Did JPMorgan Have The Power To Prevent California Renovation?

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Contract Disputes on Friday, January 18, 2013.

Contractual relationships are a key component to the operations of many businesses, which is why it is critical to ensure that parties signing a contract fully understand the provisions to which they are agreeing. One potential contractual function is to instruct a company to not do something or prevent another party from performing a specific act. In fact, JPMorgan Chase & Co. recently tried to argue during a business contract dispute that it had the right to prevent renovation of a power plant in California.

JPMorgan's energy-trading division had been attempting to stop two power plants from being reconfigured. Yet state government officials claim that reconfiguration is necessary to avoid potential blackouts during the summer season.

JPMorgan claims that it has the power to stop the reconfiguration due to a marketing contract with the company that owns the power plants. Despite the bank's objections, AES, the company that owns the two power plants, says it is willing to renovate the power plants as requested by the state.

The case was argued in front of the Federal Energy Regulatory Commission. The commission eventually ruled in favor of the California Independent System Operator, which operates California's electricity grid. This essentially means that JPMorgan's attempt to block the reconfiguration was unsuccessful. Despite the contractual relationship between the two private entities, JPMorgan and AES, the state has a right to intervene in this particular case, according to the recent ruling.

This case illustrates that a contractual relationship may not be as straightforward as one may think. Business owners must consider what regulatory role the government plays in a particular industry when forming a contract or even when formulating a business plan. If a business contract dispute does arise and it ends up being litigated, companies will have to use strong legal reasoning based upon applicable law in order to enforce their position.

Source: The Sacramento Bee, "Feds rule JPMorgan can't block California power plant changes," Mary Lynne Vellinga, Jan. 5, 2013

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