memo-force-majeure-analysis.docx

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MEMORANDUM

FROM: Tiffany Rosenthal, Lead Associate, and Andrew Fitzpatrick, Working Associate, Calderwood & Harkness LLP

TO: Oliver Mackenzie, Responsible Partner, and Harrison Wexford, Billing Partner

DATE: May 8, 2023

RE: Analysis of Pinnacle Water Solutions, LLC's Force Majeure Defense Under §11.4 of the Amended and Restated Limited Liability Company Agreement of Columbia Basin Water Treatment Partners, LLC

MATTER NO.: 47291.00001

CLIENT: Cascadia State Infrastructure Authority

I. EXECUTIVE SUMMARY

On April 28, 2023, Whitfield, Aarons & Greer LLP, acting through partner Elaine Prescott on behalf of Pinnacle Water Solutions, LLC ("Pinnacle"), transmitted a letter to this firm asserting that the environmental permitting delay caused by the Thurston County Department of Environmental Health constitutes a Force Majeure Event under Section 11.4 of the Amended and Restated Limited Liability Company Agreement of Columbia Basin Water Treatment Partners, LLC, dated November 2, 2021 (the "JV Agreement"). Pinnacle claims that this alleged force majeure event excuses its failure to fund its Second Tranche capital contribution in the amount of $4,050,000 by the March 31, 2023 contractual deadline.

After a thorough review of the JV Agreement, the relevant correspondence, the factual record, and applicable Washington law, this memorandum concludes that Pinnacle's force majeure defense is without merit under both the express terms of the JV Agreement and governing legal principles, for three independently dispositive reasons:

First, Section 11.4 of the JV Agreement expressly excludes "delays in obtaining governmental approvals, permits, licenses, or authorizations" from the definition of Force Majeure Events. The Thurston County Phase II Environmental Impact Determination delay is precisely the type of governmental-approval delay that the contracting parties deliberately carved out of force majeure protection. This exclusion is unambiguous and dispositive.

Second, the permitting obligation was allocated to the joint venture entity, Columbia Basin Water Treatment Partners, LLC ("CBWTP"), under Section 4.3 of the JV Agreement — not to Cascadia State Infrastructure Authority ("CSIA") individually. As the designated Manager of CBWTP, Pinnacle bore primary day-to-day responsibility for advancing the permitting process, including interfacing with Thurston County and its environmental consultants. Pinnacle cannot invoke its own failure to discharge its managerial responsibilities as an excuse for non-performance.

Third, Pinnacle's obligation to fund capital contributions upon issuance of a capital call by the Governing Board is an unconditional monetary obligation under Section 5.2 of the JV Agreement, independent of project milestones, permitting status, or environmental review. Force majeure defenses are, as a matter of both contract law and commercial law principle, inapplicable to obligations to pay money — Pinnacle's ability to wire $4,050,000 is entirely unimpaired by the status of any environmental permit.

Pinnacle's April 28 letter also asserts that CSIA, as the "public-sector partner," bore responsibility for obtaining all governmental permits and that the permitting delay constitutes a material breach by CSIA. This argument is equally without merit, as it is contradicted by the plain language of Section 4.3 and mischaracterizes CSIA's obligations under the JV Agreement.

By way of procedural context, this firm transmitted a formal default notice to Pinnacle on April 14, 2023, commencing the 60-day cure period under Section 8.2 of the JV Agreement. That cure period will expire on June 13, 2023. This memorandum supports the preparation of a response letter to Whitfield, Aarons & Greer LLP rejecting the force majeure defense in its entirety and reaffirming the running of the cure period.

II. FACTUAL BACKGROUND

A. The Joint Venture and Its Structure

On November 2, 2021, Cascadia State Infrastructure Authority ("CSIA"), a Washington state governmental authority created pursuant to Chapter 43.155A RCW for the purpose of financing and developing critical public infrastructure, and Pinnacle Water Solutions, LLC ("Pinnacle"), a Delaware limited liability company headquartered at 720 SW Quelston Street, Suite 1500, Portland, Oregon 97205, entered into the Amended and Restated Limited Liability Company Agreement (the "JV Agreement") to form Columbia Basin Water Treatment Partners, LLC ("CBWTP"), a Washington limited liability company (EIN: 88-3421076; Washington UBI: 604-892-315). The JV Agreement was executed as of November 2, 2021, and CBWTP's Certificate of Formation was filed with the Washington Secretary of State on the same date.

CBWTP was purpose-formed to design, construct, own, and operate the Thurston County Advanced Water Treatment Facility (the "Facility"), a 12 million gallon-per-day advanced water treatment plant to be located at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501. The Facility is to be constructed on a 14.7-acre parcel owned by CSIA and leased to CBWTP pursuant to a 99-year ground lease executed concurrently with the JV Agreement, recorded in the records of the Thurston County Auditor as Recording No. 2021-1102-004788, at an annual rent of $1.00. The ground lease grants CBWTP exclusive possession and development rights over the parcel for the construction and operation of the Facility.

The total project cost was budgeted at $45,000,000, to be funded through a combination of equity contributions from the members and project finance debt. The equity component totals $18,000,000, representing 40% of total project cost. The debt component of $27,000,000, representing 60% of total project cost, was to be funded by Pacific Cascade Bank, N.A. pursuant to a project finance commitment letter bearing reference number PCB-PF-2022-0417, dated February 15, 2022. As of the date of this memorandum, the Pacific Cascade Bank debt facility has been committed but never funded, and the commitment letter is set to expire on August 15, 2023.

Ownership and capital commitments under the JV Agreement are allocated as follows:

Under the JV Agreement, Pinnacle is designated as the Manager of CBWTP, responsible for all day-to-day management, operations, and administrative functions of the joint venture entity. The Manager's authority is subject to the oversight and certain reserved approval rights of a five-member Governing Board. The Governing Board is composed of three appointees designated by CSIA — Margaret Ellsworth (Chair), David Tanaka, and Patricia Huang — and two appointees designated by Pinnacle — Richard Prumvane and Cynthia Voss. In consideration of its management role, Pinnacle is entitled to a management fee equal to 3% of total construction costs, or $1,350,000, payable in accordance with the draw schedule set forth in Exhibit C to the JV Agreement.

We note for background that Pinnacle is not independently capitalized in a manner commensurate with its obligations under the JV Agreement. Since 2019, 62% of Pinnacle's equity has been held by Ridgeline Capital Partners, LP, a Portland-based private equity fund whose Managing Partner is Jonathan Kreider. The remaining 38% of Pinnacle's equity is held by its founders, Richard Prumvane and Cynthia Voss. Ridgeline Capital Partners, LP did not provide any guaranty or credit support in connection with the JV Agreement.

B. Capital Contribution Structure and Pinnacle's Default

The JV Agreement structures equity contributions in two equal tranches, with each tranche representing 50% of each member's total equity commitment. The First Tranche was due upon formation, and the Second Tranche was to be funded upon issuance of a capital call by the Governing Board. The capital call and contribution schedule is summarized as follows:

First Tranche (Funded November 15, 2021):

The First Tranche was funded by both members on November 15, 2021, in accordance with the JV Agreement. These funds were deposited into CBWTP's project account at Pacific Cascade Bank, N.A.

Second Tranche (Capital Call Issued March 1, 2023):

On March 1, 2023, the Governing Board of CBWTP, by unanimous written consent, issued a Second Tranche capital call notice to both members in accordance with Section 5.2 of the JV Agreement. The capital call notice specified that payment of the Second Tranche was due within 30 calendar days of issuance, i.e., by March 31, 2023. A copy of the capital call notice is attached as Appendix D.

CSIA timely funded its Second Tranche contribution of $4,950,000 on March 28, 2023, three days prior to the contractual deadline. CSIA has now fully funded its total equity commitment of $9,900,000 and is current in all of its obligations under the JV Agreement.

Pinnacle failed to fund its Second Tranche capital contribution of $4,050,000 by the March 31, 2023 deadline. As of the date of this memorandum, Pinnacle has not funded any portion of the Second Tranche. The total outstanding default amount is $4,050,000, plus any default interest that may have accrued under the JV Agreement.

Following Pinnacle's failure to fund, this firm, acting on behalf of CSIA, transmitted a formal default notice to Pinnacle on April 14, 2023. The default notice was addressed to Richard Prumvane at Pinnacle's principal office at 720 SW Quelston Street, Suite 1500, Portland, Oregon 97205, with copies transmitted simultaneously to Whitfield, Aarons & Greer LLP (attention: Elaine Prescott) at 1455 SW Broadway, Suite 2100, Portland, Oregon 97201. The default notice identified Pinnacle's failure to fund the Second Tranche as an Event of Default under Section 8.2 of the JV Agreement and provided notice that the 60-day cure period under Section 8.2 had commenced and would expire on June 13, 2023. A copy of the default notice is attached as Appendix C.

C. The Permitting Delay

The timeline of the permitting process and the events giving rise to the current dispute is as follows:

January 10, 2022. CBWTP, acting through Pinnacle in its capacity as Manager, retained Westmark Environmental Consulting, Inc. ("Westmark") to prepare the environmental assessments required for the Facility. The engagement was led by Dr. Anita Farooq, Westmark's principal consultant specializing in advanced water treatment facility permitting. The scope of the engagement included the preparation of a Phase I Environmental Site Assessment, a Phase II Environmental Impact Determination ("Phase II EID"), and all supporting technical documentation required for submission to the Thurston County Department of Environmental Health.

April 22, 2022. Westmark completed and delivered the Phase I Environmental Site Assessment for the Facility site. The Phase I assessment identified no recognized environmental conditions at the 14.7-acre parcel. This was a favorable result that supported continued advancement of the permitting process.

July 8, 2022. Karen Lindstrom, Environmental Review Division Manager at the Thurston County Department of Environmental Health, transmitted a letter to CBWTP (attention: Richard Prumvane, as Manager) requesting supplemental environmental data in connection with the Phase II EID review. Specifically, Ms. Lindstrom's letter requested additional hydrogeological data, updated groundwater monitoring results, and a revised stormwater management plan. The letter indicated that the Phase II EID review was paused pending receipt of the requested supplemental data. A copy of Ms. Lindstrom's letter is attached as Appendix F.

September 14, 2022. Rather than marshaling the resources necessary to respond to Thurston County's data request and advance the permitting process, Pinnacle transmitted a letter to CSIA (attention: Margaret Ellsworth, Governing Board Chair) advising that Pinnacle intended to "defer further project expenditures" pending resolution of the permitting issue. The letter did not specify any plan or timeline for responding to the supplemental data request. A copy of Pinnacle's September 14, 2022 letter is attached as Appendix E.

November 30, 2022. A meeting of the CBWTP Governing Board was duly noticed for November 30, 2022. The meeting agenda included, among other items, a discussion of the permitting status, the Westmark engagement, and a potential response plan for Thurston County's data request. The meeting failed to achieve a quorum because both of Pinnacle's appointed board members — Richard Prumvane and Cynthia Voss — failed to attend. The three CSIA-appointed board members (Ellsworth, Tanaka, and Huang) were present. Under the JV Agreement, a quorum requires the presence of at least four of the five board members, including at least one appointee from each member.

As of May 8, 2023 (the date of this memorandum), the Phase II EID remains outstanding. CBWTP has not responded to Thurston County's July 8, 2022 request for supplemental environmental data. No supplemental hydrogeological data has been collected, no updated groundwater monitoring has been conducted, and no revised stormwater management plan has been submitted. The project has been effectively dormant since Pinnacle's unilateral decision to defer expenditures in September 2022 — a period of approximately eight months.

D. Pinnacle's Force Majeure Claim

On April 28, 2023, fourteen days after receipt of this firm's default notice, Whitfield, Aarons & Greer LLP transmitted a letter to Oliver Mackenzie at Calderwood & Harkness LLP asserting, on behalf of Pinnacle, that the Thurston County permitting delay constitutes a Force Majeure Event under Section 11.4 of the JV Agreement. The letter, signed by Elaine Prescott, characterizes the permitting delay as a "regulatory delay beyond Pinnacle's control" and asserts that Pinnacle's obligation to fund the Second Tranche capital contribution is excused for so long as the force majeure event continues.

