This matter is before the Court on Plaintiffs Motion to Dismiss for Failure to State a Claim and to Strike Defendant’s Pleading [Doc. No. 364], For the reasons that follow, Plaintiffs motion is granted.
I. BACKGROUND
In October 2009, Plaintiff Great Lakes Gas Transmission Limited Partnership (“Great Lakes”) filed a breach of contract action against Defendant Essar Steel Minnesota, LLC (“ESML”), and its affiliated entities, Essar Steel Holdings, Ltd., Essar Steel Limited, and Essar Global Limited, a/k/a Essar Group (collectively, the “Essar Entities”). ESML subsequently filed a counterclaim against Great Lakes and filed third-party claims against nine entities related to Great Lakes: TC GL Intermediate Limited Partnership, TC Pipelines, LP, TC Pipelines GP, Inc., TransCan Northern, Ltd., TransCanada Pipeline USA, Ltd., TransCanada Pipelines Ltd., TransCanada Corporation, Great Lakes Gas Transmission Co., and TransCanada GL, Inc. (the “TransCanada Entities”).
In its Amended Complaint, Great Lakes alleges that it owns and operates a natural gas pipeline, which transports over 2.2 billion cubic feet of natural gas per day through 2,100 miles of pipeline. (Am. Complaint ¶ 12 [Doc. No. 35].) The pipeline extends from the Minnesota-Manitoba border at Emerson, Manitoba, to the Michigan-Ontario border at St. Clair, Ontario, and “serves as a link between western Canada’s natural gas basin and major industrial and market centers in Minnesota, Wisconsin, Michigan, and eastern Canada.” (Id.) Great Lakes alleges that it offers the use of its pipeline to shippers of natural gas for a rate that is regulated by the Federal Energy Regulatory Commission (“FERC”). (Id. ¶ 13.)
Defendant ESML is a Minnesota company affiliated with the other Essar entities, which are engaged in manufacturing and the provision of services in various industries, including the steel industry. (Am. Compl. ¶ 15 [Doc. No. 35].) In 2007, Essar Steel Holdings, the sole member of ESML, acquired the membership units of a company known as Minnesota Steel Industries (“MSI”), which was renamed Essar Steel Minnesota, LLC. (Counterclaim ¶ 3-4 [Doc. No. 80].) The Essar Entities purchased MSI for the purpose of constructing a steel plant in Nashwauk, Minnesota. (Id.) As alleged in ESML’s Counterclaim, for several years, MSI had been developing plans to construct a fully-integrated steel making facility, which, when operational, would require natural gas as an energy source. (Id. ¶ 20.)
The parties’ claims in this action arise from a September 6, 2006 contract between Great Lakes and MSI (the “Contract”). (Am. Compl. ¶ 17 [Doc. No. 35]; Contract, Ex. 1 to Aff. of Barbara Wohlrabe [Doc. No. 347-1].) There appears to be no dispute that ESML acquired the membership interests of MSI, and that the terms of the Contract are binding on ESML. Under the general terms of the
As consideration for the transportation services, Plaintiff alleges that MSI agreed to pay the rates indicated in the Contract, which included the rate schedule reflected in Great Lakes’ FERC Gas Tariff (the “Tariff’). (Am. Compl. ¶ 17 [Doc. No. 35].) However, ESML contends that during contract negotiations, Great Lakes misrepresented the cost of its service to transport gas. (Counterclaim ¶ 25 [Doc. No. 80].) ESML further contends that Great Lakes has misrepresented its costs to other customers, leading FERC to commence regulatory proceedings against Great Lakes. (Id. ¶ 26.) Plaintiff alleges that under the Contract, the reservation fee for the agreed-upon transportation was to be paid monthly. (Am. Compl. ¶ 20 [Doc. No. 35].) Great Lakes contends that Defendants failed to make the first payment of $190,190, due on August 17, 2009, and have consistently failed and refused to make payments. (Id.)
The Contract incorporates the rates found in the Tariff, as well as the general terms and conditions set forth in the Tariff. (Contract ¶ 12, Ex. 1 to Wohlrabe Aff. [Doc. No. 347-1].) One such general term or condition is the Tariffs force majeure clause. The clause enumerates various types of circumstances excusing the parties’ liability to each other in damages. Among other things, the clause enumerates acts of God, strikes, natural disasters and labor strikes and further provides that liability may be excused for:
any other cause, whether the kind herein enumerated or otherwise, and whether caused or occasioned by or happening on account of the act or omission of one of the parties hereto or some person or concern not a party hereto, not within the control of the party claiming suspension and which by the exercise of due diligence such a party is unable to prevent or overcome.
