# In the United States Court of Federal Claims

No . 1 4

- 841C (Filed: January 17 , 201 8 )

* * * * * * * * * * * * * * * * * * * * * * * * * *

*

AMPERSAND CHOWCHILLA * BIOMASS, LLC, and MERCED * POWER, LLC, *

* Plaintiffs, *

*

v. *

* THE UNITED STATES, *

*

Defendant. *

*

* * * * * * * * * * * * * * * * * * * * * * * * * * Stephen G. Leatham

, Heurlin, Potter, Jahn, Leatham, Hotlmann & Stoker, P.S., 211 E. McLoughlin Blvd., Suite 100, Vancouver, Washington 98663 for Plaintiff s

.

David A. Hubbert

, David I. Pincus

, G. Robson Stewart

, Courtney M. Hutson

, Carl

Wasserman , and Brian J. Sullivan , U.S . Department of Justice, Tax Division, Court of Federal

Claims Section , P.O. Box 26 , Ben Franklin Station, Washington, D.C. 20044, for Defendant.



### _________________________________________________________

OPINION AND ORDER



### _________________________________________________________

WILLIAMS , Judge.

Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (“ARRA”)

, Pub. L. No. 111

– 5, Div. B, tit. I, § 1603 , 123 Stat. 115, 364

– 66 (2009) (“Section 1603” or “§ 1603 ”) requires the Secretary of the Treasury to provide a grant, upon application, to individuals who “place[] in service specified energy property” in 2009 or 2010 for a portion of the expense of such property. Plaintiffs Ampersand Chow chilla Biomass, LLC (“ Chowchilla”) and Merced Power, LLC (“Merced”) own open

- loop biomass facilities in Chowchilla, California, and Merced, California, respectively. Plaintiffs submitted Section 1603 grant applications for both facilities to the U.S. Departmen t of the Treasu ry (“Treasury”) i n October 2011 , which Treasury denied on the basis that both facilities had been “placed in service” in 2008. Plaintiffs thereafter brought suit against the United States in this Court, alleging that the Government improperly failed to pr ovide Plaintiffs with Section 1603 grants. The central dispute in this case is when the facilities were “placed in service.” Summary Judgment; American Recovery and Reinvestment Act

, Pub. Law. No. 111

- 5, Div. B, tit. I, § 1603, 123 Stat. 115, 364

- 66; Open

- Loop Biomass Facility ; Grant; 26 U.S.C. §§ 45, 48; Statutory Interpretation; “Placed in Service”; Oglethorpe Factors;

Treas. Reg. 1.46

- 3(d)(1).2

The parties filed cross

- motions for summary judgment. Plaintiffs claim that the facilities

were both “ placed in service ” on August 28, 2011 , while Defendant claims that the facilities were placed in service in 2008

. Defendant further argues that Plaintiffs violated material terms of the Section 1603 program that disqualify them from eligibility

. Finally, Defendant contend s that Plaintiffs’ claims are statutorily barred because the prior owners took certain tax credits for these

same facilities. G enuine issues of material fact prevent the Court from granting either motion

. 1

Background 2

The Subject Biomass Facilities

Plaintiffs Amp ersand Chowchilla Biomass, LLC and Merced Power, LLC are two wholly owned subsidiaries of Global Ampersand

, LLC , an entity wholly owned by ACM California

, LLC,

which in turn is wholly owned by Akeida Environmental Fund LP ( “ Akeida Environment al ”).

Pls. ’ Ex. 6. 3 Akeida Capital Management ( “ Akeida ” ) controls Akeida Environmental

. Id.

The Chowchilla and Merced open

- loop biomass facilities were constructed by C alifornia Agricultural Power Corporation (“C APCO ”) and began operations in the late 1980s. Pls. ’ Ex

. 1

, at 1

. The facilities were shut down and mothballed in 1995, and were eventually sold to Global Commons, LLC (“Global Commons”)

. Id. Global Commons negotiated power purchase
agreement s (“PPA s ”) with Pacific Gas & Electric Co. (“PG&E”) in 2005

, relating to both facilities (Def. ’s Exs. 20, 21)

, but the facilities remained mothballed and idle until 2007

, when they were purchased by Global Ampersand LLC (“Global Ampersand”)

. Jt. Stip. ¶ 16

. Global Ampersand was, in turn, owned by Ampersand California Biomass Fund I ( “ CalBio ” ). Id. Through Global Ampersand, CalBio “implement [ ed ] an extensive construction program to refurbish and upgrade the facilities with an eye toward commencing commercia l operations. ” Jt. Stip. ¶ 17 ; Def. ’s Ex s

. 7

, at 1 and 3

, at 16. Global Ampersand funded this process with a $ 26

, 5 00,000 secured note provided by D.E. Shaw Synoptics Portfolio III (“D.E. Shaw”) on June 29, 2007 (Def. ’s Ex. 13

, at
30 ) and $3 ,900,000 in equity from CalBio ( Abrahams Dep. 104: 15

- 7 , Aug. 15, 2016 )

. The D.E.

