The opinion
February 04, 2025
Nathan Ochsner, Clerk
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
IN RE: §
§ CASE NO: 21-31070
ENTRUST ENERGY, INC., et §
al., § CHAPTER 11
§
Debtors. §
§
ENTRUST ENERGY, INC., et §
al., §
§
Plaintiffs, §
§
VS. § ADVERSARY NO. 21-3930
§
SHELL ENERGY NORTH §
AMERICA (US), L.P., et al., §
§
Defendants. §
MEMORANDUM OPINION
This adversary proceeding concerns whether Shell improperly
terminated its energy agreements with Entrust during Winter Storm
Uri. The parties seek summary judgment on Entrust’s breach of
contract claim and Shell’s defenses. Shell’s laches defense is denied with
prejudice. All other summary judgment relief is denied without
prejudice.
BACKGROUND
Entrust and Shell are parties to certain energy contracts, under
which Shell agreed to provide financial services and energy supplies to
Entrust at a fixed rate. Entrust would purchase energy from Shell and
would then sell the energy to its customers. The contracts required
Entrust to comply with its own Risk Policy. The Risk Policy contained
hedging requirements forcing Entrust to keep the difference between its
projected energy deliveries for a stated period and the amount it had
purchased for that period within specific bands. Projected hedging
outside of those bands required the approval of Entrust’s CEO or VP of
Finance.
On February 14, 2021, Shell terminated its present and future
energy transactions with Entrust pursuant to a termination provision
in the parties’ agreements. Shell alleged that Entrust failed to comply
with its Risk Policy, triggering an Event of Default under the
agreements. The parties agree that certain forecasts were out of
compliance with Entrust’s hedging requirements. Entrust alleges that
it had obtained the approvals needed to comply with its Risk Policy.
Shell denies that the necessary approvals had been obtained.
The Court must answer two key questions:
• Were Entrust’s hedging variances authorized by its CEO or VP of
Finance? If so, the variances were not an event of default?
• Which party first defaulted under the Energy Contracts?
Those issues may not be decided on summary judgment. A trial
is required.
I. FACTUAL BACKGROUND
Entrust Energy, Inc. was a Texas-based retail energy company.
In 2019, Entrust entered into certain agreements with Shell Energy
North America (US), L.P., in which Shell would provide both financial
services and a supply of energy to Entrust.
A. The Energy Contracts
The agreements relevant to this dispute are the parties’ Global
Agreement and EEI Master Agreements (the “Energy Contracts”). ECF
No. 230 at 12, 107. The contracts are governed by New York law. ECF
No. 230 at 30, 134.
The Global Agreement serves as an umbrella agreement for the
parties’ various contracts defined as “Transaction Agreements.” ECF
No. 230 at 59. It includes various terms that supplement the
Transaction Agreements. Section 3.17(a) of the Global Agreement
provides that Entrust “shall at all times comply” with its Risk Policy,
and:
shall enter into supply purchase transactions reasonably
approximated to match the forecasted daily commodity
sales on all months for the term of the Energy Customer
Contracts, taking into consideration historical
consumption, customer load forecasts, attrition rates,
weather influences on consumption and any other factors
the Customer Parties utilize to forecast consumption.
ECF No. 230 at 17. Section 7.1 of the Global Agreement lists Events of
Default, including if “[a]ny Customer Party fails to perform or observe
any covenant or other agreement contained in Section 3.17.” ECF No.
230 at 23. The Global Agreement requires Entrust to comply with its
Risk Policy, and Entrust’s failure to comply is an Event of Default.
It was not an Event of Default merely because hedging
transactions failed to meet the required targets. Under the Risk Policy,
Entrust’s CEO or VP of Finance could authorize variances. Authorized
variances did not result in an Event of Default.
Shell and three Entrust entities (Entrust, Entrust East, and
POTX) are parties to three EEI Master Agreements. The EEI Master
Agreements include a form contract and a cover sheet that modifies the
form contract. ECF No. 230 at 67, 107. The EEI Master Agreements
govern the “Transactions” between the parties. ECF No. 230 at 120. A
“Transaction” is defined as “a particular transaction agreed to by the
Parties relating to the sale and purchase of a Product pursuant to this
Master Agreement.” ECF No. 230 at 120. A “Product” is “electric
capacity, energy or other product(s) related thereto as specified in a
Transaction by reference to a Product listed in Schedule P hereto or as
otherwise specified by the Parties in the Transaction.” ECF No. 230 at
118. When Shell gave notice that it was terminating the transactions
between itself and Entrust (see below), it was in reference to these
transactions defined by the Global Agreement and EEI Master
Agreements.
The EEI Master Agreements contain exclusive remedies and
liquidated damages calculations upon an Event of Default. The
following provisions from the EEI Master Agreements are relevant to
this Memorandum Opinion:
5.2 Declaration of an Early Termination Date and
Calculation of Settlement Amounts. If an Event of Default
with respect to a Defaulting Party shall have occurred and
be continuing, the other Party (the “Non-Defaulting
Party”) shall have the right to (i) designate a day, no earlier
than the day such notice is effective and no later than 20
days after such notice is effective, as an early termination
date (“Early Termination Date”) to accelerate all amounts
owing between the Parties and to liquidate and terminate
all, but not less than all, Transactions (each referred to as
a “Terminated Transaction”) between the Parties, (ii)
withhold any payments due to the Defaulting Party under
this Agreement and (iii) suspend performance.
(i) Calculation by Non-Defaulting Party. The Non-
Defaulting Party shall calculate, in a commercially
reasonable manner, a Settlement Amount for each
such Terminated Transaction or group of
Terminated Transactions as of the Early
Termination Date (or, to the extent that in the
reasonable opinion of the Non-Defaulting Party
certain of such Terminated Transactions or group of
Terminated Transactions are commercially
impracticable to liquidate and terminate or may not
be liquidated and terminated under applicable law
on the Early Termination Date, then each such
Transaction or group of Terminated Transactions
(individually, an “Excluded Transaction” and
collectively, the “Excluded Transactions”) shall be
terminated as soon thereafter as reasonably
practicable), and upon termination shall be deemed
to be a Terminated Transaction or group of
Terminated Transactions and the Termination
Payment payable in connection with all such
Terminated Transactions or group of Terminated
Transactions shall be calculated in accordance with
Section 5.3 below.
. . . .
5.3 Net Out of Settlement Amounts. The Non-Defaulting
Party shall aggregate all Settlement Amounts into a single
amount by: netting out (a) all Settlement Amounts that are
due to the Defaulting Party, plus, at the option of the Non-
Defaulting Party, any cash or other form of security then
available to the Non-Defaulting Party pursuant to Article
Eight, plus any or all other amounts due to the Defaulting
Party under this Agreement against (b) all Settlement
Amounts that are due to the Non-Defaulting Party, plus
any or all other amounts due to the Non-Defaulting Party
under this Agreement, so that all such amounts shall be
netted out to a single liquidated amount (the “Termination
Payment”) payable by one Party to the other. The
Termination Payment shall be due to or due from the Non-
Defaulting Party as appropriate.
