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Rajala v. Gardner

United States District Court, Tenth Circuit

July 3, 2013

ERIC C. RAJALA, Plaintiff,
v.
ROBERT H. GARDNER, et al., Defendants.

MEMORANDUM AND ORDER

ERIC F. MELGREN, District Judge.

Plaintiff Eric C. Rajala, the Trustee for the bankruptcy estate of Generation Resources Holding Company, LLC ("GRHC"), brought this suit against six individual defendants and numerous corporate entities. The case has been proceeding for several years, and the parties have been before the Court numerous times on numerous issues. Several parties are again before this Court. The remaining Defendants[1] seek summary judgment on the claims remaining against them. Plaintiff also filed a motion for partial summary judgment under 11 U.S.C. ยง 544. In addition, Plaintiff filed a Motion to Enforce Rule 26(e). The Court will address each motion.

I. Factual and Procedural Background

A. Local Rules for Summary Judgment

The Court must initially set forth the required rules for summary judgment motions in the District of Kansas. They are articulated in D. Kan. Rule 56.1. Under that rule, "[a]ll material facts set forth in the statement of the movant will be deemed admitted for the purpose of summary judgment unless specifically controverted by the statement of the opposing party."[2] D. Kan. Rule 56.1(b) addresses a party's responsibility in opposing a motion for summary judgment.

(1) A memorandum in opposition to a motion for summary judgment must begin with a section containing a concise statement of material facts as to which the party contends a genuine issue exists. Each fact in dispute must be numbered by paragraph, refer with particularity to those portions of the record upon which the opposing party relies, and, if applicable, state the number of movant's fact that is disputed.
(2) If the party opposing summary judgment relies on any facts not contained in movant's memorandum, that party must set forth each additional fact in a separately numbered paragraph, supported by references to the record, in the manner required by subsection (a), above. All material facts set forth in this statement of the non-moving party will be deemed admitted for the purpose of summary judgment unless specifically controverted by the reply of the moving party.

"[I]t is the duty of the parties contesting a motion for summary judgment to direct the court to those places in the record where evidence exists to support their positions."[3] The Court will not sift through the record in an attempt to find a genuine issue of material fact or locate arguments for the parties.[4] In addition, it is the party's responsibility to tie the facts to its legal contention.[5] "Without a specific reference, we will not search the record in an effort to determine whether there exists dormant evidence which might require submission of the case to a jury.'"[6]

In this case, Defendants set forth 180 facts in support of their Motion for Summary Judgment. The Trustee disputes, or "objects" to, 115 of these facts. In most cases, however, the Trustee fails to cite to the record or to provide any evidence when disputing or objecting to Defendants' proposed facts. In addition, when the Trustee does cite to evidence in an attempt to controvert a fact, he does not "refer with particularity" to the record for his proposition. Instead, in one instance, he refers the Court to a 151-page deposition. As noted above, the Court will not search the record to determine if the evidence does indeed exist to support his contention. Thus, despite the Trustee's objections, the Court deems admitted most of Defendants' facts and will set forth those facts below. At times, however, Defendants do not adequately support their facts by the record. The Court will disregard those facts.

With respect to the Trustee's Partial Motion for Summary Judgment, the Trustee frequently fails to cite to the record or direct the Court to the evidence that would allegedly support his contention. In addition, when the Trustee does cite to the record, the evidence does not support his contention. Finally, in certain instances, the Trustee fails to provide the Court with the document or evidence supporting his alleged fact. With the above rules in mind, the Court will set forth the uncontroverted facts.

B. Facts

Individual Defendants James Ansell and William Stevens have been involved in wind energy projects for a number of years. From 2000 through 2005, Ansell chaired the General Public Utilities for the Commonwealth of Pennsylvania Sustainable Energy Fund advisory board ("GPU Board"), which was comprised of seven individuals who reviewed sustainable energy projects or opportunities that were recommended by the executive directors of the Foundations.[7]

In 1999, Black & Veatch hired Stevens to work in its treasury department. In 2000, Black & Veatch hired Ansell as Director of Strategic Initiatives for its energy services division ("B&V Energy Services Division"). Stevens eventually worked with Ansell to evaluate internal Black & Veatch projects for the B&V Energy Services Division. Also, in 2000, Black & Veatch hired individual Defendant Robert Gardner as a senior attorney, and he worked with B&V Energy Services Division.

