Southern Power Company v. Cleveland County

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF NORTH CAROLINA

ASHEVILLE DIVISION

1:20 CV 13 MR WCM

SOUTHERN POWER COMPANY, )

)

Plaintiff, )

) ORDER

v. )

)

CLEVELAND COUNTY, )

)

Defendant. )

)

This matter is before the Court on a Motion to Dismiss filed by Defendant

Cleveland County (the “Motion to Dismiss,” Doc. 14) and a Motion for Leave to

File Amended Complaint filed by Plaintiff Southern Power Company (the

“Motion to Amend,” Doc. 20).

I. Procedural Background

On January 14, 2020, Southern Power Company (“SPC”) filed its original

Complaint against Cleveland County (the “County”).1 SPC seeks a declaration

1 In the original Complaint, SPC alleges that subject matter jurisdiction exists

pursuant to 28 U.S.C. § 1332 and that SPC is a Delaware corporation with its

principal place of business in Georgia. Doc. 1, ¶ 3. The County is a citizen of North

Carolina. See Moor v. County of Alameda, 411 U.S. 693, 718, 93 S.Ct. 1785, 1800, 36

L.Ed.2d 596 (1973) (“[F]or purposes of diversity of citizenship, political subdivisions

are citizens of their respective States.”) (quoting Illinois v. City of Milwaukee, 406

U.S. 91, 97, 92 S.Ct. 1385, 1390, 31 L.Ed.2d 712 (1972)). SPC further alleges that

“the amount in controversy in this matter is in excess of $75,000.” Doc. 1, ¶ 5.

that a July 24, 2007 Incentive and Development Agreement (the “Incentive

Agreement”) with the County is a valid and enforceable contract.

On March 9, 2020, the County filed its Motion to Dismiss, which argues

that the Incentive Agreement is an illusory bilateral contract and that the

Incentive Agreement is unenforceable because it fails to comply with an

August 2007 amendment to North Carolina’s Local Development Law,

specifically N.C.G.S. § 158-7.1(h), and therefore that the County is immune

from suit. See Data General Corp. v. County of Durham, 143 N.C. App. 97,

545 S.E.2d 243, 248 (2001) (“[I]n the absence of a valid contract, a state entity

may not be subjected to contractual liability.”). SPC has responded to the

Motion to Dismiss, and the County has replied. Docs. 17 & 19.

On April 29, 2020, SPC filed the Motion to Amend. Doc. 20. The Motion

to Amend has also been fully briefed. Docs. 22 & 23.

II. Factual Background

A. Allegations in the Original Complaint

SPC alleges that in the early 2000s, it identified Cleveland County as a

potentially attractive location for a new gas-fired power plant, and initiated

discussions with County officials about whether the County would offer

economic incentives to facilitate the project. Doc. 1, ¶ 10. SPC contends that

after a period of negotiation, the parties agreed upon the key terms of the

Incentive Agreement – which was “structured as a common unilateral contract:

SPC would not be obligated to build a plant in Cleveland County, and the

County would owe no incentive payments to SPC unless SPC did build a plant.”

Doc. 1, ¶ 15.

SPC alleges that the “then-County Attorney” participated in the drafting

and revision process for the Incentive Agreement, which was finished in “early

July of 2007.” Doc. 1, ¶¶ 19-20.

The Incentive Agreement was approved by the Cleveland County Board

of Commissioners (the “County Commissioners”) following a public hearing on

July 24, 2007 and the County and SPC executed the Incentive Agreement that

same day. Doc. 1, ¶¶ 19-37.

SPC alleges that following execution of the Incentive Agreement, it

proceeded to obtain contracts to supply electricity. Doc. 1, ¶¶ 38-39.

Thereafter, “counsel for SPC reached out to the County, out of an abundance

of caution, to confirm that the County remained committed to its contractual

obligations as established in the Incentive Agreement.” Doc. 1, ¶ 40. SPC

alleges that in response to that request, the County Commissioners

unanimously approved an “acknowledgement” on January 6, 2009 stating that

“the County is committed to the incentive grants set forth” in the Incentive

Agreement. Doc. 1, ¶ 41.

SPC then constructed “Plant Cleveland,” which began commercial

operations in December 2012. Doc. 1, ¶ 45. SPC alleges that County officials

attended both the groundbreaking ceremony that preceded construction, as

well as the “commissioning ceremony” for the Plant in January 2013. Doc. 1,

¶¶ 43 & 46. SPC contends that no later than the 2013 commissioning

ceremony, “the County understood that Plant Cleveland had achieved a

‘Commercial Operations Date’ under the terms of the Incentive Agreement”

and “therefore satisfied the criteria in the Incentive Agreement to trigger

annual incentive payments from the County.” Doc. 1, ¶¶ 48 & 65.