5.4 Notice of Payment of Termination Payment. As soon as
practicable after a liquidation, notice shall be given by the
Non-Defaulting Party to the Defaulting Party of the
amount of the Termination Payment and whether the
Termination Payment is due to or due from the Non-
Defaulting Party. The notice shall include a written
statement explaining in reasonable detail the calculation
of such amount. The Termination Payment shall be made
by the Party that owes it within two (2) Business Days after
such notice is effective. The Termination Payment shall
bear interest at the Interest Rate from the date upon which
notice is effective until paid. Notwithstanding any
provision to the contrary contained in this Agreement, the
Non-Defaulting Party shall not be required to pay to the
Defaulting Party any amount under Article 5 until the
Non-Defaulting Party receives confirmation satisfactory to
it in its reasonable discretion that all other obligations of
any kind whatsoever of the Defaulting Party to make any
payments to the Non-Defaulting Party or any of its
Affiliates under this Agreement or otherwise which are due
and payable as of the Early Termination Date (including
for these purposes amounts payable pursuant to Excluded
Transactions) have been fully and finally performed and
that the Defaulting Party has returned any Performance
Assurance of the Non-Defaulting Party’s that is held
simultaneously or before the Non Defaulting Party makes
any Termination Payment hereunder.
5.5 Disputes With Respect to Termination Payment. If the
Defaulting Party disputes the Non-Defaulting Party’s
calculation of the Termination Payment, in whole or in
part, the Defaulting Party shall, within two (2) Business
Days of receipt of Non-Defaulting Party’s calculation of the
Termination Payment, provide to the Non-Defaulting
Party a detailed written explanation of the basis for such
dispute; provided, however, that if the Termination
Payment is due from the Defaulting Party, the Defaulting
Party shall first transfer Performance Assurance to the
Non-Defaulting Party in an amount equal to the
Termination Payment.
. . . .
7.1 Limitation of Remedies, Liability and Damages. . . .
THE PARTIES CONFIRM THAT THE EXPRESS
REMEDIES AND MEASURES OF DAMAGES
PROVIDED IN THIS AGREEMENT SATISFY THE
ESSENTIAL PURPOSES HEREOF. FOR BREACH OF
ANY PROVISION FOR WHICH AN EXPRESS REMEDY
OR MEASURE OF DAMAGES IS PROVIDED, SUCH
EXPRESS REMEDY OR MEASURE OF DAMAGES
SHALL BE THE SOLE AND EXCLUSIVE REMEDY, THE
OBLIGOR’S LIABILITY SHALL BE LIMITED AS SET
FORTH IN SUCH PROVISION AND ALL OTHER
REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE
WAIVED. . . .
ECF No. 230 at 71, 124, 127.
The parties’ agreements were structured so that Entrust would
purchase energy from Shell at a fixed rate to reduce the risk of exposure
to market-price fluctuations. As part of the agreements, Entrust was
obligated to report information concerning its financial affairs to Shell
on a regular basis, including periodic reporting on updates to its Risk
Policy. In relevant part, Entrust’s Risk Policy mandated that Entrust
create load forecasts. Based on the load forecast, Entrust would report
to Shell if Entrust’s hedging fell out of certain, prescribed ranges.
Entrust was required to obtain the approval of its CEO or VP of Finance
during periods when Entrust’s hedging activity was outside of pre-
approved bands of risk. The following provisions of the Risk Policy
memorialize the hedging and approval requirements:
The next day load forecast will be created each weekday
morning . . . . During summer and winter months, the day-
ahead load forecast must be approved by the VP of Supply
or above.
. . . .
If the next day load forecast is outside the following NOP1
bands, approval from the CEO or VP of Finance is required.
If necessary, the approval request email shall be sent by
9:45 AM CST the day prior to flow. . . .
Winter Months (January, February): 90% - 120%
hedged . . . .
During the summer and winter months (defined below), a
14-day load forecast and NOP report will also be created
twice per week, utilizing a like-weather-day load
forecasting approach. This will allow for foresight into
Entrust’s exposure over the next 2 weeks.
The average of the daily NOP limits on the rolling 7-day
load forecast must be within the following bands, outside
of these bands will require approval from the CEO or VP of
Finance. . . .
Winter Months (January, February): 90% - 120%
hedged[.]
ECF No. 230 at 163.
B. Employment of Soichiro Osawa as Interim Managing
Director of Entrust
A central question is whether Entrust had a CEO (that is, a
person authorized to approve hedging waivers) at the time of the
dispute.
On January 7, 2021, Entrust’s board of directors adopted a
unanimous written consent terminating Entrust’s President and CEO
Wayne Morgan from “all executive roles” and appointing Soichiro Osawa
as Entrust’s “Interim Managing Director.” ECF No. 243-1 at 2–3. The
1 Net Open Position (“NOP”) is the difference between Entrust’s projected energy
deliveries for a stated period and the amount of energy it had purchased for that period.
ECF No. 244 at 6.
board resolution also stated that, “[g]iven the financial difficulties the
Company and Subsidiaries have been and will continue to experience,
the Board will recommend the dissolution and wind down of the
Company and the Subsidiaries to the shareholders of the Company . . .
.” ECF No. 243-1 at 3. Mr. Osawa was an employee of one of Entrust’s
owners, Nippon Gas Co., Ltd. He had been an Entrust employee since
June 20, 2016. ECF Nos. 243-20 at 2; 243-21 at 2; 265 at 4. Under the
employment relationship, Entrust would pay Mr. Osawa’s salary and
Nippon would reimburse Entrust. ECF No. 265 at 2.
Upon the termination of Mr. Morgan as CEO, Kunihiko
Kashiwaya, an Entrust board member, confirmed by follow-up email to
Mr. Morgan that “the board now appointed Mr. Soichiro Osawa as
Interim Managing Director to replace your position and to continue the
operation. To enable smooth transition, and to prevent irreparable
disruption in the operation, the board sincerely request your full support
and cooperation to hand over the leadership to Mr. Osawa in a timely
and professional manner.” ECF No. 266 at 11. Mr. Kashiwaya also
stated to Mr. Morgan that “effective today, the board replaced your CEO
role with interim MD (Sho) but we agree with the extension of
employment for the period necessary for transition, on the condition that
transition will be implemented with your full support and cooperation
under Sho’s supervision and instruction . . . .” ECF No. 266 at 13.
On January 8, 2021, Mr. Osawa sent an email to Entrust
employees announcing Mr. Morgan’s termination and that “[i]n the
interim, the Board appointed me as Managing Director to oversee
business and operations. This is just a change of leadership, and in no
way jeopardizes the operation and the organization as a whole. In fact,
Wayne and I are working closely to ensure a smooth transition for the
next couple of weeks.” ECF No. 265 at 7.
Conversations between Mr. Osawa and Entrust’s management
further confirm that Mr. Osawa was functionally employed to replace
Mr. Morgan as Entrust’s chief executive. It is undisputed that Mr.
Osawa was not bestowed with the “CEO” title.
In a January 7, 2021, conversation between Mr. Osawa and Gary
Helders (Entrust’s CFO), Mr. Helders asked if Mr. Osawa would be
“taking over” Mr. Morgan’s position as the “primary signor on all of our
bank accounts,” and whether Mr. Osawa would “be replacing [Mr.
