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Agreement required changes to be written, signed

‘Mutual understanding’ didn’t orally modify contract

A contract between two companies to develop renewable energy projects was not orally modified by a “mutual understanding” allegedly reached during mid-project conversations between the parties, a U.S. District Court judge in Rhode Island has ruled.

Under a master agreement for plaintiff Half Moon Ventures to invest in and ultimately purchase a series of development projects in Rhode Island from defendant Energy Development Partners, the plaintiff had the right of first refusal to invest in projects the defendant had in the pipeline.

For one of those projects, the parties entered a “services agreement” under which the defendant had to reimburse the plaintiff for payments it made toward the project before Dec. 31, 2016, if certain conditions were not met.

Meanwhile, under a “membership interest assignment agreement,” the plaintiff could withdraw from the project before its completion, at which point certain payments it made by that point would be applied to a future project offered to it during the “pipeline period” ending on Dec. 31, 2016.

When the project failed to proceed as expected, the plaintiff withdrew. At that point, the plaintiff sought reimbursement for payments it made in April 2017 and then sued the defendant for breach of contract and unjust enrichment when the defendant refused to do so.

The plaintiff argued that discussions between the parties during a project delay resulted in an understanding that reimbursement provisions in the services agreement would be extended into 2017 and constituted an oral modification of the contract’s terms.

But Judge John J. McConnell Jr. disagreed, pointing to clauses in the services agreement and master agreement stating that any changes to the contract must be in writing and signed.

“Here, [the plaintiff] has alleged a discussion between the parties but has not pointed to any specific act by [the defendant] indicating waiver of the no oral amendment clause,” McConnell wrote. “If the Court were to find an alleged discussion between parties is enough to infer waiver of a no-oral-modification clause, it would render all such clauses nugatory.”

Nonetheless, the judge went on to find that the plaintiff could still bring its breach of contract claim on other grounds and that the unjust enrichment claim also could proceed.

The 14-page decision is Half Moon Ventures, LLC v. Energy Development Partners, LLC, et al.

Richard L. Gemma of Providence, along with out-of-state counsel, represented the plaintiff. Steven J. Boyajian of Providence represented the defendant. Neither Providence attorney could be reached for comment.

Delayed development

Half Moon Ventures and Energy Development Partners signed their master agreement — specifically called the “Membership Interest Purchase and Sale Agreement,” or MIPSA — to develop renewable energy facilities in Rhode Island in September 2014.

The parties allegedly intended to use the MIPSA as a framework to be amended by future contracts related to specific development projects, known as “pipeline” projects, some of which were already identified by the time the MIPSA was signed.

Under the MIPSA, Half Moon Ventures got a right of first refusal to purchase projects during the “pipeline period” ending on Dec. 31, 2016.

On March 26, 2015, Half Moon Ventures and Energy Development Partners signed a services agreement for a pipeline project called the “Richmond Project.” Under the services agreement, Half Moon Ventures was to make “development advances” to Energy Development Partners as needed.

The services agreement also called for Energy Development Partners to repay any outstanding advances by Dec. 31, 2016. Additionally, should the project not be completed by that date, Energy Development Partners would need to reimburse Half Moon Ventures any of the purchase price it had paid by that point. Any such “purchase payments” would have to be made within two business days.

The membership interest assignment agreement, signed that same day, specifically called for those purchase payments as Energy Development Partners reached certain project milestones toward completion. That agreement also permitted Half Moon Ventures to withdraw from the project.

Withdrawal would obligate Energy Development Partners to apply development advances and purchase price payments made by Half Moon Ventures at that point to a future pipeline project offered Half Moon Ventures during the pipeline period.

The MIPSA and the services agreement also had clauses stating that the agreements could not be modified orally.

According to Half Moon Ventures, it was clear by late 2016 that the Richmond Project would not be completed by Dec. 31, 2016. But because Half Moon Ventures had invested so much time and energy at that point — despite having paid only $25,475 as a performance guarantee deposit — it wanted to see the project to completion.

But Half Moon Ventures also feared Energy Development Partners’ repayment obligations under the services agreement would lapse, so it allegedly began discussions about an extension of the obligations into 2017. Half Moon Ventures claimed those talks led to an understanding that repayment obligations would continue until project completion.

On April 26, 2017, Half Moon Ventures apparently made three purchase price payments for $634,222, allegedly in reliance on the discussions.

By June 2017, Half Moon Ventures grew convinced Energy Development Partners would not be able to finish the project and, in July, notified the defendant of its intention to withdraw and requested reimbursement of the purchase price payments.

Energy Development Partners refused to refund the money, instead telling Half Moon Ventures the payments had been credited to the plaintiff for future projects. The plaintiff then filed suit in U.S. District Court.

Unmodified contract, but claim continues

McConnell agreed with Energy Development Partners that the contracts were not susceptible to oral modification.

“Parties are generally free to orally modify contracts between them [but] when the parties agree beforehand to allow modification of the contract only in writing, the party alleging the modification must present facts showing waiver of the no-oral amendment clause,” the judge said, adding that a waiver must be proved by a “clear, unequivocal and decisive act of the party” that supposedly made the waiver.

Here, McConnell said, Half Moon Ventures provided no evidence of a specific act that indicated Energy Development Partners’ intent to waive the no-oral-modification clause.

“[The plaintiff] also alleges no course of conduct by [the defendant] that would imply wavier,” he added.

Nonetheless, McConnell decided, Half Moon Ventures still could proceed with its breach of contract action based on the agreements as written.

Specifically, he said, Energy Development Partners’ argument that the repayment obligations in the services agreement applied only to payments made before Dec. 31, 2016, may have oversimplified the intent of the parties.

“When the contract is viewed in its entirety, a reasonable inference can be made that the [services agreement] and the [membership interest assignment agreement] are premised on the assumption that [the plaintiff] would make either Service Advance payments or Purchase Price payments in the year and eight months leading up to the December 2016 repayment deadline,” McConnell said, pointing out that the plaintiff made no such payments during that time period.

Because Half Moon Ventures had made only purchase price payments in 2017 before withdrawing from the project, application of the provision in the membership interest assignment agreement stating that unreimbursed payments would be applied to future pipeline projects — which Energy Development Partners relied on in refusing to reimburse Half Moon Ventures in cash — is “murky,” McConnell continued.

Half Moon Ventures had a “reasonable” argument that, in 2017, once the pipeline period closed, the membership interest assignment agreement could not be applied as written, he said.

“How can 2017 payments be applied to ‘future’ pipeline projects if the Pipeline Period ended in 2016?” McConnell wrote.

Since it was not clear at the present stage whether the plaintiff was entitled to reimbursement of the purchase payments under the contract as written, it would be inappropriate to dismiss the breach of contract claim, the judge concluded, applying the same reasoning to rule that the plaintiff’s unjust enrichment claim could proceed as well.

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