First Dakota National Bank v. Eco Energy, LLC

Filing 42

MEMORANDUM AND ORDER - First Dakota's motion for summary judgment (filing 33 ) is denied. Eco Energy's motion for summary judgment (filing 37 ) is granted in part and denied in part, as set forth above. Ordered by Judge John M. Gerrard. (GJG)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
FIRST DAKOTA NATIONAL BANK,
Plaintiff,
vs.

8:13-CV-270
MEMORANDUM AND ORDER

ECO ENERGY, LLC f/k/a ECO
ENERGY, INC., a Tennessee limited
liability company,
Defendant.
This matter is before the Court on the cross-motions for summary
judgment filed by plaintiff First Dakota National Bank ("First Dakota") and
defendant Eco Energy, LLC ("Eco"). Filings 33 and 37. For the reasons
discussed below, First Dakota's motion for summary judgment (filing 33) will
be denied, and Eco's motion for summary judgment (filing 37) will be granted
in part and denied in part.
I. STANDARD OF REVIEW
Summary judgment is proper if the movant shows that there is no
genuine dispute as to any material fact and that the movant is entitled to
judgment as a matter of law. See Fed. R. Civ. P. 56(a). The movant bears the
initial responsibility of informing the Court of the basis for the motion, and
must identify those portions of the record which the movant believes
demonstrate the absence of a genuine issue of material fact. Torgerson v. City
of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). If the movant
does so, the nonmovant must respond by submitting evidentiary materials
that set out specific facts showing that there is a genuine issue for trial. Id.
On a motion for summary judgment, facts must be viewed in the light
most favorable to the nonmoving party only if there is a genuine dispute as to
those facts. Id. Credibility determinations, the weighing of the evidence, and
the drawing of legitimate inferences from the evidence are jury functions, not
those of a judge. Id. But the nonmovant must do more than simply show that
there is some metaphysical doubt as to the material facts. Id. In order to
show that disputed facts are material, the party opposing summary judgment
must cite to the relevant substantive law in identifying facts that might

affect the outcome of the suit. Quinn v. St. Louis County, 653 F.3d 745, 751
(8th Cir. 2011). The mere existence of a scintilla of evidence in support of the
nonmovant's position will be insufficient; there must be evidence on which
the jury could conceivably find for the nonmovant. Barber v. C1 Truck Driver
Training, LLC, 656 F.3d 782, 791-92 (8th Cir. 2011). Where the record taken
as a whole could not lead a rational trier of fact to find for the nonmoving
party, there is no genuine issue for trial. Torgerson, 643 F.3d at 1042.
II. FACTUAL BACKGROUND
This dispute arises from the 2012 shutdown of an ethanol plant near
Atkinson, Nebraska, formerly owned and operated by Nedak Ethanol, LLC
("Nedak"), a Nebraska company. It involves a lease of railcars by Nedak from
Eco, a Tennessee company that is engaged in the business of marketing,
distributing, and transporting biofuels, such as ethanol. Plaintiff First
Dakota is a South Dakota-based bank which, through a series of
transactions, acquired the rights of Nedak and its original lender under its
loans to Nedak, the railcar lease, and various other agreements. In this suit,
First National brings a claim for damages based on alleged violations of
Nedak's rights under the railcar lease and the rights of Nedak's original
lender arising from a 2007 agreement between Nedak, its lender, and Eco.
A. THE ORIGINAL ARRANGEMENT BETWEEN NEDAK AND ECO
Nedak was formed in 2003, began construction of its plant in 2006,
began production in 2008, and ceased production in June 2012. Filing 35-8 at
5. Funds to construct and operate the plant were borrowed from Farm Credit
Services of Grand Forks, FLCA, which later became AgCountry Farm Credit
Services, FLCA (collectively, "AgCountry"). Filing 34 at ¶¶ 4–5.
In November 2006, Nedak and Eco entered into an ethanol marketing
agreement (the "Marketing Contract"), under which Eco agreed to transport
and sell all of the ethanol produced by Nedak. Filing 34 at ¶ 8; filing 35-3 at
12, 18. To transport Nedak's ethanol, Eco used railcars which it had
previously leased from a third party, Union Tank Car Company ("Union"),
under what the parties have dubbed the "Primary Lease." Filing 35-3 at 1.
The lease covered 133 railcars, with monthly lease rates ranging from $400 to
$735, and with the lease terms for most of the railcars expiring between 2017
and 2020. Filing 34 at ¶¶ 9–10; filing 35-3 at 1. Nedak agreed that, if the
Marketing Contract were terminated, Nedak would assume responsibility for
the remaining term of Eco's lease with Union. Filing 35-3 at 20.

