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Papalote Creek II, LLC v. Lower Colorado River Authority

United States District Court, W.D. Texas, Austin Division

August 26, 2019

PAPALOTE CREEK II, LLC, f/k/a Papalote Creek Windfarm II, LLC, Plaintiff & Counter-Defendant,
v.
LOWER COLORADO RIVER AUTHORITY, Defendant & Counter-Plaintiff.

          ORDER

          SAM SPARKS SENIOR UNITED STATES DISTRICT JUDGE

         BE IT REMEMBERED on this day the Court considered the file in the above-styled cause, and specifically Plaintiff and Counter-Defendant Lower Colorado River Authority (LCRA)'s Brief on the Merits [#30]; Defendant and Counter-Plaintiff Papalote Creek II, LLC (Papalote)'s Brief on the Merits [#31]; Papalote's Motion for Summary Judgment [#36]; LCRA's Response and Cross-Motion for Summary Judgment [#39]; and Papalote's Motion to Strike Extrinsic Evidence [#32]. Having reviewed the parties' briefing, the relevant law, the arguments of counsel, and the case file as a whole, the Court now issues the following opinion and orders.

         Background

         I. Introduction

         In 2009, Papalote and LCRA entered into an agreement wherein Papalote agreed to build an 87-turbine wind farm and LCRA agreed to purchase all of the energy produced by the farm, at a fixed price, for the next eighteen years. See Papalote Br. [#31-1] Ex. A (Agreement). Papalote completed construction of the wind farm in 2010, and for several years LCRA upheld its obligation to purchase all of the energy produced by the farm. See Id. [#31] at 3.[1]

         Sometime around 2014, however, energy prices dropped "precipitously," and LCRA faced a choice. LCRA Br. [#30] at 7. It could either (a) continue to pay a relatively high fixed cost for energy under the terms of the Agreement, or (b) breach the Agreement in order to take advantage of the lower energy prices prevailing in the open market. Papalote Br. [#31] at 7; LCRA Br. [#30] at 12-13. LCRA chose to breach the Agreement. LCRA Br. [#30] at 13. Now, LCRA seeks a declaration that the terms of the Agreement limit the damages it owes to Papalote for the breach.

         II. Contract Provisions

         The Agreement contains several provisions concerning the damages and remedies in the event of a breach by either party. For starters, the Agreement provides for liquidated damages. Section 4.3 establishes that Papalote is entitled to liquidated damages in the event LCRA fails to take and pay for all energy produced by the wind farm. See Agreement at 19 (describing these liquidated damages as Papalote's "exclusive remedy hereunder"). A corresponding provision, § 4.2, establishes that LCRA is likewise entitled to liquidated damages in the event Papalote breaches its obligation to deliver energy to LCRA. Id.

         In addition to liquidated damages, a non-breaching party gains access to additional remedies under § 6.2 and § 6.3 if the breaching party defaults by failing to remedy its breach in a timely fashion. In that circumstance, the non-defaulting party gains the right to terminate the Agreement and "accelerate all amounts then owing between the Parties." Id. at 22. The non-defaulting party may also demand the defaulting party pay a Termination Payment, which is calculated according to a formula set out in § 6.3. Id. at 22-23.

         Finally, and of particular importance here, § 9.3 imposes some limits on aggregate liability. Because the parties' dispute hinges on the interpretation of § 9.3, the Court excerpts the provision in full:

9.3 Limitation on Damages for Certain Types of Failures.
Notwithstanding anything to the contrary in this Agreement, Seller's aggregate liability for (i) failure of Seller to construct the Project and/or (ii) failure of one hundred percent (100%) of the Project's Turbines to achieve the Commercial Operation Date on the Scheduled COD and/or (iii) failure of one hundred percent (100%) of the Project's Turbines to achieve the Commercial Operation Date on June 1, 2011 and/or (iv) a Termination Payment, shall be limited in the aggregate to sixty million dollars ($60, 000, 000). Buyer's damages for failure to perform its material obligations under this Agreement shall likewise be limited in the aggregate to sixty million dollars ($60, 000, 000).

Id. at 28 (emphasis added).

         III. Procedural Posture

         In October 2016, LCRA notified Papalote that it intended to stop taking energy under the Agreement, and around the same time, it came to light that the parties did not agree on how to interpret the last sentence of § 9.3. LCRA Br. [#30] at 13. LCRA believed the last sentence of § 9.3 limited its aggregate liability to $60 million. Lower Colo. River Auth. v. Papalote Creek II, LLC,858 F.3d 916, 921 (5th Cir. 2017) (Papalote I). Papalote disagreed, and then refused LCRA's request to arbitrate the ...


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