The Prescott letter further asserts, in the alternative, that CSIA, "as the public-sector partner and the entity with established governmental relationships," bore primary responsibility for obtaining all governmental permits and approvals necessary for the Facility, and that the failure of the Thurston County Department of Environmental Health to issue the Phase II EID in a timely manner constitutes a material breach by CSIA of its obligations under the JV Agreement. The letter asserts that, even if the force majeure defense is not sustained, Pinnacle is entitled to withhold its capital contribution as a consequence of CSIA's alleged breach.

A copy of the Prescott letter is attached as Appendix B.

As analyzed in detail below, both of Pinnacle's asserted defenses are without merit.

III. RELEVANT CONTRACTUAL PROVISIONS

This section sets forth the key contractual provisions of the JV Agreement that bear on Pinnacle's force majeure defense and its related arguments. The provisions are quoted in full (or in relevant part) and analyzed with respect to their application to the facts at hand.

A. Section 11.4 — Force Majeure

Section 11.4 of the JV Agreement provides, in its entirety, as follows:

Section 11.4. Force Majeure.

(a) Definition. As used herein, "Force Majeure Event" means any event or circumstance beyond the reasonable control of the affected party that directly prevents such party from performing its obligations under this Agreement, including without limitation: (i) acts of God, including earthquakes, floods, hurricanes, landslides, volcanic eruptions, or other natural disasters of extraordinary magnitude; (ii) fires, explosions, or other casualties not caused by the negligence or willful misconduct of the affected party; (iii) wars (declared or undeclared), armed conflicts, acts of terrorism, insurrections, riots, or civil disturbances; (iv) epidemics, pandemics, or quarantine restrictions imposed by governmental authorities; (v) strikes, lockouts, or other labor disturbances, except those involving the employees or contractors of the affected party; (vi) embargoes, sanctions, or trade restrictions imposed by the United States government or any governmental authority having jurisdiction over the Project; and (vii) changes in applicable law enacted after the date of this Agreement that make performance illegal. Notwithstanding the foregoing, the following shall not constitute Force Majeure Events: (A) delays in obtaining governmental approvals, permits, licenses, or authorizations; (B) changes in market conditions, interest rates, currency exchange rates, or other economic or financial conditions; (C) the inability of a party to obtain financing or to fund any obligation hereunder; (D) the financial condition of a party or any of its Affiliates; and (E) any event or circumstance that was reasonably foreseeable as of the date of this Agreement.

(b) Effect. A party whose performance is directly prevented by a Force Majeure Event shall be excused from such performance for so long as such Force Majeure Event continues and for a reasonable period thereafter, provided that such party: (i) gives prompt written notice to the other party of the Force Majeure Event, specifying the nature and expected duration of the event, not later than ten (10) Business Days after becoming aware of such event; (ii) uses commercially reasonable efforts to mitigate the effects of the Force Majeure Event and to resume performance as promptly as practicable; and (iii) provides periodic updates to the other party regarding the status of the Force Majeure Event not less frequently than every thirty (30) days. A Force Majeure Event shall not excuse the obligation of any party to make any payment of money due under this Agreement.

Several features of Section 11.4 are critical to the present analysis.

The Governmental-Approval Exclusion. Section 11.4(a)(A) provides, in unambiguous and unqualified terms, that "delays in obtaining governmental approvals, permits, licenses, or authorizations" shall not constitute Force Majeure Events. This exclusion is drafted broadly, using the disjunctive "approvals, permits, licenses, or authorizations" to capture the full range of governmental actions that a party might encounter in the course of developing an infrastructure project. The exclusion is not limited to permits within the control of the parties, permits of a particular type, or permits from a particular governmental authority. It sweeps in all governmental-approval delays, regardless of their cause, their duration, or the identity of the governmental body involved.

The Thurston County Phase II Environmental Impact Determination falls squarely within the scope of this exclusion. The Phase II EID is a governmental approval — specifically, an environmental permit issued by a county governmental authority — and the delay in obtaining it is precisely the type of event that the parties expressly agreed would not qualify as a Force Majeure Event. The drafters of the JV Agreement were sophisticated parties, represented by counsel, who understood that environmental permitting delays are a foreseeable risk in infrastructure development and deliberately allocated that risk outside the scope of force majeure protection.

The Monetary-Obligation Carve-Out. Section 11.4(b) contains an additional limitation of independent significance: the final sentence provides that "[a] Force Majeure Event shall not excuse the obligation of any party to make any payment of money due under this Agreement." This provision independently bars Pinnacle's invocation of force majeure to excuse its failure to fund the Second Tranche capital contribution, which is, at its core, an obligation to pay $4,050,000 to CBWTP.

The "Directly Prevented" Requirement. Section 11.4(b) further provides that force majeure excuses only performance that is "directly prevented" by the qualifying event. As discussed in greater detail in Section IV.C below, a permitting delay does not "directly prevent" the making of a wire transfer. Pinnacle's financial capacity to transmit $4,050,000 to CBWTP's bank account is wholly unaffected by the status of the Phase II EID.

B. Section 4.3 — Permitting Responsibilities

Section 4.3 of the JV Agreement provides, in relevant part:

Section 4.3. Permits and Approvals. The Company shall be responsible for obtaining, at its own cost and expense, all environmental, construction, operating, and other governmental permits, licenses, approvals, and authorizations required for the design, construction, ownership, and operation of the Facility (collectively, "Project Permits"). The Manager shall take all actions necessary or appropriate, on behalf of the Company, to prepare, submit, and prosecute all applications for Project Permits and to respond to all requests by governmental authorities in connection therewith. The Members acknowledge that the timely acquisition of Project Permits is essential to the progress of the Project and agree to cooperate in good faith with the Manager in connection with the permitting process.

The allocation of permitting responsibility under Section 4.3 is clear and unambiguous. The obligation to obtain all governmental permits resides with CBWTP — the joint venture entity — and not with either member individually. The Manager — which, under the JV Agreement, is Pinnacle — is expressly charged with taking "all actions necessary or appropriate" to advance the permitting process on behalf of CBWTP. The members' obligation is limited to cooperating "in good faith" with the Manager in connection with the permitting process.

Pinnacle's assertion in its April 28 letter that CSIA bore permitting responsibility as the "public-sector partner" is directly contradicted by the plain language of Section 4.3. Neither the word "CSIA" nor any reference to the public-sector member appears in Section 4.3 in connection with the allocation of permitting duties. To the contrary, it is Pinnacle — in its capacity as Manager — that is expressly identified as the party responsible for prosecuting permit applications and responding to governmental requests.

C. Section 5.2 — Capital Contribution Obligations

Section 5.2 of the JV Agreement provides, in relevant part:

Section 5.2. Capital Contributions.

(a) Initial Capital Contributions. Each Member shall make its Initial Capital Contribution in the amount set forth on Schedule 5.2(a) hereto on the date of this Agreement or such other date as may be agreed by the Members.

(b) Additional Capital Contributions. Each Member shall fund its Additional Capital Contributions in the amount specified in the applicable Capital Call Notice, within thirty (30) calendar days following issuance of such Capital Call Notice by the Governing Board. The obligation of each Member to fund its Additional Capital Contributions upon issuance of a Capital Call Notice is absolute and unconditional and shall not be subject to any setoff, counterclaim, defense, or deduction of any kind, and shall not be conditioned upon the achievement of any project milestone, the receipt of any governmental approval, or the satisfaction of any other condition.

Section 5.2(b) is remarkable for the breadth and clarity of its unconditional-obligation language. The provision specifies that the obligation to fund capital contributions upon a capital call is "absolute and unconditional" and "shall not be subject to any setoff, counterclaim, defense, or deduction of any kind." Moreover, the provision expressly states that the obligation "shall not be conditioned upon the achievement of any project milestone, the receipt of any governmental approval, or the satisfaction of any other condition." This language directly and specifically forecloses Pinnacle's argument that its capital call obligation was contingent on the status of the environmental permitting process.

The 30-calendar-day payment window is similarly clear. The Second Tranche capital call was issued on March 1, 2023, making the payment due date March 31, 2023. Pinnacle failed to fund by that date and remains in default.

D. Section 8.2 — Default and Remedies

Section 8.2 of the JV Agreement provides, in relevant part:

Section 8.2. Events of Default; Remedies.

(a) Events of Default. Each of the following shall constitute an "Event of Default" with respect to a Member (the "Defaulting Member"): (i) the failure of such Member to fund any Capital Contribution within thirty (30) days after the date on which such Capital Contribution is due pursuant to Section 5.2; (ii) a material breach by such Member of any other obligation under this Agreement that remains uncured for a period of thirty (30) days after written notice thereof from the non-defaulting Member; ...

(b) Cure Period. Upon the occurrence of an Event of Default under Section 8.2(a)(i), the non-defaulting Member shall deliver written notice of default to the Defaulting Member (a "Default Notice"). The Defaulting Member shall have sixty (60) calendar days following receipt of the Default Notice to cure such Event of Default by funding the applicable Capital Contribution in full, together with default interest at the rate of twelve percent (12%) per annum from the original due date to the date of payment.

(c) Remedies. If the Defaulting Member fails to cure an Event of Default under Section 8.2(a)(i) within the cure period set forth in Section 8.2(b), the non-defaulting Member shall be entitled, in its sole discretion, to elect one or more of the following remedies: (i) to cause a pro rata dilution of the Defaulting Member's Percentage Interest in accordance with a dilution formula set forth in Exhibit D hereto; (ii) to purchase the Defaulting Member's entire Interest in the Company at a price equal to seventy-five percent (75%) of the Fair Market Value of such Interest, as determined in accordance with Section 8.2(d); or (iii) to elect to dissolve the Company in accordance with Article X.

The default and remedy framework of Section 8.2 provides CSIA with substantial enforcement rights. Pinnacle's failure to fund the Second Tranche by March 31, 2023 constitutes an Event of Default under Section 8.2(a)(i). The default notice was transmitted on April 14, 2023, commencing the 60-day cure period, which will expire on June 13, 2023. If Pinnacle fails to cure by that date — by funding the full $4,050,000 together with default interest at 12% per annum from March 31, 2023 — CSIA will have three available remedies: dilution, forced buyout at a 25% discount to fair market value, or dissolution.

E. Section 11.4 in Relation to Section 5.2 — Interplay

The interaction between the force majeure provision (Section 11.4) and the capital contribution provision (Section 5.2) further undermines Pinnacle's defense. Even if the Thurston County permitting delay could somehow qualify as a Force Majeure Event — which, as established above, it cannot under the express exclusion in Section 11.4(a)(A) — Section 11.4(b) excuses only obligations whose performance is "directly prevented" by the force majeure event.

A capital contribution obligation is fundamentally a monetary payment obligation: the obligation to wire $4,050,000 to CBWTP's bank account at Pacific Cascade Bank, N.A. The performance of this obligation — the mechanical act of initiating and completing a funds transfer — is not and cannot be "directly prevented" by the pendency of an environmental permitting review in Thurston County. Pinnacle's access to its bank accounts, its ability to execute wire transfers, and its financial capacity to make the payment are entirely unimpaired by the status of the Phase II EID.

Moreover, as noted above, Section 11.4(b) contains an express monetary-obligation carve-out providing that "[a] Force Majeure Event shall not excuse the obligation of any party to make any payment of money due under this Agreement." Section 5.2(b), for its part, independently provides that the capital contribution obligation is "absolute and unconditional" and not "conditioned upon the achievement of any project milestone, the receipt of any governmental approval, or the satisfaction of any other condition." These provisions operate in concert to foreclose any argument that a permitting delay could excuse a member's failure to fund a capital call.

The distinction between monetary obligations and performance obligations is well-established in both Washington law and general commercial law. As discussed in Section IV.C and IV.D below, courts consistently hold that force majeure does not excuse the obligation to pay money, because the ability to make a monetary payment is not rendered impossible or impracticable by events that may impede other forms of contractual performance.

IV. ANALYSIS

A. The Contractual Exclusion of Governmental Approval Delays Is Dispositive

The starting point — and, in our view, the ending point — of the analysis is the plain language of Section 11.4(a)(A) of the JV Agreement, which expressly provides that "delays in obtaining governmental approvals, permits, licenses, or authorizations" shall not constitute Force Majeure Events.

