Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Wallace v. Mt. Poso Cogeneration Company, LLC

Court of Chancery of Delaware

December 30, 2019

NEIL WALLACE, Plaintiff,
v.
MT. POSO COGENERATION COMPANY, LLC, Defendant.

          ORDER DENYING MOTION TO DISMISS

          KATHALEEN ST. JUDE MCCORMICK, VICE CHANCELLOR

         1. Defendant Mt. Poso Cogeneration Company, LLC ("Defendant") operates a biofuel power plant in California that produces substantial amounts of ash. Due to storage constraints, the ash must be removed at least once every 72 hours. Defendant and non-party Calash, LLC ("Calash") executed the Ash Management Agreement (the "Agreement") in October 2011, under which Calash would remove ash from Defendant's power plant and invoice Defendant using a contractually determined formula. Defendant terminated the Agreement in September 2016. Calash was suspended by the Secretary of State of California in May 2017.

         2. Plaintiff Neil Wallace alleges that Calash assigned him certain rights under the Agreement. On October 29, 2018, Wallace sent a demand letter to Defendant claiming that a recent audit revealed that Defendant underpaid Calash for services. Wallace demanded arbitration of that claim under Section 11 of the Agreement. After Defendant refused to arbitrate, on December 12, 2018, Wallace filed his Verified Complaint (the "Complaint") in this Court seeking to compel arbitration.[1]

         3. Defendant moved to dismiss the Complaint under Court of Chancery Rule 12(b)(6) on February 6, 2019.[2] The parties completed briefing on August 16, 2019, [3] and the Court heard oral arguments on October 18, 2019.

         4. Defendant made the following four arguments in support of dismissal. First, Wallace could not assert rights under the Agreement because the assignment was from Calash, Inc., not Calash, LLC. Second, Wallace lacked the authority to assert rights under the Agreement because Calash, LLC was suspended by the California authorities and thus could not maintain a suit, a disability that travels with any assignment. Third, the Agreement prohibited assignments absent Mt. Poso's consent, which Mt. Poso did not provide. Fourth, the arbitration provision terminated when the Agreement terminated.

         5. Between the close of briefing and oral arguments on the motion to dismiss, Wallace sought leave to amend the Complaint to demonstrate that the assignment was in fact from Calash, LLC and that Calash, LLC was not suspended by the California authorities. At oral argument, the Court granted Wallace's request to amend the Complaint, thereby mooting the first two of Defendant's dismissal arguments. This Order resolves Defendant's two remaining arguments.

         6. Under Rule 12(b)(6), the Court may grant a motion to dismiss for failure to state a claim if a complaint does not allege facts that, if proven, would entitle the plaintiff to relief.[4] "[T]he governing pleading standard in Delaware to survive a motion to dismiss is reasonable 'conceivability.'"[5] When considering such a motion, the Court must "accept all well-pleaded factual allegations in the [c]omplaint as true . . ., draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof."[6] The reasonable conceivability standard asks whether there is a possibility of recovery.[7] The Court, however, need not "accept conclusory allegations unsupported by specific facts or . . . draw unreasonable inferences in favor of the non-moving party."[8] "A copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes."[9] The Agreement is attached to the Complaint and thus properly before the Court at this stage.[10]

         7. The Agreement contains a choice-of-law provision dictating that it should be construed in accordance with California law.[11] Delaware honors these types of provisions "so long as the jurisdiction selected bears some material relationship to the transaction."[12] Under California law, contracts are interpreted to effect the mutual intent of the parties as judged at the time the contract was formed.[13]"When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible."[14] The "whole of the contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other."[15]

         A. The Anti-Assignment Provision Does Not Unambiguously Prohibit the Assignment.

         8. Defendant argues that Section 11.6 of the Agreement prohibited Calash from assigning rights under the Agreement to Wallace without the prior consent of Mt. Poso, which Wallace failed to obtain. Section 11.6 provides:

Calash shall not assign or otherwise convey any of its rights, title, and interest under this Agreement without the prior written consent of [Mt. Poso], which Mt. Poso may not arbitrarily withhold; provided, however, that without any such consent, Calash or its successor or permitted assigns may assign any or all rights, titles, and interest hereunder:
a) As security to any person, corporation, bank, trust company, association, or other business or governmental entity as security in connection with obtaining or arranging financing for Calash or any affiliate of Calash, or
b) To any person, corporation, bank, trust company, association or other business or governmental entity in order to enforce any security assignment described in Section 11.6(a); and provided that with [Mt. Poso's] prior consent, which shall not be unreasonably withheld, Calash may assign any or all of its rights, titles and interests hereunder to:
c) Any entity controlled by, controlling or under common control with Calash, or
d) Any successor, entity by merger, consolidation, or by sale of substantially all assets.[16]

         9. The parties' dispute centers on subsection (d) of the above language. Defendant argues that the plain language of the exception allowed Calash to assign rights only to a "successor entity," by the three enumerated mechanisms that followed that phrase, that is, "[i] by merger, [ii] consolidation, or [iii] by sale of substantially all of its assets."[17] Wallace is not an entity, and thus the three enumerated mechanisms do not apply to him, according to Defendant. Wallace responds that "by sale of substantially all assets" presents an independent basis for satisfying subsection (d) unconnected to the language preceding it in that subsection. Wallace further contends that his assignment qualifies under that clause because the assignment constituted a "sale of substantially all assets" of Calash.[18]

         10. Defendant's interpretation is problematic because it ignores the comma preceding "entity," which suggests that "successor" is a noun on a list and not an adjective. Perhaps more problematic, Defendant's interpretation ignores the word "by" preceding "sale of substantially all assets." Typically, repeating a determiner, such as "by," signals no carryover effect in a postpositive modifier. Both of these factors suggest that the clause "by sale of substantially all assets" is, as Wallace suggests, the last co-equal clause in a series of three, as in: "[i] [a]ny successor, [ii] entity by merger, consolidation, [iii] or by sale of substantially all assets."

         11. Wallace's interpretation is also problematic. For starters, one could argue that it renders the exception found in subsection (d) broad enough to swallow the general prohibition against assignments. Moreover, Wallace's interpretation renders other aspects of Section 11.6 nonsensical. Despite the (a) through (d) lettering scheme, subsection (d) appears to follow as a subpart of the proviso in subsection (b) rather than the proviso in the general prefatory language of Section 11.6. This conclusion flows from basic grammatical construction- subsection (d) is a prepositional phrase in need of a preposition, and the preposition "to" appears at the end of subsection (b), but not in the general prefatory language of Section 11.6. This conclusion also flows from the punctuation-the colon at the end of subsection (b) signals an intent to introduce a list of items. Thus, in effect, subsection (d) is part of a proviso within a proviso. Read as part of subsection (b), an assignment "by sale of substantially all assets" requires Mt. Poso's consent.

         12. This interpretative exercise reveals that Section 11.6 is far from clear. As the movant, Defendant bears the burden. To prevail at this stage, Defendant's reading must be the only reasonable construction.[19] Because it is not, this Court rejects it.

         13. Defendant argues in the alternative that even if Wallace is deemed a successor to Calash under subsection (d), Wallace did not acquire substantially all of Calash's assets.[20] At this stage, the Court finds that since Calash is now defunct, it is reasonably conceivable ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.