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B. THE COLLATERAL ASSIGNMENT
In 2007, Nedak assigned all of its rights under the Marketing Contract
to AgCountry (the "Collateral Assignment"). Filing 34 at ¶ 11. Nedak
assigned all of its rights and remedies under the Marketing Contract, as well
as "all agreements, documents, certificates, instruments, legal opinions and
other materials relating thereto (collectively, together with the [Marketing
Contract], the 'Assigned Documents') and . . . all proceeds thereof, including
without limitation, [Nedak's] rights and remedies with respect to any breach
by any party to the Assigned Documents." Filing 35-6 at 5.
The Collateral Assignment included a consent, notice, and cure
provision which was executed by Eco. Filing 34 at ¶ 12; filing 35-6 at 9. That
clause provided, in relevant part:
[Eco] agrees to give Leader prompt written notice of any default
under the Assigned Documents [by Nedak] and to allow Lender a
reasonable period of time to cure any such defaults should Lender
elect to effect such cure. . . . Consent to the foregoing assignment
is hereby granted in all respects.
Filing 35-6 at 9.
C. NEDAK TERMINATES THE MARKETING CONTRACT AND SIGNS THE SUBLEASE
In 2010, Nedak decided to switch from Eco to another ethanol
marketing company, Tenaska Biofuels, LLC ("Tenaska"). Filing 34 at ¶ 6;
filing 35-8 at 10; filing 35-12 at 8. Accordingly, in November 2010, Nedak and
Eco agreed to terminate their Marketing Contract. To do so, they executed a
"Termination Agreement." Filing 34 at ¶ 13; filing 35-3 at 22.
The Termination Agreement began with a number of recitals, including
an acknowledgement that it was Nedak's responsibility, under the Marketing
Contract, to assume responsibility for the remaining term of Eco's lease with
Union. See filing 35-3 at 20, 22. To fulfill that obligation, Nedak agreed to
enter into a new sublease (the "Sublease"), whereby it would sublease the
railcars from Eco. Filing 34 at ¶ 14; filing 35-3 at 23, 28; filing 35-7 at 10.
Nedak agreed to sublease the railcars from Eco for the same rent and for the
same duration as under the Primary Lease between Eco and Union. Filing
35-3 at 28–29.
In addition to becoming Nedak's marketer, Tenaska became an investor
in Nedak. Around 2011, Nedak was facing financial difficulties and needed
new investment. Filing 35-8 at 11. Tenaska's wholly owned subsidiary,
TNDK, LLC ("TNDK"), invested in Nedak in 2011, taking a 33 percent
interest in Nedak and two seats on its board of directors in exchange for an
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equity contribution of $5 million. Filing 34 at ¶ 7; filing 35-10 at 77; filing 3512 at 6.
D. DETERIORATION OF NEDAK AND ECO'S RELATIONSHIP UNDER THE SUBLEASE
From 2010 to 2012, Nedak and Eco operated under the Sublease with
no apparent difficulties. Eco billed Nedak for the railcars' rent via monthly
invoices, which Nedak duly paid. Filing 34 at ¶¶ 16–17; see, e.g., filing 35-3 at
40–47. But in the months leading up to May 2012, Nedak was facing financial
difficulties. In May or June, Nedak decided that it would idle its plant until
market conditions improved. Nedak advised AgCountry of this decision, and
it froze Nedak's accounts, leaving Nedak unable to pay its bills, including the
May invoice from Eco. Filing 35-8 at 18; filing 35-12 at 11.
By May 2012, the rental term for several of the original railcars had
expired, and 96 cars remained under the Sublease. See filing 35-3 at 49–52.
On May 31, Eco issued an invoice for May's rent, for $67,685, with payment
due by June 13. Filing 34 at ¶ 18; filing 35-3 at 47. But by June 13, Nedak
had not paid. Filing 34 at ¶ 19.
On June 19, 2012, Brian Downey, a "Transportation Manager" with
Eco, e-mailed Nedak's CEO, Jerome Fagerland, expressing concern about
Nedak's failure to pay. Downey noted that the railcar market had become
"extremely tight due to the crude industry leasing many of the available
cars." Filing 35-3 at 60. And he stated that if payment was not received
promptly, Eco would need to take its railcars elsewhere. Filing 35-3 at 60.
Fagerland responded the next morning, promising to transfer the funds in
the next day or two. However, the bank refused to release the funds, and no
payment was forthcoming. Filing 35-3 at 60, 64; filing 35-8 at 18–19, 25.
Downey and Fagerland then discussed the possibility of Tenaska
stepping in and taking over the Sublease for Nedak. Eco was willing to
consider the swap, but only on the understanding that the Sublease would be
terminated and a new agreement, with new terms, would be entered into
between Tenaska and Eco. See, filing 35-3 at 64; filing 35-4 at 3, 6. On June
21, Downey sent Fagerland a formal notice of default, stating that "[i]f
payment is not received or other arrangements made, Eco-Energy will have
to insist that its assets be returned. Please discuss with Tenaska the option
of transferring the sublease arrangements and report back to me as soon as
possible." Filing 35-3 at 64.
Shortly after receiving the letter, Fagerland responded by e-mail that
he had forwarded the letter to Tenaska and was waiting to hear back from
them. Filing 35-3 at 66. Eco and Tenaska engaged in discussions. See, e.g.,
filing 35-3 at 67–72; filing 35-4 at 3–6. But they were unable to come to a deal
in time to save Nedak's Sublease. In a letter dated June 25, 2012, and e-4-

