Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_12-cv-08095/USCOURTS-azd-3_12-cv-08095-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Solar Utilities Network, L.L.C,

 Plaintiff,

vs.

Navopache Electric Cooperative, Inc.,

 Defendant.

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No. CV-12-08095-PCT-PGR 

 ORDER

 

 

Pending before the Court is defendant Navopache Electric Cooperative, Inc.’s

Motion for Summary Judgment Pursuant to Rule 56 (Doc. 72), which the Court finds

should be denied. Also pending are three related procedural motions: Navopache

Electric Cooperative, Inc.’s Motion to Exclude James Dudley Howard, Jr. as a

Witness (Doc. 71), which the Court finds should be denied; plaintiff Solar Utilities

Network. LLC’s Motion to Strike Defendant Navopache Electric Cooperative, Inc.’s

Improper Controverting Statement to Sun’s Supplemental Statement of Facts (Doc.

85), which the Court finds should be granted; and Navopache Electric Cooperative,

Inc.’s Alternative Motion for Leave to File Amended Reply (Doc. 86), which the Court

Case 3:12-cv-08095-PGR Document 89 Filed 09/29/15 Page 1 of 23
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1

While the parties have requested oral argument, the Court concludes

that oral argument would not significantly aid the decisional process. See Partridge

v. Reich, 141 F.3d 920, 926 (9th Cir.1998).

The Court notes that it has intentionally not discussed every argument raised

by the parties and that those arguments not discussed are considered by the Court

to be unnecessary to its resolution of the pending motions.

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finds should be denied.1

Background

According to the Second Amended Complaint (“SAC”) (Doc. 35), this diversitybased action arises out defendant Navopache Electric Cooperative, Inc. (“NEC”)’s

alleged wrongful repudiation and termination of the parties’ Solar Energy Power

Purchase Agreement (“PPA”) dated October 15, 2010. The purpose of the PPA was

to assist NEC in complying with requirements of the Arizona Corporation

Commission that it obtain certain amounts of its electricity from renewable energy

sources. Pursuant to the PPA, NEC agreed to purchase for twenty years all of the

electric energy and related environmental benefits produced at or attributable to a

one megawatt solar power plant that plaintiff Solar Utilities Networks, LLC (“SUN”)

was to construct and operate in Hunt Valley, Arizona. In a letter to SUN dated

August 4, 2011, NEC terminated the PPA and repudiated its contractual obligations

“due to SUN’s failure to commence construction of the Generation Facility and to

secure Construction Financing by July 31, 2011.” The SAC alleges state law claims

for Breach of Contract (First Claim for Relief) and for Breach of the Implied Covenant

of Good Faith and Fair Dealing (Second Claim for Relief), both arising from the

termination of the PPA. The PPA provides that it is to be governed and construed

in accordance with Arizona law.

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NEC’s Motion to Exclude Testimony of James Howard

NEC has moved to preclude James Howard from being either an expert or fact

witness and to exclude SUN from offering Howard’s opinions, reports or testimony

in this action.

The Court considers the following facts to be undisputed for the purposes of

this motion. In January 2011, after the execution of the PPA, SUN partnered with

Dudley Ventures (“DV”), an investment and advisory services firm that specializes

in utilizing congressionally-sanctioned tax credits and other complex federal and

state subsidy programs. DV is involved in numerous investments regarding power

generation facilities, including solar plants. SUN turned the solar power plant project

over to DV to obtain financing and to manage the construction and operation of the

solar plant. DV ultimately became a joint venture partner with SUN and the manager

of the project. Under the joint venture agreement between SUN and DV, DV is

contributing 50% of the attorney fees and legal costs of this action and is to receive

50% of any damages recovered in this action. James Howard is the founder and

CEO of DV and is a 75% owner of the company. SUN views Howard as likely its

most important witness in this action as he was intimately involved with almost all of

the operative issues involved in this action, including DV’s efforts to obtain

construction financing, to commence construction of the power plant, to obtain tax

benefits and subsidies, the efforts to obtain NEC’s audited financial statements, the

time line for completion of the project, and the events occurring after NEC terminated

the PPA. Howard’s involvement in this action also included choosing the litigation

counsel for SUN. 

Since Arizona law supplies the rule of decision in this action, Arizona law

governs Howard’s competency as a witness. Fed.R.Evid. 601. NEC argues that

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2

NEC secondarily argues that Howard should be excluded from testifying

pursuant to Arizona Supreme Court’s Rule of Professional Conduct 3.4(b), which

prohibits a lawyer in part from “offer[ing] an inducement to a witness that is

prohibited by law.” Even if the Court were to assume that such an ethical violation

is occurring here, which the Court is not willing to do based on the record before it,

the Court would not in any case conclude that excluding Howard’s evidence on that

basis alone would be the proper remedy.

