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First Dakota National Bank v. Eco Energy, LLC

United States District Court, District of Nebraska

January 12, 2015

ECO ENERGY, LLC f/k/a ECO ENERGY, INC., a Tennessee limited liability company, Defendant.


John M. Gerrard, United States District Judge

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.


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.


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.

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 equity contribution of $5 million. Filing 34 at ¶ 7; filing 35-10 at 77; filing 35-12 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 ΒΆ 18; filing ...

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