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INDECK ENERGY SERVICES, INC. v. NRG ENERGY

September 16, 2004.

INDECK ENERGY SERVICES, INC., an Illinois corporation, and INDECK-PLEASANT VALLEY, LLC, an Illinois limited liability company, Plaintiffs,
v.
NRG ENERGY, INC., a Delaware corporation, and WAUKESHA ELECTRIC SYSTEMS, INC., a Wisconsin corporation, Defendants.



The opinion of the court was delivered by: REBECCA PALLMEYER, District Judge

MEMORANDUM OPINION AND ORDER

This breach-of-contract suit began when Plaintiff, Indeck Energy Services, Inc. ("Indeck") sought a declaratory judgment that it is not required to pay for certain electronic equipment that Indeck ordered from Defendant Waukesha Electric Systems, Inc. ("Waukesha") in late 2000. Waukesha filed a counterclaim asserting that it timely manufactured and shipped three customized electrical transformers ordered by Indeck, and that Indeck breached the contract by refusing to pay for them. Waukesha now seeks summary judgment on its claim for payment. Indeck argues that there are genuine issues of material fact concerning Waukesha's compliance with the terms of the parties' agreement: Specifically, Indeck argues that Waukesha acted unreasonably when it withheld consent to the requested assignment of the three transformers to a third party, NRG Energy, Inc. ("NRG"). For the reasons explained here, the court grants summary judgment in favor of Waukesha.

STATEMENT OF FACTS

  Counterclaim plaintiff Waukesha is a Wisconsin corporation in the business of designing, manufacturing, and selling equipment used for the generation of electricity. (Waukesha's Local Rule 56.1 (a)(3) Statement of Uncontested Facts (hereinafter, "Waukesha's 56.1") ¶ 1.) Waukesha seeks summary judgment against Indeck, an Illinois corporation that develops and operates power generation plants, and Indeck-Pleasant Valley, LLC ("I-PV"), a limited liability company that serves as a special purpose subsidiary of Indeck, but has no separate offices from Indeck, has no employees, and does not issue paychecks. (Id. ¶¶ 2, 3.)

  This case concerns three generator step-up ("GSU") transformers that Indeck ordered from Waukesha. A GSU transformer is a piece of power equipment used to change the voltage of electricity supplied by an electrical generator so that the generator may be connected to an electrical grid. (Id. ¶ 8.) The side of the transformer that connects to the power generator is called the "low side" of the transformer, and the side that connects the electrical grid is called the "high side." A GSU transformer may only be used with generators and electrical grids that conform to the specific low and high side voltages it produces. (Id. ¶ 11.)

  A. Order 105080

  On October 23, 2000 Indeck issued Order 105080 to Waukesha for three GSU transformers. (Id. ¶ 7, 13.) These transformers were to be used at a power project that Indeck was developing in Bourbonnais, Illinois, called the Bourbonnais Project. (Counterclaim Defendants, Indeck Energy Services, Inc. and Indeck-Pleasant Valley, LLC's Additional Statement of Uncontested Facts (hereinafter, "Indeck's 56.1 Response") ¶ 4.) Order 105080 specified the technical requirements for the three transformers, including a low side voltage of 15.6 kilovolts, which Indeck's president Tom Campone labeled as "odd." (Waukesha's 56.1 ¶¶ 15, 17; Purchase Order 105080, Ex. D to Waukesha's 56.1.) Campone testified that the "odd low side" voltage was required so that the transformers would "specifically match up with the combustion turbine [generators] that we purchased from Siemens Westinghouse." (Campone Dep., Ex. A to Waukesha's 56.1, at 27-28.) Campone explained that the Siemens Westinghouse generators that Indeck planned to use with the ordered transformers were built in Germany according to "European standards for voltage [that] tend to be different than the U.S. standards." (Id., at 27.) Consequently, the 105080 transformers are not compatible with any generator other than specific combustion generators manufactured by Siemens Westinghouse. (Waukesha's 56.1 ¶ 20.) Indeck specified a high side voltage of 138 kilovolts, which is "critical because that [voltage] determines the interconnection voltage" with the Commonwealth Edison power grid. (Id. ¶ 22; Campone Dep., at 26-28.) In addition to the low and high side voltage requirements, Order 105080 contains thirteen pages of additional technical specifications, most of which are, according to Indeck, dictated by industry standards. (Waukesha's 56.1 ¶ 24; Indeck's Response to Waukesha's Rule 56.1 Statement of Uncontested Facts (hereinafter, "Indeck's 56.1 Response") ¶ 24.)

