SUPREME COURT FOR THE STATE OF NEW YORK COUNTY OF NEW YORK GENON MID-ATLANTIC, LLC, Plaintiff, v. MORGANTOWN OL1 LLC; MORGANTOWN OL2 LLC; MORGANTOWN OL3 LLC; MORGANTOWN OL4 LLC; MORGANTOWN OL5 LLC; MORGANTOWN OL6 LLC; MORGANTOWN OL7 LLC; DICKERSON OL1 LLC; DICKERSON OL2 LLC; DICKERSON OL3 LLC; DICKERSON OL4 LLC; and U.S. BANK, NATIONAL ASSOCIATION, Defendants. Index No. Date Index No. Purchased: SUMMONS Plaintiff designates New York County as the place of trial under C.P.L.R. 503(a. TO MORGANTOWN OL1 LLC; MORGANTOWN OL2 LLC; MORGANTOWN OL3 LLC; MORGANTOWN OL4 LLC; MORGANTOWN OL5 LLC; MORGANTOWN OL6 LLC; MORGANTOWN OL7 LLC; DICKERSON OL1 LLC; DICKERSON OL2 LLC; DICKERSON OL3 LLC; DICKERSON OL4 LLC; AND U.S. BANK, NATIONAL ASSOCIATION: YOU ARE HEREBY SUMMONED to answer the Complaint in this action and to serve a copy of your answer, or if the Complaint is not served with this Summons, to serve a Notice of Appearance on Plaintiff s attorneys, within 20 days after the service of this Summons, exclusive of the day of service (or within 30 days after the service is complete if this Summons was served pursuant to CPLR 303, subdivision two, three, four or five of CPLR 308, or CPLR 313, 314 or 315, and in case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the Complaint. 1 of 26
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Counsel for GenOn Mid-Atlantic, LLC as against U.S. BANK, NATIONAL ASSOCIATION 3 3 of 26
RIDER Mark Scarsi, Esq. MILBANK, TWEED, HADLEY & MCCLOY LLP 2029 Century Park East Los Angeles, CA 90067 Attorneys for Defendants: MORGANTOWN OL1 LLC; MORGANTOWN OL2 LLC; MORGANTOWN OL3 LLC; MORGANTOWN OL4 LLC; MORGANTOWN OL5 LLC; MORGANTOWN OL6 LLC; MORGANTOWN OL7 LLC; DICKERSON OL1 LLC; DICKERSON OL2 LLC; DICKERSON OL3 LLC; DICKERSON OL4 LLC Ira Goldman, Esq. SHIPMAN & GOODMAN LLP One Constitution Plaza Hartford, CT 06103 Attorneys for Defendant: U.S. BANK, NATIONAL ASSOCIATION 4 of 26
SUPREME COURT FOR THE STATE OF NEW YORK COUNTY OF NEW YORK GENON MID-ATLANTIC, LLC, Plaintiff, v. MORGANTOWN OL1 LLC; MORGANTOWN OL2 LLC; MORGANTOWN OL3 LLC; MORGANTOWN OL4 LLC; MORGANTOWN OL5 LLC; MORGANTOWN OL6 LLC; MORGANTOWN OL7 LLC; DICKERSON OL1 LLC; DICKERSON OL2 LLC; DICKERSON OL3 LLC; DICKERSON OL4 LLC; and U.S. BANK NATIONAL ASSOCIATION, Defendants. Index No. COMPLAINT Plaintiff GenOn Mid-Atlantic, LLC ( GenMa brings the following action against Defendants Morgantown OL1 LLC, Morgantown OL2 LLC, Morgantown OL3 LLC, Morgantown OL4 LLC, Morgantown OL5 LLC, Morgantown OL6 LLC, Morgantown OL7 LLC, Dickerson OL1 LLC, Dickerson OL2 LLC, Dickerson OL3 LLC, Dickerson OL4 LLC (collectively, the Owner Lessors and U.S. Bank National Association solely in capacity as the Lease Indenture Trustee ( U.S. Bank for: (a breach of contract; (b a declaratory judgment; (c conversion; (d tortious interference; (e breach of the implied covenant of good faith and fair dealing; (f unjust enrichment; (g the creation of a constructive trust during the pendency of the litigation; and (h injunctive relief. 5 of 26
Introduction 1. In December 2000, the predecessors in interest to GenMa and the Defendants entered into 11 separate sale-leaseback arrangements involving two coal-fired power plants in Maryland. The arrangement comprises several agreements (collectively, the Sale-Leaseback Agreements, including the Participation Agreements, the Facility Lease Agreements and the Indenture of Trust, Mortgage and Security Agreements (the Indentures. Under the Facility Lease Agreements, GenMa owes biannual lease payments to the Owner Lessors for leasing and operating these power plants; and, under the Participation Agreements, GenMa agreed to procure Qualifying Credit Support to secure its obligations under the Facility Lease Agreements in case GenMa ever missed a lease payment (which it never has done. To constitute Qualifying Credit Support, the letter of credit must be uncollateralized, among other requirements. 2. For years, the Parties understood and reaffirmed in a plan of reorganization confirmed by a federal bankruptcy court order in 2005 that the term uncollateralized required that the letter of credit not be secured by GenMa s assets but otherwise could be secured by the assets of third-parties. This arrangement has been critical from the start GenMa never has been an investment-grade company that could obtain unsecured letters of credit. Tracking this understanding, GenMa s ultimate parent company, NRG Energy, Inc. ( NRG, has procured the Qualifying Credit Support since 2012 through letters of credit from JPMorgan Chase Bank, N.A. ( JPMorgan that were issued with GenMa s indirect parent company NRG Americas, Inc. (f/k/a GenOn Americas, Inc. ( GenOn Americas listed as the applicant (the Prior Letters of Credit. The Prior Letters of Credit have always been collateralized by assets of NRG and not GenMa. Under the Prior Letters of Credit, the Owner Lessors are authorized to make a draw 2 6 of 26
