response-to-force-majeure-claim.docx

1030-00002 · Client 1030 · Correspondence

response-to-force-majeure-claim.docx DOCUMENT M&A / Corporate

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CALDERWOOD & HARKNESS LLP Attorneys at Law 901 Fifth Avenue, Suite 3200 Seattle, WA 98164 Telephone: (206) 441-7800 Facsimile: (206) 441-7801 www.calderwoodharkness.com

May 12, 2023

Matter No. 47291.00001

Via Email and Overnight Courier

Elaine Prescott, Esq. Whitfield, Aarons & Greer LLP 1455 SW Broadway, Suite 2100 Portland, OR 97201

Re: Columbia Basin Water Treatment Partners, LLC — Response to Pinnacle Water Solutions, LLC's Assertion of Force Majeure Under §11.4 of the Amended and Restated Limited Liability Company Agreement dated November 2, 2021

Dear Ms. Prescott:

I. Introduction and Purpose

We write on behalf of our client, the Cascadia State Infrastructure Authority ("CSIA"), a Washington state governmental authority created under Chapter 43.155A RCW, in its capacity as the fifty-five percent (55%) member of Columbia Basin Water Treatment Partners, LLC ("CBWTP"), a Washington limited liability company (EIN: 88-3421076; WA UBI: 604-892-315). This letter is in response to matters raised in your recent correspondence regarding Pinnacle Water Solutions, LLC's asserted force majeure defense.

We acknowledge receipt of the letter dated April 28, 2023 (the "WAG Letter"), issued by Whitfield, Aarons & Greer LLP on behalf of Pinnacle Water Solutions, LLC ("Pinnacle"), a Delaware limited liability company. In the WAG Letter, Pinnacle asserts that the environmental permitting delay 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"). On the basis of that assertion, Pinnacle claims that its obligation to fund its Second Tranche capital contribution in the amount of Four Million Fifty Thousand Dollars ($4,050,000) is excused.

CSIA rejects Pinnacle's force majeure defense in its entirety. Pinnacle's position is unsupported by the plain text of the JV Agreement, is contradicted by the factual record, and is contrary to well-established principles of Washington contract law. The reasons for this determination are set forth in detail below.

II. Factual Background

A. The JV Agreement and Capital Structure

CSIA and Pinnacle formed CBWTP on November 2, 2021, as a public-private joint venture for the purpose of designing, constructing, and operating the Thurston County Advanced Water Treatment Facility (the "Facility"). The Facility is a twelve (12) million gallon-per-day advanced water treatment plant to be located at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501, on a 14.7-acre parcel leased to CBWTP under a ninety-nine (99) year ground lease executed concurrently with the JV Agreement and recorded with the Thurston County Auditor under Recording No. 2021-1102-004788.

The total estimated project cost for the Facility is Forty-Five Million Dollars ($45,000,000), consisting of Eighteen Million Dollars ($18,000,000) in equity contributions from the members and Twenty-Seven Million Dollars ($27,000,000) in project finance debt committed by Pacific Cascade Bank, N.A. pursuant to a commitment letter bearing reference PCB-PF-2022-0417, dated February 15, 2022. The equity contributions are allocated between the members in proportion to their respective membership interests: CSIA's total equity commitment is Nine Million Nine Hundred Thousand Dollars ($9,900,000), representing its fifty-five percent (55%) membership interest, and Pinnacle's total equity commitment is Eight Million One Hundred Thousand Dollars ($8,100,000), representing its forty-five percent (45%) membership interest.

Under the JV Agreement, each member's equity commitment is structured in two tranches, with each tranche equal to fifty percent (50%) of the respective member's total commitment. This two-tranche structure was negotiated between the parties to align equity infusions with anticipated project milestones and to ensure that committed financing from Pacific Cascade Bank, N.A. could be drawn in coordination with funded equity.

B. Capital Contributions and Pinnacle's Default

The First Tranche capital contributions were funded on November 15, 2021, contemporaneously with the closing of the JV Agreement. CSIA contributed Four Million Nine Hundred Fifty Thousand Dollars ($4,950,000), and Pinnacle contributed Four Million Fifty Thousand Dollars ($4,050,000), for total First Tranche equity of Nine Million Dollars ($9,000,000). Both members timely met their First Tranche obligations.

On March 1, 2023, the CBWTP Governing Board duly issued a capital call notice for the Second Tranche contributions in accordance with Article V of the JV Agreement. The notice called for CSIA to contribute Four Million Nine Hundred Fifty Thousand Dollars ($4,950,000) and for Pinnacle to contribute Four Million Fifty Thousand Dollars ($4,050,000), with all contributions due within thirty (30) calendar days of the date of the notice — that is, by March 31, 2023. The capital call notice was delivered to both members and their respective counsel by email and overnight courier, in compliance with the notice provisions of the JV Agreement.

CSIA timely funded its Second Tranche contribution on March 28, 2023, three days in advance of the deadline. With this funding, CSIA has contributed the entirety of its Nine Million Nine Hundred Thousand Dollar ($9,900,000) equity commitment to CBWTP.

Pinnacle, by contrast, failed to fund its Second Tranche contribution of Four Million Fifty Thousand Dollars ($4,050,000) by the March 31, 2023 deadline. As of the date of this letter, Pinnacle has not funded any portion of the Second Tranche, nor has it communicated any intent to do so.

On April 14, 2023, this firm, acting on behalf of CSIA, issued a formal default notice to Pinnacle (with a copy to Whitfield, Aarons & Greer LLP) pursuant to Section 8.2 of the JV Agreement. The default notice identified Pinnacle's failure to fund the Second Tranche contribution as a material breach of the JV Agreement and commenced the sixty (60) day cure period prescribed under Section 8.2. That cure period expires on June 13, 2023.