The Thurston County Phase II Environmental Impact Determination delay is, on its face and beyond reasonable dispute, a "delay in obtaining a governmental approval." The Phase II EID is an environmental determination issued by the Environmental Review Division of the Thurston County Department of Environmental Health, a governmental body exercising regulatory authority over environmental permitting within Thurston County, Washington. The delay in obtaining the Phase II EID is a direct consequence of the Thurston County authority's request for supplemental environmental data, to which CBWTP (through Pinnacle as Manager) has not responded. The entire chain of causation runs through the governmental-approval process.

Pinnacle's own characterization of the delay confirms its classification under the exclusion. The April 28, 2023 letter from Whitfield, Aarons & Greer LLP describes the delay as a "regulatory delay beyond Pinnacle's control." The word "regulatory" is a virtual synonym for "governmental," and the characterization as a "delay" maps directly onto the exclusionary language of Section 11.4(a)(A). Pinnacle has, in its own pleading, identified the triggering event as precisely the type of event that the JV Agreement excludes from force majeure protection.

Under Washington contract interpretation principles, where contractual language is clear and unambiguous, the court will enforce it according to its plain meaning without resort to extrinsic evidence. Hearst Communications, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115 P.3d 262, 267 (2005) ("The court will give effect to the plain meaning of the words used in the contract, unless the contract is ambiguous."); Berg v. Hudesman, 115 Wn.2d 657, 667, 801 P.2d 222, 228 (1990) (courts interpret contracts according to objective manifestations of intent as expressed in the language of the agreement). The Washington Supreme Court has repeatedly held that the four corners rule requires courts to determine the meaning of a contract from its written terms without reference to parol evidence where the terms are unambiguous. Tanner Elec. Coop. v. Puget Sound Power & Light Co., 128 Wn.2d 656, 674, 911 P.2d 1301, 1310 (1996).

There is no ambiguity in the phrase "delays in obtaining governmental approvals, permits, licenses, or authorizations." The language is plain, its scope is broad, and it admits of no limiting construction. There is no textual basis to read in an exception for delays caused by third-party governmental agencies acting independently of the parties, as opposed to delays caused by the parties' own failures in the permitting process. The exclusion is absolute and unqualified — it covers all governmental-approval delays, regardless of their cause or origin. Had the parties intended to limit the exclusion to only those permitting delays within a party's control, they could easily have done so with qualifying language such as "delays in obtaining governmental approvals attributable to the actions or inactions of the affected party." No such qualification appears in the JV Agreement, and none should be implied.

The sophistication of the contracting parties and their counsel reinforces this conclusion. CSIA is a state governmental authority experienced in public infrastructure development. Pinnacle is a private-sector entity backed by a professional private equity fund (Ridgeline Capital Partners, LP) and represented by sophisticated legal counsel. Both parties were well aware at the time of contracting that environmental permitting delays are a foreseeable — indeed, common — risk in infrastructure projects of this nature. The deliberate inclusion of the governmental-approval exclusion in Section 11.4(a)(A) reflects a negotiated allocation of risk: the parties agreed that permitting delays would not excuse non-performance under the force majeure provision. Pinnacle accepted this allocation when it executed the JV Agreement.

Conclusion. Pinnacle's force majeure claim fails at the threshold because the triggering event — the Thurston County permitting delay — is expressly excluded from the definition of Force Majeure Events under Section 11.4(a)(A). This exclusion is dispositive, and no further analysis is required to reject the force majeure defense. We nonetheless address additional bases for rejection below, to provide a comprehensive record.

B. Pinnacle, as Manager, Cannot Invoke Its Own Permitting Failure as an Excuse

Even if the governmental-approval exclusion in Section 11.4(a)(A) did not exist — which it does — Pinnacle's force majeure defense would fail on an independent ground: Pinnacle itself was the party responsible for advancing the permitting process, and a party may not invoke force majeure to excuse non-performance caused by its own acts or omissions.

Under Section 4.3 of the JV Agreement, the obligation to obtain all Project Permits resides with CBWTP, and the Manager — Pinnacle — is expressly charged with taking "all actions necessary or appropriate, on behalf of the Company, to prepare, submit, and prosecute all applications for Project Permits and to respond to all requests by governmental authorities in connection therewith." The Manager's duties under Section 4.3 include, without limitation, interfacing with Thurston County's Department of Environmental Health, coordinating with Westmark Environmental Consulting, Inc. (the retained environmental consultant), and preparing and submitting the supplemental data requested by Thurston County.

The factual record demonstrates that Pinnacle failed to discharge these responsibilities. When Karen Lindstrom of the Thurston County Department of Environmental Health requested supplemental environmental data on July 8, 2022, the appropriate course of action for Pinnacle — as Manager — was to direct Westmark to prepare the requested data and submit it to Thurston County. Instead, approximately two months later, on September 14, 2022, Pinnacle notified CSIA that it intended to "defer further project expenditures" pending resolution of the permitting issue. This was, in effect, a unilateral decision by the Manager to stop working on permitting — the very obligation that the JV Agreement assigned to the Manager. Pinnacle's subsequent failure to attend the November 30, 2022 Governing Board meeting — preventing a quorum and blocking any board-level discussion of the permitting situation — further illustrates Pinnacle's abandonment of its managerial responsibilities.

The consequence of Pinnacle's inaction is that, as of the date of this memorandum, CBWTP has never responded to Thurston County's July 8, 2022 data request. The Phase II EID review has been paused for over ten months — not because Thurston County is engaged in an extraordinary or prolonged regulatory process, but because the applicant (CBWTP, through its Manager, Pinnacle) has simply failed to provide the supplemental information that the regulator requested. The permitting delay is, in the most direct sense, a product of Pinnacle's own decisions and omissions.

It is a well-established principle that a force majeure defense is unavailable where the invoking party's own actions or inactions caused or materially contributed to the alleged force majeure event. The requirement in Section 11.4(a) that the event be "beyond the reasonable control of the affected party" necessarily excludes events that the affected party could have prevented or mitigated through the exercise of reasonable diligence. See, e.g., Specialty Foods of Indiana, Inc. v. City of South Bend, 997 N.E.2d 23, 28 (Ind. Ct. App. 2013) (force majeure inapplicable where party's own inaction contributed to delay); Kel Kim Corp. v. Cent. Mkts., Inc., 70 N.Y.2d 900, 902, 519 N.E.2d 295, 296 (1987) (force majeure excuses performance only when the claimed impediment is beyond the party's control and could not have been foreseen or guarded against). Washington courts apply the same principle in evaluating force majeure claims, requiring that the invoking party demonstrate that the event was truly beyond its control and not attributable to its own conduct. See Ross v. Harding, 64 Wn.2d 231, 236, 391 P.2d 526, 530 (1964) (applying general principles of excuse from performance where event is beyond party's control).

Pinnacle had both the contractual authority and the practical ability to advance the permitting process at all relevant times. Its decision to defer project expenditures and disengage from the permitting process was a volitional business decision, not an involuntary response to forces beyond its control. A party that chooses not to respond to a regulatory request cannot then characterize the resulting delay as a force majeure event.

Pinnacle's contention that CSIA bore permitting responsibility as the "public-sector partner" is a transparent attempt to rewrite the contractual allocation of duties. As discussed in Section III.B above, Section 4.3 assigns permitting responsibility to CBWTP (through the Manager) and imposes on the Members only a duty to "cooperate in good faith" with the Manager. There is no provision in the JV Agreement imposing a permitting obligation on CSIA in its individual capacity. The fact that CSIA is a governmental entity does not create an implied obligation to intervene in the permitting processes of a separate and independent governmental body (the Thurston County Department of Environmental Health). CSIA has no administrative authority over Thurston County's environmental permitting functions, and the JV Agreement does not purport to impose any such obligation.

Conclusion. Even absent the governmental-approval exclusion, Pinnacle cannot invoke a permitting delay that it — as Manager of CBWTP — had the responsibility and the ability to resolve through the exercise of ordinary diligence. Pinnacle's failure to respond to Thurston County's data request is attributable to its own volitional decisions, not to any event beyond its reasonable control.

C. Capital Contribution Obligations Are Unconditional Monetary Obligations Not Subject to Force Majeure

Pinnacle's force majeure defense fails on a third and independently dispositive ground: even if the permitting delay could qualify as a Force Majeure Event — which it cannot under Sections IV.A and IV.B above — force majeure does not excuse Pinnacle's obligation to fund the Second Tranche capital contribution, because that obligation is an unconditional monetary obligation that is not "directly prevented" by a permitting delay.

The operative language of Section 11.4(b) excuses only performance that is "directly prevented" by a Force Majeure Event. A capital contribution obligation — the obligation to wire $4,050,000 to CBWTP's project account at Pacific Cascade Bank, N.A. — is a monetary payment obligation, the performance of which involves the initiation of a funds transfer from Pinnacle's bank to CBWTP's bank. An environmental permitting delay at the Thurston County level does not, in any conceivable sense, "directly prevent" the execution of a wire transfer. Pinnacle's bank accounts remain accessible, the banking system remains operational, and there is no physical, legal, or practical impediment to the transfer of funds. The permitting delay does not prevent Pinnacle from funding; at most, it reduces Pinnacle's perceived commercial motivation to fund — which is an entirely different matter.

Moreover, as noted in Section III.E above, Section 11.4(b) contains an express monetary-obligation carve-out: "A Force Majeure Event shall not excuse the obligation of any party to make any payment of money due under this Agreement." This provision constitutes a separate and independent contractual bar to Pinnacle's force majeure defense with respect to the capital contribution obligation. The provision was plainly drafted to foreclose the precise argument that Pinnacle now advances.

The unconditional nature of the capital contribution obligation is further reinforced by Section 5.2(b), which provides that the obligation to fund capital contributions upon a capital call is "absolute and unconditional" and "shall not be subject to any setoff, counterclaim, defense, or deduction of any kind." Section 5.2(b) further provides that the obligation "shall not be conditioned upon the achievement of any project milestone, the receipt of any governmental approval, or the satisfaction of any other condition." The reference to "the receipt of any governmental approval" is particularly significant, as it directly and specifically addresses — and forecloses — Pinnacle's argument that the capital call obligation is contingent on the status of the Phase II EID.

The Second Tranche capital call was validly issued on March 1, 2023 by the Governing Board of CBWTP, in accordance with Section 5.2(b). The capital call triggered an unconditional payment obligation, due within 30 calendar days. No provision of the JV Agreement conditions the validity of the capital call, or the obligation to fund in response to it, on the status of environmental permitting or any other project milestone.

The distinction between monetary obligations and performance obligations is deeply rooted in both Washington law and general commercial law. The Restatement (Second) of Contracts §261 comment d (1981) recognizes that impracticability "has no application to an obligation to pay money," because "money, unlike the subject matter of other obligations, is always obtainable." See also U.C.C. §2-615 comment 4 (stating that excuse by failure of presupposed conditions applies to obligations of performance, not to obligations to pay the contract price). This principle reflects the common-sense understanding that the ability to make a monetary payment is not affected by the same types of supervening events — natural disasters, labor disruptions, regulatory delays — that may render other types of performance impossible or impracticable.

Washington courts have applied this principle in various contexts, recognizing that the obligation to pay money survives events that may excuse performance of other types of obligations. See, e.g., Philip A. Livingston, Inc. v. Aluminum Co. of Am., No. C07-0296RSM, 2007 WL 2462025, at *5 (W.D. Wash. Aug. 24, 2007) (noting the general principle that force majeure provisions excuse delay in performance, not delay in payment). While the body of Washington case law specifically addressing force majeure and monetary obligations in the public-private partnership context is limited, the principle that monetary obligations are not excused by force majeure is well-established and widely accepted across jurisdictions.

Conclusion. Even on the most charitable reading of Section 11.4, force majeure cannot excuse a payment obligation. Pinnacle's obligation to fund the Second Tranche capital contribution is an unconditional monetary obligation, expressly excepted from force majeure relief by both Section 11.4(b) and Section 5.2(b), and not "directly prevented" by the permitting delay. This ground alone is sufficient to defeat Pinnacle's defense.

D. Washington Case Law on Force Majeure in Public-Private Contracts

Washington case law strongly supports the enforceability of the Section 11.4 exclusion and the inapplicability of force majeure to Pinnacle's capital contribution obligation.