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Howard cannot be allowed to be a witness because Arizona law prohibits the

presentation of evidence from a witness whose compensation is based on the

outcome of the litigation. See Laos v. Soble, 503 P.2d 978, 979 (Ariz.App.1972)

(“We are of the opinion, and so hold, that a contract providing for compensation of

a witness contingent on the success of the litigation is subversive of public justice

for the reason that his evidence may be improperly influenced. Public policy

considerations brand such [a] contract illegal.”)2

 NEC reasons that Howard’s

testimony as a witness is improper because he stands to receive contingent

compensation inasmuch as his company, DV, stands to receive 50% of any

damages awarded to SUN. SUN alleges in its SAC that its damages from NEC’s

allegedly wrongful termination of the PPA exceed $7,000,000.

While the Court agrees with NEC that Howard, as the majority owner of DV,

has a financial interest in this action given that he may personally profit if SUN wins,

the Court cannot agree that under the particular facts at issue that Arizona public

policy absolutely forbids him from testifying. First, Arizona law does not deem a

person with an interest in the litigation to be incompetent to testify. A.R.S. § 12-

2201(B) (“A person shall not be incompetent to testify because he is a party to an

action or proceeding or interested in the issue tried[.]” Second, this is not at all the

usual situation underlying Arizona’s policy in which a party has a contract with a

witness to testify on its behalf and is directly paying that witness a contingent fee to

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testify. While the Court understands that Howard is not a party plaintiff, his company

is so closely allied with SUN regarding the issues presented in this action and he is

so personally involved in this action that his testimony is more realistically compared

to that of a party representative than that of a compensated independent witness.

While it may be a close question, the Court concludes Howard’s evidence should not

be stricken because the issue here is more one of Howard’s credibility as a witness

rather than his competency as a witness.

Motions Related to NEC’s Controverting Statement of Facts

SUN filed a 91-paragraph supplemental statement of facts in conjunction with

its opposition to NEC’s summary judgment motion. NEC, in conjunction with its

summary judgment reply, filed a 23-page controverting statement of facts for the

purpose of disputing what it considers to be facts in SUN’s statement of facts “that

are irrelevant to the determination of the [summary judgment] motion, inaccurate

characterizations of the record, or editorialization as to the application of facts in the

record[;]” NEC appended some fifty pages of additional exhibits as support for its

controverting statement of facts. SUN has moved to strike NEC’s controverting

statement of facts and its additional exhibits on the ground that they are not

authorized by LR 7.2(m)(1) or 56.1. NEC’s opposition to the motion to strike

includes a motion for leave to file an amended, overlength summary judgment reply

if the Court concludes that its controverting statement of facts should be stricken.

The Court will grant SUN’s motion to strike NEC’s Controverting Statement of

Facts and its attached exhibits and will deny NEC’s motion to file an amended, overlength reply, to which NEC has attached the same new exhibits it attached to its

Controverting Statement of Facts. See Parker v. Arizona, 2013 WL 3286414, at *8

(D.Ariz. June 28, 2013) (“District courts in Arizona have uniformly held that the Local

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3

The Court, having reviewed the additional argument and evidence that

NEC seeks to add to its reply memorandum, notes that even if the Court permitted

it to be filed, none of it would in any case have affected the Court’s resolution of

NEC’s summary judgment motion.

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Rules of Civil Procedure do not permit a party moving for summary judgment to file

a supplemental statement of facts or attach[] exhibits with its reply.”); B2B CFO

Partners, LLC v. Kaufman, 856 F.Supp.2d 1084, 1086 (D.Ariz.2012) (Court

concluded that LRCiv 56.1 “does not provide for a reply statement of facts or a

response to the non-moving party’s separate statement of facts.”). Any objections

that NEC desired to make regarding SUN’s controverting and additional statements

of facts should have been set forth in its reply memorandum and it did not need an

overlength memorandum to do so.3 See Gressett v. Central Arizona Water

Conservation District, 2014 WL 4053404, at *2 (D.Ariz. Aug. 14, 2014) (Court noted

that while a summary judgment movant may neither attach new evidence to its reply

or file separate objections to the non-movant’s controverting and additional

statements of facts, “the movant may use its reply memorandum to respond to the

non-movant’s objections to the movant’s supporting statement of facts.”) (emphasis

in original). 

NEC’s Motion for Summary Judgment

(1) Breach of Contract Claim

NEC argues that it is entitled to summary judgment on the SAC’s breach of

contract claim because the undisputed evidence establishes that it properly

terminated the PPA because SUN did not timely secure construction financing for

the solar power plant and did not timely commence construction of the plant. 