request if the Prior Letters of Credit will expire within thirty (30 days of the date of this drawing request and [GenMa] has failed to provide a replacement Qualifying Credit Support. 3. On January 27, 2017 one month before the Prior Letters of Credit were set to expire GenMa procured through Natixis Funding Corporation ( NFC new letters of credit from the bank Natixis, New York Branch ( Natixis (the Natixis Letters of Credit. GenMa paid approximately $130 million to NFC to obtain the Natixis Letters of Credit from Natixis. As with the Prior Letters of Credit, the Natixis Letters of Credit are collateralized by assets of a third party (now Natixis and not GenMa. 4. Though the Natixis Letters of Credit constitute Qualifying Credit Support, upon learning of GenMa s procurement of those letters of credit, all of the Owner Lessors, preferring the prior arrangement (which is irrelevant, asserted in communications with GenMa that the Natixis Letters of Credit did not constitute Qualifying Credit Support. On February 27, 2017, the day before the Prior Letters of Credit were set to expire, five of the eleven Owner Lessors Morgantown OL1 LLC, Morgantown OL2 LLC, Morgantown OL5 LLC, Morgantown OL6 LLC, Morgantown OL7 LLC (the Drawing Owner Lessors and U.S. Bank acted together to make improper draw requests under the Prior Letters of Credit in the total amount of almost $125 million. JPMorgan fulfilled these draw requests the next day. 5. Also on February 27, 2017, each of the Drawing Owner Lessors asserted in separate deficient notices to GenMa captioned NOTICE OF DEFAULT that GenMa had breached the Participation Agreements, in their view creating a Lease Event of Default under the Facility Lease Agreements. But the Drawing Owner Lessors failed to provide any specific basis for the default other than allusions to various covenants under the Facility Lease Agreements. There is no basis for the default. 3 7 of 26
6. By comparison, the other two Owner Lessors at Morgantown Morgantown OL3 LLC and Morgantown OL4 LLC did nothing despite having identical arrangements with GenMa. Had there been any valid basis for a default (and there was not, all of the Owner Lessors at Morgantown and U.S. Bank should have acted in unison. 7. These draw requests have caused substantial harm to GenMa: GenMa is obligated to reimburse its parent companies, GenOn Energy, Inc. ( GenOn Energy and GenOn Americas, for the full amount of the draws on the Prior Letters of Credit. GenMa received a going-concern qualification in its audited financials subsequent to the Drawing Owner Lessors springing the notices on GenMa on the eve of filing its annual Form 10-K with the Securities and Exchange Commission. The fracture among the Owner Lessors with just five of the eleven leases now existing in a state of purported default has imposed operational hurdles on GenMa. It is unsettled what obligations, if any, GenMa now owes under the defaulted leases. 8. At bottom, these improper defaults, and the attendant going-concern qualification GenMa received as a result, have created various operational issues for GenMa, including with respect to its ordinary course hedging program, which is important to its operations. As such, GenMa now exists in a state of legal limbo with some but not all of the Facility Lease Agreements in a purported alleged ongoing default and some but not all of its landlords asserting that they are empowered to exercise remedies at any time with respect to these alleged defaults with limited notice to GenMa. 9. This action therefore is necessary for GenMa to obtain a ruling that no Lease Event of Default has occurred under the Facility Lease Agreements based on the correct interpretation of the Qualifying Credit Support requirement in the Participation Agreements and for GenMa to recover the damages it has suffered. To be clear, during all relevant periods, GenMa has performed and continues to perform all of its obligations under the Sale- 4 8 of 26
