ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Sunday, July 3, 2011

Preliminary Agreement Enforced in Minnesota: Siemens Wins Again

Wind Turbines Outland Renewable Energy LLC an operator of wind farms brought suit against Siemens Energy Inc. for a breach of duty of good faith.  Siemens claimed that Outland had breached a binding preliminary agreement (a term sheet) that both parties signed in 2007 agreeing to negotiate a sales and maintenance agreement of wind turbine generators.  The term sheet obligated Outland to pay a $15.2 million reservation fee that would automatically convert into a cancellation fee if the parties could not reach a final agreement.  The trial court ruled that the term sheet was enforceable and that there was no breach or violation of the duty of good faith.  Outland appealed to the Minnesota Court of Appeals, which affirmed the trial court’s ruling in Outland Renewable Energy LLC v. Siemens Energy, Inc.

In the term sheet, which was governed by NY law, the parties agreed on the design, supply, transportation, erection, and commissioning of 87 wind turbine generators that Outland was to purchase from Siemens for a total cost of $321.9 million.  Delivery was to begin in the first quarter of 2010.  The parties agreed to negotiate in good faith until they either reached a definitive supply and service maintenance agreement or until October 1, 2008.  The term sheet was not intended to be the final agreement between the parties.  Outland was unable to secure the requisite financing and filed suit, seeking the return of the $15.2 million fee and a declaration that the term sheet was unenforceable.

Although both the trial court and the court of appeals were persuaded that the parties had not concluded a binding agreement for the sale of 87 wind turbines, both found that their preliminary agreement was a separate, enforceable agreement relating to the reservation/cancellation fee.  In consideration of the $15.2 million fee, Siemens reserved capacity and manufacturing space for the project. 

The Court of Appeals treated the $15.2 million reservation fee like the consideration one gives for an option contract. Outland paid for the right to reserve and eventually purchase 87 wind turbine generators from Siemens.  Because the fee was the consideration for the option, the court ruled that it did not constitute liquidated damages. 

[JT & Jared Vasiliauskas]


July 3, 2011 in Recent Cases | Permalink | Comments (0) | TrackBack (0)

Friday, July 1, 2011

Protection of Domestic Industry UK Style

Bombardier Train Today's Guardian has a story about two cabinet ministers who have sent a carefully worded letter of complaint to British Prime Minister David Cameron protesting the award of a £3 billion contract for the manufacture of train carriages (cars) to the German company, Siemens.  The ministers are upset that the contract was not awarded to Bombardier, which employs 3,000 people in Derby and is the last remaining train factory in Britain.

The ministers apparently express concern that Britain EU partners do not play fair.  After all, the German government recently awarded a £5.4 billion high-speed train contract to German-based Siemens.  And just last year, the French government awarded a £540 million contract to Siemens rather than to Paris-based Alstom.  

Wait a minute.  Doesn't this suggest that Siemens always wins these big contracts rather than that member states of the EU engage in favoritism?  Moreover, Bombardier is not even a UK company.  It's Canadian!  A union representative in Derby is quoted by the Guardian as expressing concern that Bombardier will shut down operations in England.  After all, if it can't win a UK contract, what's the point of even having a factory there?  Simple solution.  Sell the factory to Siemens.  They seem pretty busy.



July 1, 2011 in Famous Cases, Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

E-mail Threatening Resignation Constitutes Repudiation in Virginia

VA Flag On June 9, 2011, The Virginia Supreme Court decided an employer could use repudiation of an ongoing contract as a defense against a suit for breach of contract by the employer in Bennett v. Sage Payment Solutions, Inc.

Robert P. Bennett, former President of Sage Payment Solutions, brought suit against the company for severance payments due under his employment agreement. 

Bennett was promoted to President of Sage Payment Solutions in February 2008.  With this promotion, Sage and Bennett entered into an Executive Employment Agreement. Under this agreement, Bennett earned $360,000 annually which automatically renewed for one-year terms every year. Other provisions of the contract included severance benefits which were due Bennett unless he resigned without “good cause” or was terminated for “good cause” and a non-competition agreement that restricted Bennett’s employment for 12 months. 

On June 7, 2008, Bennett e-mailed Sage requesting a salary increase to around $1 million annually.  After all, in 2008 the economy was humming along and what could possibly go wrong?  The e-mail specified that if this request could not be satisfied, a mutually agreeable transition plan would need to be entered because Bennett would be leaving.  When his compensation did not increase, Bennett looked for other positions openly but continued in his position.  Sage claims the e-mail was a resignation, while Bennett characterizes the refusal to meet the compensation demands as termination.  Either way, Bennett’s employment was terminated September 30, 2008.

Bennett filed suit against Sage seeking his severance payments.  After some delay, Sage asserted the affirmative defense of repudiation.  Although Bennett objected, repudiation was submitted to the jury, which ruled in favor of Sage. The issue on appeal to the Supreme Court of Virginia was: Can an employee’s repudiation of an employment agreement be used as a defense to a breach of contract claim against the employer after performance has begun?

Virginia generally recognizes that anticipatory repudiation can be a defense to breach of contract, it had never ruled on repudiation after performance had begun.  In Bennett, the Court drew on one of its previous decisions, one decision from the U.S. Supreme Court and the Restatement (2d) of Contracts § 250 and determined that repudiation may apply to a contract that has been partially performed, if future obligations are repudiated.

Applying this principle to Bennett, the Court found that his e-mail constituted a repudiation of the contract by stating he would leave the company four months into a yearlong contract if his salary was not increased.  

[JT & Katherine Freeman]


July 1, 2011 in Recent Cases | Permalink | Comments (0) | TrackBack (0)