United States District Court, D. Nebraska
MEMORANDUM AND ORDER
JOHN M. GERRARD, District Judge.
This matter is before the Court on the defendants' Emergency Motion to Enforce Stay and for Temporary Restraining Order and Preliminary Injunction. Filing 34. For the reasons discussed below, the defendants' motion will be denied.
Aurora Cooperative (Aurora Co-op) is a Nebraska corporation located in Aurora, Nebraska. Filing 1 at ¶ 1. Aventine Renewable Energy Holdings and Aventine Renewable Energy are foreign corporations, registered to do business in Nebraska, and Aventine Renewable Energy - Aurora West is a limited liability company whose sole member is Aventine Holdings (collectively, "Aventine"). Filing 1 at ¶¶ 2-4; filing 20 at ¶¶ 2-4, 60-62.
Around 2006, Aurora Co-op acquired an agri-business complex on an industrial site just west of Aurora (the "Aurora West site"). Filing 39-21 at ¶ 4. The site is bounded to the north by U.S. Highway 34, and to the south by a Burlington Northern Santa Fe (BNSF) railroad line. Filing 39-21 at ¶ 4; filing 39-24 at 3. In June 2006, Aurora Co-op sold Aventine a large portion of the land within the site. Filing 20-1. And in August 2006, Aventine and Aurora Co-op entered into a series of agreements related to the development of an ethanol plant on the land Aventine had purchased. Filing 1 at ¶¶ 8-9; filing 39-1; filing 39-21 at ¶ 6. The parties' agreements provided for the development of roads, rail tracks, and other infrastructure needed to operate the plant, and envisioned that Aventine would operate the plant using grain provided by Aurora Co-op. Filing 1 at ¶ 8; filing 39-1 at 1-12; filing 39-2; filing 39-21 at ¶¶ 5-8. Aventine constructed the plant, and Aurora Co-op built a grain elevator and grain storage facility. Filing 39-1 at 1-11; filing 39-21 at ¶¶ 5, 16.
The present dispute centers around a pair of railway tracks that surround the Aurora West site and Aventine's ethanol plant-the "Double Track Loop." The Loop is shaped roughly like an athletic track and consists of two sets of railway tracks (the "Interior and Exterior Loops"). Filing 39-21 at ¶ 11; filing 39-5; filing 39-18; filing 39-22 at ¶ 6; filing 39-24 at 1-3. The Inner and Exterior Loops are (with exceptions not relevant here) situated on land owned by Aventine and Aurora Co-op, respectively. A service road runs between the two tracks, and the line dividing the parties' property runs down the middle of the road. Filing 39-21 at ¶ 11; filing 39-24 at ¶¶ 5-8 & p. 3.
On the southern border of the Aurora West site, the Double Track Loop runs parallel to the BNSF line. A set of crossover tracks and switches connect the Exterior Loop to the BNSF line, and another set of tracks and switches connect the Exterior and Interior Loops. Filing 39-21 at ¶¶ 11, 13; filings 39-5, 39-6, and 39-7; filing 39-18; filing 39-24 at 3. In order to move from the BNSF line to the Interior Loop (or vice versa), a railcar must pass over one set of crossover tracks, then travel along the Exterior Loop for a short distance (approximately 100 feet),  then pass over another set of crossover tracks. The Court will refer to the small portion of the Exterior Loop that lies between the crossover tracks as the "Switching Portion."
Among the agreements signed by Aventine and Aurora Co-op in August 2006, two are particularly important to the present dispute. The first is the Double Track Loop Easement and Use Agreement (the "Double Loop Agreement") and the Grain Supply Agreement. Filing 39-3. Under this agreement, Aventine and Aurora Co-op granted each other easements over certain parcels of real estate owned by the other party and over the portion of the Double Track Loop located on that real estate. Filing 39-3 at 2, 6-7. The second is the Grain Supply Agreement. Filings 39-2. It is essentially a requirements contract, whereby Aventine agreed to purchase from Aurora Co-op, on an exclusive basis, "all of the [g]rain which Aventine requires to operate the Aventine Ethanol Plant." Filing 39-2 at 2. The agreement allows the Co-op to furnish the grain from its own farmer members or to procure it from third parties. Filing 39-2 at 5-8. Each grain purchase was to give rise to and be governed by a separate "Grain Contract." Any dispute arising under a Grain Contract is subject to arbitration through the National Grain and Feed Association. Filing 39-2 at 2. Both the Double Loop and Grain Supply Agreements are governed by Nebraska law. Filing 39-2 at 14; Filing 39-3 at 14-15.
In the summer of 2012, a dispute arose regarding one or more Grain Contracts. Aurora Co-op alleges that in July and August 2012, Aventine failed to pay for approximately $1, 800, 000 in grain that Aurora Co-op had procured, in violation of the Grain Supply Agreement and the underlying Grain Contracts. Filing 1 at ¶¶ 29-44; filing 39-21 at ¶ 19. On September 17, 2012, Aurora Co-op initiated an arbitration proceeding with the National Grain Feed Association, seeking to recover these payments. Filing 39-21 at ¶ 20.
Aventine contends that it was Aurora Co-op that breached the Grain Supply Agreement (as well as another contract not at issue here), by failing to make certain payments. Filing 20 at ¶¶ 69-76; filing 39-10. On September 18, 2012, Aurora Co-op received a letter from Aventine's CEO, stating that as a result of Aurora Co-op's failure to make these payments, Aventine had terminated the Grain Supply Agreement. Filing 39-10.