In early 2002, Ansell, Stevens, and Gardner presented Black & Veatch with the opportunity to develop wind farm projects in Pennsylvania, which Black & Veatch declined. Although Black & Veatch declined to develop wind farm projects, the B&V Energy Services Division agreed to expend a certain amount of money and resources in the form of engineering services to allow Ansell, Stevens, and Gardner to develop wind farm projects in Pennsylvania.

On February 2, 2002, the individual Defendants[8] formed GRHC as a Delaware limited liability company, to develop, own, and/or operate renewable resource generation assets in the event Black & Veatch decided not to develop wind farms.

The First Windpower Project - Stonycreek

On March 18, 2002, the individual Defendants formed SW[9] to enter into leases with respect to a project, entitled the Stonycreek Project, and to be the project company for the Stonycreek Project. At the time of SW's formation, GRHC held a ninety-seven percent interest in SW and the individual Defendants held a one percent interest per couple. Prior to entering into the Edison Definitive Agreements, [10] GRHC became the sole member of SW. SW was and always has been a subsidiary of GRHC.

In February 2002, GRHC applied to the Foundations[11] for a $1 million loan to build a wind farm project. Defendants designate this project as the "Stonycreek Project." The application and loan documents do not designate a specific name for the project. GRHC's application to the Berks County Community Foundation defines the "Opportunity Description" as "Provide $1, 000, 000.00 ($500, 000 from each fund) for the on-going development of economically viable projects in Eastern and Western Pennsylvania...." It also states in the "Project Description" section that "the activity or project' to be undertaken by GRH[C] for the purpose of this application is the development of one or more renewable energy projects within the Commonwealth of Pennsylvania." GRHC's application states that "these funds will be used to finance, on an at-risk' basis, GRH[C]'s development activities. The loaned funds to GRH[C] will be repaid upon securing construction financing of the first project."

When the Foundations presented GRHC's request to the GPU Board, Ansell recused himself from any discussion or vote. The Foundations agreed to loan GRHC the sum of $1 million, on an unsecured basis. On April 19, 2002, the parties entered into a Commitment Letter and Promissory Note.

The Commitment Letter states

The Loan will be used at the reasonable discretion of the Borrower to pay the associated costs and expenses of pursuing and developing financially viable wind-generated power projects in the Commonwealth of Pennsylvania (the "Project"). The Project is more particularly described in the Borrower's written application to [Berks County Community Foundation.]

The maturity date of this loan was April 18, 2004.

The Second Windpower Project - Forward

In July 2002, GRHC applied to the Foundations for a second $1 million loan. Defendants designate this project as the "Forward 1 Project."[12] GRHC's application defines the "Opportunity Description" as "funding for the on-going development of economically viable renewable energy projects in the Commonwealth of Pennsylvania...." The "project description" states that the purpose of this application is "the development of up to a 45 megawatt ("MW") renewable energy project located between Hooversville and Central City, in Somerset County, PA. Preliminary turbine placements are being sited along ridgelines with interconnecting lines following local roads surrounding the village of Forward." It also provides that GRHC is seeking funds for the Forward Project.

The Foundations agreed to loan GRHC the sum of $1 million, on an unsecured basis. On October 17, 2002, the parties entered into a Commitment Letter and Promissory Note. The Commitment Letter states that the loan will be used to pay the costs of the "Project, " as described in the application to the Foundations. The terms of this second loan were identical to the terms of the first loan, except that the maturity date for the second loan was October 17, 2004.