Morgan] as the CEO in title and the presiding officer of the company to
sign all regulatory docs and such.” ECF No. 243-43 at 3–4. Mr. Osawa
replied, “Yes, I will be replacing him. The title would be Managing
Director, not CEO.” ECF No. 243-43 at 4.
The Entrust entities’ bylaws confirm that the board was
empowered to appoint an officer with any title to perform whatever
functions the board would grant the position. ECF Nos. 243-22 at 13;
243-23 at 11–12; 243-46 at 11. Although Mr. Osawa was titled as an
Interim Managing Director, he was functionally appointed by Entrust’s
board to replace Mr. Morgan as Entrust’s chief executive.
C. Winter Storm Uri and Shell’s Termination of the
Energy Transactions
Winter Storm Uri hit Texas in February 2021. Uri caused energy
prices to soar to record levels.2
During Uri, three next-day load forecasts (dated February 13, 14,
and 15, 2021) fell out of compliance with hedging requirements.3
Approval by Entrust’s CEO or VP of Finance was required. ECF Nos.
243-24 at 2; 243-25 at 2; 243-26 at 2. Mr. Osawa approved the next-day
load forecasts. ECF No. 230 at 180, 185, 190.
2 There have been extensive disputes within the state concerning the role of regulators
in setting prices during Uri. The reason for high prices plays no role in this dispute
between Shell and Entrust.
3 The rulings in this Memorandum Opinion are based on the forecasts to which the
parties agree were out of compliance with hedging requirements. The parties have not
presented evidence sufficient for a finding as to whether any additional reports were
out of compliance with hedging requirements. This Memorandum Opinion does not
foreclose the ability of the parties to present evidence at trial on the issue of whether
any additional reports violated the Risk Policy.
Two 14-day load forecasts contained rolling 7-day load forecasts
that also fell out of compliance with hedging requirements. ECF No.
264 at 13. These 14-day forecasts are dated February 10 and 12, 2021.
ECF Nos. 243-16 at 2, 5, 15; 243-17 at 2, 5, 15. When the rolling 7-day
load forecasts fell out of compliance with hedging requirements,
approval by Entrust’s CEO or VP of Finance was required. ECF No. 264
at 15–16. It is less clear whether Mr. Osawa approved these variances.
On Saturday, February 13, 2021, Entrust sent correspondence to
Shell indicating that Entrust expected to lose about $6.5 million as a
result of its forecasted NOP on Sunday, February 14, 2021. ECF No.
230 at 197. Attached to the correspondence was an updated 14-day load
forecast, which again indicated that the rolling 7-day load forecast fell
out of compliance with hedging requirements. ECF No. 230 at 211.
Entrust alleges that this 14-day load forecast was merely an updated
report that did not actually require approvals from Entrust’s CEO or VP
of Finance. ECF No. 264 at 17. According to Entrust, the report was
not one of its regularly scheduled 14-day load forecasts since it was
prepared on a weekend and there was no trading of energy hedges on
the weekend. ECF No. 264 at 17. Entrust alleges that the statement
that the load forecast fell out of compliance was a self-populating entry
in a spreadsheet that did not reflect that approval had already been
provided on February 12, 2021. ECF No. 229 at 18.
On February 14, 2021, Shell sent correspondence to Mr. Osawa
containing a Notice of Default and Termination Letter, which
terminated all transactions between Entrust and Shell. ECF No. 230 at
236–37. The notice provides:
As evidenced by the POTX forecast and hedge report
provided today by Entrust to Shell, Entrust is in material
default of the hedging requirements of Section 3.17 of the
Global Agreement, thereby causing an Event of Default
with respect to Entrust under the Global Agreement. Due
to the current extreme weather event, Entrust’s failure to
maintain hedges as required by the Global Agreement has
resulted in, or will result in, expected losses to Entrust in
excess of $40 million, making Entrust deeply insolvent and
no longer financially viable, and Shell can no longer risk
increasing its exposure to Entrust. As a result of Entrust’s
Event of Default, effective immediately (i) Shell will no
longer transact with Entrust under the Master
Agreements or otherwise, (ii) all transactions outstanding
under the Master Agreements are terminated, (iii) all
Scheduling Coordinator Agreements are terminated, and
(iv) all lending commitments under the Loan Agreement
are terminated.
ECF No. 230 at 237. On November 30, 2022, this Court determined that
the effective date of the termination notice was “the close of business on
February 16, 2021.” ECF No. 144 at 1.
Pursuant to the EEI Master Agreements, Shell sent Entrust a
termination payment calculation on March 9, 2021. ECF No. 243-36 at
3. Shell calculated the forward value of undelivered power from
February 15, 2021, to be $50,775,058 and credited Entrust with this
amount, resulting in a payment (net of loads and invoice obligations
owed by Entrust to Shell) of $8,267,036 payable from Shell to Entrust.
ECF No. 243-36 at 4.
It is undisputed that Shell did not pay the termination payment
within two days of the calculation as required by § 5.4 of the EEI Master
Agreements, and that Entrust did not dispute the payment amount
within two days of receipt as required by § 5.5 of the EEI Master
Agreements. Rather, the documentary evidence suggests that the
termination payment calculation was a “starting point in negotiations,”
not a final calculation, and the parties engaged in negotiations
regarding the payment amount. ECF No. 257 at 5, 10, 13, 16. The day
after Shell sent its payment calculation, Mr. Osawa requested a “data
file that shows calculations for some of the items included in the Total
Exposure ($8.3M).” ECF No. 243-37 at 2. On March 16, Shell provided
Mr. Osawa with the data file. ECF No. 243-38 at 2. On March 31, Shell
followed up with Mr. Osawa to ask whether there was “any additional
information needed from us on the settlement calculation.” ECF No.
243-40 at 2. Mr. Osawa responded that Entrust was still “reviewing the
settlement calculation data” and requested “a file that shows the
individual transactions matched with the price that Shell is valuing the
trades at.” ECF No. 243-40 at 2. Mr. Osawa also introduced Shell to
Entrust’s consultant, David Ferguson, who was tasked with “supporting
the work to reconcile the numbers on our end.” ECF No. 243-40 at 2.
The parties continued to engage in discussions, and on April 20, Mr.
Ferguson stated to Entrust that he had “all of the information that [he]
will need” to review the “forward hedge valuation.” ECF No. 243-41 at
2. The next day, Shell sent Mr. Ferguson an “updated settlement
calculation” that had been “updated per our prior discussions.” ECF No.
243-42 at 2.
On August 18, 2021, Entrust sent Shell correspondence stating
that
Shell did not have a right to designate an Early
Termination Date under the Purchase and Sale
Agreements until February 17, 2021 at the earliest and
thus, that is the first date on which the Transactions might
have been properly terminated. Therefore, Shell remained
subject to its scheduling and delivery obligations under the
Transactions through February 17, notwithstanding the
Notice of Default and termination that Shell emailed to
Entrust at 10:55 p.m. (Central) on February 14.
