Lambland, Inc. v. Heartland Biogas, LLC et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Raymond P. Moore
Civil Action No. 1:18-cv-01060-RM-KLM
LAMBLAND, INC. d/b/a A-1 Organics, Inc., a Colorado corporation,
Plaintiff,
v.
HEARTLAND BIOGAS, LLC, a Denver limited liability company,
Defendant.
______________________________________________________________________________
ORDER
______________________________________________________________________________
This breach of contract case is before the Court on Plaintiff’s motion for partial summary
judgment on Defendant’s liability (ECF No. 137), Defendant’s motion to amend its answer to
add affirmative defenses of mutual mistake and impossibility (ECF No. 155), and Plaintiff’s
motion for sanctions for Defendant’s late disclosure of two witnesses and an email (ECF
No. 172). Defendant’s motion to correct and supplement the record (ECF No. 169) is deemed
withdrawn in light of the parties’ September 15, 2020 stipulation (ECF No. 179), as are
Plaintiff’s statement of undisputed material fact ¶ 9 and Defendant’s response to it. For the
reasons below, the Court grants partial summary judgment in Plaintiff’s favor on the issue of
liability, denies Defendant’s motion to amend, and denies without prejudice Plaintiff’s motion
for sanctions.
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I. 	LEGAL STANDARDS
Summary judgment is appropriate only if there is no genuine dispute of material fact and
the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986); Gutteridge v. Oklahoma, 878 F.3d 1233, 1238 (10th Cir.
2018). Applying this standard requires viewing the facts in the light most favorable to the
nonmoving party and resolving all factual disputes and reasonable inferences in its favor. Cillo
v. City of Greenwood Vill., 739 F.3d 451, 461 (10th Cir. 2013). Whether there is a genuine
dispute as to a material fact depends upon whether the evidence presents a sufficient
disagreement to require submission to a jury or is so one-sided that one party must prevail as a
matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986); Stone v. Autoliv
ASP, Inc., 210 F.3d 1132, 1136 (10th Cir. 2000). “The mere existence of some alleged factual
dispute between the parties will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact.” Scott v. Harris,
550 U.S. 372, 380 (2007) (citation omitted). A fact is “material” if it pertains to an element of a
claim or defense; a factual dispute is “genuine” if the evidence is so contradictory that if the
matter went to trial, a reasonable jury could return a verdict for either party. Anderson, 477 U.S.
at 248.
A motion for leave to amend the complaint should be granted when justice so requires.
Fed. R. Civ. P. 15(a)(2). But after a scheduling order deadline, a party seeking leave to amend
must demonstrate good cause. See Fed. R. Civ. P. 16(b)(4). Courts “generally refuse leave to
amend only on a showing of undue delay, undue prejudice to the opposing party, bad faith or
dilatory motive, failure to cure deficiencies by amendments previously allowed, or futility of
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amendment.” Duncan v. Manager, Dep’t of Safety, City & Cty. of Denver, 397 F.3d 1300, 1315
(10th Cir. 2005). “A proposed amendment is futile if the complaint, as amended, would be
subject to dismissal.” Gohier v. Enright, 186 F.3d 1216, 1218 (10th Cir. 1999).
Under Fed. R. Civ. P. 37(c)(1), district courts have discretion to impose sanctions when a
party fails to provide information or identify witnesses as required by Fed. R. Civ. P. 26. In
exercising that discretion, courts consider (1) the prejudice or surprise to the party against whom
the testimony or evidence is offered, (2) the ability of the party to cure the prejudice, (3) the
extent to which introducing such testimony or evidence would disrupt the trial, and (4) the
moving party’s bad faith or willfulness. HCG Platinum, LLC v. Preferred Prod. Placement
Corp., 873 F.3d 1191, 1200 (10th Cir. 2017).
II. 	BACKGROUND
The agreements in this case pertain to a solid waste facility in Weld, Colorado.