mailed the same day, Eco notified Nedak that Eco was terminating the
Sublease for Nedak's failure to pay, and demanded the immediate return of
all railcars. Filing 35-4 at 10–11.
By June 26, 2012, Eco had located a new potential lessee, Mercuria
Energy Trading, who wanted the railcars for transporting crude oil, and was
willing to sublease all 96 cars at $2,500 or $2,600 per car for 2 years. Filing
34 at ¶ 17; filing 38 at 17, ¶ 24; filing 35-2 at 36; filing 35-4 at 12, 33. This
was a significant increase from the $400 to $700 per month that Eco was
receiving from Nedak. Downey testified that around this time, "crude oil was
a new booming user of railcars, and their pockets were deep and they were
paying astronomical prices for railcars." Filing 35-2 at 22.
On June 28, 2012, Eco sent a letter demanding immediate payment for
the combined rent for May and June, totaling $135,370. Eco claimed that
Nedak had utilized all 96 cars for the month of June, and so Eco was
requesting the full month's rent. Filing 35-4 at 36; filing 35-7 at 36. The letter
stated that additional invoices would follow for the period from July 1, 2012,
until the date the cars were placed in service by Eco. Filing 35-4 at 36.
E. TENASKA'S ATTEMPT TO CURE NEDAK'S DEFAULT
In a letter dated July 3, 2012, Nedak suggested to Eco, for the first
time, that perhaps Nedak was not yet in default under the Sublease. Filing
35-5 at 10; filing 35-8 at 22. Nedak cited § 4.07 of the Primary Lease, which,
Nedak asserted, had been incorporated into the Sublease. Filing 35-5 at 10.
Under § 4.07, before Union could terminate the Primary Lease for any failure
to pay by Eco, Union was required to provide Eco with written notice and 15
days to cure the default. Filing 35-3 at 9. In its letter, Nedak claimed that
Eco's first written notice of default was the letter of June 21, and so Nedak
had until July 6 to cure the late payment, which it intended to do. Filing 35-5
at 10.
Although the July 3 letter was signed by Fagerland and printed on
Nedak letterhead, Fagerland admitted that Tenaska was the moving force
behind the letter. Filing 35-8 at 23, 26–27. And on July 6, it was Tenaska,
acting on behalf of Nedak, which paid Eco the $135,370 owed. By a letter to
Eco dated the same day, Nedak claimed that any default had now been cured
and that it was entitled to continue leasing railcars under the Sublease.
Filing 35-5 at 32–34.
Eco disagreed with Nedak and Tenaska's interpretation of the
Sublease, and maintained that the Sublease had been validly terminated.
See, e.g. filing 35-5 at 22, 63. And on July 13, 2012, Eco executed a new
sublease with Mercuria for 2 years, for between 80 and 96 of the railcars, at a
monthly rental of $2,600 per railcar. Filing 34 at ¶ 28; filing 35-5 at 57.
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Nedak never resumed operations, and in January 2013, its lender,
AgCountry, foreclosed. Filing 35-11 at 4. Various assignments and
transactions followed, such that First Dakota now holds any rights that
Nedak may have against Eco for any breach of the Sublease, as well as any
rights that AgCountry may have had for any breach by Eco of the notice and
cure provision in the Collateral Assignment. Filing 34 at ¶¶ 29–33. In the
present lawsuit, First Dakota is asserting claims for both of these alleged
breaches.
III. ANALYSIS
In its first claim, First Dakota contends that Eco breached the Sublease
by terminating it prematurely and without affording Nedak the right to cure
its late payment. Specifically, First Dakota argues that the Sublease
incorporated the 15-day notice and cure provisions of the Primary Lease, and
that Nedak cured any default by paying the amounts owed within that grace
period. In its second claim, First Dakota argues that Eco breached the
promise it made in the Collateral Assignment, to provide Nedak's lender with
notice and a reasonable opportunity to cure any default by Nedak under an
"Assigned Document." First Dakota claims that, as a result of these breaches,
Nedak's original lender lost the opportunity to put the railcars to productive
use for the remainder of the Sublease. First Dakota seeks as damages the
difference between the lease rate and the market value of the railcars at the
time of termination, for the remainder of the Sublease. See U.C.C. § 2A-519.
The Court finds that the notice and cure provisions of the Primary
Lease were not incorporated into the Sublease, and so First Dakota's first
claim fails as a matter of law.1 But First Dakota's second claim fares better.
The Court finds that the Sublease meets the definition of an Assigned
Document under the Collateral Assignment, and that Eco breached its
promise to give Nedak's lender the required notice and opportunity to cure.
However, questions of fact remain on the issue of causation. Thus, neither
party is entitled to summary judgment on First Dakota's second claim.
The parties also disagree as to the market value of the railcars and
whether Eco is entitled to any offset for rent due for certain railcars which
remained in Nedak's possession until August 2012. But because questions of