ECF No. 69-2 at 5. Entrust then provided its own termination payment
calculation of $124,282,817 owed to Entrust and stated:
In accordance with Section 5.4 of the Purchase and Sale
Agreements, payment of the invoiced amounts is due
within two (2) Business Days of receipt of the attached
Final Invoice. In the event that Shell disputes Entrust’s
calculation in whole or in part, Section 5.5 of the Purchase
and Sale Agreements requires that Shell provide Entrust a
detailed written explanation of the basis for such a dispute
within two (2) Business Days of Shell’s receipt of the Final
Invoice.
ECF No. 69-2 at 6, 8.
II. PROCEDURAL BACKGROUND
On March 30, 2021, Entrust and its related entities filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code.
See, e.g., Case No. 21-31070, ECF No. 1. That same day, the Court
entered its order for joint administration of the Chapter 11 cases. Case
No. 21-31070, ECF No. 10. On December 29, 2021, the Court confirmed
Entrust’s amended joint plan of liquidation. Case No. 21-31070, ECF
No. 480. The plan became effective on January 6, 2022. Case No. 21-
31070, ECF No. 493.
A. This Adversary Proceeding
On October 11, 2021, the trustee of the Liquidating Trust in
Entrust’s bankruptcy cases filed this adversary proceeding against Shell
and a co-defendant. ECF No. 1. Entrust’s Third Amended Complaint,
filed on December 29, 2022, is the operative complaint. ECF No. 154.
Shell filed its answer on January 27, 2023. ECF No. 160. On June 6,
2023, the Court entered its Memorandum Opinion and Order dismissing
all but a single claim in the Third Amended Complaint. ECF Nos. 186;
187.
Entrust’s remaining claim is for breach of contract asserted
against Shell. ECF Nos. 154 at 41; 187. Entrust claims that Shell
breached the parties’ agreements by
wrongfully terminat[ing] the EEI Master Agreement with
Entrust (including all Transactions that were an
integrated part thereof), the EEI Master Agreement with
Entrust East (including all Transactions and
Confirmations that were an integrated part thereof), and
the EEI Master Agreement with POTX (including all
Transactions that were an integrated part thereof) without
the occurrence of a qualifying or legitimate Event of
Default. Shell knew or should have known that its
asserted “technical” default was not a legitimate breach of
Entrust’s Risk Policy, and would not qualify as a legitimate
and material Event of Default that could justify
termination of all Transactions and all obligations under
the parties’ Contracts.
ECF No. 154 at 42. Entrust also alleges that Shell breached the
agreements by (i) failing to deliver electric power to Entrust during the
period between February 14, 2021, through February 16, 2021 (i.e., the
period between actual termination and the date the termination notice
is deemed effective); (ii) setting off obligations due under the various
contracts during Shell’s calculation of the termination payment in
violation of the agreements; and (iii) failing to pay the undisputed
portion due under the EEI Master Agreements. ECF No. 154 at 42–43.
Entrust alleges damages, including but not limited to
the difference between the higher ERCOT real-time
market prices and the forward contract price for electricity
that Shell was contractually obligated to provide to Entrust
under such contracts as well as the associated fees and
costs . . . ; and
the settlement value of the hedges on February 17, 2021,
but in no event later than February 16, 2021.
ECF No. 154 at 43.
Shell’s answer asserts the following defenses: (i) failure to state a
claim, (ii) acquiescence, (iii) waiver, (iv) estoppel, (v) prior material
breach, (vi) excess damages, (vii) laches, and (viii) failure to exercise
contractual rights / forfeiture of contractual rights. ECF No. 160 at 32–
35.
On March 7, 2023, the parties entered into a stipulation, under
which Shell agreed to pay to Entrust the undisputed portion of the
termination payment ($8,267,036) and contractual interest, for a total
payment of $10.2 million. ECF No. 173 at 2–3. The parties agreed that
the amount would be subtracted from any larger termination payment
the Court may find due from Shell to Entrust. ECF No. 173 at 3–4. The
Court approved the stipulation on March 8, 2023. ECF No. 174.
On May 22, 2024, Entrust filed a motion for summary judgment
on Shell’s second, third, fourth, seventh, and eighth defenses. ECF No.
229. On June 28, 2024, Shell filed a motion for summary judgment on
Entrust’s breach of contract claim. ECF No. 244. The parties moved for
cross-relief with respect to the summary judgment motions. ECF Nos.
241; 264. The Court held a hearing and took the motions under
advisement.
JURISDICTION
The District Court has jurisdiction over this proceeding under 28
U.S.C. § 1334(a). Venue is proper in this District pursuant to 28 U.S.C.
§ 1409. This is a core proceeding under 28 U.S.C. § 157(b)(2). The
dispute has been referred to the Bankruptcy Court under General Order
2012-6.
LEGAL STANDARD
“The court shall grant summary judgment if the movant shows
that there is no genuine dispute as to any material fact and that the
movant is entitled to judgment as a matter of law.” FED. R. CIV. P.
56(a). A genuine dispute of material fact means that evidence is such
that a reasonable fact finder “could return a verdict for the nonmoving
party.” Gorman v. Verizon Wireless Tex., L.L.C., 753 F.3d 165, 170 (5th
Cir. 2014) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986)). It is the movant’s burden to establish that no genuine issue of
material fact exists. Sossamon v. Lone Star State of Tex., 560 F.3d 316,
326 (5th Cir. 2009) (citing Condrey v. SunTrust Bank of Ga., 429 F.3d
556, 562 (5th Cir. 2005)). A party asserting that a fact cannot be or is
not genuinely disputed must support that assertion by citing to
particular parts of materials in the record, showing that the materials
cited do not establish the absence or presence of a genuine dispute, or
showing that an adverse party cannot produce admissible evidence to
support that fact. FED. R. CIV. P. 56(c)(1). If the movant establishes
“the absence of evidence supporting an essential element of the non-
movant’s case,” the burden shifts to the non-movant to establish a
genuine dispute of material fact. Sossamon, 560 F.3d at 326 (citing
Condrey, 429 F.3d at 562).
In ruling on a motion for summary judgment, a court should view
the facts and evidence in light most favorable to the non-moving party.
Plumhoff v. Rickard, 572 U.S. 765, 768 (2014). Nevertheless, the court
is not obligated to search the record for the non-moving party’s evidence.
Keen v. Miller Env’t. Grp., Inc., 702 F.3d 239, 249 (5th Cir. 2012).
“Summary judgment may not be thwarted by conclusional allegations,
unsupported assertions, or presentation of only a scintilla of evidence.”
Hemphill v. State Farm Mut. Auto. Ins. Co., 805 F.3d 535, 538 (5th Cir.
2015). The Court need only consider the cited materials, but it may
consider other materials in the record. FED. R. CIV. P. 56(c)(3). The
Court should not weigh the evidence. Aubrey v. Sch. Bd. Of Lafayette
Par., 92 F.3d 316, 318 (5th Cir. 1996). A credibility determination may
not be part of the summary judgment analysis. E.E.O.C. v. LHC Grp.,
Inc., 773 F.3d 688, 694 (5th Cir. 2014).