Shaw note was secured by a priority lien o n all real and per sonal property of Global Ampersand

, and was subsequently amended to increase the principal amount to a maximum of $37,425,000

. Def. ’s Ex s

. 18 , at 2 and 19

, at 10

.

1 This opinion memorializes an oral ruling denying the motions issued on December 18,

2017.

2 This background is derived from the parties’ stipulation of facts and the exhibits to the parties’ respective motions for summary judgment and supplemental briefs. This background should not be construed as findings of fact.

3 Plaintiffs’ Motion for Partial Summary Judgment is referenced as Pls. ’ Mot.

, Defendant’s Motion for Summary Judgment is referenced as Def. ’s Mot.

, and the supplemental briefing is

referred to as Pls. ’ Supp l . Br., Pls. ’ Second Supp l . Br., Def. ’s Supp l . Br., and Def. ’s Second Supp l

. Br

. Exhibits attached to the cross

- motions and responses are referenced as Def. ’s Ex. or Pls. ’ Ex.

, and exhibits attached to the supplement briefing are referred to as Def. ’s Supp l . Ex. or Pls. ’ Supp l

. Ex.3

The Facilities Begin Producing Some Power in 2008

Plaintiffs restarted the Chowchilla and Merced facilities o n April 24, 2008

, and July 5, 2008, respectively

. Pls. ’ Mot. 2. There is no dispute that both facilities produced some power during 2008. Def. ’s Mot. 10, Ex s. 3, 5, 7 ; Pls. ’ Exs. 2 , at 9 and 5

, at 3

. It is also undisputed that the Chowchilla facility sold some power to PG&E in December 2008 , and t he rest of the power produced by both facilities in 2008 was sold to the California Independent System Operator (“CAISO”). Def. ’s Ex. 9

, at 5

. CalBio began taking production tax credits (“PTCs”) for the energy produced by both facilities in 2008, and continued to do so in 2009 and 2010. Def. ’s Exs. 12, 41, 42; Jt. Stip. ¶ 18. The parties dispute whether Akeida was aware that CalBio took PTCs prior to the acquisition

.
Both Facilities Are Alleged to Have Violated Thei r Respective Permits From 2008 Through At Least 2010

Soon after the facilities restarted in 2008, the San Joaquin Valley Unified Air Pollution Control District ( the “District”) and the United States Environmental Protection Agency (“EPA”) began issuing Notices of Violation for operat ing in violation of the facilities’ respective A uthority to Construct (“ATC”) p ermits. Pls. ’ Ex

. 12. The facilities continued to receive N otices of

V iolation throughout 2009 and 2010. Pls. ’ Exs. 14, 15. Based upon these alleged violations

, the

United States and the District filed an 18

- count Complaint against Merced and a 20

- count Complaint against Chowchilla in February 2011

, seeking injunctive relief against both facilities

. Id. The United States and the District alleg ed that the facilities failed to install necessary equipment (such as a certified Contin uous Emission Monitoring System (“CEMS”) ) and Selective

Non

- Catalytic Reduction System (“SNCR”) ), failed to utilize other required equipment (such as a

bin v ent filter and truck tipper ) , and exceeded numerous emissions limits. Id. at ¶ ¶ 88, 164, 174, 181). All, or nearly all, of the violations were alleged to have continued until at least mid

- 2009.

Id.

T he District granted the Merced facility a Permit to Operate (“PTO”) on M arch 1, 2010, and granted the Chowchilla facility a PTO on April 21, 2010. Pls. ’ Ex. 5

, at 1

. The parties dispute whether either facility should have been granted a PTO

. According to Plaintiffs, during the time the facilities were operated by CalBio “neither facility was operated in accordance with its permit requirements.” Pls. ’ Mot. 2; s ee also Pls. ’ Exs. 5, 11, 16.

Akeida Acquir es t he Facilities in December 2010

According to the Complaints filed against Plaintiffs by the United States in February 2011, both facilities had temporarily ceased operations in June 2010. Pls. ’ Exs. 14 , at ¶ 50 and 15

, at ¶ 50. On June 19, 2009, Akeida, through a wholly owned subsidiary, ACM Corp. 4, LLC, provided a $9,000,000 senior secured term loan to Global Ampersand. Def. ’s Ex. 13

, at 1 ; Abrahams Dep.

