Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.
This case involved a breach of contract and the resulting damages. But to determine whether a breach occurred and whether the jury’s award of damages was correct, the 10th Circuit must address — among other things— a now-changed Colorado Department of Public Health and Environment rule, conflicting consequential damages provisions and alleged expert testimony never reviewed under Federal Rule of Evidence 702.
Before the district court, the party alleging breach and seeking damages won, according to the opinion. Now, exercising jurisdiction under 28 U.S. Code 1291, the 10th Circuit Court of Appeals affirmed all but the district court’s entry of the jury’s damages verdict. On that issue, the 10th Circuit vacated and remanded.
In 2010, Heartland Renewable Energy, LLC planned to develop a solid waste facility on land in Weld County, Colorado. HRE planned to use an anaerobic digester to convert cow manure, food waste and other organic waste into renewable natural gas. But to operate the facility, HRE had to first obtain a use by special review permit and a certificate of designation from the Weld County Board of County Commissioners. HRE submitted its application and BOCC issued a USR and CD to HRE, permitting it to develop the property and operate the facility.
In 2013, EDF Renewable Development, Inc. — defendant Heartland Biogas, LLC’s parent corporation — purchased the facility from HRE. HRE assigned its assets to Heartland, including the BOCC’s “USR and Resolutions.” According to Heartland, both BOCC and the Colorado Department of Public Health and Environment approved the transfer. Heartland also provided financial assurance to CDPHE and BOCC, the opinion noted.
The facility also intended to distribute and sell a liquid soil amendment — a liquid digestate produced by the facility’s anaerobic digestion process. The Colorado Department of Agriculture approved the liquid soil amendment for sale. Heartland invested more than $100 million in the facility. Heartland began partial operations in April 2014.
Before assigning its assets to Heartland, HRE contracted with Lambland, Inc., doing business as A-1 Organics, Inc. to supply it with substrate, or waste, to be turned into biogas and other products. A-1 agreed to build a digester processing system, which would process the substrate into material that could feed the facility’s digesters. That, in turn, would produce renewable natural gas. Heartland assumed HRE’s contract with A-1. A-1 didn’t build the digester processing system, but Heartland agreed to build it and lease it back to A-1, the opinion added.
In August 2015, Heartland and A-1 entered into an industrial operating lease and an amended and restated substrate services agreement. Each agreement was for a 20-year term. A-1 was expected to receive two streams of income over the 20-year period. First, it would receive operating income from “tipping fees” paid by substrate suppliers when they “tipped” truckloads of substrates at the digester processing system. Second, Heartland agreed to pay A-1 a 12.5% marketing fee on sales of digested solids — a byproduct of the anaerobic digestion process. A-1 entered five-year, third-party contracts to satisfy its obligation to provide substrates. In November 2015, A-1 began supplying the substrate and Heartland commenced full operations.
One year later, Heartland began facing regulatory issues. In November 2016, a Colorado state attorney advised the assistant Weld County attorney that Heartland didn’t have a CD and it was operating in violation of Colorado Revised Statute 30-20-102(1). In December 2016, upon their own inspections, the Weld County Department of Public Health and Environment and BOCC decided Heartland failed to obtain the permitting necessary to operate the facility because it didn’t have a CD. Later that month, BOCC held a final show-cause hearing to determine whether to revoke Heartland’s USR. It suspended the facility’s USR “until the [F]acility gets a valid Certificate of Designation and comes in compliance with the development standards and the Use by Special Review Permit.”
Heartland shut down the facility and sued the state of Colorado and BOCC for an injunction and damages. In late January 2017, Heartland stopped accepting substrate from A-1, notifying A-1 it needed to divert substrate from the digester processing system. A-1 diverted the substrate to another facility and Heartland paid A-1 more than $600,000 in diversion costs for 12 months of diversion. In February 2017, Heartland notified A-1 it was suspending the SSA because of a force majeure event — suspension of the USR. One month later, A-1 contended Heartland defaulted under both the lease and the SSA and, as a result, A-1 was terminating the agreements. Heartland rejected A-1’s notice of termination and advised A-1 its substrate needs for the coming 12 months would be zero.
In May 2018, A-1 sued Heartland for breach of contract. In January 2020, A-1 moved for partial summary judgment on its breach of contract claim. A-1 asserted no genuine issues of material fact existed on Heartland’s liability for breach because A-1 substantially performed its obligations under the lease and substrate services agreements, Heartland failed to perform because it didn’t obtain a CD and A-1 suffered some amount of damages as a result. The district court agreed and granted A-1’s motion for partial summary judgment. The district court said Heartland didn’t follow the application procedure set forth by statute to obtain a CD and it wasn’t persuaded Heartland obtained a valid CD from HRE by other means.
After the district court’s ruling on summary judgment, only one issue remained for the jury: the amount of damages A-1 suffered. A-1 filed a motion in limine to prevent Heartland from introducing any causation evidence at trial. The district court granted the motion, stating it had determined in its summary judgment ruling Heartland’s breach of the agreements caused an unspecified amount of damages to A-1. But the district court allowed Heartland to make a written offer of proof setting forth the causation evidence it would have presented at trial.
Heartland also filed motions in limine. Heartland sought to prevent A-1 from introducing evidence at trial on consequential damages, including lost profits, the opinion noted. Heartland contended the agreements barred A-1 from recovering those damages. The district court disagreed with Heartland. Heartland also sought to prevent A-1 from presenting expert opinions on lost profits, including tipping and marketing fees, because A-1’s retained damages expert had offered no opinions about lost profits. A-1 disagreed. It argued its expert should be allowed to testify about lost profits and its chief financial officer, Travis Bahnsen, should be allowed to testify about lost profits as a lay witness. The district court agreed with Heartland as to the expert witness and with A-1 on its CFO.
The parties proceeded to trial on damages. The jury awarded A-1 $6,037,553.89 in damages, including past lost net operating income of $592,487, future lost net operating income of $1,836,544.06, past lost net marketing fees of $1,226,400 and future lost net marketing fees of $1,513,744.83. The jury also awarded net diversion damages of $868,378. Heartland filed a renewed motion for judgment as a matter of law or, alternatively, a motion for a new trial, which the district court denied. The district court entered judgment in the amount of $9,001,873.52, which included $717,452 in prejudgment interest, $1,894,090.95 in attorney fees and $352,776.68 in costs.
Heartland raised four issues on appeal. Heartland first contended the district court erred in granting summary judgment on liability. Second, Heartland argued the district court erred on causation — either by granting summary judgment or by excluding evidence on that ground. And its third and fourth issues related to damages. Specifically, whether the district court erred by determining whether A-1 could recover consequential damages or by allowing the jury to award lost profits.
After evaluation, the 10th Circuit affirmed the district court’s grant of summary judgment on Heartland’s liability. It also affirmed the district court’s decision that A-1 could recover consequential damages, but vacated the jury’s damages verdict and remanded to the district court for further proceedings not inconsistent with this order and judgment.