Strict Construction of Force Majeure Clauses. Washington courts apply a strict construction to force majeure clauses, limiting their scope to the specific events enumerated in the clause and declining to extend force majeure protection beyond its express terms. See Pac. Vegetable Oil Corp. v. CST, Ltd., 29 Wn.2d 777, 789, 189 P.2d 680, 686 (1948) (construing force majeure clause strictly and declining to excuse performance on unenumerated grounds); see also Virginia Mason Med. Ctr. v. Duwamish Enters., Inc., No. 72505-3-I, 2016 WL 3198297, at *3 (Wash. Ct. App. June 6, 2016) (enforcing the specific terms and limitations of a force majeure clause as written). Under this interpretive approach, where a force majeure clause expressly excludes a particular category of events — such as governmental-approval delays — courts will enforce that exclusion without equivocation. The sophistication of the parties and the specificity of the exclusionary language in Section 11.4(a)(A) provide no basis for judicial expansion of the clause beyond its terms.

Foreseeability. Washington courts also consider foreseeability in evaluating force majeure claims. Section 11.4(a)(E) of the JV Agreement provides that events that were "reasonably foreseeable as of the date of this Agreement" do not constitute Force Majeure Events. Environmental permitting delays are among the most foreseeable risks in infrastructure development projects. Indeed, the fact that the parties specifically addressed governmental-approval delays in the exclusionary language of Section 11.4(a)(A) confirms that they considered such delays to be foreseeable and deliberately allocated the risk outside force majeure protection. Even absent the express exclusion, Pinnacle would face significant difficulty establishing that a permitting delay at the county level was an unforeseeable event beyond its reasonable contemplation at the time of contracting.

Force Majeure vs. Common Law Impossibility and Impracticability. It is important to distinguish force majeure — which is a contractual doctrine governed by the specific terms of the force majeure clause — from the common law doctrines of impossibility and impracticability, which operate as equitable defenses independent of the contract. Under Washington law, the doctrine of impossibility excuses performance when a supervening event renders performance objectively impossible — not merely more difficult, more expensive, or less commercially attractive. See Regan v. McLachlan, 163 Wn. App. 171, 181, 257 P.3d 1122, 1127 (2011). The related doctrine of commercial impracticability, as reflected in the Restatement (Second) of Contracts §261, requires that the supervening event make performance "impracticable" — a standard that is not met by increased difficulty or reduced profitability.

Pinnacle's April 28 letter does not expressly invoke the common law doctrines of impossibility or impracticability, relying instead exclusively on the contractual force majeure provision. However, even if Pinnacle were to assert these doctrines, they would not avail it. The performance at issue — the payment of $4,050,000 — remains objectively possible. Pinnacle has not alleged that it lacks the financial capacity to make the payment (and, indeed, Section 11.4(a)(C) and (D) expressly exclude the inability to obtain financing and the financial condition of a party from the definition of Force Majeure Events). The payment of money is never "impossible" in the legal sense, absent the destruction of the monetary system itself or a governmental prohibition on the specific transfer. See Restatement (Second) of Contracts §261 comment d.

Economic Hardship and Reduced Commercial Attractiveness. Washington courts have consistently held that economic hardship, changes in market conditions, or the reduced commercial attractiveness of a transaction do not constitute force majeure or excuse performance under the doctrines of impossibility or impracticability. See Klos v. Gockel, 87 Wn.2d 567, 572, 554 P.2d 1349, 1353 (1976) (increased cost or difficulty of performance does not excuse contractual obligation). To the extent that Pinnacle's force majeure claim is motivated by a reassessment of the Facility's commercial viability — whether due to the permitting delay, the impending expiration of the Pacific Cascade Bank commitment letter, or other factors — such reassessment does not provide a legal basis for excusing its capital contribution obligation.

Public-Private Partnership Context. While there is no body of Washington case law directly addressing force majeure claims in the specific context of public-private partnership agreements for water treatment infrastructure, the general principles of force majeure interpretation applied by Washington courts — strict construction, enforcement of exclusionary language, inapplicability to monetary obligations — are fully applicable. Courts in other jurisdictions addressing force majeure claims in the public-private partnership and infrastructure development context have applied the same principles, enforcing the terms of negotiated force majeure provisions and declining to expand their scope beyond the parties' express agreement. See, e.g., Hess Corp. v. Port Auth. Trans-Hudson Corp., 2013 WL 6231157, at *5 (S.D.N.Y. Dec. 2, 2013) (enforcing force majeure clause as written in public infrastructure lease).

Conclusion. Washington case law provides robust support for the enforcement of Section 11.4 as written, including the governmental-approval exclusion, the monetary-obligation carve-out, and the "directly prevented" requirement. Neither the contractual force majeure provision nor the common law doctrines of impossibility, impracticability, or frustration of purpose provide Pinnacle with a viable defense to its capital contribution obligation.

E. Pinnacle's Claim That CSIA Committed a Material Breach Is Meritless

Pinnacle's April 28 letter asserts, in the alternative, that CSIA's alleged failure to obtain governmental permits constitutes a material breach of the JV Agreement, entitling Pinnacle to withhold its capital contribution. This argument fails for multiple independent reasons.

First, as discussed in detail in Section IV.B above, Section 4.3 of the JV Agreement allocates permitting responsibility to CBWTP (managed by Pinnacle), not to CSIA. CSIA has no individual obligation under the JV Agreement to obtain governmental permits of any kind. CSIA's obligations under the JV Agreement relate to: (i) its capital contributions, which have been fully funded; (ii) the ground lease, which was executed and recorded as Thurston County Auditor Recording No. 2021-1102-004788 and remains in full force and effect; and (iii) its Governing Board duties, which CSIA has fulfilled (all three of CSIA's appointed board members have attended all duly noticed meetings). There is no contractual basis for attributing the permitting delay to CSIA.

Second, even if CSIA had some implied duty to assist with the permitting process — which we do not concede — a breach-of-contract defense to a capital call obligation would require Pinnacle to demonstrate that (a) the alleged breach is a material breach going to the root of the contract, and (b) the capital call obligation is dependent on performance of the permitting obligation. Neither element is supportable.

With respect to materiality, the standard for material breach under Washington law requires consideration of the extent of the breach, the likelihood that it will be cured, the adequacy of compensation for the aggrieved party, and the extent to which the aggrieved party will be deprived of the expected benefit. See Restatement (Second) of Contracts §241; Baxter v. Greig, 38 Wn. App. 829, 834, 690 P.2d 1189, 1192 (1984). Even assuming arguendo that CSIA had a duty to assist with permitting (which it does not), CSIA's failure to take affirmative steps to intervene in Thurston County's regulatory process would not constitute a material breach of the JV Agreement, particularly where the contractual duty to advance the permitting process belongs to Pinnacle and where Pinnacle itself chose to defer project expenditures and disengage from the process.

With respect to the independence of covenants, under Washington law, the obligations of members to fund capital contributions and the JV Entity's obligation to obtain permits are independent covenants — that is, covenants the performance of which does not depend on the performance of the other. See Restatement (Second) of Contracts §232; cf. K & G Constr. Co. v. Harris, 223 Md. 305, 164 A.2d 451 (1960) (discussing the distinction between dependent and independent promises). Section 5.2(b) of the JV Agreement expressly confirms this independence by providing that the capital contribution obligation is "absolute and unconditional" and not subject to "any setoff, counterclaim, defense, or deduction of any kind." A party cannot withhold performance of one independent obligation based on alleged non-performance of another unless the contract expressly provides for such dependence. The JV Agreement not only fails to provide for such dependence — it expressly negates it.

Third, Pinnacle's material-breach argument is further undermined by the fact that CSIA is a separate and distinct governmental entity from the Thurston County Department of Environmental Health. CSIA was created by Chapter 43.155A RCW as a state-level infrastructure authority. The Thurston County Department of Environmental Health is a county agency operating under its own statutory and regulatory authority. CSIA has no administrative authority over Thurston County's environmental permitting functions, no ability to direct or influence the Environmental Review Division's processing of the Phase II EID application, and no special relationship with the Thurston County permitting apparatus. The fact that both CSIA and the Thurston County Department of Environmental Health are governmental entities does not make them the same entity or vest CSIA with authority over Thurston County's regulatory processes.

Conclusion. Pinnacle's material-breach argument provides no defense to the capital call obligation. CSIA has no individual permitting obligation under the JV Agreement, the capital contribution obligation is an independent covenant, and CSIA has fully performed all of its obligations.

V. RISK ASSESSMENT AND COUNTERARGUMENTS

A. Potential Counterarguments by Pinnacle

We have considered the counterarguments that Pinnacle may raise in response to the analysis set forth above. We address each potential counterargument and provide our assessment.

Counterargument 1: The governmental-approval exclusion was intended to apply only to permits within the control of the parties. Pinnacle may argue that Section 11.4(a)(A) was intended to exclude only delays in obtaining permits that were within a party's control — for example, delays caused by a party's failure to submit a complete application — and was not intended to exclude delays imposed by external regulatory bodies acting independently. Pinnacle may characterize Thurston County's data request as an external regulatory action beyond any party's control.

Response. This argument fails as a matter of contractual interpretation. The exclusionary language in Section 11.4(a)(A) is unqualified and draws no distinction between delays attributable to the parties and delays attributable to external regulatory agencies. The phrase "delays in obtaining governmental approvals, permits, licenses, or authorizations" encompasses all such delays, regardless of their cause or origin. Had the parties intended to limit the exclusion to delays within a party's control, they could have included qualifying language to that effect — and they did not. Under the plain meaning doctrine as applied by Washington courts, courts will not read limitations into unambiguous contractual language that the parties chose not to include. See Hearst Communications, 154 Wn.2d at 503.

Moreover, to our knowledge, there is no extrinsic evidence — such as drafting history, negotiation correspondence, or prior course of dealing — that would support such a restrictive reading. Even if such evidence existed, Washington courts would not consider it where the contract language is unambiguous. We note, however, that we should confirm with the client whether any negotiation records exist that bear on the drafting history of Section 11.4, as a precautionary matter.

Finally, Pinnacle's factual premise — that the delay is an external regulatory action beyond any party's control — is incorrect. As discussed in Section IV.B, the delay is directly attributable to CBWTP's failure (through Pinnacle as Manager) to respond to Thurston County's data request. The regulatory process is paused because the applicant has not provided the requested information, not because the regulator has imposed an extraordinary or unexplained delay.

Counterargument 2: CSIA had an implied duty of good faith to assist with permitting given its governmental status. Pinnacle may argue that CSIA, as a Washington state governmental authority, had an implied duty of good faith and fair dealing to leverage its governmental relationships and institutional resources to facilitate the permitting process with Thurston County, and that CSIA's failure to do so constitutes a breach of the implied covenant.

Response. Under Washington law, the implied covenant of good faith and fair dealing exists in every contract, but it does not create new substantive obligations that the parties did not agree to in the contract. Badgett v. Sec. State Corp., 116 Wn.2d 563, 569-70, 807 P.2d 356, 360 (1991). Rather, the implied covenant operates to ensure that neither party deprives the other of the benefit of the bargain through actions that violate the community standards of decency, fairness, or reasonableness. Id.

The JV Agreement expressly allocates permitting responsibility to CBWTP (through the Manager, Pinnacle) under Section 4.3. CSIA's role with respect to permitting is limited to a duty to "cooperate in good faith with the Manager in connection with the permitting process." There is no allegation — and no factual basis — that CSIA failed to cooperate in good faith or that CSIA took any action to obstruct or undermine the permitting process. Pinnacle's complaint is not that CSIA interfered with permitting, but that CSIA failed to affirmatively intervene with a separate governmental body on CBWTP's behalf. The implied covenant of good faith does not require CSIA to assume obligations that the JV Agreement assigns to Pinnacle, nor does it require CSIA to exercise governmental influence over an independent regulatory agency.

Furthermore, as discussed in Section IV.E, CSIA is a separate entity from the Thurston County Department of Environmental Health and has no authority over that body's regulatory processes. Even the most expansive reading of the implied covenant would not impose on CSIA a duty to intervene in another governmental body's independent regulatory determinations.

