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County of Oswego Industrial Development Agency v. Fulton Cogeneration Associates

July 16, 2009


The opinion of the court was delivered by: Hon. Norman A. Mordue, Chief U.S. District Judge



Presently before the Court is a motion for summary judgment (Dkt. No. 136) by plaintiff, the County of Oswego Industrial Development Agency ("COIDA") against the two remaining defendants in this action, ANR Venture Fulton Company ("ANR") and El Paso Merchant Energy-Petroleum Company ("El Paso") (referred to collectively herein as "defendants"). This Court previously issued an Order (Dkt. No. 172) on COIDA's motion to the extent of granting summary judgment on the issue of liability as against Fulton Cogeneration Associates, LP ("FCA"), Lions Capital Management, LLC, a/k/a Lion Capital Management, LLC ("Lions"), and Fimab, Promeneur & Hausmann, Inc. ("Fimab"); the Court reserved decision as to ANR and El Paso.*fn1

COIDA also moves (Dkt. No. 176) for an award of attorneys' fees and costs. Also pending is defendants' cross motion for summary judgment and indemnification (Dkt. No. 142).

As set forth below, the Court grants COIDA's motion for summary judgment (Dkt. No. 136) against defendants ANR and El Paso in the sum of $4,728,799.08, plus interest from March 31, 2005. The Court grants COIDA's motion (Dkt. No. 176) for attorneys' fees in the sum of $271,636.00, plus costs of $521,162.99. COIDA is also entitled to recover judgment against

FCA, Lions, and Fimab in the sum of $4,728,799.08, plus interest from March 31, 2005, plus attorneys' fees of $271,636.00, plus costs of $521,162.99, and the Judgment awarded herein shall amend the prior Judgment (Dkt. No. 174) accordingly. Further, the Court grants the cross motion (Dkt. No. 142) to the extent that ANR and El Paso are awarded indemnification in the sum of $649,428.90 on their cross claim against Lions and Fimab; the cross motion is otherwise denied.


The following facts are undisputed unless otherwise noted. On February 1, 1991, COIDA and FCA entered into an agreement for the redevelopment of a cogeneration facility, known as Fulton Cogeneration Facility ("FC Facility"), located in the City of Fulton, County of Oswego. COIDA and FCA entered into a Lease Agreement ("Lease") whereby FCA assigned its leasehold interest in the FC Facility to COIDA, which leased it back to FCA to develop. The Lease specifies that FCA is "a limited partnership duly organized and validly existing under the laws of the State of New York." The Lease is signed on behalf of FCA as follows: "Fulton Cogeneration Associates, by ANR Venture Fulton Company, the Managing Partner for Fulton Cogeneration Associates, by James W. Whalen, Vice President." ANR was the general partner of FCA.

Also on February 1, 1991, COIDA and FCA executed a Payment in Lieu of Taxes Agreement ("PILOT Agreement"). Like the Lease, the PILOT Agreement identifies FCA as a New York limited partnership and is signed on behalf of FCA by Whalen, ANR's Vice President.

Section 6.3(b) of the Lease expressly incorporates by reference the PILOT Agreement as follows:

The Company [FCA] has agreed to pay certain amounts in lieu of taxes, the provisions of which are set forth in the PILOT Agreement, and the Company hereby agrees to observe, perform and comply with all conditions, obligations and provisions thereof, and the terms thereof are incorporated herein by reference.

Under section 10.1(a)(1) of the Lease, FCA's failure "to pay or cause to be paid, when due, after five business day's written notice the amounts specified pursuant to section ... 6.3(b)" constitutes an "event of default." One of COIDA's remedies on default is set forth in section 10.2(a)(1), as follows: [COIDA may] [d]eclare, by written notice to the Company [FCA] ... to be immediately due and payable, whereupon the same shall become immediately due and payable:

(x) rent .... (y) all other payments or amounts due or to become due to any person under this Lease Agreement, the Agency Agreement and the Financing documents[.]

The PILOT Agreement provides that "the Company [FCA] agrees to pay to the Agency [COIDA], directly, an annual sum in lieu of City, County and School District Real Estate Taxes and assessments in accordance with the following schedule[.]" The schedule lists 15 fixed annual payments, the first of which is due March 31, 1992, with payments due each March 31 thereafter. Starting in the sixteenth year, the FC Facility was to be "taxed per assessment[.]" The PILOT Agreement provides in the sixth paragraph:

The Company [FCA] reserves the option to cancel this in lieu of taxes agreement and to pay to the Agency [COIDA] an amount equal to the actual tax assessment which would be due on the property based upon the assessed value fixed by the assessors and the current tax rate applicable for the City, County and School taxes in the area.