Defendant acquired the facility from Heartland Renewable Energy, LLC (“HRE”) in 2013.
Under Colorado law, owners and operators of such facilities are required to have a certificate of
designation (“CD”). See Colo. Rev. Stat. § 30-20-102(1) (“Except as otherwise specified in this
section, a person who owns or operates a solid wastes disposal site and facility shall first obtain a
certificate of designation from the governing body having jurisdiction over the area in which
such site and facility is located.”). Before assigning its assets to Defendant, HRE acquired a CD
as well as a use by special review (“USR”) permit from the Weld County Board of County
Commissioners (“BOCC”). A primary issue in this case is whether Defendant acquired HRE’s
CD.
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In August 2015, Plaintiff entered into a lease and a substrate services agreement with
Defendant. (ECF. No. 154 at ¶¶ 16, 19). The plan was for Plaintiff to operate a substrate
digester processing system at the facility and to supply Defendant with substrate materials
necessary for it to generate and deliver biogas to a third party. (Id. at ¶¶ 16, 22.) Both
agreements contain provisions requiring Defendant to obtain the governmental approvals needed
to lawfully operate the facility. For example, the lease specifically provides that “[t]he
performance and compliance by [Defendant] with all the terms, provisions and conditions of this
Lease will not and do not conflict with or result in any violation of any of the terms, conditions
or provisions of any agreement, obligation, judgment, decree, order, ordinance, statute, rule or
regulation applicable to [Defendant] or to the [Facility].” (Id. at ¶ 17.) And the substrate
services agreement provides that “[e]ach [p]arty will comply with all applicable Laws required to
be complied with in order to satisfy its obligations set forth in this Agreement . . . .” (Id. at ¶ 21.)
In November 2016, the state Attorney General’s Office determined that Defendant had
failed to obtain a CD. (Id. at ¶ 26.) On December 5, 2016, the Weld County Department of
Public Health and Environment (“WCDPHE”) told Defendant that it needed to immediately
submit all necessary documentation and follow the processes outlined in Colo. Rev. Stat.
§ 30-20-103 to obtain a new CD because the operator of the facility and the owner of the land
had both changed since the original CD was issued to HRE. (ECF No. 137-8.) Defendant
responded by letter, requesting that the BOCC “formally modify” the CD HRE had obtained for
the facility to reflect Defendant as the new owner. (ECF No. 137-9 at 1.)
Meanwhile, following an inspection on December 12, 2016, the WCDPHE found
numerous regulatory violations at the facility, including the lack of a CD. (ECF No. 154
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at ¶ 29.) A week later, the BOCC held a hearing on the regulatory violations and suspended the
USR permit for the facility until Defendant got a valid CD and came into compliance with the
permit and several applicable development standards. (Id. at ¶ 30.) Soon after the suspension,
Defendant shut down the facility. (Id. at ¶ 31.) Once facility operations ceased, Defendant was
unable to accept any substrate from Plaintiff. (Id. at ¶ 36.)
Plaintiff filed this lawsuit in May 2018, asserting two claims for breach of contract based
on the agreements above and alleging that Defendant did not have the necessary governmental
approvals and certifications necessary for the performance of the agreements because it did not
have a valid CD.
Defendant contends that it did have a valid CD. Though it admits that it did not apply for
and obtain a CD from the BOCC, Defendant argues that HRE transferred its CD to Defendant
when Defendant acquired the facility in 2013. Defendant further argues that even if it did not
have a valid CD, it is not liable under the agreements, that the agreements are void based on the
parties’ mutual mistake as to whether it had a CD, and that its performance is excused because
the suspension of the USR permit and CD was a force majeure event that rendered the
agreements impossible to perform. (ECF No. 144 at 19.)
