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Indeck North American Power Fund, L.P., v. Norweb plc, No. 1-99-1809

1st District, June 30, 2000

FIFTH DIVISION

JUSTICE HARTMAN delivered the opinion of the court:

This case involves two purchase and sale agreements and pre-existing partnership agreements through which variouspartnerships, which owned and operated electric generating power plants, intended to convey their interests to otherpartnerships wishing to purchase them. Pre-existing partnership rights (i.e., first refusal, denial of permission to sell, anddesignated other purchaser), owned by another entity not involved in the purchase and sale were exercised by that entityprior to the closing of the purchases, thereby preventing the subject sale. Instead, the sales of the plants were made to apurchaser designated by the non-contracting partner.

The putative purchasers under the purchase and sale agreement, plaintiffs Indeck North American Power Fund, L.P., IndeckAuburndale, L.L.C., and Indeck Gordonsville, L.L.C. (collectively "Indeck(s)"), appeal from the order of the circuit courtgranting summary judgment in favor of the putative sellers, defendants Norweb plc (a public limited company registered inEngland and in Wales), Norweb Power Services (No 1) Limited, and Northern Hydro Limited (collectively "Norweb(s)"),on Indeck(s)' breach of contract and equitable estoppel claims, under section 2-1005 of the Code of Civil Procedure (Code)(735 ILCS 5/2-1005 (West 1996) (section 2-1005)) and dismissing with prejudice Indeck(s)' tortious interference withcontract and civil conspiracy claims asserted against third party and ultimate purchasers, defendants Calpine Auburndale,Inc. and Calpine Gordonsville, Inc. (collectively "Calpine(s)"), pursuant to section 2-615 of the Code (735 ILCS 5/2-615(West 1996) (section 2-615)). The non-contracting partner, the Mission Entities (Mission(s))⁽¹⁾ also sued by Indeck(s),settled their differences with Indeck(s) and are not parties to this appeal.

Under the two purchase agreements, Norweb(s) intended to convey to Indeck(s) their general partnership interests in twolimited partnerships, Auburndale Power Partners (Auburndale), and Gordonsville Energy (Gordonsville), for an amount inexcess of $40 million. Mission(s) were pre-agreement general partners with Norweb(s) in the Auburndale and Gordonsvillelimited partnerships. Mission(s) exercised their pre-existing partnership rights of first refusal and denial of permission tosell, and designated Calpine(s) as purchasers of the subject partnership interests instead. Norweb(s) thereafter sold theirinterests to Calpine(s). Indeck(s) instituted this action, with the results noted above.

Indeck(s) presents as issues on appeal whether the circuit court erred in granting (1) Norweb(s)' section 2-1005 motion forsummary judgment on Indeck(s)' contract claims; (2) summary judgment in favor of Norweb(s) on Indeck(s)' equitableestoppel claims; (3) Calpine'(s) section 2-615 motion to dismiss and dismissing with prejudice Indeck(s)' tortiousinterference with contract claims; and (4) in dismissing with prejudice Indeck(s)' civil conspiracy claims.

On March 28, 1996, Norweb(s) announced their intention to sell their 50 percent general partnership interests in theAuburndale and Gordonsville limited partnerships, which own and operate power generation facilities in Florida andVirginia, respectively. Auburndale was a partnership consisting of Norweb Power (a 50% general partner), and Mission(s)'El Dorado (a 1% general partner), and Devereaux (a 49% limited partner). Gordonsville was a partnership consisting ofNorweb(s)' Northern Hydro (a 50% general partner), and Mission(s)' Rapidan (a 1% general partner), and Madison (a 49%general partner).

In July 1996, Norweb(s), caused an information memorandum to be sent to potential qualified bidders, including Indeck(s),inviting bids in connection with Norweb(s)' intended sale of their partnership interests in Auburndale and Gordonsville.Prospective bidders were advised by Norweb(s) that the transfers of their partnership interests in both Auburndale andGordonsville were subject to the rights of first refusal, denial of permission to sell, and designated purchaser, held by theexisting general partners of each partnership.

