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Himark Biogas, Inc. v. Western Plains Energy LLC

United States District Court, D. Kansas

July 16, 2014

HIMARK BIOGAS, INC., Plaintiff
v.
WESTERN PLAINS ENERGY LLC, Defendant.

MEMORANDUM AND ORDER

SAM A. CROW, Senior District Judge.

The defendant Western Plains Energy LLC ("WPE") moves the court to compel arbitration and stay the action. (Dk. 7). This action arises from the design, installation, and construction of a biogas plant ("Plant") at WPE's ethanol production facility in Gove County, Kansas. From its ethanol production waste and other feedstock, including cattle feedlot manure, the Plant was intended to produce enough biogas using an anaerobic digester that it would meet WPE's energy needs. The plaintiff Himark biogas, Inc. ("Himark) conducted the feasibility study for the digester, provided consulting services, and licensed the technology for the digester. WPE contracted with the non-party ICM, Inc. to serve as general contractor and provide various services for the design and construction of the digester using Himark's licensed technology. Besides incurring expenses far in excess of projected costs, WPE's digester has not performed as expected. Both ICM and Himark blame others, including WPE, for the digester's substandard performance. See Complaint, Dk. 1, ¶ 20. Both also believe that WPE owes each of them more monies for their work. See WPE's Statement of Claim in Arbitration Proceeding Dk. 7-8, p. 3. WPE began an arbitration proceeding against ICM in Kansas, and WPE now seeks to compel Himark's current action into arbitration too.

Himark filed this action against only WPE seeking to recover on several different theories. Himark first sues for breach of contract and unjust enrichment/quantum meruit wanting to recover for the consulting services it provided after November 2012, for an injunction to require WPE to conduct the necessary testing that would trigger the additional $1, 000, 000 license fee under the license agreement, for a preliminary injunction to enjoin WPE from operating the digester and making unauthorized disclosures of confidential information, and for patent infringement.

Factual Background-Agreements and Arbitration Provisions

After the feasibility study, WPE and Himark entered into a "Consulting Agreement" and a "Licensing Agreement" on November 11, 2011. The Consulting Agreement explained that WPE was contracting to use Himark's consulting services, as well as its technologies pursuant to a separate license agreement, for the stated "Purpose" of taking feedstock and producing biogas at a benchmark production level that would meet WPE's heating and electricity needs. (Dk. 7-1, pp. 2, 3-4). Under the Consulting Agreement, Himark agreed to:

provide consulting services to WPE in order to facilitate the construction and operation of the Oakley IMUS Facility in accordance with the Purpose ("Consulting Services"). The foregoing Consulting Services shall include, but not be limited to, Highmark working with WPE and its chosen contractor, during both the design and construction phases of the Plant, in order to provide on-site supervision, training, and engineering services as necessary to support the construction and operation of the Plant.

(Dk. 7-1, p. 5, ¶ 2.1). The Consulting Agreement provided it was effective for one year, (Dk. 7-1, p. 13, ¶ 11.1), and it included a survival clause that "[t]he terms and conditions which by their nature should survive the termination of this Agreement shall so survive, " id. at ¶ 11.7. The consulting agreement also included this arbitration provision:

In the event of any dispute among the parties arising from or related to this Agreement (a "Dispute"), each Party agrees to cooperate with the other Party and mutually work together in good faith towards the resolution of the Dispute....
In the event that the Parties fail to resolve the Dispute within the Resolution Period, the Parties agree that the Dispute shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce....
The arbitration will be conducted in the city of Edmonton, Alberta Canada in the English language.

Id. at p. 17, ¶ 13.7.

Also on November 11, 2011, WPE and Himark entered into the Licensing Agreement. In an opening clause, Himark agreed "to provide consulting services in relation to... [its technologies] pursuant to a separate consulting agreement, and grant... [WPE] a limited license" to its technologies. (Dk. 7-2, p. 2). The Licensing Agreement stated the same "Purpose" for the contractual relations between the parties as was stated in the Consulting Agreement. (Dk. 7-1, pp. 4-5; Dk. 7-2, p. 5). The Licensing Agreement granted WPE a limited license to use Himark's technology for the stated "Purpose" and any use of the technology beyond that "Purpose" or at a different plant would be the subject of separate agreements or addendums. (Dk. 7-2, pp. 4-5). The Licensing Agreement provided that WPE would pay a $1, 000, 000 license fee "upon successful completion of the Performance Test." Id. at p. 8. The parties also agreed that the licensed technology would meet specifications, that the "Performance Test" would be sole measure of conformity with warranty requirements, and that if the specifications were not met after the Test, then Himark shall "make such changes in design, construction, or equipment as required to meet the" specifications and Performance Test. Id. at p. 16. The Licensing Agreement specified that it remained effective for the lifetime of WPE's Plant unless it is terminated. Id. at p. 18. Finally, the arbitration provision in the Licensing Agreement is identical to that in the Consulting Agreement. (Dk. 7-1, p. 17; Dk. 7-2, pp. 20-21).

Later that same month, WPE and ICM entered into a work agreement for ICM to "perform all work necessary to provide engineering, procurement, construction and commissioning services to provide Western Plains Energy an Anaerobic Digestion Facility utilizing" Himark technology. (Dk. 7-3, p. 22). The Working Agreement included this arbitration provision:

16.1 Any dispute arising between the Parties concerning this Agreement or the rights and duties of either Party in relation thereto shall first be submitted to a panel consisting of at least one representative of each Party who shall have the ...

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