(Tariff ¶ 10.1, Ex. B to Counterclaim [Doc. No. 80-2 at 48].) (emphasis added).
Immediately following the force majeure clause, the remedy section of the Tariff provides that such circumstances or contingencies affecting the parties’ respective performance do not relieve it from liability “in the event of concurring negligence,” nor do such circumstances relieve it “from its obligation to make payments of amounts then due thereunder.... ” (Tariff ¶ 10.2, Ex. B to Counterclaim [Doc. No. 80-2 at 48].)
Pursuant to the Contract, MSI obtained a letter of credit (“Letter of Credit”) in the amount of $580,000, for which Great Lakes is the beneficiary, MSI is the borrower and American Bank of the North is the lender. (Counterclaim ¶ 37 [Doc. No. 80]; Letter of Credit, Ex. C to Counterclaim [Doc. No. 80-3].) Under the terms of the Letter of
ESML contends that while it intended to secure funding for construction of the steel facility in Nashwauk, the intervening 2008 global financial crisis made it difficult to do so. (Counterclaim ¶¶ 39-58 [Doc. No. 80].) Specifically, ESML alleges that global demand for steel plummeted in 2008 and 2009, forcing steel prices to a six-year low. (Id. ¶¶ 49-51.) ESML contends that the “credit freeze, the world-wide economic problems, and the depression of steel prices have inhibited ESML from obtaining financing for the [Nashwauk] Facility.” (Id. ¶ 55.) Consequently, ESML alleges that until it secures financing, it cannot commence construction of the steel plant in Nashwauk. (Id. ¶ 56.) Alleging that its inability to secure financing was outside its control, and that it could not otherwise obtain financing, ESML has invoked the force mqjeure clause of the Tariff, alleging that “the slump in steel prices constitutes an event that permits ESML to delay its performance.... ” (Id. ¶ 58.)
In the first count of its three-count Counterclaim, ESML seeks a declaratory judgment that its duty to perform pursuant to the Contract is excused in light of its inability to obtain financing for the Nashwauk facility. (Id., Count I.) In the alternative, in its second count, ESML seeks a declaratory judgment that its performance is excused under the doctrine of temporary commercial impracticability/impossibility. (Id., Count II.)
ESML contends that Great Lakes rebuffed its efforts to resolve the contractual dispute and instead, on November 20, 2009, drew upon the Letter of Credit. (Id. ¶ 69.) This action forms the basis for ESML’s count of conversion in its Counterclaim. (Id., Count III.) In this count, ESML alleges that Great Lakes had no basis for drawing upon the Letter of Credit, as ESML’s nonperformance under the Contract was excused by the force mqjeure clause. (Id.)
ESML pled three additional counts in its Counterclaim in which it sought to establish derivative liability against former Third-Party Defendants, the TransCanada entities, based on theories of piercing the corporate veil, alter ego/mere instrumentality, joint enterprise/joint venture and agency liability. (Id., Counts IV-VI.) Because Defendants voluntarily dismissed the TransCanada entities from the case, these derivative counterclaims against the TransCanada entities are now moot and are therefore dismissed. Plaintiff answered the Counterclaim [Pi’s Reply to ESML’s Counterclaim, Doc. No. 91], and now moves to dismiss pursuant to Fed. R.Civ.P. 12(b)(6). In addition, Plaintiff moves to strike Counts I and II of the Counterclaim, pursuant to Fed.R.Civ.P. 12(f).
In moving to strike Counts I and II of ESML’s Counterclaim, Plaintiff argues that these counts for declarative relief are redundant and repetitious of ESML’s affirmative defenses. In support of its Motion to Dismiss, Great Lakes contends that the Contract requiring ESML to make monthly payments to Great Lakes is separate and independent from ESML’s plans to construct a steel facility in Nashwauk, Minnesota. The Contract, Great Lakes asserts, is unambiguous and is clear that ESML’s obligations are not contingent upon constructing the steel facility or obtaining financing. (See Pi’s Mem. Supp. Mot. Dismiss at 2 [Doc. No. 364].) Rather, Plaintiff argues, the Contract simply requires Great Lakes to transport natural gas, and for ESML to take the gas and pay for it. Great Lakes asserts that, regardless of whether ESML intends to use
In response, ESML argues that Plaintiff brings this motion under the incorrect procedural rule — Rule 12(b)(6) as opposed to Rule 12(c) — and the Court should therefore deny the motion as procedurally improper.
