ADA-ES, Inc. v. Big Rivers Electric Corporation

Filing 73

MEMORANDUM OPINION AND ORDER Signed by Magistrate Judge H. Brent Brennenstuhl on 1/18/2019 granting 70 Motion for Leave to file Counterclaim. Pursuant to this order, the Clerk of the Court is directed to file the proposed counterclaim. cc: Counsel (JM)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
OWENSBORO DIVISION
CIVIL ACTION NO. 4:18-CV-0016-JHM-HBB
ADA-ES, INC.

PLAINTIFF

VS.
BIG RIVERS ELECTRIC CORPORATION

DEFENDANT

MEMORANDUM OPINION AND ORDER
Before the Court is Defendant’s motion for leave to file a counterclaim (DN 70). Plaintiff,
ADA-ES (“ADA”), Inc., has filed a response in opposition (DN 71), and Big Rivers has filed a
reply (DN 72).
Background
ADA is a Colorado corporation that develops proprietary environmental technology that
assists power plants reduce emissions and comply with emission control regulations (DN 20
PageID # 181). This case concerns a contract between ADA and Big Rivers for ADA to design
and implement a dry sorbent injection system (“DSI”) at Big Rivers’ D.B Wilson Power Plant in
Centertown, Kentucky.

ADA alleges that it designed and implemented a DSI system in

accordance with the terms of the subject contract.

Big Rivers tested the DSI system and

determined that it failed to reduce the amount of SO3 emissions to less than five parts per million
as was guaranteed under the contract (Id.).
ADA asserts the failure was the result of Big Rivers non-compliance with proper testing
procedures delineated in the contract (Id. at 183). Big Rivers subsequently issued a claim for
damages in the amount of $605,458.78 and withheld $563,382.56 of contractually owed payments

(Id.). ADA further alleges Big Rivers fraudulently withdrew the entirety of an $807,651 Letter of
Credit from CoBiz Bank (Id. at 184). The Letter of Credit was to serve as security for performance
of the contract (Id. at 181). ADA claims Big Rivers fraudulently communicated to CoBiz Bank
that ADA was in breach of contract and had been informed of Big Rivers’ intent to withdraw the
Letter of Credit. (Id. at 184). ADA filed a complaint on April 21, 2017 in United States District
Court for the District of Colorado (DN 3). It filed an amended complaint on May 11, 2017
presenting five claims for relief: 1) Fraud, 2) Unjust Enrichment, 3) Declaratory Relief, 4) Breach
of UCC Warranties, and 5) Breach of Contract.
Big Rivers filed a motion to dismiss ADA’s claims for lack of personal jurisdiction and
failure to state a claim (DN 27). The Colorado District Court transferred the case sua sponte to
the Western District of Kentucky (DN 39). Big Rivers answered ADA’s complaint in the Western
District of Kentucky. It denied all claims against them and asserted nine affirmative defenses (DN
49 PageID # 1129). On April 19, 2018 the undersigned submitted a scheduling order requiring all
amended pleadings be submitted by December 21, 2018. The parties then filed competing motions
for summary judgment (DN 59 and DN 63). Before this Court could rule on the summary
judgment motions, Big Rivers filed a motion for leave to file a counterclaim on December 7, 2018
(DN 70). ADA filed a response opposing the motion (DN 71) and Big Rivers replied (DN 72).
Analysis
The Court “should freely give leave [to amend] when justice so requires”. Fed R. Civ. P.
15(a)(2). Considering this liberal view, a motion to amend a pleading “should be denied if the
amendment is brought in bad faith, for dilatory purposes, results in undue delay or prejudice to the
opposing party or would be futile.” Colvin v. Caruso, 605 F. 3d 282, 294 (6th Cir. 2010) (citing
Crawford v. Roane, 53 F. 3d 750, 753 (6th Cir. 1995)).