C. Permitting Timeline

On January 10, 2022, CBWTP retained Westmark Environmental Consulting, Inc. ("Westmark") to prepare the environmental assessments required for the permitting of the Facility. The engagement was led by Dr. Anita Farooq, a principal consultant at Westmark with extensive experience in the environmental review of water treatment and wastewater infrastructure projects in the Pacific Northwest.

Westmark completed the Phase I Environmental Site Assessment on April 22, 2022. The Phase I assessment identified no recognized environmental conditions at the project site, and its conclusions were consistent with historical land use data and prior environmental investigations.

On July 8, 2022, Karen Lindstrom, the Environmental Review Division Manager at the Thurston County Department of Environmental Health, notified CBWTP that the County required supplemental environmental data before completing its Phase II Environmental Impact Determination review. Ms. Lindstrom's request identified specific additional data categories to be furnished, and the Phase II review was paused pending receipt of that data. This type of supplemental data request is not uncommon in the environmental review process and does not constitute an extraordinary or unforeseeable impediment.

On September 14, 2022, Pinnacle unilaterally notified CSIA that it would "defer further project expenditures" pending resolution of the permitting process. This decision was made by Pinnacle on its own initiative, without authorization from the CBWTP Governing Board, and without any contractual basis for doing so. The effect of Pinnacle's unilateral decision was to halt efforts to compile and submit the supplemental environmental data that Thurston County had requested — data that was necessary to restart and complete the Phase II review.

Compounding this failure, on November 30, 2022, a regularly scheduled Governing Board meeting failed to achieve quorum due to the absence of Pinnacle-appointed board members Richard Prumvane and Cynthia Voss. The lack of quorum prevented the Governing Board from taking action to advance the permitting process or to address Pinnacle's unilateral suspension of project expenditures. The record makes clear that Pinnacle's own conduct is the proximate cause of the delay it now seeks to characterize as force majeure.

III. Pinnacle's Force Majeure Claim Is Without Merit

CSIA has carefully reviewed the WAG Letter and the arguments asserted therein. For the reasons set forth below, Pinnacle's force majeure claim fails under the express terms of the JV Agreement, under the relevant factual circumstances, and under controlling principles of Washington law.

A. The Contractual Text of §11.4 Expressly Excludes Governmental Permitting Delays

The starting point for any force majeure analysis is the contractual text. Section 11.4 of the JV Agreement defines "Force Majeure Event" as follows:

"Force Majeure Event" means any event or circumstance beyond the reasonable control of the affected party, including, without limitation, acts of God, fire, flood, earthquake, volcanic eruption, hurricane, tornado, epidemic, war, invasion, hostilities, terrorist acts, riot, civil commotion, strikes or labor disputes, embargo, or governmental action (other than governmental action taken in the ordinary course of regulation or permitting). Notwithstanding the foregoing, the term "Force Majeure Event" expressly excludes (a) delays in obtaining governmental approvals, permits, licenses, or authorizations, (b) changes in economic or market conditions, (c) inability to obtain financing, and (d) failure of a party's subcontractors, vendors, or service providers to perform.

The language of Section 11.4 is clear and unambiguous. The definition of "Force Majeure Event" contains an express carve-out for "delays in obtaining governmental approvals, permits, licenses, or authorizations." The Phase II Environmental Impact Determination delay imposed by the Thurston County Department of Environmental Health is, by its very nature and in its every particular, a delay in obtaining a governmental approval. The WAG Letter does not and cannot dispute this fundamental characterization. The County's request for supplemental environmental data, the resulting pause in the Phase II review process, and any attendant delay in the issuance of the environmental permit all fall squarely within the category of events that the parties expressly and deliberately excluded from the definition of Force Majeure Event when they negotiated and executed the JV Agreement.

The WAG Letter's characterization of the permitting delay as a "regulatory delay beyond Pinnacle's control" does not alter its fundamental character. The WAG Letter's attempt to reframe the delay in terms that sound in force majeure — emphasizing uncontrollability and externality — is unavailing because the contractual text does not hinge on whether a permitting delay is within or beyond a party's control. Rather, Section 11.4 categorically excludes all delays in obtaining governmental approvals, permits, licenses, or authorizations from the force majeure definition, regardless of the cause of the delay or whether the affected party could have prevented it. The parties' choice to carve out permitting delays as a blanket exclusion — rather than to limit the exclusion to delays attributable to the affected party's own conduct — confirms that the exclusion was intended to operate as an absolute bar to force majeure claims grounded in permitting delays.

Under black-letter Washington contract law, clear and unambiguous contractual terms must be enforced as written. See Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503–04 (2005) ("Where a contract's language is clear and unambiguous, courts must enforce the contract as written; they may not modify it or manufacture ambiguity where none exists."); Viking Bank v. Firgrove Commons 3, LLC, 183 Wn. App. 706, 713 (2014). The JV Agreement was negotiated and executed at arm's length between sophisticated parties, each represented by experienced counsel, in the context of a complex, multi-million-dollar public-private infrastructure transaction. The force majeure provision, including the exclusion for permitting delays, reflects the considered allocation of risk agreed upon by the parties. Pinnacle cannot now invoke force majeure to shield itself from a category of risk it expressly agreed to bear.

B. Pinnacle, as Manager, Bore Responsibility for Advancing Permitting Under §4.3

Even setting aside the express textual exclusion — which alone is dispositive — Pinnacle's force majeure defense fails for the independent reason that Pinnacle itself bears responsibility for the very delay it now cites as the basis for its claim.