DISCUSSION
There is a genuine issue of material fact as to whether Entrust
was in Default when Shell terminated its transactions with Entrust. If
Entrust was in Default, there is a genuine issue of material fact as to
whether Shell breached its contractual obligations following the
termination of the transactions, including in its calculation of the
termination payment. The parties’ cross-motions for summary
judgment on Entrust’s breach of contract claim are denied without
prejudice.
Shell’s laches defense is denied with prejudice. Summary
judgment on the remaining defenses is not ripe at this stage of the
adversary proceeding. Except for the laches defense, the parties’ cross-
motions for summary judgment on Shell’s defenses are denied without
prejudice.
I. THERE IS A GENUINE ISSUE OF MATERIAL FACT AS TO WHETHER
SHELL BREACHED THE ENERGY CONTRACTS
Shell argues that summary judgment should be granted in its
favor because there is no genuine issue of material fact precluding a
finding that (i) Entrust is the Defaulting Party under the Energy
Contracts; (ii) Shell did not breach its obligations under the Energy
Contracts; and (iii) Shell’s breach, if any, did not cause Entrust
damages. Entrust moves for cross-relief.
To establish a claim for breach of contract under New York law,
Entrust must prove that “(1) a contract exists; (2) [Entrust] performed
in accordance with the contract; (3) [Shell] breached its contractual
obligations; and (4) [Shell’s] breach resulted in damages.” Martinez v.
Agway Energy Servs., LLC, 88 F.4th 401, 409 (2d Cir. 2023) (quoting 34-
06 73, LLC v. Seneca Ins. Co., 39 N.Y.3d 44, 52 (2022)). The parties
agree that they were bound by the Energy Contracts at the time of
Shell’s termination. They contest the second, third, and fourth
elements.
A. There Is a Genuine Issue of Material Fact as to
Whether Entrust Is a Defaulting Party
The parties agree that the second breach of contract element—
Entrust’s performance under the Energy Contracts—revolves around
whether Entrust was the Defaulting Party at the time of Shell’s
termination. See id. Shell terminated its transactions with Entrust on
the basis that Entrust was not in compliance with its Risk Policy on
February 14, 2021. ECF No. 230 at 237. This is the only default alleged
by Shell.
Section 5.1 of the EEI Master Agreements permits a Non-
Defaulting Party to terminate all energy transactions between the
parties if an Event of Default occurs. ECF No. 230 at 124. Section 7.1
of the Global Agreement lists as an Event of Default if “[a]ny Customer
Party fails to perform or observe any covenant or other agreement
contained in Section 3.17” of the Global Agreement. ECF No. 230 at 23.
Section 3.17 of the Global Agreement requires Entrust to comply with
its Risk Policy. ECF No. 230 at 17. If Entrust fails to comply with its
Risk Policy, it is an Event of Default under the Global Agreement. And
an Event of Default permits the Non-Defaulting Party to terminate the
energy transactions.
Shell argues that Entrust failed to comply with its Risk Policy by
failing to get approvals by its CEO or VP of Finance when (i) two of its
rolling 7-day load forecasts fell out of compliance with hedging
requirements under the Risk Policy and (ii) three of its next-day load
forecasts fell out of compliance with hedging requirements under the
Risk Policy. Under Entrust’s Risk Policy, if a next day load forecast falls
out of compliance with hedging requirements (90%–120% hedged in
January or February), approval from the CEO or VP of Finance is
required. Similarly, when a rolling 7-day load forecast falls out of
compliance with hedging requirements (90%–120% hedged in January
or February), approval from the CEO or VP of Finance is required. ECF
No. 230 at 163.
(1) The Next Day Load Forecasts
Three next day load forecasts (dated February 13, 14, and 15,
2021) fell out of compliance with the 90%–120% hedging requirement.
Mr. Osawa approved the forecasts. Shell alleges that Mr. Osawa was
Entrust’s “Interim Managing Director,” not its CEO or VP of Finance,
and accordingly, his approval of the forecasts was ineffective.
At all relevant times, Entrust was comprised of three entities:
Entrust, Entrust East, and POTX. Entrust and POTX are incorporated
in the State of Texas. ECF Nos. 243-23 at 2; 243-46 at 2. Entrust East
is incorporated in the State of Delaware. ECF No. 243-22 at 2. Under
both Texas and Delaware law, the law of the state of incorporation
governs the internal affairs of an entity. Tex. Bus. Orgs. Code Ann. §
1.101; VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d
1108, 1113 (Del. 2005). The Texas Business Organizations Code does
not define a “chief executive officer.” Rather, it defines a corporation’s
“President” as either the individual designated as the president under
the governing documents or the “officer . . . authorized to perform the
functions of the principal executive officer of an entity without regard to
the designated names of the officer . . . .” Tex. Bus. Orgs. Code Ann. §
1.002(70); see also WWLC Inv., L.P. v. Miraki, 624 S.W.3d 796, 799–800
(Tex. 2021). Similarly, the Delaware Code does not define a “chief
executive offer” and instead provides that “[e]very corporation organized
under this chapter shall have such officers with such titles and duties
as shall be stated in the bylaws or in a resolution of the board of directors
which is not inconsistent with the bylaws . . . .” Del. Code Ann. tit. 8, §
142(a).
The Entrust entities’ bylaws define the roles of its officers.
Entrust East’s bylaws provide that the officers of the corporation shall
include, among others, a Chief Executive Officer, a President, and such
other officers “as the Board from time to time may determine.” ECF No.
243-22 at 13. The bylaws state that the officers “shall each have such
powers and duties as generally pertain to their respective offices” and
“as from time to time may be conferred by the Board.” ECF No. 243-22
at 13. The bylaws do not define the role of a Chief Executive Officer.
ECF No. 243-22 at 13–14. The bylaws define the President as “the chief
executive officer of the Corporation,” who “shall have general
supervision of the affairs of the Corporation and general control of all of
its business subject to the ultimate authority of the Board, and shall be
responsible for the execution of the policies of the Board.” ECF No. 243-
22 at 13.
POTX’s bylaws state that the corporation’s officers shall be,
among others, a President, a Secretary, and “any other officers and
agents as may be deemed necessary by the Board of Directors.” ECF No.
243-23 at 11–12. The bylaws further provide that the powers and duties
of the officers “shall be as provided from time to time by resolution of the
Board of Directors or by direction of an officer authorized by the Board
of Directors to prescribe the duties of other officers,” and in the absence
of a resolution, “the respective officers shall have the powers and shall
discharge the duties customarily and usually held and performed by like
officers of corporations similar in organization and business purposes . .
. .” ECF No. 243-23 at 12.
Entrust’s bylaws require the appointment of a President and a
Secretary and permit the board to appoint any officers as it deems
necessary. ECF No. 243-46 at 11. Similar to the other Entrust entities,
the appointed officers “will exercise such powers and perform such
duties as may be determined from time to time by the Board.” ECF No.
243-46 at 11. The bylaws define the President as the “chief executive
officer of the Corporation” who “will supervise and control all of the
business and affairs of the Corporation.” ECF No. 243-46 at 12. The
President will also “have all powers and perform all duties incident to
the office of the President and will have such other powers and perform
such other duties as the Board of Directors may from time to time
prescribe.” ECF No. 243-46 at 12.