Leaseback Agreements, in particular GenMa s obligations to pay rent. The only alleged default that has been asserted is with respect to GenMa s procurement of the Natixis Letters of Credit. Parties 10. Plaintiff GenMa and the Defendants have each executed one or more of the Sale- Leaseback Agreements. GenMa was created under the laws of the State of Delaware. 11. Defendants Morgantown OL1 LLC, Morgantown OL2 LLC, Morgantown OL3 LLC, Morgantown OL4 LLC, Morgantown OL5 LLC, Morgantown OL6 LLC, Morgantown OL7 LLC, Dickerson OL1 LLC, Dickerson OL2 LLC, Dickerson OL3 LLC and Dickerson OL4 LLC are the Owner Lessors under the Sale-Leaseback Agreements. The Owner Lessors were each created under the laws of the State of Delaware. 12. Defendant U.S. Bank is the Lease Indenture Trustee and the Pass-Through Trustee under the Sale-Leaseback Agreements, and is named as a defendant solely in its capacity as the Lease Indenture Trustee. U.S. Bank has been created under the laws of the United States. Jurisdiction and Venue 13. Under Section 16.13(a of the Participation Agreements, the Parties agreed to submit to the jurisdiction of the Supreme Court of the State of New York, New York County, for the purpose of any proceeding arising out of the Participation Agreements. 14. The Parties also have waived any assertion that they are not subject to the jurisdiction of this Court. Factual Allegations A. Sale-Leaseback Arrangements 15. In December 2000, GenMa (through its predecessor in interest, Southern Energy Mid-Atlantic, LLC entered into eleven separate sale-leaseback arrangements with each of the eleven Owner Lessors involving two coal-fired power plants in Maryland, known as the 5 9 of 26
Dickerson Generating Station ( Dickerson and the Morgantown Generating Station ( Morgantown. To implement the sale-leaseback transactions, the Parties entered into the Sale-Leaseback Agreements, which include the Participation Agreements, the Facility Lease Agreements, the Facility Site Lease and Easement Agreements, the Facility Site Sublease Agreements and the Indentures. 16. An exemplar Participation Agreement is attached hereto as Exhibit 1, and an exemplar Clarification Agreement modifying certain terms of the Participation Agreement is attached hereto as Exhibit 2. 17. An exemplar Facility Lease Agreement is attached hereto as Exhibit 3. 18. The structure of the sale-leaseback arrangement comprised four general steps: The Owner Lessors procured an undivided ownership interest in the generating stations at Dickerson and Morgantown. To finance these acquisitions, the Owner Lessors issued three series of notes (the Pass-Through Notes. The owners of the Pass-Through Notes are referred to herein as the Noteholders. Under the Indentures, the Pass-Through Notes are secured by an interest in substantially all of the Owner Lessors legal and economic interests under the Facility Lease Agreements and the Facility Site Sublease Agreements. GenMa entered into facility leases with the Owner Lessors to lease the generating stations at Dickerson and Morgantown under the Facility Lease Agreements. GenMa, who possessed the ground interests on the land at Dickerson and Morgantown, leased these ground interests to the Owner Lessors under the Facility Site Lease and Easement Agreements. The Owner Lessors each subleased these ground interests back to GenMa under the Facility Site Sublease Agreements. 19. The terms of the Facility Lease Agreements mature on June 19, 2029 for Dickerson and on September 19, 2034 for Morgantown. 20. Under Schedule 1-1 of the Facility Lease Agreements, GenMa owes biannual lease payments to the Owner Lessors, which are due on June 30 and December 30 of each year. 6 10 of 26