  The purchase order provided that Indeck would pay in three installments: 10% of the purchase price ($336,600 total), due 30 days after Indeck received approval drawings of the transformers from Waukesha; 80% of the purchase price ($2,668,000 total), due 30 days after Waukesha delivered the transformers; and the final 10% of the purchase price ($336,600), due 60 days after delivery. (Id. ¶ 27.) Order 105080 required delivery of the transformers by November 2002 to an unspecified location in "Northern Illinois." (Purchase Order 105080, Ex. D to Waukesha's 56.1, at 10304.) The order includes an assignment clause providing that the order "may not be assigned by either Party without the prior written consent of the other Party, which consent will not be unreasonably withheld." (Id. at 10319.) The purchase order identifies Indeck as the owner of the transformers under the contract, and directs that all notices be sent to IP-V. (Id. at 10319; Campone Dep., at 55-57; Purchase Order 105080, Ex. D to Waukesha's 56.1, at 10319.)

  Waukesha transmitted an acknowledgment of the purchase order to Indeck in November or December 2000. (Waukesha's 56.1 ¶ 35.) In a letter dated December 6, 2000, Indeck Vice President Wayne R. Grayczyk acknowledged receipt of Waukesha's acknowledgment form. (Id. ¶ 36.) In his deposition, Campone admitted that "we [Indeck] entered into a contract with Waukesha and we were proceeding as if that contract — we intended to fulfill all of the obligations of that contract." (Campone Dep., at 73.) Following the terms of Order 105080, Waukesha provided Indeck with the specified approval drawings of the transformers in early 2001. (Waukesha's 56.1 ¶ 38.) On March 21, 2001, Indeck issued three invoices in the amount of $111,200 each to fulfill the 10% progress payments due for submission of the approval drawings. (Id. ¶ 40.) Indeck paid these progress payment invoices on March 30, 2001, tendering $333,600 to Waukesha. (Id. ¶ 41.)

  B. Role of NRG

  NRG was a subsidiary company of Xcel Energy ("Xcel") until 1988 or 1999, when it was offered for public sale. (Campone Dep., at 81-82.) After this sale, Xcel continued to own a substantial percentage of the shares of NRG. (Id.) In August 2001, Indeck and NRG completed a transaction in which NRG purchased several power generation projects from Indeck. (Waukesha's 56.1 ¶¶ 42-43.) Waukesha was not a party to this transaction, (Id. ¶ 44), but the three transformers sold under Purchase Order 105080 were included in the sale of the Bourbonnais Project to NRG. (Indeck's 56.1 Response ¶ 11.) After this transaction, Indeck continued to act as the developer of the Bourbonnais Project for NRG, though NRG began to assume many of Indeck's responsibilities under Order 105080. (Campone Dep. at 84.) According to Indeck, the parties cooperated in that Indeck acted as a developer of power plants, doing the initial ground work, while NRG was the buyer, constructor, and operator of power plants. (Indeck's 56.1 Response ¶ 15.) For example, after Indeck paid the initial 10% of the purchase price ($336,600) to Waukesha, NRG reimbursed Indeck for those amounts. (Indeck's 56.1 Response ¶ 14.) NRG also assumed other payments of the Bourbonnais Project's bills and expenses and reimbursed Indeck for all such payments made before August 2001. (Id. ¶ 18.) In addition to reimbursing Indeck for payments made on the three transformers of Order 105080, NRG also ultimately paid for a fourth transformer manufactured by Waukesha to be used on the Bourbonnais Project. This transformer was originally ordered in May 2000 by IP-V under purchase order 105079, and paid by April 2002. (Waukesha's 56.1 ¶ 52; Indeck's 56.1 Response ¶ 19; Lada Dep., at 53.)

