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Dynegy Marketing and Trade v. Multiut Corp.

June 11, 2008

DYNEGY MARKETING AND TRADE, A COLORADO PARTNERSHIP PLAINTIFF,
v.
MULTIUT CORPORATION, AN ILLINOIS CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Judge John A. Nordberg

MEMORANDUM OPINION AND ORDER

This is a dispute over payments for natural gas. Dynegy Marketing and Trade ("Dynegy") alleges that Multiut Corporation ("Multiut") failed to pay for natural gas delivered in 2000, 2001, and 2002. Count I is a claim for breach of the parties 1994 sales agreement and seeks $15,348,244.72 plus interest from Multiut. Count II seeks the same amount from Multiut and also from defendant Nachshon Draiman, the sole owner of Multiut, under a guaranty agreement. Dynegy now moves for summary judgment on these two counts.*fn1 It also moves for summary judgment on Multiut's six counterclaims. These counterclaims, as well as several related affirmative defenses, allege generally that Dynegy's invoices were inflated because they either failed to give Multiut price breaks allegedly agreed to in oral agreements or because they were based on an index price that Dynegy had manipulated by reporting false trades.

FACTS

Multiut is an Illinois corporation with its principal place of business in Skokie, Illinois. Nachshon Draiman is the CEO and controlling shareholder. Dynegy is a Colorado general partnership with its principal place of business in Houston, Texas. Dynegy was formerly known as Natural Gas Clearinghouse or NGC.

In October 1995, Dynegy (then called NGC) and Multiut entered into the Natural Gas Sales Agreement. However, the agreement was dated January 1, 1994, and we will refer to it as the "1994 Agreement." The parties entered into a similar agreement in 1988.

The 1994 agreement set forth the general terms and procedures that would govern the parties' relationship. The agreement anticipated that Multiut would periodically nominate (i.e. make a request for) certain amounts of natural gas, expressed in the industry as a "therm." Under the agreement, Multiut was obligated to pay for all quantities nominated and tendered for delivery.

The 1994 agreement was a general agreement in the sense that it did not set forth a single price or quantity to govern the specific nomination requests made throughout the parties' relationship. Instead, the parties contemplated that they would agree to price and quantity terms as well as delivery dates in individual agreements during the course of their relationship. The 1994 Agreement included a form, Exhibit B, on which these agreements would be memorialized.

In nominating gas under the 1994 agreement, Multiut was acting as a middle man. It would purchase and secure gas as a whole from Dynegy and would then allocate it to individual customers pursuant to agreements negotiated by Multiut with no input from Dynegy. In fact, Dynegy was not aware of the identity of these customers. Multiut used different pricing methods for different customers. The options included shared savings, an index plus price, a fixed contract price, or a cost plus price. (Draiman Aff. ¶ 13.) "Index plus" meant that the customer would pay the published index price plus an agreed-upon additional fixed charge. The "cost plus" option meant that Multiut's customers paid the same amount for the natural gas that Multiut paid to Dynegy plus an agreed-upon additional fixed charge. As Draiman explained in his deposition, the pricing was a "dynamicprocedure which involved a number of people with various different pricing methods and purchasing methods." (D Ex. 2 at 31-32.)*fn2

This lawsuit focuses on the period from 2001 to 2004. During that time Multiut nominated various amounts of natural gas, at prices agreed to by the parties at the time of nomination, and Dynegy delivered those amounts. In some cases, the specific agreements as to price and delivery were set forth on the form known as Exhibit B. In all cases, Dynegy also sent out a monthly invoice showing the total gas nominated and delivered to Multiut for the month.

It is undisputed that, within weeks of receiving these invoices, Joan Shultz at Multiut reviewed them to "make sure they were accurate." Schultz was Multiut's managing Director of Operations from 2001 to 2004 and was responsible for nominating the gas and managing the department. After Shultz verified the invoices, she sent them to Lenore Kamien, Multiut's bookkeeper, who would book the payment. Kamien was "a perfectionist" and knew the exact amounts owed to Dynegy. (DF 15.) Draiman also confirmed that the invoices initialed by Schultz were accurate with respect to the volume of gas nominated and delivered and the prices agreed to by Multiut as set forth on the invoices. (DF 23.)