Section 2.02 of the PPA, entitled “Certain Termination Rights Prior to

Commercial Operation,” granted both parties the right to terminate the PPA under

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4

Section 2.02(c) provided NEC with a separate termination circumstance:

“In the event that Commercial Operation has not been achieved by July 31, 2012,

Buyer shall have the right to terminate this Agreement without payment or penalty

by giving Notice to Seller, which Notice when given shall automatically terminate this

Agreement.”

5

Although neither party has raised it as an issue, the Court notes that §

2.02(b) provides that NEC had the right to terminate the PPA in the event that

construction financing had not been secured and construction commenced by July

31, 2011. Since this termination right is phrased conjunctively rather than

disjunctively, and in light of the lack of any evidence of a contrary intent in the

record, the Court construes this conjunctive phrase as meaning that SUN had to fail

to timely complete both tasks before NEC could terminate the PPA pursuant to §

2.02(b). See Bither v. Country Mutual Ins. Co., 245 P.3d 883, 885 (Ariz.App.2010)

(“The word ‘and’ is a conjunction connecting words or phrases expressing the idea

that the latter is to be added or taken along with the first.”) (some internal quotation

marks omitted.)

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certain circumstances; § 2.02(a) set forth SUN’s termination rights, and § 2.02(b)

and § 2.02(c) set forth NEC’s termination rights. At issue here is § 2.02(b), which

NEC relied on to terminate the PPA, which provides in its entirety: “In the event that

Construction Financing has not been secured, and construction of the Generating

Facility commenced, by July 31, 2011, Buyer [NEC] shall have the right to terminate

this Agreement without payment or penalty by giving Notice to Seller [SUN], which

Notice when given shall automatically terminate this Agreement.”4

A. § 2.02(b)’s right of termination

A preliminary issue is whether § 2.02(b) permitted NEC to terminate the PPA

solely because SUN failed to meet the July 31, 2011 deadline.5

 SUN argues that

there is no independent significance to the July 31, 2011 benchmark date in §

2.02(b) for securing financing and commencing construction other than as it relates

to the July 31, 2012 deadline for commercial operation of the solar plant. SUN’s

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SUN argues in its summary judgment response that the parties never

discussed or negotiated § 2.02(b) and that the provision was inserted into the draft

PPA by NEC’s counsel at the last minute. To the extent that SUN is contending that

it signed the PPA with no knowledge of the existence of § 2.02(b), the Court rejects

that contention. There is no dispute that SUN left the final negotiation of the details

of the PPA to its contract counsel, the law firm of Snell and Wilmer, and SUN has not

submitted any evidence from its contract counsel to the effect that its counsel did not

know about the existence of § 2.02(b). More importantly, Mark Moore, SUN’s

president and CEO who signed the PPA, testified at his deposition that he “did

review the entire contract” before he signed it and that he did not recall having any

specific reaction one way or the other to the language of § 2.02(b) before he signed

the PPA. Moore also initialed the specific page of the PPA containing § 2.02(b), and

did so right below where § 2.02(b) and § 2.02(c) were set forth.

Furthermore, whatever understandings SUN may have had stemming

from earlier negotiations and drafts of the PPA did not survive the execution of the

PPA inasmuch as § 10.17 of the PPA provides in part:

This Agreement ... constitutes the entire agreement between the

Parties relating to the subject matter hereof. Upon each Party’s

execution of this Agreement, the Prior Understandings are hereby

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contention is that “the PPA only required SUN to complete construction of the

contemplated power plant ... by July 31, 2012 and only required that SUN be far

enough along by July 31, 2011 in terms of financing and construction to assure NEC

that SUN would complete construction by the completion date.”

The “[i]nterpretation of a contract is a question of law for the court where the

terms of a contract are found to be plain and unambiguous. Whether a contract is

ambiguous is a question of law; the mere fact that parties disagree as to its meaning

does not establish an ambiguity.” Chandler Medical Bldg. Partners v. Chandler

Dental Group, 855 P.2d 787, 791 (Ariz.App.1993). The Court concludes that §

2.02(b) is unambiguous as a matter of law on the issue of NEC’s right to terminate

the PPA if SUN had not secured financing and had not commenced construction by

July 31, 2011, and that this termination deadline constituted a material term of the

PPA.6

 The contract language of § 2.02(b) is not reasonably susceptible to SUN’s

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terminated and of no further force or effect. This Agreement shall be

considered for all purposes as prepared through the joint efforts of the

Parties and shall not be construed against one Party or the other as a

result of the preparation, substitution, submission or other event of

negotiation, drafting or execution hereof.

This provision is underscored by the fact that at the very end of the PPA, below the

parties’ signatures executing the PPA, Mark Moore additionally signed a statement

reading: “CONSENT TO TERMINATION OF PRIOR UNDERSTANDINGS.”