Through two mergers, El Paso succeeded ANR as FCA's general partner in January 2001, thus undertaking FCA's obligations under the Lease and PILOT Agreement. El Paso sold its general and limited partnership interests in FCA to Lions on September 23, 2004. As of September 23, 2004, FCA had made all required payments under the PILOT Agreement.

By letter to COIDA dated January 21, 2005, Lions stated it was "hereby withdrawing from the Tax Pilot Agreement, effective immediately." Under the schedule of payments set forth in the PILOT Agreement, the 14th payment, due March 31, 2005, would have been $1,481,533. According to the affidavit of Dianne Moore, Tax Assessor for the City of Fulton at the times in issue, the 2004 assessed value on the FC Facility was $46 million, and the total tax obligation thereon for the 2004-2005 tax year was $2,364,399.54.

FCA made no payment on March 31, 2005. On July 25, 2005, COIDA sent to FCA (c/o ANR and Lions) a letter headed "Notice of Termination of Lease." It accelerated the remaining payment due under the PILOT schedule and terminated the Lease effective August 26, 2005. As a a result of the termination of the Lease, the value of the FC Facility was reassessed on August 26, 2005 to $2,751,075, according to the affidavit of the tax assessor, Dianne Moore.


Standard on summary judgment

Summary judgment is appropriate only when there is no genuine issue with regard to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). When deciding a summary judgment motion, a court must construe all the evidence in the light most favorable to the nonmoving party and draw all inferences and resolve all ambiguities in that party's favor. LaSalle Bank Nat'l Ass'n v. Nomura Asset Capital Corp., 424 F.3d 195, 205 (2d Cir. 2005). The Court may grant summary judgment only "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

Whether COIDA impliedly agreed to discharge defendants On the present motion for summary judgment, COIDA claims that, as former general partners of FCA, defendants ANR and El Paso are liable to COIDA for FCA's obligations under the Lease and PILOT Agreement. It is undisputed that ANR was the general partner of FCA in 1991 when the Lease and PILOT Agreement were signed; thus, ANR was liable to COIDA under both agreements. See N.Y. Partnership Law, § 26(a)(2). It is further undisputed that ANR merged into Coastal Refining & Marketing, Inc. ("Coastal") in 1998, that Coastal became El Paso in 2001, and that El Paso assigned its general partnership interest in FCA to Lions on September 23, 2004.*fn2 As this Court held in a prior decision, ANR did not free itself from its obligations to COIDA under the Lease and PILOT Agreement simply by merging into Coastal and then El Paso, nor did El Paso extinguish its obligation to COIDA simply by transferring its interest in FCA to Lions. See County of Oswego Indus. Dev. Agency v. Fulton Cogeneration Assocs., 2007 WL 838975, *1 (N.D.N.Y. 2007) (denying motion by ANR and El Paso to dismiss under 12(b)(6)).

Defendants argue that the assignment of El Paso's general partnership interest in FCA to Lions was, in effect, a dissolution of FCA, resulting in the discharge of defendants' obligations as general partners. Under New York law, "[t]he dissolution of [a] partnership does not of itself discharge the existing liability of any partner." N.Y. Partnership Law, § 67(1). A partner may, however, be discharged from liability upon dissolution by an agreement to that effect between the partner, the partnership creditor, and the partnership continuing the business; "such agreement may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing the business." Id.,§ 67(2). According to defendants, an agreement to discharge them and substitute Lions in their place as obligor may be inferred from COIDA's conduct in connection with El Paso's transfer of its interest in the FC Facility to Lions. Defendants rely on evidence to the effect that COIDA encouraged the transfer of El Paso's interest in the FC Facility to Lions and that, once the transfer occurred, COIDA acknowledged and accepted Lions' status as successor to El Paso.

In reply, COIDA contends that, by virtue of a provision in the FCA partnership agreement, no dissolution occurred, and that, in any event, no agreement to discharge defendants may be inferred from its conduct. COIDA avers that it had no knowledge of the specific terms of the transfer and that its conduct does not support an implied agreement under section 67(2). COIDA submits affidavits from its general counsel and an officer spelling out the information COIDA possessed and COIDA's conduct at the relevant times.

As set forth below, the Court concludes that, even assuming that the assignment of El Paso's interest to Lions amounted to a dissolution, no agreement to discharge the general partners under section 67(2) can be inferred from COIDA's conduct. Thus, defendants as undischarged former general partners remain liable for FCA's obligations under the Lease and PILOT Agreement.

Defendants' Evidence

In support of their contention that COIDA's agreement to discharge them may be inferred from its conduct, defendants rely on the affidavit of Craig S. Harris, Director of Corporate Development for El Paso Energy Service Co. and custodian of records for El Paso. The relevant sections of the affidavit are set forth below.

