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PAGE 2A- THE MADISON COUNTY (GA) JOURNAL. THURSDAY. DECEMBER 26. 2019
Lawsuit
continued from 1A
come after the funding was se
cured and the plants went on
line. According to the suit, the
plaintiffs “stood to earn signif
icant compensation, in excess
of $25 million over a period
of years, for their work in rais
ing EB-5 funding the projects
through foreign investment.”
The plaintiffs emphasized
to the GRP ownership that all
information submitted in appli
cations to the Immigrant Inves
tor Program must be truthful.
Misrepresentation to the U.S.
Citizenship and Immigration
Services (USCIS) on the fund
ing applications is punishable as
peijury. The plaintiff's received
detailed “pro forma” reports
to show the performance and
profitability projected for each
plant. EB-5 applications must
include an economist’s report
and a detailed business plan to
demonstrate to the USCIS that
the business venture is viable
and will create the required
number of jobs and investment.
But the 89-page plaintiffs’
complaint alleges that the GRP
reports weren’t truthful. The
plaintiffs said they saw a pattern
of deceit in the power compa
ny’s dealing with both potential
investors and those hired to help
them secure investment.
“Plaintiffs began to discover
that defendants had fraudulent
ly misrepresented (and omitted)
key facts about the projects that
were to be used in the EB-5
applications for the projects, to
prove that each project was fi
nancially viable and would pro
duce revenues necessary to fund
the underlying business,” wrote
Thomas Grant, the plaintiffs’
attorney. “These misrepresen
tations and omissions occurred
through interstate emails, tele
phone calls, and in face-to-face
meetings.”
The plaintiffs also said that
GRP failed to revise its infor
mation after problems were
pointed out.
“Even after being warned by
Nic Applegate and other rep
resentatives of plaintiffs about
these misrepresentations, the
entity defendants proceeded in
bad faith and chose not to pay
for updated economic studies
and reports that would be nec
essary to revise the EB-5 appli
cations to reflect the hue facts
and figures about the projects,”
wrote Grant.
The plaintiffs were subse
quently cut from the project
after the defendants found oth
er investment sources. The at
torney wrote that “Defendant
Shaffer suddenly and unilateral
ly terminated their commercial
relationship with plaintiffs.”
THEPLANS
Greenfuels Energy signed
power purchase agreements
(PPAs) with Georgia Power for
two plants in Georgia and Duke
Energy for two plants in North
Carolina.
The agreements dictated how
much electrical power would be
provided to the utility, as well
as the deadline to produce the
power and the price paid by
the utility for that power. GRP
faced liquidated damages if they
didn’t get the plants operational
by the utility’s deadline. So the
company was under pressure to
produce electricity by the dead
line at a profitable cost.
The lawsuit details some of
the difficulties of operating a
biomass power plant. The plain
tiffs noted that profitability in
the field requires “substantial
expertise in a niche area of pow
er production and the use of new
and expensive technologies.”
Biomass produces more mois
ture than coal-burning plants.
And the availability and price of
biofuels is a key factor in profit
ability, “especially when two or
more biofuel-burning plants are
located near one another” — as
in Madison and Franklin coun
ties — since plants at a close
proximity to each other will “in
crease demand on local supplies
of fuel, thus increasing the price
of fuel.”
“Therefore, being able to at
tract investors and funding for
biofuel power projects requires
a strong and verifiable busi
ness plan to demonstrate that a
plant can and will produce the
required amount of electrical
power at an overall cost that will
allow the plant to operate at a
specified profit level,” the com
plaint states.
THE EQUIPMENT
The plaintiffs noted that a
“key part of the plan for the
Lumberton plant was to replace
an antiquated boiler there with
a modem, $70 million Andritz
Group boiler that was capable
of generating the necessary
amount of heat and hence pow
er output using biofuels.”
GRP asserted that the Lum
berton plant “would generate an
output of 40 megawatts (which
turned out to be nearly double
the amount of actual output),”
the complaint stated.
The EB-5 application fac
tored in the Andritz Group
boiler as a key component in
seeking foreign investment.
According to the lawsuit, the
defendants then scrapped the
newer boiler as part of the plan
and decided to go with a cheap
er option without informing the
plaintiffs, who left the boiler as
part of the EB-5 application.
“The entity defendants made
that decision well before Sep
tember 2015 but chose not to
notify plaintiffs until well into
2016,” the complaint states.
The plaintiffs requested that
GRP revise its plans to reflect
the lack of a new boiler, noting
that without the equipment, the
plant would not “generate the
output, profit and job creation”
the company promised.
The plaintiffs said Shaffer
refused to have the reports re
vised, “even though certain
members of defendants’ own
team (including Defendant
Kuehr) questioned how defen
dants could proceed with the
EB-5 application process, based
on old and inaccurate data.”
The complaint recounts an
email exchange involving the
plaintiffs and defendants.
“We don’t need to change
the EB5 representative financial
model at all,” wrote Shaffer, as
quoted in the lawsuit.
Defendant Kuehr questioned
this.
