X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
A federal jury in Houston awarded $136.8 million in damages in an overseas power plant deal gone bad. The winner, Canatxx Energy Ventures Inc., alleged that its financial adviser for the $1 billion power-generation development project conspired with an affiliate to oust Canatxx from the project. After a three-week trial, the jury in Canatxx Energy Ventures Inc. v. General Electric Capital Corp. issued its verdict on Aug. 4 in U.S. District Judge Kenneth Hoyt’s courtroom. The jury awarded Houston-based Canatxx $136.1 million in actual damages after finding that GE Capital breached its fiduciary duty to Canatxx, committed constructive fraud, engaged in acts of unfair competition and was part of a conspiracy that damaged Canatxx. Jurors also found that GE Capital acted with “malice, willfulness or fraud or reckless indifference” to Canatxx’s rights and awarded $700,000 in punitive damages. Guy E. Matthews, lead counsel for Canatxx and a shareholder in Matthews, Lawson, Bowick & Al-Azem in Houston, estimates that, with prejudgment interest and potential attorneys’ fees, the ultimate award in the suit could exceed $200 million. Finis Cowan Jr., one of the attorneys representing GE Capital, says his client will appeal to the 5th U.S. Circuit Court of Appeals. “We feel awfully bad for GE Capital about this result,” says Paul Yetter, a partner in Yetter & Warden in Houston and lead counsel for GE Capital. “This is the most devastating defeat of my career, and I’ve been practicing law now for almost 55 years,” says Cowan, a former federal judge for the Southern District of Texas who now is of counsel at Yetter & Warden. It’s a case that has gone through a number of twists and turns since 1999, when Canatxx filed the suit against General Electric Power Systems Inc. (GEPSI) in the U.S. District Court for the Southern District in Galveston. Shortly thereafter, U.S. District Judge Samuel B. Kent of Galveston sua sponte ordered the case transferred to the Houston Division on the ground that it had no connection to Galveston. A string of recusals followed. U.S. District Judges Melinda Harmon, Nancy Atlas, David Hittner (now a senior judge) and Ewing Werlein Jr. recused themselves from the case without stating a reason in their orders. Canatxx added GE Capital as a defendant in 2000. Acting on a motion by Canatxx, Hoyt dismissed GEPSI as a defendant with prejudice in 2002. Scott Lassetter of Houston’s Lassetter Law Firm and Dan S. Boyd of Dallas’ Boyd Law Firm, who represented GEPSI in the suit, each did not return telephone calls seeking comment before presstime on Aug. 10. Matthews says Canatxx had engaged in arbitration with GEPSI. There was an arbitration clause in the termination agreement that ended Canatxx and GEPSI’s business relationship, but there was no arbitration agreement with GE Capital. Matthews says the arbitration resolution may have released GEPSI as to the facts alleged in Canatxx. “We didn’t think so, but we said why fight it,” he says. Cowan contends that, through the termination agreement, Canatxx received “a great deal more value” than GEPSI did in the termination agreement. The 5th Circuit already has seen the case once. In 2002, a three-judge panel of the 5th Circuit affirmed Hoyt’s decision not to compel Canatxx to arbitrate its claims against GE Capital. The district court is in a better position to make that call, “and we do not lightly override that discretion,” Judge Patrick Higginbotham wrote for the panel. Robert M. Parker, at the time a 5th Circuit judge, and Senior Judge Thomas Reavley joined Higginbotham in the decision. Mid-Merit Plant In its fourth amended complaint, Canatxx alleged that it began efforts to develop two power plants and a natural gas storage facility in the United Kingdom in the early 1990s. As alleged in the complaint, Canatxx determined an opportunity existed in the UK power generation business to move away from “base load” power plants, which operated continuously, to “mid-merit” or “peaking” plants, which could be shut down economically and restarted to meet market demand. As noted in the complaint, one of the UK sites � Fleetwood in Lancashire � was an attractive location to build a mid-merit plant because of its proximity to large underground salt deposits that could be used to store natural gas. Matthews says the plan was to purchase lower-priced natural gas on the spot market and to store that gas in the salt deposits. When the demand for electricity in the UK went up, the power plant would use the gas from the salt domes to turn on the turbines, he says. “It was a very valuable, unique situation,” Matthews says. Cowan says the power plant was never built, in part because the British government imposed a moratorium on the construction of gas-fired power plants from 1997 until 2000. He contends the trial court erroneously allowed the jury to hear evidence of damages based on the value of a totally completed power plant in the future. As alleged in the complaint, Canatxx and GEPSI entered into a memorandum of understanding in 1996 to develop two plants using an older style of gas turbine generator, the F turbine, and Canatxx entered into a financial advisory agreement with GE Capital in 1997. Canatxx further alleged that GE Capital’s obligations to Canatxx under the financial advisory agreement included locating and providing financing for two power plants designed around F turbines and the underground storage facility. But GEPSI had decided to use the Fleetwood site to test its newer model of gas turbine technology, the H turbine, and conspired with GE Capital to oust Canatxx from the project, Canatxx alleged in its complaint. “They kicked us out,” Ken Breitbeil, another attorney representing Canatxx, says in reference to the termination of Canatxx’s involvement in the Fleetwood project. “We had rights essentially taken from us,” says Breitbeil, a shareholder in McFall, Sherwood & Breitbeil in Houston. As alleged in the complaint, Canatxx had completed much of the work necessary toward completion of the projects � including filing an application with the UK Department of Trade and Industry for permits to construct and operate power plants � before it signed the memorandum of understanding and financial advisory agreement with the GE entities, GEPSI and GE Capital. Canatxx alleged that it was “forced and coerced” into terminating its involvement in the Fleetwood project in 1998, because it could not continue to carry $1.5 million in unpaid development costs. Breitbeil contends that GE Capital was slow in paying Canatxx for development expenses. Canatxx alleged in the complaint, “GE Capital never made any good faith effort to find project financing for the “F’ [turbine]. Its efforts were limited to financing the “H’ alone and to excluding Canatxx from participating in the financing.” But Cowan says, “Financing was never obtained [for the Fleetwood project] because no permits were ever issued for this project.” As alleged in the complaint, GE Capital continued the development work on that project, after Canatxx ended its involvement, using Canatxx’s confidential information and retaining the services of many of Canatxx’s consultants. GE Capital denied Canatxx’s allegations in its answer to the fourth amended complaint. The jury found that GE Capital did not misappropriate or misuse Canatxx’s confidential information. The jury also found that GE Capital did not fraudulently induce Canatxx to enter into any agreements relating to the Fleetwood project, did not make negligent misrepresentations to Canatxx or interfere with its contract with GE affiliates, and was not unjustly enriched as a result of its dealings. David Beck, a Houston trial lawyer who has defended clients against civil fraud allegations but who is not involved in Canatxx, says he finds the verdict interesting, in that the jury found no tortious interference, no negligent misrepresentation and no fraud and yet still found GE Capital breached its fiduciary duty to Canatxx. “Obviously, based on the evidence, the jury was concerned about something,” says Beck, a partner in Beck Redden & Secrest. “What that tells me was it was a hard-fought case.”

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.