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Note: Big Rivers Electric Corporation (Buyer/Beneficiary), a Kentucky corporation, engaged ADA-ES, Inc. (Manufacturer/Applicant), a Colorado company, to manufacture, deliver, and install a Dry Sorbent Injection (DSI) System at Buyer/Beneficiary’s Kentucky power plant. To assure the new system’s performance, Manufacturer/Applicant obtained a USD 807,651 standby letter of credit in favor of Buyer/Beneficiary issued by CoBiz Bank (Issuer). “[U]nder conditions that were set forth in [Manufacturer/Applicant]’s Performance Guarantee”, the new system would reduce sulfur trioxide (SO3) emission levels below five parts per million when combined with a particular amount of sorbent.

Following a failed performance test conducted by Buyer/Beneficiary using “basic hydrated lime”, Manufacturer/Applicant insisted that Buyer/Beneficiary use “high reactivity hydrated lime”. When the second test failed, allegedly done without the alternative lime, Buyer/Beneficiary claimed breach of contract and demanded USD 605,458.78 from Manufacturer/Applicant. After Manufacturer/Applicant denied it was in breach and argued that Buyer/Beneficiary used an incorrect sorbent, Buyer/Beneficiary fully drew on the standby, which Issuer honored. Subsequently, Manufacturer/Applicant sued Buyer/Beneficiary for fraud, unjust enrichment, breach of U.S. UCC warranties, breach of contract and related declaratory judgments. After the U.S. District Court of Colorado suasponte transferred the case, both parties moved for partial summary judgment. The United States District Court for the Western District of Kentucky, McKinley, J., granted partial summary judgment in favor of Buyer/Beneficiary.

The parties competing summary judgment motions went to the questions of permissible damages recoverable under the contract and what type of sorbent the new DSI system required. The Judge noted that several documents would have to be “construed together” to ascertain the parties’ intent regarding permissible damages. Manufacturer/Applicant argued that its “total liability for Performance based Liquidated Damages w[ould] be capped at 10% of the total Contract value” and that such performance based liquidated damages would be Buyer/Beneficiary’s “sole and exclusive remedy” for Manufacturer/Applicant’s breach. The Judge disagreed, however, noting that “reading the relevant clauses together warrants a conclusion that the contract unambiguously provides no damages cap to the breach of contract claimed by [Buyer/Beneficiary].”This was due to an applicable “Request for Quotes” agreement discussing “performance based” liquidated damages on one hand, and section 492000 of the contract distinguishing between “Make Good” performance guarantees and “DSI System guarantees” on the other. Thus, the Judge rejected Manufacturer/Applicant’s argument regarding limited damages as an unreasonable interpretation of the agreement and granted partial summary judgment on the issue in favor of Buyer/Beneficiary.

As to whether the agreement called for a particular type of sorbent to be used in the new DSI system, the Judge, looking to all of the relevant documents, noted that “a conflict exists.” The documents referred to “enhanced”, “high reactivity” and other types of hydrated lime without defining those terms. The Judge concluded that because of the conflict and that Buyer/Beneficiary submitted an affidavit “which adequately demonstrate[d] the need for additional discovery”, the Judge granted Buyer/Beneficiary’s alternative Fed. R. Civ. Pro. 56(d) motion to forgo summary judgment on the issue of the particular sorbent required and ordered that the parties conduct discovery.

[MJK]

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