It was at this procedural juncture, according to Indeck(s), that Mission(s) and Calpine(s) concocted a scheme to skew theentire procedure in favor of purchase by Calpine(s), in return for Mission(s)' refusal to consent to the sale and designation ofIndeck(s) as purchaser, in return for a $7 million payment to Mission(s) by Calpine(s). As other potential bidders wereevaluating Norweb(s)' offering materials, Calpine(s) and Mission(s) discussed "partnering" on acquiring Norweb(s)' saleassets and planned for Calpine(s) to acquire Norweb(s)' interests in the Auburndale and Gordonsville plants by agreeing notto bid on them in Norweb(s)' bidding process. Instead, Mission(s) would designate Calpine(s) as purchaser under its rightsin the partnership agreements once Norweb(s) had entered into contracts to sell the partnership interests to the winningbidder. Meanwhile, unaware of the Mission(s)-Calpine(s)' arrangement, Indeck(s) submitted its bid for Norweb(s)' interestsand was put on a short list, which Norweb(s) disclosed to Mission(s). Ultimately, Indeck(s) was selected by Norweb(s) asthe preferred bidder and entered final negotiations to purchase Norweb(s)' interests.

As Norweb(s) and Indeck(s) were finalizing the terms of the Auburndale and Gordonsville purchase agreements, Mission(s)and Calpine(s) allegedly furthered their plan to pre-empt Indeck(s)' acquisition of these interests. By February 1997,Mission(s) had agreed to allow Calpine(s) to acquire the Auburndale and Gordonsville interests, as demonstrated by aninternal Calpine(s)' memorandum dated February 7, 1997, which noted that "Mission expects to receive formal notice of[an] offer to Norweb to buy 50 percent of the Auburndale and Gordonsville projects by February 7, 1997. Mission will giveCalpine the opportunity to match this offer."⁽²⁾

By late March 1997, Indeck(s) alleged agreement on the terms of definitive purchase and sale agreements had been reachedfor the sale of Norweb(s)' 50 percent partnership interest in Auburndale to Indeck Auburndale, L.L.C., and for the sale ofNorweb(s)' Northern Hydro's 50 percent partnership interest in Gordonsville to Indeck Gordonsville, L.L.C.

Both purchase and sale agreements contained representations and warranties to be exchanged between Indeck(s) andNorweb(s). One provision specified Norweb(s)' "seller's knowledge" obligations, section 5.1 of each agreement, requiringNorweb(s) to make "all inquiries *** that are reasonably necessary to permit Seller to make such representation or warrantyon a fully informed basis."⁽³⁾

Both agreements also contained the representations in section 5.2(n) that Norweb(s) sent toMission(s) to review, under which Norweb(s) and its affiliates represented and warranted to Indeck(s) that, other than theseller and the Mission(s) partners in the respective partnerships, "no Person has any right to or interest in the Partnership,and there is not outstanding any option, warrant, right of first refusal, or other right to acquire the Partnership [or theMission partners] or any direct or indirect interest therein, nor does the Partnership [or the Mission partners] have anyagreement to issue any such option, warrant, right of first refusal, or other right."⁽⁴⁾

Both agreements also imposed obligations on Norweb(s) to seek Mission(s)' consent and on Norweb(s) themselves toguarantee the performance of their subsidiaries' obligations. Section 5.5 of both agreements required Norweb(s) as the sellerto use their best efforts "to obtain the satisfaction of the Conditions *** in Section [] 4.1 [the 'CONDITIONS TOCLOSING,' purchaser's obligations] *** as soon as possible."⁽⁵⁾

One week after the purchase agreements were signed, however, on April 11, 1997, Mission(s) informed Indeck(s) orallythat it would exercise its rights of first refusal under the partnership agreements. On May 16, 1997, Mission(s), through itssubsidiary El Dorado, served notice that it exercised its right of first refusal under the Auburndale Partnership Agreementand designated defendant Calpine Auburndale, Inc., one of Calpine(s)' subsidiaries, to purchase this interest. On the samedate, Rapidan, Mission(s)' general partner for Gordonsville, served notice that it designated Calpine Gordonsville, Inc.,another of Calpine(s) subsidiaries, to purchase the general partnership interest of Norweb(s)' Northern Hydro in theGordonsville partnership.

