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Exergy Development Group of Idaho, LLC v. Fagen, Inc.

United States District Court, D. Idaho

March 22, 2017

EXERGY DEVELOPMENT GROUP OF IDAHO, LLC, and Idaho limited liability company, Plaintiff,
FAGEN, INC., a Minnesota corporation; MIDWEST ETHANOL TRANSPORT, LLC, a Minnesota limited liability company, BIG BLUE WIND FARM, LLC, a Minnesota limited liability company, and JOHN AND JANE DOES 1-10, Defendants.


          Edward J. Lodge United States District Judge


         Pending before the Court are Defendants' Motions to Dismiss. (Dkt. 19, 24.) The parties filed responsive briefing and the motions are now ripe. Having fully reviewed the record herein, the Court finds that the facts and legal arguments are adequately presented in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, the Motions shall be decided on the record before this Court without oral argument. The Court grants Defendants' Motions.


         Plaintiff, Exergy Development Group of Idaho, LLC (“Exergy”), is in the business of renewable energy. (Dkt. 13.) Between 2006 and 2012, Exergy was developing and assembling a wind-power renewable energy generation project in Minnesota, known as the Big Blue Project. (Dkt. 13.) Defendant, Big Blue Wind Farm, LLC (“Big Blue”), owned all assets of that project. (Dkt. 13.)[1] From 2006 to 2011, Exergy advanced money to Big Blue to fund development of the project. (Dkt. 13.) Promissory Notes were signed annually from 2006 to 2011 memorializing the amounts Exergy advanced for development of the project. (Dkt. 13.) No promissory note was signed in 2012. (Dkt. 13.)

         Defendant Fagen, Inc. (“Fagen”) began advancing funds to Exergy for the Big Blue Project in 2011 through a series of Term Loans. (Dkt. 13.) In 2012, Exergy requested more financing, which led to Fagen and Exergy signing a Purchase Agreement, among other documents. (Dkt. 13.) The Agreement required Exergy to convey 99 of the 100 units of membership in Exergy Minnesota in exchange for Fagen reducing the principal and accrued interest due under the Term Loans by $11, 447, 503.03. In addition to the Purchase Agreement, the parties also signed a Member Control Agreement that gave Exergy a repurchase option. (Dkt. 13.) When Exergy did not exercise the repurchase option, the final unit of Exergy Minnesota was transferred and Fagen assumed managerial control over Exergy Minnesota and ownership of Big Blue. (Dkt. 13.) Fagen transferred ownership of Big Blue to Defendant Midwest Ethanol Transport, LLC (“MET”) in late 2012.

         Fagen and Exergy entered into a Memorandum of Understanding (“MOU”) on December 20, 2011, which related to several projects including the Big Blue Project.[2] (Dkt. 13.) In the MOU, Exergy agreed to continue using Fagen as the contractor on its projects. (Dkt. 13, 19.) Exergy then began developing a collection of projects with Fagen as its contractor.[3] (Dkt. 13.) Fagen ceased performance on further financing under the MOU when Exergy failed to pay Fagen for its work. (Dkt. 13, 19.) Fagen and MET sued Exergy in Minnesota federal district court for its failure to pay, which remains pending[4].

         On December 4, 2015, Exergy filed a Complaint in this matter and then later filed its Amended Complaint alleging: (1) breach of contract against all named defendants; (2) unjust enrichment/quantum meruit against all defendants; (3) breach of contract against Fagen; and (4) breach of fiduciary duties against Fagen. Defendants filed a Motion to Dismiss all counts on various theories, which the Court now takes up.


         1. Defendants' Motion to Dismiss Breach of Contract claim under 12(b)(3)

         In Count I, Exergy claims Defendants committed a breach of contract by failing to pay back the full principal and interest owed under the Promissory Notes when Fagen transferred ownership of Big Blue to MET.[5] Defendants seek to dismiss Exergy's claim under Rule 12(b)(3) arguing the venue provision of the Promissory Note requires any claims arising from the Notes be brought in a state court in Ada County. (Dkt. 19, 24.) In reply, Exergy contends venue is proper because Idaho law will be applied, this Court is in Ada County, and the venue provision does not limit venue to a state court. (Dkt. 25, 26.)

