CITGO Petroleum Corporation v. Integrys Energy Services, Inc.
AMENDED MEMORANDUM Opinion and Order Signed by the Honorable Rebecca R. Pallmeyer on 6/12/2012: Mailed notice(etv, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
CITGO PETROLEUM CORPORATION
and PDV MIDWEST REFINING, LLC,
INTEGRYS ENERGY SERVICES, INC. ,
No. 10 C 4743
Hon. Rebecca R. Pallmeyer
AMENDED MEMORANDUM OPINION AND ORDER
In 2008, Plaintiffs PDV Midwest Refining, LLC (“PDVMR”) and CITGO Petroleum
Corporation (“CITGO,” and collectively with PDVMR, “Plaintiffs”) entered into an agreement with
Defendant Integrys Energy Services, Inc. (“Integrys” or “Defendant”), in which Integrys agreed to
provide electricity to Plaintiffs’ petroleum refinery in Lemont, Illinois.1 The following year, as the
parties approached the end of the initial twelve-month contract period, a dispute arose over whether
Plaintiffs would be obliged to reimburse Defendant for certain charges instituted by the state
legislature should Plaintiffs exercise their option to renew for a second year. As a result, Defendant
sent Plaintiffs notice of its decision to terminate the contract at the end of the initial term.
In this lawsuit, brought under the court’s diversity jurisdiction, Plaintiffs claim that Integrys’s
termination notice breached the contract, in violation of Plaintiffs’ right to renew the contract for
another twelve-month period. Defendant claims that it properly exercised its unilateral right to
terminate the contract. In the alternative, Defendant also raises several affirmative defenses,
including anticipatory repudiation and unclean hands, stemming from Plaintiffs’ alleged refusal to
pay the new charges.
The documents that comprise the contract refer to PDVMR as the party to the
contract and CITGO as the guarantor. For purposes of this Memorandum Opinion and Order, the
court refers to the rights and obligations under the contract as those of Plaintiffs collectively.
The parties have filed cross-motions for summary judgment. For the reasons below, the
motions are granted in part and denied in part.
Plaintiff PDVMR is a Delaware limited liability company composed of one member: VPHI
Midwest, Inc., a Delaware corporation with its principal place of business in Houston, Texas. (Pls.’
56.1 ¶ 1.) PDVMR is a wholly owned subsidiary of Plaintiff CITGO, a Delaware corporation with
its principal place of business in Houston, Texas. (Id. ¶ 2.) Defendant Integrys, a retail supplier of
electric power, is a Wisconsin corporation with its principal place of business in De Pere, Wisconsin.
(Id. ¶ 3.) This court has diversity jurisdiction over the contract dispute between these parties, in
which more than $75,000 is a stake, and the parties agree that venue is proper because Plaintiffs’
refinery, which Defendant contracted to furnish with electric power, is located in this district. (Id.
The lawsuit has its origins in the “Power Sale Agreement” and “Confirmation” executed by
PDVMR on August 20, 2008 and by Integrys on September 9, 2008. (Power Sale Agreement, Ex.
1 to Am. Compl.; Confirmation, Ex. 2 to Am. Compl.) On August 21, 2008, Plaintiff CITGO
executed a Guaranty of PDVMR’s obligations (collectively, with the Power Sale Agreement and the
Confirmation, the “contract”). (Guaranty, Ex. 3 to Am. Compl.) Under the terms reflected in those
documents, Integrys agreed to provide electric power to a refinery owned by PDVMR and operated
by CITGO in Lemont, Illinois. It is undisputed that for several weeks before executing the contract,
the parties engaged in negotiations and, with the assistance of their attorneys, exchanged multiple
drafts. Integrys prepared a draft Confirmation and Supplemental Confirmation on July 23, 2008.
(Def.’s 56.1 ¶ 10.) Plaintiffs contend the negotiations began two months earlier, in May 2008, when
Integrys responded to CITGO's request for proposal (“RFP”) for the supply of electricity to the
Lemont Refinery. (Pls.’ 56.1 Resp. ¶ 10; Pls.’ 56.1 ¶¶ 6-8.) In addition to the relevant provisions
discussed below, the contract included an integration clause. (Def.’s 56.1 ¶ 23.)
This case hinges, in part, on the meaning of the contract renewal provision in the
Confirmation. The Confirmation defines a one-year “initial Delivery Period,” from September 2008
through the latest meter read date in September 2009. (Pls.’ 56.1 ¶ 18.) Thereafter, Integrys would
continue to provide electricity on the same terms, unless one of certain events occurred.
Specifically, the Confirmation contains a section entitled “Renewal” (the “Renewal provision”),
After the initial Delivery Period, service shall continue on a billing cycle-to-billing
cycle basis at the same terms and conditions unless (i) terminated by either Party
giving 30 days written notice prior to the end of the initial Delivery Period noted
above, or (ii) PDVMR exercises it’s [sic] option to renew the contract for a second
year, pursuant to the Special Conditions below, as evidenced by a fully executed
Confirmation for the second year.. Subject to PDVMR renewing for a second year,
after the second year, service shall continue on a billing cycle-to-billing cycle basis
at the same terms and conditions unless terminated by either Party giving 30 days
(Confirmation at 3 (extra punctuation in original).) Critical to this dispute, the contract does not
explicitly provide for which of the two alternatives has priority should Integrys wish to terminate the
contract at the end of the initial Delivery Period, but PDVMR wish to exercise its option to renew
the contract for a second year.
Under the “Special Conditions” referenced in the Renewal provision, the Confirmation
provides that “PDVMR shall have the right to renew the Confirmation for an additional twelve (12)
month Delivery Period,” subject to rate adjustments should certain components of the ancillary rate
deviate more than 10% from the previous year. (Confirmation at 4.)2 The Special Conditions also
The Confirmation provided that the Ancillary Rate consisted of the following
components: the Ancillary Charge, the Day Ahead Operating Reserve Charge, the Auction Reserve
Rights Credit, and the Transmission Loss Credit. (Confirmation at 3.) The Special Conditions
set a timetable for renewal: Integrys was required to notify PDVMR of any change in the rates by
June 15, 2009; PDVMR then had until July 30 to decide whether to exercise its option to renew.