At some point, Multiut fell behind on its payments. A meeting was held on March 7, 2001, to determine Multiut's outstanding balance. (DF 18.) Mark Ludwig and Ginger Wright attended on behalf of Dynegy, and Draiman and Kamien represented Multiut. (DF 18, 69.) At the meeting, Wright and Kamien reviewed Dynegy's internal accounting records, Dynegy's invoices, and Multiut's internal accounting records and correspondence. Kamien agreed that, as of December 2000, Multiut owed Dynegy at least $1,620,178. (DF 19, 71.)

Turning to present dispute, Dynegy explains that it hired an expert to calculate the amounts Multiut currently owes under the 1994 agreement. Dynegy's expert began his calculation with the $1,620,178 figure from above and (i) added in the amount of unpaid invoices, using only invoices that had been initialed by Schultz or her predecessor at Multiut, and (ii) subtracted the total payments made by Multiut since 2001, a figure based on cancelled checks produced by Multiut and Dynegy's accounting records. (DF 21, 25.) Multiut did not depose Dynegy's expert, nor submit a report of its own expert to challenge the calcuations of these amounts. In sum, Dynegy's expert concluded that Multiut owes $13,693,943.18 in principal and $1,654,301.54 in interest as of October 1, 2004.

DISCUSSION Based on the documents submitted by the parties, we find that no dispute exists that Multiut nominated and Dynegy then delivered the natural gas in the amounts and prices set forth on the invoices and other supporting documents, all as summarized by Dynegy's expert. As Multiut agrees, no dispute exists about the arithmetic. The unpaid invoices and interest add up to $15,348,244.72, plus interest accruing from October 1, 2004. There is likewise no dispute that the parties agreed at the time to the particular prices set forth on those invoices.*fn3

In its counterclaims and related affirmative defenses, Multiut argues for the first time that the various amounts and prices it agreed to years before were inflated. It claims that it was unaware of this fact because it believed it could "trust" Dynegy. (Resp. at 3.) Multiut also asserts two counterclaims specifically relating to Nicor Energy, a subsidiary Dynegy formed that competed with Multiut. One counterclaim alleges that Dynegy employees learned confidential information from Multiut when the parties had discussions in 1998 about the possibility of Dynegy buying Multiut. The other is a Robinson-Patman Act claim alleging that Dynegy sold gas to Nicor on more favorable terms. Finally, looming over all the counterclaims is a broad allegation that Dynegy's invoices should be reduced to reflect its alleged participation in manipulating the price of the natural gas indexes that were used, in some cases, to set the prices for sales to Multiut.

I. Breach of Contract Counterclaims

Four of the six counterclaims allege that the parties entered into binding oral agreements.*fn4 To be enforceable, oral agreements must at least include an offer and acceptance, consideration, and definite and certain terms. Association Benefit Services, Inc. v. Caremark Rx, Inc., 493 F.3d 841, 849-850 (7th Cir. 2007) ("No contract exists under Illinois law, and, indeed, under principles of general law, if the agreement lacks definite and certain terms; nor is a contract formed by an offer that itself lacks definite and certain material terms and does not require such terms to be supplied by acceptance."). The requirement that the contract contain "definite and certain terms" means that, even if the parties intended to enter into an agreement, no contract exists if the court cannot figure out what are the essential terms. Id. at 850.

Although we address each counterclaim individually below, we note that they generally suffer from two primary problems. First, Multiut relies almost exclusively on its own unilateral "understanding" of vague conversations that took place many years ago, understandings that were never put in writing and that were never explicitly acknowledged by Dynegy. Second, for all but one of these counterclaims, Multiut has provided no evidence -- either documents or an expert witness -- to establish damages.

A. Agreement To Lock In Prices -- Counterclaim I

Multiut's first counterclaim alleges that the parties orally agreed to "lock in" prices for certain Multiut's customers that were buying from Multiut on a fixed-price basis. The agreement was allegedly entered into orally at a meeting on September 17, 2001.

Dynegy admits that the parties discussed this issue but argues that they never reached any agreement. Dynegy secondly argues that, even if they did, such an agreement would be barred by statute of frauds. Finally, Dynegy argues that Multiut has not presented evidence of damages. Based on the first and third arguments, we find in Dynegy's favor on this counterclaim.

To support its allegation that the parties entered into this alleged agreement, Multiut relies on three facts from ...


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