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Hu Honua Bioenergy, LLC v. Hawaiian Electric Industries, Inc.

United States District Court, D. Hawaii

November 9, 2018

HU HONUA BIOENERGY, LLC, a Delaware Limited Liability Company, Plaintiff,
v.
HAWAIIAN ELECTRIC INDUSTRIES, INC., a Hawaii Corporation; HAWAIIAN ELECTRIC COMPANY, a Hawaii Corporation; HAWAII ELECTRIC LIGHT COMPANY, INC., a Hawaii Corporation; NEXTERA ENERGY, INC., a Florida Corporation; and HAMAKUA ENERGY PARTNERS, L.P., a Hawaii Limited Partnership, Defendants.

          ORDER GRANTING IN PART AND DENYING WITHOUT PREJUDICE IN PART DEFENDANT NEXTERA ENERGY, INC.'S MOTION TO DISMISS SECOND AMENDED COMPLAINT, ECF NO. 148

          J. MICHAEL SEABRIGHT CHIEF UNITED STATES DISTRICT JUDGE.

         I. INTRODUCTION

         Defendant NextEra Energy, Inc. (“NextEra”) moves to dismiss the Second Amended Complaint (“SAC”) in this antitrust and breach-of-contract action arising out of the cancellation of Plaintiff Hu Honua Bioenergy, LLC's (“Plaintiff” or “Hu Honua”) power purchase agreement (“PPA”) with co-Defendant Hawaii Electric Light Company, Inc. (“HELCO”). HELCO had agreed to purchase wholesale power from Hu Honua, which was building an independent power plant run on biomass on the Big Island of Hawaii. HELCO cancelled the PPA, allegedly as part of an illegal antitrust conspiracy with NextEra and others, after problems arose with Hu Honua's construction of the power plant (although HELCO and Hu Honua have since renegotiated the PPA).

         Hu Honua filed the SAC after the court's January 19, 2018 Amended Order (the “January 19th Order”), which granted in part motions by NextEra and former co-Defendant Hamakua Energy Partners, L.P. (“HEP”) to dismiss the First Amended Complaint (“FAC”).[1] See ECF No. 137; Hu Honua Bioenergy, LLC v. Hawaiian Electric Indus., Inc., 2018 WL 491780 (D. Haw. Jan. 19, 2018). The January 19th Order, among other matters, dismissed federal antitrust claims - two counts alleging violations of sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1 & 2 - against NextEra and HEP, with leave to amend to attempt to rectify the identified deficiencies. Accordingly, Hu Honua filed the SAC on January 29, 2018. ECF No. 138. On March 13, 2018, NextEra moved to dismiss those realleged claims with prejudice. ECF No. 148. Hu Honua filed an Opposition on April 13, 2018, and NextEra filed its Reply on April 27, 2018. ECF Nos. 156, 157. The court heard the Motion on July 9, 2018. ECF No. 180. Based on the following, NextEra's Motion is GRANTED as to the federal claims. It is DENIED without prejudice as to the state claims - claims over which the court intends to decline supplemental jurisdiction under 28 U.S.C. § 1367(c)(3).

         II. DISCUSSION

         The January 19th Order comprehensively set forth the factual and legal background of this complicated action involving Hawaii's electric utility market, NextEra's proposed 2014 merger with HECO, HELCO's 2015 termination (and subsequent renegotiation) of the PPA, and HELCO's proposed purchase of a HEP facility. The instant Order does not repeat that background, and the court presumes a detailed familiarity with its prior Order. The court discusses new allegations in the SAC only as necessary to address NextEra's present motion, and otherwise relies on the January 19th Order for the context. The court proceeds directly to NextEra's arguments.

         A. Count One - Conspiracy to Monopolize

         Count One of the SAC realleges a claim for conspiracy to monopolize under 15 U.S.C. § 2, which makes it illegal for someone to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States[.]”[2] “To prove a conspiracy to monopolize in violation of § 2, [a plaintiff] must show four elements: (1) the existence of a combination or conspiracy to monopolize; (2) an overt act in furtherance of the conspiracy; (3) the specific intent to monopolize; and (4) causal antitrust injury.” Paladin Assocs., Inc. v. Montana Power Co., 328 F.3d 1145, 1158 (9th Cir. 2003) (citation omitted).

