PSEG ENERGY RESOURCES TRADE, LLC v. ONYX RENEWABLE PARTNERS, LP
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APPROVAL OF THE APPELLATE DIVISION
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SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3057-16T2
PSEG ENERGY RESOURCES &
TRADE, LLC,
Plaintiff-Appellant,
v.
ONYX RENEWABLE PARTNERS, LP,
and BLACKSTONE ENERGY PARTNERS,
LP,
Defendants-Respondents.
____________________________________
Argued January 22, 2018 – Decided February 14, 2018
Before Judges Sabatino, Ostrer and Rose.
On appeal from Superior Court of New Jersey,
Law Division, Essex County, Docket No. L-6932-
16.
Lawrence S. Lustberg argued the cause for
appellant (Gibbons, PC, attorneys; Lawrence S.
Lustberg, Thomas R. Valen, and John D.
Haggerty, on the briefs).
Daniel M. Perry (Milbank, Tweed, Hadley &
McCloy, LLP) of the New York bar, admitted pro
hac vice, argued the cause for respondents
(Skoloff & Wolfe, PC and Daniel M. Perry,
attorneys; Daniel M. Perry, of counsel and on
the brief; Katrina Voorhees (Milbank, Tweed,
Hadley & McCloy, LLP) of the New York bar,
admitted pro hac vice, Jonathan W. Wolfe and
Jane J. Felton, on the brief).
PER CURIAM
This is an interlocutory appeal pursued as of right pursuant
to Rule 2:2-3(a)(3) from the trial court's March 6, 2017 order
denying plaintiff's motion to compel arbitration in accordance
with a contractual arbitration provision. The trial court denied
the motion. It did so after determining the parties had not
entered into a binding agreement, and that contract documents
which had been drafted but were never executed were not
enforceable.
On appeal, plaintiff argues that the trial court erred in its
legal analysis of the documents and the surrounding circumstances,
and that the court should have found that a binding agreement had
been consummated. In the alternative, plaintiff contends that the
court should not have ruled against plaintiff without first
conducting an evidentiary hearing.
Having considered these and plaintiff's other arguments
following our de novo review of the record in light of the
applicable law, we affirm the trial court's determination. We do
so substantially for the sound reasons set forth in Judge Stephanie
A. Mitterhoff's detailed twenty-six-page written opinion dated
March 6, 2017. We underscore and amplify the judge's analysis,
2 A-3057-16T2
and address plaintiff's assorted criticisms of her decision, with
the following commentary.
I.
We need not repeat here at length the underlying factual
chronology detailed in Judge Mitterhoff's opinion. That factual
chronology is substantially undisputed. The crux of the dispute
on appeal essentially revolves instead around the judge's legal
conclusions drawn from those facts.
Briefly stated, the regulatory and business context of this
matter is as follows. To promote the generation of solar energy,
the State of New Jersey has adopted regulations establishing
Renewable Portfolio Standards. See N.J.A.C. 14:8-1 and -2. The
regulations require energy suppliers to possess a specified
quantity of Solar Renewable Energy Credits ("SRECs"), in order to
induce such suppliers to procure a minimum portion of their energy
sales from facilities that generate electricity from solar panels.
When a facility generates electricity from solar panels and
meets certain other criteria, SRECs are issued to that facility,
based upon the amount of solar energy generated. If energy
suppliers do not have enough SRECs on hand to meet the specified
requirements, they must make a Solar Alternative Compliance
3 A-3057-16T2
Payment to the State.1 SRECs are transferable, and the trading of
SRECs has created a market in which the price of SRECs fluctuates
due to supply and demand.
Plaintiff, PSEG Energy Resources & Trade, LLC ("PSEG"), is a
Delaware limited liability company with offices in New Jersey.
Plaintiff is the trading arm of PSEG Power LLC, an energy supplier
that is subject to New Jersey's SREC requirements. Plaintiff buys
and sells SRECs for its affiliated energy suppliers and generators.
Defendant Onyx Renewable Partners, L.P. ("Onyx") is a
Delaware limited partnership with offices in New York. Onyx
engages in the business of supplying and trading in SRECs. In
addition to defendant Onyx, the complaint named as a co-defendant
Blackstone Energy Partners, L.P., a Delaware limited partnership.