II. DISCUSSION
A. Standard of Review
Plaintiff purports to bring a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6). ESML argues, however, that Great Lakes filed this motion after filing its answer to ESML’s counterclaims and therefore, Plaintiffs motion is procedurally improper.
By its terms, Rule 12(b) provides that a party asserting a defense by motion, including a motion for failure to state a claim upon which relief can be granted, must assert such a defense before pleading,
As a leading treatise observes, “A strict interpretation of [this] language leads to the conclusion that the district judge must deny any Rule 12(b) motion made after a responsive pleading is interposed as being too late.” 5C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1361 (3d ed. 2004). But as that treatise also observes, as long as the defense of failure to state a claim has been asserted in the answer, federal courts routinely consider defendants’ post-answer motions raising the defense “although technically they are no longer Rule 12(b) motions.” Id.
Ali v. Frazier,
In Ali, this Court treated the moving party’s Rule 12(b)(6) motion to dismiss for failure to state a claim as a Rule 12(c) motion asserting the same argument. Id. at 1089-90 (citing Westcott,
While ESML argues that Great Lakes did not assert a Rule 12(b)(6) defense in its Reply to ESML’s Counterclaim, Great Lakes did invoke Rule 12 in its Answer, albeit the provisions of Rule 12 pertaining to a motion for a definite statement and a motion to strike. (Pi’s Answer at 2 [Doc. No. 91].) Given the procedural history of this case, the refusal to consider Plaintiffs motion because it was styled as a Rule 12(b)(6) motion rather than a Rule 12(c) motion would be unfair. An examination of the docket reveals that Plaintiff filed its original Motion to Dismiss (i.e., the predecessor to the instant motion) on the same day that it filed its Reply to ESML’s Counterclaim. (See Doc. Nos. 91 & 93.) Assuming for the sake of argument that Great Lakes had simply filed these documents in reverse order, i.e., the Motion to Dismiss first, as Docket No. 91, and Plaintiffs Answer second, as Docket No. 93, there would be no procedural infirmity.
In light of all of these factors — the specific procedural circumstances of this case, the identical standard of review applicable under the two rules, and the Eighth Circuit’s recognition of a “purely formal” distinction between the rules — the Court will consider Plaintiffs motion under Rule 12(c), on the merits. This approach is consistent with rulings made, albeit in passing, by this Court, see E.E.O.C. v. Northwest Airlines,
When evaluating a motion to dismiss, the Court assumes as true the factual allegations in the complaint (or counterclaim) and construes all reasonable inferences from those facts in the light most favorable to the non-moving party. Schaaf v. Residential Funding Corp.,
To survive a motion to dismiss, a complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,
When considering a motion for judgment on the pleadings (or a motion to dismiss under Fed.R.Civ.P. 12(b)(6)), the court generally must ignore materials outside the pleadings, but it may consider ‘some materials that are part of the public record or do not contradict the complaint,’ Missouri ex rel. Nixon v. Coeur D'Alene Tribe,
B. ESML’s Claim for a Declaratory Judgment Based on the Force Majeure Clause
As noted, the Contract incorporates the general terms and conditions set forth in the Tariff. (Contract ¶ 12, Ex. 1 to Wohlrabe Aff. [Doc. No. 347-1].) One such “general term or condition” is the Tariffs force majeure clause, which provides, in full:
Neither Shipper nor Transporter shall be liable in damages to the other for any act, omission or circumstances occasioned by or in consequence of: any acts of God, strikes, lockouts, acts of the public enemy, wars, blockages, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrests and restraints of rulers and peoples, civil disturbances, explosions, breakage or accident to machinery or lines of pipe, line freezeups, decline in the Btu level of Gas received by Transporter at any point below the level at which the MDQs of Service Agreements are based, as specifically stated in Section 8.1 of the General Terms and Conditions, to the effect that Transporter can not Transport Shippers Scheduled Daily Delivery, or the binding order of any court or governmental authority which has been resisted in goodfaith by all reasonable legal means, and any other cause, whether the kind herein enumerated or otherwise, and whether caused or occasioned by or happening on account of the act or omission of one of the parties hereto or some person or concern not a party hereto, not within the control of the party claiming suspension and which by the exercise of due diligence such a party is unable to prevent or overcome.
(Tariff ¶ 10.1, Ex. B to Counterclaim [Doc. No. 80-2 at 48].) (emphasis added). ESML argues that it has stated a plausible claim for a declaratory judgment and that the underscored language above, in the force majeure clause, excuses its non-performance under the Contract. Specifically, ESML contends that it was unable, “through no fault of its own, to obtain financing for the Nashwauk facility due to the unprecedented credit freeze, economic meltdown and dive in steel demand resulting from the Great Recession.” (Counterclaim, Count I [Doc. No. 80].)