Section 4.3 of the JV Agreement allocates responsibility for obtaining all governmental permits, approvals, and authorizations necessary for the design, construction, and operation of the Facility to CBWTP as the JV Entity. The JV Agreement further provides that Pinnacle was designated as the Manager of CBWTP, vested with day-to-day operational authority over the joint venture and responsible for executing the JV Entity's obligations, subject to oversight by the Governing Board. As Manager, Pinnacle assumed the primary operational duty to advance the permitting process on behalf of CBWTP, including the obligation to respond to Thurston County's July 8, 2022 request for supplemental environmental data.

The factual record demonstrates that Pinnacle failed to discharge this responsibility. On September 14, 2022, Pinnacle made the unilateral decision to "defer further project expenditures," effectively halting all efforts to compile and submit the supplemental environmental data that Thurston County required to resume the Phase II review. This decision was made without Governing Board authorization and in derogation of Pinnacle's duties as Manager. The predictable and direct consequence of Pinnacle's decision was the continued suspension of the Phase II review and the resulting permitting delay.

A party cannot invoke force majeure to excuse a condition that the party itself contributed to or failed to mitigate. This principle is firmly established under Washington law. See Ross v. Harding, 64 Wn.2d 231, 236 (1964) (party may not claim relief from performance of its obligations on the basis of impediments resulting from the party's own action or inaction); Pac. Nw. Grp. A v. Pizza Blends, Inc., 90 Wn. App. 273, 279–80 (1998) (force majeure inapplicable where the claimed impediment was within the control of the invoking party). Pinnacle's assertion that the permitting delay constitutes a Force Majeure Event is fatally undermined by the fact that Pinnacle, as Manager, was the entity responsible for advancing the permitting process and that Pinnacle's own unilateral suspension of project expenditures directly caused or materially contributed to the delay.

Furthermore, the WAG Letter's assertion that CSIA, "as the public-sector partner, bore responsibility for obtaining all governmental permits" is flatly contrary to the express terms of Section 4.3 of the JV Agreement. Permitting responsibility was allocated to CBWTP as an entity, with day-to-day execution vested in Pinnacle as Manager. The JV Agreement contains no provision assigning permitting duties to CSIA in its individual capacity. Pinnacle's attempt to shift blame to CSIA by invoking CSIA's status as a public-sector entity finds no support in the contractual text and is rejected.

C. Capital Call Obligations Are Independent Covenants

Pinnacle's force majeure defense fails for a third, independently sufficient reason: even if the Phase II permitting delay were a qualifying Force Majeure Event under Section 11.4 — which CSIA emphatically denies — that provision does not excuse Pinnacle's obligation to fund its capital contribution.

Under the JV Agreement, each member's obligation to fund capital calls when duly issued by the Governing Board in accordance with Article V is an independent, unconditional covenant. The capital contribution provisions are not contingent upon the progress of permitting, the status of environmental reviews, or the commencement of construction. Article V contains no condition precedent linking a member's funding obligation to the achievement of any permitting milestone. The capital call notice issued on March 1, 2023 was duly authorized by the Governing Board, complied with the procedural requirements of the JV Agreement, and created an unconditional obligation on the part of each member to fund its pro rata share within thirty (30) calendar days.

Moreover, the force majeure provision of Section 11.4, by its express terms, excuses only the performance of "construction and operational obligations" of CBWTP. It does not purport to excuse the funding obligations of the individual members set forth in Article V. The JV Agreement draws a clear and deliberate distinction between (i) the project-level construction and operational obligations of the JV Entity and (ii) the separate and distinct capital contribution obligations of the individual members. Force majeure, as defined and limited by Section 11.4, operates only with respect to the former category. Pinnacle's attempt to conflate these two fundamentally different categories of obligation — treating a project-level operational delay as if it released a member from its independent covenant to fund equity — is unsupported by the text or structure of the JV Agreement and must be rejected.

This distinction is not merely formalistic. The two-tranche capital contribution structure was specifically designed to ensure that CBWTP would be capitalized in accordance with the project's financing plan, and the independent and unconditional nature of the funding obligations was a critical element of the credit support structure required by Pacific Cascade Bank, N.A. in connection with its twenty-seven million dollar project finance commitment. Allowing a member to withhold capital contributions on the basis of project-level operational delays would fundamentally undermine the financial architecture of the joint venture.

IV. CSIA's Default Notice Remains in Full Force and Effect

In light of the foregoing, CSIA reaffirms that the formal default notice issued by this firm on April 14, 2023, pursuant to Section 8.2 of the JV Agreement, remains in full force and effect. Nothing in the WAG Letter, nor any argument advanced therein, alters or diminishes the validity or operative effect of the default notice.

The sixty (60) day cure period prescribed under Section 8.2 commenced on April 14, 2023 and will expire at 11:59 p.m. Pacific Time on June 13, 2023. As of the date of this letter, Pinnacle has neither funded the Four Million Fifty Thousand Dollar ($4,050,000) Second Tranche capital contribution nor taken any affirmative steps toward curing its default. Pinnacle has not proposed a cure plan, has not requested an extension of the cure period, and has not communicated any intention to fund the contribution.

If Pinnacle fails to cure its default by June 13, 2023, CSIA will be entitled to exercise, at its sole election, the remedies set forth in Section 8.2 of the JV Agreement. Those remedies include, without limitation:

(i) pro rata dilution of Pinnacle's forty-five percent (45%) membership interest in CBWTP in accordance with the dilution formula set forth in Section 8.2(a) of the JV Agreement;

(ii) purchase of Pinnacle's membership interest at seventy-five percent (75%) of fair market value, as determined by an independent appraiser in accordance with Section 8.2(b) of the JV Agreement; and

(iii) election to dissolve CBWTP in accordance with Section 8.2(c) and Article XII of the JV Agreement.

