On September 29, 2023, U.S. Magistrate Judge Hal R. Ray Jr. of the U.S. District Court for the Northern District of Texas issued a report and recommendation on a summary judgment motion in a case arising out of fixed-volume energy hedge agreement between JPMorgan Chase Bank NA and Canadian Breaks and the fallout from Winter Storm Uri. The R&R recommends that the district court grant summary judgment in favor of JPMorgan and find that, under New York law, (i) Winter Storm Uri did not constitute a force majeure event under the parties’ agreement excusing Canadian Breaks’ nonperformance, and (ii) that JPMorgan did not breach the agreement by exercising self-help collection remedies.
Under an agreement with JPMorgan, Texas wind farm operator Canadian Breaks was required to schedule daily fixed quantities of energy for sale to JPMorgan in exchange for payment of a fixed price of $19.55 per MWh. The agreement created a two-part structure where Canadian Breaks would deliver energy generated at its wind farm to the grid at the market price and thereafter purchase the contractual amount of energy on the market for resale to JPMorgan. In February 2021, reeling from the effects of Winter Storm Uri, Canadian Breaks issued a notice of force majeure to excuse its failure to deliver the contractual volumes of energy. The agreement broadly defined force majeure, limited by specific exceptions, including “the loss or failure of [Canadian Breaks’] supply.” To cover the shortfall and its obligations to third parties, JPMorgan purchased energy at the market price, which had risen to $9,000 per MWh in an attempt to stimulate supply and reduce demand. As provided in the agreement, JPMorgan invoiced Canadian Breaks approximately $71 million to cover the difference between the fixed contract price and the market price paid. After Canadian Breaks failed to pay the invoice in full, JPMorgan sought to exercise remedies to collect the remaining balance.
In recommending summary judgment in favor of JPMorgan, the magistrate judge rejected Canadian Breaks’ argument that “supply” was ambiguous and, thus, refused to consider extrinsic evidence purportedly showing the parties intended for it to mean “replacement parts or the like.” Instead, the R&R found that supply meant the energy Canadian Breaks generated at its wind farm, citing two other New York state rulings that reached the same conclusion interpreting similar language. The R&R also found that Canadian Breaks had failed to prove any affirmative defenses to its nonperformance and recommended rejecting Canadian Breaks’ claim that JPMorgan breached the agreement through its allegedly “heavy-handed” collection efforts while Canadian Breaks was disputing the invoice.
The District Court has not yet ruled on the R&R, but it held a hearing on December 20, 2023, to address two issues from Canadian Breaks’ objection to the R&R: (i) whether the charges submitted by JPMorgan for replacement costs include “ratcheted demand” as prohibited under the agreement; and (ii) whether JPMorgan improperly exercised its default remedies.
The case is Canadian Breaks LLC v. JPMorgan Chase Bank NA, Case No. 2:21-cv-37 (N.D. Tex. Sept. 29, 2023). Canadian Breaks is represented by Meadows Collier Reed Cousins Crouch and Ungerman LLP and Alpha Trial Group LLP. JPMorgan is represented by King & Spalding LLP. The opinion is available here.