As an initial matter, the Contract provides that any disputes arising under the agreement shall be determined in accordance with Michigan law. (Contract ¶ 13, Ex. 1 to Aff. of Barbara Wohlrabe [Doc. No. 347-1].) Under Michigan law, while the main goal of contract interpretation is to enforce the parties’ intent, “when the language of a document is clear and unambiguous, interpretation is limited to the actual words used, and parol evidence is inadmissible to prove a different intent.” Burkhardt v. Bailey,
Michigan courts have recognized that a force majeure clause relieves a party from termination of the agreement “due to circumstances beyond its control that would make performance untenable or impossible.” Erickson v. Dart Oil,
At least one Michigan decision has addressed the 2008 financial crisis in the context of a force majeure clause. In Flathead-Michigan I, LLC v. Penninsula Devl., LLC, No. 09-14042,
Courts in other jurisdictions have considered whether the 2008 financial crisis constitutes a force majeure, with mixed results. See, e.g., In re Old Carco LLC,
The bankruptcy court in Old Careo, which found that the force majeure clause was properly invoked, first noted that financial difficulties do not generally excuse a defaulting party’s performance.
The requirement that the event must be expressly identified in the force majeure clause in order to excuse performance is “especially true where the event relied upon to avoid performance is a market fluctuation.” United States v. Panhandle E. Corp.,693 F.Supp. 88 , 96 (D.Del.1988). Therefore, while courts will not presume that a change in economic conditions constitutes an excuse for nonperformance, this does not preclude the parties from negotiating for such an excuse.
Id. at 119-20.
The court then went on to consider whether the event in question — a plant closing — was caused by both a change in economic conditions, and was outside of Old Careo’s control. Id. at 119-25. The court found in the affirmative as to both points, and further found that Old Careo had “exerted reasonable efforts to remain a viable business, perform its obligations, and retain the plant.” Id. at 125.
Faced with essentially the opposite facts, the court in Route 6,
The court found that while the “worldwide economic meltdown” was an event beyond Ruby Tuesday’s control, the critical inquiry was whether Ruby Tuesday was actually prevented from constructing a
While noting that “it is a well established rule of contract law that force majeure clauses must be narrowly construed,” the court held that
even assuming for purposes of this motion that a severe economic downturn is a triggering event that falls within the broad “catchall” language of the force majeure clause, the Court concludes that Ruby Tuesday has failed to demonstrate that it was prevented from complying with its obligations under the Lease due to events entirely outside of its control.
Id. at *4. Rather, the court found that “all defendant has shown is that changing economic conditions have made it burdensome or more difficult to perform its contractual obligations.” Id. at *5. In particular, the court noted that Ruby Tuesday failed to identify the steps it took to perform its obligations under the lease, despite its financial difficulties. Id.
In Elavon,
In Seitz v. Mark-O-Lite Sign Contractors, Inc.,
The Company shall not be liable for any failure in the performance of its obligations under this agreement which may result from strikes or acts of labor union [sic], fires, floods, earthquakes, or acts of God, War or other conditions or contingencies beyond its control.
Id. In construing the clause, the court relied on the rule of ejusdem generis, and narrowly interpreted the catch-all language of the clause such that “only events or things of the same general nature or class as those specifically enumerated” fell within the clause to excuse a party’s nonperformance. Id. The court specifically found that the employee’s disability did not fall into the same class as that of labor strikes, fires, floods, earthquakes, war or
In this case, while the force majeure clause includes a laundry list of hardships that may suspend a party’s obligations under the Contract, it does not include financial crises or changes in financial conditions. Moreover, the remedies section, immediately following the force majeure clause, provides:
Such causes or contingencies affecting the performance of the Agreement by either party, however, shall not reheve it of liability in the event of its concurring negligence or in the event of its failure to use due diligence to remedy the situation and remove the cause in an adequate manner and with all reasonable dispatch, nor shall such causes or contingencies affecting the performance of this Agreement relieve either party from its obligation to make payments of amounts then due thereunder ....
(Tariff ¶ 10.2, Ex. B to Counterclaim [Doc. No. 80-2 at 48]) (emphasis added). Reading the contract as a whole, it would make little sense for the force majeure clause to excuse ESML’s obligation to make payments when the immediately succeeding remedies clause explicitly provides that neither party is excused from its obligation to make payments of amounts due under the Contract.