The record indicates that another Blackstone entity, Blackstone
Solar HoldCo., L.P., owns an equity interest in Onyx.2
Before the present circumstances arose, the parties had no
established trading relationship. Through the efforts of a third-
party brokerage service, on November 12, 2014, PSEG and Onyx
1
The compliance payment was $323 per SREC in 2016.
2
Defendants' brief asserts that Blackstone Solar HoldCo., L.P.
should be substituted as the proper co-defendant with Onyx in this
case. The trial court did not reach this question of party
identification and we have no need to resolve it in deciding this
appeal.
4 A-3057-16T2
assented to a prospective five-year arrangement for Onyx to sell
20,000 New Jersey SRECs annually to PSEG at a price of $171.00 per
SREC for Energy Years 2016 to 2020. The total purchase and sale
price for the SREC transaction was $17.1 million, which plaintiff's
brief describes as one of the "very largest" SREC transactions "in
New Jersey's history." The brokered terms of the arrangement
further specified that "Delivery to be agreed upon in contracting.
Buyer will initiate purchase and sale agreement (PSA). Trade
subject to mutual contract and credit terms. This product is Firm
LD."3 (Emphasis added).
In December 2014, PSEG and Onyx began to exchange drafts of
a proposed contract. According to Onyx, in March 2015, it made
clear to PSEG that neither Blackstone nor any of the Blackstone
affiliates would provide a guaranty or credit support. Upon
learning this, PSEG requested in April 2015 that Onyx provide a
3
According to plaintiff's brief on appeal, the term "Firm LD"
means that either party would be relieved of its obligations to
sell and deliver or purchase and receive SRECs if such performance
was prevented by force majeure. Plaintiff further contends that,
in the absence of force majeure, the party to whom performance is
owed is entitled to receive payment in the amount representing the
difference between the contract price and the price of a
replacement purchase in an event of a seller failure. We need not
focus upon this point, because plaintiff does not contend that the
November 12, 2014 brokerage arrangement, absent further
negotiation of delivery, credit and other contract terms,
comprised a binding and comprehensive contract. Instead, the
dispute concerns whether subsequent interactions between the
parties, post-dating November 2014, created a binding contract.
5 A-3057-16T2
$15 million letter of credit for the transaction. Onyx demurred,
believing that such a large letter of credit was not sensible
financially. In September 2015, PSEG backed off its request to
receive a full $15 million letter of credit, but the credit issue
remained unresolved.
On December 3, 2015, Onyx's Chief Executive Officer, Matthew
Rosenblum, and its chief legal officer, Ryan Marrone, had a
telephone conference call with representatives of PSEG. During
that conference call, the Onyx representatives proposed that Onyx
would provide to PSEG a letter of credit for the contemplated SREC
transaction in a much-lower sum of $1.25 million. The Onyx
representatives also proposed that PSEG delay the SREC delivery
date for Energy Year 2016 from July 2016 to September 2016.
In another telephone conference call the following day,
December 4, representatives of PSEG orally informed
representatives of Onyx that PSEG was willing to accept Onyx's
oral proposals for both a $1.25 million letter of credit and the
postponement of the initial delivery date to September 2016. PSEG
incorporated these added terms into a drafted Master Power Purchase
& Sale Agreement (the "Master Agreement") and a drafted Purchase
6 A-3057-16T2
and Sale of Solar Renewable Energy Credits Transaction
Confirmation Letter (the "Confirmation Letter").4
As the trial court aptly recognized, the Confirmation Letter
and proposed Master Agreement both contain important language
reflecting the parties contemplated the contract documents needed
to be executed by duly authorized representatives of both companies
in order to consummate the transaction. Among other things, we
note in this regard, as did the trial court, that the draft
Confirmation Letter recites:
This Confirmation Letter, together with the
General Terms and Conditions, supplements,
forms part of, and is subject to, the Master
Power Purchase and Sale Agreement entered into
by the Parties hereto dated February 1, 2016,
as it may be amended from time to time . . .
IN WITNESS THEREOF, and intending to be
legally bound, the Parties have executed this
Agreement by their undersigned duly authorized
representative as of the date below to be
effective as of the Effective Date hereof.
[(Emphasis added)].