At the same time, it is alleged, Mission(s) and Calpine(s) entered into an agreement under which Mission(s) grantedCalpine(s) rights of first refusal in all of Mission(s)' east coast cogeneration facilities, including Mission(s)' interests inAuburndale and Gordonsville, for which Calpine(s) agreed to pay Mission(s) the $7 million fee upon the closing of thetransactions with the Calpine(s) affiliates. Calpine(s) allegedly derived this $7 million figure from the value of Norweb(s)'Auburndale and Gordonsville interests.

After Indeck(s) objected to the designation of Calpine(s) to purchase Norweb(s)' partnership interests, Norweb(s) assertedthat the purchase agreements with Indeck(s) remained in force. On June 4, 1997, however, Calpine(s) directed Norweb(s)by letter to terminate its dealings with Indeck(s). Following these and other directions from Calpine(s), Norweb(s) ceasedall actions to effect the transfer of the Auburndale and Gordonsville interests to Indeck(s).

On June 11, 1997, Indeck(s) filed their initial complaint in this case in the circuit court of Cook County. The case wasremoved to the United States District Court for the Northern District of Illinois on June 27, 1997, where the district courtgranted Indeck(s)' request for expedited discovery in connection with their motion for a preliminary injunction to enjoin thesales of the partnership interests by Norweb(s) to Calpine(s). Documents were exchanged, and a dozen individuals weredeposed both in the United States and in England. After Calpine(s) intervened, but before the preliminary injunction motionwas decided, the case was remanded to the circuit court of Cook County on September 2, 1997, where Indeck(s)' motion fora temporary restraining order was denied on September 5, 1997.⁽⁶⁾

Norweb(s) joined in Mission(s)' motion to dismiss the amended complaint on August 22, 1997; however, before the circuitcourt ruled, Indeck(s) was granted leave to file a second amended complaint at law seeking compensatory and punitivedamages on September 30, 1997. The second amended complaint alleged three causes of action against Norweb(s): breachof contract, fraud, and equitable estoppel. The case was then transferred from the chancery division to the law division.

On November 14, 1997, Norweb(s) moved to dismiss the second amended complaint, which the circuit court granted withrespect to the fraud and equitable estoppel causes of action, but denied with respect to the breach of contract causes ofaction.

On August 17, 1998, with leave of court, Indeck(s) filed their third amended complaint, in which they alleged breach ofcontract (count I) and equitable estoppel (count IV) claims against Norweb(s); actions against Calpine(s) for tortiousinterference with contract (count II) and conspiracy (count VI); and actions against Mission(s) for tortious interference withcontract (count II), common law fraud (count III), equitable estoppel (count IV), and conspiracy (count VI)⁽⁷⁾.

Norweb(s) moved for summary judgment on September 18, 1998. Prior to responding to the summary judgment motion,Indeck(s) deposed Gavin Young, Norweb(s)' in-house lawyer, and Norweb(s) produced all documents relating to thenegotiation of the purchase agreements, including all correspondence and all closing documents. Calpine(s) moved todismiss the third amended complaint. Mission(s) also moved to dismiss the third amended complaint on September 18,1998, but settled with Indeck(s) before the court rendered a decision on their motion.

The circuit court granted Norweb(s)' motion for summary judgment, with prejudice, in its entirety, and granted Calpine(s)'motion to dismiss the third amended complaint. This appeal followed.