105:7

- 14

. ACM Corp. 4, LLC

, entered into a subordination agreement with D.E. Shaw at the time

in order to m ake the ACM loan senior to D.E. Shaw’s note. Def. ’s Ex. 19

, at 11. On December 16, 2010, ACM Corp. 6, LLC, a wholly owned subsidiary of Akeida Environmental, purchased for $350,000 an outstanding loan that had been made by D.E. Shaw to Global A mpersand in the principal amount of $39,509,999 , with $17,968,269 in interest having accrued before the note was purchased

. Def. ’s Ex s . 17

, at 2 and 18

, at 2

. O n December 28, 2010, Akeida Environmental,4

through ACM California LLC , acquired 100% of CalBio’s intere st in Global Ampersand for a total purchase price of $1.4 million

. Def. ’s Ex. 8

, at 17.

After the acquisition, Plaintiffs made improvements to the facilities in the amount of $14.9

million

, consisting of $7.56 million and $7.39 million for Chowchilla and Merced, respectively.

Def. ’s Exs. 26, 27

. Plaintiffs contend such improvements were necessary for the facilities to generate power legally. On April 25, 2011, the Federal District Court entered Consent Decrees against both facilities. Pls. ’ Exs. 20, 21. Plaintiffs represent that o perations , which had ceased in June 2010, did not resume until August 11, 2011, when Plaintiffs provided the District and the

United States with certification s of their compliance with the Consen t Decrees

. Pls. ’ Ex. 11 , at 6,

8 ; Pls. ’ Suppl. Exs. 9

- 13

, 36

- 38

.

The Facilities Resume Operations in 2011 and Apply for Section 1603 Grants; Their Applications Are Denied

Chowchilla applied for a Section 1603 grant on October 4 , 2011. Jt. Stip. ¶ 4. Merced applied for a Section 1603 grant on October 21 , 2011, but withdrew the application and then refiled on May 16, 2012. Jt. Stip. ¶ 5. Chowchilla claimed a Section 1603 grant of $12,282,984, and Merced claimed a Section 1603 grant of $12,299,273

. Def. ’s Exs. 24

, at 5 and 25

, at 5; Jt. Stip. ¶¶ 4

- 5. On their applications, Plaintiffs both reported that their properties were placed in service

on August 11, 2011. Def. ’s Exs. 24, 25. Treasury disagreed

, stating :

We have determined that most of the property which is the subject of the application was placed in service in 2008 and is ineligible for payment. Of the remaining costs indicated as eligible in the cost certification, we adjusted the construction loan

int erest expense to more closely reflect the interest incurred on the portion of the eligible cost between December 28, 2010 and August 11, 2011.

Def. ’s Ex. 31

.
Based on what it termed “eligible costs [incurred by the current t axpayer] since December 28, 2010 ,” T reasury awarded $1,136,207 to Chowchilla and $1,136,519 to Merced. Id. Plaintiffs request the full amount s they applied for under the Section 1603 program.

Discussion

Jurisdiction and Legal Standards

The Court has jurisdiction over this action pursuant to the Tucker Act , 28 U.S.C. § 1491 (2016 )

. The Tucker Act waives sovereign immunity and provides this Court with jurisdiction over specific categories of claims against the United States, including those claims “founded either upon

the Constitu tion, or any Act of Congress or any regulation of an executive department . . . in cases not sounding in tort.” § 1491(a)(1)

. “[T]he claimant must demonstrate that the source of substantive law he relies upon can fairly be interpreted as mandating compe nsation by the Federal

Govern ment for the damages sustained. ” United States v. Mitchell , 463 U.S. 206, 216

- 17 (1983) (internal citation and quotation marks omitted)

. Section 1603 is a money mandating statute that vests jurisdiction in this Court pursuant to the Tucker Act, as it does not afford the G overnment with discretion to deny an application for reimbursement so long as the requirements of Section

1603 are otherwise met. W.E. Partners II, LLC v. United States , 119 Fed. Cl. 684, 690 (2015);5

LCM Energy Sols. v. United States , 107 Fed. Cl. 770, 772 (2012); ARRA Energy Co. I v. United

States , 97 Fed. Cl. 12, 21

- 22 (2011).

In granting a motion for summary judgment, a court must find that there is no “genuine dispute as to any material fact and the movant is entitled to judgme nt as a matter of law.” RCFC 56(a). A genuine dispute is one which “may reasonably be resolved in favor of either party.” Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 250 (1986). A fact is material if it “might affect

the outcome of the suit . . . .” Id. at 248. “ The moving party bears the burden of establishing the absence of any genuine issue of material fact. ” Mingus Constructors, Inc. v. United States , 812 F.2d 1387, 1390 (Fed. Cir. 1987). Once the burden is met, the onus shifts to the non

- mov ant to point to sufficient evidence to show a dispute over a material fact that would allow a reasonable

finder of fact to rule in its favor. Liberty Lobby , 477 U.S. 256

- 57. When considering a motion for summary judgment, the court draws all factual infe rences in a light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587

- 88 (1986) ( quoting United States v. Diebold, Inc. , 369 U.S. 654, 655 (1962))

.
When opposing parties both move for summary judgment, “the court must evaluate each party’s motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration.” Mingus , 812 F.2d a t 1391. At the summary judgment phase, the court may not weigh any evidence but only “determine whether there is a genuine issue for trial.” Liberty Lobby , 477 U.S. at 249.