III. 	ANALYSIS
A. 	Motion for Partial Summary Judgment
To prevail on its breach of contract claims, Plaintiff needs to show (1) the existence of a
contract, (2) its own substantial performance or some justification for nonperformance,
(3) Defendant’s failure to perform, and (4) resulting damages. See W. Distrib. Co. v. Diodosio,
841 P.2d 1053, 1058 (Colo. 1992). Plaintiff contends there are no genuine issues of material fact
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that it substantially performed its obligations under the lease and substrate services agreements,
that Defendant failed to perform because it did not obtain a CD, and that Plaintiff suffered some
amount of damages as a result. The Court agrees.
Defendant first argues that Plaintiff failed to perform its obligations under the agreements
because “[i]f there were any issues related to ‘permits’ required by Governmental Requirements
or Environmental laws, under the Lease [Plaintiff] was contractually required to resolve those
issues.” (ECF No. 144 at 8.) But none of the lease provisions cited by Defendant expressly
places the CD requirement on Plaintiff’s shoulders. Further, § 30-20-102(1) clearly places that
responsibility on entities such as Defendant, that own or operate a solid wastes disposal site and
facility. Placing that requirement on Plaintiff would make little sense in this context, where
Plaintiff was not the owner or operator of the facility.1 With respect to the substrate services
agreement, Defendant makes a circular argument that if it was not complying with the law, then
Plaintiff could not have been, either. But again, nothing in either agreement expressly makes
Plaintiff responsible for Defendant’s CD. The Court finds that imposing such a requirement on
Plaintiff would be an unreasonable interpretation of the agreements and that Defendant has not
shown Plaintiff was contractually obligated to obtain or resolve issues with the CD.
Defendant also argues that Plaintiff breached the agreements because it was responsible
for an odor violation at the facility. But Defendant has adduced no admissible evidence that the
violation is attributable to Plaintiff. Nor has Defendant shown that a single such violation could
1 As Plaintiff notes in its reply, its digester processor system is a “transfer station” under the relevant regulations and
did not require a CD. (See ECF No. 153 at 4 n.1.)
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establish that Plaintiff used the demised premises for illegal purposes in violation of the parties’
agreements.
Defendant also argues that Plaintiff failed to meet is obligation to pay rent for the period
commencing on January 31, 2017 and terminating on March 8, 2018. However, by that point the
BOCC had suspended Defendant’s USR permit and it was clear that Defendant had breached the
agreements by failing to obtain a valid CD. As a result, Plaintiff did not have a duty to continue
paying rent. Defendant’s contention that Plaintiff anticipatorily repudiated the substrate services
agreement in March 2017 is unavailing for the same reason. Defendant has not identified any
other obligation Plaintiff had that it did not meet and has failed to raise a genuine issue with
respect to Plaintiff’s performance under the agreements.
Turning to Defendant’s performance under the agreements, Plaintiff, Defendant, and the
BOCC apparently assumed Defendant had a valid CD when it began operating in 2013. By the
December 2016 BOCC hearing, however, that assumption had ceased—at least, as far as
Plaintiff and the BOCC are concerned. To the extent Defendant’s “understanding” that it had a
CD has any relevance, the Court finds that any reasonable basis for such an understanding ceased
after that hearing.2 With its suspension of Defendant’s USR permit, the BOCC explicitly
rejected Defendant’s contention that it had a valid CD that had somehow been transferred from
HRE. Admitting that it did not follow the application procedure set forth by statute, which
includes a thirty-day public comment period, see Colo. Rev. Stat. § 30-20-103, Defendant
2 To the extent Defendant argues that it relied on multiple attorneys, including in-house counsel at its parent
company, and an outside consultant known as AgPro, Defendant has adduced no evidence that any of these sources
continued to assert that Defendant had a valid CD after the December 2016 hearing.
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continues to insist that it obtained a valid CD from HRE by some other means. The Court is not
persuaded.