CSIA's selection among these remedies will be made in CSIA's sole discretion, in light of the circumstances existing at the time of election, and in accordance with CSIA's fiduciary obligations to the citizens of the State of Washington.

V. Additional Consequences of Continued Default

We draw Pinnacle's attention to several additional consequences of its continued default that underscore the urgency of this matter.

First, the Pacific Cascade Bank, N.A. Twenty-Seven Million Dollar ($27,000,000) project finance credit facility commitment letter (reference PCB-PF-2022-0417) has an expiration date of August 15, 2023. As you are aware, the commitment letter contains conditions precedent to the initial draw, including a requirement that the members' total equity commitments be fully funded. Pinnacle's continued failure to fund its Second Tranche contribution, and the resulting project stagnation, jeopardize the availability of this committed financing. If the commitment expires or is withdrawn by Pacific Cascade Bank, N.A. as a result of Pinnacle's default, the harm to CBWTP and to CSIA — which has fully performed its obligations — would be material and potentially irreparable. The loss of committed project finance debt on commercially favorable terms would significantly impair CBWTP's ability to proceed with the Facility and could require the joint venture to seek replacement financing at a substantially higher cost, if such financing is available at all.

Second, CBWTP's financial position as of the most recent reporting period reflects approximately Nine Million Eight Hundred Forty-Seven Thousand Dollars ($9,847,000) in total assets, with Two Hundred Fourteen Thousand Dollars ($214,000) in outstanding liabilities. While the JV Entity's balance sheet remains sound in isolation, the entity is functionally dormant. Without resolution of Pinnacle's default and the infusion of the remaining equity capital, there is no viable path to construction commencement for the Facility. This dormancy imposes ongoing administrative costs, consumes management resources, and delays the delivery of critical water treatment infrastructure to the residents of Thurston County.

Third, CSIA expressly reserves its right to seek consequential damages arising from Pinnacle's breach of the JV Agreement, including but not limited to damages related to the potential loss of the Pacific Cascade Bank, N.A. credit facility, damages arising from project delays, increased construction costs attributable to delay, and any other losses proximately caused by Pinnacle's failure to perform its contractual obligations. CSIA's damages analysis is ongoing, and the full extent of CSIA's losses may not be ascertainable until the cure period has expired and CSIA has determined its course of action.

VI. Reservation of Rights

CSIA expressly reserves all of its rights and remedies under the JV Agreement, under Washington law (including, without limitation, the Washington Limited Liability Company Act, Chapter 25.15 RCW), and under all other applicable law. Without limiting the generality of the foregoing, CSIA specifically reserves its right to pursue:

(a) the default remedies set forth in Section 8.2 of the JV Agreement, as described above;

(b) the buy-sell provision set forth in Section 9.1 of the JV Agreement, which becomes exercisable after November 2, 2023;

(c) dispute resolution through mandatory mediation followed by binding arbitration under the rules of the Pacific Northwest Arbitration Association, seated in Seattle, Washington, as required by Section 13.2 of the JV Agreement; and

(d) any and all other remedies available at law or in equity.

Nothing in this letter, or in any prior or subsequent correspondence between the parties or their counsel, shall be deemed a waiver, relinquishment, or modification of any right or remedy available to CSIA under the JV Agreement, under applicable law, or otherwise. CSIA's willingness to engage in dialogue with Pinnacle and its counsel — including through this correspondence — should not be construed as acquiescence to, or acceptance of, Pinnacle's position regarding the applicability of force majeure, the validity of its claimed excuse from performance, or any other matter.

VII. Demand for Immediate Cure

CSIA hereby demands that Pinnacle immediately cure its default by funding the Four Million Fifty Thousand Dollar ($4,050,000) Second Tranche capital contribution to CBWTP's operating account at Pacific Cascade Bank, N.A. (600 University Street, Suite 800, Seattle, WA 98101), in accordance with the wire instructions previously provided in the March 1, 2023 capital call notice. Time is of the essence. The cure period expires at 11:59 p.m. Pacific Time on June 13, 2023. If Pinnacle fails to cure its default by that date, CSIA will proceed to exercise its remedies under the JV Agreement without further notice to Pinnacle.

We urge Pinnacle and its counsel to give this matter their immediate and serious attention. The consequences of continued inaction will be significant and, for Pinnacle, potentially irreversible.

Please direct all further communications regarding this matter to the undersigned at Calderwood & Harkness LLP, 901 Fifth Avenue, Suite 3200, Seattle, WA 98164, telephone (206) 441-7800, email omackenzie@calderwoodharkness.com.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Oliver Mackenzie Partner 901 Fifth Avenue, Suite 3200 Seattle, WA 98164 Telephone: (206) 441-7800

Email: omackenzie@calderwoodharkness.com

cc:

David Tanaka, Esq., General Counsel, Cascadia State Infrastructure Authority, 1100 Jefferson Street SE, Suite 400, Olympia, WA 98501

Margaret Ellsworth, Executive Director, Cascadia State Infrastructure Authority, 1100 Jefferson Street SE, Suite 400, Olympia, WA 98501

Richard Prumvane, CEO & Managing Member, Pinnacle Water Solutions, LLC, 720 SW Quelston Street, Suite 1500, Portland, OR 97205

Marcus Delvecchio, Esq., Whitfield, Aarons & Greer LLP, 1455 SW Broadway, Suite 2100, Portland, OR 97201

Harrison Wexford, Esq., Calderwood & Harkness LLP, 901 Fifth Avenue, Suite 3200, Seattle, WA 98164

Tiffany Rosenthal, Esq., Calderwood & Harkness LLP, 901 Fifth Avenue, Suite 3200, Seattle, WA 98164

