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First Dakota National Bank v. Eco Energy, LLC

United States District Court, D. Nebraska

November 8, 2016

FIRST DAKOTA NATIONAL BANK, Plaintiff,
v.
ECO ENERGY, LLC f/k/a ECO ENERGY, INC., a Tennessee limited liability company, Defendant.

          MEMORANDUM AND ORDER: FINDINGS OF FACT AND CONCLUSIONS OF LAW

          JOHN M. GERRARD UNITED STATES DISTRICT JUDGE

         This matter is before the Court after a bench trial on the plaintiff's breach of contract claim. For the reasons explained below, the Court finds that the plaintiff has failed to establish the required elements of its claim. Accordingly the Court will enter judgment in favor of the defendant and dismiss the plaintiff's complaint.

         BACKGROUND

         This case involves an ethanol plant formerly owned and operated by Nedak Ethanol, LLC. Prior to shutting its doors, Nedak defaulted on a contract with the defendant, Eco Energy, for the sublease of railcars. As a result of the default, Eco pulled its railcars from Nedak and diverted them to other companies.

         In diverting the railcars from Nedak, Eco breached its obligation under a separate 2007 agreement between Nedak, Eco, and Nedak's lead lender, Farm Credit Services of Grand Forks (which later became AgCountry Farm Credit Services). Pursuant to that agreement, and as explained in more detail below, Eco was obligated to provide Nedak's lender notice of Nedak's default and a reasonable opportunity to cure. Because Eco failed to do so, the plaintiff contends that the defendant breached the 2007 contract, resulting in damages of $6, 224, 959.

         Applying North Dakota law, this Court, in its January 12, 2015 Memorandum and Order, determined that the plaintiff had satisfied the first two elements of its breach of contract claim: the existence of a contract (the 2007 agreement), and a breach of that contract. But the Court left the remaining element-causation-for trial, holding that genuine issues of fact remained as to whether AgCountry would have exercised its right to cure had it received appropriate notice of Nedak's default.

         At trial, the plaintiff presented evidence suggesting that Nedak's lenders would have been ready, willing, and able to pay the default had AgCountry been presented with the appropriate notice and opportunity. Specifically, the testimony and evidence focused on three primary factors that, the plaintiff contends, "objectively confirm that making the cure was the only reasonable choice." Filing 60 at 3. These factors include (1) the financial incentive to the lender, (2) the importance of preserving Nedak's railcars, and (3) the ready availability of funds from several participating lenders.

         The defendant contended, however, that AgCountry was unwilling to pour additional money into Nedak. To support this argument, the defendant presented evidence that Nedak, at the time of the default, was experiencing serious financial difficulties, causing concern amongst its lenders. These concerns prompted AgCountry to freeze Nedak's accounts, and maintain that freeze even after discovering that Nedak had defaulted on its sublease and was in jeopardy of losing its railcars.

         After full consideration, and weighing the evidence, the Court finds that the plaintiff has failed to satisfy its burden on causation-that is, the Court finds that the plaintiff has not proven that AgCountry would have exercised its right to cure Nedak's default had it received proper notice and opportunity. Accordingly, the Court will dismiss the plaintiff's breach of contract claim.

         SUMMARY OF FACTS

         1. The Contracts

         (i) The Marketing Contract (2006)

         In 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 69 at 9; ex. 2 at 1. To transport Nedak's ethanol, Eco used railcars which it had previously leased from a third party, Union Tank Car Company. That lease covered approximately 133 railcars, with monthly lease rates ranging from $400 to $735 per railcar. The lease terms on the railcars varied, with some expiring as early as 2012, and others as late as 2020. Ex. 5 at 8.

         As part of the Marketing Contract, Nedak agreed to assume Eco's financial obligation to Union Tank Car in the event that the Marketing Contract was terminated. Specifically, the Marketing Contract provided: "If this Agreement is cancelled for may [sic] reason, NEDAK will be responsible to take over all rail contracts." Ex. 2 at 9.

         (ii) The Collateral Assignment (2007)

          In 2007, Nedak assigned all rights and remedies under the Marketing Contract, and all documents related thereto (collectively, the "Assigned Documents"), to its lead lender, Farm Credit Services of Grand Forks. Ex. 1 at 1 (emphasis added). This contract (the "Collateral Assignment") also included a provision, executed by Eco, which provided the lender a right to notice and cure in the event of Nedak's default on the Assigned Documents. The provision provides in relevant part:

[Eco] agrees to give Lender prompt written notice of any default under the Assigned Documents 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.

Ex. 1 at 5. Farm Credit, as lead lender, held this right until it merged with AgCountry in 2008. The right was subsequently assigned to a company called Choice Ethanol Holdings LLC, and, ultimately, to First Dakota National Bank. See, filing 68 at 52- 54; ex. 10 at 1; ex. 11 at 1; ex. 13 at 1-2.

         (iii) The Sublease (2010)

         In 2010, Nedak and Eco agreed to terminate the Marketing Contract. To do so, the parties entered into a termination agreement, which reflected a mutual desire for "a fair and equitable settlement with regard to the cancellation of the rights and obligations granted under the Marketing [Contract.]" Ex. 3 at 1. But the termination agreement was not absolute- indeed, it reaffirmed Nedak's responsibility "to reimburse Eco the cost associated with the ...


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