MARY ELLEN COSTER WILLIAMS, Judge.
Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 ("ARRA"), Pub. L. No. 111-5, Div. B, tit. I, § 1603, 123 Stat. 115, 364-66 (2009) ("Section 1603" or "§ 1603") requires the Secretary of the Treasury to provide a grant, upon application, to individuals who "place[] in service specified energy property" in 2009 or 2010 for a portion of the expense of such property. Plaintiffs Ampersand Chowchilla Biomass, LLC ("Chowchilla") and Merced Power, LLC ("Merced") own open-loop biomass facilities in Chowchilla, California, and Merced, California, respectively. Plaintiffs submitted Section 1603 grant applications for both facilities to the U.S. Department of the Treasury ("Treasury") in October 2011, which Treasury denied on the basis that both facilities had been "placed in service" in 2008. Plaintiffs thereafter brought suit against the United States in this Court, alleging that the Government improperly failed to provide Plaintiffs with Section 1603 grants. The central dispute in this case is when the facilities were "placed in service."
The parties filed cross-motions for summary judgment. Plaintiffs claim that the facilities were both "placed in service" on August 28, 2011, while Defendant claims that the facilities were placed in service in 2008. Defendant further argues that Plaintiffs violated material terms of the Section 1603 program that disqualify them from eligibility. Finally, Defendant contends that Plaintiffs' claims are statutorily barred because the prior owners took certain tax credits for these same facilities. Genuine issues of material fact prevent the Court from granting either motion.
Plaintiffs Ampersand Chowchilla Biomass, LLC and Merced Power, LLC are two wholly owned subsidiaries of Global Ampersand, LLC, an entity wholly owned by ACM California, LLC, which in turn is wholly owned by Akeida Environmental Fund LP ("Akeida Environmental"). Pls.' Ex. 6.
The Chowchilla and Merced open-loop biomass facilities were constructed by California Agricultural Power Corporation ("CAPCO") and began operations in the late 1980s. Pls.' Ex. 1, at 1. The facilities were shut down and mothballed in 1995, and were eventually sold to Global Commons, LLC ("Global Commons").
Plaintiffs restarted the Chowchilla and Merced facilities on April 24, 2008, and July 5, 2008, respectively. Pls.' Mot. 2. There is no dispute that both facilities produced some power during 2008. Def.'s Mot. 10, Exs. 3, 5, 7; Pls.' Exs. 2, at 9 and 5, at 3. It is also undisputed that the Chowchilla facility sold some power to PG&E in December 2008, and the rest of the power produced by both facilities in 2008 was sold to the California Independent System Operator ("CAISO"). Def.'s Ex. 9, at 5. CalBio began taking production tax credits ("PTCs") for the energy produced by both facilities in 2008, and continued to do so in 2009 and 2010. Def.'s Exs. 12, 41, 42; Jt. Stip. ¶ 18. The parties dispute whether Akeida was aware that CalBio took PTCs prior to the acquisition.
Soon after the facilities restarted in 2008, the San Joaquin Valley Unified Air Pollution Control District (the "District") and the United States Environmental Protection Agency ("EPA") began issuing Notices of Violation for operating in violation of the facilities' respective Authority to Construct ("ATC") permits. Pls.' Ex. 12. The facilities continued to receive Notices of Violation throughout 2009 and 2010. Pls.' Exs. 14, 15. Based upon these alleged violations, the United States and the District filed an 18-count Complaint against Merced and a 20-count Complaint against Chowchilla in February 2011, seeking injunctive relief against both facilities.