Schedule 1-1 identifies the amount of each lease payment until the expiration of the Facility Lease Agreements. 21. To protect the Owner Lessors and U.S. Bank in case GenMa misses a lease payment, which it never has done, or otherwise defaults under the Sale-Leaseback Agreements, the Participation Agreements require GenMa to maintain Qualifying Credit Support issued in favor of the Owner Lessors in a certain minimum dollar amount. Ex. 1, Participation Agreements 5.13(a. Section 5.13(a requires that GenMa: Maintain for the benefit of the Owner Lessor (or its permitted assignee, Qualifying Credit Support (i issued in favor of the Owner Lessor (or its permitted assignee by a Qualifying Credit Support Issuer and (ii with an available amount equal to the greater of (A the Periodic Lease Rent scheduled to be paid in the next six months and (B 50% of the Periodic Lease Rent scheduled to be paid in the next twelve months (such Qualifying Credit Support to be assigned by the Owner Lessor to the Lease Indenture Trustee in accordance with the Lease Indenture. 22. For a letter of credit to constitute Qualifying Credit Support, the letter of credit must, among other requirements, be uncollateralized and be substantially in the form of the exemplar letter of credit attached to the Participation Agreements as Exhibit FF-1: Qualifying Credit Support shall mean an irrevocable, unconditional, uncollateralized, standby letter of credit, surety bond or guaranty substantially in the form of Exhibit FF-1, Exhibit FF-2 or Exhibit FF-3, respectively, to the Participation Agreement, issued in favor of the Owner Lessor by a Qualifying Credit Support Issuer (and, so long as the Lessor Notes are outstanding and the Lien of the Lease Indenture shall not have been discharged, assigned to the Lease Indenture Trustee securing the Facility Lessee s obligation to pay scheduled Rent under the Facility Lease[.] Ex. 1, Participation Agreements at Appx. A (emphasis added. 23. Under the exemplar letter of credit attached as Exhibit FF-1 to the Participation Agreements, the beneficiary is authorized to draw on an existing letter of credit if the existing letter of credit will expire within 30 days of the draw and no replacement Qualifying Credit Support has been issued. Ex. 1, Participation Agreements at Ex. FF-1, Annex 1. 7 11 of 26
24. The Participation Agreements also require GenMa to extend or replace a letter of credit at least 30 days before its expiration. Ex. 1, Participation Agreements 5.13(b. As with the existing letter of credit, any replacement letter of credit must constitute Qualifying Credit Support. Ex. 1, Participation Agreements 5.13(f. 25. Any failure by GenMa to procure Qualifying Credit Support under the Participation Agreements is a Lease Event of Default under Section 17(d of the Facility Lease Agreements. A Lease Event of Default authorizes the Owner Lessors to given written notice to GenMa that the Facility Lease Agreements are in default. Ex. 3, Facility Lease Agreements 18.1. Under Section 23.2 of the Facility Lease Agreements, written notice is effective upon delivery. 26. Upon declaring a default, a Lease Event of Default empowers the Owner Lessors or U.S. Bank be to exercise various remedies, as set forth in Section 18.1 of the Facility Lease Agreements. For example, the Owner Lessors and U.S. Bank can send written notice to GenMa terminating the Facility Lease Agreements and requiring GenMa to return possession of the generating stations at Dickerson and Morgantown forthwith. Ex. 3, Facility Lease Agreements 18.1(b. The Owner Lessors and U.S. Bank also can sell the generation stations at Dickerson and Morgantown. Ex. 3, Facility Lease Agreements 18.1(c. 27. Under the Sale-Leaseback Agreements, U.S. Bank has the exclusive right to exercise such remedies while the Pass-Through Notes remain outstanding. Ex. 3, Facility Lease Agreements 22; Indentures, Granting Clause, 5.4(b. 28. The Owner Lessors redeemed in full the Pass-Through Notes for Dickerson on June 30, 2016. 8 12 of 26
29. An outstanding balance remains on the Pass-Through Notes for Morgantown through the filing of this Complaint. B. Letters of Credit 30. Since 2012, NRG has been procuring the Prior Letters of Credit to satisfy GenMa s requirement to provide Qualifying Credit Support under the Participation Agreements. The Owner Lessors and U.S. Bank are the beneficiaries under the Prior Letters of Credit issued for Dickerson and Morgantown, respectively. 31. Tracking Exhibit FF-1 to the Participation Agreements, under the terms of the Prior Letters of Credit, the Owner Lessors and U.S. Bank can make a draw request on JPMorgan if the Prior Letters of Credit will expire within thirty (30 days of the date of this drawing request and [GenMa] has failed to provide a replacement Qualifying Credit Support. 