Doctrine of Temporary Impracticability or Impossibility is an Available Defense under Minnesota Law

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
enXco Development Corporation,
Plaintiff,
v. MEMORANDUM OPINION
AND ORDER
Civil No. 11?1171
Northern States Power Company,
Defendant.

____________________________________________________________________
This matter is before the Court on Defendant Northern States Power
Company’s (“NSP”) motion to dismiss.
Factual Background
Plaintiff enXco Development Corporation (“enXco”) is a company that is
involved with renewable energy products, including solar and wind projects.
(Complaint ¶ 5.) NSP is an electric and natural gas company, and a subsidiary of
Xcel Energy, Inc. (“Xcel”). (Id. ¶ 6.)
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enXco developed certain property located in Dickey and McIntosh
Counties, North Dakota, for the purpose of developing a wind energy generation
project that would be capable of supporting the installation and operation of one
hundred 1.5 megawatt wind turbine generators, which is referred to as the
Merricourt Project. (Id. ¶ 7.) On October 24, 2008, the parties entered into a
Developed Wind Project Purchase and Sale Agreement for the Merricourt Project
(the “PSA”) wherein enXco agreed to sell enXco’s wind energy development
assets, including real property, to NSP for $15,000,000. (Id. ¶ 8.)
The parties also entered into a separate Engineering Procurement and
Construction Agreement (the “EPC Agreement”) under which NSP agreed to pay
enXco $353,500,000 for engineering, procurement of necessary infrastructure,
construction, commissioning, start?up and testing of the Merricourt Project. (Id.
¶ 9.)
As a consequence of the state of the country’s economy, enXco asserts there
was a lower demand for electricity, which in turn caused investor?owned utilities
such as Xcel to reconsider their commitments to wind projects under contract and
to terminate wind projects similar to the Merricourt Project. (Id. ¶ 11.) By 2010,
enXco alleges that NSP determined it would be financially advantageous to
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terminate the PSA and the other agreements related to the Merricourt Project.
(Id.)
During the development of the Merricourt Project, enXco contracted with
KLJ, an engineering and environmental consulting firm to assist with
environmental assessments. (Id. ¶ 12.) KLJ contacted the United States Fish and
Wildlife Service (“USFWS”) to request information related to the development of
the Project. (Id. ¶ 13.) The USFWS later provided comments concerning
measures to be taken to mitigate the Project’s impact on migratory birds,
specifically whooping cranes and the piping plover. (Id. ¶ 14.) enXco asserts it
followed all of the USFWS’s recommendations, and maintained contact with the
USFWS regarding its plans for development of the site. (Id. ¶ 16.) Later, in
February 2010, the USFWS provided enXco specific recommendations concerning
the whooping crane. In response, enXco used underground power lines, where
feasible, and installed visual marking devices for overhead lines. (Id. ¶ 17.)
Although the USFWS had stated in its February 2010 letter that the risk of
lethal take to whooping cranes as a result of the Merricourt Project was
unknown, the USFWS asserted that it believed an adverse effect to whooping
cranes was likely. (Id. ¶ 19.) The USFWS then recommended that the Project not
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commence construction until enXco has applied for and received an Incidental
Take Permit (“ITP”). (Id.)
enXco alleges that although the potential for adverse impacts from
development projects is not unique, NSP used the USFWS’s February 2010 letter
concerning the whooping cranes to be a breach of representations and warranties
contained in the PSA. At that time, NSP also provided notice of a “Material
Adverse Effect” under the PSA. (Id. ¶ 21.)
In response, enXco advised NSP that an ITP is not a Seller Permit for the
Merricourt Project, that NSP’s contention of alleged breaches of the PSA were
premature and that there had been no breach. (Id. ¶ 25.) In the meantime, enXco
continued to work under the PSA to satisfy all conditions necessary in order to
close the PSA. (Id. ¶ 26.)
By December 2010, enXco alleges that USFWS, for the first time,
recommended that enXco obtain a separate project?specific ITP based on the
belief that “take of piping plovers due to turbine strikes is likely at some point in
the life of the project . . . “ (Id. ¶ 27.) On March 4, 2011, NSP asserted that the
USFWS letter suggesting that enXco obtain an ITP for the piping plover
constituted a material adverse effect under the PSA. (Id. ¶ 28.) On March 31,
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2011, the USFWS issued a letter that confirmed that enXco’s proposed habitat
conservation efforts would compensate for any adverse effect on the whooping
crane, and avoided the critical habitat of the piping plover and that measures
proposed by enXco pending the issuance of an ITP would reduce the likelihood
of lethal take of piping plover due to turbine strikes. (Id. ¶ 29.)