The District granted the Merced facility a Permit to Operate ("PTO") on March 1, 2010, and granted the Chowchilla facility a PTO on April 21, 2010. Pls.' Ex. 5, at 1. The parties dispute whether either facility should have been granted a PTO. According to Plaintiffs, during the time the facilities were operated by CalBio "neither facility was operated in accordance with its permit requirements." Pls.' Mot. 2;
According to the Complaints filed against Plaintiffs by the United States in February 2011, both facilities had temporarily ceased operations in June 2010. Pls.' Exs. 14, at ¶ 50 and 15, at ¶ 50. On June 19, 2009, Akeida, through a wholly owned subsidiary, ACM Corp. 4, LLC, provided a $9,000,000 senior secured term loan to Global Ampersand. Def.'s Ex. 13, at 1; Abrahams Dep. 105:7-14. ACM Corp. 4, LLC, entered into a subordination agreement with D.E. Shaw at the time in order to make the ACM loan senior to D.E. Shaw's note. Def.'s Ex. 19, at 11. On December 16, 2010, ACM Corp. 6, LLC, a wholly owned subsidiary of Akeida Environmental, purchased for $350,000 an outstanding loan that had been made by D.E. Shaw to Global Ampersand in the principal amount of $39,509,999, with $17,968,269 in interest having accrued before the note was purchased. Def.'s Exs. 17, at 2 and 18, at 2. On December 28, 2010, Akeida Environmental, through ACM California LLC, acquired 100% of CalBio's interest in Global Ampersand for a total purchase price of $1.4 million. Def.'s Ex. 8, at 17.
After the acquisition, Plaintiffs made improvements to the facilities in the amount of $14.9 million, consisting of $7.56 million and $7.39 million for Chowchilla and Merced, respectively. Def.'s Exs. 26, 27. Plaintiffs contend such improvements were necessary for the facilities to generate power legally. On April 25, 2011, the Federal District Court entered Consent Decrees against both facilities. Pls.' Exs. 20, 21. Plaintiffs represent that operations, which had ceased in June 2010, did not resume until August 11, 2011, when Plaintiffs provided the District and the United States with certifications of their compliance with the Consent Decrees. Pls.' Ex. 11, at 6, 8; Pls.' Suppl. Exs. 9-13, 36-38.
Chowchilla applied for a Section 1603 grant on October 4, 2011. Jt. Stip. ¶ 4. Merced applied for a Section 1603 grant on October 21, 2011, but withdrew the application and then refiled on May 16, 2012. Jt. Stip. ¶ 5. Chowchilla claimed a Section 1603 grant of $12,282,984, and Merced claimed a Section 1603 grant of $12,299,273. Def.'s Exs. 24, at 5 and 25, at 5; Jt. Stip. ¶¶ 4-5. On their applications, Plaintiffs both reported that their properties were placed in service on August 11, 2011. Def.'s Exs. 24, 25. Treasury disagreed, stating:
Def.'s Ex. 31.
Based on what it termed "eligible costs [incurred by the current taxpayer] since December 28, 2010," Treasury awarded $1,136,207 to Chowchilla and $1,136,519 to Merced.
The Court has jurisdiction over this action pursuant to the Tucker Act, 28 U.S.C. § 1491 (2016). The Tucker Act waives sovereign immunity and provides this Court with jurisdiction over specific categories of claims against the United States, including those claims "founded either upon the Constitution, or any Act of Congress or any regulation of an executive department . . . in cases not sounding in tort." § 1491(a)(1). "[T]he claimant must demonstrate that the source of substantive law he relies upon can fairly be interpreted as mandating compensation by the Federal Government for the damages sustained."
In granting a motion for summary judgment, a court must find that there is no "genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." RCFC 56(a). A genuine dispute is one which "may reasonably be resolved in favor of either party."
When opposing parties both move for summary judgment, "the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration."
The Court reviews tax refund claims, including those predicated on Section 1603, on a
Plaintiffs ask this Court to determine that the facilities "could not have been placed in service in 2008, and [were] instead placed in service on August 11, 2011." Pls.' Mot. 1. Defendant asks this Court to instead grant summary judgment in its favor, contending:
Def.'s Mot. 1.