Because the Court finds there was no cure period, it need not address Eco's argument that
its e-mail of June 19, 2012 constituted sufficient notice, such that the cure period actually
expired on July 5. Similarly, the Court has no cause to consider Eco's further counterarguments: that Nedak repudiated the Sublease prior to its termination, that Nedak
waived any right to cure prior to July 3, and that Nedak should be equitably estopped from
asserting such a right.
1

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fact remain as to liability, the Court does not reach the parties' arguments
concerning damages.
A. THE SUBLEASE DID NOT INCORPORATE § 4.07 OF THE PRIMARY LEASE
The parties agree that, pursuant to a choice of law clause, Tennessee
law controls the Court's interpretation of the Sublease. Filing 35-3 at 30. And
because the Sublease is a lease of commercial goods, it is governed by Article
2A of the Tennessee Uniform Commercial Code (U.C.C.). See Tenn. U.C.C. §
47-2A-102. Under Tennessee law, the interpretation of a lease, as with any
contract, is a question of law. See Planters Gin Co. v. Fed. Compress &
Warehouse Co., Inc., 78 S.W.3d 885, 889 (Tenn. 2002). In resolving disputes
concerning contract interpretation, the Court's task is to ascertain the
intention of the parties based upon the usual, natural, and ordinary meaning
of the contractual language. Id. at 889–90.
The Court initially determines the parties' intent by examining the
plain and ordinary meaning of the written words that are contained within
the four corners of the contract. Dick Broad. Co., Inc. of Tenn. v. Oak Ridge
FM, Inc., 395 S.W.3d 653, 659 (Tenn. 2013). The literal meaning of the
contract language controls if the language is clear and unambiguous. Id.
However, if the terms are ambiguous in that they are susceptible to more
than one reasonable interpretation, the Court must apply other established
rules of construction to aid in determining the parties' intent. Id. The
meaning of the contract becomes a question of fact only if an ambiguity
remains after applying the appropriate rules of construction. Id.
The Sublease itself does not specify what should occur in the event
Nedak fails to make a lease payment. Nor, by its own terms, does it require
Eco to give Nedak notice and an opportunity to cure any late payment.
Instead, First Dakota argues that the Sublease incorporated the 15-day
notice and cure requirements of § 4.07 of the Primary Lease. First Dakota
points to § 5 of the Sublease, under which Nedak "agrees and confirms that it
shall be bound by all of the terms of and assumes all of the duties and
obligations of Eco under the [Primary Lease], except as specifically provided
herein." Filing 35-3 at 29. First Dakota argues that by agreeing to be "bound
by all the terms of" the Primary Lease, Nedak undertook the duties and
obligations of Eco under the Sublease, but took these duties subject to any
corresponding rights of Eco, or at the very least, limitations on Eco's duties
and obligations under the Primary Lease. And, First Dakota argues, Eco's
duty to pay under the Primary Lease was subject to a 15-day grace period.
The Court finds First Dakota's interpretation of the Sublease
unpersuasive. Stated plainly, § 5 of the Sublease says that if Eco is obligated
to perform a duty under the Primary Lease, then Nedak must perform the
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same, under the Sublease. And § 4.07 of the Primary Lease did not impose an
obligation on Eco. It imposed a duty upon Union to give Eco notice. Or stated
differently, it conditioned Union's right to terminate the Primary Lease or
bring suit for damages on Union's having given notice and 15 days to cure.
But § 4.07 did not impose a duty upon Eco, and so it was not incorporated by
§ 5 of the Sublease.
There is another problem with First Dakota's argument, regardless of
how § 4.07 of the Primary Lease is characterized. The portion of § 5 at issue
addresses only Nedak's role under the Sublease: if Eco had a duty under the
Primary Lease, Nedak agreed to bear the same duty to Eco under the
Sublease. But for § 5 to mean what First Dakota would have it mean, it
would have to state that Eco was agreeing to assume the duties and
obligations of Union under the Primary Lease. Section 5 contains no such
language, and the Sublease did not require Eco to provide any notice, let
