Opinion ID: 2735161
Heading Depth: 4
Heading Rank: 1

Heading: 2007 Block Contracts

Text: Each of the 2007 Block Contracts included a damages waiver providing that, “[i]n the event the Ninth Circuit Court of Appeals . . . issues a final order that declares or renders this Agreement void or otherwise unenforceable, no Party shall be entitled to any damages or restitution of any nature, in law or equity, from any other Party, and each Party hereby waives any right to seek such damages.” Each Contract also included a severability clause providing that “[i]f any term of this Agreement is found to be invalid by a court of competent jurisdiction,” “[a]ll other terms shall remain in force unless 28 ICNU V. BPA that term is determined not to be severable from all other provisions of this Agreement by such court.” BPA’s conclusion that the damages waivers are enforceable was consistent with the statute and otherwise within BPA’s authority. To begin, the Alcoa court enforced a very similar mutual damage waiver in another Alcoa-BPA contract. Its reasons for doing so apply equally here. Contrary to petitioners’ contention that no entity operating according to “sound business principles” would agree to a sweeping waiver, Alcoa interpreted such a mutual waiver as a valid exercise of BPA’s general claim-settling authority. 698 F.3d at 791–92. Noting that such a waiver equally protects BPA against claims brought by the customer, Alcoa concluded that “[i]t is not our place to second-guess the agency’s considered judgment regarding the balance of risks embodied in a damage waiver or similar release or settlement provision.” Id. Moreover, the waiver provision is severable from the contracts’ void subsidy provisions. BPA received consideration in exchange for waiving its rights to seek damages from the aluminum DSIs — namely, a corresponding waiver providing that the contracting parties could not recover damages from BPA. “Legal portions of contracts are severable from illegal portions where there is separate legal consideration attributable to the severed portion of the agreement.” Consul Ltd. v. Solide Enters., Inc., 802 F.2d 1143, 1148 (9th Cir. 1986). Finally, as such a waiver is a valid exercise of BPA’s power to compromise or settle claims and could likewise protect BPA’s interests, it cannot be contrary to public policy as allowing an unlawful subsidy. ICNU V. BPA 29 The dissent’s assertion that this determination is controlled by PGE, and not Alcoa, is incorrect. PGE did not concern provisions in BPA power purchase contracts mutually waiving damages in the event the agreement is invalidated. Alcoa did. PGE invalidated a series of settlement agreements BPA had entered into with IOUs that participated in its Residential Exchange Program (“REP” or “Exchange Program”). See PGE, 501 F.3d at 1025–37; Golden Nw. Aluminum, Inc. v. Bonneville Power Admin., 501 F.3d 1037, 1047–48 (9th Cir. 2007). The Exchange Program “essentially acts as a cash rebate to the IOUs where the IOUs’ power costs exceed those of BPA,” but requires that the Exchange Program’s costs be covered only by supplemental rate charges assessed on nonpreference customers, not by passing costs on to preference customers. See PGE, 501 F.3d at 1015–16. BPA and certain IOUs entered into “settlement” agreements inconsistent with this pass-through limitation, maintaining that the limitation did not apply because the costs were “settlement costs,” pursuant to BPA’s general authority to make and settle contracts, rather than Exchange Program costs. We disapproved this approach, holding that BPA could not circumvent the statutory restrictions on power exchanges “by calling its actions . . . [a] ‘settlement’” when those actions were “inextricably intertwined” with BPA’s Exchange Program authority. Id. at 1032. In short, the exercise of settlement authority at issue in PGE concerned the whole of a comprehensive agreement, in which BPA sought directly to avoid the statutory restrictions placed on it. PGE did not concern a severable agreement provision allocating among the contracting parties the purely retroactive liability risks that could arise in the event the 30 ICNU V. BPA agreement is otherwise declared invalid — a second-level pact, so to speak, covering the past, not the future, and governing relief in the event the agreement is invalidated, rather than the agreement itself. In contrast, Alcoa considered precisely that sort of purely retroactive, partial, and mutual waiver: As here, the waiver at issue in Alcoa was a bilateral waiver of retroactive damages; it gave up both parties’ rights to seek compensation in the event that a portion of the contract in which it was contained was invalidated in the future. 698 F.3d at 791. In both Alcoa and here, the larger agreement of which the waiver was a part was risky for both parties that agreed to the provision, not just for BPA. Here, for example, the aluminum DSIs gave up their ability to sue BPA to recover any costs associated with purchasing power through other means if the contracts were invalidated, costs that could have been, and that the DSIs contend were, extensive. The fact that the damages waivers significantly benefitted BPA is important. Upholding the validity of the waivers here does not preclude a finding in a future case that a damages waiver is invalid, if the waiver at issue in that case does not benefit the agency and is instead designed principally to prevent an unlawful subsidy from being recouped. Despite the large differences between the waiver issue here and the settlement authority question in PGE, and despite the close similarity between the waiver approved in Alcoa and the one at issue here, the dissent dismisses Alcoa as the controlling precedent and relies on PGE instead. Principally, the dissent relies for this odd choice on the understanding that Alcoa upheld the other portions of the agreement in which the waiver appeared, and so was not ICNU V. BPA 31 approving a damages waiver linked to statutorily unlawful contract provisions. The dissent’s account mischaracterizes Alcoa. As one would expect, the damages waiver in Alcoa applied not to valid contractual provisions, but only when “a court renders any part of the agreement void or unenforceable”— in other words, unlawful. 698 F.3d at 791. And, after holding the damages waiver lawful, Alcoa went on to decline to decide whether the “Second Period” portion of the Alcoa contract there at issue was valid, as the question was not yet ripe. Id. at 793–94. This sequence necessarily left open the possibility that the Second Period agreement would later be voided — and yet, the damages waiver provision that would be contained in that agreement had already been declared valid. The panel deciding Alcoa was entirely cognizant of this possibility. Had the Second Period agreement been similar to, and valid for the same reason as, the agreement covering the initial period, there would be no reason to put off deciding the legality of the Second Period agreement. And the dissenting opinion in Alcoa specifically recognized that the waiver provision was valid and would apply if and when the Second Period agreement is challenged. Alcoa, 698 F.3d at 799, 806–807 & n.7 (Bea, J., dissenting). The dissent’s concern was with the majority’s decision to forego addressing the Second Period dispute before BPA suffered a monetary loss was that, because of the damages waiver, those losses could not be recovered. Id. Alcoa therefore decided essentially the same issue that arises here regarding the enforceability of a bilateral damages waiver in a BPA power agreement. PGE covers the predecessor issue — was the power agreement there in fact 32 ICNU V. BPA void? Under such circumstances, we must follow Alcoa and uphold the damages waiver. As BPA properly determined the Block Contracts waiver provisions were enforceable, its decision not to pursue refunds under those Contracts was likewise proper.