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Kinetic Systems, Inc. v. Federal Financing Bank

United States District Court, N.D. California

August 13, 2014


Decided: August 11, 2014.

Page 732

For Kinetic Systems, Inc., a California corporation: Mathew R. Troughton, Scott E. Hennigh, LEAD ATTORNEYS, Sheppard Mullin Richter & Hampton LLP, San Francisco, CA.

For Federal Financing Bank, a body corporate, Defendant: Steven J. Saltiel, LEAD ATTORNEY, U.S. Attorney - Civil Division, San Francisco, CA.

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In September of 2009, the U.S. Department of Energy (" DOE" ) and Defendant Federal Financing Bank (" FFB" ) entered into a series of agreements with Solyndra FAB 2, LLC (" FAB 2" ). FAB 2 was wholly owned by Solyndra, Inc. (" Solyndra" ), a now-defunct solar panel technology company. FFB purchased a promissory note from FAB 2 in the amount of $535 million, and DOE guaranteed the note. Plaintiff Kinetic Systems, Inc. (" Kinetics" ) is a California contractor. It was hired to perform work on a Solyndra factory in Fremont, California. Kinetics alleges that it performed work worth $2,870,372. Solyndra declared bankruptcy and abruptly ceased operations in August of 2011, and Kinetics claims that it was owed $1,187,950 when Solyndra closed. Kinetics brings this action alleging that FFB holds excess construction funds, and that Kinetics has a right to be paid from those funds. Now before the Court are the parties' cross motions for summary judgment. Both motions are fully briefed,[1] and the Court finds them suitable for disposition without oral argument pursuant to Civil Local Rule 7-1(b). For the reasons set forth below, Defendant FFB's motion for summary judgment is GRANTED and Plaintiff Kinetics' motion for summary judgment is DENIED.


These motions are heavily dependent on the context of this case. That background includes the nature of FFB and the specific details of FFB's agreements with DOE and FAB 2. The Court laid out these important facts in its order on Kinetics' motion to remand and FFB's motion to dismiss. See Kinetic Sys., Inc. v. Fed. Fin. Bank, 895 F.Supp.2d 983 (N.D. Cal. 2012). Because those same facts are critical to these motions as well, the Court reiterates them -- with minor variations and updates -- here.


Nearly forty years ago, Congress created FFB by passing the Federal Financing Bank Act of 1973, Pub. L. No. 93-224, 87 Stat. 937 (1973) (" FFB Act" ), codified at 12 U.S.C. § 2281 et seq. Congress found that " demands for funds through Federal and federally assisted borrowing programs [were] increasing faster than the total supply of credit and that such borrowings [were] not adequately coordinated with overall Federal fiscal and debt management policies." 12 U.S.C. § 2281. Federal agencies administering increasingly popular loan-guarantee programs were using private lenders to furnish the loans, which

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had the unintended effect of increasing costs to the federal government and disrupting private finance markets. The purpose of the FFB Act was " to assure coordination of these programs with the overall economic and fiscal policies of the Government, to reduce the cost of Federal and federally assisted borrowings from the public, and to assure that such borrowings are financed in a manner least disruptive of private financial markets and institutions." 12 U.S.C. § 2281.[2] Congress established FFB as a " body corporate . . . subject to the general supervision and direction of the Secretary of the Treasury" and made it " an instrumentality of the United States Government." Id. § 2283.

Congress conferred on FFB a number of general powers. Id. § 2289. One of these is the power " to sue and be sued, complain, and defend, in its corporate name." Id. § 2289(1). Another is the power " to enter into contracts, to execute instruments to incur liabilities, and to do all things as are necessary or incidental to the proper management of its affairs and the proper conduct of its business." Id. § 2289(9). One of the functions of FFB is to purchase or sell any obligation issued, sold, or guaranteed by a federal agency. Id. § 2285(a). " Obligation" is a defined term that includes " any note, bond, debenture, or other evidence of indebtedness," with certain exceptions not relevant here. Id. § 2282(2). FFB often exercises its power to purchase obligations in order to serve as a lender for programs wherein a federal agency (for example, DOE) guarantees a loan to a private entity (for example, a builder of electrical infrastructure). Generally, FFB provides the financing by purchasing a note which the federal agency then guarantees.

B. The Solyndra Financing Arrangement

The Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005) (" Energy Policy Act" ), codified at 42 U.S.C. § 16511 et seq., authorizes the Secretary of Energy (" Secretary" ) to guarantee loans for certain eligible projects, and appropriates funds to cover the costs of such guarantees. See 42 U.S.C. § § 16511-14. When the Secretary guarantees 100 percent of a loan, the loan must be funded by FFB (as opposed to a private bank). See 10 C.F.R. § 609.10(d)(4)(i).

In September 2009, FFB and the Secretary entered into a Program Financing Agreement that supplies the general framework for this financing program. See ECF No. 7 (" Willis-Proctor Decl." ) Ex. 1 (" PFA" ). The financing process begins when the Secretary designates a borrower. See id. § 2.1. The Secretary's formal designation of a borrower places the Secretary and FFB under three separate commitments: (a) FFB and the Secretary must sign " a Note Purchase Agreement with the particular Borrower . . . setting forth the terms and conditions under which FFB will purchase a Note issued by such Borrower" ; (b) the Secretary must guarantee the note pursuant to the Energy Policy Act; and (c) FFB must purchase the note pursuant to the FFB Act. Id. § 2.3. Note Purchase Agreements signed by FFB and designated borrowers require the borrower to offer a promissory note to FFB, which FFB then buys, assuming certain preconditions are satisfied. Id. § § 1.1, 4.1. One of those preconditions is the receipt by FFB of the

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Secretary's guarantee of the note in the event that a borrower defaults.

The PFA provides that the note shall be a future advance promissory note. Id. § 1.1 (definition of " Note" ). The amount of the note represents the maximum amount of financing that a borrower may receive under their particular PFA. Form NPA § 7.3.4.[3] The borrower receives the financing by requesting an advance on the note. Id. § 7.2. The borrower usually must specify a third party to receive the advance; in other words, FFB gives money to the borrower's creditors, not to the borrower itself. Id. § 7.2(b).[4] The Secretary must approve each request before FFB will disburse the advanced funds. Id. § 7.2(a). Advances may be made " only at such time and in such amount as shall be necessary to meet the immediate payment or disbursing need of the Borrower." Id.

On September 2, 2009, FAB 2, DOE, and FFB entered into a Note Purchase Agreement. Willis-Proctor Decl. Ex. 2 (" Solyndra NPA" ). Under the terms of the Solyndra NPA, FAB 2 agreed to offer FFB a note in the amount of $535 million. The Secretary guaranteed the note and FFB purchased it. The terms of the Solyndra NPA tracked the general terms set forth above. That is, the Secretary guaranteed a $535 million note offered by FAB 2 and purchased by FFB, against which note FAB 2 could request advances of funds which, if approved by the Secretary, FFB would pay directly to FAB 2's creditors ...

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