CALDERWOOD & HARKNESS LLP Attorneys at Law 901 Fifth Avenue, Suite 3200 Seattle, WA 98164 Telephone: (206) 441-7800 Facsimile: (206) 441-7801 www.calderwoodharkness.com
May 12, 2023
Matter No. 47291.00001
Via Email and Overnight Courier
Elaine Prescott, Esq. Whitfield, Aarons & Greer LLP 1455 SW Broadway, Suite 2100 Portland, OR 97201
Re: Columbia Basin Water Treatment Partners, LLC — Response to Pinnacle Water Solutions, LLC's Assertion of Force Majeure Under §11.4 of the Amended and Restated Limited Liability Company Agreement dated November 2, 2021
Dear Ms. Prescott:
I. Introduction and Purpose
We write on behalf of our client, the Cascadia State Infrastructure Authority ("CSIA"), a Washington state governmental authority created under Chapter 43.155A RCW, in its capacity as the fifty-five percent (55%) member of Columbia Basin Water Treatment Partners, LLC ("CBWTP"), a Washington limited liability company (EIN: 88-3421076; WA UBI: 604-892-315). This letter is in response to matters raised in your recent correspondence regarding Pinnacle Water Solutions, LLC's asserted force majeure defense.
We acknowledge receipt of the letter dated April 28, 2023 (the "WAG Letter"), issued by Whitfield, Aarons & Greer LLP on behalf of Pinnacle Water Solutions, LLC ("Pinnacle"), a Delaware limited liability company. In the WAG Letter, Pinnacle asserts that the environmental permitting delay 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"). On the basis of that assertion, Pinnacle claims that its obligation to fund its Second Tranche capital contribution in the amount of Four Million Fifty Thousand Dollars ($4,050,000) is excused.
CSIA rejects Pinnacle's force majeure defense in its entirety. Pinnacle's position is unsupported by the plain text of the JV Agreement, is contradicted by the factual record, and is contrary to well-established principles of Washington contract law. The reasons for this determination are set forth in detail below.
II. Factual Background
A. The JV Agreement and Capital Structure
CSIA and Pinnacle formed CBWTP on November 2, 2021, as a public-private joint venture for the purpose of designing, constructing, and operating the Thurston County Advanced Water Treatment Facility (the "Facility"). The Facility is a twelve (12) million gallon-per-day advanced water treatment plant to be located at 2480 Capitol Boulevard SE, Tumwater, Thurston County, Washington 98501, on a 14.7-acre parcel leased to CBWTP under a ninety-nine (99) year ground lease executed concurrently with the JV Agreement and recorded with the Thurston County Auditor under Recording No. 2021-1102-004788.
The total estimated project cost for the Facility is Forty-Five Million Dollars ($45,000,000), consisting of Eighteen Million Dollars ($18,000,000) in equity contributions from the members and Twenty-Seven Million Dollars ($27,000,000) in project finance debt committed by Pacific Cascade Bank, N.A. pursuant to a commitment letter bearing reference PCB-PF-2022-0417, dated February 15, 2022. The equity contributions are allocated between the members in proportion to their respective membership interests: CSIA's total equity commitment is Nine Million Nine Hundred Thousand Dollars ($9,900,000), representing its fifty-five percent (55%) membership interest, and Pinnacle's total equity commitment is Eight Million One Hundred Thousand Dollars ($8,100,000), representing its forty-five percent (45%) membership interest.
Under the JV Agreement, each member's equity commitment is structured in two tranches, with each tranche equal to fifty percent (50%) of the respective member's total commitment. This two-tranche structure was negotiated between the parties to align equity infusions with anticipated project milestones and to ensure that committed financing from Pacific Cascade Bank, N.A. could be drawn in coordination with funded equity.
B. Capital Contributions and Pinnacle's Default
The First Tranche capital contributions were funded on November 15, 2021, contemporaneously with the closing of the JV Agreement. CSIA contributed Four Million Nine Hundred Fifty Thousand Dollars ($4,950,000), and Pinnacle contributed Four Million Fifty Thousand Dollars ($4,050,000), for total First Tranche equity of Nine Million Dollars ($9,000,000). Both members timely met their First Tranche obligations.
On March 1, 2023, the CBWTP Governing Board duly issued a capital call notice for the Second Tranche contributions in accordance with Article V of the JV Agreement. The notice called for CSIA to contribute Four Million Nine Hundred Fifty Thousand Dollars ($4,950,000) and for Pinnacle to contribute Four Million Fifty Thousand Dollars ($4,050,000), with all contributions due within thirty (30) calendar days of the date of the notice — that is, by March 31, 2023. The capital call notice was delivered to both members and their respective counsel by email and overnight courier, in compliance with the notice provisions of the JV Agreement.
CSIA timely funded its Second Tranche contribution on March 28, 2023, three days in advance of the deadline. With this funding, CSIA has contributed the entirety of its Nine Million Nine Hundred Thousand Dollar ($9,900,000) equity commitment to CBWTP.
Pinnacle, by contrast, failed to fund its Second Tranche contribution of Four Million Fifty Thousand Dollars ($4,050,000) by the March 31, 2023 deadline. As of the date of this letter, Pinnacle has not funded any portion of the Second Tranche, nor has it communicated any intent to do so.
On April 14, 2023, this firm, acting on behalf of CSIA, issued a formal default notice to Pinnacle (with a copy to Whitfield, Aarons & Greer LLP) pursuant to Section 8.2 of the JV Agreement. The default notice identified Pinnacle's failure to fund the Second Tranche contribution as a material breach of the JV Agreement and commenced the sixty (60) day cure period prescribed under Section 8.2. That cure period expires on June 13, 2023.
C. Permitting Timeline
On January 10, 2022, CBWTP retained Westmark Environmental Consulting, Inc. ("Westmark") to prepare the environmental assessments required for the permitting of the Facility. The engagement was led by Dr. Anita Farooq, a principal consultant at Westmark with extensive experience in the environmental review of water treatment and wastewater infrastructure projects in the Pacific Northwest.
Westmark completed the Phase I Environmental Site Assessment on April 22, 2022. The Phase I assessment identified no recognized environmental conditions at the project site, and its conclusions were consistent with historical land use data and prior environmental investigations.