However, what is most determinative is the plain language of the Contract. The Contract is for the transportation of natural gas. Great Lakes’ obligation under the contract is to provide the transportation, and ESML’s obligation is to pay a fee for that service. The parties’ obligations are not conditioned on ESML’s ability to obtain financing, the status of the Nashwauk facility, or the status of the construction of any lateral pipelines necessary to transport natural gas to that facility. ESML’s claim that the parties intended for the Contract to commence with the simultaneous commencement of operations at the Nashwauk facility (Counterclaim ¶ 28 [Doc. No. 80]) is belied by the face of the Contract, which provides for a term from July 1, 2009 to March 31, 2024. Similarly, while ESML contends that the City of Nashwauk was responsible for building a lateral connecting pipeline, and failed to do so (id. ¶ 31), again, the Contract, between ESML’s predecessor and Great Lakes contains no such provisions or conditions.
The fact that ESML might not be able to obtain financing for the construction of the steel facility, even absent a global financial crisis, was a foreseeable event. Had MSI/ESML wanted to avoid its obligations under the Contract due to this possibility, it could have included a provision in the Contract conditioning its performance on the events which, ESML now contends, make its performance impossible or impracticable. ESML fails to connect its invocation of the force majeure clause directly with the terms of the Contract. It focuses on the financing needed for construction of the Nashwauk steel facility, but the Contract simply and plainly obligates ESML to make its monthly payments.
Finally, accepting ESML’s factual allegations as true, which this Court must under the Rule 12 standard, ESML fails to sufficiently allege facts demonstrating that it made reasonable efforts to sell its pipeline capacity on the secondary market, or took sufficient, specific measures in mitigation. For all of these reasons, the Court finds that ESML has failed to state a plausible claim for a declaratory judgment that, based on the force majeure clause, its duty to perform pursuant to the Contract is excused, without consequence, until the Nashwauk facility is in a position to require the delivery of natural gas.
The Court’s analysis of ESML’s alternative count based on the doctrines of commercial impracticability and impossibility is similar to its analysis regarding the force majeure clause. See Flathead-Michigan,
In cases involving the defense of impracticability, courts applying Michigan law have cited to the Restatement Second of Contracts § 261 (1981), which provides that if “after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the nonoccurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate to the contrary.” Karl Wendt Farm Equipment Co., Inc. v. Int’l Harvester Co.,
Other courts have specifically considered whether a fluctuating financial market permits a party to a contract to rely on the doctrine of impracticability. Citing comment b of the same section of the Restatement, the court in Seaboard Lumber Co. v. United States,
Similar to the doctrine of impracticability, “[t]he doctrine of impossibility may extinguish a party’s liability under a contract if performance of the party’s promise becomes objectively impossible.” Oakwood of Cambridge, L.L.C. v. Kapsa, No. 289590,
may produce an impossibility sufficient to extinguish liability, Vergote v. K Mart Corp.,158 Mich.App. 96 ,404 N.W.2d 711 (1987), under Michigan law ‘[subsequent events which in the nature of things do not render performance impossible, but only render it more difficult, burdensome, or expensive, will not operate to relieve [a party of its contractual obligations.]’ Chase v. Clinton Co.,241 Mich. 478 ,217 N.W. 565 (1928).
Id.
Michigan decisions on the impossibility doctrine have held that “ ‘unexpected fi
In Ner Tamid Congregation of North Town v. Krivoruchko,
But let us assume that the situation in the summer of 2007 was an acute event; Mr. Krivoruchko’s argument is nonetheless analytically incorrect. The question is not whether the “depth of the recession” was foreseeable, but rather, it is whether it was foreseeable that a lender might not provide him with financing in connection with the purchase of the Ner Tamid property. The foreseeability of that event is beyond debate.
Id. at 928.
The court noted that financing can be denied for any number of reasons and, moreover that “financing was not an assumption underlying the contract at all, let alone a basic assumption.” Id. at 928-29. In rejecting the defendant’s impossibility/impracticability defense, the court further found that the defendant failed to demonstrate that he had tried all practical, available alternatives that would have permitted his performance of the contract. Id. at 933.
Citing Ner Tamid, the court in YPI 180 N. LaSalle Owner, LLC v. 180 N. LaSalle II, LLC,
Even if the global credit crisis made it difficult, to nearly impossible, to procure the sought-after commercial financing, this is not the relevant issue. The primary issue is whether it was foreseeable that a commercial lender might not provide Younan and YPI with the financing they sought. See Ner Tamid Congregation of North Town v. Krivoruchko,638 F.Supp.2d 913 , 928 (N.D.Ill.2009). Even without the global credit crisis of 2008, it was foreseeable that a commercial lender might not provide Younan and YPI with the financing they sought. See NerTamid Congregation of North Town, 638 F.Supp.2d at 928 .