alone the 15 days' notice and opportunity to cure set forth in the Primary
Lease.
More broadly, First Dakota argues that the entire Primary Lease was
somehow incorporated into the Sublease (with the exception of any specific,
conflicting portions of the Sublease). First Dakota points to the recitals
contained within the Sublease, which mention the Primary Lease, and Eco's
obligations under it. And First Dakota notes that the Primary Lease was
attached as an exhibit to the Sublease. First Dakota then points to § 1 of the
Sublease, which states that "the recitations and statements set forth above
are restated herein, incorporated hereby and made part of this Agreement."
Filing 35-3 at 28. This, First Dakota argues, shows that the terms of the
Primary Lease have been wholly incorporated into the Sublease.
This argument is contradicted by the plain text of the Sublease. Section
1 does not state that the terms of the Primary Lease have been incorporated,
only the terms of certain recitals. Nor do the recitals incorporate the entire
terms of the Primary Lease. Instead, the recitals acknowledge the Primary
Lease's existence, as well as certain basic obligations of Eco under the
Primary Lease—that Eco has leased the cars from Union and that Eco must
obtain Union's consent before subleasing them. Filing 35-3 at 28.
The same can be said for First Dakota's argument concerning § 8 of the
Sublease. That section states that the requirements of the Primary Lease
remain in effect except as specifically provided in the Sublease. Filing 35-3 at
29. Again, this does not show that the Sublease incorporated the entirety of
the Primary Lease. Rather, this section serves two other purposes. First, it
acknowledges that the Primary Lease between Eco and Union remains in
effect. Second, it means that the terms which bind Nedak under § 5 remain
as stated in the Primary Lease, unless varied in the Sublease.
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First Dakota next advances something that resembles a course-ofperformance argument. First Dakota asserts that the terms of the Primary
Lease governed a wide variety of "operational details," and that this shows
the parties' intent to wholly incorporate the Primary Lease. For example,
Downey (Eco's Transportation Manager) testified that Nedak's rent would be
abated for periods when a car was taken out of service for routine
maintenance. Filing 35-2 at 12–13, 19. Such a provision appears in the
Primary Lease (but not the Sublease). See filing 35-3 at 4.
This final argument is a non-starter. The "operational details" that
Nedak points to involve duties placed upon Eco by the Primary Lease—such
as the duty to pay rent. And Nedak had accepted those duties. So it makes
sense that those duties would be governed by terms contained in the Primary
Lease. But nothing about this suggests that the entirety of the Primary Lease
was incorporated, let alone that Eco somehow also accepted Union's
obligation to provide notice and cure—an obligation contained in an entirely
separate provision of the Primary Lease.
In sum, the Court finds that First Dakota's position is unambiguously
contradicted by the text of the Sublease. The Court notes that a contract is
not ambiguous merely because the parties to the contract may interpret the
term in different ways. Staubach Retail Servs.-Se., LLC v. H.G. Hill Realty
Co., 160 S.W.3d 521, 526 (Tenn. 2005). Ambiguity only arises if there exists
more than one reasonable interpretation. Dick Broad. Co., 395 S.W.3d at 659.
Even if § 5 of the Sublease could be said to contain some ambiguity—
which it does not—then its meaning would become a question of fact. Id. The
Court could then turn to extrinsic evidence, such as the parties' conduct and
statements regarding the disputed provision, to ascertain the meaning of the
contract. And the undisputed evidence on this point solely supports Eco's
interpretation of the Sublease. Chadwick Conn (Eco's Vice President of
Operations), who drafted the Sublease, testified that he drafted § 5
specifically in order to bind Nedak to Eco's obligations under the Primary
Lease, but to not pass on Eco's rights under the Primary Lease. See filing 357 at 11–14, 17–18. In contrast, Fagerland, who executed the Sublease for
Nedak, testified that he did not recall much regarding the execution of the
agreement, and admitted that he had no particular understanding of the