In a January 2016 email, he
stated: “When you assume we
are no longer intending to install
the new boiler but rather have
Foster Wheeler modify the ex
isting boilers, there is a signifi
cant reduction in the spend and
likely the related jobs. Don’t see
how we can source EB-5 inves
tors unless we depict the proper
program. I agree with you that
this will need to be trued up at
some point. Seems odd to go to
market describing one scenario
when in reality we intend to ex
ecute on another. Am I missing
something?”
The plaintiffs said GRP stuck
with the application stating that
it would use the new boiler at
Shaffer’s direction.
MORE ALLEGED
MISREPRESENATIONS
The plaintiffs later learned
about a “diligence report” dated
August 10, 2015, that “outlined
numerous discrepancies and
concerns about the representa
tions about the projects being
made in the EB-5 applications.”
GRP withheld this report from
the plaintiffs for months, even
tually turning over a “bank
book” that “further demonstrat
ed inaccuracies” the defendants
allowed to remain in the EB-5
application.
The PPA for the Lumberton
plant called for 35 megawatts
of power, but that output wasn’t
met.
“That plant has been unable
to generate more than approx
imately 20 megawatts, which
level could only be sustained
for a short period of time, due
to problems with ash buildup
caused by the burning of biofu
els,” the complaint stated.
Emissions at the Lumberton
plant have also been an issue.
“It has not been possible to
operate the Lumberton Plant,
at all, for significant periods of
time, because the plant has con
tinually exceeded the permis
sible level of emissions, which
has required shutdowns so that
the plant could stay within the
applicable pollution limits,”
Grant wrote.
The plaintiffs said GRP also
misrepresented the output from
the Franklin County plant.
“Additionally, the entity de
fendants produced and provid
ed pro formas for the Franklin
plant that were inaccurate and
misrepresented the amount of
output that could reasonably be
expected from that plant,” wrote
Grant.
According to the lawsuit, an
independent report by E3 Con
sulting showed that the com
pany overstated the expected
output and profitability of the
Franklin plant.
“Subsequent analysis and
review of the E3 Consulting re
port indicated that misrepresen
tations of the parasitic load of
the plant would reduce project
ed revenues by approximately
$2.5 million; that misrepresen
tations about the 'availability’
of the plant would likely reduce
projected revenues by approx
imately $3.2 million; and that
misrepresentations about the
'heat rate’ of the plant would
likely reduce projected reve
nues by approximately $1.75
million,” wrote Grant. “These
material differences, alone,
would significantly impact the
profitability and job creation of
the project, both of which were
necessary for USCIS approval
and for attraction of the required
amount of investment.”
The plaintiffs’ attorney said
GRP kept his clients in the dark
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FARM
BUREAU
INSURANCE
about the company’s problems.
‘Although defendants knew
and/or should have known (for
a considerable amount of time)
about the problems that have
significantly and adversely af
fected the operation of the pow
er plants, they instead chose to
misrepresent information about
the plants to the plaintiffs and
to hide material facts from the
plaintiffs,” wrote Grant. “Con
sequently, plaintiffs were kept
in the dark, as they continued
to work, exclusively and for
months, on the projects.”
He also said the company
willfully misled his clients
about the departure of key per
sonnel who quit GRP “because
of concerns about defendants’
ability to properly configure and
operate the projects, and related
concerns about maintaining
their reputations in the electri
cal-power-generation industry,
due to missteps by defendants.”
“When Mr. Applegate specif
ically asked Defendant Kuehr
about the status of the key per
sonnel with respect to the proj
ects, Defendant Kuehr falsely
advised that they were still
involved and knowingly failed
to disclose to plaintiffs that the
key personnel had actually quit
working for the projects more
than a month before, as plain
tiffs would subsequently learn
from another source,” wrote
Grant. “Similarly, defendants
Shaffer and Bean also failed
to respond accurately about
the status of the key personnel,
when asked by Nic Applegate
in interstate phone calls that oc
curred after the departure of the
key personnel.”
LACK OF
PERMITTING
The suit states that the defen
dants also failed to get proper
permitting for the Lumberton
plant and failed to let the plain
tiffs know about the issue or
include it in their reports to be
used in the investment program.
“They (the defendants) were
repeatedly forced to shut down
the Lumberton plant because it
repeatedly exceeded emissions
allowed by the permits,” the
complaint states. “This reduced
its output and thus further com
promised its ability to generate
the output required for profit
ability.”
Grant wrote that NRG, a
company contracted to operate
the Lumberton plant, had to
“cease work to prevent violation
of the applicable environmental
permits, over the defendant enti
ties’ objection.”
OTHER FINANCING
The plaintiffs stated that the
defendants struggled to get fi
nancing from other sources due
to their “inability to provide
accurate, verifiable information
about the performance and prof
itability of the power plants.”
Investors also expressed con
cern about the involvement of
Kuehr, the finance director for
GRR While working for Re
gions Bank, Kuehr was fined
$70,000 in 2014 by the Secu
rities Exchange Commission
(SEC) and banned from serv
ing as an officer or director of
publicly traded companies for
taking “intentional steps to cir
cumvent internal accounting
controls and improperly classi
fy $168 million in commercial
loans as performing so Regions
could avoid recording a higher
allowance for loan and lease
losses,” according to a press re
lease from the SEC.