On July 8, 2022, Karen Lindstrom, the Environmental Review Division Manager at the Thurston County Department of Environmental Health, notified CBWTP that the County required supplemental environmental data before completing its Phase II Environmental Impact Determination review. Ms. Lindstrom's request identified specific additional data categories to be furnished, and the Phase II review was paused pending receipt of that data. This type of supplemental data request is not uncommon in the environmental review process and does not constitute an extraordinary or unforeseeable impediment.
On September 14, 2022, Pinnacle unilaterally notified CSIA that it would "defer further project expenditures" pending resolution of the permitting process. This decision was made by Pinnacle on its own initiative, without authorization from the CBWTP Governing Board, and without any contractual basis for doing so. The effect of Pinnacle's unilateral decision was to halt efforts to compile and submit the supplemental environmental data that Thurston County had requested — data that was necessary to restart and complete the Phase II review.
Compounding this failure, on November 30, 2022, a regularly scheduled Governing Board meeting failed to achieve quorum due to the absence of Pinnacle-appointed board members Richard Prumvane and Cynthia Voss. The lack of quorum prevented the Governing Board from taking action to advance the permitting process or to address Pinnacle's unilateral suspension of project expenditures. The record makes clear that Pinnacle's own conduct is the proximate cause of the delay it now seeks to characterize as force majeure.
III. Pinnacle's Force Majeure Claim Is Without Merit
CSIA has carefully reviewed the WAG Letter and the arguments asserted therein. For the reasons set forth below, Pinnacle's force majeure claim fails under the express terms of the JV Agreement, under the relevant factual circumstances, and under controlling principles of Washington law.
A. The Contractual Text of §11.4 Expressly Excludes Governmental Permitting Delays
The starting point for any force majeure analysis is the contractual text. Section 11.4 of the JV Agreement defines "Force Majeure Event" as follows:
"Force Majeure Event" means any event or circumstance beyond the reasonable control of the affected party, including, without limitation, acts of God, fire, flood, earthquake, volcanic eruption, hurricane, tornado, epidemic, war, invasion, hostilities, terrorist acts, riot, civil commotion, strikes or labor disputes, embargo, or governmental action (other than governmental action taken in the ordinary course of regulation or permitting). Notwithstanding the foregoing, the term "Force Majeure Event" expressly excludes (a) delays in obtaining governmental approvals, permits, licenses, or authorizations, (b) changes in economic or market conditions, (c) inability to obtain financing, and (d) failure of a party's subcontractors, vendors, or service providers to perform.
The language of Section 11.4 is clear and unambiguous. The definition of "Force Majeure Event" contains an express carve-out for "delays in obtaining governmental approvals, permits, licenses, or authorizations." The Phase II Environmental Impact Determination delay imposed by the Thurston County Department of Environmental Health is, by its very nature and in its every particular, a delay in obtaining a governmental approval. The WAG Letter does not and cannot dispute this fundamental characterization. The County's request for supplemental environmental data, the resulting pause in the Phase II review process, and any attendant delay in the issuance of the environmental permit all fall squarely within the category of events that the parties expressly and deliberately excluded from the definition of Force Majeure Event when they negotiated and executed the JV Agreement.
The WAG Letter's characterization of the permitting delay as a "regulatory delay beyond Pinnacle's control" does not alter its fundamental character. The WAG Letter's attempt to reframe the delay in terms that sound in force majeure — emphasizing uncontrollability and externality — is unavailing because the contractual text does not hinge on whether a permitting delay is within or beyond a party's control. Rather, Section 11.4 categorically excludes all delays in obtaining governmental approvals, permits, licenses, or authorizations from the force majeure definition, regardless of the cause of the delay or whether the affected party could have prevented it. The parties' choice to carve out permitting delays as a blanket exclusion — rather than to limit the exclusion to delays attributable to the affected party's own conduct — confirms that the exclusion was intended to operate as an absolute bar to force majeure claims grounded in permitting delays.
Under black-letter Washington contract law, clear and unambiguous contractual terms must be enforced as written. See Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503–04 (2005) ("Where a contract's language is clear and unambiguous, courts must enforce the contract as written; they may not modify it or manufacture ambiguity where none exists."); Viking Bank v. Firgrove Commons 3, LLC, 183 Wn. App. 706, 713 (2014). The JV Agreement was negotiated and executed at arm's length between sophisticated parties, each represented by experienced counsel, in the context of a complex, multi-million-dollar public-private infrastructure transaction. The force majeure provision, including the exclusion for permitting delays, reflects the considered allocation of risk agreed upon by the parties. Pinnacle cannot now invoke force majeure to shield itself from a category of risk it expressly agreed to bear.
B. Pinnacle, as Manager, Bore Responsibility for Advancing Permitting Under §4.3
Even setting aside the express textual exclusion — which alone is dispositive — Pinnacle's force majeure defense fails for the independent reason that Pinnacle itself bears responsibility for the very delay it now cites as the basis for its claim.