(Id.)3 Should PDVMR choose to renew for another year, the contract provides, “the Confirmation
will renew with the same terms and conditions as the initial Delivery Period,” subject to any of the
specified rate adjustments. (Id. at 5.)
Defendant notes that subsection (i) of the Renewal provision, which allows for unilateral
termination of the contract past the initial Delivery Period by either party, remained unchanged
throughout the negotiations process, and was a standard term in Integrys’s customer contracts.
(Def.’s 56.1 ¶¶ 18-19.) With respect to subsection (ii), Defendant argues that despite the language
in the Confirmation identifying the “option” or “right to renew” as PDVMR’s, the renewal right was
not unilateral. Defendant maintains that the contract provided merely for an option to renew
provided that both parties agreed. In support, Defendant emphasizes the unilateral termination
provision of subsection (i) and the language in subsection (ii) requiring that PDVMR’s election to
renew be “evidenced by a fully executed Confirmation for the second year.”
The termination provision may have been a standard feature of Integrys agreements, but
it appears that the renewal clause was not. The option to renew in subsection (ii) had its origins
in negotiations over a pricing error in Integrys’s response to CITGO’s RFP. (Pls.’ 56.1 ¶¶ 10-11.)
allowed for adjustment of the Operating Reserve Charge and the Transmission Loss Credit based
on changes in the value of those rates as published by PJM Interconnection, LLC. (Id. at 4.) PJM
is, according to its website, a “regional transmission organization (RTO) that coordinates the
movement of wholesale electricity in all or parts of 13 states and the District of Columbia.” PJM,
About PJM, http://www.pjm.com/about-pjm.aspx (last visited May 31, 2012). Should the published
rates during the initial Delivery Period vary more than 10% from those published in 2007, the
Special Conditions applied an algorithm to increase (in the case of Operating Reserves), or to
increase or decrease (in the case of the Transmission Loss Credit), the rates that would apply to
the second year. (Id. at 4-5.)
By comparison, the earliest date by which either parties’ 30-day notice to terminate
could have been due was early August.
When Integrys realized that the price quoted in its initial response was lower than it intended, it
offered CITGO two options: (1) the lower price ($1.135 per megawatt hour) for a one-year term, or
(2) a higher price ($1.355 per megawatt hour) for a one-year term with an option to renew. (Id.;
Def.’s 56.1 Resp. ¶ 11.) Integrys’s representatives referred to the second option as an attempt to
“share half the pain” with Plaintiffs by raising the rate initially offered in Integrys’s response to the
RFP, but giving Plaintiffs the option to renew those still-favorable terms for a second year. (Fahey
Dep., Ex. I to Pls.’ 56.1, at 214-217; E-mail Message from Fahey to Fillar of 7/16/2008, Ex. J to Pls.’
56.1; E-mail Messages between Fahey and Zimonick of 7/11/2008, Ex. K to Pls.’ 56.1.) The court
infers from the terms of the Confirmation that the parties settled on the second option.
According to Plaintiffs, the contract language established their unilateral right to renew.
They point, in addition, to circumstances surrounding the contract’s negotiation. First, Plaintiffs note
that CITGO’s RFP requested bids for a “12-month contract with CITGO’s option to extend for an
additional 12-month period at same terms and conditions under initial 12-month contract.” (Pls.’
56.1 ¶ 7.) Plaintiffs also point to Integrys documents and Integrys employees’ internal and external
communications, both before and after execution of the contract, which do appear to recognize the
option to renew as Plaintiffs’ to exercise. In particular, communications from James Fahey, one of
Integrys employees principally responsible for negotiations with Plaintiffs, made repeated reference
to the renewal option as a right Plaintiffs enjoyed under the contract’s terms. (Pls.’ 56.1 ¶¶ 14-16.)4
“Pass Through” Provision
Another contract provision relevant to this dispute is what the parties refer to as the “Pass
Through” provision. The Power Sale Agreement addressed changes in tariffs or law that affect
Integrys’s cost of providing the electricity and shifted certain costs and benefits of those laws to
Plaintiffs, providing in relevant part:
Seller may pass through to Buyer (i) any increase or decrease in such tariff charges
or (ii) other increase or decrease in Seller’s cost to provide electric power that result
from a change in or change in interpretation or administration of current tariffs, laws,
regulations or other requirements . . . . Any such addition to or increase in costs
shall be Buyer’s obligation.
(Power Sale Agreement at 1.)
Renewable Portfolio Standard (“RPS”) Charges
In 2009, during the contract’s initial Delivery Period, the Illinois General Assembly passed
Public Act 096-0159. The Act extended Illinois’s Renewable Portfolio Standard (“RPS”)—which
requires energy providers to supply a certain percentage of their energy from renewable
See E-mail Message from Fahey to Fillar of 6/30/2008, Ex. Q to Pls.’ 56.1 (“Integrys
has discussed the renewal option Citigo [sic] specified and is amenable to offering Citgo [sic] a 12
month renewal.”); E-mail Message from Fahey to Bullinger et al. of 7/3/2006, Ex U to Pls.’ 56.1
(internal Integrys e-mail concerning the language Fahey “had sent to Citgo [sic] on Tuesday
concerning their right to renew for an additional 12 month term.” (emphasis added)); E-mail
Message from Fahey to Fillar of 7/6/2008, Ex. R to Pls.’ 56.1 (“Regarding Citgo’s [sic] right to renew
for an additional 12 months, the Operating Reserves and the Marginal Loss Credit are the greatest
concern.”); E-mail Message from Fahey to Pfeifer of 1/8/2009, Ex. V to Pls.’ 56.1 (internal e-mail
stating “PDV has a renewal right option under their current contract . . . .”); E-mail Message from
Fahey to Ringenbach of 5/18/2009, Ex. W to Pls.’ 56.1 (internal e-mail stating, “Within the original
contract, PDV has an option to renew for an additional 12 month period based on our repricing of
2 ancillary services, TLC and OR.”); E-mail Message from Spilky to Mirick of 6/5/2009, Ex. S to Pls.’