The parties agree that the facilities at issue are open-loop biomass facilities that could qualify for the Section 1603 program, and that the properties must have been "placed in service" between 2009 and 2011, in order to be eligible. Pls.' Mot. 11; Def.'s Mot. 6. However, the parties dispute whether the facilities were in fact "placed in service" in 2008, as Defendant contends, or in August 2011, as Plaintiffs contend.
Both parties rely upon Treasury Regulation § 1.46-3(d)(1)(ii) for the proposition that in order to determine whether and when the facilities were "placed in service," the Court must determine during which taxable year the facilities were "placed in a condition or state of readiness and availability for a specifically assigned function. . . ." 26 C.F.R. § 1.46-3(d)(1)(ii). The Court of Federal Claims has explained that it is the taxpayer that determines what the "specifically assigned function" of the asset is.
Plaintiffs state that the "specifically assigned function" of the two plants was to "sell base load power to PG&E in Central California," as set forth in the PG&E power purchase agreements. Hr'g Tr. 9. Plaintiffs further posit that "base load is defined in California to be a capacity factor of at least 60 percent measured annually."
The Treasury Department's guidance regarding the Section 1603 program reiterates the precept of the regulations that "[p]laced in service means that the property is ready and available for its specific use." Def.'s Ex. 2, ("Treasury Guidance") at 5. Further, under this Treasury Guidance, in order to demonstrate that property has been "placed in service" the applicant must submit, among other things, "[a] report provided by the project engineer, or the equipment vendor, or an independent third party that certifies that the equipment has been installed, tested, and is ready and capable of being used for its intended purpose."
Plaintiffs contend that this Court should follow the five-factor analysis set forth in
The
Although they concede that
With respect to the first factor, Plaintiffs argue that operating licenses and permits had not been obtained in 2008, and the facilities were operating contrary to their Authorities to Construct ("ATCs") at all times prior to 2011; neither Chowchilla nor Merced had equipment necessary to meet the terms of their ATCs; Plaintiffs had not completed the tests required to convert the ATCs to Permits to Operate ("PTOs") until August 11, 2011; and while Chowchilla had been granted a variance in 2009, to allow it to continue operating, it was only for purposes of testing, and Merced was not allowed a variance at all.
With respect to the second factor, Plaintiffs argue that neither facility had passed critical tests until after 2008. Pls.' Mot.19. According to Plaintiffs, there were several critical tests that were required to be performed on the facilities, including: a source test; a Relative Accuracy Test Audit ("RATA"); and a seven-day drift test.
With respect to the fifth factor, Plaintiffs argue that neither facility began daily operations until August 2011, as the facilities suffered from repeated shutdowns and experienced compliance issues before that time.
Defendant, while agreeing that the five-factor analysis articulated in
Defendant further relies upon CalBio's taking production tax credits and depreciating the facilities in 2008 as indicia that the facilities had been placed in service at that time. Defendant notes that as of 2008, the facilities had been synchronized to the grid and Plaintiffs were in control of the facilities. Defendant also argues that Plaintiffs failed to establish that the facilities were not operated in accordance with their permits in 2008, or that the allegedly missing systems and other equipment were significant. Def.'s Reply 16. Finally, Defendant claims that if Plaintiffs' legal theory is correct—that a power plant is only placed in service if it complies with all aspects of its permits—then Plaintiffs would never have placed the property in service because they had ongoing environmental violations and outages subsequent to 2011.
There are genuine issues of material fact or gaps in the current record regarding when the facilities were placed in service, including the following:
1) What the "specifically assigned function" of the facilities was;
2) To what extent the violations alleged in the Complaints and Notices of Violation served on Plaintiffs by the United States and the District impact whether the facilities were available for their intended purpose;
3) Whether the PTOs were wrongly issued;
4) The extent to which Plaintiffs were permitted to operate under the ATCs;
5) The amount of power the Chowchilla facility sold to PG&E in December 2008, as compared to Chowchilla's operating capacity and its obligations under its PPA;
6) Whether the facilities were obligated to sell power that was produced incidental to testing in 2008 on the spot market, and the significance of such sales to the placed-in-service date;
7) What the purpose and function of the missing equipment and systems were;
8) What the purpose and function of the tests that Plaintiffs assert had not been performed in 2008 were.