As the trial court also pointed out, Section 10.2(ii) of the
draft Master Agreement contains an explicit representation and
warranty that "the execution, delivery and performance of this
4
PSEG asserts that the Master Agreement contains several core
terms that are standard within the industry, subject to tailoring
and modification to fit the specific needs of the parties. The
standardized Master Agreement (version 2.1) apparently was issued
in 2000 by the Edison Electric Institute and National Energy
Marketers Association.
7 A-3057-16T2
Master Agreement and each [SREC] Transaction (including any
Confirmation accepted in accordance with Section 2.3 [of the Master
Agreement]) are within its powers, have been duly authorized by
all necessary action and do not violate any of the terms and
conditions in its governing documents, any contracts to which it
is a party or any law, rule, regulations, order or like applicable
to it." (Emphasis added). In like manner, Section 10.2(iv), also
highlighted by the trial court, represents that the Master
Agreement, each SREC transaction, and "each other document
executed and delivered in accordance with [the] Master Agreement
constitutes its legally valid and binding obligation enforceable
against it in accordance with its terms; subject to any Equitable
Defenses." (Emphasis added).
The trial court also found noteworthy that Section 10.8 of
the Master Agreement similarly emphasizes the importance of
written execution in instances of amendment or modification. That
provision states, "Except to the extent herein provided for, no
amendment or modification of this Master Agreement shall be
enforceable unless reduced to writing and executed by both
Parties." (Emphasis added).
The proposed contract documents also included an Addendum
specifically tailored to the proposed PSEG-Onyx transaction. As
the trial court noted, the Addendum contained a mandatory
8 A-3057-16T2
arbitration clause in Section 10.13, requiring the arbitration of
disputes that might arise concerning the transaction. Notably,
the Addendum also contains language reiterating that the contract
"can only be modified or amended through a written and fully
executed amendment . . . ." (Emphasis added).
The Addendum further specifies in an additional provision,
Section 10.12 ("Authorizations"), that either party to the
contract had the right to obtain, among other things, a secretary's
"certificate of corporate resolutions authorizing the execution,
delivery and performance of the [a]greement" and authorizing the
party "to execute, deliver and perform under any guaranty."
(Emphasis added). Section 10.12 also provides either party with
a right to demand signature specimens for the "respective
signatories executing this Agreement and any Guaranty on its
behalf." (Emphasis added).
In response to PSEG's transmission of the drafted
Confirmation Letter, Master Agreement, and Addendum, Onyx's chief
counsel Marrone advised PSEG in a December 17, 2015 email that he
had reviewed the drafts, that he still had "one or two" substantive
changes, and that he would advise when he had "clearance to
release" the documents. Rosenblum, the CEO of Onyx, was copied
on that email. A few days later, Onyx sent to PSEG a proposed
form for the letter of credit, which PSEG indicated was acceptable.
9 A-3057-16T2
Another revision concerning a clarifying phrase was discussed and
resolved by email on January 25, 2016.
On January 29, 2016, Onyx's counsel Marrone and Luciano
Pisano, PSEG's associate general trading counsel, took part in a
telephone conference call. Onyx's CEO Rosenblum was not on that
call. According to Pisano, during that January 29 call Marrone5
allegedly acknowledged that the parties were in agreement as to
"all terms and conditions for the SREC transaction." PSEG
thereafter provided Onyx with a full set of the contract documents
for execution.
It is undisputed that the parties never mutually signed the
contract documents. It is also undisputed that Onyx did not
deliver a letter of credit to PSEG by the contemplated date in
February 2016. Consequently, PSEG began buying SRECs from other
sources. Further negotiations in 2016 between the parties failed.
PSEG took the position that Onyx had bound itself to an enforceable
5
Marrone disputes Pisano's characterization and recollection of
precisely what he said during the call. He specifically denies
telling the PSEG representatives on the call that Onyx had agreed
to the drafted contract terms. Marrone also certifies that he did
not represent to PSEG "at any time" that he had the authority to
bind Onyx, and that only Onyx's CEO Rosenblum had such authority.
In any event, for the reasons noted by the trial court we discuss
infra, that difference of recollection is legally inconsequential
to the issues presently on appeal, in light of the legal conclusion
that a fully executed set of written agreements was necessary to
bind these parties.
10 A-3057-16T2
agreement, while Onyx asserted that no binding obligations existed
because the $17.1 million, five-year contract was never mutually
executed.
II.