Counterargument 3: Commercial frustration. Pinnacle may assert the common law doctrine of frustration of purpose as an alternative defense, arguing th

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressees identified herein. Any disclosure, distribution, or copying of this memorandum or its contents without the express written consent of Calderwood & Harkness LLP is strictly prohibited.
MEMORANDUM
FROM: Tiffany Rosenthal, Lead Associate, and Andrew Fitzpatrick, Working Associate, Calderwood & Harkness LLP
TO: Oliver Mackenzie, Responsible Partner, and Harrison Wexford, Billing Partner
DATE: May 8, 2023
RE: Analysis of Pinnacle Water Solutions, LLC's Force Majeure Defense Under §11.4 of the Amended and Restated Limited Liability Company Agreement of Columbia Basin Water Treatment Partners, LLC
MATTER NO.: 47291.00001
CLIENT: Cascadia State Infrastructure Authority
I. EXECUTIVE SUMMARY
On April 28, 2023, Whitfield, Aarons & Greer LLP, acting through partner Elaine Prescott on behalf of Pinnacle Water Solutions, LLC ("Pinnacle"), transmitted a letter to this firm asserting that the environmental permitting delay caused by the Thurston County Department of Environmental Health constitutes a Force Majeure Event under Section 11.4 of the Amended and Restated Limited Liability Company Agreement of Columbia Basin Water Treatment Partners, LLC, dated November 2, 2021 (the "JV Agreement"). Pinnacle claims that this alleged force majeure event excuses its failure to fund its Second Tranche capital contribution in the amount of $4,050,000 by the March 31, 2023 contractual deadline.
After a thorough review of the JV Agreement, the relevant correspondence, the factual record, and applicable Washington law, this memorandum concludes that Pinnacle's force majeure defense is without merit under both the express terms of the JV Agreement and governing legal principles, for three independently dispositive reasons:
First, Section 11.4 of the JV Agreement expressly excludes "delays in obtaining governmental approvals, permits, licenses, or authorizations" from the definition of Force Majeure Events. The Thurston County Phase II Environmental Impact Determination delay is precisely the type of governmental-approval delay that the contracting parties deliberately carved out of force majeure protection. This exclusion is unambiguous and dispositive.
Second, the permitting obligation was allocated to the joint venture entity, Columbia Basin Water Treatment Partners, LLC ("CBWTP"), under Section 4.3 of the JV Agreement — not to Cascadia State Infrastructure Authority ("CSIA") individually. As the designated Manager of CBWTP, Pinnacle bore primary day-to-day responsibility for advancing the permitting process, including interfacing with Thurston County and its environmental consultants. Pinnacle cannot invoke its own failure to discharge its managerial responsibilities as an excuse for non-performance.
Third, Pinnacle's obligation to fund capital contributions upon issuance of a capital call by the Governing Board is an unconditional monetary obligation under Section 5.2 of the JV Agreement, independent of project milestones, permitting status, or environmental review. Force majeure defenses are, as a matter of both contract law and commercial law principle, inapplicable to obligations to pay money — Pinnacle's ability to wire $4,050,000 is entirely unimpaired by the status of any environmental permit.
Pinnacle's April 28 letter also asserts that CSIA, as the "public-sector partner," bore responsibility for obtaining all governmental permits and that the permitting delay constitutes a material breach by CSIA. This argument is equally without merit, as it is contradicted by the plain language of Section 4.3 and mischaracterizes CSIA's obligations under the JV Agreement.
By way of procedural context, this firm transmitted a formal default notice to Pinnacle on April 14, 2023, commencing the 60-day cure period under Section 8.2 of the JV Agreement. That cure period will expire on June 13, 2023. This memorandum supports the preparation of a response letter to Whitfield, Aarons & Greer LLP rejecting the force majeure defense in its entirety and reaffirming the running of the cure period.
II. FACTUAL BACKGROUND
A. The Joint Venture and Its Structure
On November 2, 2021, Cascadia State Infrastructure Authority ("CSIA"), a Washington state governmental authority created pursuant to Chapter 43.155A RCW for the purpose of financing and developing critical public infrastructure, and Pinnacle Water Solutions, LLC ("Pinnacle"), a Delaware limited liability company headquartered at 720 SW Quelston Street, Suite 1500, Portland, Oregon 97205, entered into the Amended and Restated Limited Liability Company Agreement (the "JV Agreement") to form Columbia Basin Water Treatment Partners, LLC ("CBWTP"), a Washington limited liability company (EIN: 88-3421076; Washington UBI: 604-892-315). The JV Agreement was executed as of November 2, 2021, and CBWTP's Certificate of Formation was filed with the Washington Secretary of State on the same date.
CBWTP was purpose-formed to design, construct, own, and operate the Thurston County Advanced Water Treatment Facility (the "Facility"), a 12 million gallon-per-day advanced water treatment plant to be located at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501. The Facility is to be constructed on a 14.7-acre parcel owned by CSIA and leased to CBWTP pursuant to a 99-year ground lease executed concurrently with the JV Agreement, recorded in the records of the Thurston County Auditor as Recording No. 2021-1102-004788, at an annual rent of $1.00. The ground lease grants CBWTP exclusive possession and development rights over the parcel for the construction and operation of the Facility.
The total project cost was budgeted at $45,000,000, to be funded through a combination of equity contributions from the members and project finance debt. The equity component totals $18,000,000, representing 40% of total project cost. The debt component of $27,000,000, representing 60% of total project cost, was to be funded by Pacific Cascade Bank, N.A. pursuant to a project finance commitment letter bearing reference number PCB-PF-2022-0417, dated February 15, 2022. As of the date of this memorandum, the Pacific Cascade Bank debt facility has been committed but never funded, and the commitment letter is set to expire on August 15, 2023.
Ownership and capital commitments under the JV Agreement are allocated as follows:
Under the JV Agreement, Pinnacle is designated as the Manager of CBWTP, responsible for all day-to-day management, operations, and administrative functions of the joint venture entity. The Manager's authority is subject to the oversight and certain reserved approval rights of a five-member Governing Board. The Governing Board is composed of three appointees designated by CSIA — Margaret Ellsworth (Chair), David Tanaka, and Patricia Huang — and two appointees designated by Pinnacle — Richard Prumvane and Cynthia Voss. In consideration of its management role, Pinnacle is entitled to a management fee equal to 3% of total construction costs, or $1,350,000, payable in accordance with the draw schedule set forth in Exhibit C to the JV Agreement.
We note for background that Pinnacle is not independently capitalized in a manner commensurate with its obligations under the JV Agreement. Since 2019, 62% of Pinnacle's equity has been held by Ridgeline Capital Partners, LP, a Portland-based private equity fund whose Managing Partner is Jonathan Kreider. The remaining 38% of Pinnacle's equity is held by its founders, Richard Prumvane and Cynthia Voss. Ridgeline Capital Partners, LP did not provide any guaranty or credit support in connection with the JV Agreement.
B. Capital Contribution Structure and Pinnacle's Default
The JV Agreement structures equity contributions in two equal tranches, with each tranche representing 50% of each member's total equity commitment. The First Tranche was due upon formation, and the Second Tranche was to be funded upon issuance of a capital call by the Governing Board. The capital call and contribution schedule is summarized as follows:
First Tranche (Funded November 15, 2021):
The First Tranche was funded by both members on November 15, 2021, in accordance with the JV Agreement. These funds were deposited into CBWTP's project account at Pacific Cascade Bank, N.A.
Second Tranche (Capital Call Issued March 1, 2023):
On March 1, 2023, the Governing Board of CBWTP, by unanimous written consent, issued a Second Tranche capital call notice to both members in accordance with Section 5.2 of the JV Agreement. The capital call notice specified that payment of the Second Tranche was due within 30 calendar days of issuance, i.e., by March 31, 2023. A copy of the capital call notice is attached as Appendix D.
CSIA timely funded its Second Tranche contribution of $4,950,000 on March 28, 2023, three days prior to the contractual deadline. CSIA has now fully funded its total equity commitment of $9,900,000 and is current in all of its obligations under the JV Agreement.
Pinnacle failed to fund its Second Tranche capital contribution of $4,050,000 by the March 31, 2023 deadline. As of the date of this memorandum, Pinnacle has not funded any portion of the Second Tranche. The total outstanding default amount is $4,050,000, plus any default interest that may have accrued under the JV Agreement.
Following Pinnacle's failure to fund, this firm, acting on behalf of CSIA, transmitted a formal default notice to Pinnacle on April 14, 2023. The default notice was addressed to Richard Prumvane at Pinnacle's principal office at 720 SW Quelston Street, Suite 1500, Portland, Oregon 97205, with copies transmitted simultaneously to Whitfield, Aarons & Greer LLP (attention: Elaine Prescott) at 1455 SW Broadway, Suite 2100, Portland, Oregon 97201. The default notice identified Pinnacle's failure to fund the Second Tranche as an Event of Default under Section 8.2 of the JV Agreement and provided notice that the 60-day cure period under Section 8.2 had commenced and would expire on June 13, 2023. A copy of the default notice is attached as Appendix C.
C. The Permitting Delay
The timeline of the permitting process and the events giving rise to the current dispute is as follows:
January 10, 2022. CBWTP, acting through Pinnacle in its capacity as Manager, retained Westmark Environmental Consulting, Inc. ("Westmark") to prepare the environmental assessments required for the Facility. The engagement was led by Dr. Anita Farooq, Westmark's principal consultant specializing in advanced water treatment facility permitting. The scope of the engagement included the preparation of a Phase I Environmental Site Assessment, a Phase II Environmental Impact Determination ("Phase II EID"), and all supporting technical documentation required for submission to the Thurston County Department of Environmental Health.
April 22, 2022. Westmark completed and delivered the Phase I Environmental Site Assessment for the Facility site. The Phase I assessment identified no recognized environmental conditions at the 14.7-acre parcel. This was a favorable result that supported continued advancement of the permitting process.
July 8, 2022. Karen Lindstrom, Environmental Review Division Manager at the Thurston County Department of Environmental Health, transmitted a letter to CBWTP (attention: Richard Prumvane, as Manager) requesting supplemental environmental data in connection with the Phase II EID review. Specifically, Ms. Lindstrom's letter requested additional hydrogeological data, updated groundwater monitoring results, and a revised stormwater management plan. The letter indicated that the Phase II EID review was paused pending receipt of the requested supplemental data. A copy of Ms. Lindstrom's letter is attached as Appendix F.
September 14, 2022. Rather than marshaling the resources necessary to respond to Thurston County's data request and advance the permitting process, Pinnacle transmitted a letter to CSIA (attention: Margaret Ellsworth, Governing Board Chair) advising that Pinnacle intended to "defer further project expenditures" pending resolution of the permitting issue. The letter did not specify any plan or timeline for responding to the supplemental data request. A copy of Pinnacle's September 14, 2022 letter is attached as Appendix E.
November 30, 2022. A meeting of the CBWTP Governing Board was duly noticed for November 30, 2022. The meeting agenda included, among other items, a discussion of the permitting status, the Westmark engagement, and a potential response plan for Thurston County's data request. The meeting failed to achieve a quorum because both of Pinnacle's appointed board members — Richard Prumvane and Cynthia Voss — failed to attend. The three CSIA-appointed board members (Ellsworth, Tanaka, and Huang) were present. Under the JV Agreement, a quorum requires the presence of at least four of the five board members, including at least one appointee from each member.
As of May 8, 2023 (the date of this memorandum), the Phase II EID remains outstanding. CBWTP has not responded to Thurston County's July 8, 2022 request for supplemental environmental data. No supplemental hydrogeological data has been collected, no updated groundwater monitoring has been conducted, and no revised stormwater management plan has been submitted. The project has been effectively dormant since Pinnacle's unilateral decision to defer expenditures in September 2022 — a period of approximately eight months.
D. Pinnacle's Force Majeure Claim
On April 28, 2023, fourteen days after receipt of this firm's default notice, Whitfield, Aarons & Greer LLP transmitted a letter to Oliver Mackenzie at Calderwood & Harkness LLP asserting, on behalf of Pinnacle, that the Thurston County permitting delay constitutes a Force Majeure Event under Section 11.4 of the JV Agreement. The letter, signed by Elaine Prescott, characterizes the permitting delay as a "regulatory delay beyond Pinnacle's control" and asserts that Pinnacle's obligation to fund the Second Tranche capital contribution is excused for so long as the force majeure event continues.
The Prescott letter further asserts, in the alternative, that CSIA, "as the public-sector partner and the entity with established governmental relationships," bore primary responsibility for obtaining all governmental permits and approvals necessary for the Facility, and that the failure of the Thurston County Department of Environmental Health to issue the Phase II EID in a timely manner constitutes a material breach by CSIA of its obligations under the JV Agreement. The letter asserts that, even if the force majeure defense is not sustained, Pinnacle is entitled to withhold its capital contribution as a consequence of CSIA's alleged breach.
A copy of the Prescott letter is attached as Appendix B.
As analyzed in detail below, both of Pinnacle's asserted defenses are without merit.