Read together, these provisions establish that Entrust defines
officer roles by function rather than name. A person appointed by the
board to act as Entrust’s chief executive is the corporation’s President,
regardless of title.
Entrust’s Risk Policy does not require the load forecasts to be
approved by someone with the “title of CEO.” It requires that the load
forecasts be approved by “the CEO.” A CEO is not a defined role under
Entrust’s bylaws or general corporations law. Rather, it is associated
with the role of the president of a company. It is undisputed that Mr.
Osawa was appointed by the board to replace Mr. Morgan as Entrust’s
chief executive. Regardless of his title as an Interim Managing Director,
he was appointed to the functional role of the company’s president, with
all powers and duties of the president. The Risk Policy cannot be read
to permit Mr. Morgan to approve load forecasts, but not Mr. Osawa, who
was appointed to replace Mr. Morgan and perform his same duties.
Because the next day load forecasts were approved by Mr. Osawa
acting as Entrust’s chief executive, the approvals were effective.
Entrust is not a Defaulting Party based on the approvals of the next day
load forecasts.
(2) The Rolling 7-Day Load Forecasts
The parties agree that two 14-day load forecasts (dated February
10 and 12, 2021) contain rolling 7-day load forecasts that fell out of
compliance with the 90%–120% hedging requirement. That, standing
alone, did not create a default. If Entrust’s CEO approved of the non-
compliance, no default arose. Nevertheless, it is not disputed that no
specific approvals were provided by Entrust’s CEO with respect to the
forecasts. Entrust argues that Mr. Osawa satisfied the Risk Policy by
“engaging in discussions regarding Entrust’s exposure and by taking
appropriate action.” ECF No. 264 at 15.
Entrust acknowledges that out-of-compliance next day load
forecasts must employ a specific procedure for approval. ECF No. 264
at 16. The approval methodology is the following: an Entrust employee
attaches the next day load forecast to an email sent to the CEO or VP of
Finance and states that approval is needed. See, e.g., ECF No. 230 at
180. The CEO or VP of Finance then responds to the email stating,
“Approved.” See, e.g., ECF No. 230 at 180. The evidence indicates that
this methodology is also employed for other forecasts that require
approval under the Risk Policy. For example, under the Risk Policy,
when next day forecasted high temperatures are less than forty degrees
in Dallas, Texas, the “forecast and position must be approved by both
the VP of Supply and one of the following: CEO or VP of Finance.” ECF
No. 230 at 163. On February 10, 2021, an Entrust employee attached a
next day forecast to an email sent to Mr. Osawa and stated “[a]pproval
is needed since the forecasted high temp in Dallas is under 40 degrees.”
ECF No. 266 at 147. Mr. Osawa responded to the email stating,
“Approved.” ECF No. 266 at 146. Entrust admits that this procedure is
required for next day load forecasts but argues “[t]here is no
requirement in the Risk Policy that this be the method for approval of
the 7-day NOP.” ECF No. 264 at 16.
Entrust supports its position with its declaration of Michele
Supple, Entrust’s VP of Supply and Risk Management:
The Risk Policy required preparation of a 14-day load
forecast twice each week. It was uncommon for a 14-day
load forecast to show an “average of the daily NOP limits
on the rolling 7-day load forecast” (the “7-Day NOP”) that
was outside of the required hedging bands. And unlike the
next day load forecasts that were prepared each weekday
and required approval emails by a specific time each
weekday if approval was required, there was no timing or
procedural requirements in the Short Term Desk
Procedures for the 14-day forecast. Instead, if Entrust and
POTX 14-day forecasts showed that the 7-Day NOP was
outside of the applicable hedging band, this triggered a
discussion about the strategy for addressing the issue,
rather than an email that simply “approved” the report. It
is my recollection and understanding that the necessary
Entrust management engaged in such discussions each
time the Entrust and POTX 14-day load forecasts both
showed a 7-Day NOP that was out of compliance, including
during the approach of Winter Storm Uri in February 2021.
ECF No. 270 at 3.
The Risk Policy simply states that rolling 7-day load forecasts
require approval by the CEO or VP of Finance when, during winter
months (January and February), hedging is outside of the 90%–120%
bands. ECF No. 230 at 163. The Risk Policy does not address whether
approval must be obtained orally, in writing, or by a different method.
Entrust references an email sent from Ms. Supple to Mr. Osawa
on February 10, 2021, at 9:44 a.m. containing a 7-day chart showing
peak load and reserve percentages for the week of February 10 and an
explanation of Ms. Supple’s hedging strategy for the time period. ECF
No. 266 at 144–46. Mr. Osawa responded to the email stating “Michele,
thanks for the heads up. I agree with your approach.” ECF No. 266 at
144.
The only out-of-compliance rolling 7-day load forecast the email
chain can purportedly approve is the February 10 forecast. The hedging
strategies were sent to Mr. Osawa the day after the February 10 forecast
was sent to him. ECF No. 243-16 at 2. The 14-day forecast discusses
hedging compliance starting on February 10. ECF No. 243-16 at 2. The
report shows that the Entrust entity was out of compliance with hedging
on February 13, 2021, and that the POTX entity was out of compliance
with hedging on February 10, 2021. ECF No. 243-16 at 5, 15. The
parties agree that the average of the daily NOP limits on the rolling 7-
day forecasts for both entities were out of compliance with hedging
requirements.
The Risk Policy does not require specific words demonstrating
approval. Mr. Osawa’s approval of Ms. Supple’s strategies to regain
compliance with hedging requirements might indicate approval of the
load forecast within the meaning of the Risk Policy. But there are
genuine factual issues that preclude a summary determination that the
approval was sufficient. For example, under the Risk Policy, approval
request emails for out-of-compliance next day load forecasts must be
sent “by 9:45 AM CST the day prior to flow.” ECF No. 230 at 163. The
same level of detail is absent for the rolling 7-day forecasts. Without
more evidence, it is unclear based on the current documentary evidence
whether Mr. Osawa’s approval was obtained in a manner that complied
with the Risk Policy.
With respect to the February 12 report, Entrust cites a February
11 Microsoft Teams conversation between Ms. Supple and Mr. Osawa.
ECF No. 266 at 152. Ms. Supple sent Mr. Osawa an image of a 7-day
load forecast that does not appear to be in final form and discussed her
hedging strategies. ECF No. 266 at 152–53. Mr. Osawa expressed his
approval of Ms. Supple’s hedging strategies and authorized her to
employ the strategies. ECF No. 266 at 155. Mr. Osawa and Ms. Supple
had the conversation about two hours before the February 12 report was
released via email. ECF Nos. 243-17 at 2; 266 at 155. For the same
reasons as the February 10 report, it is unclear at this stage whether
this is sufficient.
There is a genuine issue of material fact as to whether the
approvals of the February 10 and February 12 rolling 7-day reports
complied with the Risk Policy.
