Article courtesy of Kevin Braun, Claire Santaniello, and Paige Forcier (Morgan, Lewis & Bockius LLP)
Green Earth Energy Photovolatic Corp, v. KeyCorp, No. CV 19-30123-MGM, 2024 WL 1363953 (D. Mass. March 29, 2024)
Between 2017 and 2019, KeyBank National Association (“KeyBank”) provided approximately $15 million in loans to Green Earth Energy Photovoltaic Corp. (“GEE”) to finance solar projects to be built by GEE. The terms of the loans and repayment obligations of GEE and the guarantees of Christopher and Paige Scyocurka (together with GEE, the “GEE Parties”) were set forth in various loan and security agreements entered into between the GEE Parties and KeyBank, including a business loan agreement, promissory notes and a master security agreement. The financing process followed for each project typically required GEE to sign a progress payment loan and security agreement (a “Progress Agreement”) and request progress payments from KeyBank for construction of the project. Each Progress Agreement contained a deadline for completion of the relevant project (the “Project Deadline”) and obligated GEE to either repay the borrowed amount or execute a new promissory note secured by the completed project.
In August 2017, KeyBank agreed to finance the development of a project (the “First Project”) and GEE executed a related Progress Agreement (the “First Project Agreement”). KeyBank only made one progress payment to GEE and GEE made interest payments on the principal amount. The First Project was not completed by the Project Deadline but GEE continued to make interest payments. KeyBank then loaned GEE funds for a different project (the “Second Project”) and GEE executed a related Progress Agreement (the “Second Project Agreement”). In April 2019, GEE requested the final progress payment from KeyBank for the Second Project, but KeyBank refused to issue the final progress payment until GEE repaid the outstanding balance under the First Project Agreement. As a result, GEE ceased work on the Second Project.
In 2019, the GEE Parties filed an action against KeyBank for breach of contract resulting from KeyBank’s failure to make the final progress payment on the Second Project. KeyBank subsequently filed a counterclaim against the GEE Parties for breach of contract, arguing that the GEE Parties breached their obligations under several of the various agreements between the parties.
The District Court for the District of Massachusetts (the “Court”) analyzed whether the GEE Parties or KeyBank was first to be in material breach of the various agreements between the parties. The Court explained that to prevail on a breach of contract claim, a plaintiff must demonstrate that the parties entered into a contract supported by consideration, the plaintiff was “ready, willing and able to perform” its obligations under the contract and the defendant committed a breach of the contract that resulted in harm to the plaintiff. The Court noted that a breach is material “when the breach concerns an ‘essential and inducing feature of the contract.’”
The Court reasoned that the various agreements clearly set forth that GEE was obligated under the First Project Agreement to pay interest on the outstanding principal amount and either repay the outstanding principal amount or execute a new promissory note secured by the completed project. While GEE continued to make interest payments under the First Project Agreement, GEE did not repay the outstanding principal amount or execute a new promissory note. Therefore, GEE was in material breach of its obligations under the First Project Agreement. Further, the various agreements provided that once GEE breached the First Project Agreement, KeyBank had the right to accelerate the balances under all of the agreements. Therefore, the Court found that KeyBank’s refusal to advance the final progress payment under the Second Project until GEE repaid the outstanding principal amount under the First Project Agreement was an act of forbearance reflecting KeyBank’s decision to “simply take the less severe step” and did not constitute a material breach. For the foregoing reasons, the Court held that GEE committed a material breach of its obligations under the First Project Agreement and KeyBank was entitled to summary judgment.
