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(Reissued: June 20, 2019)

___________________________________ 

CALIFORNIA RIDGE WIND 

ENERGY, LLC, and 

INVENERGY WIND, LLC, 

Plaintiffs,

v. 

UNITED STATES OF AMERICA, 

Defendant. 

___________________________________ 

John Carney Hayes, Jr., Esquire, Nixon Peabody LLP, Washington, D.C., for 

plaintiffs. 

Miranda Bureau, Esquire, United States Department of Justice, Tax Division, 

Washington, D.C., for defendant. 

POST-TRIAL ORDER AND OPINION 

Hodges, Senior Judge. 

Plaintiff California Ridge Wind Energy, LLC, filed a complaint alleging that the 

Department of Treasury reduced a Section 1603 cash grant improperly and that it is 

entitled to $9,158,983 for the shortfall. Defendant contends that a sham transaction 

inflated the amount claimed in plaintiff’s application and subsequently filed a 

counterclaim to recover an overpayment of $5,635,537. We consolidated the cases and 

conducted trial from July 23 to July 26, 2018, in Washington, D.C.1

1 California Ridge Wind Energy, LLC v. United States, C/A 1:14-cv-00250-RHH; and 

Bishop Hill Energy, LLC v. United States, C/A 1:14-cv-00251-RHH. Plaintiffs California 

Ridge Wind Energy, LLC, and Bishop Hill Energy, LLC, are entities owned by a parent 

company, Invenergy Wind, LLC. The facts, with slight variations in dates and dollar 

amounts, the law, and the reasoning in this Opinion are the same in both cases. 

United States Court of Federal Claims 

No. 14-250 C 

Filed: April 24, 2019 
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[T]he presented cost basis was higher than open market

expectations for projects of this size and in this location and

the transaction involved related parties and/or related

transactions.

The cost basis has been adjusted to allow for base costs plus an 

appropriate markup (to include reasonable overhead, profit, 

and, if appropriate, development fees) resulting in a total that 

more closely reflects the amount that would have been paid in 

an arms’ length transaction between parties with adverse 

interests. 

Testimony and evidence presented at trial shows that plaintiff is not entitled to a 

$9,158,983 shortfall, and that the Government may recover the $5,635,537 overpayment. 

2 Cases arising under Section 1603 tend to focus on one element of the cost basis. This 

dispute arose over plaintiff’s calculation of a fee for development services. The term 

“Development Fee(s)” is capitalized in this Opinion hereinafter.

3

 Pub. L. No. 111-5, 123 Stat. 115, 364–66 (Feb. 17, 2009). 

 

We made the following relevant conclusions during the course of trial: (1) Section 

1603 permits an applicant to include a “Development Fee”2

 as a part of a wind energy 

project’s cost basis; (2) Development Fees may increase the cash grant awarded by 

Treasury; (3) however, plaintiff did not substantiate the $50 million Development Fee; and 

(4) plaintiff is not entitled to the claimed $9,158,983 cash grant.

BACKGROUND

Congress enacted the American Recovery and Reinvestment Act of 2009 to 

stimulate the struggling economy.

3

 Section 1603 of the Recovery Act is a program that 

offers cash grants in lieu of tax credits to developers of alternative energy production 

facilities. Applicants “who place in service specified energy property” are eligible for 

payments from the Department of the Treasury, “provided certain conditions are met.” 

 In October 2012, California Ridge placed a qualified wind facility into service at a 

cost of $456,196,599 and applied for a Section 1603 cash grant totaling $136,858,980.

Plaintiff submitted a three-page development agreement and a document purportedly 

showing a “proof of payment” in support of the $50 million Development Fee. Treasury 

awarded plaintiff $127,699,997 and explained why it granted some, but not all, of the 

claimed amount: 
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4 See the parties’ Stipulation of Facts: C/A No. 14-250, Dkt. 98; C/A No. 14-251, Dkt. 196 

(explaining differences between the closely-named entities of Invenergy, LLC; Invenergy 

Wind North America (“IWNA”) at ¶¶ 39, 41; and Invenergy Wind Development North 

 

LEGAL STANDARDS

We have jurisdiction over this action pursuant to the Tucker Act, 28 U.S.C. § 1491 

(2012). The Tucker Act establishes our jurisdiction and waives sovereign immunity over 

certain claims against the United States, including those founded upon the Constitution and 

federal statutes and regulations. Id. The Tucker Act “does not create a substantive cause of 

action; in order to come within the jurisdictional reach and the waiver of the Tucker Act, a 

plaintiff must identify a separate source of substantive law that creates the right to money 

damages.” Fisher v. United States, 402 F.3d 1167, 1172 (Fed. Cir. 2005) (citing United 

States v. Mitchell, 463 U.S. 206, 216 (1983); United States v. Testan, 424 U.S. 392, 398 

(1976)). “In the parlance of Tucker Act cases, that source of law must be ‘moneymandating.’” Id.