The Court reviews tax refund claims, including those predicated on Section 160 3, on a de

novo basis. W.E. Partners II , 119 Fed. Cl. at 690.

Genuine Issues of Material Fact Preclude Summary Judgment for Either Party

Plaintiffs ask this Court to determine that the facilities “could not have been placed in service in 2008, and [were] instead placed in service on August 11, 2011.” Pls. ’ M ot. 1. Defendant

asks this Court to instead grant summary judgment in its favor , contending :

(1) as a matter of law, the facilities were placed in service in 2008

– prior to [section] 1603’s eligibility window for facilities placed in service in 2009, 2010 and 2011; (2) the facilities at issue applied for and received production tax credits from 2008 through 2010 and are therefore ineligible for Section 1603 payments; and (3) [P]laintiffs fai led to comply with material requirements of the Section 1603 program by repeatedly misrepresenting to the United States Department of Treasury the condition of the facilities.

Def. ’s Mot. 1

.

When the Facilities Were “Placed in Service” Turns on Numerous Disputed Issues of

Fact

The parties agree that the facilities at issue are open

- loop biomass facilities that c ould qualify for the Section 1603 program , and that the properties must have been “ placed in service ”

between 2009 and 2011

, in order to be eligible. Pls. ’ Mot. 11; Def. ’s Mot. 6. However, t he parties dispute whether the facilities were in fact “placed in service” in 200 8, as Defendant contends, or in August 2011, as Plaintiffs contend

.6

Both parties rely upon Treasu ry R egulation § 1.46

- 3 (d)(1)(ii) for the proposition that in

order to determine whether and when the facilities were “placed in service

, ” the Court must determine during which taxable year the facilities were “placed in a condition or state of readiness and availability for a specifically assigned function

. . . . ” 26 C.F.R. § 1.46

- 3 (d)(1)(ii). The Court

of Federal Claims has explained that it is the taxpaye r that determines what the “specifically assigned function” of the asset is. RP1 Fuel Cell, LLC v. United States , 120 Fed. Cl. 288 , 347

- 48 (2015) ( i nternal citations and quotation marks omitted )

.
Plaintiffs state that the “specifically assigned function” of the two plants was to “sell base load power to PG&E in Central California

, ” as set forth in the PG&E power purchase agreements

. Hr’g Tr. 9

. Plaintiffs further posit that “base load is defined in California to be a capacity factor of at least 60 percent measured annually.” I d. Defendant vigorously oppose s Plaintiffs’ factual

characterization of the facilities’ function

. See, e.g.

, Def. ’s Second Suppl. Br. 4

- 8. In Defendant ’s view, the purpose of the facilities was to generate and sell power in any amount , and argues that

the 60

- percent capacity factor cited by Plaintiffs is an ideal, not a minimum, and it is not derive d

from California law

. Id.

The Treasury Department’s guidance regarding the Section 1603 program reiterates the precept of the regulations that “ [p] laced in service means that the property is ready and available for its specific use.” Def. ’s Ex. 2

, ( “Treasury Guidance ” ) at 5. Further, under this Treasury

Guidance

, in order to demonstrate that property has been “placed in service” the applicant must submit, among other things, “[a] report provided by the project engineer, or the equipment vendor, or an independent third party th at certifies that the equipment has been installed, tested, and is ready and capable of being used for its intended purpose.” Id. at 10.

Plaintiffs contend that th is Court should follow the five

- factor analysis set forth in Oglethorpe Power Corp. v. C omm ’ r , 60 T.C.M. (CCH) 850 (1990)

, in order to determine when

the facilities were “ placed in service. ” Although t he Court of Appeals for the Federal Circuit has not addressed the applicability of the Oglethorpe analysis , t he Court of Appe als for the Third

Circuit cited Oglethorpe with approval in Armstrong World Industries, Inc. v. Comm’r , 974 F.2d 422, 434 (3d Cir. 1992) ; c f. Sealy Power Ltd. v. Comm’r , 46 F.3d 382, 393

- 94 (5th Cir. 1995) (rejecting the specific holding of Oglethorpe but nonetheless applying the same five

- factor analysis). Oglethorpe has been applied repeatedly by the United States Tax Court. See, e.g.

, Brown v . Comm ’ r , 106 T.C.M. (CCH) 630 (2013) ; 85 Gorgonio Wind Generating Co. v. C o mm ’ r

. , 68 T.C.M. (CCH) 1071 (1994); Valley N at. Fuels v. C omm ’ r , 62 T.C.M. (CCH) 229 (1991)

, aff’d

, 990 F.2d 1266 (9th Cir. 1993)

.