Defendant argues that the doctrine of "quasi estoppel," also known as the "duty of consistency," operates to bind Plaintiffs to the tax position taken by CalBio, their prior owner. Def.'s Mot. 28. The duty of consistency prevents (1) a taxpayer from adopting a position in one year and (2) subsequently adopting a contrary position regarding the same facts or transaction (3) after the statute of limitations has expired regarding the first position.
To support its contention that CalBio and Akeida's interests in the facilities are sufficiently related, Defendant asserts that (1) Akeida is bound to CalBio's determination that the facilities were placed in service in 2008 by dint of being the transferee of the facility; (2) Akeida was aware as of the time its subsidiary, ACM Corp. 4, LLC, an Akeida-owned investment vehicle, made a loan to CalBio in 2009, to assist CalBio's efforts to refurbish the facilities, that CalBio was taking PTCs; and (3) Akeida desired that CalBio take the PTCs, and benefited from them insofar as it further secured the 2009 loan for Akeida's subsidiary, ACM Corp. 4, LLC. Def.'s Suppl. Exs. 2, at 17 and 3, at 4; Def.'s Exs. 8, 13.
Material facts are disputed regarding the interrelation between Akeida and CalBio, including their financial relationship, including:
1) What the interrelation between Akeida and CalBio was;
2) Whether Akeida knew that CalBio was claiming PTCs or depreciation;
3) If Akeida knew CalBio was claiming PTCs or depreciation, whether Akeida requested it to do so;
4) If Akeida knew CalBio was claiming PTCs or depreciation, whether Akeida required CalBio to do so.
Defendant argues that even if Plaintiffs' facilities were not "placed in service" in 2008, and even if Plaintiffs are not bound by the tax positions taken by CalBio, Defendant is entitled to summary judgment because Plaintiffs violated material terms of the Section 1603 program. Specifically, Defendant contends that Plaintiffs falsely represented to Treasury in 2013, 2014, and 2015, that Plaintiffs had not experienced any interruptions in production. According to Defendant, this statement constituted a material misrepresentation that disqualified Plaintiffs from receiving a Section 1603 grant. Plaintiffs, on the other hand, contend that they did not make any misrepresentation to Treasury, that they had disclosed enough information to indicate there had been some temporary shutdowns, and that even if Plaintiffs made any misrepresentation to Treasury, such misrepresentation was not material.
Treasury issued guidance, incorporating Terms and Conditions on its administration of the Section 1603 program, requiring Section 1603 grant awardees to submit an annual report to Treasury for five years following the time when the property was placed in service. This annual report included a certification that "the property has not been disposed of to a disqualified person and that the property continues to qualify as specified energy property (as that term is used in Section 1603)." Def.'s Ex. 1, at 2. Condition 6b includes a requirement for the applicant to repay all or portions of the grant to Treasury "[i]f the property is disposed of to a disqualified person and/or ceases to qualify as a specified energy property (hereinafter "disqualifying event") within five years from the date the property is placed in service[.]"
In the specific form Treasury provided for the annual reports, Treasury asked applicants, among other things, if they experienced "any interruptions in production during the year, other than routine maintenance[.]" Def.'s Exs. 32-37. Plaintiffs certified in their annual reports for 2013, 2014, and 2015, that they had not experienced any such interruptions in production.