(Capitalization and underlining in original.)

7

The Court agrees with NEC that a failure on SUN’s part to meet the

benchmark deadline of § 2.02(b) makes SUN’s oft-repeated contention that the solar

power plant would have been constructed and operational by the deadline set forth

in § 2.02(c) irrelevant since the two provisions unambiguously give NEC distinct and

separate termination rights. The Court rejects SUN’s argument that construing §

2.02(b) as a separate termination right renders § 2.02(c) a nullity.

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asserted interpretation, which relies solely on the July 31, 2012 commercial

operation deadline § 2.02(c), because that interpretation ignores the clear language

of § 2.02(b) and would in effect make that language meaningless by improperly

reading it out of the PPA.7 See Cardon v. Cotton Lane Holdings, Inc., 841 P.2d 198,

202 (Ariz.1992) (“A contract must be construed in its entirety and in such a way that

every part is given effect.”) The Court therefore declines to consider any parol

evidence submitted by SUN regarding the parties’ alleged intent regarding this issue.

See Shattuck v. Precision-Toyota, Inc., 566 P.2d 1332, 1334 (Ariz.1977) (“Where the

intent of the parties is expressed in clear and unambiguous language, there is no

need or room for construction or interpretation and a court may not resort thereto.”);

In re Estate of Lamparella, 109 P.3d 959, 963 (Ariz.App.2005) (“Language in a

contract is ambiguous only when it can reasonably be construed to have more than

one meaning. Although determination of the intent of contracting parties from

extrinsic evidence may require fact finding, whether contract language is reasonably

susceptible to more than one interpretation so that extrinsic evidence is even

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admissible is a question of law for the court.”) (internal citations omitted).

B. Securing of Construction Financing

NEC argues in part that summary judgment is appropriate in its favor because

the evidence establishes that SUN failed to timely secure construction financing;

SUN argues that summary judgment cannot be entered because it timely secured

financing, and that even if it did not, summary judgment is still not appropriate

because any failure to do so on its part was caused by NEC’s failure to timely

provide SUN with its necessary financial statements. 

While § 2.02(b) provides that construction financing must be “secured” by July

31, 2011, the PPA does not define what constitutes the securing of construction

financing other than to the extent that the PPA defines “Construction Financing” to

mean “the initial financing, in whatever form(s), required to reasonably commence

and pursue through completion (consistent with Prudent Practice) the construction

of the Generating Facility, which financing may include, but is not limited to debt or

equity finance, sponsor or developer contributions and secured and unsecured

loans.” SUN contends that the requirement for securing construction financing

means in the context of § 2.02(b) that it had to secure a lender who was prepared

to make a loan to SUN for the construction of the solar plant, and that an

unconditional commitment to lend was not necessary. NEC contends that for

purposes of § 2.02(b), financing is not secured until a lender has unconditionally

bound itself to provide SUN financing.

“The controlling rule of [contract] interpretation requires that the ordinary

meaning of language be given to words where circumstances do not show a different

meaning applicable.” Brady v. Black Mountain Inv. Co., 459 P.2d 712, 714

(Ariz.1969). Since no evidence has been submitted that establishes that the

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requirement that financing be “secured” has any trade meaning or industry usage or

other special meaning, the Court, for purposes of the summary judgment motion, will

construe the word “secured” in its normal, ordinary meaning, which in this context

means “firmly established” and “sure; certain; assured[,]” Webster’s New Universal

Unabridged Dictionary (1996), and “capable of being expected or counted on with

confidence[.]” Webster’s Third New International Dictionary of the English Language

(1961). 

The following relevant evidence regarding the securing of financing is in the

record; the Court considers this evidence to be either undisputed or at least not

sufficiently controverted. DV, which was tasked with obtaining financing for SUN for

the Hunt Valley solar plant project, sent a financing proposal to Matthew Wright at

National Cooperative Bank (“NCB”) on April 13, 2011, three and a half months

before § 2.02(b)’s deadline. On July 22, 2011, Wright, a senior vice-president at

NCB who was directly involved in reviewing SUN’s financing request, sent DV a term

sheet regarding the funding request. The first page of the term sheet stated that

“[t]his is a term sheet outlining the salient terms of the credit facility and not the

actual commitment to lend.” The term sheet included terms for both a bridge loan

of approximately $1.2 million, the purpose of which was “to bridge Federal 1603

Grants allowing for the construction” of the solar plant, and a separate permanent

loan of approximately $2.5 million, the purpose of which was “[t]o provide term

financing for the development” of the plant. The term sheet also stated that: “This

proposal is subject to further due diligence by Lender. To indicate acceptance of

these general terms, and to induce Lender to begin the formal underwriting process,

please sign and return a copy of this proposal along with a deposit of $10,000. This

deposit will be returned in the event that lender is unable to issue a formal

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8

These twenty conditions precedent were: 