B. There Is a Genuine Issue of Material Fact as to
Whether Shell Is a Defaulting Party
If Entrust was not the Defaulting Party when Shell terminated
its Entrust transactions, then Shell may be in breach of the Energy
Contracts. That issue will be determined at trial. The parties also seek
an order granting summary judgment on the issue of whether Shell
breached its other contractual obligations and whether Entrust can
prove damages.
(1) If Entrust Was the Defaulting Party, Shell Was
Entitled to Suspend Performance
Entrust alleges that Shell breached the Energy Contracts because
it “failed to deliver electric power to Entrust from at least the period of
February 14, 2021, to February 16, 2021, before Shell’s improper
Termination Notice became effective, and before an Early Termination
Date had been designated by the Non-Defaulting Party.” ECF No. 154
at 42. Entrust essentially alleges that, even if Shell was entitled to
terminate the energy transactions, it was obligated to supply power
under the contracts until its termination notice was deemed effective.
The Court has previously determined that Shell’s termination notice is
deemed effective as of the close of business on February 16, 2021. ECF
No. 144 at 1.
Section 5.2 of the EEI Master Agreements provides:
If an Event of Default with respect to a Defaulting Party
shall have occurred and be continuing, the other Party (the
“Non-Defaulting Party”) shall have the right to (i)
designate a day, no earlier than the day such notice is
effective and no later than 20 days after such notice is
effective, as an early termination date (“Early Termination
Date”) to accelerate all amounts owing between the Parties
and to liquidate and terminate all, but not less than all,
Transactions (each referred to as a “Terminated
Transaction”) between the Parties, (ii) withhold any
payments due to the Defaulting Party under this
Agreement and (iii) suspend performance.
ECF No. 230 at 124.
Upon an Event of Default, the Non-Defaulting Party must wait
until a day no earlier than the day notice is effective to set an early
termination date and terminate the energy transactions. The early
termination date sets the timeframe for which the settlement amount of
the terminated transactions will be calculated. ECF No. 230 at 71. But
§ 5.2 does not set a specific time for when a party may suspend
performance upon an Event of Default. It only provides that upon an
Event of Default, the Non-Defaulting party “shall have the right to . . .
suspend performance.” ECF No. 230 at 124. The provision permits the
Non-Defaulting Party to immediately suspend performance upon an
Event of Default.
If Entrust was the Defaulting Party as of February 14, 2021, Shell
was entitled to immediately suspend performance on that date.4
If Entrust was not in default on February 14, 2021, then Shell
could not suspend performance. In that event, Shell may be held liable
for damages for its suspension.
(2) Wrongful Setoff
Entrust alleges that Shell breached the Energy Contracts by
calculating the Early Termination Payment in a wrongful and self-
serving manner. ECF No. 154 at 42. The parties have not presented
any arguments or evidence on the wrongful setoff issue at this stage of
the adversary proceeding. Summary judgment is inappropriate.
(3) Failure to Pay Invoiced Amounts
Entrust alleges that Shell breached the Energy Contracts “by
failing to pay the Invoiced Amount and/or all other amounts to which
Entrust, and now the Trust, is entitled under Section 4.1(b) and Article
5 of the EEI Master Agreements as the undisputed minimum amount
due under the EEI Master Agreements.” ECF No. 154 at 42–43.
The parties have also not presented any arguments on this issue.
On March 7, 2023, the parties entered into a stipulation to which Shell
paid Entrust the undisputed portion of the termination payment with
contractual interest. ECF No. 173 at 2–3. The stipulation provides that
the payment satisfies Entrust’s claim for relief for turnover of estate
property, but that “[n]o other claims stated in the Third Amended
Complaint will be deemed satisfied or dismissed by the Stipulated
Payment.” ECF No. 173 at 3.
In light of the stipulation, summary judgment is not appropriate.
4 This issue is separate from the early termination date issues, separately decided by
this Court.
C. Entrust Has Sufficiently Pled Damages
Shell argues that Entrust is unable to demonstrate that Shell’s
breach, if any, resulted in damages. ECF No. 244 at 24. Shell’s
arguments are a rehash of its defenses. Shell offers no argument or
evidence as to whether Entrust can actually prove its claimed damages.
Entrust’s allegations of damages arising out of Shell’s breach and
calculation of the termination payment are facially sufficient. See ECF
No. 154 at 42; Nat'l Mkt. Share, Inc. v. Sterling Nat. Bank, 392 F.3d 520,
525 (2d Cir. 2004). Summary judgment on this issue is denied.
II. SHELL’S DEFENSES
The parties seek summary judgment on Shell’s defenses of
acquiescence, waiver, estoppel, laches, and failure to exercise contract
rights / forfeiture of contract rights. Shell’s laches defense is denied with
prejudice. Summary judgment on the remaining defenses is denied.
A. There Is a Genuine Issue of Material Fact as to
Whether Shell Repudiated the Energy Contracts
Entrust argues that all of Shell’s defenses to which Entrust seeks
summary judgment must be dismissed “to the extent that they are based
upon allegations of conduct or omissions after Shell delivered its
Termination Notice.” ECF No. 229 at 47. Entrust argues that Shell
repudiated the Energy Contracts at the time it served its termination
notice, absolving Entrust of all further duties under the contracts after
the time of termination. According to Entrust, § 5.2 of the EEI Master
Agreements provides the exclusive remedies for default, which include
termination or suspension of energy transactions with “prior notice that
becomes effective on a Business Day.” ECF No. 229 at 49. Further,
under § 10.1 of the EEI Master Agreements, termination of the EEI
Master Agreements requires third days’ notice, and “[t]here are no
remedies permitted under the MPA that would allow immediate
termination or suspension of energy Transactions, or of the contract
itself, on any day of the week, let alone on a Sunday evening, even in
response to a ‘material’ breach.” ECF No. 229 at 49. Entrust argues
that, in violation of these terms, Shell announced in its termination
notice that “Shell will no longer transact with Entrust under the Master
Agreements or otherwise,” which acts as a complete repudiation of the
Energy Contracts. ECF No. 229 at 50. Accordingly, once Shell
repudiated all of its obligations in violation of § 5.2, “Entrust was no
longer under any obligation to provide Shell with any notice of Shell’s
wrongful termination, notice of opportunity to cure, nor notice of
Entrust’s designation of an Early Termination Date for purposes of
calculating the Termination Payment due to Entrust.” ECF No. 229 at
51.
Where a contract includes exclusive terms for termination, a
party must follow the contract’s termination requirements. See Process
Am., Inc. v. Cynergy Holdings, LLC, No. 12 Civ. 772 (BMC), 2014 WL
3844626 *9 (E.D.N.Y. April 30, 2014). For a repudiation of a contract to
be deemed to have occurred, “the expression of intent not to perform by
the repudiator must be ‘positive and unequivocal[.]’” Princes Point LLC
v. Muss Dev. L.L.C., 30 N.Y.3d 127, 133 (2017) (quoting Tenavision, Inc.
v Neuman, 45 N.Y.2d 145, 150 (1978)). A “party’s demand is a
repudiation only if it ‘amounts to a clear and unequivocal statement of
intention not to perform except on conditions that go beyond the
contract.’” U.S. Bank Nat. Ass'n v. Citigroup Glob. Markets Realty
Corp., No. 13 CIV. 6989 GBD, 2014 WL 7714382, at *5 (S.D.N.Y. Nov.