The Oglethorpe court, citing a number of I.R.S. revenue rulings, explained that whether “electric generating units” have been “placed in service” requires consider ation of a number of factors, including whether:

1. t he necessary permits and licenses f or operating have been obtained;

2. a ll critical tests necessary for prope r operation have been performed;

3. t he unit has been placed in the control of the taxpayer by the construction

contractor;

4. t he unit has been synchron ized with the transmission grid; and7

5. d aily operation of the unit has begun.

Oglethorpe

, 60 T.C.M. (CCH) 850

.
Although they concede that Oglethorpe factors three and four weigh against their position

, Plaintiffs argue that factors one, two, and five weigh in their favor

. Hr’g Tr. 48

- 49.

With respect to the first factor, Plaintiffs argue that o perating licenses and permits had not been obtained in 2008, and the facilities were operating contrary to their Authorities to Construct (“ATCs”) at all times prior to 2011 ; neither Chowchilla nor Merced had equipment necessary to

meet the terms of their ATCs; Plaintiffs had not completed the tests required to convert the ATCs

to Permits to Operate (“ PTOs ”) until August 11, 2011; and while Chowchilla had been granted a

variance in 2009

, to allow it to continue operating, it was only for purposes of testing , and Merced

was not allowed a variance at all

. Id. ; Pls. ’ Mot. 15

- 17

.
With respect to the second factor, Plaintiffs argue that n either facility had passed critical

tests until after 2008. Pls. ’ Mot. 19. A ccording to Plaintiffs, there were several critical tests that were required to be performed on the facilities , including : a source test; a Relative Accuracy Test Audit (“RATA”); and a seven

- day drift test. 4 Chowchilla did not pass a source test for all emissions until August 28, 2009, and it con tinued to exceed permit ted levels for certain chemicals

until 2011. Id. Chowchilla did not conduct a RATA as of February 2011. Id. Merced did not

conduct a source test at all until March 2009, was unable to pass a source test until October 20, 2009, and like Chowchilla, exceeded its emission limits in 2009 and 2010. Id. Merced first passed a RATA on September 25, 2009. Id. Additionally, Plaintiffs note that neither facility had critical
systems t hat would have permitted testing ( including a CEMS system and an SNCR system ). Id.

at 20. Plaintiffs cite t he District ’s statement in a March 25, 2014 letter to Global Ampersand that “the facilities should not have been opera ting in June 2010” given that “[t] he Facilities had not installed all of the pollution control equipment and plant control equipment required by their [ ATCs ], nor had the Facilities completed the testing required by the ATCs.” Pls. ’ Ex. 10.

With respect t o the fifth factor, Plaintiffs argue that n either facility began daily operations until August 2011

, as the facilities suffered from repeated shutdowns and experienced compliance

issues before that time

.

Defendant, while agreeing that the five

- factor analysis articulated in Oglethorpe should be applied

, disagrees with the conclusion of the Oglethorpe court that the incapability of a power generating unit to generate power at levels near its rated capacity specific is significant to the “placed

- in

- service” determination

. Defendant further asserts that this Court should find that the intended use of the facility was to produce and sell energy in any amount , rather than to produce and sell energy at a partic ular level to a particular customer

. Hr’g Tr . 85

. Defendant contends that this Court should rely upon Sealy , 46 F.3d at 393

- 94, and find that regardless of whether the

4 The record does not contain sufficient evidence explaining the significance of these tests to the operation of the facilities

.8

amount of power generated was less than the full capacity of the facilities

, generating any power would be sufficient to find that a facility was placed in service. 5

Defendant further relies upon CalBio ’s taking production tax credits and depreciating the

facilities in 2008 as indicia that the facilities had been placed in servi ce at that time

. Defendant

notes that as of 2008

, the facilities had been synchronized to the grid and Plaintiffs were in control

of the facilities

. D efendant also argues that Plaintiffs failed to e stablish that the facilities were not operated in accordance with their permits in 2008

, or that the allegedly missing systems and other equipment were significant . Def. ’s R e p ly 16. Finally, Defendant claims that if Plain tiffs’ legal theory is correct

— that a power plant is only placed in service if it complies with all aspects of its permits

— then Plaintiffs would never have placed the property in service because they had ongoing environmental violations and outages subsequent to 2011.

There are genuine issues of material fact or gaps in the current record regarding when the facilities were placed in service, including the following:

1) What t he “specifically assigned function” of the facilities was ; 6

2) T o what extent the violations alleged in the Complaints and Notices of Violation served on Plaintiffs by the United States and the District impact whether the facilities were available for their intended purpose ;

3) W heth er the PTOs were wrongly issued;

4) T he extent to which Plaintiffs were perm itted to operate under the ATCs;

5) The amount of power the Chowchilla facilit y sold to PG&E in December 2008

, as compared to Chowchilla’s operating capacity and its obligations under its PPA ;

6) W hether the facilities were obligated to sell power that was produced incidental to testing in 2008 on the spot market , and the significance of such sales to the placed

- in

- service date ;

7) What the purpose and function of the missing equipment and systems were ;

8) What the purpose and function of the tests that Plaintiffs assert had not been performed in 2008 were

.

