Opinion ID: 4854156
Heading Depth: 2
Heading Rank: 1

Heading: Change of Control

Text: Nebraska law governs this appeal. Under Nebraska law, “a court faced with a question of contract interpretation must first determine whether the contract is ambiguous.” Home Instead, Inc. v. Florance, 721 F.3d 494, 498 (8th Cir. 2013); accord City of Sidney v. Mun. Energy Agency of Neb., 917 N.W.2d 826, 843 (Neb. 2018). “[T]he determination of whether a contract is ambiguous is a matter of law.” McCormack v. Citibank, N.A., 100 F.3d 532, 538 (8th Cir. 1996); accord Big River Const. Co. v. L & H Props., Inc., 681 N.W.2d 751, 756 (Neb. 2004) (“The meaning of a contract, and whether a contract is ambiguous, are questions of law.”). A court determines whether ambiguity exists on an objective basis, reviewing the contract as a whole. See Home Instead, 721 F.3d at 498; accord Big River, 681 N.W.2d at 756 (“A contract must be construed as a whole, and, if possible, effect must be given to every part thereof.”). “‘A written contract which is expressed in clear and unambiguous language is not subject to interpretation or construction,’ and a court simply must give effect to that language.” Home Instead, 721 F.3d at 498; accord McCormack, 100 F.3d at 538; accord City of Sidney, 917 N.W.2d at 843. “[T]here is a strong presumption that a written instrument correctly expresses the intention of the parties” and “parties are bound by the terms of the contract even though their intent may be different from that expressed in the agreement.” Bedrosky v. Hiner, 430 N.W.2d 535, 539 (Neb. 1988). -5- “A contract is only ambiguous ‘when the instrument at issue is susceptible of two or more reasonable but conflicting interpretations or meanings.’” McCormack, 100 F.3d at 538 (quoting Boyles v. Hausmann, 517 N.W.2d 610, 615 (Neb. 1994)); see also Home Instead, 721 F.3d at 498. Ambiguity in a contract creates a question of fact. Home Instead, 721 F.3d at 499 (“When it is established that a contract is ambiguous, the meaning of its terms is a matter of fact to be determined in the same manner as other questions of fact.”); Bedrosky, 430 N.W.2d at 540 (“When it is established that a contract is ambiguous, . . . summary judgment is improper.”). Each of the PPAs contains a “Permitted Transactions” provision stating: Seller shall not: (a) consolidate or merge with any other Person, or reorganize, consolidate, Change Control or change the form of [Project Entities’] business organization from a limited liability company; . . . or (c) assign this Agreement, or any of its rights or obligations under this Agreement (each, a “Transaction”) to any Person (the “Transferee”), whether in a single transaction or series of transactions, unless such Transaction is expressly approved in writing by NPPD . . . and any Transaction in the absence of such consent shall be void and of no legal effect. “Change Control” means the sale or transfer after the Effective Date of a majority of the direct ownership interests in Seller. . . . No assignment or transfer of this Agreement shall relieve a Party of its obligations hereunder. Further, each PPA states that a change-of-control transaction performed without NPPD’s written approval qualifies as an event of default.
NPPD argues the change-of-control provision is ambiguous because the term “direct ownership interests” is subject to multiple interpretations. The Project Entities counter that the term “direct ownership interests” has a common, -6- unambiguous meaning, which was properly considered by the district court in its decision to grant summary judgment in the Project Entities’ favor. We conclude that the term “direct ownership interests” is unambiguous. It is undisputed that the PPAs do not define “direct ownership interests.” However, the law supports the Project Entities’ argument that here “ownership interests” and certainly “direct ownership” can only be reasonably interpreted to mean ownership of membership units in a limited liability company. NPPD primarily relies on the dissent in Dole Food Co. v. Patrickson, 538 U.S. 468 (2003), to argue that ownership encompasses a wide variety of interests. NPPD’s argument is misplaced for two reasons. First, as a dissenting opinion it is not controlling precedent. We will not conjure up ambiguity from the Dole dissent when none exists. Second, the Dole majority opinion, while helpful in identifying the common meaning of “ownership,” has limited value due to the term’s interpretation solely within the context of the Foreign Sovereign Immunities Act of 1976 (“FSIA”). Ownership of a corporation or LLC is generally defined by the legal right of possession of stock or membership units, not control. In Dole, the Supreme Court addressed the issue of whether a party’s ownership of shares of a parent company (several entities removed from the subject company) qualified as “direct ownership.” Dole, 538 U.S. at 470–74. However, the Dole analysis was in the context of interpreting the FSIA to determine whether a lawsuit could be removed to federal court. Id. In stating that ownership of an entity several levels removed from the target entity did not qualify as direct ownership for purposes of the FSIA, the Dole majority stated that “[a]n individual shareholder, by virtue of his ownership of shares, does not own the corporation’s assets and, as a result, does not own subsidiary corporations in which the corporation holds an interest.” Dole, 538 U.S. at 475. “A basic tenet of American corporate law is that the corporation and its shareholders are -7- distinct entities.” Id. at 474. Further, “[a] corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary; and, it follows with even greater force, the parent does not own or have legal title to the subsidiaries of the subsidiary.” Id. at 475. NPPD relies on comments raised in the Dole dissent as the basis for its argument that “ownership interests” is an ambiguous term. The Dole dissent recognized that owning the shares of a corporate parent differs from owning the shares of a corporate subsidiary. Dole, 538 U.S. at 481. The Dole dissent argued instead that the term “ownership” should be interpreted to apply to ownership interests of a corporation’s parent entity. That interpretation, they argued, aligns with the Court’s historically expansive use of the term “ownership” to apply to a variety of ownership situations. Id. at 481–82. Next, NPPD argues GIP’s ownership of the Project Entities’ parent corporations improperly manifested itself in GIP’s control over the Project Entities themselves. NPPD’s argument finds some support in the Supreme Court’s case law. The Court has explained that a corporate parent often has a degree of control over its subsidiaries: [A] parent and a wholly owned subsidiary always have a complete ‘unity of purpose or a common design interest. They share a common purpose whether or not the parent keeps a tight rein over the subsidiary; the parent may assert full control at any moment if the subsidiary fails to act in the parent’s best interests. Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 771–72 (1984) (referring to the Sherman Act); see also United States v. Bestfoods, 524 U.S. 51, 61 (1998) (“It is a general principle of corporate law deeply ‘ingrained in our economic and legal systems’ that a parent corporation (so-called because of control through ownership of another corporation’s stock) is not liable for the acts of its subsidiaries.”) (emphasis added) (citations omitted). -8- But Dole clarified that control and ownership are distinct concepts. See Dole, 538 U.S. at 477; see also Janvey v. Libyan Inv. Auth., 840 F.3d 248, 259 (5th Cir. 2016). “[A] parent corporation and its subsidiary are separate corporate forms.” In re Packaged Seafood Prod. Antitrust Litig., 338 F. Supp. 3d 1118, 1143 (S.D. Cal. 2018). Thus, ownership of intermediate corporate entities is not direct ownership. The Supreme Court of Nebraska has not interpreted the term “direct ownership interest” in analyzing a contract. However, in interpreting a Nebraska statute, that court has defined “direct” as “‘stemming immediately from a source,’ ‘natural, straightforward,’ ‘marked by absence of an intervening agency, instrumentality, or influence,’ ‘characterized by close logical, causal, or consequential relationship’ and ‘free from extraneous influence; immediate.’” Jacobitz v. Aurora Coop., 865 N.W.2d 353, 359–60 (Neb. 2015) (cleaned up); see also State v. Gilliam, 874 N.W.2d 48, 57 (Neb. 2016) (“We often turn to dictionaries to ascertain a word’s plain and ordinary meaning.”). Eighth Circuit precedent has also used the phrase “direct ownership” when referring to ownership of stock. Wright v. United States, 482 F.2d 600, 609 (8th Cir. 1973). In this case, we give the “direct ownership” contemplated under the changeof-control provision its common meaning. We interpret the direct ownership interests to mean ownership interest in the Project Entities themselves, and we conclude that ownership in any of the Project Entities’ parent companies constitutes an indirect ownership interest.3
Next, we must determine whether the NRG and GIP transactions caused the Project Entities to violate the PPAs. Based on the PPAs’ plain terms, we conclude 3 In this case, we apply the same principles to LLCs as used in cases dealing with corporations. Streck, Inc. v. Ryan Fam., L.L.C., 901 N.W.2d 284, 293 (Neb. 2017) (“[W]e have generally treated actions by a member of an LLC in the same manner as actions by a shareholder of a corporation.”). -9- that the Project Entities did not transfer their direct ownership interests to NRG or GIP and did not violate the change-of-control provision of the PPAs. The transfer of the ownership interests of the Project Entities’ parent companies did not trigger the change-of-control provision in the PPAs. Engel v. Teleprompter Corp., 703 F.2d 127, 134 (5th Cir. 1983) (“[T]ransfer of the stock of a parent corporation does not affect the ownership of assets held by a subsidiary.”). Traditionally, a corporate parent who owns shares of a subsidiary does not own or have legal title over the subsidiary’s assets. See Janvey, 840 F.3d at 263–64 (“A corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary.”). Corporate parents are separately established and must be treated accordingly. See Engel, 703 F.2d at 134 (“[O]wnership of the stock of a corporation is not synonymous with ownership of the corporate assets.”); Janvey, 840 F.3d at 263–64 (“Subsidiaries that are ‘established as juridical entities distinct and independent . . . should normally be treated as such.’”) (abrogated on other grounds). We conclude that the transfer of the Project Entities’ parent companies, from Edison to NRG to GIP, did not transfer the “direct ownership interests” of each of the Project Entities. Thus, we conclude that the Project Entities did not need to obtain NPPD’s written consent for each of the transactions involving its upstream parent companies, and that the transfer of the ownership interests at the parentcompany level did not trigger a change of control under the PPAs.