11. By approximately 2002, the former Nestlé chocolate facility was out of operation. In October 2003, L. Michael Treadwell, CEcD of Oswego County IDA [COIDA] contacted EPME-PC [El Paso] to determine if the Fulton Cogeneration Plant could provide steam to the former Nestlé chocolate facility. At that time Mr. Treadwell was told that the Fulton Cogeneration Plant was up for sale and that this potential for a steam sale would be passed on to the new owner if a sale occurred and that an evaluation would be made to determine if steam could be supplied from an economic sense.

12. In early December 2003, a meeting was scheduled between me and Gary Keevill with EPME-PC and Oswego County IDA, including Mr. Treadwell, to tell them why the [cogeneration] plant was not operating, that the plant was up for sale and that FCA needed relief under the PILOT agreement. When Gary and I got to the meeting in Fulton, it turned out that the Oswego County IDA had invited others to the meeting. Mark U. Hirschey, Principal of Island Capital Ventures, and Mamadou Ahmed Diomande, Director of Fiscal Studies of the New York State Senate, in addition to Mr. Treadwell, Executive Director of Operation Oswego County were present at the meeting. We were told that Dr. Ousmann-A. Gbané[*fn3 ] Principal and CEO of Lion Capital Management Group was going to attend but could not.

13.... During that meeting we were advised of Oswego County IDA's efforts to reopen the Nestlé plant. What we were told is basically what is contained in the following news releases and other items taken directly off of the Operation Oswego County Website:

a. January/February 2003: Operation Turnaround Markets Nestlé Plant Internationally

The ongoing marketing and redevelopment strategy for the Nestlé facility in Fulton took a major step early this year when Operation Oswego County (OOC) contacted more than 800 chocolate manufacturers to investigate any interest that an existing firm may have to acquire the oldest milk chocolate plant in North America.

In addition to the United States, a Nestlé site specification brochure was mailed to manufacturers in 81 countries including England, Germany, France, Poland, Mexico, Russia, Switzerland, Spain, Canada and Belgium.

b. March/April 2003: Nestlé: Operation Turnaround Impact Study Results Released: Plant Sale Price of $3.5 Million Termed "Potentially Marketable"

Treadwell said, "The tour focused on three main objectives which were to obtain authorization to retain a private firm to evaluate the plant for reuse and redevelopment, evaluate the electrical infrastructure, and determine which buildings could be segregated. We need to get the plan approved by the company, but I don't see any problems working with them."

c. September 30, 2003: Committees Appointed to Deal with Proposed Nestlé Property Transfer

Oswego County Industrial Development Agency (IDA) Chairwoman Carolyn Rush announced today the appointment of two committees formed in response to the proposed transfer of the vacant Nestlé plant in Fulton from Nestlé USA to the IDA.

d. November/December 2003: Two Former Fulton Plants: A Back-in-Business Turnaround

Just six months ago, the picture in Fulton was grim. Two major longtime employers announced plant closings, which was a result in the loss of 580 jobs.

Now -- in a quick turnabout that is almost unheard of in economic development circles -- after months of hard work, negotiation and teamwork, the former Nestlé and Sonoco plants are soon to be operational and back in business.

e. December 15, 2003: IDA Agrees to Acquire Nestlé Plant, Accepts Purchase Offer

The County of Oswego Industrial Development Agency voted unanimously today to acquire the former Nestlé plant in Fulton from Nestlé USA for $100.

f. January 20, 2004: 2003: The Year of Business Turnaround in Oswego County, by L. Michael Treadwell, CE.D, Executive Director of Operations, Oswego County

While the turnaround of the Nestlé and Sonoco plants certainly was the major success story in 2003, small business development proved once again to be the economic development anchor in Oswego County.

14. These discussions and Oswego IDA's orchestration of the take over of the Nestlé Plant and its desire to find a "steam host" for the chocolate operations are further documented by the pertinent Minutes of Oswego. Beginning in 2003, Oswego began discussing in their Board Meetings the "Nestlé Prospects". In fact, the Board Minutes reveal that in or around October of 2003, Nestlé made a proposal to Oswego on donating their property to the IDA. In October of 2003, Oswego's counsel was authorized to negotiate with Nestlé on the transfer.

* In Oswego's October 8, 2003 Minutes, Nestlé has represented to the IDA that it has an agreement with EPME-PC to use steam and also discusses Lion Capital's expressed interest in ownership of part or all of the property at issue. Further, on October 15, 2003, the Board of Oswego authorized action to "initiate discussion with both investor groups on immediate turnover of the property...."

* Oswego actually loaned out $300,000.00 for the Fulton Chocolate Company, Inc. Project (see March 8, 2004 Board Minutes). (This entity later entered into an MOU with The New York Chocolate & Confections Company, another entity [of] Mr. Gbané....) In Oswego's Financing Proposal Summary (see March 8, 2004 Board Minutes), the impact of this project [is] state[d] as follows:

-- Creation of 95 jobs

-- Estimated $4.1 Million in new ...

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