In October 2016, PSEG filed a seven-count verified complaint
and Order to Show Cause against Onyx and Blackstone in the Law
Division. Among other things, the complaint asserted that
defendants are liable based on alternative theories of breach of
contract, breach of the covenant of good faith and fair dealing,
promissory estoppel, and fraud and misrepresentation. The
complaint also alleged that Blackstone is Onyx's alter ego, and
that the corporate veil should be pierced so as to make Blackstone
liable to PSEG for Onyx's alleged obligations.
Invoking the arbitration clause within the Addendum, PSEG
simultaneously moved in its Order to Show Cause to compel the
dispute to be resolved through binding arbitration. PSEG amplified
its contentions with various supporting certifications. If the
trial court detected any material disputed factual issues, PSEG
requested that those issues be considered on a summary basis at
an expedited hearing, pursuant to the summary action procedures
of Rule 4:67-5.
Onyx responded to the complaint and Order to Show Cause with
certifications from Rosenblum and Marrone, along with additional
11 A-3057-16T2
exhibits and documents. In essence, Onyx maintained, as it had
previously, that there was no signed enforceable agreement and
thus Onyx had no obligation to perform the alleged contract or to
participate in a compelled arbitration. Rosenblum explained in
his certification that ultimately he determined that the proposed
transaction was not "consistent with market conditions" and was
"too economically disadvantageous for Onyx to agree to."
After sifting through these submissions and hearing oral
argument, Judge Mitterhoff issued her detailed written decision
denying plaintiff's motion to compel arbitration. Fundamentally,
the judge concluded that the record, objectively considered, does
not support PSEG's claim that the parties entered into a binding
agreement, in the absence of fully-executed contract documents for
this large and sophisticated business transaction.
Among other things, the judge reasoned that PSEG "viewed both
the provision of a letter of credit and an executed contract as
essential to cementing an enforceable agreement," and that the
letter of credit and executed contract were essential to PSEG to
cement the transaction. In addition, the judge ruled "there are
otherwise insufficient objective indicia of unambiguous assent to
the terms of the agreement for the court to find that a binding
agreement was formed in the absence of a signed contract." She
noted that there had been no prior dealings between the parties
12 A-3057-16T2
and the transaction was "fraught from its inception by mutual
distrust."
Rejecting PSEG's arguments that the parties achieved a
binding agreement in the December 3 and 4, 2015 phone calls or,
alternatively, in the January 29, 2016 conference call, the judge
particularly noted that: (1) Onyx never delivered a letter of
credit, (2) the parties never signed the agreement, and (3) Marrone
individually lacked the authority to bind Onyx to the transaction.
The trial judge discerned no need to conduct an evidentiary
hearing to reach or confirm its legal conclusions. The judge
noted in this regard that the "objective conduct" reflected in the
documentary record was not truly in dispute, and that a plenary
hearing "would not meaningfully add information that would inform
the court's decision."
III.
Now on appeal, PSEG contends that the trial judge mistakenly
concluded that mutually signed writings were necessary to bind the
parties, and that the oral discussions that took place on December
3 and 4, 2015, and thereafter in the January 29, 2016 conference
call adequately substantiated a mutual and binding agreement. We
respectfully disagree.
We recognize that, in some instances, parties may be bound
by the mutual exchange of oral promises with the intention of
13 A-3057-16T2
later executing a formal instrument to memorialize their
undertaking, assuming that such an oral commitment does not violate
the statute of frauds.6 See, e.g., Pascarella v. Bruck,
190 N.J.
Super. 118, 126 (App. Div. 1983). Nevertheless, the absence of a
fully executed agreement can be a key consideration in determining
whether such a mutual agreement of the parties to be bound actually
existed. See, e.g., Leodori v. CIGNA Corp.,
175 N.J. 293, 304-05
(2003) (noting that when one party presents a contract for
signature to another party, the omission of the latter's signature
is "a significant factor in determining whether the two parties
mutually have reached an agreement").
Here, the judge soundly determined from the record – including
the multiple provisions within the drafted Confirmation Letter,
Master Agreement, and Addendum underscoring the important
requirement that the contract documents be "executed" by persons
having authority within these two enterprises – that the parties
each intended that the execution of the contracts was a key
precondition to bind them to this five-year, $17.1 million
transaction. A fully-executed contract in this setting plainly was
not a mere formality.
6
We need not reach Onyx's alternative claim that an oral agreement
of this nature would violate the statute of frauds under New York
law.