III. RELEVANT CONTRACTUAL PROVISIONS
This section sets forth the key contractual provisions of the JV Agreement that bear on Pinnacle's force majeure defense and its related arguments. The provisions are quoted in full (or in relevant part) and analyzed with respect to their application to the facts at hand.
A. Section 11.4 — Force Majeure
Section 11.4 of the JV Agreement provides, in its entirety, as follows:
Section 11.4. Force Majeure.
(a) Definition. As used herein, "Force Majeure Event" means any event or circumstance beyond the reasonable control of the affected party that directly prevents such party from performing its obligations under this Agreement, including without limitation: (i) acts of God, including earthquakes, floods, hurricanes, landslides, volcanic eruptions, or other natural disasters of extraordinary magnitude; (ii) fires, explosions, or other casualties not caused by the negligence or willful misconduct of the affected party; (iii) wars (declared or undeclared), armed conflicts, acts of terrorism, insurrections, riots, or civil disturbances; (iv) epidemics, pandemics, or quarantine restrictions imposed by governmental authorities; (v) strikes, lockouts, or other labor disturbances, except those involving the employees or contractors of the affected party; (vi) embargoes, sanctions, or trade restrictions imposed by the United States government or any governmental authority having jurisdiction over the Project; and (vii) changes in applicable law enacted after the date of this Agreement that make performance illegal. Notwithstanding the foregoing, the following shall not constitute Force Majeure Events: (A) delays in obtaining governmental approvals, permits, licenses, or authorizations; (B) changes in market conditions, interest rates, currency exchange rates, or other economic or financial conditions; (C) the inability of a party to obtain financing or to fund any obligation hereunder; (D) the financial condition of a party or any of its Affiliates; and (E) any event or circumstance that was reasonably foreseeable as of the date of this Agreement.
(b) Effect. A party whose performance is directly prevented by a Force Majeure Event shall be excused from such performance for so long as such Force Majeure Event continues and for a reasonable period thereafter, provided that such party: (i) gives prompt written notice to the other party of the Force Majeure Event, specifying the nature and expected duration of the event, not later than ten (10) Business Days after becoming aware of such event; (ii) uses commercially reasonable efforts to mitigate the effects of the Force Majeure Event and to resume performance as promptly as practicable; and (iii) provides periodic updates to the other party regarding the status of the Force Majeure Event not less frequently than every thirty (30) days. A Force Majeure Event shall not excuse the obligation of any party to make any payment of money due under this Agreement.
Several features of Section 11.4 are critical to the present analysis.
The Governmental-Approval Exclusion. Section 11.4(a)(A) provides, in unambiguous and unqualified terms, that "delays in obtaining governmental approvals, permits, licenses, or authorizations" shall not constitute Force Majeure Events. This exclusion is drafted broadly, using the disjunctive "approvals, permits, licenses, or authorizations" to capture the full range of governmental actions that a party might encounter in the course of developing an infrastructure project. The exclusion is not limited to permits within the control of the parties, permits of a particular type, or permits from a particular governmental authority. It sweeps in all governmental-approval delays, regardless of their cause, their duration, or the identity of the governmental body involved.
The Thurston County Phase II Environmental Impact Determination falls squarely within the scope of this exclusion. The Phase II EID is a governmental approval — specifically, an environmental permit issued by a county governmental authority — and the delay in obtaining it is precisely the type of event that the parties expressly agreed would not qualify as a Force Majeure Event. The drafters of the JV Agreement were sophisticated parties, represented by counsel, who understood that environmental permitting delays are a foreseeable risk in infrastructure development and deliberately allocated that risk outside the scope of force majeure protection.
The Monetary-Obligation Carve-Out. Section 11.4(b) contains an additional limitation of independent significance: the final sentence provides that "[a] Force Majeure Event shall not excuse the obligation of any party to make any payment of money due under this Agreement." This provision independently bars Pinnacle's invocation of force majeure to excuse its failure to fund the Second Tranche capital contribution, which is, at its core, an obligation to pay $4,050,000 to CBWTP.
The "Directly Prevented" Requirement. Section 11.4(b) further provides that force majeure excuses only performance that is "directly prevented" by the qualifying event. As discussed in greater detail in Section IV.C below, a permitting delay does not "directly prevent" the making of a wire transfer. Pinnacle's financial capacity to transmit $4,050,000 to CBWTP's bank account is wholly unaffected by the status of the Phase II EID.
B. Section 4.3 — Permitting Responsibilities
Section 4.3 of the JV Agreement provides, in relevant part:
Section 4.3. Permits and Approvals. The Company shall be responsible for obtaining, at its own cost and expense, all environmental, construction, operating, and other governmental permits, licenses, approvals, and authorizations required for the design, construction, ownership, and operation of the Facility (collectively, "Project Permits"). The Manager shall take all actions necessary or appropriate, on behalf of the Company, to prepare, submit, and prosecute all applications for Project Permits and to respond to all requests by governmental authorities in connection therewith. The Members acknowledge that the timely acquisition of Project Permits is essential to the progress of the Project and agree to cooperate in good faith with the Manager in connection with the permitting process.
The allocation of permitting responsibility under Section 4.3 is clear and unambiguous. The obligation to obtain all governmental permits resides with CBWTP — the joint venture entity — and not with either member individually. The Manager — which, under the JV Agreement, is Pinnacle — is expressly charged with taking "all actions necessary or appropriate" to advance the permitting process on behalf of CBWTP. The members' obligation is limited to cooperating "in good faith" with the Manager in connection with the permitting process.
Pinnacle's assertion in its April 28 letter that CSIA bore permitting responsibility as the "public-sector partner" is directly contradicted by the plain language of Section 4.3. Neither the word "CSIA" nor any reference to the public-sector member appears in Section 4.3 in connection with the allocation of permitting duties. To the contrary, it is Pinnacle — in its capacity as Manager — that is expressly identified as the party responsible for prosecuting permit applications and responding to governmental requests.
C. Section 5.2 — Capital Contribution Obligations
Section 5.2 of the JV Agreement provides, in relevant part:
Section 5.2. Capital Contributions.
(a) Initial Capital Contributions. Each Member shall make its Initial Capital Contribution in the amount set forth on Schedule 5.2(a) hereto on the date of this Agreement or such other date as may be agreed by the Members.
(b) Additional Capital Contributions. Each Member shall fund its Additional Capital Contributions in the amount specified in the applicable Capital Call Notice, within thirty (30) calendar days following issuance of such Capital Call Notice by the Governing Board. The obligation of each Member to fund its Additional Capital Contributions upon issuance of a Capital Call Notice is absolute and unconditional and shall not be subject to any setoff, counterclaim, defense, or deduction of any kind, and shall not be conditioned upon the achievement of any project milestone, the receipt of any governmental approval, or the satisfaction of any other condition.
Section 5.2(b) is remarkable for the breadth and clarity of its unconditional-obligation language. The provision specifies that the obligation to fund capital contributions upon a capital call is "absolute and unconditional" and "shall not be subject to any setoff, counterclaim, defense, or deduction of any kind." Moreover, the provision expressly states that the obligation "shall not be conditioned upon the achievement of any project milestone, the receipt of any governmental approval, or the satisfaction of any other condition." This language directly and specifically forecloses Pinnacle's argument that its capital call obligation was contingent on the status of the environmental permitting process.
The 30-calendar-day payment window is similarly clear. The Second Tranche capital call was issued on March 1, 2023, making the payment due date March 31, 2023. Pinnacle failed to fund by that date and remains in default.
D. Section 8.2 — Default and Remedies
Section 8.2 of the JV Agreement provides, in relevant part:
Section 8.2. Events of Default; Remedies.
(a) Events of Default. Each of the following shall constitute an "Event of Default" with respect to a Member (the "Defaulting Member"): (i) the failure of such Member to fund any Capital Contribution within thirty (30) days after the date on which such Capital Contribution is due pursuant to Section 5.2; (ii) a material breach by such Member of any other obligation under this Agreement that remains uncured for a period of thirty (30) days after written notice thereof from the non-defaulting Member; ...
(b) Cure Period. Upon the occurrence of an Event of Default under Section 8.2(a)(i), the non-defaulting Member shall deliver written notice of default to the Defaulting Member (a "Default Notice"). The Defaulting Member shall have sixty (60) calendar days following receipt of the Default Notice to cure such Event of Default by funding the applicable Capital Contribution in full, together with default interest at the rate of twelve percent (12%) per annum from the original due date to the date of payment.
(c) Remedies. If the Defaulting Member fails to cure an Event of Default under Section 8.2(a)(i) within the cure period set forth in Section 8.2(b), the non-defaulting Member shall be entitled, in its sole discretion, to elect one or more of the following remedies: (i) to cause a pro rata dilution of the Defaulting Member's Percentage Interest in accordance with a dilution formula set forth in Exhibit D hereto; (ii) to purchase the Defaulting Member's entire Interest in the Company at a price equal to seventy-five percent (75%) of the Fair Market Value of such Interest, as determined in accordance with Section 8.2(d); or (iii) to elect to dissolve the Company in accordance with Article X.
The default and remedy framework of Section 8.2 provides CSIA with substantial enforcement rights. Pinnacle's failure to fund the Second Tranche by March 31, 2023 constitutes an Event of Default under Section 8.2(a)(i). The default notice was transmitted on April 14, 2023, commencing the 60-day cure period, which will expire on June 13, 2023. If Pinnacle fails to cure by that date — by funding the full $4,050,000 together with default interest at 12% per annum from March 31, 2023 — CSIA will have three available remedies: dilution, forced buyout at a 25% discount to fair market value, or dissolution.
E. Section 11.4 in Relation to Section 5.2 — Interplay
The interaction between the force majeure provision (Section 11.4) and the capital contribution provision (Section 5.2) further undermines Pinnacle's defense. Even if the Thurston County permitting delay could somehow qualify as a Force Majeure Event — which, as established above, it cannot under the express exclusion in Section 11.4(a)(A) — Section 11.4(b) excuses only obligations whose performance is "directly prevented" by the force majeure event.
A capital contribution obligation is fundamentally a monetary payment obligation: the obligation to wire $4,050,000 to CBWTP's bank account at Pacific Cascade Bank, N.A. The performance of this obligation — the mechanical act of initiating and completing a funds transfer — is not and cannot be "directly prevented" by the pendency of an environmental permitting review in Thurston County. Pinnacle's access to its bank accounts, its ability to execute wire transfers, and its financial capacity to make the payment are entirely unimpaired by the status of the Phase II EID.
Moreover, as noted above, Section 11.4(b) contains an express monetary-obligation carve-out providing that "[a] Force Majeure Event shall not excuse the obligation of any party to make any payment of money due under this Agreement." Section 5.2(b), for its part, independently provides that the capital contribution obligation is "absolute and unconditional" and not "conditioned upon the achievement of any project milestone, the receipt of any governmental approval, or the satisfaction of any other condition." These provisions operate in concert to foreclose any argument that a permitting delay could excuse a member's failure to fund a capital call.
The distinction between monetary obligations and performance obligations is well-established in both Washington law and general commercial law. As discussed in Section IV.C and IV.D below, courts consistently hold that force majeure does not excuse the obligation to pay money, because the ability to make a monetary payment is not rendered impossible or impracticable by events that may impede other forms of contractual performance.
IV. ANALYSIS
A. The Contractual Exclusion of Governmental Approval Delays Is Dispositive
The starting point — and, in our view, the ending point — of the analysis is the plain language of Section 11.4(a)(A) of the JV Agreement, which expressly provides that "delays in obtaining governmental approvals, permits, licenses, or authorizations" shall not constitute Force Majeure Events.
The Thurston County Phase II Environmental Impact Determination delay is, on its face and beyond reasonable dispute, a "delay in obtaining a governmental approval." The Phase II EID is an environmental determination issued by the Environmental Review Division of the Thurston County Department of Environmental Health, a governmental body exercising regulatory authority over environmental permitting within Thurston County, Washington. The delay in obtaining the Phase II EID is a direct consequence of the Thurston County authority's request for supplemental environmental data, to which CBWTP (through Pinnacle as Manager) has not responded. The entire chain of causation runs through the governmental-approval process.