56.1 (internal e-mail stating that Plaintiffs “have a one year renewal option . . . which they may or
may not exercise in the near future”); E-mail message from Fahey to Zimonick of 6/5/2009, Ex. T
to Pls.’ 56.1 (internal e-mail stating, “It’s time to begin reviewing the fixed Ancillary charges for
PDVMR’s option to renew for an additional 12 month term.”)
sources—to alternative retail electric suppliers (“ARESs”). 220 ILCS 5/16-115D.5 Integrys is an
ARES licensed by the State of Illinois. (Def.’s 56.1 ¶ 32.) In order to comply with the RPS, the Act
requires an ARES to make “alternative compliance payments . . . to cover at least one-half of the
[ARES’s] compliance obligation.” 220 ILCS 5/16-115D(b).6 Should an ARES fails to make the
required alternative compliance payments (“RPS charges”), the Act directs the Illinois Commerce
Commission (“ICC”) to require double the applicable payment and, should there be more than one
violation in a five-year period, to revoke the ARES’s certificate of service authority. Id. § 16-115D(f).
The RPS requirements and charges applied to “contracts executed or extended after March 15,
2009.” Id. § 16-115D(a)(6).
On June 3, 2009, representatives from both parties participated in a telephone call to
address the RPS obligations under the second year option. Participants in the call were Jim Fahey
of Integrys; Angela Connor, in-house counsel at Integrys; James Fillar of CITGO; and Christopher
Newcomb and Eugene Riccetti, CITGO’s in-house attorneys. (Def.’s 56.1 ¶ 41.) A month earlier,
on April 30, 2009, Fahey of Integrys had sent an e-mail message to Fillar of CITGO, in which Fahey
expressed his tentative belief that the RPS charges would not apply to renewal of the contract for
a second year because the Act allows “contracts to be grandfathered if the contract had been
signed prior to March 15, 2009,” though Fahey noted that he was still researching the issue. (Email Message from Fahey to Fillar of 3/30/2009, Ex. FF to Pls.’ 56.1.)
An ARES serves as an alternative to the two major retail electric suppliers in Illinois:
Ameren Illinois and Commonwealth Edision. Ameren and ComEd were subject to RPS obligations
prior to the passage of Public Act 096-0159.
To fulfill the other half of its compliance obligations, an ARES can make additional
alternative compliance payments, generate electricity using renewable energy resources, purchase
energy generated by such resources, or purchase “renewable energy credits,” an environmental
commodity established by state law and generated by renewable energy facilities. Id.
In preparation for the telephone conference, Fillar sent Fahey an e-mail message on March
29, 2009, confirming the details of a discussion between Fillar and Fahey at a meeting the previous
week, at which they estimated that the annual cost of purchasing enough renewable energy credits
to cover CITGO’s annual consumption under Integrys’s RPS obligations would be $520,000. (Email Messages between Jim Fillar to Jim Fahey of 5/29/2009, Ex. 15 to Fillar Dep., Ex. 5 to Def.’s
56.1.) Fahey responded that he was still in discussions with Integrys’s legal department about
whether the RPS charges would apply. (Id.)
By the time of the June 3 telephone call, however, Integrys had concluded that the RPS
charges would apply if the parties entered into a second year under the contract, and that Plaintiffs
were responsible to pay them according to the Pass Through provision. (Def.’s 56.1 ¶ 44.)
CITGO’s representatives challenged that conclusion; they took the position that the RPS payments
would not apply because they characterized parties’ agreement as a two-year contract, with an
early termination clause available to Plaintiffs. (Id. ¶¶ 45-46.) Angela Connor, Integrys’s in-house
counsel, recalls that one of CITGO’s representatives (she did not remember which one) stated,
“What if we just don’t pay?” (Connor Dep., Ex. 8 to Def.’s 56.1, at 79, 85.) Connor remembers the
tone of the conversation as “pointed,” and the tone of the question as “very upset.” (Id. at 85.) The
CITGO representatives suggested that the parties jointly seek clarification from the ICC or submit
the disputed contract interpretation to a neutral third party for arbitration or mediation. (Id.;
Newcomb Dep., Ex. C to Pls.’ 56.1 Resp., at 50-51, 55-56.) Although Plaintiffs did not explicitly
refuse to pay the RPS charges, Connor further testified that it was her impression from the remarks
of CITGO’s representatives and their tone that CITGO would not pay the RPS charges under a
second year of the contract. (Connor Dep. at 85, 103-05.)
On June 15, 2009, David Pfeifer, Integrys’s Managing Director, sent a letter to Fillar of
CITGO giving notice that Integrys was terminating the contract at the end of the initial Delivery
Period, pursuant to the termination option in subsection (i) of the Confirmation’s Renewal provision.
(Def.’s 56.1 ¶ 51.) In response, Fillar sent a letter on June 16, 2009 stating that CITGO did not
accept the purported notice of termination. (Id. ¶ 55.) According to CITGO’s reading of the
Renewal provision, Integrys’s right to terminate was subject to PDVMR’s right to renew. The letter
stated, “Integrys is bound by this two-year contract, which can be abandoned unilaterally by
PDVMR in the event PDVMR, at its sole discretion, opts not to enter into a second Confirmation in
accordance with the contract after the Initial Delivery Period.” (Letter from Fillar to Pfeifer of
6/16/2009, Ex. 6 to Am. Compl.)