Section 4.3 of the JV Agreement allocates responsibility for obtaining all governmental permits, approvals, and authorizations necessary for the design, construction, and operation of the Facility to CBWTP as the JV Entity. The JV Agreement further provides that Pinnacle was designated as the Manager of CBWTP, vested with day-to-day operational authority over the joint venture and responsible for executing the JV Entity's obligations, subject to oversight by the Governing Board. As Manager, Pinnacle assumed the primary operational duty to advance the permitting process on behalf of CBWTP, including the obligation to respond to Thurston County's July 8, 2022 request for supplemental environmental data.
The factual record demonstrates that Pinnacle failed to discharge this responsibility. On September 14, 2022, Pinnacle made the unilateral decision to "defer further project expenditures," effectively halting all efforts to compile and submit the supplemental environmental data that Thurston County required to resume the Phase II review. This decision was made without Governing Board authorization and in derogation of Pinnacle's duties as Manager. The predictable and direct consequence of Pinnacle's decision was the continued suspension of the Phase II review and the resulting permitting delay.
A party cannot invoke force majeure to excuse a condition that the party itself contributed to or failed to mitigate. This principle is firmly established under Washington law. See Ross v. Harding, 64 Wn.2d 231, 236 (1964) (party may not claim relief from performance of its obligations on the basis of impediments resulting from the party's own action or inaction); Pac. Nw. Grp. A v. Pizza Blends, Inc., 90 Wn. App. 273, 279–80 (1998) (force majeure inapplicable where the claimed impediment was within the control of the invoking party). Pinnacle's assertion that the permitting delay constitutes a Force Majeure Event is fatally undermined by the fact that Pinnacle, as Manager, was the entity responsible for advancing the permitting process and that Pinnacle's own unilateral suspension of project expenditures directly caused or materially contributed to the delay.
Furthermore, the WAG Letter's assertion that CSIA, "as the public-sector partner, bore responsibility for obtaining all governmental permits" is flatly contrary to the express terms of Section 4.3 of the JV Agreement. Permitting responsibility was allocated to CBWTP as an entity, with day-to-day execution vested in Pinnacle as Manager. The JV Agreement contains no provision assigning permitting duties to CSIA in its individual capacity. Pinnacle's attempt to shift blame to CSIA by invoking CSIA's status as a public-sector entity finds no support in the contractual text and is rejected.
C. Capital Call Obligations Are Independent Covenants
Pinnacle's force majeure defense fails for a third, independently sufficient reason: even if the Phase II permitting delay were a qualifying Force Majeure Event under Section 11.4 — which CSIA emphatically denies — that provision does not excuse Pinnacle's obligation to fund its capital contribution.
Under the JV Agreement, each member's obligation to fund capital calls when duly issued by the Governing Board in accordance with Article V is an independent, unconditional covenant. The capital contribution provisions are not contingent upon the progress of permitting, the status of environmental reviews, or the commencement of construction. Article V contains no condition precedent linking a member's funding obligation to the achievement of any permitting milestone. The capital call notice issued on March 1, 2023 was duly authorized by the Governing Board, complied with the procedural requirements of the JV Agreement, and created an unconditional obligation on the part of each member to fund its pro rata share within thirty (30) calendar days.
Moreover, the force majeure provision of Section 11.4, by its express terms, excuses only the performance of "construction and operational obligations" of CBWTP. It does not purport to excuse the funding obligations of the individual members set forth in Article V. The JV Agreement draws a clear and deliberate distinction between (i) the project-level construction and operational obligations of the JV Entity and (ii) the separate and distinct capital contribution obligations of the individual members. Force majeure, as defined and limited by Section 11.4, operates only with respect to the former category. Pinnacle's attempt to conflate these two fundamentally different categories of obligation — treating a project-level operational delay as if it released a member from its independent covenant to fund equity — is unsupported by the text or structure of the JV Agreement and must be rejected.
This distinction is not merely formalistic. The two-tranche capital contribution structure was specifically designed to ensure that CBWTP would be capitalized in accordance with the project's financing plan, and the independent and unconditional nature of the funding obligations was a critical element of the credit support structure required by Pacific Cascade Bank, N.A. in connection with its twenty-seven million dollar project finance commitment. Allowing a member to withhold capital contributions on the basis of project-level operational delays would fundamentally undermine the financial architecture of the joint venture.
IV. CSIA's Default Notice Remains in Full Force and Effect
In light of the foregoing, CSIA reaffirms that the formal default notice issued by this firm on April 14, 2023, pursuant to Section 8.2 of the JV Agreement, remains in full force and effect. Nothing in the WAG Letter, nor any argument advanced therein, alters or diminishes the validity or operative effect of the default notice.
The sixty (60) day cure period prescribed under Section 8.2 commenced on April 14, 2023 and will expire at 11:59 p.m. Pacific Time on June 13, 2023. As of the date of this letter, Pinnacle has neither funded the Four Million Fifty Thousand Dollar ($4,050,000) Second Tranche capital contribution nor taken any affirmative steps toward curing its default. Pinnacle has not proposed a cure plan, has not requested an extension of the cure period, and has not communicated any intention to fund the contribution.
If Pinnacle fails to cure its default by June 13, 2023, CSIA will be entitled to exercise, at its sole election, the remedies set forth in Section 8.2 of the JV Agreement. Those remedies include, without limitation:
(i) pro rata dilution of Pinnacle's forty-five percent (45%) membership interest in CBWTP in accordance with the dilution formula set forth in Section 8.2(a) of the JV Agreement;