32. The Prior Letters of Credit were set to expire on February 28, 2017, which gave GenMa until January 27, 2017 to procure new letters of credit under Section 5.13(b of the Participation Agreements that are effective upon the expiration of the Prior Letters of Credit. 33. On January 27, 2017, GenMa procured this new Qualifying Credit Support through a back-to-back arrangement, which is commonplace for financial institutions in credit support transactions to minimize the risk of a transaction. Here, GenMa executed a Payment Agreement with NFC. Satisfying its obligations under the Sale-Leaseback Agreements, GenMa paid $130,054,174.56 to NFC and NFC, in turn, agreed to apply for and obtain letters of credit from Natixis that satisfied the Qualifying Credit Support requirements. Ex. 4, Payment Agreement 1, 3. In making the $130,054,174.56 payment, GenMa and NFC agreed that GenMa would retain no interest, claim, reversionary or residual interest on such Purchase Amount. Ex. 4, Payment Agreement 1 (definition of Purchase Amount. 9 13 of 26
34. NFC further agreed that NFC not GenMa would be solely responsible for satisfying any reimbursement obligation payable to [Natixis] in the event of an LC Disbursement. Ex. 4, Payment Agreement 3.1(a. In this way, neither [GenMa] nor any Affiliate thereof shall have any liability for, and no claim or recourse against [GenMa] or any Affiliate therefore will exist with respect to, any reimbursement obligation to [Natixis] in the event of an LC Disbursement. Ex. 4, Payment Agreement 3.1(a. LC Disbursement is a defined term that means any draw on any Letter of Credit that has been honored by [Natixis]. Ex. 4, Payment Agreement 1. 35. The Payment Agreement is attached hereto as Exhibit 4. 36. NFC then obtained the Natixis Letters of Credit from Natixis. 37. On January 27, 2017, Natixis sent each Owner Lessor and U.S. Bank an Irrevocable Standby Letter of Credit. 38. GenMa s next lease payments for both Morgantown and Dickerson total $127,582,651.99 and are due to the Owner Lessors on June 30, 2017. GenMa is able to make these payments. C. Reimbursement Obligations 39. The improper draw requests will trigger a series of reimbursement obligations that leaves GenMa exposed for that full amount. 40. First, under a Clarification Agreement between JPMorgan and NRG, NRG procured the Prior Letters of Credit pursuant to a December 14, 2012 Revolving Credit Agreement with two of GenMa s indirect parent companies, GenOn Energy and GenOn Americas. NRG agreed to reimburse [JPMorgan] for any and all amounts paid by the Bank under the GenOn Letters of Credit. Clarification Agreement 1(d. 10 14 of 26
41. Second, NRG s reimbursement to JPMorgan created a simultaneous reduction in the line of credit available to GenOn Energy and GenOn Americas under the $500 million intercompany revolver, known as the Revolving Credit Agreement dated December 14, 2012, and a corresponding reimbursement obligation from GenOn Energy and GenOn Americas to NRG in the amount of NRG s payment. 42. Third, GenOn Energy and GenOn Americas have reimbursement, indemnification, equitable subrogation, and unjust enrichment claims, among others, against GenMa, because GenOn Energy and GenOn Americas incurred the reimbursement obligation to NRG on GenMa s behalf. D. Current Dispute 43. On January 27, 2017, GenMa informed the Owner Lessors that GenMa was providing the Natixis Letters of Credit upon the expiration of the Prior Letters of Credit. 44. In subsequent letters and phone calls, the Owner Lessors asserted their incorrect position that the Natixis Letters of Credit did not constitute Qualifying Credit Support. The Owner Lessors wrote their first letter to GenMa on January 27, 2017, arguing that the Owner Lessors do not consider the Proposed Natixis LC as an acceptable replacement Qualifying Credit Support. 45. Three days later, on January 30, 2017, the Owner Lessors sent a second letter to GenMa. The Owner Lessors clarified their opposition to the Natixis Letters of Credit, arguing that they are collateralized and therefore do not satisfy the requirements of a Qualifying Credit Support. In conclusion, the Owner Lessors claimed they were preserving all rights to seek relief, including holding GenMa in breach of the Participation Agreement. 46. GenMa sent its written response to the Owner Lessors on February 2, 2017. In the letter, GenMa addressed the inaccuracies in the Owner Lessors two letters. GenMa 11 15 of 26