On the day Integrys sent the notice of termination, June 15, Fahey spoke with Fillar by
telephone to inform him of Integrys’s notice of termination. Despite hearing from Fahey about the
notice, Fillar asked Fahey in that call to provide the rate changes that would apply to the second
year. (Def.’s 56.1 ¶ 57.) The June 15 notice of termination was presumably already in the mail,
but Fahey complied with Fillar’s request, leaving a voicemail with information concerning those
changes later that evening, and then confirming the message in an e-mail message the next day.
(Id. ¶ 58.) On June 24, 2009, PDVMR sent a letter to Integrys giving notice that PDVMR accepted
the rate changes and was exercising its option to renew the contract for a second year, pursuant
to the Special Conditions of the Confirmation. (Def.’s ¶ 59.) In response, Integrys sent a letter
rejecting the renewal on the grounds that it had terminated the contract. (Id. ¶ 60.)
Given Integrys’s position, Plaintiffs were forced to procure electric power from another
supplier after the end of the initial Delivery Period. CITGO contracted with MidAmerican Energy
Company (“MidAmerican”) for the provision of electricity at the Lemont Refinery from September
2009 to September 2010. (Id. ¶ 62.) Under this contract, CITGO paid MidAmerican approximately
$295,000 in RPS charges. (Pls.’ 56.1 ¶ 41.) In addition to these charges, Plaintiffs claim
approximately $1.3 million as the difference between what CITGO paid MidAmerican and what
Plaintiffs would have paid Integrys under a second year of the contract. (Id. ¶ 40; Def.’s 56.1 ¶ 64.)
Motion to Strike and Bar Testimony
As a preliminary matter, the court considers Plaintiffs’ motion to strike and bar the testimony
of Defendant’s expert witness, Kevin K. Wright. Mr. Wright is President of the Illinois Competitive
Energy Association (“ICEA”), a trade association that represents ARESs such as Integrys. (Wright
Report, Ex. A to Wright Decl., Ex. 10 to Def.’s 56.1, at 10.)
He bases his expert report on his
involvement in the negotiations that led to the RPS extension under Public Act 096-0159. (Id.)
Wright purports to render an expert opinion “with respect to the interpretation, background, and
application of Public Act 096-0159 relating to the [RPS] charges.” (Id. at 1.)
Plaintiffs object that Wright’s expert opinion provides impermissible legal conclusions about
the meaning of Public Act 096-0159. In his expert report, Wright analyzes the statutory language,
explains the negotiation process between industry stakeholders and the Office of the Attorney
General that resulted in the drafting of Public Act 096-0159, and examines the legislative history
to determine the General Assembly’s intent in adopting the Act. In the context of this case, the
relevant question concerning Public Act 096-0159 is whether the exercise of a renewal provision
in a contract signed prior to March 15, 2009, constitutes a contract “executed or extended after
March 15, 2009.” 220 ILCS 5/16-115D(a)(6) (emphasis added). This is a question of law for the
court to decide, on which the court will instruct the jury. Given that it is the court that must decide
whether the RSP charges would have applied to a second year under the contract’s renewal
provision, expert testimony on the meaning on Public Act 096-0159 will not aid the trier of fact to
“understand the evidence or to determine a fact in issue.” FED. R. EVID. 702. Even for the court’s
consideration of this issue, legislative history is not of any consequence where the language of a
statute is clear. See United States v. Easter, 553 F.3d 519, 526 (7th Cir. 2009) (“Where, as here,
the plain meaning of the statute is unambiguous, that is the end of the matter.”); United States v.
Jones, 372 F.3d 910, 913 n.2 (7th Cir. 2004) (“[W]here the meaning of a statute is unambiguous,
[a court’s] sole task is to apply it straightforwardly to the facts at issue without referring to legislative
history or other devices.”). The proffered testimony on this purely legal matter is inadmissible.
Plaintiffs also object to Wright’s expert testimony on the grounds that Wright expresses an
opinion on the application of Public Act 096-0159 to the contract in this case. Specifically, Plaintiffs
object to Wright’s conclusion that “Integrys correctly applied the RPS charges to its customer’s
extended or renewed contract in compliance with this new statute.” (Wright Report at 3.) Such an
expert opinion is an impermissible legal conclusion on an issue that affects the outcome of
Defendant’s anticipatory repudiation defense. See Good Shepherd Manor Found., Inc. v. City of
Momence, 323 F.3d 557, 564 (7th Cir. 2003) (“[E]xpert testimony as to legal conclusions that will
determine the outcome of the case is inadmissible.”); Scottsdale Ins. Co. v. City of Waukegan, 689
F. Supp. 2d 1018, 1025 (N.D. Ill. 2010) (citing Klaczak v. Consol. Med. Trans., 458 F. Supp. 2d 622,
636 (N.D. Ill. 2006), for the proposition that an “expert may not testify on the issue of how a contract
should be construed under the law”); Connell v. KLN Steel Products Ltd., No. 04 C 194, 2009 WL
691292, at *9 (N.D. Ill. Mar. 16, 2009) (“[A] legal opinion as to the operation of a contract under the
relevant laws is not admissible.”). “Argument about the meaning of . . . contracts . . . belongs in
briefs, not in ‘expert reports.’” RLJCS Enters., Inc. v. Prof’l Benefit Trust Multiple Emp’r Welfare
Benefit Plan & Trust, 487 F.3d 494, 498 (7th Cir. 2007).
