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E.On U.S. Corp. v. PPL Corp.

United States District Court, S.D. New York

June 23, 2015

E.ON U.S. CORPORATION, Plaintiff,
v.
PPL CORPORATION, Defendant.

OPINION & ORDER

KATHERINE B. FORREST, District Judge.

This is a breach of contract action arising from the $7.6 billion sale of E.ON U.S. LLC, successor by merger to E.ON U.S. Investments Corporation ("EUSIC"), to PPL Corporation ("PPL").[1] The parties have filed what are essentially mirror claims against each other regarding certain post-closing tax adjustments that EUSIC claims pursuant to the Purchase and Sale Agreement ("PSA" of "Agreement") dated April 28, 2010.[2] EUSIC commenced this action in April 2014; the operative amended complaint ("Compl.") was filed on July 11, 2014. (ECF No. 25.) On July 31, 2014, PPL filed an answer with counterclaims ("C.Cl.") seeking a declaration of entitlement to those categories of payment sought by EUSIC. (ECF No. 28.) Discovery has been completed. Before this Court are the parties' cross-motions for summary judgment.

EUSIC claims that it has suffered in excess of $12 million in damages as a result of PPL's refusal to pay it a $4.1 million overpayment of taxes in 2005 to the State of Kentucky ("Kentucky Tax Overpayment"), a $2.3 million tax credit generated from the purchase of recycling equipment in 1999 ("the Kentucky Recycling Credit"), and $6 million in net-operating losses ("NOLs").

PPL denies that it owes EUSIC any of these amounts, and has cross-claimed for its entitlement to what it calculates to be more than $4.48 million (plus interest, attorneys' fees and costs) relating to the same categories of items.

For the reasons set forth below, E.ON's motion for summary judgment is GRANTED in part and DENIED with respect to the NOLs, and PPL's is GRANTED with respect to the NOLs and otherwise DENIED.

I. BACKGROUND

The following facts are undisputed.[3]

E.ON serves as the holding company for the United States affiliates of E.ON SE, a German international power and energy utility company. (PRSOF ¶ 2.) E.ON, a Delaware corporation, is successor by merger to EUSIC. (Id. ¶ 1.) PPL is a Pennsylvania corporation with its principal place of business in Allentown, Pennsylvania. (Id. ¶ 3.) PPL is an energy and utilities holding company that sells electricity and natural gas to customers in the United States and delivers electricity to customers in the United Kingdom. (Id. ¶ 3.)

On April 28, 2010, EUSIC and PPL entered into the Purchase and Sale Agreement ("PSA") pursuant to which EUSIC agreed to sell PPL all of the issued and outstanding limited liability company interests of EUSIC's former subsidiary, E.ON U.S. LLC. ("Transaction"). (Id. ¶¶ 4, 6.) The Transaction closed on November 1, 2010. (Id. ¶ 4.) Prior to the Transaction, E.ON U.S. LLC, a Kentucky limited liability company, conducted business in the regulated energy market in Kentucky through its subsidiaries Louisville Gas & Electric Company ("LG & E") and Kentucky Utilities Company ("KU"). (Id. ¶ 5.) Following the Transaction, PPL now operates these businesses through a single subsidiary, the former E.ON U.S. LLC, which it renamed LG & E and KU Energy LLC ("LKE"). (Id.)

A. The Relevant Provisions of the PSA

Section 6.2 provides, in relevant part:

Effective as of the Closing Date... [EUSIC] shall indemnify and hold [PPL] harmless from and against any Losses in respect of (i) any Taxes imposed with respect to [E.ON U.S. LLC] or any of its own subsidiaries for the taxable periods, or portions thereof, ended on or before [December 31, 2009]...

(Id. ¶ 10.) "Losses" are defined as:

... losses, damages, claims, fees, fines, costs and expenses, interest, awards, settlements, Liabilities, recourses, judgments and penalties (including reasonable attorneys' fees and expenses) whether or not involving a third party claim.

(Decl. of Zelig, Ex. 12, p. 7, ECF No. 52.)

Section 6.3 provides, in relevant part:

Effective as of the Closing Date... [PPL] shall indemnify and hold [EUSIC] harmless from and against any Losses in respect of Taxes with respect to [E.ON U.S. LLC] or any of its Subsidiaries other than those taxes for which [EUSIC] is responsible pursuant to Section 6.2.

(PRSOF ¶ 11.)

Section 6.5 provides, in relevant part:

[EUSIC] shall prepare and file (or cause to be prepared and filed) all Tax Returns relating to [E.ON U.S. LLC] or any of its Subsidiaries which are required to be filed after the Closing Date and which are filed on a consolidated, unitary and combined basis with [EUSIC]. With respect to any Tax Return to be prepared and filed by [EUSIC]... [PPL] shall cause [E.ON U.S. LLC] to prepare and provide to [EUSIC] a package of Tax information materials... and shall include drafts of the Tax Returns (computed on a stand-alone basis with respect to the Company and its Subsidiaries), schedules and significant work papers...

(PRSOF ¶ 12.)

Section 6.6(g) provides, in relevant part:

Each party shall pay or cause to be paid to the other party any refunds or credits of Taxes for which the other party is responsible pursuant to this Agreement (including any interest thereon paid by the applicable Governmental Authority in respect of such refund or credit) within 30 Business Days after the receipt of such refund or the realization of such credit. Each party shall, at the reasonable request of the other party, cooperate in good faith with such other party in obtaining such refunds or credits, including through the filing of amended Tax Returns or refund claims.

(PRSOF ¶ 13.) Both parties participated in the drafting of Section 6.6(g). (PRSOF ¶ 14.)

Section 6.7 provides:

Tax Sharing Matters. Any tax sharing agreement or arrangement between Seller and any of its Affiliates (other than the Company and its Subsidiaries), on the one hand, and the Company and its Subsidiaries, on the other hand, including the Tax Sharing Agreement, shall be terminated as of the Closing. All amounts payable under the Tax Sharing Agreement as of the Closing shall be determined promptly after the Closing (for the avoidance of doubt, such amounts to be determined without regard to the due dates for payments otherwise applicable under the Tax Sharing Agreement and without regard to Section 7 of the ...

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