Here, Big Rivers moves the Court for leave to file a counterclaim asserting a new claim for
breach of contract, breach of express warranty, breach of covenant of good faith and fair dealing,
and a declaration of rights regarding attorney’s fees (DN 70). ADA objects to the counterclaim,
arguing that if the Court were to grant summary judgment in its favor on either of its previous
requests for declaratory judgment, the proposed counterclaim would be futile. Therefore, Big
Rivers’ proposed counterclaim should be denied (DN 71 PageID # 2041). This argument is
inapposite.
A proposed amendment to a pleading is futile if the amendment “could not withstand a
12(b)(6) motion to dismiss.” Rose v. Hartford Underwriters Ins. Co., 203 F. 3d 417, 420 (6th Cir.
2000). To survive a motion to dismiss, the pleading “must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 677 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim
has facial plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id. Further, a district
court must “(1) view the complaint in the light most favorable to the plaintiff and (2) take all well
pleaded factual allegations as true.” Tackett v. M&G Polymers, USA, LLC, 561 F.3d 478, 488
(6th Cir. 2009) (citing Gunasekera v. Irwin, 551 F. 3d 461, 466 (6th Cir. 2009)). The probability
that a summary judgment motion will be successful is irrelevant to the question of futility.
In its proposed amended counterclaim, Big Rivers presents four claims against ADA (DN
70-1). The first is for breach of contract (Id. at 2032). Big Rivers alleges ADA promised to
“provide Big Rivers with a DSI system that, while using a reagent meeting the specifications listing
in Paragraph 31 [of the contract], would, among other things, reduce SO3 to 5 ppm.” (DN 70-1
PageID # 2032) (internal citations omitted). Big Rivers claims that after two performance tests

ADA’s DSI system failed to reduce SO3 to 5 ppm or lower (Id.). Taking these facts to be true, as
the Court is required to do, Big Rivers’ claim for breach of contract contains sufficient factual
matter to survive a Rule 12(b)(6) motion.
Big Rivers’ second claim is for breach of express warranty (Id. at 2033). Big Rivers alleges
ADA expressly warranted “that it would undertake an investigation into the ‘root cause’ of any
failure of the DSI system … and remedy any failure to comply with the RFQ, Contract, or any
guarantees found therein” (Id. at 2034). Big Rivers adds that the express warranty entitled it to
corrective action by a third party and ADA would be liable for costs (Id.). Big Rivers’ alleges that
ADA’s DSI system failed to meet the required SO3 emission standards, sound-level requirements,
and injection-rate requirements. It claims ADA did not comply with the contract’s warranty
requirements and ignored requests for compensation (Id.). Again, these facts, if true, survive the
liberal 12(b)(6) standard for dismissal for failure to state a claim.
Big Rivers’ third claim is for breach of covenant of good faith and fair dealing (Id. at 2034).
Every contract includes an implied covenant of good faith and fair dealing. Allis-Chambers Corp.
v. Lueck, 471 U.S. 202 (citing Restatement (Second) of Contracts § 205 (1981)). The covenant
can be violated by “evasion of the spirit of the bargain, lack of diligence and slacking off, willful
rendering of imperfect performance, abuse of a power to specify terms, and interference with or
failure to cooperate in the other party’s performance.” Restatement (Second) of Contracts § 205,
cmt. d. Big Rivers accuses ADA of breaching the covenant by “walk[ing] away from the project
and refus[ing] to communicate with Big Rivers regarding the DSI system.” Big Rivers further
alleges that ADA sued in bad faith after it exercised its contractual right to draw on the letter of
credit. These facts on their face are enough to survive a 12(b)(6) motion for dismissal.

Big Rivers fourth and final claim is for a declaration of rights regarding attorney’s fees
(DN 70-1 PageID # 2035-36). Big Rivers alleges that the contract contains an Attorney’s Fees
provision that entitles it to recovery of fees from ADA in the event the contract is breached (Id. at
2035). Big Rivers argues the Attorney’s Fees provision was triggered when ADA sued Big Rivers
for breach of contract and fraud forcing it to incur expenses in defense. It also seeks to recover
expenses incurred enforcing its own contractual rights stemming from ADA’s alleged breach of
contract. Again, these claims present a sufficient factual basis to survive a 12(b)(6) motion.
ADA relies on this Court’s prospective acceptance of their motion for summary judgment
as reason to reject Big Rivers proposed counterclaim. This argument misses the mark. The
relevant standard for futility is that of a 12(b)(6) motion to dismiss for failure to state a claim. Big
Rivers’ counterclaim presents a sufficient factual basis to survive that lenient standard and its
motion was filed in a timely manner.
Order
IT IS HEREBY ORDERED that Big Rivers’ motion for leave to file a counterclaim (DN
70) is hereby GRANTED. Pursuant to this order, the Clerk of the Court is directed to file the
proposed counterclaim at DN 70-1.

January 18, 2019

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Counsel