An executed Power Purchase Agreement (PPA); An executed Site

Lease Agreement; All necessary and relevant operating permits; A

review of the executed Interconnection Agreement; Evidence of tax

equity interest to fund; Appraisal of solar installation; Independent

engineering report and other consultant reports as reasonably

requested by lender, including Independent Engineer approval;

Confirmation that project company has received clear title to any and

all equipment from the installer; An approved project financial model,

using a P90 solar resource production forecast, contractual revenue

streams demonstrating debt service coverage of at least 1.10x after all

operating and fixed expenses, and a P50 solar resource production

forecast requirement of debt service coverage of at least 1.20x;

Consents to collateral assignment with respect to material project

documents; Customary legal opinions; Deeds of trust/mortgages

plaintiff-relator fixture filings as appropriate; Receipt of Loan

Documents; Payment of fees and expenses; Accuracy of reps and

warranties; Loan documents, project documents and applicable permits

in full force and effect; All documentation to be satisfactory to Lender

in its sole discretion; Borrower will provide customary insurance

coverage or caused to be provided for the project from a carrier

acceptable to Lender; No material adverse change in the financial

condition of the Borrower or Guarantor; Any other documents or

information reasonably requested by lender.

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commitment for financing. Note that the terms highlighted in this proposal are good

for 30 days from the date of issuance.” The term sheet, in part, listed twenty

“Conditions Precedent to Closing.”8

On July 27, 2011, a DV representative sent Matthew Wright an email

regarding the term sheet that requested: “Would you be able to put a period after

‘credit facility’ in the first paragraph and strike the reference that this is ‘not an actual

commitment to lend.’ We fully understand this is a term sheet and not an obligation

or commitment to lend, but would prefer if that language could be removed or

modified.” Wright sent DV the requested modification to the first page of the term

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sheet on July 29, 2011. Wright testified that he did so because the modification was

no going to add any risk to NCB because it was clear throughout the document that

it was just a term sheet.

On September 15, 2011, six weeks after the expiration of the securing

financing deadline of July 31, 2011, Matthew Wright sent DV’s representative an

email that stated in part: “Also wanted to remind you that given your previous time

constraints I sent out the term sheet without going through our formal credit

committee vetting process. While I do not expect much to change I wanted to remind

you that we still have to get some internal comments on the deal. I am waiting for

updated financials, projections and financials on the developers before bringing it to

our credit group.” In response, DV’s representative emailed Wright on that same

day to state in part that DV “would like to target an October closing if possible.”

Wright emailed a reply that same date that stated in part: “We could shoot for that.

Once I bring this through the credit committee with the updated numbers I will send

out a new term sheet. Once we get that signed off on we can dual track the

commitment with closing documents.”

Matthew Wright testified that NCB’s regular business practice was to issue a

term sheet after it had completed a substantial portion of its underwriting with

respect to the loan transaction. He also testified that NCB and SUN had agreed to

the overall financial structure of the loan transaction as reflected in the term sheet,

that he was confident as of July 22, 2011, the date that NCB issued the term sheet,

that NCB, barring any unforeseen circumstances, would have closed on SUN’s

financing request and funded the loan within two weeks to 30 days depending on

how quickly NCB got the deliverables, i.e., due diligence items, from SUN. Wright

further testified that he believed that as July 22, 2011, SUN had secured bridge loan

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financing from NCB.

 While Mark Moore, as president of SUN, signed the term sheet on July 25,

2011, there is no evidence that he returned it to NCB notwithstanding that NEC did

not send its PPA termination letter to SUN until August 4, 2011. Matthew Wright

testified that NCB never received the signed term sheet from either SUN or DV, and

that NCB never received the $10,000 good faith deposit from either SUN or DV.

Wright further testified that NCB would not undertake its underwriting steps

necessary to get to the loan commitment letter stage without the good faith deposit.

SUN argues that its evidence establishes that it had obtained a financing

proposal and a term sheet from NCB on July 22, 2011, and that NCB would have

promptly closed on the financing terms set forth in the term sheet had NEC not

terminated the PPA; SUN asserts that this term sheet was sufficient to establish that

it had timely secured financing. NEC argues that SUN did not even meet its own

proposed definition of securing financing because it at best had achieved only

tentative and conditional steps to obtaining financing by the deadline. While it is

questionable whether the above evidence by itself constitutes a sufficient basis for

a reasonable trier of fact to conclude that SUN had sufficiently secured financing by

the July 31, 2011 deadline regardless of how “secured” is defined, this issue cannot

be resolved separately from SUN’s claim that NEC impeded SUN’s ability to timely

secure financing. 