First, it is not clear that such a means exists. Although there appears to be no controlling
caselaw on this issue, in City and County of Denver v. Eggert, 647 P.2d 216, 226 (Colo. 1982),
the court stated in dicta that Colo. Rev. Stat. § 30-20-104(1) “implies that a new certificate is
required when there is a change of operator” and that “normally, a certificate to operate a
particular site and facility is personal and nontransferable without prior approval.” In support of
its theory that it obtained HRE’s CD, Defendant cites to Rule 1.8.4(D) from the Colorado Code
of Regulations, a since-deleted rule which provided as follows: “A certificate of designation may
not be transferred to a new owner or operator unless, as part of the process, the assignment or
transfer of the financial instrument(s) or alternative financial assurance has been reviewed and
approved by the Department and the governing body having jurisdiction.” 6 CCR § 1007-2:1-
1.8.4(D). Defendant has identified no authority as to what this review and approval involved or
what other steps, if any, this transfer process might have entailed. Thus, if a method for
transferring a CD exists that is outside the statutory procedure outlined in § 30-20-103 but still
consistent with Colorado law, then its parameters are seemingly limited and at the same time not
clearly defined.
Second, assuming there is such a method, Defendant has not shown that its dealings with
the BOCC and the Colorado Department of Public Health and Environment (“CDPHE”) resulted
in their approval of such a transfer in this case. Defendant points to a letter dated October 28,
2013, by which it purportedly informed Weld County about Defendant’s acquisition of HRE’s
assets. The intended recipient of the letter is not entirely clear, as it is addressed “To Whom It
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May Concern” (ECF No. 170-4), but in any event the fact that Weld County was notified about
Defendant’s acquisition of HRE’s assets is insufficient to raise a genuine issue as to whether a
transfer of the CD was approved. Defendant cites no authority for the proposition that it could
have unilaterally accepted the transfer of a CD merely by announcing a change in ownership at
the facility. Defendant also points to the financial assurance it provided to CDPHE and Weld
County and their approval of those assurances. (See ECF No. 154 at ¶¶ 56, 57.) But the Court
does not accept Defendant’s apparent assumption that whatever approval it received based on its
financial assurances is equivalent to approval of a valid CD or transfer of a CD. At least one
BOCC board member expressly rejected this argument at the December 2016 hearing, stating
that Defendant had “buried” the financial assurance in a revision to the engineering, design, and
operation plan and that “[t]hat’s not an approval for a transfer.” (ECF No. 137-11 at 77, p. 304
ll. 6-7.) The Court finds that Defendant’s financial assurances do not raise a genuine issue as to
whether the BOCC approved the transfer of HRE’s CD to Defendant. Defendant’s contention
that it met or could meet all requirements for obtaining a CD is also unavailing. Allowing
owners and operators to obtain a CD by declaration would utterly undermine the statutory
process for doing so. In short, Defendant has identified no evidence in the record raising a
genuine issue that it had a valid CD.
Next, Defendant argues that even if it did not have a CD, it was not obligated to have one
under its agreements with Plaintiff. But the Court finds that the provisions of the agreements
cited above created such an obligation. In addition, Defendant’s attempt to place this obligation
on Plaintiff is undermined by another provision of the substrate services agreement, which
requires “[e]ach [p]arty” to comply with all applicable laws. (ECF No. 154 at ¶ 20.) Moreover,
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under Colorado law “[i]t is axiomatic that a contract must be construed to ascertain and effect the
mutual intent of the parties.” May v. United States, 756 P.2c 362, 369 (Colo. 1988). There can
be no real debate that the overall intent of the agreements was for Plaintiff to operate a substrate
digester processing system at Defendant’s facility and to supply substrate materials. That could
not be lawfully accomplished without Defendant having a valid CD. See § 30-20-102(1).
Defendant cites no specific provision in the agreements that places such an obligation on
Plaintiff, and such a requirement would make little sense under the circumstances of this case.
Therefore, the Court cannot accept Defendant’s contention that it was Plaintiff’s obligation to
make sure that Defendant had a valid CD.