  Indeck claims that Waukesha knew as early as February 2002 that the Bourbonnais Project had been sold to NRG and that NRG would be paying for the three transformers. (Id. ¶ 23.) Waukesha acknowledged that it did learn of the Indeck-NRG transaction, but argues that the transaction is immaterial to Indeck's continuing responsibility to pay for the transformers, as Waukesha never agreed to relieve Indeck of that obligation. (Waukesha's Response to Indeck's Statement of Additional Facts (hereinafter "Waukesha's Response") ¶ 23.) Waukesha further acknowledges that it took instructions from NRG regarding the manufacture and storage of three transformers as early as February 2002, complying with Indeck's directions that shipment be coordinated with NRG. (Indeck's 56.1 Response ¶ 23.) Waukesha notes that it is common for a customer to ask Waukesha to coordinate manufacture and shipment details with third-party companies. (Waukesha's Response ¶ 23.) Indeck contends that NRG was responsible for payment for the three transformers and that Indeck has no obligation to pay the remaining 90% balance on Purchase Order 105080 because the transformers were owned by NRG. (Indeck's 56.1 Response ¶¶ 24-25.) Waukesha objects to these assertions, insisting that any agreement between Indeck and NRG did not relieve Indeck of responsibility to fulfill its financial obligations under Order 105080. (Waukesha's Response ¶¶ 24-25.)

  C. Possible Assignment to NRG

  In early 2002, NRG wished to obtain a loan and sought to use the power equipment purchased from Indeck as collateral to secure the loan. (Waukesha's 56.1 ¶ 46.) As a result, NRG approached Indeck about executing assignment documents that would give NRG "clear title" to some of the power equipment involved in the Indeck-NRG transactions. (Id. ¶ 45; Campone Dep., at 84-85.) On February 20, 2002, Wayne Grayczyk, Vice President of Procurement for Indeck and responsible for issuing Purchase Order 105080 (Indeck's 56.1 Response ¶ 1), issued a letter to Waukesha asking for the assignment of the transformers from Indeck and I-PV to NRG Bourbonnais Equipment, LLC ("NBE").*fn1 (Id. ¶ 29, 31.) Indeck claims that despite receiving the request for assignment in February 2002, Waukesha did not begin a credit check on NRG companies for more than two months. (Id. ¶ 36.) As Waukesha notes, however, Indeck did initially raise the issue of assignment in Grayczyk's February letter, but no party tendered a proposed assignment for Waukesha's approval until April 2002. Constance Lada of Indeck's legal department testified that it was not until April 2002 that an NRG attorney sent three proposed "assignment and assumption" documents to Indeck, and requested that Indeck execute the documents and present them to Waukesha for signature. (Waukesha's 56.1 ¶ 47; Lada Dep., Ex. 1 to Waukesha's 56.1, at 13-14.)

  NRG's three proposed assignments related to three different purchase orders that Indeck had submitted to Waukesha: Order 105080 and two earlier orders, numbered 105001 and 105079. (Id. ¶ 50.) Indeck issued purchase order 105001 to Waukesha in March 1999 and purchase order 105079 in May 2000, each for the purchase of two GSU transformers. (Id. ¶ 52.) Both of these previous orders were paid in full, and the transformers had been completed and shipped, at the time NRG tendered its proposed assignment documents to Indeck in April 2002. (Id. ¶¶ 53-54.) Waukesha agreed to the assignment to NRG for purchase orders 105001 and 105079. (Id. ¶ 56.) Unlike purchase orders 105001 and 105079, however, Order 105080 was not fully paid or completed at the time of NRG's proposed assumption and assignment in April 2002: the November delivery date had not yet passed, Waukesha had not shipped the transformers, and Waukesha had not issued invoices for the remaining 80% and 10% payments that would become due after shipment. (Id. ¶ 57.) Thus, 90% of the purchase price for the transformers, or $3,002,400, remained unpaid. (Id.)