Defendant argues that Wright’s report is offered for a permissible purpose: “to explain the
complex statutory and regulatory scheme created by a series of a clean energy laws, culminating
. . . in Public Act 96-0159 . . . and the resulting impact of those laws on Integrys as an alternative
retail electric supplier (‘ARES’).” (Def.’s Resp. in Opp. to Pls.’ Mot. to Strike and Bar Testimony of
Expert Opinion of Kevin K. Wright, at 1.) Defendant cites a number of cases in which courts have
allowed expert testimony concerning the background of complex laws and regulatory schemes, and
on how government agencies apply those rules. See, e.g., United States v. Davis, 471 F.3d 783,
789 (7th Cir. 2006) (“Experts are permitted to testify regarding how their government agency applies
rules as long as the testimony does not incorrectly state the law or opine on certain ultimate legal
issues in the case.”); CDX Liquidating Trust ex. rel. CDX Liquidating Tr. v. Venrock Assocs., 411
B.R. 571, 588 (N.D. Ill. 2009) (allowing a lawyer expert qualified in “fiduciary duty law” to “provide
a helpful explanation to the jury regarding the standard practices and procedures of corporate
The law governing electric utilities in Illinois is indeed complex, but the relevant question in
this case is not. The court need only determine whether the RPS charges, applicable to contracts
“executed or extended after March 15, 2009,” apply to contracts executed before, but containing
options to renew exercised after, that date. Further, Wright’s testimony does not explain how the
ICC has applied the RPS requirements to option contracts since Public Act 096-0159 has gone into
effect. Should the court decide that the RPS charges apply to the contract as a matter of law, it will
be for the trier of fact to determine whether by words or conduct, Plaintiffs manifested a refusal to
pay the RPS charges, in violation of the contract’s Pass Through provision, and whether that refusal
constituted a repudiatory breach or otherwise justified Integrys’s refusal to renew the contract.
Expert testimony on the complex regulatory scheme governing electric utilities is not relevant to that
Because Wright’s testimony constitutes inadmissible conclusions on purely legal matters,
the court grants Plaintiffs’ motion to strike and bar his testimony. The court will consider the
substance of the report only to the extent that it leads the court to otherwise appropriate sources
of legislative history, if relevant.
Cross-Motions for Summary Judgment
The court grants summary judgment if “there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” FED. R. CIV P. 56(a). Where, as here,
the parties have filed cross-motions for summary judgment, the court “view[s] all facts and
inferences in the light most favorable to the nonmoving party on each motion.” Wis. Alumni
Research Found. v. Xenon Pharm., Inc., 591 F.3d 876, 882 (7th Cir. 2010). The court may not
“assess the credibility of witnesses, choose between competing reasonable inferences, or balance
the relative weight of conflicting evidence.” Stokes v. Bd. of Educ., 599 F.3d 617, 619 (7th Cir.
The court first addresses whether Defendant was entitled to terminate the agreement after
the first year and refuse to recognize Plaintiffs’ election of their option to renew. Concluding that
the contract did not permit the termination under these circumstances, the court then assesses
Defendant’s anticipatory repudiation and unclean hands defenses.
Where a contract’s terms are unambiguous, Illinois law applies the “four-corners rule,”
requiring courts to enforce the contract as written. See Lewitton v. ITA Software, Inc., 585 F.3d
377, 379-80 (7th Cir. 2009); Cont’l Cas. Co. v. Nw. Nat. Ins. Co., 427 F.3d 1038, 1041 (7th Cir.
2005). Enforcing unambiguous contract terms is particularly appropriate when addressing the
contracts executed by “commercially sophisticated parties . . . who know how to say what they
mean and have an incentive to draft their agreement carefully.” Bank of Am., N.A. v. Moglia, 330
F.3d 942, 946 (7th Cir. 2003). Where contract terms are indefinite or susceptible to more than one
interpretation, however, courts may “look to extrinsic evidence to determine the parties’ intent.”
Lewitton, 585 F.3d at 380. When considering such extrinsic evidence, “the factfinder should focus,
in descending order of importance, on: (1) the parties’ negotiations over the contract at issue; (2)
their course of performance; (3) their prior course of dealing; and (4) trade usage in the relevant
industry.” Elda Arnhold & Byzantio, L.L.C. v. Ocean Atl. Woodland Corp., 284 F.3d 693, 701 (7th
Generally, the interpretation of ambiguous contract terms is a question of fact for the jury.
See Cont’l Cas. Co., 427 F.3d at 1041 (“Under Illinois law . . . it is the general rule that ‘questions
of contractual ambiguity [are given] to the trier of fact, together with the evidence necessary to
resolve them.’” (alterations in original) (quoting Kinesoft Dev. Corp. v. Softbank Holdings Inc., 139
F. Supp. 2d 869, 891 (N.D. Ill. 2001))). Where the extrinsic evidence relevant to the interpretation
is undisputed, however, Illinois law places the responsibility for interpreting ambiguous contract
terms on the court. See Patridge v. J.K. Harris & Co., LLC, 279 F. App’x 406, 409 (7th Cir. 2008);
Cont’l Cas. Co., 427 F.3d at 1041. Such interpretation is susceptible to resolution on a motion for
summary judgment “if a reasonable jury could not find for [the nonmovant] even when all
reasonable inferences are drawn from the undisputed extrinsic evidence.” Cont’l Cas. Co., 427
F.3d at 1041.
The court finds the Renewal provision in the Confirmation ambiguous. Phrased in the
disjunctive, the contract provides (1) a right to terminate to both parties or (2) an option to renew
to Plaintiffs—both as alternatives to the default continuation of the contract on a month-to-month
term after the initial Delivery Period. The contract does not explain the order of priority between
those two alternatives, however. That is, the contract is unclear as to what results when Defendant
exercises its right to terminate and Plaintiffs exercises their right to renew.
Each party contends that adopting the other side’s interpretation vitiates the unambiguous
meaning of its preferred alternative. Thus, Defendant insists that the plain terms of the contract
prevented Plaintiffs from exercising their right to renew without Defendant’s acquiescence.
