Covanta Hennepin Energy Resource Co., LLC v. The County of Hennepin
ORDER granting 48 Partial Motion to Dismiss (Written Opinion) Signed by Senior Judge David S. Doty on 5/25/2017. (DLO)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 16-3086(DSD/HB
Covanta Hennepin Energy
Resource Co., LLC,
The County of Hennepin,
Mark J. Blando, Esq., Jared M. Reams, Esq. and Eckland &
Blando, LLP, 800 Lumber Exchnage, 10 South 5th Street,
Minneapolis, MN 55402, counsel for plaintiff.
Charles H. Salter, Esq., Jane N.B. Holzer, Esq. and Hennepin
County Attorney’s Office, 300 South 6th Street, Suite A-2000,
Minneapolis, MN 55487, counsel for defendant.
This matter is before the court upon the partial motion to
dismiss by plaintiff Covanta Hennepin Energy Resource Co., LLC.
Based on a review of the file, record, and proceedings herein, and
for the following reasons, the court grants the motion.
The background of this matter is set forth in the court’s
previous orders [ECF Nos. 23 & 38] and will not be repeated here
except as necessary.
For many years, Covanta has managed and
operated the Hennepin Energy Recovery Center (HERC) under the
parties’ service agreement, the most recent version of which
expires on March 2, 2018 (Service Agreement).
The County sells
energy produced at the HERC to Xcel Energy - formerly Northern
States Power (NSP) - under a power purchase agreement (PPA).1
Under the Service Agreement, Covanta agreed to perform the County’s
obligations under the PPA as follows:
The Company shall at all times during the Term of this
Agreement, as agent for the County, perform all of the
County’s obligations under the [PPA] and shall enforce
the terms of such agreements in accordance with good
business judgement [sic], and shall otherwise act under
such agreements in a manner designed to maximize Energy
Sales Revenues under this Agreement.
Service Agreement, Art. 9.01.
The County receives two-thirds of
the revenue generated by sales under the PPA and Covanta receives
the remaining one-third.
Id. Sched. E at E-12.
Under the PPA, the County - and thus Covanta - agreed to sell
Xcel “all energy produced or generated by the [HERC] up to the
Committed Capacity ... less the electric power and electric energy
necessary for the operation of the [HERC] subject to the provisions
of Article V hereof.”2
PPA Art. 2.01(b).
“Committed Capacity” is
kilowatts (kw) rounded to the nearest 100 kw specified by [the
The Service Agreement refers to the underlying agreement as
the “NSP Agreement.” As do the parties, the court will refer to
the NSP Agreement as the PPA.
Article V of the PPA, entitled “Continuity of Service,”
addresses excused non-performance or interruption of service. See
id. Art. 5.01(a)-(b). It states that interruption in service will
not constitute a breach of the agreement absent “willful refusal to
deliver or receive power or energy.” Id. Art. 5.01(d). The County
does not allege that Covanta has wilfully refused to deliver power
or energy to Xcel.
County] ... to be used in evaluation of [the County’s] performance
under Article 2 and [the rate schedule].”
Id. Art. 1.06.
The rate paid by Xcel, and the amount the County and Covanta
earn under the PPA, depends on several factors. Relevant here, the
PPA establishes a “Committed Capacity Rate” based on a “Billing
Id. Sched. II § 3(a).
The Billing Capacity
Factor is the “arithmetic average of the current and 23 previous
Monthly Capacity Factors.”
Id. § 3(c).
When the Billing Capacity
Factor is less than 70%, the County receives a reduced rate for the
energy produced by the HERC.
Id. § 3(a).
Covanta had hoped to renew the Service Agreement before its
In 2016, however, the County decided to
contract with a third-party, GRE HERC Services, which will assume
Covanta’s role after the Service Agreement expires.3
On September 15, 2016, Covanta filed this suit alleging that
the County breached the Service Agreement in its handling of the
negotiations which ultimately led to the Agreement’s non-renewal.
After being denied injunctive relief by the court, Covanta filed an
amended complaint. The court denied the County’s subsequent motion
to dismiss, after which the County filed an answer along with two
ECF Nos. 38 & 40.
The counterclaims allege that
Covanta breached the Service Agreement by failing to (1) adequately
The facts and circumstances leading to the County’s
decision are relevant to the case as a whole, but not to this
motion and therefore will not be discussed.
maintain the HERC’s cooling tower, and (2) meet capacity and sales
ECF No. 40 at 6-9.
Covanta now moves to dismiss the
Standard of Review
To survive a motion to dismiss for failure to state a claim,
“‘a complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.’”
Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009)
(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
has facial plausibility when the plaintiff [has pleaded] factual
content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”
U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
Although a complaint need not contain detailed factual
allegations, it must raise a right to relief above the speculative
Twombly, 550 U.S. at 555.
“[L]abels and conclusions or a
formulaic recitation of the elements of a cause of action” are not
sufficient to state a claim.
Iqbal, 556 U.S. at 678 (citation and
internal quotation marks omitted).
The court does not consider matters outside the pleadings
under Rule 12(b)(6).
Fed. R. Civ. P. 12(d).
The court may,
however, consider matters of public record and materials that are
“necessarily embraced by the pleadings.”
Porous Media Corp. v.
Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999) (citation and
internal quotation marks omitted). Here, the Agreement and PPA are
properly considered by the court.
Breach of Contract
To establish a breach of contract claim under Minnesota law,
the County must show formation of a contract, performance of any
conditions precedent, a material breach by Covanta, and damages.
MSK EyEs Ltd. v. Wells Fargo Bank, N.A., 546 F.3d 533, 540 (8th
The County alleges that Covanta breached Article 9.01
of the Service Agreement by failing to (1) maintain contractually
required capacity and sales levels, and (2) act in a manner
designed to maximize energy sales revenues.
ECF No. 40 at 8-9.
According to the County, when read together, the Service
Agreement and the PPA required Covanta “to meet a 24 month rollingaverage capacity factor of 70%.”
ECF No. 40 at 8 ¶ 10.
acknowledges that, for a variety of reasons, it did not maintain a
70% average capacity, but denies that the contracts at issue
required it to do so.
The plain language of the Service Agreement
and the PPA belie the County’s position.4
Because the contracts are unambiguous,“the parties’
intentions as expressed in the four corners of the instrument” are
controlling. Dayton Park Props, LLP v. Pac. Life Ins. Co., 370 F.
Supp. 2d 869, 871 (D. Minn. 2005). The court therefore will not
consider the documents submitted by the County.
The court has carefully reviewed both contracts and finds that
neither imposes an obligation to maintain a 70% average capacity,
either expressly or impliedly.
To the contrary, the County and
Xcel expressly contemplated that the capacity threshold would dip
below 70% and accounted for that by agreeing to a lower rate per
kilowatt when it did so.
There is no language in the rate schedule
or any other part of either contract obligating Covanta to meet a
70% capacity threshold. Indeed, as Covanta freely admits, over the
last thirty years it has regularly failed to meet that threshold
without any declaration of breach or default by Xcel or, until now,
As a result, the County cannot state a claim for
breach of contract based on Covanta’s failure to maintain a 70%
The County also fails to state a claim based
on Covanta’s alleged poor performance because that aspect of its
counterclaim is also based on the argument that the contracts
required Covanta to meet a 70% capacity threshold.
Mem. at 8-11.
Accordingly, based on the above, IT IS HEREBY ORDERED that the
partial motion to dismiss [ECF No. 48] is granted.
Dated: May 25, 2017
s/David S. Doty
David S. Doty, Judge
United States District Court
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