I

Indeck(s) first contend that the circuit court erred in granting summary judgment in favor of Norweb(s) on their breach ofcontract claims alleged in count I of the third amended complaint, on the theory that the purchase agreements did not excuseNorweb(s) from their obligations to perform if Mission(s) failed to grant its consent or exercised its rights of first refusal. Inthe alternative, Indeck(s) argue that even if the purchase agreements were terminated, Norweb(s) has not shown that theyshould be allowed to avoid liability under their terms.

Indeck(s) argue that the circuit court erroneously imposed "implicit" partnership agreement terms into the purchaseagreements contrary to its initial conclusion on the motions to dismiss the second amended complaint that "[n]either of thepurchase agreements include the specific rights of withholding consent or the Right of First Refusal that are contained in thePartnership Agreements." Indeck(s) urge that the court ignored the clear import of the parties' decision not to include aspecific clause that would excuse Norweb(s)' obligations to perform if the consents were not obtained; ignored an affidavitwhich established that Norweb(s)' failure to obtain a "consents and approvals" clause paralleling section 4.1(c) of thepurchase agreements⁽⁸⁾, was a negotiated term; and also ignored the fact that fair-minded persons could draw differentinferences from the facts of this case.

Summary judgment is properly granted where the pleadings, depositions, admissions on file and affidavits show that thereis no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(West 1996); Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102, 607 N.E.2d 1204 (1992); MobilOil Corp. v. Maryland Casualty Co., 288 Ill. App. 3d 743, 751, 681 N.E.2d 552 (1997). Because this is an appeal from anorder granting summary judgment not involving credibility determinations, our review of this case is de novo. Mobil, 288Ill. App. 3d at 751; Kleinwort Benson North America, Inc. v. Quantum Financial Services, Inc., 285 Ill. App. 3d 201, 209,673 N.E.2d 369 (1996), aff'd, 181 Ill. 2d 214, 692 N.E.2d 269 (1998).

Section 9.7 of the purchase agreements provides that they are to be "construed in accordance with and governed by the lawsof the State of New York, excluding its conflicts of laws provisions.

Specifically, Indeck(s) assert that Norweb(s)' failure to insist upon a "consents and approvals" clause in section 4.2 of thepurchase agreements indicates that Norweb(s)' obligations to sell under the purchase agreements were not excused ifMission(s) failed to give consent under section 9.3.1 of its partnership agreement with Norweb(s).⁽⁹⁾ The record reveals,however, that on October 3, 1996, Indeck(s) submitted an initial proposal to purchase Norweb(s)' partnership interests,Indeck(s)' offer making itself contingent upon obtaining written consent from the existing partners of Norweb(s). Beforesubmitting their formal written bid, Indeck(s)' due diligence review resulted in their receiving both the AuburndalePartnership Agreement and the Gordonsville Energy Partnership Agreement, which Indeck(s) and their counsel examined.These agreements contained virtually identical provisions: expressly giving Mission(s) the right of first refusal, denial ofconsent to sell, and the right to designate a third party to purchase Norweb(s)' partnership interests in the event thatNorweb(s) proposed to sell those interests.

From these documents it is clear that Indeck(s) knew of the condition precedent in order for Norweb(s) to sell theirpartnership interests, namely, that Mission(s) had to consent "to admission of the Successor General Partner," which couldbe withheld "in the sole and absolute discretion" of Mission(s) and could also be withheld "arbitrarily." Each partnershipagreement supplied to Norweb(s) for examination further provided that any transfer of a general partnership interest withoutthe consent of the other general partner is "null and void," as against the partnership.

Indeck(s) nevertheless proceeded with the proposed purchases with full knowledge of their potential abortion through theexercise by Mission(s) of its partnership rights.

