Biomass Corporation Sues Federal Gov’t for $47 Million

- by Jacob Fis­chler, April 9, 2015, Law 360

Mead­West­va­co Vir­ginia Corp. slapped the fed­er­al gov­ern­ment with a $47 mil­lion suit in the Court of Fed­er­al Claims on Thurs­day, alleg­ing the U.S. Depart­ment of Trea­sury under­paid the com­pa­ny for the con­struc­tion of a bio­mass ener­gy generator.

Under Sec­tion 1603 of the Amer­i­can Recov­ery and Rein­vest­ment Act, the gov­ern­ment was oblig­at­ed to pay 30 per­cent of the qual­i­fied cost to Mead­West­va­co of build­ing an open-loop bio­mass ener­gy facil­i­ty at its Cov­ing­ton, Vir­ginia, paper mill in 2013, or about $85.9 mil­lion, the com­pa­ny says.

But the gov­ern­ment paid only about $38.9 mil­lion. Most of the pow­er pro­duced at the facil­i­ty was sold to Vir­ginia Elec­tric & Pow­er Co., but the gov­ern­ment made the reduc­tion on the grounds that the com­pa­ny was reusing some of the excess low-pres­sure steam from the bio­mass facil­i­ty to heat the facil­i­ty itself and the near­by paper mill, the com­pa­ny says.

Mead­West­va­co argues it was actu­al­ly being more effi­cient in its use of the low-pres­sure steam and said the government’s log­ic was com­plete­ly off-base.

“The gov­ern­men­t’s deter­mi­na­tion is so erro­neous and unin­formed that it is enti­tled to no def­er­ence and should be dis­card­ed com­plete­ly,” the com­plaint says.

Because Sec­tion 1603 is a mon­ey-man­dat­ing statute, qual­i­fy­ing projects auto­mat­i­cal­ly earn reim­burse­ment of 30 per­cent of their costs for the nec­es­sary parts of the projects, Mead­West­va­co says. The total cost to the com­pa­ny of build­ing the bio­mass facil­i­ty was $291 mil­lion, with $286 mil­lion used on qual­i­fy­ing portions.

The gov­ern­ment nev­er argued the facil­i­ty was not qual­i­fied to receive the Sec­tion 1603 grant mon­ey, just that the award should be less than it had request­ed. MeadWestvaco’s com­plaint says the government’s admis­sion the facil­i­ty qual­i­fied was an admis­sion it was enti­tled to 30 percent.

In the first of a cou­ple of dozen sim­i­lar cas­es to be decid­ed on the mer­its, the U.S. Court of Fed­er­al Claims indi­cat­ed last week that the U.S. Depart­ment of the Trea­sury may have over­stepped its author­i­ty by dis­al­low­ing $1.5 mil­lion in alter­na­tive ener­gy grants to a fuel cell com­pa­ny, a move experts say could por­tend sim­i­lar out­comes in sim­i­lar cas­es involv­ing bil­lions of dol­lars in dis­put­ed grants.

The court said in RP1 Fuel Cell v. U.S. that the depart­ment wrong­ly with­held $1.5 mil­lion worth of the grants from the devel­op­ers of two fuel cell plants in Cal­i­for­nia that helped con­vert waste­water residue into electricity.

The plain­tiffs alleged that Trea­sury was oblig­at­ed to pro­vide the full amount of the grant it was claim­ing under the statute and that the depart­ment unex­pect­ed­ly reduced the award by leav­ing the gas-con­di­tion­ing equip­ment out of their reim­burse­ment calculation.

A rep­re­sen­ta­tive for Mead­West­va­co declined to com­ment Thursday.

Efforts to reach the U.S. Depart­ment of Trea­sury were unsuccessful.

Mead­West­va­co is rep­re­sent­ed by Pamela J. Marple, Jer­ry Stouck and Michael Pusateri of Green­berg Trau­rig LLP.

Coun­sel infor­ma­tion for the gov­ern­ment was unavail­able Thursday.

The case is Mead­West­va­co Vir­ginia Corp. v. U.S., case num­ber 1:15-cv-00355-LB, in the U.S. Court of Fed­er­al Claims.