Specifically, Defendant argues that the language in subsection (ii) of the Renewal provision, which
requires Plaintiffs’ renewal be “evidenced by a fully executed Confirmation for the second year,”
shows that Plaintiffs did not have a unilateral right to renew. Defendant’s argument, however,
appears belied by the Special Conditions, also referenced by subsection (ii), which provide for the
Confirmation’s seemingly automatic renewal should PDVMR exercise its option. (“If PDVMR
renews the Confirmation for an additional 12 months . . . the Confirmation will renew with the same
terms and conditions as the initial Delivery Period.” (Confirmation at 4 (emphasis added).).)
Additional contract language points to PDVMR as the party capable of exercising the right to renew.
(“Subject to PDVMR renewing for a second year . . . .” (Confirmation at 3.); “PDVMR shall have the
right to renew the Confirmation . . . .” (Confirmation at 4.).) Furthermore, the timing of Plaintiffs’
option to renew supports Plaintiffs’ argument that Integrys had a unilateral right to terminate only
after Plaintiffs chose not to exercise the option: the Special Conditions provide that Plaintiffs’
renewal notice was due on June 30, well before the thirty-day notice to terminate.7
The Renewal provision is therefore susceptible to two opposing interpretations. Under
Defendant’s interpretation, Defendant could exercise its right to terminate the contract past the
initial Delivery Period, regardless of whether Plaintiff choose to exercise its option to renew.8 Under
Plaintiffs’ interpretation, if Plaintiffs did not exercise their right to renewal, only then could either
party terminate the contract and prevent renewal on a month-to-month basis.
For these same reasons, the court does not read the Renewal provision’s reference
to a “fully executed Confirmation” to require a second, mutual writing as a condition precedent to
a binding renewal for the second year. Courts applying Illinois law consider the following factors
“‘persuasive’ in determining whether the execution of a written contract was intended as a condition
precedent: (1) whether this is the type of business arrangement that is reduced to writing; (2)
whether the amount of money is substantial; (3) whether significant provisions were not previously
discussed or agreed upon; and (4) whether the parties’ negotiations show that a writing was
anticipated.” David Copperfield’s Disappearing, Inc. v. Haddon Adver. Agency, Inc., 897 F.2d 288,
292 (7th Cir. 1990). The court considers factor (3) the most relevant in this case. The parties had
already negotiated all the terms material to the second year in the first Confirmation, and agreed
that the Confirmation would renew if Plaintiffs exercised their option.
Defendant does not go so far as to argue that the renewal provision was an
unenforceable “agreement to agree,” but that appears to be the natural consequence of its
interpretation. There is no meeting of the minds where the parties have reached “a tentative
agreement contingent upon the successful completion of negotiations that are ongoing.” Ocean
Atl. Dev. Corp. v. Aurora Christian Schs., Inc., 322 F.3d 983, 996 (7th Cir. 2003) (applying Illinois
law). A contract that calls for the parties to reach another agreement in the future is enforceable,
however, if “‘the terms to be agreed upon in the future can be determined independent of a party’s
mere ‘wish, will, and desire’ . . . , either by virtue of the agreement itself or by commercial practice
or other usage or custom.’” Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 565 (7th Cir. 2012)
(alteration in original) (quoting United States v. Orr Constr. Co., 560 F.2d 765, 769 (7th Cir. 1977))
(internal quotation marks omitted) (applying Illinois law). In this case, the Special Conditions
provided for the exact terms of the Confirmation for the second year, and the only changes from
the first-year Confirmation resulted from application of an algorithm to account for changes in
certain fees. As far as those terms were concerned, the contract is enforceable even if it did call
for the parties to reach another agreement in the future.
Plaintiffs present compelling extrinsic evidence in favor of their interpretation. Plaintiffs’
original RFP contemplated that CITGO would have the option to renew after twelve months (CITGO
RFP, Ex. A to Pls.’ 56.1), a fact that Fahey acknowledged in an e-mail message to fellow Integrys
employees while preparing the draft Confirmation. (E-mail Message from Fahey to Bollinger et al.
of 6/30/2008, Ex. P to Pls.’ 56.1.) The circumstances surrounding Integrys’s pricing error in its
initial response to the RFP also supports Plaintiffs’ interpretation: Integrys offered to take the full
loss of the pricing error for a single year contract, or split the cost of the error over a one-year
contract with an option for Plaintiff to renew for an additional year. The second option does not
offer Plaintiffs a clear advantage over the first if the right to renew is subject to Integrys’s right to
terminate the contract after the first year. Other statements made by Integrys representatives, both
during negotiations and during the course of performance, reflect their understanding that Plaintiffs
had a unilateral right to renew the contract for a second year. See supra note 3.9
By comparison, the only extrinsic evidence Defendant marshals in support of its
interpretation is that the termination provision of subsection (i) of the Renewal provision remained
unchanged from the very first draft of the contract, and was a standard term in Integrys’s contracts.
Weighed against the extrinsic evidence of the negotiation process presented by Plaintiffs,
Defendant presents little convincing evidence in support of its interpretation, especially in light of
other language in the contract that runs counter to Defendant’s position that the contract provided
only a bilateral option to renew. Because none of the extrinsic evidence is controverted, contract
interpretation is a question of law for the court. Even drawing all reasonable inferences in favor of
Defendant, the court concludes no reasonable jury could conclude that Defendant had a unilateral
right to terminate the contract that trumped Plaintiffs’ option to renew. Consequently, Defendant
Other communications Plaintiffs cite speak of an “option to renew,” but do not specify
which party may exercise it. No communications during contract negotiation suggest that CITGO
representatives understood Plaintiff’s option to renew to be subject to Defendant’s right to
breached the contract by terminating it past the initial Delivery Period and refusing to proceed with
the deal after Plaintiffs had exercised their right to renew.
Defendant raises a number of affirmative defenses to Plaintiffs’ breach of contract claim.
