U.S. District Judge Robert Pitman last week ordered Rainbow Energy Marketing Corporation to pay $25.7 million to DC Transco as part of dispute over a series of derivative financial transactions related to Winter Storm Uri in February 2021.
North Dakota-based Rainbow, an energy trading operation, sued DC Transco in federal court in Austin accusing the former business partner of breach of contract and seeking a declaratory judgment that would allow Rainbow to assign losses to DC Transco under their “Emergency Management Agreement.”
DC Transco countersued for breach of contract, claiming that Rainbow’s “alleged failure to pay DC Transco amounts owed to it” and because Rainbow’s contractual losses were “unauthorized and unapproved transactions.”
Judge Pitman granted partial summary judgement in favor of DC Transco in January, ruling that Rainbow had breached its contract.
On Sept. 27, Judge Pitman awarded $20.77 million in damages to DC Transco for the breach of contract and $4.9 million in pre-judgment interest.
According to court documents, DC Transco and its parent company, LS Power Development, hired Rainbow to trade energy on its behalf. Rainbow made a $37 million profit on the sale and purchase of physical power in only one week.
Rainbow did nine more transactions, described as futures trades and financial swaps, from Feb. 11 to Feb. 19, 2011. The transactions ranged from $41,846 to $5.47 million and were intended to lock in profits. Those trades, however, “went south when ERCOT regulators artificially increased the price of power in ERCOT during Winter Storm Uri.”
Winter Storm Uri was an unprecedented February 2021 storm that paralyzed most of Texas for four days, caused widespread power outages across the state and led to hundreds of deaths.
Lawyers for Rainbow and DC Transco conducted a four-day bench trial before Judge Pittman in February.
“This case demonstrates the problem with copying a complex written agreement that made sense in its original context and using the agreement in a different context in which it makes no sense,” lawyers for Rainbow argued in court documents. “The case also demonstrates the lengths a party, driven by greed, will go to twist the plain language of an inapt agreement that it insisted upon, and to conjure an alternative set of ‘facts’ for which there is absolutely no corroboration, in order to seek millions of dollars to which it is not entitled.”
“Although Rainbow’s trading activity netted $16 million (less Rainbow’s fee) for DCT in one week, DCT decided that it would attempt to saddle Rainbow with all of the losses on financial trades, while keeping for itself the $37 million in profits,” Rainbow lawyers argued.
Lawyers for DC Transco argued that “unambiguous contractual provisions” required that Rainbow received DC Transco’s approval “prior to entering any transactions of DC Transco’s behalf.”
“Rainbow admits that it acted without DC Transco’s knowledge or approval when entering those financial transactions and only informed DC Transco after they were entered,” lawyers for DC Transco argued. “The transactions were a breach of the EMA.”
Yetter Coleman represented DC Transco, led by partners James Zucker and Reagan Simpson and senior counsel Elizabeth Wyman and Jane Ray.
Rainbow was represented by Gordon Rees Scully partners Laura De Santos and Megan Mitchell and Dorsey & Whitney partners Creighton Magid and Steven Weiler.
The case is Rainbow Energy Marketing v. DC Transco, U.S.W.D., Case No. 21-cv-00313.