Pinnacle's own characterization of the delay confirms its classification under the exclusion. The April 28, 2023 letter from Whitfield, Aarons & Greer LLP describes the delay as a "regulatory delay beyond Pinnacle's control." The word "regulatory" is a virtual synonym for "governmental," and the characterization as a "delay" maps directly onto the exclusionary language of Section 11.4(a)(A). Pinnacle has, in its own pleading, identified the triggering event as precisely the type of event that the JV Agreement excludes from force majeure protection.
Under Washington contract interpretation principles, where contractual language is clear and unambiguous, the court will enforce it according to its plain meaning without resort to extrinsic evidence. Hearst Communications, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115 P.3d 262, 267 (2005) ("The court will give effect to the plain meaning of the words used in the contract, unless the contract is ambiguous."); Berg v. Hudesman, 115 Wn.2d 657, 667, 801 P.2d 222, 228 (1990) (courts interpret contracts according to objective manifestations of intent as expressed in the language of the agreement). The Washington Supreme Court has repeatedly held that the four corners rule requires courts to determine the meaning of a contract from its written terms without reference to parol evidence where the terms are unambiguous. Tanner Elec. Coop. v. Puget Sound Power & Light Co., 128 Wn.2d 656, 674, 911 P.2d 1301, 1310 (1996).
There is no ambiguity in the phrase "delays in obtaining governmental approvals, permits, licenses, or authorizations." The language is plain, its scope is broad, and it admits of no limiting construction. There is no textual basis to read in an exception for delays caused by third-party governmental agencies acting independently of the parties, as opposed to delays caused by the parties' own failures in the permitting process. The exclusion is absolute and unqualified — it covers all governmental-approval delays, regardless of their cause or origin. Had the parties intended to limit the exclusion to only those permitting delays within a party's control, they could easily have done so with qualifying language such as "delays in obtaining governmental approvals attributable to the actions or inactions of the affected party." No such qualification appears in the JV Agreement, and none should be implied.
The sophistication of the contracting parties and their counsel reinforces this conclusion. CSIA is a state governmental authority experienced in public infrastructure development. Pinnacle is a private-sector entity backed by a professional private equity fund (Ridgeline Capital Partners, LP) and represented by sophisticated legal counsel. Both parties were well aware at the time of contracting that environmental permitting delays are a foreseeable — indeed, common — risk in infrastructure projects of this nature. The deliberate inclusion of the governmental-approval exclusion in Section 11.4(a)(A) reflects a negotiated allocation of risk: the parties agreed that permitting delays would not excuse non-performance under the force majeure provision. Pinnacle accepted this allocation when it executed the JV Agreement.
Conclusion. Pinnacle's force majeure claim fails at the threshold because the triggering event — the Thurston County permitting delay — is expressly excluded from the definition of Force Majeure Events under Section 11.4(a)(A). This exclusion is dispositive, and no further analysis is required to reject the force majeure defense. We nonetheless address additional bases for rejection below, to provide a comprehensive record.
B. Pinnacle, as Manager, Cannot Invoke Its Own Permitting Failure as an Excuse
Even if the governmental-approval exclusion in Section 11.4(a)(A) did not exist — which it does — Pinnacle's force majeure defense would fail on an independent ground: Pinnacle itself was the party responsible for advancing the permitting process, and a party may not invoke force majeure to excuse non-performance caused by its own acts or omissions.
Under Section 4.3 of the JV Agreement, the obligation to obtain all Project Permits resides with CBWTP, and the Manager — Pinnacle — is expressly charged with taking "all actions necessary or appropriate, on behalf of the Company, to prepare, submit, and prosecute all applications for Project Permits and to respond to all requests by governmental authorities in connection therewith." The Manager's duties under Section 4.3 include, without limitation, interfacing with Thurston County's Department of Environmental Health, coordinating with Westmark Environmental Consulting, Inc. (the retained environmental consultant), and preparing and submitting the supplemental data requested by Thurston County.
The factual record demonstrates that Pinnacle failed to discharge these responsibilities. When Karen Lindstrom of the Thurston County Department of Environmental Health requested supplemental environmental data on July 8, 2022, the appropriate course of action for Pinnacle — as Manager — was to direct Westmark to prepare the requested data and submit it to Thurston County. Instead, approximately two months later, on September 14, 2022, Pinnacle notified CSIA that it intended to "defer further project expenditures" pending resolution of the permitting issue. This was, in effect, a unilateral decision by the Manager to stop working on permitting — the very obligation that the JV Agreement assigned to the Manager. Pinnacle's subsequent failure to attend the November 30, 2022 Governing Board meeting — preventing a quorum and blocking any board-level discussion of the permitting situation — further illustrates Pinnacle's abandonment of its managerial responsibilities.
The consequence of Pinnacle's inaction is that, as of the date of this memorandum, CBWTP has never responded to Thurston County's July 8, 2022 data request. The Phase II EID review has been paused for over ten months — not because Thurston County is engaged in an extraordinary or prolonged regulatory process, but because the applicant (CBWTP, through its Manager, Pinnacle) has simply failed to provide the supplemental information that the regulator requested. The permitting delay is, in the most direct sense, a product of Pinnacle's own decisions and omissions.
It is a well-established principle that a force majeure defense is unavailable where the invoking party's own actions or inactions caused or materially contributed to the alleged force majeure event. The requirement in Section 11.4(a) that the event be "beyond the reasonable control of the affected party" necessarily excludes events that the affected party could have prevented or mitigated through the exercise of reasonable diligence. See, e.g., Specialty Foods of Indiana, Inc. v. City of South Bend, 997 N.E.2d 23, 28 (Ind. Ct. App. 2013) (force majeure inapplicable where party's own inaction contributed to delay); Kel Kim Corp. v. Cent. Mkts., Inc., 70 N.Y.2d 900, 902, 519 N.E.2d 295, 296 (1987) (force majeure excuses performance only when the claimed impediment is beyond the party's control and could not have been foreseen or guarded against). Washington courts apply the same principle in evaluating force majeure claims, requiring that the invoking party demonstrate that the event was truly beyond its control and not attributable to its own conduct. See Ross v. Harding, 64 Wn.2d 231, 236, 391 P.2d 526, 530 (1964) (applying general principles of excuse from performance where event is beyond party's control).
Pinnacle had both the contractual authority and the practical ability to advance the permitting process at all relevant times. Its decision to defer project expenditures and disengage from the permitting process was a volitional business decision, not an involuntary response to forces beyond its control. A party that chooses not to respond to a regulatory request cannot then characterize the resulting delay as a force majeure event.
Pinnacle's contention that CSIA bore permitting responsibility as the "public-sector partner" is a transparent attempt to rewrite the contractual allocation of duties. As discussed in Section III.B above, Section 4.3 assigns permitting responsibility to CBWTP (through the Manager) and imposes on the Members only a duty to "cooperate in good faith" with the Manager. There is no provision in the JV Agreement imposing a permitting obligation on CSIA in its individual capacity. The fact that CSIA is a governmental entity does not create an implied obligation to intervene in the permitting processes of a separate and independent governmental body (the Thurston County Department of Environmental Health). CSIA has no administrative authority over Thurston County's environmental permitting functions, and the JV Agreement does not purport to impose any such obligation.
Conclusion. Even absent the governmental-approval exclusion, Pinnacle cannot invoke a permitting delay that it — as Manager of CBWTP — had the responsibility and the ability to resolve through the exercise of ordinary diligence. Pinnacle's failure to respond to Thurston County's data request is attributable to its own volitional decisions, not to any event beyond its reasonable control.
C. Capital Contribution Obligations Are Unconditional Monetary Obligations Not Subject to Force Majeure
Pinnacle's force majeure defense fails on a third and independently dispositive ground: even if the permitting delay could qualify as a Force Majeure Event — which it cannot under Sections IV.A and IV.B above — force majeure does not excuse Pinnacle's obligation to fund the Second Tranche capital contribution, because that obligation is an unconditional monetary obligation that is not "directly prevented" by a permitting delay.
The operative language of Section 11.4(b) excuses only performance that is "directly prevented" by a Force Majeure Event. A capital contribution obligation — the obligation to wire $4,050,000 to CBWTP's project account at Pacific Cascade Bank, N.A. — is a monetary payment obligation, the performance of which involves the initiation of a funds transfer from Pinnacle's bank to CBWTP's bank. An environmental permitting delay at the Thurston County level does not, in any conceivable sense, "directly prevent" the execution of a wire transfer. Pinnacle's bank accounts remain accessible, the banking system remains operational, and there is no physical, legal, or practical impediment to the transfer of funds. The permitting delay does not prevent Pinnacle from funding; at most, it reduces Pinnacle's perceived commercial motivation to fund — which is an entirely different matter.
Moreover, as noted in Section III.E above, Section 11.4(b) contains an express monetary-obligation carve-out: "A Force Majeure Event shall not excuse the obligation of any party to make any payment of money due under this Agreement." This provision constitutes a separate and independent contractual bar to Pinnacle's force majeure defense with respect to the capital contribution obligation. The provision was plainly drafted to foreclose the precise argument that Pinnacle now advances.
The unconditional nature of the capital contribution obligation is further reinforced by Section 5.2(b), which provides that the obligation to fund capital contributions upon a capital call is "absolute and unconditional" and "shall not be subject to any setoff, counterclaim, defense, or deduction of any kind." Section 5.2(b) further provides that the obligation "shall not be conditioned upon the achievement of any project milestone, the receipt of any governmental approval, or the satisfaction of any other condition." The reference to "the receipt of any governmental approval" is particularly significant, as it directly and specifically addresses — and forecloses — Pinnacle's argument that the capital call obligation is contingent on the status of the Phase II EID.
The Second Tranche capital call was validly issued on March 1, 2023 by the Governing Board of CBWTP, in accordance with Section 5.2(b). The capital call triggered an unconditional payment obligation, due within 30 calendar days. No provision of the JV Agreement conditions the validity of the capital call, or the obligation to fund in response to it, on the status of environmental permitting or any other project milestone.
The distinction between monetary obligations and performance obligations is deeply rooted in both Washington law and general commercial law. The Restatement (Second) of Contracts §261 comment d (1981) recognizes that impracticability "has no application to an obligation to pay money," because "money, unlike the subject matter of other obligations, is always obtainable." See also U.C.C. §2-615 comment 4 (stating that excuse by failure of presupposed conditions applies to obligations of performance, not to obligations to pay the contract price). This principle reflects the common-sense understanding that the ability to make a monetary payment is not affected by the same types of supervening events — natural disasters, labor disruptions, regulatory delays — that may render other types of performance impossible or impracticable.
Washington courts have applied this principle in various contexts, recognizing that the obligation to pay money survives events that may excuse performance of other types of obligations. See, e.g., Philip A. Livingston, Inc. v. Aluminum Co. of Am., No. C07-0296RSM, 2007 WL 2462025, at *5 (W.D. Wash. Aug. 24, 2007) (noting the general principle that force majeure provisions excuse delay in performance, not delay in payment). While the body of Washington case law specifically addressing force majeure and monetary obligations in the public-private partnership context is limited, the principle that monetary obligations are not excused by force majeure is well-established and widely accepted across jurisdictions.
Conclusion. Even on the most charitable reading of Section 11.4, force majeure cannot excuse a payment obligation. Pinnacle's obligation to fund the Second Tranche capital contribution is an unconditional monetary obligation, expressly excepted from force majeure relief by both Section 11.4(b) and Section 5.2(b), and not "directly prevented" by the permitting delay. This ground alone is sufficient to defeat Pinnacle's defense.
D. Washington Case Law on Force Majeure in Public-Private Contracts
Washington case law strongly supports the enforceability of the Section 11.4 exclusion and the inapplicability of force majeure to Pinnacle's capital contribution obligation.