In addition, Defendant makes two arguments that it failed to raise as affirmative defenses
in its answer: mutual mistake and impossibility. These arguments lack merit. Although the
parties both mistakenly believed Defendant had a valid CD when they entered into the
agreements, it was Defendant that bore the risk of mistake because, as the Court has already
determined, Defendant was contractually obligated to obtain a CD. See Restatement (Second) of
Contracts § 154 (2020) (“A party bears the risk of a mistake when (a) the risk is allocated to him
by agreement of the parties, or (b) he is aware, at the time the contract is made, that he has only
limited knowledge with respect to the facts to which the mistake relates but treats his limited
knowledge as sufficient, or (c) the risk is allocated to him by the court on the ground that it is
reasonable in the circumstances to do so.”).
Nor is there evidence to support Defendant’s impossibility argument. “Where, after a
contract is made, a party’s performance is made impracticable without his fault by the
occurrence of an event the non-occurrence of which was a basic assumption on which the
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contract was made, his duty to render that performance is discharged, unless the language or the
circumstances indicate the contrary.” Id. § 261. Defendant has cited no evidence that obtaining
a CD would have been impossible or that, as a result of the CD requirement or the BOCC’s
suspension of its USR permit, its performance under the agreements was vitally different from
what reasonably should have been within the contemplation of the parties when they entered into
the agreements. To the contrary, Defendant asserts that it “met or could meet all requirements
for obtaining a CD.” (ECF No. 154 at ¶ 58.) On this record, there is no basis for concluding that
Defendant’s performance was excused.
Accordingly, the Court finds Plaintiff is entitled to partial summary judgment on the issue
of Defendant’s liability.
B. 	Motion to Amend
In its answer, Defendant raises the following affirmative defense: “Plaintiff’s damages, if
any, were caused by third parties over whom [Defendant] had no control.” (ECF No. 105 at 11.)
After Plaintiff’s motion for partial summary judgment was fully briefed, Defendant filed its
motion to amend its answer to state explicitly the affirmative defenses of mutual mistake and
impossibility, which Defendant contends are encompassed within its more general affirmative
defense stated above. (ECF No. 155 at 2.) But Defendant has failed to show good cause for
amending its answer at this stage of the case. In its motion, Defendant argues that it “learned for
the first time precisely how [Plaintiff] believes it breached the contracts at issue in this matter”
when Plaintiff filed its motion for partial summary judgment. (ECF No. 155 at 1.) The Court
has a difficult time understanding this argument because the complaint alleges that “[a]t no point
has [Defendant] ever applied for or obtained it own [CD] to own or operate the Facility as a solid
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waste site and facility as legally required.” (ECF No. 102 at ¶ 41.) Moreover, as discussed
above, amending the answer to add these affirmative defenses would be futile. Accordingly, the
Court denies Defendant’s motion to amend.
C. 	Motion for Sanctions
Plaintiff has also filed a motion for sanctions, seeking to exclude two witnesses and an
email that it contends Defendant was late to disclose, or, alternatively, an order granting it leave
to conduct further discovery at Defendant’s expense. To the extent the motion pertains to
Plaintiff’s statement of undisputed material fact ¶ 9, however, it is now moot. Further, it appears
that the evidence and potential testimony implicate Defendant’s liability only, not the amount of
Plaintiff’s damages. Therefore, given the Court’s determination that Plaintiff is entitled to partial
summary judgment on the issue of liability and in the interest of judicial efficiency, the Court
denies this motion without prejudice at this time.
IV. 	CONCLUSION
Accordingly, the Court GRANTS Plaintiff’s motion for partial summary judgment (ECF
No. 137), DENIES Defendant’s motion to amend (ECF No. 155), DEEMS WITHDRAWN
Defendant’s motion to correct and supplement (ECF No. 169), and DENIES WITHOUT
PREJUDICE Plaintiff’s motion for sanctions (ECF No. 172).
DATED this 28th day of September, 2020.
BY THE COURT:
____________________________________
RAYMOND P. MOORE
United States District Judge
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