5 Further, Defendant observes that even if the purpose of the facilities was to sell power to

PG& E in particular, Chowchilla at least did so in 2008.

6 The “specifically assigned function” of the facilities is dependent upon the taxpayer’s intent, and issues of intent are typically not appropriate for resolution on summary judgment. See,

e.g.
, A lbert v. Kevex Corp. , 729 F.2d 757, 763 (Fed. Cir. 1984) (“Intent is a factual matter which is rarely free from dispute, and we do not see how it can be said that it is free from dispute in this case.”).9

The Government Has Not Established on the Summary Judgment Record that Plaintiffs Should be Bound by Tax Positions Taken by CalBio

Defendant argues that the doctrine of “quasi estoppel,” also known as th e “duty of

con sistency,” operates to bind Plaintiffs to the tax position taken by CalBio, their prior owner

. Def. ’s Mot. 28. T he duty of consistency prevents (1) a taxpayer from adopting a position in one year and (2) subsequent ly adopting a contrary position regarding the same facts or transaction (3) after the statute of limitations has expired regarding the first position. Lewis v. Comm’r , 18 F.3d 20, 21 (1st Cir. 1994). Plaintiffs are not the same taxpayer that took PTCs and depreciation

on the facilities

— CalBio was the taxpayer at the time, whereas the current taxpayer is Akeida

Environmental

. Acknowledging this, Defendant nonetheless argues that “Akeida Environmental

Fund’s interest in the facilities is sufficiently related to CalBio’s interest such that the Court should hold Akeida to the positions taken by CalBio.” Def. ’s Suppl. Br. 22 ( i nternal citations omitted )

.
To support its contention that CalBio and Akeida’s interests in the facilities are sufficiently related, Defendant asserts that (1) Akeida is bound to CalBio ’s determination that the facilities were placed in service in 2008 by dint of being the transferee of the facility; (2) Akeida was aware

as of the time its subsidiary

, ACM Corp. 4, LLC, an Akeida

- owned investment vehicle

, made a

loan to CalBio in 2009

, to assist CalBio’s efforts to refurbish the facilities

, that CalBio was taking

PTCs ; and (3) Akeida desired that CalBio t ake the PTCs

, and benefited from them insofar as it

further secured the 2009 loan for Akeida’s subsidiary, ACM Corp. 4, LLC

. Def. ’s Supp l

. Exs. 2,

at 17 and 3 , at 4; Def. ’s Exs. 8, 13

.

M aterial facts are disputed regarding t he interrelation between Akeida and CalBio, including the ir financial relationship , including :

1) What the interrelation between Akeida and CalBio was ;

2) W hether Akeida knew that CalBio wa s claiming PTCs or depreciation;

3) I f Akeida knew CalBio was claiming PTCs or depreciation, whether Akeida requested it to do so;

4) I f Akeida knew CalBio was claiming PTCs or depreciation, whether Akeida required CalBio to do so

.

W hether Plaintiffs “Materially” Violated the Terms of the Section 1603 Program is Not Amenable to Summary Judgment

Defendant argues that even if Plaintiffs’ facilities were not “placed in service” in 2008, and even if Plaintiffs are not bound by the tax positions taken by CalBio, Defendant is entitled to summary judgment because Plaintiff s violated material terms of th e Section 1603 program

. Specifically, Defendant contends that Plaintiffs falsely represent ed to Treasury in 2013, 2014, and

2015

, that Plaintiffs had not experienced any interruptions in production. According to Defendant,

this statement constituted a ma terial misrepresentation that disqualified Plaintiffs from receiving a

Section 1603 grant. Plaintiffs, on the other hand, contend that they did not make any misrepresentation to Treasury, that they had disclosed enough information t o indicate there had

be en some temporary shutdowns, and that even if Plaintiffs made any m isrepresentation to Treasury, such misrepresentation was not material.10

Treasury issued guidance, incorporating Terms and Conditions on its administration of the Section 1603 program

, requir ing Section 1603 grant awardees to submit an annual report to Treasury for five years following the time when the property was placed in service . This annual
report includ ed a certification that “the property has not been disposed of to a disqualifi ed person and that the property continues to qualify as specified energy property (as that term is used in Section 1603).” Def. ’s Ex. 1

, at 2

. Condition 6b includes a requirement for the applicant to repay all or portions of the grant to Treasury “[i]f the property is disposed of to a disqualified person and/or ceases to qualify as a specified energy property (hereinafter “disqualifying event”) within five years from the date the property is placed in service[.] ” Id. Condition 8a requires the applicant to agree that Treasury may disallow all or part of a Section 1603 payment “[i]f the applicant materially fails to comply with any term of the award, whether stated in a Federal statute or regulation, program guidance, these Terms and Conditions, or a noti ce of award[.]” Id. at 3.