Id.
ESML alleges that the 2008 financial crisis affected its ability to obtain the financing necessary for the Nashwauk facility. For the same reasons identified by the Court herein as to ESML’s force majeure allegations, the Court finds that the doctrines of impracticability and impossibility are inapplicable and, therefore, do not excuse or delay ESML’s performance under the Contract. It was completely foreseeable that ESML might not secure the necessary financing for the Nashwauk facility. Given that possibility, MSI/ESML could have conditioned its performance on obtaining such financing. It failed to do so.
In addition, ESML’s allegations with respect to mitigation are scant. It simply alleges that it “diligently sought financing for the [Nashwauk] Facility.” (Counterclaim ¶ 54 [Doc. No. 80].) ESML fails to sufficiently allege that it sought all reasonable alternatives in order to perform its obligations under the Contract. While ESML argues in its opposition memorandum, citing Paragraph 54 of the Counterclaim quoted above, that “it has alleged that it could not obtain any financing whatsoever” (ESML’s Opp’n Mem. at 31 [Doe. No. 374]), the allegation does not support such a sweeping statement. More importantly, ESML simply fails to allege facts sufficient to support its efforts at mitigation.
Moreover, this is not a case where the terms of the Contract are inconsistent or ambiguous. As noted herein, any reference to the parties’ subjective intent is unnecessary, as their “intent” is expressed in the plain language of the Contract.
Finally, ESML’s reliance on the decision of the Minnesota Court of Appeals in Burgi v. Eckes,
The Court finds that ESML has failed to state a plausible claim for a declaratory judgment that, based on the doctrines of impossibility/impracticability, its duty to perform pursuant to the Contract is excused until the Nashwauk facility is in a position to require the delivery of natural gas. Accordingly, ESML’s count for a declaratory judgment based on the doctrines of impossibility and impracticability is dismissed.
D. ESNM’s Claim for Conversion
As to ESML’s claim for conversion, the underlying basis for this claim is predicated on the authority by which Great Lakes could draw upon the Letter of Credit. ESML alleges that Plaintiffs actions in drawing upon the Letter of Credit were without justification, because ESML’s performance under the Contract was excused by the “force majeure clause and the non-existence of the Nashwauk facility,” which the Court construes as the doctrines of impracticability/impossibility. (Counterclaim, Count III [Doc. No. 80].) In addition, ESML alleges that Plaintiffs legal right to draw upon the Letter of Credit is “unclear” because “FERC has issued an Order stating that it appears that Great Lakes’ rates are unreasonable and unlawful.” (Id.) ESML alleges that Great Lakes should not have taken any action with respect to the Letter of Credit until FERC “has resolved its inquiry.”
Because the Court has concluded that ESML cannot state a claim based on those theories, it cannot state a claim for conversion, in any event. However, as to ESML’s allegation that the Letter of Credit was unlawfully drawn upon during the pendency of a rate inquiry, and therefore was unlawfully converted, ESML also fails to state a claim. First, the terms of the Contract provide that ESML would be charged based on Great Lakes’ “maximum rates and charges plus all applicable surcharges in effect from time to time under the applicable Rate Schedule on file with the [FERC] unless otherwise agreed to by the parties in writing.” (Contract ¶ 9, Ex. B to Counterclaim [Doc. No. 80-2].) The rates at issue are on file with a federal regulatory commission and there is nothing ambiguous or unclear about the rates, as they appear in the Contract.
Second, if the rates in the Contract were found to be unreasonable, 15 U.S.C. 717d(a) provides that FERC will decrease the rates to a reasonable level — it does not provide that FERC is authorized to find the Contract invalid. Under the terms of the Letter of Credit, if ESML fails to make payments consistent with the Contract, Great Lakes may draw upon the Letter of Credit for reimbursement. (Letter of Credit, Ex. C to Counterclaim [Doc. No. 80-3].) ESML does not appear to dispute the fact that it failed to make any payments under the Contract. A plain reading of the Letter of Credit and the Contract supports Great Lakes’ right to draw upon the Letter of Credit. Accordingly, for all of these reasons, ESML’s count of conversion fails to state a plausible claim for relief.