This court has held that Section 1603 of the Recovery Act is money-mandating and 

that we have jurisdiction over such disputes. ARRA Energy Co. v. United States, 97 Fed. 

Cl. 12, 19–20 (2011). The Recovery Act compels a payment by Treasury and does not 

provide the Government with discretion to refuse payments when the requirements of the 

statue are met. Id. at 22. That is, “while the government may decide . . . that an applicant 

has miscalculated or misrepresented the basis of its property, it has no discretion to 

reimburse an applicant for less than, or more than, thirty percent of the correct basis of the 

property.” Id. at 21. 

Section 1603 provides “grants for specified energy property in lieu of tax credits” 

and explicitly adopts the meaning of terms used in the Internal Revenue Code. When an 

applicant pursues an Section 45 renewable electricity production tax credit or Section 48 

energy tax credit instead of a Section 1603 reimbursement and receives an unfavorable 

determination by the Internal Revenue Service, the applicant may file a tax refund suit. 

Congress did not intend a different standard of review based on Section 1603's 

provision of direct reimbursement in lieu of tax credits. Accordingly, the court reviews 

plaintiff’s claim de novo. W.E. Partners II, LLC v. United States, 119 Fed. Cl. 684, 690 

(2015), aff'd, 636 F. App'x 796 (Fed. Cir. 2016). 

DISCUSSION 

The issue is whether plaintiff can include a Development Fee as a separate, indirect 

cost in its cost basis calculation. That is, whether California Ridge’s $50 million 

Development Fee, paid to its parent company, Invenergy, LLC,4

 is an eligible cost for 
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developing the wind energy facility. It is plaintiff’s burden to show that it is entitled to an 

additional Section 1603 cash grant. 

Treasury receives Section 1603 applications seeking cash grants and, when the 

markup is supported by relevant facts and figures, adds the eligible costs to the applicants’ 

award. The process is limited in time, generally 60 days, and limited in scope, relying on 

only documents submitted by an applicant. 

The developers “elected to monetize their extensive work” on the wind energy 

projects “by charging a Development Fee to the . . . project company,” and the 

Development Fee calculation incorporated variables such as knowledge, skill, time, effort, 

and other services, according to plaintiff. 

Section 1603 reimburses an applicant for costs, not value, and an applicant is 

required to show real costs, defendant claims. Discovery resulting from plaintiff’s lawsuit 

revealed information regarding the “proof of payment”, which Treasury did not have when 

it awarded the cash grant. Defendant contends that the transaction is a sham. 

The sham transaction doctrine applies “if a transaction either lacks objective 

economic substance or if it is subjectively shaped solely by tax avoidance motivations.” 

Stobie Creek Invs., LLC v. United States, 82 Fed. Cl. 636, 697 (2008), aff’d, 608 F.3d 1366 

(Fed. Cir. 2010). “[A] taxpayer must prove that its transaction was both purposeful and 

substantive . . . if proof in either regard is lacking, the transaction is a sham.” H.J. Heinz 

Co. & Subsidiaries v. United States, 76 Fed. Cl. 570, 584 (2007). 

The economic substance of a transaction “must be viewed objectively rather than 

subjectively.” Coltec Indus., Inc. v. United States, 454 F.3d 1340, 1356 (2006). 

Additionally, “the transaction to be analyzed is the one that gave rise to the alleged tax 

benefit . . . there is a material difference between structuring a real transaction in a 

particular way to provide a tax benefit (which is legitimate), and creating a transaction 

without a business purpose, in order to create a tax benefit (which is illegitimate).” Id. at 

1356-57. The test is “used to deny effect to transactions designed to manufacture benefits 

without affecting the economic circumstances of the parties involved. It looks through the 

form of a transaction to its substance to determine if a real transaction has occurred.” 

Johnson v. United States, 11 Cl. Ct. 17, 25 (1986). 

Bank records presented at trial showed that money passed through bank accounts of 

several entities related to plaintiff by wire transfer and then back into the account from 

which it originated. These transactions raised suspicion at the Department of Justice, and 

in the court’s mind as well. Plaintiff claims that the wire transfers represent a legitimate 

America (“IWDNA”) at ¶¶ 70, 71). (ECF No. [x] (Order amending the opinion issued on 

January 7, 2019).) 