relationship between the Primary Lease and Sublease. Filing 35-8 at 13–16.
Nothing in the Sublease required Eco to provide Nedak with notice or
an opportunity to cure. In the absence of any provision in the Sublease, the
parties' rights are governed by Article 2A of the U.C.C. And the U.C.C.
provides that, except in certain circumstances not relevant here, a lessor or
lessee in default under a lease contract is not entitled to notice of default.
T.C.A. § 47-2A-502. And if a lessee fails to make a payment when due, the
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lessee is in default, and the lessor is entitled to cancel the lease contract.
T.C.A. § 47-2A-523(1)(a). Eco was therefore acting within its rights when it
canceled the Sublease on June 25, 2012. Accordingly, First Dakota's first
claim fails as a matter of law.
B. THE 2007 COLLATERAL ASSIGNMENT CLAIM
1. The Sublease Was an "Assigned Document"
As discussed above, under the 2007 Collateral Assignment, Nedak
assigned to its lender its rights under the Marketing Contract, as well as its
rights under any "Assigned Documents," which included the Marketing
Contract and "all agreements, documents, certificates, instruments, legal
opinions and other materials relating thereto." Filing 35-6 at 5. And Eco
agreed to provide Nedak's lender with prompt written notice of any default by
Nedak under an Assigned Document, and to allow the lender a "reasonable
period of time" to cure any such default. Filing 35-6 at 9.
First Dakota asserts that the Sublease was an Assigned Document, and
that Eco breached its promise to provide Nedak's lender with notice and an
opportunity to cure. Eco does not dispute that it did not provide any notice to
Nedak's lender. Filing 38 at 17, ¶ 23; filing 35-7 at 46–47. Apparently, in
2012, no one at Eco remembered that Eco had promised to do so. See, filing
35-7 at 46–47; filing 39-4 at 11. Instead, Eco argues that the Sublease did not
qualify as an Assigned Document.
Pursuant to a choice-of-law clause, the Court's interpretation of the
Collateral Assignment is governed by North Dakota law. Filing 35-6 at 8.
Contracts are construed to give effect to the parties' mutual
intent as it existed at the time of contracting. N.D.C.C. § 9–07–
03. The parties' intent is ascertained from the writing alone
whenever possible. N.D.C.C. § 9–07–04. "The words of a contract
are to be understood in their ordinary and popular sense rather
than according to their strict legal meaning, unless used by the
parties in a technical sense, or unless a special meaning is given
to them by usage, in which case the latter must be followed."
N.D.C.C. § 9–07–09. The circumstances under which the contract
was formed and the matter to which it relates may be considered.
N.D.C.C. § 9–07–12.
Barrett v. Gilbertson, 827 N.W.2d 831, 836 (N.D. 2013).
The Sublease qualifies as an assigned document because it was an
agreement "relating to" the Marketing Contract. The ordinary meaning of the
phrase "relating to" is a broad: "to stand in some relation; to have bearing or
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concern; to pertain; refer; to bring into association with or connection with."
Cent. States Found. v. Balka, 590 N.W.2d 832, 837 (Neb. 1999) (quotations
omitted); accord Contractors Ass'n of W. Va. v. W. Va. Dept. of Pub. Safety,
Div. of Pub. Safety, 434 S.E.2d 357, 369 (W. Va. 1993). The phrase implies
that "there is a connection between two subjects, not that the subjects have to
be the same." Contractors Ass'n of W. Va., 434 S.E.2d at 369. "The clear
import of these well-established standards is that the phrase 'relating to' is to
be read broadly and should be interpreted as being comprehensive of the
subject indicated." Cent. States Found., 590 N.W.2d at 837.
The Sublease is connected with, and arises out of, the Marketing
Contact. The agreements involve the same parties. The Sublease covers the
same railcars used in the Marketing Contract. And the Sublease was
executed to fulfill Nedak's promise, the Marketing Contract, to take
responsibility for Eco's lease. The connection between the Sublease and the
Marketing Contract is expressly stated in the Termination Agreement, which
provided: "Eco and [Nedak] agree to comply with the terms of the [Marketing
Contract] pertaining to transportation equipment by entering into a railcar
sublease agreement . . . ." Filing 35-3 at 23; see filing 35-7 at 10–11. Applying