This aspect of SUN’s breach of contract claim is based on the general

principle that “[i]f one party to a contract prevents the other party from performing

one of the conditions to the contract, then he cannot use the failure to deny his own

obligation under the agreement.” Fowler v. Dana, 436 P.2d 166, 167 (Ariz.App.

1968). The record contains the following undisputed or insufficiently controverted

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evidence submitted by SUN related to its contention that NEC’s delay in providing

SUN with its audited financial statements impeded SUN’s ability to timely secure

financing for the solar power plant project. James Howard of DV, who was

responsible for obtaining financing for the project on SUN’s behalf, testified that

audited financials from NEC were absolutely critical because the banks’ assessment

of the creditworthiness of the project was dependent on NEC’s ability to pay for the

power and the renewable energy credits. Mark Moore of SUN testified that he first

requested NEC’s audited financial statements on February 14, 2011 when he then

informed NEC that SUN’s lenders were requesting the information as part of SUN’s

movement toward closing on the financing for the project. Moore further testified

that despite NEC receiving a letter on February 25, 2011 from DV which further

explained why SUN needed NEC’s audited financial statements, David Plumb,

NEC’s CEO, repeatedly refused to provide the financial information to SUN. Plumb

testified that although he could potentially have provided the requested financial

information in less than a day, he initially refused to provide NEC’s financial

information for various reasons, which included that the PPA should have given

sufficient information to SUN’s lenders, that the PPA did not require NEC to provide

SUN with its audited financial statements, that NEC was not in the habit of providing

audited financials on just any request, and that SUN could obtain the necessary

NEC documents from the Arizona Corporation Commission. Moore testified that

SUN made repeated attempts to obtain the financial information from NEC and that

NEC did not provide its financial information until May 18, 2011, more than three

months after SUN’s first request.

Matthew Wright of NCB testified that it is essential and consistent with industry

custom and practice for a lender to require a utility’s audited financial statements

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9

Article One of the PPA defined “Generating Facility” in relevant part as

meaning SUN’s “electric generating facility that qualifies as an Eligible Renewable

Energy Resource, with a nameplate equal to the Capacity, ... together with all

materials, equipment systems, structures, features and improvements, additions,

modifications or expansions as determined in [SUN’s] discretion and necessary to

produce electric energy at such facility, excluding land rights and interests in land.”

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before making a financing offer such as the one NCB made to SUN, that the utility’s

delay in providing audited financial statements will delay the lender’s decision to

issue a financing offer, that NCB was not prepared to make a financing proposal to

SUN without NEC’s audited financials, which NCB did not receive until May 19,

2011, and that it was quite possible that the bank would have been in a position to

issue its financing proposal, which it did not send to SUN until July 22, 2011, sooner

had it received NEC’s audited financial statements months earlier.

The Court agrees with SUN that the evidence it submitted, together with the

justifiable inferences from that evidence, all viewed in SUN’s favor, constitutes

significant probative evidence creating a genuine dispute of material fact as to

whether NEC improperly interfered with SUN’s efforts to timely secure construction

financing. Because the Court cannot conclude as a matter of law that NEC did not

breach the PPA by terminating it pursuant to § 2.02(b) in part based on its belief that

SUN had not timely secured construction financing, NEC is not entitled to entry of

summary judgment in its favor on the breach of contract claim.

C. Commencement of Construction

Pursuant to § 2.02(b), SUN also had to commence construction of the

Generating Facility by July 31, 2011.9

 NEC, which asserts that “vertical”

construction of the generating facility had to have been commenced by the July 31,

2011 deadline, argues that the Court can conclude as a matter of law based on the

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undisputed evidence that SUN had not actually commenced construction by the

deadline. SUN asserts that the PPA does not require the commencement of vertical

construction by the deadline and that it sufficiently commenced construction to meet

the deadline. Since the PPA does not define the term “commenced” for purposes

of § 2.02(b) and since there is no evidence in the record that establishes that the

term has any special trade meaning or industry usage, the Court will construe the

word “commenced” in its normal, ordinary meaning, which in this context means “to

begin” or “to start.”

The following relevant evidence concerning SUN’s commencement of

construction is in the record; the Court considers this evidence to be undisputed for

purposes of the summary judgment motion. On March 7, 2011, DV asked Sundt,

Inc., a large construction company, to prepare a construction proposal on SUN’s

behalf for its Hunt Valley solar power plant. Chad Buck, then a senior estimator at

Sundt, provided a construction proposal to DV on March 24, 2011 based on a

conceptual design of the plant provided by DV; the proposal estimated the cost to

construct the plant and the time it would take to complete physical construction of

the plant, which Buck estimated to be approximately two months to three months

depending on the construction alternative to be selected. SUN secured two

construction-site surveys in April 2011, which did not include the placement of a

future roadway that needed to be built on the site property, and on April 20, 2011,

SUN closed escrow on the lease option for the property on which the plant was to

be built.