Aurora Co-op responded by filing the present suit. Aurora Co-op seeks, among other things, a declaration that Aventine's purported termination of the Grain Supply Agreement was not effective, that the agreement remains in effect, and that Aventine, not Aurora Co-op, has breached the agreement. Filing 1 at 14-16. Aventine counterclaimed, seeking a declaration to the opposite effect: that Aurora Co-op had breached the Grain Supply Agreement, which Aventine then lawfully terminated. Filing 20 at 13-14. After these initial filings, the case was informally stayed to allow the parties to arbitrate their disputes under the Grain Contracts. See, filings 26, 27, 28, 29, and 30.
Much like the docket in this case, Aventine's ethanol plant has remained more or less idle since running briefly in the summer of 2012. Filing 34-10 at ¶ 11. Aventine's president, Mark Beemer, explained that due to the relative prices of grain and ethanol over this period, Aventine could only have operated the plant at a loss. Filing 34-10 at ¶ 11. However, in the fall of 2013, Aventine learned that it could acquire sugar at a favorable price from the U.S. Department of Agriculture. Aventine projected that, using sugar rather than grain, it could finally produce ethanol at a profit. Filing 34-10 at ¶ 12. So, Aventine contracted with the Department of Agriculture to purchase "enough sugar to operate at full capacity for several months." Filing 34-10 at ¶ 13. The sugar was to be delivered by rail, with the first shipment scheduled to arrive in mid-February 2014. Filing 34-10 at ¶ 16.
In January 2014, Aurora Co-op learned of Aventine's plan to produce ethanol using sugar. Filing 39-21 at ¶ 25. In a letter dated January 28, 2014, counsel for Aurora Co-op wrote to Aventine to address what Aurora Co-op regarded as Aventine's "inconsistent positions" regarding the Grain Supply and Double Loop Agreements. Filing 39-12. Aurora Co-op maintained that pursuant to the Double Loop Agreement, the easements that it granted were terminated immediately (along with the Double Loop Agreement itself) in the event that either party terminated the Grain Supply Agreement. And, Aurora Co-op asserted, without these easements, Aventine had no right to access the Switching Portion of the Exterior Loop, which Aventine would need to use to ship railcars between the BNSF line and the Interior Loop. Filing 39-12.
The portion of the Double Loop Agreement that Aurora Co-op relied upon provides, in part:
The initial term of this Agreement and the easements granted herein shall commence on August 1, 2006... and shall continue thereafter for a term of twenty (20) years..., except as is expressly provided below.... Anything herein to the contrary notwithstanding, this Agreement shall terminate as follows:
(B) Immediately in the event the then current Grain Supply Agreement between Aurora Co-op and Aventine expires or is terminated by either party.
Filing 39-3 at 4.
Thus, Aurora Co-op took the position that Aventine could not simultaneously claim that it had terminated the Grain Supply Agreement in September 2012 and continue to claim access to the easements granted by the Double Loop Agreement. Alternatively, Aurora Co-op asserted that Aventine's attempt to terminate the Grain Supply Agreement, while not effective, did amount to an anticipatory repudiation of that agreement. And, Aurora Co-op further argued, the Grain Supply and Double Loop Agreements were inextricably linked, such that a repudiation of one excused performance under the other. Thus, Aurora Co-op asserted that it was entitled to suspend performance under the Double Loop Agreement, such that it no longer had any obligation to allow Aventine on its land. Aurora Co-op concluded the letter by stating it would take legal action to prevent Aventine from using any portion of the Exterior Loop, unless Aventine (1) retracted its purported termination of the Grain Supply Agreement, and (2) stipulated to dismissal with prejudice of its counterclaims in the present case which allege that the agreement has been terminated. Filing 39-12.
Aventine disagreed with Aurora Co-op's legal analysis, and on February 4, 2014, Aventine used the Switching Portion to move two railcars from the BNSF line to the Interior Loop. Filing 39-13; filing 39-21 at ¶ 28. That same day, Aurora Co-op filed a separate suit with this Court, essentially seeking a declaration that its position above was correct and enjoining Aventine from using the Exterior Loop unless Aventine retracted its position that the Grain Supply Agreement had been terminated. Case no. 4:14-CV-3032, filing 1 at 14-16.
However, that was not all Aurora Co-op did. On February 14, 2014, Aurora Co-op locked the switches at the Exterior Track Loop, effectively barring rail traffic from crossing between the BNSF line and the Interior Loop. Filing 39-21 at ¶ 30. Aurora Co-op then sent a final letter to Aventine, stating that it would remove the locks if Aventine provided written assurance that it would comply with the Grain Supply Agreement for the duration of this case. However, Aurora Co-op dropped its demand that Aventine also dismiss its counterclaim alleging the agreement had been terminated. Filing 39-16 at 3. In response, Aventine filed the pending motion for preliminary injunctive relief. Filing 34.
Aventine asks the Court to enter a preliminary injunction ordering Aurora Co-op to remove the locks and prohibiting Aurora Co-op from interfering with Aventine's use of the portion of the Exterior Loop it needs to conduct its business. Aventine also argues that the present case was stayed pending arbitration, and that Aurora Co-op's actions-filing a separate declaratory suit and locking the tracks-violate that stay. This argument is quickly dealt with, and so the Court turns to it first.
THE STAY PENDING ARBITRATION
Contrary to Aventine's assertion, no order has been entered staying this case. Even if there were such an order, Aventine has not explained how Aurora Co-op's acts-locking the tracks and filing a separate declaratory action-are in any way interfering with the arbitration proceeding. First, a stay is not an injunction, and it would not affect Aurora Co-op's out-of-court actions. Second, Aventine's separate suit does not ask the Court to construe or interpret the Grain Supply Agreement. In any event, at the hearing on the present motion, counsel for Aventine conceded that whether the Grain Supply Agreement was terminated is not an issue pending in arbitration. So, ...