the plain meaning of the phrase "relating to," the Sublease qualifies as an
Assigned Document under the Collateral Assignment. This interpretation of
the Collateral Assignment also squares with its underlying purpose: to
thoroughly secure the bank's loan to Nedak. The broad drafting of the
definition of "Assigned Documents" reflects an intent to provide the lender
with a comprehensive interest in Nedak's assets.
Eco points out that the Sublease did not exist at the time the
assignment was drafted. But that does not prevent the Sublease from
qualifying as an agreement that relates to the Marketing Contract. Nothing
in the definition of "Assigned Documents" limits the class of agreements to
those existing at the time of the assignment. Moreover, the assignment was
drafted in the context of ongoing relationships between Nedak and its lender
and Nedak and Eco. The parties had no reason to believe, in 2007, that
Nedak and Eco's business under the Marketing Contract would stop any time
soon. And the bank had no reason to believe Nedak would, through some
unforeseen windfall, pay off all its loans in the immediate future. In other
words, the assignment was drafted with the expectation that the parties
would continue to do business. And it would frustrate the purpose of the
assignment—to comprehensively secure the bank's loan to Nedak—if the
assignment did not cover other, related agreements that would arise
throughout the course of the parties' continued relationship.
Additionally, the creation of the Sublease was foreseeable when the
Collateral Assignment was executed. The Marketing Contract stated that,
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upon its termination, the parties would form some agreement whereby Nedak
would assume responsibility for the Primary Lease. That promise created a
future burden (or benefit) that Nedak was entitled to assign in 2007—an
assignment to which Eco expressly consented.
Because the Sublease qualified as an "Assigned Document," Eco was
obligated to give Nedak's lender notice of Nedak's default and a reasonable
opportunity to cure. Eco does not dispute that it failed to do so. First Dakota
has therefore established the first two elements of its breach of contract
claim: the existence of a contract and a breach of that contract. Godon v.
Kindred Pub. Sch. Dist., 798 N.W.2d 664, 668 (N.D. 2011). First Dakota must
still prove that this breach caused it to incur damages. Id.
2. Causation
Eco argues that, even if it did fail to give Nedak's lender the required
notice, First Dakota has failed to produce evidence that Nedak's lender would
have actually stepped in and cured Nedak's default. The Court finds that
what little evidence there is on this point creates a question of fact for the
jury.
Nedak has presented evidence that, had it been allowed to maintain
the Sublease, it could have generated some $7 million in profit, based on the
difference between the rent it was paying Eco and the market rates for
railcars from 2012 through the remainder of the Sublease. See, e.g., filing 3513; filing 35-14. As it was, Nedak went out of business and its lender was
forced to foreclose on its assets, leaving it with a deficiency of approximately
$15 million. Filing 35-11 at 12. The ability to lease railcars for $800 and
sublease them for $2,500, and to make $7 million in the process, provided the
lender with ample incentive to step in and cure Nedak's default. And a jury
could reasonably conclude that, had it received proper notice, Nedak's lender
would not have let such an opportunity pass by.
Eco points to the fact that Nedak's lender did not, in fact, step in and
cure the default. And while the lender may or may not have been aware of
the impending default, or its consequences, the lender did know that Nedak
was in financial trouble, and refused to release funds to pay the Sublease.
See, filing 35-3 at 53, 64; filing 35-8 at 17–19. On the other hand, as First
Dakota points out, there is a difference between learning that your borrower
is in trouble and being notified by your borrower's other creditor that the
borrower is about to default on a valuable railcar lease. And until such notice
was received, the lender could have believed that the lease would stay in
effect, especially where, as here, another party (Tenaska) had expressed a
willingness to step in and pay. In short, based on the evidence in the record