Mark Moore, SUN’s CEO, testified that on July 31, 2011, the construction

commencement deadline, SUN conducted a ground breaking ceremony on the site

property which consisted solely of Moore, a SUN consultant, and the landowner

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installing a sign, made from two 4x4 posts and a piece of plywood with SUN’s logo

on it, on the site property by digging holes and pouring cement for the sign posts. 

Moore, at some unspecified date, also had 32 linear feet of chain link fence installed

to delineate a single corner of the site property, which consisted of the placement of

sixteen feet of fencing on either side of the corner. Moore also testified that to his

knowledge no other construction-related activity had been done at the site prior to

August 4, 2011, the date NEC terminated the PPA.

Chad Buck of Sundt testified that Sundt had never reached a construction

contract with either SUN or DV, that Sundt would have insisted on a written contract

before it commenced work, and that Sundt would not go on a job site and move dirt

or start to retain subcontractors and order supplies without a written construction

contract. Buck also testified that Sundt does not start the build part of a design build

project until the design is far enough along for it to know what it was building, and

that he agreed that the SUN project never got out of the box in terms of design, let

alone getting specific enough for him to know what Sundt was going to build. He

further testified that the SUN project had never advanced far enough for Sundt to

apply for any permits, such as a permit for clearing and grubbing the building site

because the project design was not even far enough along for Sundt to know what

to clear and grub. He also testified that Sundt had no formal design for the project,

but had developed its anticipated layout and had based its pricing off of that. He

finally testified that Sundt had not commenced construction on the SUN project as

of July 31, 2011.

NEC’s termination letter, dated August 4, 2011, stated in part regarding the

commencement of construction requirement that a NEC representative visited the

site on August 1, 2011 and found no evidence that there had been construction

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To the extent that SUN is in any way contending in its response to the

summary judgment motion that NEC’s three-month delay in providing its audited

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mobilization or construction activity related to the solar power plant and that pictures

taken during the site visit showed no ground disturbance or construction vehicles on

site.

The termination letter further stated in part that if SUN provided sufficient

documentation to NEC by August 19, 2011 that construction had been timely

commenced then NEC would rescind the termination letter. In response thereto, on

August 22, 2011, SUN sent NEC a letter stating that the construction proposal that

Sundt sent to SUN met the specified terms of the PPA and that a draft contract had

also been delivered. The copy of the draft contract attached to the letter was simply

a standard model form construction contract in which all of the blank spaces where

relevant project-specific information were to be filled in were left blank.

The Court, having viewed the evidence of record and the justifiable inferences

from that evidence in SUN’s favor, concludes that there is no triable issue of fact as

to this portion of SUN’s breach of contract claim because a fair-minded trier of fact

could not conclude that SUN had timely commenced construction of the solar power

plant under any reasonable definition of the word “commenced.” The mere

installation of a corporate sign and the installation of 32 feet of fencing on one corner

of the site where the plant was to be constructed simply cannot be reasonably

considered to constitute anything more that a scintilla of evidence that is insufficient

to show that construction had been commenced, particularly in light of SUN’s failure

to submit any significant probative evidence establishing either that it had negotiated

a construction contract with Sundt or that it had provided Sundt with a completed

design for the plant before the termination deadline.10 While there is no dispute that

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financial statements to SUN prevented SUN from timely commencing construction

of the solar power plant, the Court rejects that contention. There is nothing in SUN’s

statements of facts that establishes that construction would have commenced earlier

but for the delay in obtaining NEC’s financial statements, and SUN’s response does

not contain any cogent argument raising such an issue (as opposed to the issue that

the delay in obtaining NEC’s financial information delayed the securing of financing

for the project).

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SUN had timely concluded a lease for the plant site, that does not create a genuine

issue of material fact regarding the commencement of construction because the

PPA’s definition of “Generating Facility” specifically excludes “land rights and

interests in land.” SUN has, at best, shown only that it had begun some

preparations for the commencement of construction prior to the July 31, 2011

deadline, not that it had actually started the construction of the plant.

(2) Breach of the Implied Covenant of Good Faith and Fair Dealing Claim

NEC also argues that it is entitled to summary judgment on SUN’s claim that

NEC’s termination of the PPA violated the contract’s implied covenant of good faith

and fair dealing. SUN argues in its summary judgment response that NEC violated

the implied covenant in two ways, one of which is that NEC terminated the PPA for

a reason beyond the risks assumed by SUN. The Court concludes that SUN has not

raised a triable issue of fact as to this aspect of the breach of its implied covenant

claim. 