SPC alleges that the County has “refused to make any incentive

payments to SPC.” Doc. 1, ¶ 66.

The existing Complaint contains a single claim—a request for a

declaratory judgment—by which SPC asks that the Incentive Agreement be

deemed “an enforceable contract that was within the County’s authority to

enter, and that neither the North Carolina Constitution nor any applicable

statute prohibits the County from making the incentive payments

contemplated therein.” Doc. 1, ¶ 82.

B. The Proposed Amendments

By the Motion to Amend, SPC does not attempt to assert any additional

claims but rather seeks leave to add allegations to support its declaratory

judgment claim, including specific allegations that the County was aware of

the amendment of the Local Development Act and thereafter confirmed that

the Incentive Agreement complied with it. See Doc. 20-2, ¶¶ 38, 39, 45, & 84-

85.

SPC also moves for leave to “add a request that the Court declare the

County to be estopped from denying the validity” of the Incentive Agreement.

Doc. 20, p. 1.

III. Legal Standard

Amendments sought pursuant to Rule 15(a)(2) of the Federal Rules of

Civil Procedure are allowed with the opposing party’s written consent or leave

of court, which leave should be given freely “when justice so requires.” Fed. R.

Civ. P. 15(a)(2); United States v. ex rel. Nathan v. Takeda Pharms. N. Am.,

Inc., 707 F.3d 451, 461 (4th Cir. 2013). “This liberal rule gives effect to the

federal policy in favor of resolving cases on their merits instead of disposing of

them on technicalities.” Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006) (en

banc).

“In the absence of any apparent or declared reason—such as undue

delay, bad faith or dilatory motive on the part of the movant, repeated failure

to cure deficiencies by amendments previously allowed, undue prejudice to the

opposing party by virtue of allowance of the amendment, futility of

amendment, etc.—the leave sought should, as the rules require, be ‘freely

given.’” Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230, 9 L. Ed. 2d 222

(1962).

IV. Discussion

SPC contends that its Motion to Amend is brought in response to the

County’s argument, appearing in the Motion to Dismiss, that the Incentive

Agreement is invalid because it does not comply with N.C.G.S. § 158-7.1(h).

The County argues that the Motion to Amend “is futile and suggests bad faith.”

Doc. 22, p. 1.

A. Futility

A futility review “is not equivalent to an evaluation of the underlying

merits of the case. To the contrary, unless a proposed amendment may clearly

be seen to be futile because of substantive or procedural considerations …

conjecture about the merits of the litigation should not enter into the decision

whether to allow amendment.’” Glob. Locating Sys., LLC v. ShadowTrack 247,

LLC, No. 1:19-CV-00225-MR, 2020 WL 2114381, at *3 (W.D.N.C. May 4, 2020)

(quoting Next Generation Grp., LLC v. Sylvan Learning Ctrs., LLC, CCB-11-

0986, 2012 WL 37397, at *3 (D. Md. Jan. 5, 2012) (internal quotations and

alterations omitted). In short, to deny a motion to amend on futility grounds,

the Court must find that the “proposed amendment is clearly insufficient or

frivolous on its face.” Johnson v. Oroweat Foods Co., 785 F.2d 503, 510 (4th

Cir. 1986) (citing Davis v. Piper Aircraft Corp., 615 F.2d 606, 613 (4th

Cir.1980), , 448 U.S. 911, 101 S.Ct. 25, 65 L.Ed.2d 1141 (1980)).

Here, the County argues that SPC’s proposed amendment is futile for

two reasons. First, the County asserts that the proposed amendment does not

address the County’s argument that the Incentive Agreement is a “failed-

bilateral-contract.” Doc. 22, p. 6. Second, the County asserts that SPC’s

“estoppel theory is baseless” and reiterates its position that no valid contract

exists between the parties due to the August 2007 amendment of N.C.G.S. §

158-7.1(h). Doc. 22, pp. 8-10. The County, therefore, urges the Court to deny

the Motion to Amend and address the merits of SPC’s claims through the

Motion to Dismiss.