         The January 19th Order dismissed the conspiracy to monopolize claim (the FAC's Count One) for two primary reasons: (1) a lack of plausible factual allegations of a “specific intent to monopolize” the market for wholesale firm power generation on the Big Island; and (2) a lack of “causal antitrust injury.” Hu Honua Bioenergy, 2018 WL 491780, at *8-9. Relatedly, the court also dismissed the FAC's Count Two, alleging conspiracy to restrain trade in violation of 15 U.S.C. § 1 because the FAC did not plausibly allege an illegal conspiracy, id. at *14-15 - and that reasoning was also sufficient to dismiss Count One for conspiracy to monopolize as well. See, e.g., Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1576 (11th Cir. 1991) (“[A] section 1 claim and a section 2 conspiracy to monopolize claim require the same threshold showing - the existence of an agreement to restrain trade.”); IIIB Philip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 809 (4th ed. 2015) (hereinafter “Areeda & Hovenkamp”) (“Any arrangement that could be considered a ‘conspiracy' to monopolize [under § 2] must necessarily also be an unreasonable ‘contract,' ‘combination,' or ‘conspiracy' in restraint of trade offending § 1.”).

         The SAC's conspiracy to monopolize claim fails for the same fundamental reasons. That is, the SAC has not cured the FAC's deficiencies.

         1. An Implausible Conspiracy

         Initially, the SAC still alleges an implausible illegal antitrust conspiracy. Despite the SAC's amendments, two crucial facts remain that are inconsistent with Hu Honua's antitrust theory: Hu Honua's own failure to complete its power plant under the PPA's terms; and the NextEra/HEI Merger Agreement's prohibition of NextEra's “control” of decisions like HELCO's cancellation of the PPA or proposed purchase of HEP's power plant.

         a. Hu Honua's Initial Breach of the PPA

         The fact that Hu Honua failed to complete its power plant under the PPA's terms provides an “obvious alternative explanation” (i.e., besides an illegal conspiracy) for HELCO's cancellation of the PPA. See, e.g., Eclectic Props. E., LLC, 751 F.3d 990, 996 (9th Cir. 2014) (“When considering plausibility, courts must also consider an ‘obvious alternative explanation,' for defendant's behavior.”) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 682 (2009)); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 567 (2007) (“[I]t was not suggestive of conspiracy . . . [where] we have an obvious alternative explanation.”). The SAC continues to acknowledge that Hu Honua was unable to complete its biomass power plant as required by the express terms of the PPA. As with the FAC, the SAC explains that labor disputes, financing problems, and litigation with its construction contractors - all completely independent of NextEra, and its proposed merger with HECO - “caused an extended loss of time and delayed the completion of construction of the Hu Honua Facility, setting in motion the chain of events leading to this Complaint.” SAC ¶ 75. These events “caused an irretrievable loss of time in the construction of the Hu Honua Facility, ” such that Hu Honua “would not be able to achieve two milestone[] dates set forth in the PPA.” Id. ¶ 126. Thus, rather than inferring an illegal antitrust conspiracy from the timing of the proposed merger, the SAC itself explains the obvious alternative explanation for HELCO's termination of the PPA - Hu Honua's own nonperformance - rendering Hu Honua's conspiracy allegations implausible. Twombly, 550 U.S. at 567.

         And (as also explained in the January 19th Order) if HELCO unreasonably refused to extend milestone construction dates in accordance with the PPA, this might form the basis for a breach of contract claim against the Hawaiian Electric Defendants, but not for an antitrust conspiracy claim. See, e.g., Schuylkill Energy Res., Inc. v. Penn. Power & Light Co., 113 F.3d 405, 418 (3d Cir. 1997) (“The fundamental dispute . . . concerns the interpretation of the Power Purchase Agreement. This dispute should be resolved pursuant to common-law contract principles” not through antitrust laws); Orion Pictures Distrib. Corp. v. Syufy Enters., 829 F.2d 946, 949 (9th Cir. 1987) (“Orion has suffered a breach of contract, not an antitrust injury.”).

         b. The Merger Agreement's Consent Provisions

         Second, as with the FAC, the consent provisions of the NextEra/HEI Merger Agreement (whereby HELCO/HECO needed NextEra's prior consent before “enter[ing] into, terminat[ing] or amend[ing] in any material respect any material Contract, ” SAC ¶ 84) cannot alone constitute the necessary “combination or conspiracy” to monopolize. Paladin Assocs., Inc., 328 F.3d at 1158. This is because the Merger Agreement also provides that such consent “shall not be unreasonably withheld, conditioned or delayed, ” ECF No. 73-3 at 5, Merger Agreement at 38, and it specifies:

No Control of [HEI's] Business. [NextEra] acknowledges and agrees that (i) nothing contained in this Agreement is intended to give [NextEra], directly or indirectly, the right to control or direct the operations of [HEI] or an [HEI] Subsidiary prior to the Effective Time and . . . prior to the Effective Time, [HEI] shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and [HEI's] Subsidiaries' respective operations.