14, 2014) (quoting O'Shanter Res., Inc. v. Niagara Mohawk Power Corp.,
915 F. Supp. 560, 568 (W.D.N.Y.1996)). A wrongful repudiation of a
contract by one party entitles the nonrepudiating party to immediately
claim damages for breach. Princes Point LLC, 30 N.Y.3d at 133.
Section 7.1 of the EEI Master Agreements provides that the
remedies contained in the EEI Master Agreements are the parties’
exclusive remedies, and that all other remedies at law or in equity are
waived. ECF No. 230 at 127. If Shell expressed a “clear and unequivocal
statement of intention” to not perform under the Energy Contracts, it
would be considered a repudiation absolving Entrust of any further
duties under the contracts and entitling it to bring an immediate claim
for breach. But Shell’s termination notice does not necessarily indicate
an entire repudiation of all contracts.
Shell’s termination notice states that effective immediately,
“Shell will no longer transact with Entrust under the Master
Agreements or otherwise” and that “all transactions outstanding under
the Master Agreements are terminated.” ECF No. 230 at 237. The EEI
Master Agreements are contracts that govern the terms of energy
transactions entered into by the parties. The agreements define a
“Transaction” as “a particular transaction agreed to by the Parties
relating to the sale and purchase of a Product pursuant to this Master
Agreement.” ECF No. 230 at 120. The parties would enter into
individual transactions for the sale and purchase of power, which would
be governed by the EEI Master Agreements. When Shell gave notice
that it would “no longer transact with Entrust,” the notice can be
interpreted as a statement that Shell would no longer enter into further
transactions for the sale of power while continuing to employ the
agreements’ procedures for liquidating damages. It is difficult to
understand how even an erroneous termination would be the equivalent
of a “clear and unequivocal statement of intention not to perform” under
the contract. Even if Shell was mistaken that it was the Non-Defaulting
Party, Shell may not have repudiated the EEI Master Agreements
because it was continuing act pursuant to the termination provisions
contained in the agreements. Shell’s conduct following the termination
also does not suggest a repudiation, as Shell continued to act as the Non-
Defaulting Party by sending Entrust an early termination payment
calculation pursuant to § 5.2 of the EEI Master Agreements.
If Shell did not repudiate, then Entrust may have been required
to follow the exclusive remedies provisions in the EEI Master
Agreements by sending its own termination notice and termination
payment calculation. Although the Court does not yet determine the
propriety of Shell’s defenses, Entrust may have also waived its ability to
contest Shell’s termination of the energy transactions through its course
of conduct following the termination.
There are factual issues precluding any of those findings. For
example, it is unclear at this stage whether Entrust was aware at the
time of Shell’s termination that it may have been the Non-Defaulting
Party, and if so, the effect of that awareness on its duties under the
contracts. The parties have also submitted evidence suggesting that
following Shell’s termination payment calculation, the parties went
beyond the contract by engaging in settlement discussions instead of
following the EEI Master Agreements’ timeframes for objections and
payments of the settlement amount. These issues, and their effects on
the parties’ rights and responsibilities under the contracts, will be
determined at trial.
If Shell terminated the contracts while Entrust was the
Defaulting Party, then Shell followed the proper procedures for
termination. Section 10.1 of the EEI Master Agreements provides that
this Master Agreement shall remain in effect until
terminated by either Party upon thirty (30) days’ prior
written notice; provided . . . that this Master Agreement
and any other documents executed and delivered
hereunder shall remain in effect with respect to the
Transaction(s) entered into prior to the effective date of
such termination until both Parties have fulfilled all
obligations with respect to such Transaction(s), or such
Transaction(s) have been terminated under Section 5.2 of
this Agreement.
ECF No. 230 at 73 (emphasis added).
Under § 10.1, although thirty days’ notice is required to terminate
the EEI Master Agreements, the section is conditioned upon § 5.2,
which, as described above, permits the Non-Defaulting Party to
immediately suspend performance and set an early termination date no
earlier than the day notice is effective to accelerate all amounts owing
between the parties. ECF No. 230 at 124. Shell followed these
procedures, and the Court has held that its notice was deemed effective
on February 16, 2021. Even if Shell was required to provide thirty days’
notice to terminate the EEI Master Agreements, in light of the
provisions permitting immediate suspension of performance and
termination of the energy transactions upon the effective date of notice,
it is difficult to discern what damages a failure to provide thirty days’
notice would have caused.
There is a genuine issue of material fact as to whether Shell
repudiated the Energy Contracts.
B. Shell’s Laches Defense Is Denied
Shell’s seventh defense asserts the doctrine of laches against
Entrust’s breach of contract claim. “[L]aches is unavailable as a defense
to . . . claims of breach of contract[.]” Garber v. Stevens, 941 N.Y.S.2d
127, 129 (2012); see also Stoncor Grp., Inc. v. Peerless Ins. Co., 573 F.
Supp. 3d 913, 919 (S.D.N.Y. 2021).
Shell argues that, although laches is unavailable as a defense to
breach of contract claims, Entrust’s breach of contract claim is “in
essence, for a specific performance ‘re-do’ of the Termination Payment
process. Entrust characterizes its rights under the EEI Master
Agreement in its Motion as, among others, ‘enforcing its right to a
Termination Payment.’” ECF No. 241 at 62.
Shell is correct in arguing that laches would be available as a
defense to an equitable specific performance claim. See Granite
Broadway Dev. LLC v. 1711 LLC, 845 N.Y.S.2d 10, 11 (2007); Ikelionwu
v. United States, 150 F.3d 233, 237 (2d Cir. 1998). But Entrust’s breach
of contract claim is not a specific performance claim. The breach of
contract claim is a legal claim for damages. ECF No. 154 at 41–43, 54.
And to the extent that Entrust seeks to litigate the parties’ termination
payment calculations pursuant to the EEI Master Agreements, an
award of liquidated damages pursuant to a contract is a legal remedy
distinct from the equitable remedy of specific performance. See Granite
Broadway Dev. LLC, 845 N.Y.S.2d at 11.
Shell’s laches defense is denied with prejudice.
C. Summary Judgment on Shell’s Remaining Defenses
Is Premature
Summary judgment on _ Shell’s remaining defenses—
acquiescence, waiver, estoppel, and failure to exercise contract rights /
forfeiture of contract rights—is not ripe for decision. Resolution of the
defenses will require a preliminary determination on multiple preceding
issues, including whether Entrust was the Defaulting Party at the time
Shell terminated the energy transactions, whether Shell’s termination
of the transactions amounted to a repudiation of the Energy Contracts,
and whether the parties waived the EEI Master Agreements’
termination payment and notice provisions through their course of
conduct following Shell’s notice of termination.
Until the Court determines these threshold issues, genuine issues
of material fact preclude a finding as to the propriety of Shell’s defenses.
CONCLUSION
The Court will issue an order consistent with this Memorandum
Opinion.
SIGNED 02/04/2025
rr
_S/—4—
Marvin Isgur
United States Bankruptcy Judge
33 / 33