explained that the term uncollateralized, as used in the Participation Agreements, means that a letter of credit cannot be collateralized by assets of GenMa, but otherwise can be collateralized by the assets of a third-party. GenMa showed that, similar to the Prior Letters of Credit, the Natixis Letters of Credit were collateralized by the issuing bank s assets and not GenMa s assets. That is, if the Owner Lessors and U.S. Bank draw on the Natixis Letters of Credit to satisfy GenMa s rent payments due under the Sale-Leaseback Agreements, Natixis then has no recourse against GenMa s assets i.e., collateral from which to recoup its payments under the Natixis Letters of Credit. Instead, Natixis would be paying the Owner Lessors out of its own assets. 47. As expressly set forth in the federal bankruptcy court-approved Chapter 11 plan for GenMa s former parent company Mirant Corporation ( Mirant, which binds the Parties, the term uncollateralized from the definition of Qualifying Credit Support means not secured by a lien on the assets of [GenMa], any Designated Subsidiary or any subsidiary of the foregoing. Amended and Restated Second Amended Joint Chapter 11 Plan of Reorganization for Mirant Corporation and Its Affiliated Debtors (Dkt. 12569 at 14:6, Exhibit F-1 A(v. Mirant s bankruptcy case is captioned: In re Mirant Corp., Case No. 03-46590 (Bankr. N.D. Tex.. 48. On February 6, 2017, the Owner Lessors responded in writing to GenMa s February 2, 2017 letter. The Owner Lessors argued that the Natixis Letters of Credit were a sham and did not constitute Qualifying Credit Support. The Owner Lessors interpreted uncollateralized to mean that the Qualifying Credit Support could not encroach on the assets of GenMa, despite there being nothing in the Sale-Leaseback Agreements precluding the use of GenMa s assets in this manner. 12 16 of 26
49. GenMa exchanged multiple calls with the Owner Lessors and U.S. Bank after February 6, 2017 in an unsuccessful effort to resolve the disagreement. In these calls, GenMa informed the Owner Lessors and U.S. Bank that any draw on the Prior Letters of Credit was unauthorized and would cause GenMa financial harm. 50. On February 27, 2017, the Drawing Owner Lessors sent five separate letters to GenMa captioned NOTICE OF DEFAULT (the Default Notices. The Drawing Owner Lessors asserted that GenMa had breached the Participation Agreements, creating a Lease Event of Default under the Facility Lease Agreements. The Drawing Owner Lessors concluded without explanation that GenMa had failed to perform or observe in all material respects the covenants set forth in Sections 5.13, 6.3, 6.7, and 6.8 of the [Participation Agreements]. In particular, as quoted above, Section 5.13(a requires GenMa to procure Qualifying Credit Support. Despite the purported breach, the Drawing Owner Lessors declined to exercise any further remedies under the Facility Lease Agreements, writing that they acknowledge and agree that it is not necessary for the [Lease Indenture Trustee] to exercise any remedies under the Facility Lease with respect to the Lease Events of Default specified hereunder. The Drawing Owner Lessors further informed GenMa that U.S. Bank will be making forthcoming draws on each of the Drawing Owner Lessors Prior Letters of Credit on February 27, 2017. 51. Yet nothing in the Default Notices (or even the earlier letters from the Owner Lessors identifies a default under the Sale-Leaseback Agreements with any sort of specificity. There is none. Instead, the Notices of Default reveal that the Default Notices are nothing more than the Drawing Owner Lessors and U.S. Bank s opportunistic cash grab. By declaring a default and drawing on the Prior Letters of Credit but not terminating the leases at Morgantown under Section 18.1(a of the Facility Lease Agreements, the Drawing Owner Lessors and U.S. 13 17 of 26