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at this time, the jury could reasonably find for either party on the issue of
causation, and summary judgment is therefore inappropriate.
3. July and August Payments
One final issue remains to be addressed. Nedak was apparently in
possession of some of the railcars through July and August 2012, for which it
did not pay Eco any rent. See, filing 38 at p. 38, ¶¶ 19–21; filing 40 at p.7, ¶¶
19–21. Eco asserts that it would be inequitable for the Court to award First
Dakota relief when Nedak has failed to pay this rent, or, alternatively, that
this was a continuing default that justified Eco's termination of the Sublease.
The Court finds both arguments unpersuasive. First, the Court fails to
see the inequity of the situation. If Eco is correct, Nedak owes it perhaps
$25,000—most of the railcars had been diverted to Mercuria by the end of
July. Filing 35-2 at 53–54; filing 35-5 at 1, 67; filing 35-6. But if First Dakota
is correct, Eco owes it approximately $7 million. What Eco labels "inequity" is
actually a simple matter of providing an offset against First Dakota's claim.
Second, even if the failure to pay for July or August amounted to a new
breach or a continuing default, it would not (necessarily) affect First Dakota's
surviving claim. If this was a default, then Eco was obligated to provide
notice and an opportunity to cure to Nedak's lender. And Eco did not do so.
IV. CONCLUSION
First Dakota's first claim fails as a matter of contractual interpretation,
and as to that claim, the Court will grant Eco's motion for summary
judgment. First Dakota's second claim fares better as a contractual matter.
But issues of fact remain regarding causation which preclude summary
judgment for either party. Because liability has not been established, the
Court finds it premature to wade into the issue of damages. Accordingly,
IT IS ORDERED:
1.

First Dakota's motion for summary judgment (filing 33) is
denied.

2.

Eco Energy's motion for summary judgment (filing 37) is
granted in part and denied in part, as set forth above.

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Dated this 12th day of January, 2015.
BY THE COURT:

John M. Gerrard
United States District Judge

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