Indeck(s) nevertheless claim that neither of the purchase agreements, or either version of section 5.1(c) attached thereto,referred to the possibility that Mission(s) would exercise their right of first refusal under the partnership agreements, nor didthe purchase agreements purport to incorporate the terms and conditions of the partnership agreements which containedthose rights. Rather, Indeck(s) argue, the integration clauses in the purchase agreements made clear that the "entireunderstanding of the parties with respect to the matters herein" did not include the partnership agreements or potential rightsof a non-selling partner to pre-empt the transaction. Therefore, Indeck(s) assert, any knowledge that Indeck(s) had ofMission(s)' rights of first refusal was immaterial since those rights were not expressly made part of the parties' agreements.

Both purchase agreements in their "ASSIGNMENT AND ASSUMPTION OF PARTNERSHIP INTEREST," clausespreceding the signature lines clearly and expressly stated, however, that they were being entered into "pursuant to the[Mission-Norweb] Partnership Agreements," providing that what was being sold included, among other things, "the rightsand obligations of being a general partner in the Partnership[s] *** as such interests, rights and obligations are more fullydescribed in the Partnership agreements." Indeck(s) thereby were well aware, informed of and bound by Mission(s)'potential power to stop the sale, even before submitting their written purchasing proposals.

Based upon the foregoing, the circuit court's conclusion that the purchase agreements excused Norweb(s) from theirobligation to perform in the event Mission(s) exercised their right to first refusal or refused to consent to the purchase, ordesignated a different purchaser, must be upheld.

II

Indeck(s) next maintain that Norweb(s) breached their obligation to inquire regarding representations made to "seller'sknowledge," as well as its section 5.2(n) warranties under the purchase agreements. At the very least, they maintain,material issues of fact existed concerning Norweb(s)' admitted breaches of its investigation obligations, as well as breachesof the warranties, which Norweb(s) deliberately chose not to fulfill. Norweb(s) delegated the responsibility of making allinquiries to permit it to make "seller's knowledge" representations on a "fully informed" basis to one of its in-housesolicitors, Gavin Young. In late January 1997, Young sent a letter to Mission(s)' in-house lawyer, which included thesection 5.1 knowledge representation definition and the section 5.2(n) warranties Norweb(s) would make regarding theAuburndale and Gordonsville partnerships.⁽¹⁰⁾ Young sent his letter to Mission(s)' in-house lawyer, together with ageneral release under which Norweb(s) released Mission(s) and its affiliates from liability for any information they suppliedin response.

Norweb(s)' "seller's knowledge" inquiries to Mission(s) were answered in correspondence to Peter Goldsworthy, Norweb(s)'managing director. Mission(s)' wholly owned subsidiary, El Dorado, advised, among other responses, that it "will notcomment upon the items set forth in the last sentence of subsection 5.2(n)," i.e., the sentence that represented "seller'sknowledge" that Mission(s) had no agreements to sell any direct or indirect interests it had in the Auburndale partnership,including options, rights of first refusal or any other right. In correspondence of the same date, regarding the Gordonsvillepartnership, Mission(s)' wholly owned subsidiary, Rapidan, also refused to comment on the last sentence of subsection5.2(n).

Aware that Mission(s) refused to respond to its request for section 5.2(n) information, Norweb(s) allegedly knew that itcould not make the warranty on a "fully informed basis" as section 5.1 required. Norweb(s) nonetheless decided not tomake "all inquiries" on this issue and knowingly determined to do nothing with respect to Mission(s)' position that it wouldnot comment on the 5.2(n) representation. Norweb(s) also consciously decided to withhold this information from Indeck(s),assertedly with full knowledge and acceptance of the consequences of its actions.⁽¹¹⁾