14 A-3057-16T2
To the extent PSEG emphasizes attorney Marrone's role in
participating in the parties' negotiations (including the January
29 telephone conference that took place without Onyx's CEO
Rosenblum on the line), we concur with the trial court that neither
Marrone's actual or apparent authority to bind Onyx is fairly
established by the record. See LoBiondo v. O'Callaghan,
357 N.J.
Super. 488, 497 (App. Div. 2003) (noting that "a conclusion that
a party has acted with apparent authority must rest upon the
actions of the principal, not the alleged agent"); Beck v. Edwards
& Lewis, Inc.,
141 N.J. Eq. 326, 332 (Ch.1948) (instructing that
a party dealing with a business enterprise "must inform [itself]
of the powers of the officers or of the agent purporting to act
for it if [it] hopes to effectuate a binding contract"). In fact,
Marrone's email to PSEG following the January 29 conference call
sought a "fully executable" set of documents for CEO Rosenblum to
sign, a phrasing which is consistent with Onyx's position that the
transaction could not be binding until the contract documents were
actually signed by both parties. Moreover, even if Rosenblum had
provided his personal oral assent to all of the negotiated terms
of the proposed transaction, the language of the drafted contract
documents – which we have already spotlighted – emphasizing the
importance of "execution," defeats PSEG's claim of enforceability.
15 A-3057-16T2
We reject PSEG's contention that the trial judge unduly
focused on the parties' post-January 2016 conduct in finding no
binding agreement was present. We recognize that PSEG was
entitled, and perhaps even obligated, to reasonably endeavor to
mitigate its damages once it became apparent that Onyx was not
going to perform. White v. Twp. of North Bergen,
77 N.J. 538, 546
(1978) (regarding mitigation of damages); Quinlan v. Curtiss-
Wright Corp., 425 N.J. Super. 335, 359-65 (App. Div. 2012)
(regarding mitigation of damages). Further, we appreciate that
the post-January 2016 discussions theoretically could be viewed
as indicative of efforts at re-negotiating an existing contract.
But the more compelling objective evidence in this case indicates
that these additional discussions were merely an attempt to salvage
a deal that never was consummated.
We defer to the trial court's decision to forego an
evidentiary hearing under Rule 4:67-5. For one thing, we have
considerable doubts whether the testimony from both sides
expounding upon the multiple certifications – with attendant
direct and cross-examination by counsel – would have been
realistically amenable to a summary trial subject to completion
over a day or two. Moreover, as the judge rightly observed, there
was no necessity here for an evidentiary hearing, given the
16 A-3057-16T2
strength of the objective record supporting her findings as to the
absence of a binding agreement.
For all of these reasons, we therefore affirm the trial
court's interlocutory order denying arbitration and her related
decision rejecting PSEG's contract-based contentions. Logically,
PSEG's claim of a breach of the covenant of good faith and fair
dealing must also fail. See Noye v. Hoffmann-La Roche, Inc.,
238 N.J. Super. 430, 434 (App. Div. 1990) (recognizing that, in the
absence of a valid contract, there can be no cause of action for
breach of the implied covenant of good faith and fair dealing).
We assert no views as to whether PSEG's remaining claims of fraud,
promissory estoppel, and piercing the corporate veil survive. We
defer those unadjudicated questions to the trial court. See Mita
v. Chubb Computer Services, Inc.,
337 N.J. Super. 517, 529 (App.
Div. 2001) (noting the potential non-viability of non-contract
claims, where they are "derivative" of an untenable contract
claim).7
7
In addressing the discrete issues before us on appeal, we neither
endorse nor criticize Onyx's conduct in refusing to execute the
drafted documents that PSEG presented to it. We simply uphold the
trial court's narrow ruling that the record provides no basis for
a claim of contractual breach. Among other things, we presume
that on remand the parties and the court will more fully develop
proofs concerning Rosenblum's explanation of why Onyx ultimately
held back on committing to a contract after the parties' lengthy
negotiations. We also presume the remand will explore whether PSEG
reasonably relied to its detriment on any "clear and definite"
17 A-3057-16T2
Affirmed. The matter is remanded to the trial court to
adjudicate the open claims. We do not retain jurisdiction.
promises by Onyx (assuming arguendo such promises justifying
reliance were made independent of an enforceable contract).
18 A-3057-16T2
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