Strict Construction of Force Majeure Clauses. Washington courts apply a strict construction to force majeure clauses, limiting their scope to the specific events enumerated in the clause and declining to extend force majeure protection beyond its express terms. See Pac. Vegetable Oil Corp. v. CST, Ltd., 29 Wn.2d 777, 789, 189 P.2d 680, 686 (1948) (construing force majeure clause strictly and declining to excuse performance on unenumerated grounds); see also Virginia Mason Med. Ctr. v. Duwamish Enters., Inc., No. 72505-3-I, 2016 WL 3198297, at *3 (Wash. Ct. App. June 6, 2016) (enforcing the specific terms and limitations of a force majeure clause as written). Under this interpretive approach, where a force majeure clause expressly excludes a particular category of events — such as governmental-approval delays — courts will enforce that exclusion without equivocation. The sophistication of the parties and the specificity of the exclusionary language in Section 11.4(a)(A) provide no basis for judicial expansion of the clause beyond its terms.
Foreseeability. Washington courts also consider foreseeability in evaluating force majeure claims. Section 11.4(a)(E) of the JV Agreement provides that events that were "reasonably foreseeable as of the date of this Agreement" do not constitute Force Majeure Events. Environmental permitting delays are among the most foreseeable risks in infrastructure development projects. Indeed, the fact that the parties specifically addressed governmental-approval delays in the exclusionary language of Section 11.4(a)(A) confirms that they considered such delays to be foreseeable and deliberately allocated the risk outside force majeure protection. Even absent the express exclusion, Pinnacle would face significant difficulty establishing that a permitting delay at the county level was an unforeseeable event beyond its reasonable contemplation at the time of contracting.
Force Majeure vs. Common Law Impossibility and Impracticability. It is important to distinguish force majeure — which is a contractual doctrine governed by the specific terms of the force majeure clause — from the common law doctrines of impossibility and impracticability, which operate as equitable defenses independent of the contract. Under Washington law, the doctrine of impossibility excuses performance when a supervening event renders performance objectively impossible — not merely more difficult, more expensive, or less commercially attractive. See Regan v. McLachlan, 163 Wn. App. 171, 181, 257 P.3d 1122, 1127 (2011). The related doctrine of commercial impracticability, as reflected in the Restatement (Second) of Contracts §261, requires that the supervening event make performance "impracticable" — a standard that is not met by increased difficulty or reduced profitability.
Pinnacle's April 28 letter does not expressly invoke the common law doctrines of impossibility or impracticability, relying instead exclusively on the contractual force majeure provision. However, even if Pinnacle were to assert these doctrines, they would not avail it. The performance at issue — the payment of $4,050,000 — remains objectively possible. Pinnacle has not alleged that it lacks the financial capacity to make the payment (and, indeed, Section 11.4(a)(C) and (D) expressly exclude the inability to obtain financing and the financial condition of a party from the definition of Force Majeure Events). The payment of money is never "impossible" in the legal sense, absent the destruction of the monetary system itself or a governmental prohibition on the specific transfer. See Restatement (Second) of Contracts §261 comment d.
Economic Hardship and Reduced Commercial Attractiveness. Washington courts have consistently held that economic hardship, changes in market conditions, or the reduced commercial attractiveness of a transaction do not constitute force majeure or excuse performance under the doctrines of impossibility or impracticability. See Klos v. Gockel, 87 Wn.2d 567, 572, 554 P.2d 1349, 1353 (1976) (increased cost or difficulty of performance does not excuse contractual obligation). To the extent that Pinnacle's force majeure claim is motivated by a reassessment of the Facility's commercial viability — whether due to the permitting delay, the impending expiration of the Pacific Cascade Bank commitment letter, or other factors — such reassessment does not provide a legal basis for excusing its capital contribution obligation.
Public-Private Partnership Context. While there is no body of Washington case law directly addressing force majeure claims in the specific context of public-private partnership agreements for water treatment infrastructure, the general principles of force majeure interpretation applied by Washington courts — strict construction, enforcement of exclusionary language, inapplicability to monetary obligations — are fully applicable. Courts in other jurisdictions addressing force majeure claims in the public-private partnership and infrastructure development context have applied the same principles, enforcing the terms of negotiated force majeure provisions and declining to expand their scope beyond the parties' express agreement. See, e.g., Hess Corp. v. Port Auth. Trans-Hudson Corp., 2013 WL 6231157, at *5 (S.D.N.Y. Dec. 2, 2013) (enforcing force majeure clause as written in public infrastructure lease).
Conclusion. Washington case law provides robust support for the enforcement of Section 11.4 as written, including the governmental-approval exclusion, the monetary-obligation carve-out, and the "directly prevented" requirement. Neither the contractual force majeure provision nor the common law doctrines of impossibility, impracticability, or frustration of purpose provide Pinnacle with a viable defense to its capital contribution obligation.
E. Pinnacle's Claim That CSIA Committed a Material Breach Is Meritless
Pinnacle's April 28 letter asserts, in the alternative, that CSIA's alleged failure to obtain governmental permits constitutes a material breach of the JV Agreement, entitling Pinnacle to withhold its capital contribution. This argument fails for multiple independent reasons.
First, as discussed in detail in Section IV.B above, Section 4.3 of the JV Agreement allocates permitting responsibility to CBWTP (managed by Pinnacle), not to CSIA. CSIA has no individual obligation under the JV Agreement to obtain governmental permits of any kind. CSIA's obligations under the JV Agreement relate to: (i) its capital contributions, which have been fully funded; (ii) the ground lease, which was executed and recorded as Thurston County Auditor Recording No. 2021-1102-004788 and remains in full force and effect; and (iii) its Governing Board duties, which CSIA has fulfilled (all three of CSIA's appointed board members have attended all duly noticed meetings). There is no contractual basis for attributing the permitting delay to CSIA.
Second, even if CSIA had some implied duty to assist with the permitting process — which we do not concede — a breach-of-contract defense to a capital call obligation would require Pinnacle to demonstrate that (a) the alleged breach is a material breach going to the root of the contract, and (b) the capital call obligation is dependent on performance of the permitting obligation. Neither element is supportable.
With respect to materiality, the standard for material breach under Washington law requires consideration of the extent of the breach, the likelihood that it will be cured, the adequacy of compensation for the aggrieved party, and the extent to which the aggrieved party will be deprived of the expected benefit. See Restatement (Second) of Contracts §241; Baxter v. Greig, 38 Wn. App. 829, 834, 690 P.2d 1189, 1192 (1984). Even assuming arguendo that CSIA had a duty to assist with permitting (which it does not), CSIA's failure to take affirmative steps to intervene in Thurston County's regulatory process would not constitute a material breach of the JV Agreement, particularly where the contractual duty to advance the permitting process belongs to Pinnacle and where Pinnacle itself chose to defer project expenditures and disengage from the process.
With respect to the independence of covenants, under Washington law, the obligations of members to fund capital contributions and the JV Entity's obligation to obtain permits are independent covenants — that is, covenants the performance of which does not depend on the performance of the other. See Restatement (Second) of Contracts §232; cf. K & G Constr. Co. v. Harris, 223 Md. 305, 164 A.2d 451 (1960) (discussing the distinction between dependent and independent promises). Section 5.2(b) of the JV Agreement expressly confirms this independence by providing that the capital contribution obligation is "absolute and unconditional" and not subject to "any setoff, counterclaim, defense, or deduction of any kind." A party cannot withhold performance of one independent obligation based on alleged non-performance of another unless the contract expressly provides for such dependence. The JV Agreement not only fails to provide for such dependence — it expressly negates it.
Third, Pinnacle's material-breach argument is further undermined by the fact that CSIA is a separate and distinct governmental entity from the Thurston County Department of Environmental Health. CSIA was created by Chapter 43.155A RCW as a state-level infrastructure authority. The Thurston County Department of Environmental Health is a county agency operating under its own statutory and regulatory authority. CSIA has no administrative authority over Thurston County's environmental permitting functions, no ability to direct or influence the Environmental Review Division's processing of the Phase II EID application, and no special relationship with the Thurston County permitting apparatus. The fact that both CSIA and the Thurston County Department of Environmental Health are governmental entities does not make them the same entity or vest CSIA with authority over Thurston County's regulatory processes.
Conclusion. Pinnacle's material-breach argument provides no defense to the capital call obligation. CSIA has no individual permitting obligation under the JV Agreement, the capital contribution obligation is an independent covenant, and CSIA has fully performed all of its obligations.
V. RISK ASSESSMENT AND COUNTERARGUMENTS
A. Potential Counterarguments by Pinnacle
We have considered the counterarguments that Pinnacle may raise in response to the analysis set forth above. We address each potential counterargument and provide our assessment.
Counterargument 1: The governmental-approval exclusion was intended to apply only to permits within the control of the parties. Pinnacle may argue that Section 11.4(a)(A) was intended to exclude only delays in obtaining permits that were within a party's control — for example, delays caused by a party's failure to submit a complete application — and was not intended to exclude delays imposed by external regulatory bodies acting independently. Pinnacle may characterize Thurston County's data request as an external regulatory action beyond any party's control.
Response. This argument fails as a matter of contractual interpretation. The exclusionary language in Section 11.4(a)(A) is unqualified and draws no distinction between delays attributable to the parties and delays attributable to external regulatory agencies. The phrase "delays in obtaining governmental approvals, permits, licenses, or authorizations" encompasses all such delays, regardless of their cause or origin. Had the parties intended to limit the exclusion to delays within a party's control, they could have included qualifying language to that effect — and they did not. Under the plain meaning doctrine as applied by Washington courts, courts will not read limitations into unambiguous contractual language that the parties chose not to include. See Hearst Communications, 154 Wn.2d at 503.
Moreover, to our knowledge, there is no extrinsic evidence — such as drafting history, negotiation correspondence, or prior course of dealing — that would support such a restrictive reading. Even if such evidence existed, Washington courts would not consider it where the contract language is unambiguous. We note, however, that we should confirm with the client whether any negotiation records exist that bear on the drafting history of Section 11.4, as a precautionary matter.
Finally, Pinnacle's factual premise — that the delay is an external regulatory action beyond any party's control — is incorrect. As discussed in Section IV.B, the delay is directly attributable to CBWTP's failure (through Pinnacle as Manager) to respond to Thurston County's data request. The regulatory process is paused because the applicant has not provided the requested information, not because the regulator has imposed an extraordinary or unexplained delay.
Counterargument 2: CSIA had an implied duty of good faith to assist with permitting given its governmental status. Pinnacle may argue that CSIA, as a Washington state governmental authority, had an implied duty of good faith and fair dealing to leverage its governmental relationships and institutional resources to facilitate the permitting process with Thurston County, and that CSIA's failure to do so constitutes a breach of the implied covenant.
Response. Under Washington law, the implied covenant of good faith and fair dealing exists in every contract, but it does not create new substantive obligations that the parties did not agree to in the contract. Badgett v. Sec. State Corp., 116 Wn.2d 563, 569-70, 807 P.2d 356, 360 (1991). Rather, the implied covenant operates to ensure that neither party deprives the other of the benefit of the bargain through actions that violate the community standards of decency, fairness, or reasonableness. Id.
The JV Agreement expressly allocates permitting responsibility to CBWTP (through the Manager, Pinnacle) under Section 4.3. CSIA's role with respect to permitting is limited to a duty to "cooperate in good faith with the Manager in connection with the permitting process." There is no allegation — and no factual basis — that CSIA failed to cooperate in good faith or that CSIA took any action to obstruct or undermine the permitting process. Pinnacle's complaint is not that CSIA interfered with permitting, but that CSIA failed to affirmatively intervene with a separate governmental body on CBWTP's behalf. The implied covenant of good faith does not require CSIA to assume obligations that the JV Agreement assigns to Pinnacle, nor does it require CSIA to exercise governmental influence over an independent regulatory agency.
Furthermore, as discussed in Section IV.E, CSIA is a separate entity from the Thurston County Department of Environmental Health and has no authority over that body's regulatory processes. Even the most expansive reading of the implied covenant would not impose on CSIA a duty to intervene in another governmental body's independent regulatory determinations.
Counterargument 3: Commercial frustration. Pinnacle may assert the common law doctrine of frustration of purpose as an alternative defense, arguing th

MEMORANDUM

MATTER NO.: 47291.00001

I. EXECUTIVE SUMMARY

II. FACTUAL BACKGROUND

III. RELEVANT CONTRACTUAL PROVISIONS

IV. ANALYSIS

V. RISK ASSESSMENT AND COUNTERARGUMENTS

Record

Parties

Dates

Amounts