(ii) purchase of Pinnacle's membership interest at seventy-five percent (75%) of fair market value, as determined by an independent appraiser in accordance with Section 8.2(b) of the JV Agreement; and
(iii) election to dissolve CBWTP in accordance with Section 8.2(c) and Article XII of the JV Agreement.
CSIA's selection among these remedies will be made in CSIA's sole discretion, in light of the circumstances existing at the time of election, and in accordance with CSIA's fiduciary obligations to the citizens of the State of Washington.
V. Additional Consequences of Continued Default
We draw Pinnacle's attention to several additional consequences of its continued default that underscore the urgency of this matter.
First, the Pacific Cascade Bank, N.A. Twenty-Seven Million Dollar ($27,000,000) project finance credit facility commitment letter (reference PCB-PF-2022-0417) has an expiration date of August 15, 2023. As you are aware, the commitment letter contains conditions precedent to the initial draw, including a requirement that the members' total equity commitments be fully funded. Pinnacle's continued failure to fund its Second Tranche contribution, and the resulting project stagnation, jeopardize the availability of this committed financing. If the commitment expires or is withdrawn by Pacific Cascade Bank, N.A. as a result of Pinnacle's default, the harm to CBWTP and to CSIA — which has fully performed its obligations — would be material and potentially irreparable. The loss of committed project finance debt on commercially favorable terms would significantly impair CBWTP's ability to proceed with the Facility and could require the joint venture to seek replacement financing at a substantially higher cost, if such financing is available at all.
Second, CBWTP's financial position as of the most recent reporting period reflects approximately Nine Million Eight Hundred Forty-Seven Thousand Dollars ($9,847,000) in total assets, with Two Hundred Fourteen Thousand Dollars ($214,000) in outstanding liabilities. While the JV Entity's balance sheet remains sound in isolation, the entity is functionally dormant. Without resolution of Pinnacle's default and the infusion of the remaining equity capital, there is no viable path to construction commencement for the Facility. This dormancy imposes ongoing administrative costs, consumes management resources, and delays the delivery of critical water treatment infrastructure to the residents of Thurston County.
Third, CSIA expressly reserves its right to seek consequential damages arising from Pinnacle's breach of the JV Agreement, including but not limited to damages related to the potential loss of the Pacific Cascade Bank, N.A. credit facility, damages arising from project delays, increased construction costs attributable to delay, and any other losses proximately caused by Pinnacle's failure to perform its contractual obligations. CSIA's damages analysis is ongoing, and the full extent of CSIA's losses may not be ascertainable until the cure period has expired and CSIA has determined its course of action.
VI. Reservation of Rights
CSIA expressly reserves all of its rights and remedies under the JV Agreement, under Washington law (including, without limitation, the Washington Limited Liability Company Act, Chapter 25.15 RCW), and under all other applicable law. Without limiting the generality of the foregoing, CSIA specifically reserves its right to pursue:
(a) the default remedies set forth in Section 8.2 of the JV Agreement, as described above;
(b) the buy-sell provision set forth in Section 9.1 of the JV Agreement, which becomes exercisable after November 2, 2023;
(c) dispute resolution through mandatory mediation followed by binding arbitration under the rules of the Pacific Northwest Arbitration Association, seated in Seattle, Washington, as required by Section 13.2 of the JV Agreement; and
(d) any and all other remedies available at law or in equity.
Nothing in this letter, or in any prior or subsequent correspondence between the parties or their counsel, shall be deemed a waiver, relinquishment, or modification of any right or remedy available to CSIA under the JV Agreement, under applicable law, or otherwise. CSIA's willingness to engage in dialogue with Pinnacle and its counsel — including through this correspondence — should not be construed as acquiescence to, or acceptance of, Pinnacle's position regarding the applicability of force majeure, the validity of its claimed excuse from performance, or any other matter.
VII. Demand for Immediate Cure
CSIA hereby demands that Pinnacle immediately cure its default by funding the Four Million Fifty Thousand Dollar ($4,050,000) Second Tranche capital contribution to CBWTP's operating account at Pacific Cascade Bank, N.A. (600 University Street, Suite 800, Seattle, WA 98101), in accordance with the wire instructions previously provided in the March 1, 2023 capital call notice. Time is of the essence. The cure period expires at 11:59 p.m. Pacific Time on June 13, 2023. If Pinnacle fails to cure its default by that date, CSIA will proceed to exercise its remedies under the JV Agreement without further notice to Pinnacle.
We urge Pinnacle and its counsel to give this matter their immediate and serious attention. The consequences of continued inaction will be significant and, for Pinnacle, potentially irreversible.
Please direct all further communications regarding this matter to the undersigned at Calderwood & Harkness LLP, 901 Fifth Avenue, Suite 3200, Seattle, WA 98164, telephone (206) 441-7800, email omackenzie@calderwoodharkness.com.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Oliver Mackenzie Partner 901 Fifth Avenue, Suite 3200 Seattle, WA 98164 Telephone: (206) 441-7800
Email: omackenzie@calderwoodharkness.com
cc:
David Tanaka, Esq., General Counsel, Cascadia State Infrastructure Authority, 1100 Jefferson Street SE, Suite 400, Olympia, WA 98501
Margaret Ellsworth, Executive Director, Cascadia State Infrastructure Authority, 1100 Jefferson Street SE, Suite 400, Olympia, WA 98501
Richard Prumvane, CEO & Managing Member, Pinnacle Water Solutions, LLC, 720 SW Quelston Street, Suite 1500, Portland, OR 97205
Marcus Delvecchio, Esq., Whitfield, Aarons & Greer LLP, 1455 SW Broadway, Suite 2100, Portland, OR 97201
Harrison Wexford, Esq., Calderwood & Harkness LLP, 901 Fifth Avenue, Suite 3200, Seattle, WA 98164
Tiffany Rosenthal, Esq., Calderwood & Harkness LLP, 901 Fifth Avenue, Suite 3200, Seattle, WA 98164

CALDERWOOD & HARKNESS LLP

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