ECF No. 73-3 at 10, Merger Agreement at 43. That is, the Merger Agreement itself precludes control, and so - without more - it cannot form the basis of an illegal agreement in violation of antitrust laws.

         It remains true, as the court previously explained, that:

Rather than establishing unbridled control by NextEra (and its joinder in an illegal conspiracy), the [Merger Agreement] itself establishes no more than NextEra's routine consent in HELCO's decision. That is, the [SAC] “just as easily suggests rational, legal business behavior” by NextEra, rather than an illegal conspiracy to restrain trade. See Kendall [v. Visa U.S.A., Inc., 518 F.3d 1042, 1049 (9th Cir. 2008)] (“Allegations of facts that could just as easily suggest rational, legal business behavior by the defendants as they could suggest an illegal conspiracy are insufficient to plead a violation of the antitrust laws.”).

Hu Honua Bioenergy, 2018 WL 491780, at *14. See also Name.Space, Inc. v. Internet Corp. for Assigned Names & Numbers, 795 F.3d 1124, 1130 (9th Cir. 2015).

         2. No. Specific Intent to Monopolize

         Moreover, even accepting that NextEra and the Hawaiian Electric Defendants had some sort of an agreement regarding termination of the PPA, the SAC still fails to allege plausibly that NextEra had the “specific intent to monopolize” such that an agreement could have been part of an illegal antitrust conspiracy. See Paladin Assocs., Inc., 328 F.3d at 1158 (“To prove a conspiracy to monopolize in violation of § 2, [a plaintiff] must show . . . the specific intent to monopolize”).

         As to the FAC, Hu Honua argued that HECO terminated other independent power purchase agreements on Oahu (in the same time frame that HELCO terminated the Hu Honua PPA and sought to acquire HEP's facility on the Big Island) as part of a larger strategy - shared with NextEra - to plan for liquid natural gas sources of power after the proposed merger. The January 19th Order concluded, however, that such a common motive to increase profits did not indicate that NextEra had a “specific intent to monopolize” the wholesale power market on the Big Island. See Hu Honua Bioenergy, 2018 WL 491780, at *9 (“[T]here are no facts pled that would suggest NextEra specifically intended to monopolize that market[] merely by consenting to HELCO's termination of the Hu Honua PPA.”) (citing Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421 (9th Cir. 1995), and Syufy Enters. v. Am. Multicinema, Inc., 793 F.2d 990 (9th Cir. 1986)). This court reasoned that “[i]t is not enough to show that [a defendant] merely agreed to go along.” Id. (quoting Rebel Oil Co., 51 F.3d at 1438 n.8). “[I]t is not enough to suggest - as Hu Honua does - that NextEra shared a motive to increase prices or profits with a similar strategy.” Id. (citation omitted). “Motivation to enter a conspiracy is never enough to establish a traditional conspiracy.” Id. (quoting VI Areeda & Hovenkamp ¶ 1411 (4th ed. 2017)).

         The SAC adds further allegations detailing HEI's liquid natural gas strategy, purportedly in conjunction with the proposed merger and at the direction of NextEra. See, e.g., SAC ¶¶ 87, 88, 92, 94, 99, 103, 105, 107, 117, 119, 120, 122. But, as NextEra argues, these allegations continue to relate to other markets (Oahu), other products (liquid natural gas), and are largely directed at other Defendants (the Hawaiian Electric Defendants). And although these new allegations, like those in the FAC, might further indicate a motivation for why NextEra would agree to actions of HELCO (cancellation of the PPA, purchase of HEP's facility) during the relevant time period, they still do not indicate a specific intent on NextEra's part to monopolize the wholesale power market on the Big Island. Again, motivation is not enough. Rebel Oil Co., 51 F.3d at 1438 n.8; Hu Honua Bioenergy, LLC, 2018 WL 491780, at *9.

         There is nothing inherently wrong (at least for the alleged antitrust purposes) with this alleged liquid natural gas strategy. It is a legitimate ...


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