language. Exelon's obligation to pay Deere an earn-out for the Blissfield Wind Project was contingent upon "the Blissfield Wind Project achieving] Completion of Development and Commencement of Construction." The "Blissfield Wind Project" is defined by the Agreement to mean "the wind project under development in Lenawee County, Michigan, by Blissfield Wind Energy, LLC, with a nameplate capacity of 81 megawatts." Together, then, payment of the earn-out was contingent upon "the wind project under ...

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