The parties have filed cross-motions for summary judgment on Defendant’s claim that Plaintiffs
anticipatorily breached the contract when Plaintiffs’ representatives contested the obligation to pay
RPS charges under a second year of the contract. Defendant claims Plaintiffs’ position was in
violation of the contract’s Pass Through provision, which allowed Defendant to pass the cost of any
change in law to Plaintiffs. Plaintiffs also seek summary judgment on Defendant’s unclean hands
defense, which rests on Defendant’s contention that Plaintiffs’ position with regards to the RPS
charges was taken in bad faith. The court considers, first, whether the RPS charges required by
Public Act 096-0159 would have applied to the second year of the contract as a matter of law.
Applicability of the RPS Charges
Defendant’s affirmative defenses depend, in part, on whether Plaintiffs are correct in
insisting that the RPS charges would not have applied to the second twelve-month term. The Act
requires such payments on contracts “executed or extended after March 15, 2009.” 220 ILCS 5/16115D(a)(6). Neither party provides any case law or ICC regulations or administrative decisions
applying the RPS effective date to option contracts signed before that date.
During the June 3 conference call and in their June 16 letter rejecting Integrys’s termination
notice, Plaintiffs asserted that the contract was for a two-year term, subject to Plaintiffs’ unilateral
right to terminate. The plain terms of the contract refute that position. The contract provided for
an initial twelve-month Delivery Period, and gave Plaintiffs an option to renew for an additional
twelve months. Renewal for the second year was not automatic; rather, continuation of the
contract’s terms on a month-to-month basis was the default should neither side act by the end of
the initial Delivery Period. To exercise the option to renew, Plaintiff had to give notice of its decision
after accepting certain rate changes.
Before this court, Plaintiffs now argue that the RPS charges are inapplicable because the
parties signed an option contract prior to March 15, 2009. Essentially, Plaintiffs claim that their
decision to exercise the option relates back to the earlier date on which the parties executed the
contract. Confronting the statutory language, Plaintiffs argue that electing an option to renew a
contract is not the same as a contract extended after the applicable date. In the court’s view, any
distinction between these concepts is, in this context, a distinction without a difference. Plaintiffs
appear to believe that the term “extended” should be limited to contract extensions that are not
contemplated in the original contract’s terms.10 But any extension for which a contract’s terms do
not provide would require a newly executed contract, subject to all the prerequisites of contract
formation. Consequently, such an extension would fall within the meaning of contracts “executed
. . . after March 15, 2009.” If the statutory distinction between contracts “executed or extended" is
to have any meaning, “extended” must incorporate contracts that provide for their own extension,
as this one does.11 The court concludes that the RPS charges would have applied to a second year
as an extension of the contract occurring after March 15, 2009.
Given this conclusion, the court grants Defendant partial summary judgment on the issue
of damages. The Power Sale Agreement of the contract contained a remedy provision, which
provided that in the event of Integrys’s (the “Seller’s”) default, “and the price for replacement electric
power . . . is higher than the amount the Buyer would have paid under this Agreement (including
Notably, Plaintiffs’ proposed distinction contradicts the distinction made between
contract renewal and contract extension found in Black’s Law Dictionary, which defines “renewal”
in the Contracts context to mean, “The re-creation of a legal relationship or the replacement of an
old contract with a new contract, as opposed to the mere extension of a previous relationship or
contract.” Black’s Law Dictionary 1322 (8th ed. 2004).
Nothing in the legislative history referenced by Defendant’s expert witnesses
suggests that the General Assembly used the term “extended” in a particular or unusual manner.
energy, capacity, and other components), then Seller shall pay Buyer Early Termination Damages
in the amount of such positive difference . . . .” (Power Sale Agreement at 2.) Because the court
concludes that Plaintiffs would have been obligated to pay RPS charges under the contract, they
cannot claim the $295,073 in RPS charges they paid to MidAmerican as a component of their
Under Illinois law, an affirmative defense of anticipatory repudiation is a question of fact.
See Arlington LF, LLC v. Arlington Hospitality, Inc., 637 F.3d 706, 713 (7th Cir. 2011) (citing
Timmerman v. Grain Exch., LLC, 394 Ill. App. 3d 189, 201, 915 N.E.2d 113, 124 (5th Dist. 2009);
Truman L. Flatt & Sons Co. v. Schupf, 271 Ill. App. 3d 983, 987, 649 N.E.2d 990, 994 (4th Dist.
1995)). Defendant must show that Plaintiffs manifested “a clear, unequivocal intent not to perform
under the contract when performance is due.” Id. (citing In re Marriage of Olsen, 124 Ill. 2d 19, 24,
528 N.E.2d 684, 686 (1988); Draper v. Frontier Ins. Co., 265 Ill. App. 3d 739, 745, 638 N.E.2d
1176, 1181 (2d Dist. 1994)). The repudiation must constitute a material breach of contract. See
id. (“The repudiation has to ‘render unattainable’ the point of the contract.”).
A party may repudiate by words or other conduct, and “although a party may state that it
intends to honor its obligations, it may still repudiate the contract by insisting that it is obligated to
perform only according to its own incorrect interpretation of the contract’s terms.” Kinesoft Dev.
Corp., 139 F. Supp. 2d at 897 (citing Olsen, 124 Ill. 2d at 24, 528 N.E.2d at 686; E. Allen
Farnsworth, Farnsworth on Contracts § 8.21, at 536-37 (2d ed. 1998)); see also Busse v. Paul
Revere Life Ins. Co., 341 Ill. App. 3d 589, 594, 793 N.E.2d 779, 783 (1st Dist. 2003) (quoting
Kinesoft’s analysis without citation). But see Feliberty v. Unumprovident Corp., No. 03 C 7569,
2003 WL 22991859, at *2 (N.D. Ill. Dec. 16, 2003) (“[T]here is no anticipatory repudiation when a
party makes statements that it will perform in accordance with its interpretation of the contract
unless that interpretation is manifestly incorrect or unreasonable.”).
