Iberdrola Energy Projects v. Oaktree Capital Management LP [2024]

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Iberdrola Energy Projects v. Oaktree Capital Management LP
No. 652514/21, slip op. (N.Y. App. Div. July 11, 2024) [USA]

Type of Lawsuit: Contractor-applicant appealed dismissal of complaint against principal of insolvent beneficiary and judgment debtor.

Topics: Arbitration; Breach of Contract; Fraud; Non-Recourse Clause; Special-Purpose Vehicle

Parties:
• Plaintiff/Appellant/Contractor/Issuer/ Applicant – Iberdrola Energy Projects
• Defendant/Respondent/Principal – Oaktree Capital Management LP
• Non-Party/Principal Vehicle/Beneficiary – Footprint Power Salem Harbor Development LP

Underlying Transaction: Conversion of coal power plant to gas plant.

Instrument: USD 140 million letter of credit; silent as to practice rules and choice of law.

Decision: The Supreme Court of New York, Appellate Division, Moulton, Kapnick, Scarpulla, Higgitt and O’Neill Levy JJ., affirmed with one modification on the law.

Rationale: Where unambiguous non-recourse clause bars claims stated in amended complaint against principal of insolvent special purpose vehicle (and judgment debtor), trial court properly dismissed; fraud claim properly dismissed as detrimental reliance inadequately pled; dismissal with prejudice modified on the law to without prejudice where trial court did not consider adequacy of proposed amended pleading.

Factual Summary:

To support its engineering, procurement and construction obligations regarding conversion of a coal power plant to a gas generation plant in Salem, Massachusetts (EPC Contract), Iberdrola Energy Projects (Contractor/Applicant) issued a USD 140 million performance letter of credit on its own account[[2]] in favor of Footprint Power Salem Harbor Development LP (Principal Vehicle/Beneficiary). Principal Vehicle/Beneficiary was a special-purpose entity wholly owned and majority-managed by Oaktree Capital Management LP (Principal). Principal Vehicle/Beneficiary was tasked with leading the conversion effort.

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