Bank now have $124,868,124.88 under the Prior Letters of Credit and will pocket an additional $124,865,624.88 once GenMa s next lease payments come due on June 30, 2017. 52. The five Default Notices are compiled and attached hereto as Exhibit 5. 53. Also on February 27, 2017, and as directed by the Drawing Owner Lessors, U.S. Bank made the draw requests. 54. Following their draw requests, U.S. Bank confirmed through emails on February 27 and 28, 2017 that the proceeds from the draw requests will be held in escrow and will not be further remitted to the Noteholders unless directed by the Noteholders or otherwise required, and only after three business-days notice to GenMa and its counsel. In the February 28, 2017 email, U.S. Bank in particular agreed that the proceeds from the draw requests will be held in the Lease Indenture Trustees Accounts and will not be further remitted to the certificate holders or otherwise transferred to any other person, unless and until three (3 business days after the date GenOn Mid-Atlantic LLC ( GenMA and its counsel actually receive written notice from the Lease Indenture Trustee of the occurrence of either (1 a subsequent occurrence necessitates such further payment in accordance with the terms of the Lease Indentures, or (2 the Certificateholders direct the Pass Through Trustees to direct the Lease Indenture Trustees to make such further payment or exercise any further rights or remedies in accordance with the terms of the Lease Indentures. 55. On February 28, 2017, JPMorgan fulfilled the Drawing Owner Lessors draw requests, disbursing $124,868,124.88. 14 18 of 26
forth herein. Count I Breach of Contract Against Drawing Owner Lessors and U.S. Bank 56. GenMa restates and incorporates paragraphs 1 through 55 above, as if fully set 57. The Participation Agreements and Facility Lease Agreements are valid contracts. 58. GenMa has fulfilled all of its obligations in connection with the Participation Agreements and the Facility Lease Agreements. 59. In acting upon their incorrect interpretation of the Participation Agreement s Qualifying Credit Support requirement and drawing on the Prior Letters of Credit and declaring a Lease Event of Default, the Drawing Owner Lessors and U.S. Bank have breached their contractual obligations under the Participation Agreements and the Facility Lease Agreements. 60. As a result, GenMa has suffered damages because it now has reimbursement obligations to GenOn Energy and GenOn Americas. 61. GenMa further has suffered and will continue to suffer reasonably foreseeable consequential damages that are a natural and probable result of the breach on account of harm to GenMa s business, costs incurred with respect to GenMa s operations, and any resulting financial distress. forth herein. Count II Declaratory Judgment Against All Defendants 62. GenMa restates and incorporates paragraphs 1 through 55 above, as if fully set 63. The Parties dispute whether GenMa has breached the Sale-Leaseback Agreements. In particular, the Parties dispute whether there has been a Lease Event of Default 15 19 of 26
under the Facility Lease Agreements and whether GenMa has satisfied certain covenants under the Participation Agreements, including the requirement to procure Qualifying Credit Support. The Parties further dispute whether the Drawing Owner Lessors and U.S. Bank have the right to exercise further remedies under the Facility Lease Agreements. 64. This dispute presents an actual, present controversy of a justiciable nature concerning the Parties respective rights and obligations under the Sale-Leaseback Agreements, which the Court is authorized to decide pursuant to CPLR 3001. forth herein. Count III Conversion Against U.S. Bank 65. GenMa restates and incorporates paragraphs 1 through 55 above, as if fully set 66. U.S. Bank improperly drew on the Prior Letters of Credit and is now in possession of $124,868,124.88 that is maintained in a segregated account. forth herein. 67. The Prior Letters of Credit were obtained on behalf of GenMa. 68. U.S. Bank is currently exercising unauthorized dominion of the $124,868,124.88. Count IV Tortious Interference Against the Drawing Owner Lessors 69. GenMa restates and incorporates paragraphs 1 through 55 above, as if fully set 70. GenMa, the Owner Lessors, and U.S. Bank are parties to the Participation Agreements and the Facility Lease Agreements, which are valid contracts. 71. The Drawing Owner Lessors are aware of the Participation Agreements and Facility Lease Agreements. 16 20 of 26