“When one party has
committed a repudiation, the other party can treat the contract as ended.” Arlington LF, 637 F.3d
Defendant contends that Plaintiffs clearly and unequivocally expressed their position that
the RPS charges would not apply to a second year should Plaintiffs exercise their right to renew.
Defendant points to the disagreement at the June 3, 2009 conference call, in which Plaintiffs
maintained that the contract was a two year contract (and therefore exempt from RPS charges),
a view that Plaintiffs again asserted in the July 16, 2009 letter in response to Defendant’s notice
of termination. Defendants also note Connor’s testimony that on the June 3 call, one of Plaintiffs’
representatives asked, “What if we just don’t pay?” Connor also described the tone of the
conversation as “pointed,” and the tone of the individual’s question as “very upset.” Defendant
claims that Plaintiffs’ misinterpretation of the contract and the RPS charges was a repudiation of
Plaintiffs’ obligations to pay those charges according to the contract’s Pass Through provision.
At this stage, Plaintiffs do not contest that if the RPS charges applied to the second year
of the charges, Plaintiffs would have had an obligation under the contract to pay those charges.
Plaintiffs deny that their representatives clearly and unequivocally manifested Plaintiffs’ intent not
to pay the charges, however. They point out that none of their representatives expressly stated that
Plaintiffs would not pay the RPS charges. At most, Plaintiffs claim, one of their representatives may
have asked a hypothetical question about what would result if Plaintiffs did not pay. As Plaintiffs
characterize their discussions on this issue, they never took a “hardened inflexible position” on the
RPS charges, and were engaged in an amicable discussion with Defendant until the notice of
termination. (Pls.’ Resp. to Def.’s Mot. for Summ. J. at 9 (quoting Commonwealth Edision Co. v.
Decker Coal Co., No. 84 C 9573, 1986 WL 1010, at *2 (N.D. Ill. Jan. 8, 1986)).) Indeed, one of the
options discussed on the June 3 call, according to Plaintiffs, was for CITGO to pay the RPS
charges into an escrow account and seek clarification from the ICC or a neutral third party as to
whether the charges actually applied—an approach Plaintiffs contend the Defendant has taken in
other cases where there is disagreement about the application of the Illinois Public Utilities Act to
its contractual arrangements. (Pls.’ Additional Facts to Controvert Integrys’ Claim for Summ. J.
¶¶ 4-5.) Plaintiffs also note that Defendant could have, but did not, ask Plaintiffs for an assurance
Although the facts underlying the anticipatory repudiation claim are not in dispute,
reasonable jurists could disagree about the inferences to draw from these facts. Whether the words
and conduct of Plaintiffs’ representatives were enough to constitute a “clear and unequivocal”
repudiation of Plaintiffs’ obligation to pay the RPS charges is a close question on these facts.
Consequently, summary judgment is not appropriate for the anticipatory repudiation defense.
Summary judgment is appropriate on Defendant’s unclean hands defense, however. Under
Illinois law, unclean hands is a defense to a claim seeking equitable relief, not a defense to an
action for contract damages. See Young v. Verizon’s Bell Atl. Cash Balance Plan, 615 F.3d 808,
822 (7th Cir. 2010) (“A plaintiff who acts unfairly, deceitfully, or in bad faith may not through equity
seek to gain from that transgression.” (emphasis added)). Indeed, the Illinois appellate court case
cited in both parties’ briefs addressed whether a party’s alleged misconduct precluded the circuit
court from granting a motion for preliminary injunction. See Reg’l Transp. Auth. v. Burlington N.
Inc., 100 Ill. App. 3d 779, 786, 426 N.E.2d 1143, 1148 (1st Dist. 1981) (“We do not believe any
breach of contract on the part of RTA would constitute unclean hands, so as to preclude its right
to seek equitable relief.” (emphasis added)).
In this case, Plaintiffs seek damages for breach of contract, not equitable relief. In similar
circumstances, courts within this district, applying Illinois law, have declined to recognize the
affirmative defense of unclean hands. E.g., RBS Citizens, N.A. v. Sanyou Import, Inc., No. 11 C
1820, 2011 WL 2712744, at *4 (N.D. Ill. July 13, 2011) (Kocoras, J.); HSBC Mortg. Servs., Inc. v.
Equisouth Mortg., Inc., No. 10 C 4747, 2011 WL 529412, at *3 (N.D. Ill. Feb. 7, 2011)
(Leinenweber, J.); Gen. Elec. Bus. Fin. Servs., Inc. v. Silverman, 693 F. Supp. 2d 796, 804 (N.D.
Ill. 2010) (Gettleman, J.); Citadel Grp. Ltd. v. Wash. Reg’l Med. Ctr., No. 07-CV-1394, 2009 WL
1329217, at *5 (N.D. Ill. May 13, 2009) (Aspen, J.); accord Zahl v. Krupa, 365 Ill. App. 3d 653, 658,
850 N.E.2d 304, 310 (2d Dist. 2006); Am. Nat’l Bank & Trust Co. of Chicago v. Levy, 83 Ill. App.
3d 933, 936, 404 N.E.2d 946, 948-49 (1st Dist. 1980). Consequently, the court grants Plaintiffs’
motion for summary judgment as to Defendant’s unclean hands defense.
For the reasons stated above, the court grants Plaintiffs’ motion to strike and bar testimony
of Defendant’s expert witness . The parties’ motions for summary judgment are granted in part
and denied in part. The court concludes as a matter of law that Defendant breached the contract
by its June 15 notice of termination. Plaintiffs’ motion for summary judgment  is granted with
respect to Defendant’s unclean hands defense and denied with respect to the defense of
anticipatory repudiation. Defendant’s motion for summary judgment  is granted with respect to
the exclusion of RPS charges as a component of damages, but denied in all other respects. The
parties are encouraged to attempt to settle this dispute.
Dated: June 12, 2012
REBECCA R. PALLMEYER
United States District Judge
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