 
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Q: Can you identify this document for me on the screen? 

A: Facility management agreement by and between Bishop Hill Energy LLC, 

as owner, and Invenergy Services, LLC, as manager, for the Bishop Hill 

Energy Project, dated November 15, 2011. 

Q: Did you have any role in drafting this facility management agreement? 

A: I don’t believe I did. 

(Tr. 146:2-147:4) 

Q: The development team that writes the scope of work for the balance of 

plant contract, they do that for all wind projects. Is that correct? 

A: The same team wouldn’t do it for every wind projects, but it’s the 

development team that is going to be participating in writing those scopes of 

work, yes. 

(Tr. 160:6-11) 

David Yankee, an employee of Deloitte Tax LLP, testified that the development 

agreement contained no quantifiable services. 

Q: And the development agreement provides a definition of development 

services, correct? 

A: Yes. 

Q: And there’s a list of things under the definition of the development 

services that include negotiating construction, financing terms, negotiating 

5 See page 151 of the trial transcript, Tr. 151:3-20. (ECF No. 211 (Order amending the 

opinion filed on January 7, 2019).) 

 

business method that served to memorialize the value of the development agreement. 

However, plaintiff failed to show the business purpose or the economic substance 

of the Development Fee. Bryan Schueler, the chief development officer for Invenergy LLC, 

testified about Invenergy’s experience developing renewable energy projects. He testified 

about development fees for wind energy projects in general, but did not give testimony

specific related to the development services outlined in the three-page development 

agreement;5

 in fact, he appeared unaware of the agreement entirely: 
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project and operational documents related to the project. 

A: Yes. 

Q: Okay. And Invenergy didn’t quantify each of these activities described in 

the development agreement individually, did they? 

A: Correct. They did not. 

(Tr. 696:24- 697:7)

Plaintiff’s claim regarding the independent certification of the Development Fee is 

also unpersuasive. Mr. Yankee’s testimony disclosed that Invenergy management provided 

the information that Deloitte relied on to certify the eligible cost basis: 

Q: And Deloitte relied on Invenergy to provide assurance that all of the 

accounting records supporting the eligible costs were valid, accurate, and 

complete. Is that right? 

A: Yes. 

Q: And it also relied on Invenergy management to assure them that the costs 

included in the eligible cost basis were determined in accordance with 

Section 1603. Is that right? 

A: Yes. 

Q: And Invenergy did the initial determination about how costs would be 

categorized. Is that right? 

A: Yes. 

Q: And then Deloitte & Touche tested that categorization by sampling certain 

costs. Is that right? 

A: Yes. 

Q: And so, as part of the [audit] examination, Deloitte & Touche didn’t verify 

all costs. 

A: Correct. 

(Tr. 692:13-693:19) 

 
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CONCLUSION

We have seen no basis on which to award plaintiff an additional cash grant. Plaintiff 

did not quantify the development services and insufficient objective evidence to show the 

transaction is not a sham. Plaintiff also claims that a cash grant is due because Treasury 

approved full payments to other related entities. Not only is this a weak argument logically,

plaintiff sued for additional money in this case and the court reviews these actions de novo. 

The lawsuit resulted in the discovery process that revealed the questionable origin of 

plaintiff’s claimed Development Fee. Therefore, plaintiff’s claim for reimbursement of an 

additional $9,158,983 cash grant is without merit. 

Plaintiff California Ridge’s complaint is DISMISSED; Defendant’s counterclaim 

is GRANTED. The Clerk of Court will enter judgment for defendant in the amount of 

$5,635,537. No costs. 

IT IS SO ORDERED. 

s/Robert H. Hodges, Jr.

Robert H. Hodges, Jr. 

Judge 

 

Jonathan Malacarne, director of accounting at Invenergy, testified about 

Invenergy’s accounting practices associated with the wind energy facilities. He described 

accounting journal entries that show business purposes for the transactions. However, 

plaintiff did not show the journal entries and, therefore, the court must rely on Mr. 

Malacarne’s self-serving testimony alone. 

In sum, plaintiff proffered: an independent certification of the Development Fee that 

is based on information from Invenergy management; a development agreement without 

quantifiable services; and a round-trip wire transfer that began and ended in the same bank 

account, on the same day, none of which were corroborated by independent testimony. This 

falls well short of the burden under the sham transaction doctrine. 

What remains is the uncontested fact that plaintiff benefitted from the round-trip 

transaction; a higher cost basis results in an increased Section 1603 payment. The sham 

transaction on which the $50 million Development Fee is based lack a business purpose or 

economic substance. Therefore, defendant is entitled to recapture the amount of the 

counterclaim.