E. Allegations Regarding Misrepresentation
Although ESML asserts three counts for relief, i.e., conversion and two counts for a declaratory judgment, factual allegations in ESML’s Counterclaim contend that Great Lakes misrepresented its cost of service to transport natural gas, thereby overcharging MSI/ESML. (Counterclaim ¶¶ 25-26 [Doc. No. 80].) In its Opposition Memorandum, ESML contends that Great Lakes and former Third-Party Defendants, the TransCanada Entities, “were active participants” in a “scheme” to misrepresent the cost of Great Lakes’ service. (ESML’s Opp’n Mem. at 37 [Doc. No. 374].)
To the extent that ESML intends to plead a count of fraud or misrepresentation, it has not included a separate count to that effect in the Counterclaim. Moreover, the bare factual allegations of misrepresentation in the Counterclaim fail to state such a claim. Federal Rule of Civil Procedure 9(b) requires particularized pleading as to the “circumstances” constituting fraud allegations. Such “circumstances” include the “time, place and contents of false representations, as well as the identity of the person making the misrepresentation and what was obtained or given up thereby.” Bennett v. Berg,
The factual allegations in the Complaint as to Great Lakes’ misrepresentations are simply conclusory allegations, entirely lacking in specificity as to the “who, what, where, when and how” necessary to support a claim under Rule 9(b). See Drobnak v. Andersen Corp.,
F. Role of FERC
The Court is unpersuaded by ESML’s argument that additional discovery is needed, or that the resolution of complaints lodged with FERC about Great Lake’s charged rates makes dismissal inappropriate.
Pursuant to the National Gas Act, FERC is given rate authority over companies that engage in either the sale or the transportation of natural gas. Section 4 of the Act requires natural gas companies to file all rates and contracts with FERC. See 15 U.S.C. § 717(c) (2005). Section 5(a) authorizes FERC to determine whether any rate or charge, or contract affecting such a rate or charge, is unjust and unreasonable, and provides that FERC may determine a just and reasonable rate. 15 U.S.C. § 717d(a) (2012).
“... [I]t is long established that FERC views pure questions of the interpretation of FERC-approved contracts as falling within the jurisdiction of the district courts.” Portland General Elec. Co. v. City of Glendale, Civil No. 05-1321-PK,
To provide the declaratory relief that [the plaintiff] requests, this court will not be required to make any determination of reasonableness. Instead, this court will be called upon to interpret specified contractual provisions of the parties’ Agreement, without looking beyond the four corners of the document. Because this court’s declaration will neither modify the terms of the Agreement nor evaluate its formulary rates against any standard of fairness, reason, or justice, the interpretation of the contract will not, in itself, constitute an usurpation of any FERC function.
Id.
The Court finds that FERC’s inquiry or ruling — the Counterclaim uses both terms — does not affect whether this Court may rule on Plaintiffs Motion to Dismiss. In deciding this motion, the Court is concerned with the terms of the Contract and the interpretation of those terms, without regard to the reasonableness of the rates charged. Any determination of reasonableness of rates is within the jurisdiction of FERC. What is before the Court and what is before FERC are entirely distinct issues. The Court has full authority to rule on Plaintiffs motion, and, in doing so, the Court does not impinge upon FERC’s authority.
G. Leave to Amend
In the portion of its opposition argument concerning the now-dismissed Third Party Defendants, ESML argues that if the Court finds that it has not alleged facts sufficient to show an injustice occurred so that it may pierce the corporate veil, it should be given leave to amend the Counterclaim. (ESML’s Opp’n Mem. at 36-38 [Doc. No. 374].) In its memorandum,
1. The TransCanada Entities and Great Lakes misrepresented facts to MSI about the quantity of capacity that MSI would need when the [Nashwauk] Facility was fully operational, and the TransCanada Entities and Great Lakes collectively induced MSI to enter into a 25-year contract at the highest Tariff rate.
2. TransCanada Pipelines Limited has entered into dozens of TSAs with Great Lakes and now owns the largest stake of transmission capacity in the Western zone of Great Lakes’ pipeline (running from Emerson to the Central zone), or approximately 49% of the total capacity of the pipeline.
3. As a result of these TSAs, and due to a known lack of demand in the market for capacity in the Western zone of Great Lakes’ pipeline, TransCanada Pipelines Limited and Great Lakes have made it impossible for ESML — Great Lakes’ largest non-affiliated customer — to fairly re-market its capacity to third-parties.
4. TransCanada Pipelines Limited, on the other hand has a distinct advantage over ESML because of the favorable rates that TransCanada Pipelines Limited has obtained in its TSAs with Great Lakes. For example, if a third-party has an option to purchase gas from ESML (which has excess capacity due to greater efficiencies in its [Nashwauk] Facility plans and the advancement of technology) or TransCanada Pipelines Limited — TransCanada Pipelines Limited will always win because it can underbid ESML.
