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Constellation Operating Services v. Ihi New Energy, Inc.

United States District Court, Second Circuit

September 24, 2013



THOMAS P. GRIESA, District Judge.

This is a declaratory judgment action brought by Plaintiffs Constellation Operating Services and Constellation Investments seeking to clarify the status of certain accounts receivable under an agreement it entered into with Defendant IHI Power Services.

At issue now is the propriety of defendants' removal of this case from New York Supreme Court. Two of the defendants-IHI New Energy Inc. and IHI Power Generation Corp.-are citizens of New York and, thus, their presence in the action would require that the case be remanded to state court so long as these defendants were properly joined and served. Constellation moves to remand the case on this basis. Defendants contend that IHI New Energy and IHI Power Generation Corp. were added fraudulently and, accordingly, contend that removal was proper and move for judgment on the pleadings in favor of those two defendants. With either IHI New Energy or IHI Power Generation Corp. as a defendant, there would not be the necessary diversity of citizenship between plaintiffs and defendants to support federal diversity jurisdiction over the action.

Constellation's motion to remand is granted. Defendants' motion for judgment on the pleadings is denied.


Case History

An action substantially identical to this case was brought by Constellation Operating Services (but not Constellation Investments) on November 26, 2012, in New York Supreme Court. Defendants removed that case to this court on December 4, but Constellation Operating Services voluntarily dismissed it a week later.

Almost simultaneously, Constellation Operating Services, now joined by Constellation Investments, brought another action, again in state court. The primary difference between this second action and the first is that the complaint in the second action adds a more detailed discussion of the New York-domiciled defendants, IHI New Energy and IHI Power Generation.

The Complaint

Constellation Operating Services operates power plants. This includes making repairs, employing plant personnel, purchasing equipment, and negotiating power-purchase agreements with utilities. Constellation Investments owns investment interests in the plants.

In late 2011, Constellation Operating Services and Constellation Investments began to explore the possibility of selling its interests in five power plants in California. IHI Corporation, a Japanese company that is not a party to this suit, emerged as the most promising potential buyer. A Sale and Purchase Agreement was negotiated and agreed to between IHI New Energy-a wholly owned subsidiary of IHI Corporation-and Constellation Investments. The agreement was originally made between Constellation Investments and IHI New Energy, but IHI New Energy later assigned its rights under that agreement to IHI Power Generation and IHI Power Services, two of the three defendants in the present action. This sale agreement was conditioned upon Constellation Operating Services assigning its management contracts for each plant to IHI Power Services. A form Assignment and Assumption Agreement designed to effect these assignments was agreed to and was annexed to the Purchase and Sale agreement.

Constellation Operating Services, as required, executed the Assignment and Assumption Agreement, assigning its rights and responsibilities under its management contracts with the five plants to IHI Power Services. But precisely which rights were assigned soon became an issue.

At the time the Assignment and Assumption Agreement was executed, the five plants covered by that agreement owed Constellation Operating Services approximately $11.5 million. Constellation Operating Services contends that this situation was discussed at some length during the negotiations between Constellation and defendants and every party understood-or seemed to understand-that this assignment of rights did not include the right to the $11.5 million already owed, so that any payments on the $11.5 million would go to Constellation Operating Services and not IHI Power Services.

But it would seem that IHI Power Services had a different view, because soon after executing the Assignment and Assumption Agreement, IHI Power Services began writing to plant owners informing them that future payments on the $11.5 million should be made to IHI Power Services. Constellation Operating Services quickly responded with letters of its own telling plant owners, in effect, to disregard the letters from IHI Power Services and to make payments to it, not IHI Power Services. Plant owners then wrote to IHI Power Services and Constellation informing them that they had no wish to get involved in the apparent dispute between IHI Power Services and ...

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