Plaintiffs respond by asserting that David Kandolha, who signed the reports as the Plaintiffs' "Manager," made the representations in good faith, believing that the reports were not asking about temporary shutdowns. According to Plaintiffs, Mr. Kandolha understood the purpose of the reports was to certify that the plants were still operating in order to satisfy Treasury that no recapture of grant monies was warranted. Kandolha Dep. 91-92. The Treasury Guidance provides that "[t]emporary cessation of energy production will not result in recapture provided the owner of the property intends to resume production at the time production ceases." Def.'s Ex. 2, at 19. According to Plaintiffs, as temporary shutdowns would not constitute an interruption in production sufficient to trigger any recapture, Mr. Kandolha believed it was accurate to state that there had not been reportable interruptions in production. Additionally, as the representation would not have triggered any recapture, Plaintiffs contend the representation cannot be deemed material. Plaintiffs also claim that they submitted documentation along with the annual reports for each year that would have permitted Treasury to determine there had been temporary shutdowns.
There are genuine issues of fact regarding Mr. Kandolha's understanding of the reports and belief in making these representations, the extent or duration of the shutdowns alleged in the
In the alternative, Defendant asserts that, as a matter of law, CalBio's conduct in taking PTCs for power produced by the facilities—properly or otherwise—disqualifies property that was part of those facilities from eligibility under Section 1603.
Section 1603 requires the Secretary of the Treasury to provide a grant, upon application, to individuals or entities that "place[] in service specific energy property." Section 1603(d) provides that "the term `specific energy property'" includes "[a]ny qualified property (as defined in section 48(a)(5)(D) of the Internal Revenue Code of 1986) which is part of a qualified facility (within the meaning of section 45 of such Code) described in paragraph (1), (2), (3), (4), (6), (7), (9), or (11) of section 45(d) of such Code."
Section 48(a)(5)(D) of the Internal Revenue Code defines "qualified property" as property:
Section 48(a)(5)(D) (emphasis added).
Plaintiffs contend that the property at issue constitutes "tangible personal property" subject to Subpart I. Defendant does not substantively disagree with that classification, but posits that the condition in Subpart II, "other tangible property,"—a condition Defendant claims the facilities cannot meet—also applies to Subpart I, "tangible personal property." Defendant would thus import the phrase "but only if such property is used as an integral part of the qualified investment credit facility" into the definition of "tangible personal property."
The definition of a "qualified investment credit facility" includes another condition, stating that a facility can only be "qualified" if "no credit has been
There are two major obstacles to construing the statue as Defendant asks.
First, Defendant must rewrite the definition of "qualified property" by importing a condition into "tangible personal property" which, by the clear words of the statute, is not there.
Second, Defendant assumes, without citing any legal authority, that because CalBio took a Section 45 credit and the IRS did not challenge that tax position, it was legally "allowed" within the meaning of the statute.
Plaintiffs contend that the property at issue is "tangible personal property," not "other tangible property."
"[O]ther tangible property" may only qualify for a Section 1603 grant if that property is "used as an integral part of the qualified investment credit facility," and a "qualified investment credit facility" is one for which "no credit has been allowed under section 45." If "other tangible property" is at issue, Plaintiffs could be barred from obtaining a Section 1603 grant for such property if the prior taxpayer had been "allowed" a Section 45 credit for the facility containing such property—"allowed" being a term whose meaning the parties have not addressed in their briefing.
The same is not true of "tangible personal property" because Subpart I, unlike Subpart II, does not expressly provide that the property must be an "integral part of the qualified investment facility," and thus one for which "no credit has been allowed under section 45," to constitute "qualified property."
Defendant recognizes this dichotomy but asserts that formalistically applying the plain language of the statute would frustrate Congressional intent and lead to absurd results. Defendant posits that "tangible personal property" must also be an "integral part of the qualified investment credit facility," in order to qualify for a Section 1603 grant even though that condition is not stated in Subpart I, "tangible personal property."
None of Defendant's arguments persuade the Court to vary the otherwise plain language of the statute.
Second, Defendant has not addressed the meaning of "allowed" in Section 48(a)(5)(C). Defendant's arguments are premised on the assumption that Section 48(a)(5)(C)'s reference to Section 45 credits having been "allowed" means that the taxpayer claimed those credits and the IRS did not challenge its claim without regard to whether those credits
Plaintiffs' motion for partial summary judgment is