In the specific form Treasury provided for the annual report s , Treasury asked applicants

, among other things, if the y experienced “any interruptions in production during the year, other

than routine maintenance [.] ” Def. ’s Exs. 32

- 37. Plaintiffs certified in their annual reports for 2013, 2014, and 2015

, that they had not experienced any such interruptions in production. Id. at 3, ¶ ¶ 4.2 , 5. Defendant asserts that these statements were false because, in a law suit Plaintiffs brought against the facilities ’ former operator, Deltaway Operations Services, LLC ( “ Deltaway ” ), Plaintiffs allege d that Deltaway ’s mismanagement resulted in both plants shutting down in whole or in part for unspecified, temporary periods. Def. ’s Ex. 38

, at ¶¶ 36

- 41, 45, 70. Defendant argues that allegations in the Deltaway Complaint constitute judicial admissions that “render the facts contained therein indisputable

. ” Litman v. United States , 78 Fed. Cl. 90, 135 (2007) ( i nternal citation and quotation marks omitted )

. Accordingly, Defendant argues that because Plaintiffs

admitted in the Deltaway Complaint that the facilities had been shut down temporarily at various

times

, Plaintiffs’ certifications to the contrary in 2013, 2014, and 2015

, should be treated as false

. Def. ’s Mot. 30

- 33.

Plaintiffs respond by asserting that David Kandolha, who signed the reports as the Plaintiffs’ “Manager

, ” made the representations in good faith, believing that the report s were not asking about temporary shutdowns. According to Plaintiffs, Mr. Kandolha understood the purpose of the reports was to certify that the plant s w ere still operating in order to satisfy Treasury that no
recapture of grant monies was warranted. Kandolha Dep. 91

- 92

. The Treasury Guidance provides

that “[t] emporary cessation of energy production will not result in recapture provided the owner of the property intends to resume production at the time production ceases.” Def. ’s Ex. 2

, at 19. According to Plaintiffs, a s temporary shutdowns would not constitute an interruption in production sufficient to trigger any recapture, Mr. Kandolha believed it was accurate to state that there had

not been reportable interruptions in production

. Additionally, as the representation would not have triggered any recapture, Plaintiffs contend the representation cannot be deemed material. Plaintiffs also claim that they submitted documentation along with the annual reports for each year that would have permitted Tr easury to determine t here had been temporary shutdowns.

T here are genuine issue s of fact regarding Mr. Kandolha ’s understanding of the reports and belief in making these representations, the extent or duration of the shutdowns alleged in the Deltaway case , and whether the information Plaintiffs provided Treasury along with the annual
reports indicated that there were temporary shutdowns.11

Defendant Has Not Established on Summary Judgment that the Statute Precludes Plaintiffs From Recovering Because the Prior Taxpayer Took PTCs

In the alternative, Defendant asserts that

, as a matter of law

, CalBio’s conduct in taking

PTCs for power produced by th e facilities

— properly or otherwise

— disqualifies property that was part of those facilities from eligibility under Section 1603.

Section 1603 and its Borrowed Definitions

Section 1603 requires the Secretary of the Treasury to provide a grant , upon application,

to individuals or entities that “place[] in service specific energy property

. ” Section 1603(d) provides that “the term ‘specif ic energy property’” includes “[a] ny qualified property ( as defined in section 48(a)(5)(D) of the Internal Revenue Code of 1986) which is part of a qualified facility (within the meaning of section 45 of such Code) described in paragraph (1), (2), (3), (4), (6), (7), (9), or (11) of section 45(d) of such Code.” 7 Defendant contends that the facilities are ineligible for the 1603 grant because they ca nnot meet the definition of “qualified property.”

S ection 48(a)(5)(D) of the Internal Revenue Code defines “ q ualified property ” as property :

(i) which is

--

(I) tangible personal property, or

(II) other tangible property (not including a building or its structural components), but only if such property is used as an integral part of the qualified investment credit facility , and

(ii) with respect to which depreciation (or amortization in lieu of depreciation) is

allowable.

Section 48(a)(5)(D) ( e mphasis added)

.
Plaintiffs contend that the property at issue constitutes “tangible personal property” subject

to S ubpart I

. Defendant does not substantively disagree with that classification, but posits that the

condition in S ubpa rt II, “other tangible property, ”

— a condition Defendant claims the facilities

cannot meet

— also applies to Subpart I, “tangible personal property

. ” Defendant would thus import the phrase “but only if such property is used as an integral part of the qualified investment credit facility” into the definition of “tangible personal property.”