OTHER LITIGATION
The RICO complaint also
references other litigation faced
by Greenfuels and GRP.
“Plaintiffs are aware...that
GreenFuels Energy, LLC and
GreenFuels International, LLC
are currently being sued for al
legedly taking another party’s
business opportunity in viola
tion of a non-circumvention
agreement regarding a biofu
el-powered project in Ireland,”
wrote Grant, referencing a suit
filed in federal court in New
Jersey.
The defendants were sued
in federal court in Atlanta for
their “nonpayment of $3 mil
lion allegedly owed by them on
a purchase and sale agreement
concerning the power plant in
Franklin (County),” the com
plaint states.
And the defendants were
also sued in federal court in
North Carolina by NRG, which
provided employees in Lum
berton, “for more that $637,000
owed for NRG’s provision of
employees at that plant.”
WHAT THEY’RE
SAYING NOW
GRP officials said they can
not comment on pending liti
gation.
“It is our company policy
not to comment on pending lit
igation matters with third par
ties,” wrote a GRP official in
response to questions about the
suit. “That said, the Five on Fif
ty litigation was dismissed by
the court in 2016, but the judge
allowed the plaintiffs to cure a
large number of deficiencies in
their complaint. They did refile
their complaint, and GRP filed
a new motion to dismiss. That
motion has been pending since
it was filed two years ago. All
of this is public information.”
Grant disputed GRP’s asser
tion that there was a dismissal.
“Defendants are incorrect
that the case is dismissed,”
wrote Grant. “The court has
instead recognized that 'the
factual and legal complexity
of this case is a double-edged
sword’ because 'plaintiffs can
not avoid relying on a lengthy
complaint,’ in its April 28,
2017 order. Accordingly, that
order (issued more than two
years ago) granted plaintiffs’
request to file an even more
detailed complaint about the
defendants’ misrepresentations
regarding the power plants in
Madison and elsewhere, which
plaintiffs have done.”
The plaintiffs’ attorney said
the defendants are hiding be
hind procedural and technical
arguments.
“Because defendants asked
the court to prevent any dis
covery — including deposi
tions and the production of
documents — during the more
than two years that the court
has been considering plaintiffs’
amended complaint, plaintiffs
have as yet been unable to
compel defendants and other
parties to provide any infor
mation about the projects,”
wrote Grant. “During this time,
defendants have been hiding
behind procedural and other
technical arguments to delay
discovery in a case involving
significant misrepresentations
about the power plants at is
sue.”
Grant wrote that the issues
seen at the Madison County
plant are in line with past be
havior by the company.
“Although plaintiffs have
been frustrated by this delay,
the fact that the Madison plant
has only recently begun to op
erate and is already encoun
tering financial and regulatory
problems is a testament to de
fendants’ inability to operate
it and the other plants as rep
resented, years ago, by defen
dants,” wrote the attorney.
The RICO case, which has
been dormant in federal court,
is being considered by Judge
Mike Brown. A Nov. 21, 2019
article in Law.com states that
Brown leads the nation in the
number of motions pending for
more than six months.
LATEST FILINGS
Grant filed a “motion for
a status conference” with the
court on Dec. 17. And GRP
filed a motion that same day
opposing the request for such a
conference.
“Due to the passage of time
and need to conduct discov
ery, plaintiffs respectfully seek
guidance from the Court about
when this case will proceed,
because discovery and other
pretrial deadlines have been
stayed pending a ruling on de
fendants’ motion to dismiss,”
wrote Grant.
The attorney also mentioned
Madison County’s emissions
issues with GRP in his request
for an update on the status
of the case, informing Judge
Brown that GRP is “generat
ing complaints from surround
ing residents about excessive
pollution from the burning of
chipped railroad ties containing
creosote. Problems with delay
and emissions are among the
bases for plaintiffs’ claims in
this action.”
Attorney Janna Nugent,
representing the defendants,
responded to the plaintiffs’
“motion for a status confer
ence,” stating that the request
“amounts to an improper and
unsupported motion for recon
sideration of the Court’s previ
ous orders staying discovery in
this case.”
Nugent argued that the case
should be put to bed, and she
took issue with the plaintiffs’
use of RICO statutes in their
allegations.
“A stay is particularly war
ranted in this case given the
nature of the claims asserted
by plaintiffs,” she wrote. “No
tably, plaintiffs have asserted
numerous claims under feder
al and state RICO statutes and
common law. As this Court has
noted, ‘the mere invocation of
the [RICO] statute has such an
in terrorem effect that it would
be unconscionable to allow it to
linger in a suit and generate sus
picion and unfavorable opinion
of the putative defendant unless
there is some articulable factual
basis which, if true, would war
rant recovery under the statute.”
As of press time, Judge
Brown had not ruled on the
plaintiffs’ motion for a status
update.
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