(Id. at 37-38 [Doc. No. 374].)
Courts will grant leave to amend only if the proposed amendment would not be futile. Where the proposed amendment would not withstand a Rule 12(b)(6) motion, denial of leave to amend is appropriate. In re Senior Cottages of America, LLC,
For the reasons identified above, the language in Paragraph 1 fails to include the specific information necessary to support a claim for misrepresentation. In addition, while the language proposed in Paragraphs 2-4 alleges mitigating circumstances that might be applicable to ESML’s declaratory judgment counts, they are wholly conclusory. They do not allege facts showing a duty on Great Lakes’ part to determine the quantity of capacity needed by ESML.
Moreover, in some ways, these mitigation allegations undercut ESML’s position. For example, in Paragraph 3, ESML alleges a “known lack of demand in the market for capacity in the Western zone of Great Lakes’ pipeline.” Presumably, MSI was aware of this “known lack of demand” at the time it entered into the Contract. Moreover, the hypothetical situation in Paragraph 4 alleges a non-existing situation, referring to ESML’s “excess capacity due to greater efficiencies in the [Nashwauk] Facility plans.” As the Nashwauk facility is not even operational, an allegation that hypothesizes about its existence provides no basis for ESML’s claim and is futile. For all of these reasons, the Court denies ESML’s request for leave to amend its Counterclaim, as the proposed amendments would be futile.
Finally, Great Lakes also moves the Court for an order striking ESML’s declaratory judgment claims (Counts I & II) as redundant. Although the Court has found that the claims should be dismissed on the merits, it also finds that Counts I and II should be dismissed or stricken as redundant. This Court has held that where a “proposed counterclaim and the plaintiffs’ claim raise identical factual and legal issues[, the] proposed counterclaim is redundant and will be moot upon disposition of the plaintiffs’ claims. A redundant declaratory judgment claim is not a proper declaratory judgment claim and should be dismissed.” Mille Lacs Band of Chippewa Indians v. State of Minn.,
“When deciding whether to dismiss a counterclaim as redundant, courts consider whether the declaratory judgment serves a useful purpose.” Gratke v. Andersen Windows, Inc., 10-CV-963 (PJS/LIB),
1. Plaintiffs Motion to Dismiss for Failure to State a Claim and to Strike Defendant’s Pleading [Doc. No. 364] is GRANTED; and
2. ESML’s Counterclaim (Counts I-III) is DISMISSED.
Notes
. While the Essar Defendants filed a joint answer to the Amended Complaint, the Counterclaim is asserted solely by Defendant ESML. (Counterclaim [Doc. No. 80].)
. Because Third-Party Defendants were in the case at the time that ESML filed its response memorandum, ESML also argued that consideration under Rule 12(c) of Plaintiffs and Third-Party Defendants’ Motions to Dismiss was also improper. Because Rule 12(c) motions may only be brought when the pleadings have closed, and because Third-Party Defendants had not answered the Third-Party Complaint, ESML argued that the motions to dismiss should be denied as premature. Because Third-Party Defendants have since been dismissed from the case and because Plaintiff has filed its Answer to ESML’s Counterclaim, the Rule 12(c) requirement of closed pleadings is met, and ESML's argument with respect to Rule 12(c) is moot.
. On July 2, 2010, Plaintiff filed its Reply to ESML's Counterclaim [Doc. No. 91] and also filed a motion to dismiss pursuant to Rule 12(b)(6) [Doc. No. 93], In October 2010, the Court stayed the parties' Rule 12 motions while the parties conducted jurisdictional discovery [Doc. 190], and in January 2011, the Court ordered the parties to withdraw the pending Rule 12 motions without prejudice [Doc. No. 265]. In March 2011, pursuant to the Amended Pretrial Scheduling Order [Doc. No. 272], the Court ordered the parties to file all dispositive motions by September 1, 2011. On September 1, 2011, Plaintiff filed the instant motion in accordance with the scheduling order.
. ESML argues that '‘reliance” on Burkhardt v. Bailey is inapposite because that decision addressed contract interpretation in an assignment clause. In addition, ESML argues that it does not ask this Court to re-write the Contract. (ESML’s Opp’n Mem. at 23, n. 12.) The Court cites Burkhardt for the general proposition that dear and unambiguous contractual language is interpreted in accordance with the written terms of the contract.
. The court also noted that the loan agreements did not contain a force majeure clause.