         A. Standard of Law

         "A motion to enforce a forum selection clause is treated as a motion to dismiss pursuant to Rule 12(b)(3); pleadings need not be accepted as true, and facts outside the pleadings may be considered." Doe 1 v. AOL LLC, 552 F.3d 1077, 1081 (9th Cir. 2009)(citing Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996)).

"[B]ecause enforcement of a forum clause necessarily entails interpretation of the clause before it can be enforced, . . . federal law applies to interpretation of forum selection clauses." Doe v. Network Solutions, LLC, 2008 WL 191419 *5 (quoting Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 513 (9th Cir. 1988)).

         Under federal law, the general principles for interpreting contracts guide the court and "[c]ontract terms are to be given their ordinary meaning . . . [and w]henever possible, the plain language of the contract should be considered first." Klamath Water Users Protective Ass'n v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 1999)). "The fact that the parties dispute a contract's meaning does not establish that the contract is ambiguous; it is only ambiguous if reasonable people could find its terms susceptible to more than one interpretation." Id. at 1210 (citing Kennewick Irrigation Dist. v. United States, 880 F.2d 1018, 1032 (9th Cir. 1989)).

         “A contractual forum selection clause is 'prima facie valid and should be enforced unless enforcement is shown by the resisting party to be ‘unreasonable' under the circumstances.'" Docksider, Ltd. v. Sea Technology, Ltd., 875 F.2d 762, 763 (9th Cir. 1989)(quoting M/S Bremen v. Zapata Offshore Co., 407 U.S. 1, 10 (1972)).

         B. Analysis

         Before the Court is a question of interpretation. The forum selection clause reads: “The courts of Idaho shall have exclusive jurisdiction, and Ada County is the proper venue." (Dkt. 1, Ex. A.)

         Exergy contends the words "the courts of Idaho" refers to both federal and state courts in Idaho while Defendants argue the phrase refers only to state courts in Idaho. (Dkt. 19, 24, 25, 26.) The Court holds that the forum selection clause refers only to state courts in Idaho.

         In Doe 1, the issue was the meaning of a forum selection clause that read in pertinent part, the parties "expressly agree that exclusive jurisdiction for any claim or dispute . . . resides in the courts of Virginia." 552 F.3d at 1080. On appeal, the court rejected the district court's interpretation of the clause as referring to state and federal courts. The Doe 1 court interpreted the contractual clause by focusing on the word “of.” Id. at 1081. Which Black's Law Dictionary defines as "denoting that from which anything proceeds; indicating origin, source, descent, and the like. . . ." Id. at 1081(quoting Black's Law Dictionary 1080 (6th ed. 1990)). Looking at the plain meaning, the court reasoned the phrase "courts 'of' Virginia" refers to courts proceeding from, with their origin in, Virginia -- i.e., the state courts of Virginia. Federal district courts, in contrast, proceed from, and find their origin in, the federal government." Id. at 1082.[6]

         The forum selection clause at issue in this case parallels the language of the forum selection clause in Doe 1. Applying the Doe 1 court's reasoning, this Court finds "the courts of Idaho" refers to Idaho state courts and not to federal courts in Idaho. "[W]hen the proper forum is a state court, upon the determination that the case was not brought in the proper forum, the court's only option is to dismiss the case." Professional Courier & Logistics, Inc. v. NICA, Inc., 2012 WL 1120675, at *4 (E.D. Cal. 2012).

         Accordingly, Defendants' Motions to Dismiss Count I of Exergy's Amended Complaint under Rule 12(b)(3) are granted.[7]

         2. Defendants' Motions to Dismiss Unjust Enrichment/Quantum ...

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