Meanwhile, the Long?Stop date for closing the PSA was March 31, 2011.
(Id. ¶ 30.) On April 1, 2011, NSP terminated the PSA alleging the potential take
of whooping cranes and piping plovers constituted a material adverse effect
under the PSA. NSP further alleged that the possibility of limited voluntary
curtailment related to piping plovers pending the issuance of an ITP constituted a
material adverse effect. (Id. ¶ 31.) In addition, NSP asserted that a delay by the
State of North Dakota Public Services Commission (“NDPSC”) in issuing a
certificate of site compatibility constituted a material adverse effect under the
PSA. (Id.)
Because NSP terminated the contracts, enXco brought this action, asserting
three counts: Declaratory Judgment; Breach of Contract (Specific Performance)
and Breach of Contract.
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Standard for Motion to Dismiss/Failure to State a Claim
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may
move the Court to dismiss a claim if, on the pleadings, a party has failed to state a
claim upon which relief may be granted. In reviewing a motion to dismiss, the
Court takes all facts alleged in the complaint to be true. Zutz v. Nelson, 601 F.3d
842, 848 (8th Cir. 2010).
To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is
plausible on its face. Thus, although a complaint need not include
detailed factual allegations, a plaintiff’s obligation to provide the
grounds of his entitlement to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of
action will not do.
Id. (citations omitted).
Analysis
NSP argues that this action must be dismissed as enXco cannot state a
claim for breach of contract. The contracts at issue provided a deadline, or Long?
Stop Date, by which certain conditions had to be met. If such conditions
precedent were not completed by that time, NSP had the right under the
contracts to terminate.
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As indicated above, the PSA had a Long?Stop Date of March 31, 2011. (Id.
Ex. A § § 1.1, 2.3.1.) Article 3, Buyer’s Condition Precedent to Closing, provides
for various conditions that enXco must satisfy prior to the Long?Stop Date. (Doc.
No. 18, PSA, Art. 3 at 15?22.) “The obligation of Buyer to consummate the
transactions contemplated by this Agreement shall be subject to fulfillment at or
prior to the Closing of each of the following conditions . . . “ Article 10 of the PSA
provides that a party may terminate the PSA if the contract closing did not occur
by the Long?Stop Date or if the conditions precedent had not been satisfied by the
party responsible for these conditions or the other party waived the condition
prior to closing. (Id. Art. 10.1(a)(i).) One of the conditions precedent that enXco
was required to satisfy was delivery to NSP of a Certificate of Site Compatibility
from the NDPSC. (Id. Art. 3.7, Schedule 6.11?1.)
NSP argues that Minnesota law supports a contract provision that allows
one party to terminate when a condition precedent is not satisfied by a certain
date. See, e.g., Edina Dev. Corp. v. Hurrle, 670 N.W.2d 592, 595 (Minn. Ct. App.
2003); Appollo v. Reynolds, 364 N.W.2d 422, 425 (Minn. Ct. App. 1985). NSP
asserts the relevant contract provisions are clear, and provide that NSP had the
right to terminate if enXco did not meet all conditions precedent. NSP argues
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that dismissal of the Complaint is therefore appropriate.
NSP further asserts that enXco admitted that NSP had the right to
terminate the contracts in its request for an expedited hearing before the NDPSC.
(Ellingboe Decl. Exs 1?2.) At the hearing on enXco’s request, enXco’s attorney
reiterated that the basis for its request was its contractual obligations with NSP.
(Id. Ex. 3 at 7.)
enXco responds that it has properly stated a claim for relief, and the
motion to dismiss should be denied. enXco argues that its failure to obtain the
Certificate of Site Compatibility should be excused by reason of a temporary
impracticability.
enXco applied for the Certificate on October 6, 2010, and the NDPSC set it
on for public hearing on December 21, 2010. Because of a snowstorm, the hearing
was postponed until February 10, 2011. This hearing took place, but on March
17, 2011, the NDPSC determined that a new hearing was required, because the
first hearing had not been held in the county in which the Merricourt Project was
to be located. (Comp. ¶ 31.) enXco requested that the NDPSC hold the hearing
on less than twenty days notice, to allow it to satisfy the March 31, 2011 deadline.
Ultimately, the NDPSC denied the request for an expedited hearing, but issued a
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Certificate of Site Compatibility on June 8, 2011. (Peluso Decl, Ex. 2.)