The definition of a “ q ualified investment credit facility ” includes another condition

, stating

that a facility can only be “ qualified ” if “ no credit has been allowed under section 45 ” with respect to such facility “ and the taxpayer makes an irrevocable election to have this paragraph apply ” to such facility. Section 48(a)(5)(C) (emphasis added)

. There is no dispute that the taxpayer who owned the facilities from 2006 through December 28, 20 10, CalBio, claimed PTCs under S ection 45 regarding both facilities in 2008, 2009, and 2010. Jt. St i p. ¶ 18. Defendant c ontends that this

7 With the exception of Section 1603, any reference to a “section” is to a section of the Internal Revenue Code of 1986, 26 U .S.C. et seq.12

means the IRS “allowed” a credit to CalBio and therefore, that property in these facilities cannot
meet the definition of “ qualified property. ”

There are two major obstacles to construing the statue as Defendant asks.

First, Defendant must rewrite the definition of “qualified property” by importing a condition into “tangible personal property” which, by the clear words of the statute, is not there

.

Second, Defendant assumes, without citing any legal authority, that because C alBio took a Section 45 credit and the IRS did not challenge that tax position

, it was legally “allowed” within the meaning of the statute.

Plaintiffs contend that the property at issue is “tangible personal property,” not “ other tangible property. ” 8 T he statutory definition is different for each.

“[O] ther tangible property” may only qualify for a Section 1603 grant if that property is

“ used as an integral part of the qualified investment credit facility

, ” and a “qualified investment credit facility” is one for which “ no credit has been allowed under section 45

. ” If “other tangible property” is at issue, Plaintiffs could be barred from obtaining a Section 1603 grant for such
property if the prior taxpayer had been “allowed” a Section 45 credit for the facility containing

such property

— “allowed” being a term whose meaning the parties have not addressed in their briefing

.

T he same is not true of “tangible personal property” because Subpart I , unlike Subpart II

, does not expressly provide that the property must be an “integral part of th e qualified investment facility

, ” and thus one for which “no credit has been allowed under section 45

, ” to constitute “qualified property.”

Defendant recognizes th is dichotomy but asserts that formalistically applying the plain language of the statute would frustrate Congressional intent and lead to absurd results. Defendant posits that “tangible personal property” must also be an “integral part of the qualified inve stment credit facility

, ” in order to qualify for a Section 1603 grant even though that condition is not stated in Subpart I, “tangible personal property

. ”

N one of Defendant’s arguments persuade the Court to vary the otherwise plain language

of the statute. 9 As Defendant correctly stated, the statute has been amended more than once since

8 The record a t this stage of the proceedings does not indicate why the property at issue

constitutes “tangible personal property” rather than “other tangible property.”

9 Defendant asserts that the title of Section 1603 and its Legislative History support Defendant’s construction, but the Court does not resort to these construction devices given the

c lear language of the statute

. Defendant also warns that if the plain language of the statute prevails it would permit Section 1603 grants for property unrelated to the production of energy , but this argument fails as well , as : (1) the applicable Treasury Guidance provides that all qualified property must be “an integral part of the facility” in order to be eligible for a Sect ion 1603 grant (Def. ’s Ex.

2

, at 11 ) ; and (2) this hypothetical is not before the Court, as Plaintiffs seek to be compe nsated for enumerated property that at least facially appear to be integral parts of the facilities

— such as a13

it was initial ly promulgated in 2009, including to correct a “technical” error in wording that was to apply retroactive ly. See, e.g., Pub. L. No. 112

- 240, § 407(c)(2), (d)(3). That Congress corrected certain aspects of Section 1603, but did not change the language of Subpart I to add the condition in Subpart II , suggests that Congress intended to omit that condition

. Defendant has not

established that Plaintiffs are statutorily barred from recovering S ection 1603 grants on the theory that the property is part of facilit ies for which CalBio received section 45 credits

.

Second, Defendant h as n ot a ddressed the m eaning of “ a llowed” in Section 48(a)(5)(C)

. Defendant’s arguments are premised on the assumption that Section 48(a)(5)(C) ’s reference to Section 45 credits having been “allowed” means that the taxpayer claimed those credits and the IRS did not challeng e i ts claim without regard to whether those credits should have been allowed as a matter of law. The parties have not briefed the definition of “allowed” and the Court cannot conclude at this stage of the proceedings whether, as a matter of law, CalBio prope rly claim ed Production Tax Credits in 2008, 2009, or 2010 , or whether such PTCs were legally “allowed” within the meaning of the statute.

C onclusion

Plaintiffs ’ motion for partial summary judgment is DENIED , and Defendant’s cross

motion for summary judgment is DENIED

.
s/Mary Ellen Coster Williams

MARY ELLEN COSTER WILLIAMS Judge

fluidized bed combustor, fuel conveyance system, and turbines and generators

. See Def. ’s Exs.

26

- 27.