The First Extension of the Foundations' $1 Million Loans

In October or November 2003, in anticipation of the upcoming maturity dates for the two $1 million dollar Foundations loans, [13] GRHC requested an approximate one-year extension of the maturity dates. On November 20, 2003, Michael Kane, President of the Community Foundations for the Alleghenies, requested a current statement of GRHC's financial condition, including a balance sheet and income statement prior to December 3, 2003. GRHC provided the Foundations with its compiled financial statement as of December 31, 2002, which was prepared by its accountant, Gary Hawkins. The income statement contained a "salaries expense" of $321, 000 listed under "expenses."[14]

On April 8, 2004, the Foundations extended the maturity date of the first loan from April 18, 2004 to December 18, 2005. The Foundations also extended the maturity date of the second loan from October 17, 2004 to December 17, 2005. All other terms of these loans remained the same.

Ansell's, Stevens's, and Gardner's Salaries

After the Foundations made the two $1 million dollar loans in 2002, Ansell, Stevens, and Gardner discussed how to keep the projects going and how to pay back the Foundations' loans in the event one of them died or became incapacitated. GRHC decided to purchase $2 million of "key man" life insurance. Ansell, Stevens, and Gardner were told they did not meet income requirements to purchase this life insurance. Stevens, the lowest paid individual, needed to be paid an additional $100, 000 per year to qualify for the "key man" life insurance. Ansell, Stevens, and Gardner decided that because each of them and their wives had a one-third interest in GRHC, and each of them was equally working on developing the projects, GRHC would pay Ansell, Stevens, and Gardner approximately $100, 000 per year.

In or around October 2002, GRHC paid Ansell, Stevens, and Gardner salary in the amount of $107, 000 per person, totaling $321, 000. In or around October 2003, GRHC paid Ansell, Stevens, and Gardner salary in the same amount per person. In or around February 2004, GRHC paid Ansell, Stevens, and Gardner salary in the amount of $115, 000 per person, totaling $345, 000.[15]

The $330, 000 Loan from Berks County Community Foundation (Third Loan)

On August 26, 2004, the individual Defendants formed Forward Windpower, LLC ("FW"), a Delaware limited liability company.[16] Defendants applied for additional funding from the Foundations.[17] The Community Foundation for the Alleghenies declined FW's request. Berks County Community Foundation agreed to lend FW $330, 000 on November 11, 2004.[18] Although the Foundations' Loans made to GRHC in April and October 2002 are cross-defaulted with each other, the Berks County Community Foundation loan of November 11, 2004 is not cross-defaulted with the previous two loans.

The Third Windpower Project - Lookout

Between June and December 2004, Reed Miller, a property owner near the town of Berlin, Pennsylvania, approached Ansell about whether Ansell, Stevens, and Gardner would be interested in developing a wind farm project on his property. Miller also mentioned that his neighbors might be interested. On December 15, 2004, Lookout Windpower, LLC ("LW")[19] entered into three leases to develop the "Lookout Project" with Miller's neighbors. LW entered into a lease with Miller on January 5, 2005.

LW waited to file its formal organization papers until it determined whether the Lookout Project was viable. On April 28, 2005, the individual Defendants formed LW, a Delaware limited liability company. Subsequent to LW's formation, it entered into five more leases. LW borrowed money from FW to fund the development of the Lookout Project prior to February 3, 2006. GRHC had previously purchased met towers and anemometry equipment to collect wind data for their prior projects, and two of those met towers were moved to the Lookout Project to collect wind data after being refitted with all new anemometry equipment purchased by LW.

The Edison Transaction and the Second Extension of the Foundations' $1 Million Loans

FreeStream Capital, LLC ("FreeStream") provides advisory services for, among other things, wind development projects. Lee Garner is an owner of FreeStream. In 2004-2005, GRHC began looking for investors for the Stonycreek Project, but was unsuccessful.

During this same time period, Stevens and Garner began discussions about how FreeStream and GRHC might be able to do business together with regard to the Stonycreek Project. On February 28, 2005, FreeStream and GRHC entered into a financial advisory services agreement with respect to the Stonycreek Project. At this time, the Stonycreek Project was the only project capable of being sold and built.

Once the financial advisory services agreement was fully executed, Garner informed GRHC that Edison was a potential buyer for the Stonycreek Project. GRHC had previously tried to engage Edison for the Stonycreek Project, but those efforts were unsuccessful. In their discussions with Edison, FreeStream, as well as Ansell, Stevens, and Gardner, ...


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