Arizona law implies a covenant of good faith and fair dealing in every contract.

Wells Fargo Bank v. Arizona Laborers, Teamsters and Cement Masons Local No.

395 Pension Trust Fund, 38 P.3d 12, 28 (Ariz.2002), and the breach of the implied

covenant may provide the basis for imposing contract damages. Id. at 29; United

Dairymen of Arizona v. Schugg, 128 P.3d 756, 760 (Ariz.App.2006). The duty to act

in good faith does not “alter the specific obligations of the parties under the contract”

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and “[a]cts in accordance with the terms of one’s contract cannot without more be

equated with bad faith.” Wells Fargo Bank, at 30 (emphasis in original). The

necessary something “more” may arise if one party exercises discretion retained

under a contract “in such a way as to deny the other a reasonably expected benefit

of the bargain.” Id. 

SUN’s contention is that NEC’s termination of the PPA pursuant to § 2.02(b)

constitutes a violation of the implied covenant because the risk SUN assumed under

the PPA was that NEC could terminate the contract only if the plant was not

commercially operational by July 31, 2012 as required by § 2.02(c). The Court

concludes that this argument has no merit because SUN, as a matter of law,

expressly assumed the risk of a § 2.02(b) termination by executing the PPA. As the

Court has already noted, § 2.02(b) and § 2.02(c) unambiguously provided NEC with

distinct and separate termination rights, and because SUN has not established the

existence of any disputed issue of material fact concerning its failure to timely

commence construction of the plant, SUN had no justifiable expectation that a

termination pursuant to § 2.02(b) could not be partially based on such a failure on

its part.

SUN argues that NEC also violated the implied covenant by failing to

cooperate with SUN’s efforts to timely obtain construction financing and that §

2.02(b) does not constitute an agreement on its part that NEC could terminate the

PPA for delays that NEC caused. 

 Arizona law recognizes that a party to a contract “may not exercise a retained

contractual power in bad faith.” Wells Fargo Bank, 38 P.3d at 30. See also,

Restatement (Second) of Contracts § 205, cmt d. (noting that for purposes of the

obligation of good faith and fair dealing, bad faith may be overt or may consist of

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inaction and that interference with or failure to cooperate in the other party’s

performance has been recognized by the courts as a type of bad faith.)

Based on the evidence already set forth, the Court concludes that SUN has

established the existence of a genuine dispute of material fact as to whether NEC

breach the implied covenant of good faith and fair dealing by improperly interfering

with Sun’s efforts to timely secure construction financing. Therefore,

IT IS ORDERED that defendant Navopache Electric Cooperative, Inc.’s

Motion to Exclude James Dudley Howard, Jr. as a Witness (Doc. 71) is denied.

IT IS FURTHER ORDERED that plaintiff Solar Utilities Network. LLC’s Motion

to Strike Defendant Navopache Electric Cooperative, Inc.’s Improper Controverting

Statement to Sun’s Supplemental Statement of Facts (Doc. 85) is granted and that

defendant Navopache Electric Cooperative, Inc.’s Controverting Statement to SUN’s

Supplemental Statement of Facts (Doc. 84), and Exhibits A, B, C, D, E, F, and G

attached thereto (Doc. 84-1) are stricken from the record.

IT IS FURTHER ORDERED that defendant Navopache Electric Cooperative,

Inc.’s Alternative Motion for Leave to File Amended Reply (Doc. 86) is denied.

IT IS FURTHER ORDERED that defendant Navopache Electric Cooperative,

Inc.’s Motion for Summary Judgment Pursuant to Rule 56 (Doc. 72) is denied. The

Court, however, finds pursuant to Fed.R.Civ.P. 56(g) that the following material facts

are not genuinely in dispute and are to be treated as established in this case for trial

purposes: (1) that plaintiff Solar Utilities Network, LLC did not timely commence

construction of the Generating Facility for purposes of § 2.02(b) of the parties’ Solar

Energy Power Purchase Agreement; and (2) that a termination of the contract

pursuant to § 2.02(b) by defendant Navopache Electric Cooperative, Inc., regardless

of whether the deadline of § 2.02(c) for the commencement of the commercial

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operation of the Generating Facility could have been met, was a risk that plaintiff

Solar Utilities Network, LLC expressly assumed by executing the parties’ Solar

Energy Power Purchase Agreement

IT IS FURTHER ORDERED that a separate order will be entered in due

course setting deadlines for filing the Joint Pretrial Statement and trial-related

documents, and setting dates for holding the Joint Pretrial Conference and

commencing the trial.

DATED this 29th day of September, 2015.

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