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LLC v. Biothane, LLC

United States District Court, D. Nebraska

March 19, 2014

E3 BIOFUELS, LLC, Plaintiff,
v.
BIOTHANE, LLC, successor in interest and liability to BIOTHANE CORPORATION; and PERENNIAL ENERGY, INC., Defendants

Page 994

For E3 Biofuels, LLC, Plaintiff: Daniel P. Chesire, Jason W. Grams, LEAD ATTORNEYS, LAMSON, DUGAN LAW FIRM, Omaha, NE; Evan A. Douthit, Randall L. Rhodes, Ryan D. O'Dell, DOUTHIT, FRETS LAW FIRM, LEAD ATTORNEYS, PRO HAC VICE, Leawood, KS.

For Biothane, LLC, successor in interest and liability to-Biothane Corporation, Defendant: Randy P. Scheer, S. Jacob Sappington, LEAD ATTORNEYS, PRO HAC VICE, SANDERS, WARREN LAW FIRM - SPRINGFIELD, Springfield, MO; William H. Selde, LEAD ATTORNEY, SODORO, DALY LAW FIRM, Omaha, NE.

For Perennial Energy, Inc., Defendant: Kristina J. Kamler, Stephen G. Olson, II, LEAD ATTORNEYS, ENGLES, KETCHAM LAW FIRM, Omaha, NE.

OPINION

Page 995

Laurie Smith Camp, Chief United States District Judge.

MEMORANDUM AND ORDER

This matter is before the Court on the Joint Motion for Summary Judgment (Filing No. 381) filed by Defendants Biothane, LLC (" Biothane" ) and Perennial Energy Co. (" PEI" ) (collectively " Defendants" ). For the reasons discussed below, the Motion will be granted.

BACKGROUND

The following facts are those stated in the briefs and supported by pinpoint citations to evidence in the record, those the

Page 996

parties have admitted, and those the parties have not properly resisted as required NECivR 56.1 and Federal Rule of Civil Procedure 56.

This case arose out of an attempt by E3 Biofuels-Mead, LLC, f/k/a Nebraska BioClean-Mead, LLC (" Bio-Mead" ), to " develop, finance, construct, and operate a commercial demonstration of patented technology, which integrates a modified ethanol unit with a co-located cattle feedlot and proportionately sized anaerobic digestion system." (Nebraska Attorney General Opinion Letter dated Oct. 6, 2003, Filing No. 382-1 at ECF 1.) Plaintiff E3 BioFuels, LLC (" E3" ), brought the action in its capacity as the assignee and holder of claims pursuant to an assignment from bankruptcy debtors Bio-Mead and Bio-Mead's holding company.

E3 alleges that Bio-Mead contracted for the construction of an ethanol plant located in Mead, Nebraska (the " Plant" ), that would retrieve usable energy from cattle waste to help produce ethanol and other products. Specifically, E3 alleges that Bio-Mead entered into a purchase order contract with Biothane on or about July 18, 2005, whereby Biothane agreed to supply a boiler system to the Plant in consideration for $1,450,000, plus sales tax (the " Purchase Order Contract" ). E3 contends that Bio-Mead and its holding company sought bankruptcy protection on November 30, 2007, due to the Defendants' failure to fabricate, install, integrate, program, test, commission, and start up a fully functional boiler system (the " Boiler System" ) for the Plant.

Under the Purchase Order Contract, Biothane was allowed to subcontract some or all of the work, but it remained responsible for any work subcontracted. Biothane also was required to supply Bio-Mead with certain products. The Purchase Order Contract stated:

Biothane will supply, start-up, and warrant the boiler system and controls as well as manage and take responsibility for integration of the boiler into the biogas handling system for a lump sum price of $1,450,000. This lump sum price includes the boiler system equipment described above, the freight to the jobsite for the boiler equipment subject to the assumptions above, the design engineering services necessary to integrate the boiler into the overall biogas management system, and markup including contingencies. Biothane stands behind the integrated performance of the biogas handling system including the proper functioning of the boiler equipment.

(Filing No. 60-1, Purchase Order Contract Attachment B, at ECF 8.)

When the Purchase Order Contract was executed, Biothane was an engineering company, representing that it specialized in anaerobic digestion technology (conversion of biodegradable materials into biogas) and system integration, including the integration of boiler systems and gas systems. Biothane's staff included engineers such as John Murphy, a mechanical engineer, and Graig Rosenberger, a chemical and environmental engineer. E3 contends that Biothane and its engineers were responsible for the manufacture, fabrication, supply, installation, integration, programming, testing, start-up and commissioning of the entire Boiler System, including two boilers known as boilers B-601 and B-602.

E3 alleges that PEI entered into a subcontract with Biothane through which PEI, along with Biothane, was responsible for providing services for the installation, testing, commissioning and start-up of the Boiler System, but Biothane retained responsibility for PEI's work within the scope of the Purchase Order Contract.

Page 997

PEI was at all relevant times an engineering company that specialized in biogas-processing and waste-gas burner systems and controls. It designed and manufactured biogas processing systems, working on 20 to 30 projects each year. With respect to the Purchase Order Contract, PEI provided specialized engineering services and its staff included engineers, such as Ted Landers, Larry Connor, and Brad Alexander. For example, Landers, PEI's Vice President of Engineering, had two engineering degrees and over 30 years' experience designing and building specialized biogas handling equipment.

Attachment B to the Purchase Order Contract (Filing No. 60-1 at ECF 8) referred to engineering services and expertise to be provided by Biothane:

Engineering, submittals, engineering documentation and O & M Manuals are included in the individual scope . . . .
Biothane stands behind the integrated performance of the biogas handling system including the proper functioning of the boiler equipment.

Biothane's subcontract with PEI (Filing No. 383-11 at ECF 2) stated:

It is understood that PEI will design, supply, start-up and warrant the boiler system and controls as well as be responsible for the integrated performance of the compressor, flare and boilers with the digester gas supply so as to optimize the performance of these systems to result in the maximum utilization of the biogas generated by the digesters up to the capacity of the boilers.

E3 alleges that on or about February 9, 2007, PEI was in the process of the initial installation and testing of the Boiler System, led by PEI's Project Manager, Landers. When boiler B-602 would not fire, PEI personnel by-passed certain control processes, causing a major explosion in boiler B-602, rendering it ...


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