72. The Drawing Owner Lessors lacked the authority to draw on the Prior Letters of Credit for Morgantown. As confirmed by the Default Notices, the Drawing Owner Lessors therefore directed and caused U.S. Bank to issue draw requests under five of the Prior Letters of Credit for Morgantown. 73. As a result, GenMa has suffered damages because it must now reimburse GenOn Energy and GenOn Americas for the $124,868,124.88 drawn under the Prior Letters of Credit. forth herein. Count V Breach of the Implied Covenant of Good Faith and Fair Dealing Against the Drawing Owner Lessors and U.S. Bank 74. GenMa restates and incorporates paragraphs 1 through 55 above, as if fully set 75. Under the Sale-Leaseback Agreements, the Drawing Owner Lessors and U.S. Bank owed GenMa a duty to act in good faith and deal fairly. 76. In acting upon their incorrect interpretation of the Participation Agreement s Qualifying Credit Support requirement, drawing on the Prior Letters of Credit and declaring a Lease Event of Default, the Drawing Owner Lessors and U.S. Bank breached the duty of good faith and fair dealing. 77. As a result, GenMa has suffered damages because it must now reimburse NRG Americas for the $124,868,124.88 drawn under the Prior Letters of Credit. forth herein. Count VI Unjust Enrichment Against U.S. Bank 78. GenMa restates and incorporates paragraphs 1 through 55 above, as if fully set 17 21 of 26
79. U.S. Bank is currently in the possession of $124,868,124.88 as a result of the draw on the Prior Letters of Credit. 80. It would be inequitable to permit U.S. Bank to retain the $124,868,124.88 as a result of its incorrect interpretation of each Participation Agreement s Qualifying Credit Support requirement. forth herein. Count VII Constructive Trust Against the Drawing Owner Lessors and U.S. Bank 81. GenMa restates and incorporates paragraphs 1 through 55 above, as if fully set 82. The Drawing Owner Lessors and U.S. Bank have confirmed that the $124,868,124.88 will be held in the Lease Indenture Trustees Accounts in accordance with the terms of the Lease Indentures and will not be further remitted to the certificate holders or otherwise unless and until (1 a subsequent occurrence necessitates further payment or (2 the Certificateholders direct the Pass Through Trustees to direct the Lease Indenture Trustees to make such further payment or exercise any further rights or remedies. 83. Consistent with this representation, GenMa requests that, as preliminary relief, the Court create a constructive trust for the pendency of the litigation requiring that U.S. Bank not distribute the $124,868,124.88 currently in its possession. forth herein. Count VIII Injunctive Relief Against All Defendants 84. GenMa restates and incorporates paragraphs 1 through 55 above, as if fully set 18 22 of 26
85. Following the decision of the Drawing Owner Lessors to issue default notices and draw on the Prior Letters of Credit, there is a material risk that all of the Owner Lessors and U.S. Bank will next terminate the Facility Lease Agreements under Section 18.1. 86. As a result of this termination, GenMa will be forced to shutter its operations at Dickerson and Morgantown, forfeit the $1,747,918,089 in capital expenditures it made there from 2002 to 2016 alone, terminate the 247 full-time employees working there and leave with no prospect of returning. 87. Against this irreparable harm, an injunction under CPLR 6301 may be warranted pending the resolution of this litigation if the Drawing Owner Lessors depart from their February 27, 2017 Default Notices and indicate their intention to exercise further remedies under the Sale-Leaseback Agreements, in particular the Facility Lease Agreements. In that event, the Court should enjoin the Owner Lessors and U.S. Bank from exercising any remedies under the Sale-Leaseback Agreements based on their assertion that there is a Lease Event of Default. Prayer for Relief WHEREFORE, GenMa demands that the Court enter judgment in its favor and against the Defendants as follows: A. Direct and consequential damages. B. A declaration that GenMa has not breached the Sale-Leaseback Agreements, including that no Lease Event of Default has occurred. C. The creation of a constructive trust pursuant to Count VII. D. Injunctive relief pursuant to Count VIII. E. Attorneys fees and other costs. 19 23 of 26
F. Such other and further relief as may be just and proper. 20 24 of 26
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tsmith@curtis.com Counsel for GenOn Mid-Atlantic, LLC against U.S. Bank National Association 22 26 of 26