  Under the proposed assignment of Order 105080, NBE would assume all of the financial obligations of Indeck, including the remaining balance of $3,002.400. (Id. ¶ 60.) Because more than $3 million dollars remained outstanding, Waukesha sought to assess the creditworthiness of NBE before completing the assignment. (Id. ¶¶ 58, 63.) Initially created by Indeck, NBE was a newly formed company. After the Indeck-NRG transaction, it became a shell company, operated to gain certain tax benefits for NRG. (Id. ¶¶ 61-62; Indeck's 56.1 Response ¶ 62.) Upon consulting Dunn & Bradstreet, Waukesha found no credit history for NBE. (Waukesha's 56.1 ¶ 63.) Indeck's president Campone himself testified, "I don't believe we knew anything about that particular company," (Campone Dep., at 163), though Campone later conjectured that NBE possessed certain combustion turbines which were purchased for the Bourbonnais Project. (Campone Dep., at 152.)

  Concluding that it was unable to determine NBE's ability to pay for the transformers, Waukesha asked Indeck or NRG to provide a payment guarantee that NBE would fulfill its payment obligations under Order 105080. (Waukesha's 56.1 ¶ 65; Lada Dep., at 25-26.) Indeck refused to provide any payment assurance relating to the proposed assignment. (Id. ¶ 66.) While considering Waukesha's request for a payment guarantee, NRG asked Indeck how much money was still owed on Order 105080, and discovered that more than three million dollars was yet unpaid. (Id. ¶ 67; Lada Dep., at 59.) On May 13, 2002, Ray Hoffman of NRG told Indeck's attorney Constance Lada that NBE would not provide any guarantee that NBE would fulfill the payment obligations. (Id. ¶ 68; Lada Dep., at 23-24.) Lada testified that during the phone call, Hoffman also related that he was no longer "worried about" Bourbonnais. (Lada Dep., at 74-76.) When asked in her deposition whether this statement by Hoffman meant that the assignment issue for the 105080 transformers was over, Lada refused to answer specifically; she did, however, agree that after this May phone call, "there was really nobody pushing the assignment issue on the 105080 transformers, [and] NRG had dropped it and Indeck wasn't pushing it on its own." (Lada Dep., at 77-78.) Campone recounted that NRG refused to give a payment guarantee because NRG managers felt that the company's credit and history of paying bills were sufficient and the payment guarantee should not have been required. (Indeck's 56.1 Response ¶ 39; Campone Dep., at 16.) NRG did not again request that Indeck and Waukesha consent to an assignment of Order 105080. (Waukesha's 56.1 ¶ 72.)

  Indeck's president Campone testified that Waukesha breached the purchase order agreement with Indeck when it unreasonably refused to grant assignment of the transformers to NBE (Campone Dep., at 45-48.) In a letter dated October 15, 2002 to Waukesha Vice President Dennis Wiser, Wayne Grayczyk asserted that Waukesha had unreasonably withheld its consent to the NBE assignment. (Indeck's 56.1 Response ¶ 62; Grayczyk Letter, Ex. P to Indeck's 56.1 Response.)*fn2

  D. Shipping Instructions

  On August 26, 2002, Indeck's Grayczyk sent an e-mail instruction to Waukesha requesting that Waukesha ship the transformers to a warehouse in Osseo, Minnesota when the transformers were complete. (Waukesha's 56.1 ¶ 76; Ex. N to Waukesha's 56.1.) These instructions were relayed from NRG through Indeck to Waukesha. (Indeck's 56.1 Plaintiff ¶¶ 72-75.) The specified Osseo, Minnesota warehouse was operated by NRG's corporate affiliate, Xcel, Inc. (Waukesha's 56.1 ¶ 77.) The August 26th email also stated, "ownership of the transformers has been assigned to NRG Bourbonnais, L.L.C." (Id. ¶ 78; Ex. N to Waukesha's 56.1, at 10395-96.) On August 26, 2002, Waukesha's Dave Kirshner responded by email that it had received Indeck's shipping instructions, but advised that "these transformers have not been assigned by [Waukesha] to NRG." (Ex. N to Waukesha's 56.1, at 10394.) In an ...


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