The doctrine of temporary impracticability, or impossibility, requires the
party asserting such defense to “show that the unforeseen event upon which
excuse is predicated is due to factors beyond the party’s control.” Hoosier
Energy Rural Elec. v. John Hancock Life, 588 F. Supp. 2d 919, 931 (S.D. Ind. 2008)
(quoting Roth Steel Prod. v. Sharon Steel Corp., 705 F.2d 134, 149?50 (6th Cir.
1983)). This doctrine only suspends the obligor’s duty to perform during the
time of impracticability, it does not discharge the duty. Id. (quoting 30 Williston
on Contracts § 77:103 (4th ed. 2008)). Minnesota recognizes the doctrine of
temporary impossibility of performance. Village of Minneota v. Fairbanks,
Morse & Co., 226 Minn. 1, 12?13, 31 N.W.2d 920, 926 (1948).
In Pac. Trading Co. v. Mouton Rice Milling Co., 184 F.2d 141, 148 (8th Cir.
1950) the Eighth Circuit referred to the doctrine as the “doctrine of frustration”
and recognized that the doctrine required the court to look at “whether
performance after the delay caused by the act of the sovereign would be
substantially different from that contracted for.” If the delay “imposes a
substantially greater burden on the promisor than that intended by the parties”
the doctrine should not be applied to excuse they delay. Id. The court further
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noted that application of the doctrine will depend on the intention of the parties
and the circumstances surrounding the execution. Id. See also Am. Fed. of Grain
Millers, A.F. of L. v. Gen?Probe. Mills, 117 F. Supp. 340, 342 (D. Minn. 1953)
(applying doctrine of impossibility of performance).
In this case, enXco has alleged its ability to obtain the Certificate of Site
Compatibility was temporarily made impossible due to the acts of the NDPSC.
In addition, enXco argues that NSP suffered no prejudice from the temporary
delay. enXco now has the Certificate, and but for NSP terminating the contracts,
enXco could have met all of its obligations thereunder.
NSP argues that under Minnesota law, “a promise which cannot be
performed without the consent or cooperation of a third party is not excused
because of the promisor’s inability to obtain such cooperation.” St. Paul
Dredging Co. v. State, 107 N.W.2d 717, 723 (Minn. 1961) (in addressing post trial
motions, court found that State was not excused under contract for inaction of
third party). NSP further argues that the doctrine of impracticability is only
invoked where unforeseen events produce an excessive hardship on one of the
parties which was not reasonably contemplated. Powers v. Siats, 70 N.W.2d 344,
348 (Minn. 1955). See also First Nat’l Bank of Shakopee v. Edison Homes, Inc.,
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415 N.W.2d 442, 444 (Minn. Ct. App. 1987) (refusing to apply doctrine of
impossibility to an unambiguous contractual provision.) NSP argues that
encountering obstacles in obtaining a permit from a governmental agency is not
only foreseeable, but is commonplace. See Nebaco, Inc. v. Riverview Realty Co.,
Inc., 482 P.2d 305, 307 (Nev. 1971); Mortenson v. Scheer, 957 P.2d 1302 (Wy. 1998)
(finding that an obligor is expected to provide in the contract for contingencies
that are foreseeable, such an the need to obtain a government license or permit).
See also Harvey v. Lake Buena Vista Resort, LLC, 306 Fed. Appx. 471, 2009 WL
19340 (11th Cir. 2009).
NSP further argues that enXco was at fault for failing to secure the
Certificate of Site Compatibility by not timely initiating the application for the
permit. The doctrine of impossibility does not apply where the impossibility was
self created. In re Mr. Movies, 287 B.R. 178 (Bankr. D. Minn. 2002) (citing
Restatement (Second) of Contracts § 261). Here, the PSA was entered into in
October 2008, yet enXco waited until October 2010 to file the application for the
Certificate of Site Compatibility.
Whether the delay in obtaining the Certificate of Site Compatibility was
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reasonably foreseeable or whether enXco was at fault are fact questions that need
not be decided at this time. Because the doctrine of temporary impracticability or
impossibility is an available defense under Minnesota law, the Court finds that
NSP’s motion to dismiss based on enXco’s failure to satisfy certain conditions
precedent will be denied.1
IT IS HEREBY ORDERED that Defendant NSP’s Motion to Dismiss [Doc.
No. 7] is DENIED.
Date: November 8, 2011
s/ Michael J. Davis
Michael J. Davis
Chief Judge
United States District Court
1enXco also argued that dismissal was not warranted based on a forfeiture defense as
well as a breach by NSP. The Court need not address those arguments in ruling on the merits
of NSP’s motion.
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