On the first point, SPC contends that its amendment did not need to

address the County’s failed bilateral contract argument “because SPC’s brief

opposing the County’s motion to dismiss already did so.” Doc. 23, p. 2. The

undersigned is not persuaded by this position; the County’s point is not that

SPC has failed to respond to the argument at all but rather that the Motion to

Amend is futile because the amendments SPC has proposed do not cure the

deficiencies the County sees in the original Complaint regarding its view that

the Incentive Agreement was an attempted bilateral contract.

As for the issue of potential estoppel, however, the amendments SPC

proposes do go directly to the County’s argument on that topic. Although the

theory of equitable estoppel is more narrowly construed when asserted against

a governmental entity, such a claim is available in certain contexts; “a

governmental entity may be estopped if it is necessary to prevent loss to

another and the estoppel will not impair the exercise of governmental powers.”

Land-of-Sky Regional Council v. County of Henderson, 78 N.C. App. 85, 91,

336 S.E.2d 653, 657 (1985) (citing Washington v. McLawhorn, 237 N.C. 449,

454, 75 S.E.2d 402, 406 (1953)); see also Mecklenburg County v. Time Warner

Entertainment-Advance/Newhouse Partnership, No. 3:05cv333, 2010 WL

391279, at * 15, n. 17 (W.D.N.C. Jan. 26, 2010) (“it appears that the County

would be equitably estopped to deny that there was no breach. This is true

even though the County is a political subdivision of the State.”).

B. Bad Faith

The County also argues that SPC’s Motion to Amend is “a transparent

stratagem designed to moot” its Motion to Dismiss. Doc. 22, p. 1. The County

asserts that SPC’s proposed amendment does not add anything new to the

Complaint, and that SPC has “implicitly” argued from the start that the

County should be estopped from asserting the invalidity of the Incentive

Agreement. See Doc. 22, p. 4; see also Doc. 22, p. 18 (“The Court should see

this proposed amendment and accompanying brief for what they are: a sur-

reply to the County’s Motion to Dismiss. SPC has added .”) (emphasis

in briefing).

SPC admits that its Motion to Amend is made in response to the Motion

to Dismiss. In that regard, SPC could have exercised its right to amend its

Complaint within twenty-one days of service of the Motion to Dismiss pursuant

to FRCP 15(a)(1)(B). Nonetheless, it does not appear that SPC has been

unreasonably slow in seeking leave to amend.

Additionally, SPC’s request to add an explicit assertion that the County

should be equitably estopped does not indicate to the undersigned that the

Motion to Amend is made in bad faith or for the purpose of obtaining “some

ulterior tactical advantage.” Cf. GSS Properties, Inc. v. Kendale Shopping

Center, Inc., 119 F.R.D. 379 (M.D.N.C. 1988) (denying motion to amend where

plaintiff knew of the facts proposed to be included in an amendment prior to

filing the action, went through initial pretrial conference and scheduling order

without disclosing that amendment was possible, and evidence suggested that

the proposed amendment was either an attempt to settle or punishment for

failing to settle).

Under these circumstances, the undersigned finds that SPC should be

allowed to amend its Complaint before the merits of its claims are considered.

The undersigned expresses no opinion, though, as to whether SPC’s claims may

survive should they be challenged again by the County after the Complaint has

been amended. See Orr v. U.S. EPA, No. 1:19 CV 226, 2020 WL 223920, at *2

(W.D.N.C. Jan. 14, 2020).

Finally, as the Motion for Leave to Amend is being granted, the County’s

Motion to Dismiss is moot. Young v. City of Mount Ranier, 238 F.3d 567, 573

(4th Cir. 2001) (“The general rule ... is that an amended pleading supersedes

the original pleading, rendering the original pleading of no effect.”); see also

Fawzy v. Wauquiez Boats SNC, 873 F.3d 451, 455 (4th Cir. 2017) (“Because a

properly filed amended complaint supersedes the original one and becomes the

operative complaint in the case, it renders the original complaint ‘of no

effect.”); Colin v. Marconi Commerce Systems Employees’ Retirement Plan,

335 F.Supp.2d 590, 614 (M.D.N.C. 2004) (“Earlier motions made by Defendants

were filed prior to and have been rendered moot by Plaintiffs’ filing of the

Second Amended Complaint”).

IT IS THEREFORE ORDERED THAT:

1. SPC’s Motion for Leave to File Amended Complaint (Doc. 20) is

GRANTED and SPC is DIRECTED to file its Amended Complaint

(Doc. 20-1) within seven (7) days of this Order.

2. The County’s Motion to Dismiss (Doc. 14) is DENIED AS MOOT.

Signed: July 23, 2020

W. Carleton Metcalf (

United States Magistrate Judge

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