Illinois and New York both recognize that an express warranty is a creature of contract which a warrantor has created oragreed to by making the requisite affirmation as part of a contract to which it is an adjunct. Collins Co., Ltd. v. CarbolineCo., 125 Ill. 2d 498, 509, 532 N.E.2d 834 (1988). An express warranty given by a seller in a purchase agreement is as mucha part of the contract as any other term. CBS, Inc. v. Ziff-Davis Publishing Co., 75 N.Y.2d 496, 503, 553 N.E.2d 997, 1001(1990) (CBS), and amounts to a promise to indemnify the promisee for any loss if the fact warranted proves untrue.Metropolitan Coal Co. v. Howard, 155 F.2d 780, 784 (2d Cir. 1946) (Metropolitan Coal); CBS, 553 N.E.2d at 1001. Sincerepresentations and warranties are assurances upon which a party may rely, they are "intended precisely to relieve thepromisee of any duty to ascertain the fact for himself ***." Metropolitan Coal, 155 F.2d at 784. A representation isoperative even if the party to whom it is given does not believe it to be true. See CBS, 553 N.E.2d at 1001. To recover on awarranty claim, a party need only show that the warranty is party of the contract, and is relied upon. "[T]he right toindemnification depends only on establishing that the warranty was breached." CBS, 553 N.E.2d at 1001.

A fact finder could well determine that a proper response to the section 5.2(n) inquiry would have required disclosure of the$7 million scheme between Mission(s) and Calpine(s) and that had Norweb(s) conducted the inquiry it had agreed and wasrequired to conduct, it also would have obtained knowledge that Mission(s) planned to preempt the Indeck(s)-Norweb(s)transaction; otherwise, Norweb(s) was obligated to refrain from making the warranty. There is a question of fact as towhether the warranties of section 5.2(n) were breached, perhaps repeatedly, as Mission(s)' right to first refusal schemeunfolded, because it could be concluded that the section 5.2(n) representations were not true as of the date the agreementswere signed and that Mission(s)' promise to Calpine(s) made them false. Based on the circumstances set forth above,reasonable inferences could be drawn that the warranties were breached when Mission(s) designated Calpine(s) to purchaseNorweb(s)' partnership interests, and when Mission(s) granted Calpine(s) rights of first refusal in Mission(s)' interests in theAuburndale and Gordonsville partnerships. The grant of summary judgment in this aspect of the case was error and must bereversed. That portion of the case should be tried to judgment.

Section 8.2(c) of the purchase agreements expressly makes Norweb(s) liable for all damages, including attorney fees, if thepurchase agreements are terminated as a result of the "negligent or willful failure of Seller or Guarantor to perform itsobligations hereunder." Sections 8.3 and 8.4 of the Auburndale and Gordonsville agreements, respectively, provide that thesection 8.2 provisions were intended to survive termination of the agreements.

With regard to damages, Indeck(s) assert that they have lost profits and income directly flowing from Norweb(s)' contractbreaches. By expressly preserving the parties' rights to consequential damages, Norweb(s) and Indeck(s) specificallycontemplated and agreed that Indeck(s) could bring a claim for the damages sought here. Because the purchase agreementsexpressly allow for consequential damages, for this additional reason entry of summary judgment in this part of the casewas error and must be reversed and the cause tried to judgment on the merits.

III

Indeck(s) next argue that the circuit court erred in granting summary judgment in favor of Norweb(s) on Indeck(s)'equitable estoppel claims alleged in count IV of the third amended complaint, which sought damages and to estopNorweb(s) from defending on the basis that Mission(s) would not have consented to Indeck(s)' admission to thepartnerships. They maintain that a jury could find that Goldsworthy's representations to Indeck(s), as well as his conduct,were calculated to convey the impression that the facts were otherwise than, and inconsistent with, those which Norweb(s)later asserted and could also conclude that Goldsworthy intended that his representations be acted upon. Indeck(s) arguethat given his understanding of the situation and Norweb(s)' deliberate decision not to inform Indeck(s) of Mission(s)'failure to comment on the "seller's knowledge" representations, a fair minded person could infer that Goldsworthy hadactual or constructive knowledge of the true facts. At the very least, he allegedly knew there would be problems obtainingconsents.

Under New York's view of estoppel, three elements must be established before estoppel may be imposed upon a party: