Free Amended Complaint - District Court of California - California

Case 4:08-cv-03249-SBA

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PAUL ANDRE (State Bar No. 196585) BRENDA N. BUONAIUTO (State Bar No. 173919) LISA KOBIALKA (State Bar No. 191404) JAMES HANNAH (State Bar No. 237978) KING & SPALDING LLP Four Embarcadero Center, Suite 3500 San Francisco, California 94111 Telephone: (415) 318-1200 Facsimile: (415) 318-1300 Email: [email protected] [email protected] [email protected] [email protected] Attorneys for Plaintiffs DG COGEN PARTNERS, LLC and 1211658 ALBERTA, LTD. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION DG COGEN PARTNERS, LLC and 1211658 ALBERTA, LTD., Plaintiffs, v. HESS MICROGEN, LLC; HESS CORPORATION, formerly known as AMERADA HESS CORPORATION; DOOSAN INFRACORE CO. LTD., formerly known as DAEWOO HEAVY INDUSTRIES & MACHINERY LTD.; DOOSAN INFRACORE AMERICA CORPORATION, formerly known as DAEWOO HEAVY INDUSTRIES AMERICA CORPORATION; ADVANCED POWER DISTRIBUTORS, INC.; and DOES 1-100, inclusive, Defendants. CASE NO. 4:08-cv-03249-SBA AMENDED COMPLAINT; DEMAND FOR JURY TRIAL (1) UNFAIR COMPETITION AND FALSE ADVERTISING UNDER THE LANHAM ACT; (2) BREACH OF CONTRACT; (3) BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; (4) BREACH OF EXPRESS WARRANTY; (5) BREACH OF IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE; (6) BREACH OF IMPLIED WARRANTY OF MERCHANTABILITY; (7) UNCONSCIONABILITY; (8) FRAUD; (9) FRAUDULENT INDUCEMENT; (10) NEGLIGENT MISREPRESENTATION; (11) TORTIOUS INTERFERENCE WITH CONTRACT;

AMENDED COMPLAINT; DEMAND FOR JURY TRIAL

CASE NO. 4:08-CV-03249-SBA

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(12) NEGLIEGENT INTERFERENCE WITH CONTRACT; (13) INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE; (14) NEGLIGENT INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE Plaintiffs DG Cogen Partners, LLC and 1211658 Alberta, LTD. (collectively "DG Cogen") allege for their Complaint against defendants Hess Microgen, LLC and Hess Corporation, formerly known as Amerada Hess Corporation (collectively, "Hess"), Doosan Infracore Co. Ltd., formerly known as Daewoo Heavy Industries & Machinery, Ltd., Doosan Infracore America Corporation, formerly known as Daewoo Heavy Industries America Corporation (collectively "Doosan" or "Daewoo"), and Advanced Power Distributors, Inc. ("Advanced Power") (all collectively, "Defendants"), as follows: PARTIES Plaintiff DG Cogen Partners, LLC is, and at all times mentioned was, a limited

liability corporation, organized and existing under the laws of the State of Delaware, with its principal place of business in San Luis Obispo, California. DG Cogen is in the business of providing environmentally-friendly energy solutions, including through installing and operating cogeneration systems. 2. Plaintiff 1211658 Alberta, LTD. is, and at all time mentioned was, a corporation,

organized and existing under the laws of Alberta, Canada, with its principal place of business in Alberta, Canada. 1211658 Alberta, LTD. is a successor-in-interest to certain assets of DG Cogen Partners, LLC. 3. DG Cogen is informed and believes and thereon alleges that defendant Hess

Microgen, LLC ("Hess Microgen") is, and at all times mentioned was, a limited liability corporation, organized and existing under the laws of the State of Delaware, with its principal place of business in New Jersey. On information and belief, Hess Microgen is a wholly owned subsidiary of defendant Hess Corporation, formerly known as Amerada Hess Corporation, and is -2AMENDED COMPLAINT; DEMAND FOR JURY TRIAL CASE NO. 4:08-CV-03249-SBA

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in the business of designing, manufacturing, assembling, marketing, distributing, selling, and delivering cogeneration systems and of selling related maintenance services. On information and belief, Hess Microgen is also in the business of leasing, installing and operating cogeneration systems, including in the State of California. 4. DG Cogen is informed and believes and thereon alleges that defendant Hess

Corporation, formerly known as Amerada Hess Corporation ("Amerada Hess") is, and at all times mentioned was, a corporation organized and existing under the laws of the State of Delaware, with its principal place of business in New York. On information and belief, Amerada Hess is the parent of Hess Microgen, is directly involved in the operations and control of Hess Microgen, and insures the liability arising out of the acts and omissions of Hess Microgen and its employees and other agents. On information and belief, Amerada Hess is also in the business of crude oil and natural gas exploration and production. 5. DG Cogen is informed and believes and thereon alleges that defendant Doosan

Infracore Co. Ltd. ("Doosan Korea"), is, and at all times mentioned was, a corporation organized and existing under the laws of South Korea, with its principal place of business in Incheon, South Korea. On information and belief, Daewoo Heavy Industries & Machinery Ltd. changed its name to Doosan Infracore Co. Ltd. in 2005. On information and belief, Doosan Korea is in the business of designing, manufacturing, assembling, marketing, distributing, selling, and delivering industrial and construction machinery and equipment, including engines for use in cogeneration systems. 6. DG Cogen is informed and believes and thereon alleges that defendant Doosan

Infracore America Corporation ("Doosan America") is, and at all times mentioned was, a corporation organized and existing under the laws of the State of New York, with its principal place of business in Suwanee, Georgia. On information and belief, Doosan America was formerly known as Daewoo Heavy Industries America Corporation. On information and belief, Doosan America is in the business of designing, manufacturing, assembling, marketing, distributing, selling, and delivering industrial and construction machinery and equipment, including engines for use in cogeneration systems. -3AMENDED COMPLAINT; DEMAND FOR JURY TRIAL CASE NO. 4:08-CV-03249-SBA

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7.

DG Cogen is informed and believes and thereon alleges that defendant Advanced

Power Distributors, Inc. is, and at all times mentioned was, a corporation organized and existing under the laws of the State of Kansas, with its principal place of business in Sublette, Kansas. On information and belief, Advanced Power is in the business of selling, distributing and delivering industrial machinery and equipment, including Daewoo engines used in cogeneration systems. 8. The true names and capacities of defendants Does 1 through 100, inclusive, are

unknown to DG Cogen, who therefore sues said defendants by such fictitious names. DG Cogen will seek leave of court to amend this Complaint to substitute the true names of these defendants when the same have been ascertained. 9. DG Cogen is informed and believes and thereon alleges that, at all times

mentioned, each and every defendant was the agent, affiliate, servant, employee, partner, coconspirator, and/or joint venturer of the other defendants and that each defendant was acting within the course and scope of one or more of those relationships. JURISDICTION, VENUE AND INTRADISTRICT ASSIGNMENT 10. DG Cogen brings claims that include unfair competition and false advertising in

violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1121(a). This Court therefore has original jurisdiction of this action, pursuant to 28 U.S.C. § 1331, and supplemental jurisdiction over the claims arising under state law, pursuant to 28 U.S.C. § 1367(a). 11. Defendants are subject to the jurisdiction of this Court by virtue of their

respective business dealings, including the sales, distribution and delivery of cogeneration systems and parts and the provision of related services, in this District and by having caused harm in this District through their respective acts and omissions. 12. Venue in this District is proper pursuant to 28 U.S.C. § 1391, in that a substantial

part of the events or omissions giving rise to the claims occurred in this District and a substantial part of the property that is the subject of this action is situated in this District.

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13.

Assignment to the San Francisco Division of this District is proper because a

substantial part of the events or omissions giving rise to the claims occurred in San Francisco and a substantial part of the property that is the subject of this action is situated in San Francisco. GENERAL ALLEGATIONS 14. Cogeneration technology involves the use of a natural gas engine to generate both

electricity and useful heat. In cogeneration, generated heat from an engine is also used for other purposes such as hot water supply or refrigeration. Benefits from cogeneration include reducing environmentally harmful emissions, increasing energy efficiency, reducing energy costs, and reducing demand spikes and their related strains on statewide electric power grids. 15. Hess designs, manufactures, assembles, markets, distributes, sells, and delivers

cogeneration systems, including the Hess Microgen 200 Packaged Cogeneration System, a cogeneration system that uses an engine manufactured by Doosan (formerly Daewoo). Hess also sells maintenance services for its cogeneration systems. On information and belief, Hess Microgen is also in the business of leasing, installing and operating cogeneration systems, including in the State of California.. 16. In or around December 2000, Hess entered into a written agreement with

RealEnergy, Inc. ("RealEnergy"), with its principal place of business in California, for the sale and purchase of a number of cogeneration systems, including Hess Microgen 200 Packaged Cogeneration System units, which Hess packaged with Daewoo engines (the "Hess-RealEnergy Contract"). See Exhibit A. Hess knew that RealEnergy planned to use the systems to, among other things, service investors and customers in California. On information and belief, Hess made numerous representations to RealEnergy to induce RealEnergy to enter into the HessRealEnergy Contract, including that the systems were "rich burn" (requiring less steps than "lean burn" to meet regulatory compliance) and would operate at 200kWH on natural gas. Hess knew, or should have known, that those representations were false. Further, on information and belief, Hess sold the cogeneration systems to RealEnergy with numerous defects that were known to Hess but were not known or disclosed to RealEnergy.

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17.

In early 2004, DG Cogen sought to purchase the Hess cogeneration systems from

RealEnergy. DG Cogen planned to assume existing RealEnergy leases and/or to enter new leases for space on rooftops and in parking garages of commercial buildings located in San Francisco and other parts of California, for the purpose of installing and operating the cogeneration systems. As part of the leases, DG Cogen would sell the electricity and heat generated by the cogeneration systems to the commercial building owners at a savings compared to the utility rate. 18. Hess knew that DG Cogen sought to purchase the Hess cogeneration systems

from RealEnergy and to enter into and/or assume the related leases, which were primarily with customers in San Francisco. Hess had direct involvement with that transaction and made numerous representations to DG Cogen to induce DG Cogen to enter into a purchase agreement with RealEnergy. Hess' involvement also included investing at least $145,000 in the repair and/or retrofit of the units prior to the purchase of the units by DG Cogen. Hess also provided assurances to DG Cogen that the units would operate and run at the technical specifications set forth in the Hess informational and promotional material for the units, which Hess made or caused to be made publicly available on the Internet and which it disseminated, among other ways, through its engineers. Those specifications included that the units were "rich burn" and would operate at 200kWH on natural gas. Hess knew, or should have known, that the representations it made to DG Cogen about the units, including with respect to their functionality and reliability, were false. 19. Further, in or about June and July 2004, DG Cogen and Hess jointly visited

numerous sites in California where the units had been installed, and Hess separately visited a number of California sites, so that Hess could provide assurances to customers that the units DG Cogen planned to purchase would operate to specification. Those sites included major commercial office buildings in San Francisco. The assurances provided by Hess to DG Cogen and to DG Cogen's prospective customers were material to DG Cogen's decision to purchase the Hess cogeneration systems.

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20.

Further to those assurances, on or about July 7, 2004, DG Cogen sent an e-mail to

Hess stating its concerns with reported recent operational problems in the Hess cogeneration systems that DG Cogen planned to purchase. Hess replied the same day, assuring DG Cogen that Hess had a plan of action for remedying the problems, by replacing the engine heads on the cogeneration systems. Hess assured DG Cogen that the engine heads would be replaced, and the operational problems remedied, prior to DG Cogen's planned purchase of the units. Hess also represented to DG Cogen that the problems with the cogeneration systems were unexpected and that the cogeneration systems were not fundamentally or critically defective. Hess made those representations despite its knowledge, which it failed to disclose to DG Cogen, that the units were defective and that there had been significant problems across the product line for years, including specifically with the engines. 21. On or about July 23, 2004, in direct and justifiable reliance on Hess'

representations, including that the units were "rich burn" and would operate at the level described in the specifications, DG Cogen entered into a written agreement with RealEnergy, whereby DG Cogen purchased the Hess cogeneration systems and other assets, including an assignment of customer leases and of "all rights, claims and causes of action" that RealEnergy may have related to the cogeneration units, including claims arising under the Hess-RealEnergy Contract. See Exhibit B. On the same day, Hess agreed to maintain the cogeneration units for DG Cogen, pursuant to a long-term services agreement. Further, on or about July 29, 2004, Hess agreed, in writing, to refurbish 12 of the cogeneration units owned by DG Cogen and to perform any other work necessary for the systems to perform to their warranted and represented specifications. 22. Subsequent to its purchase of the cogeneration units, DG Cogen, on numerous

occasions, notified Hess that the units were not operating as warranted and represented and/or were completely failing. Among other things, the units failed to generate electricity at or near the rated capacity of 200kWH. 23. For instance, on or about September 3, 2004, DG Cogen notified Hess by e-mail

that the cogeneration systems were failing due to engine problems. Hess responded by e-mail -7AMENDED COMPLAINT; DEMAND FOR JURY TRIAL CASE NO. 4:08-CV-03249-SBA

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that it took DG Cogen's complaint "very seriously" and, on or about September 21, 2004, represented in writing that it would undertake a replacement program to retrofit all of the engine heads in the DG Cogen fleet by December 2004. Hess reiterated this promise during a meeting with DG Cogen, which took place on or about September 22, 2004. 24. Hess failed to retrofit the engines as promised. On January 13, 2005, DG Cogen

met again with Hess to discuss the engine head failures. At that time, DG Cogen explained in detail how the engine head failures were causing substantial damage to DG Cogen's business operations. Subsequently, DG Cogen sent Ellen Smith, Hess Microgen's President, a DG Cogen internal memorandum that detailed the substantial detrimental effect that the failure of the cogeneration systems to operate as represented had on DG Cogen's business operations. DG Cogen followed this communication with a request for an in-person meeting with Hess and Daewoo to discuss the engine head replacement program. 25. On or about March 16, 2005, DG Cogen again met with Hess regarding the

engine head replacement program, and Hess again promised to retrofit the entire fleet of cogeneration units with Daewoo 12000 series engine heads, which it represented would address the problems the units had been experiencing. DG Cogen relied on the purported expertise of Hess that the Daewoo 12000 series heads would remedy the problems. Hess promised to begin the retrofit at the end of March 2005 and to complete it before the end of Summer 2005. Yet, Hess failed to undertake the retrofit program pursuant to that timeline. As a result, DG Cogen sought further assurances from Hess, through its upper management, including Hess Microgen President Ellen Smith, that Hess would retrofit the fleet as promised. 26. On May 18, 2005, Hess Microgen President Ellen Smith told DG Cogen in an e-

mail that Hess would "baseline" the DG Cogen fleet of cogeneration systems by mid-July 2005 so that Hess could perform the 12000 engine head replacement program on DG Cogen's fleet. DG Cogen justifiably relied on Hess' representations that the units would be repaired to bring them in line with the warranted and represented specifications and that the 12000 series engine head retrofit was the way to accomplish that.

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27.

While DG Cogen was waiting for Hess to undertake the promised work, DG

Cogen extensively documented the failures in the units. For instance, on or about May 16, 2005, DG Cogen told Hess in an e-mail that 29 of 56 cogeneration systems were down for at least a month. On or about May 27, 2005, DG Cogen notified Hess in an e-mail that 85% of the units installed in Los Angeles were down and that "[t]he financial impact to DG is very real and substantial." 28. On or about July 12, 2005, representatives of Hess, Daewoo, and DG Cogen met

in person to discuss the engine head failures. During this meeting, DG Cogen learned for the first time, through statements made by an engineering executive at Daewoo, that the Daewoo engines in the Hess cogeneration systems, including those purchased by DG Cogen, were designed to be "lean burn" engines and that Hess, though aware of that fact, packaged, represented, advertised and sold the systems as having "rich burn" engines. This misrepresentation explained why the engines had been failing to operate to specification or at all. Had DG Cogen known that the engines were designed to be "lean burn," it would not have purchased the units or entered into any related service agreement with Hess. 29. Soon after the meeting on July 12, 2005, DG Cogen requested that Hess test the

power output of each cogeneration unit to further confirm that the output of the units failed to meet specifications, but Hess failed to perform the requested testing. Instead, on July 26, 2005, Hess notified DG Cogen that Hess would no longer service the units. As a result, DG Cogen was forced to shut down the units for safety reasons, resulting in significant losses and damages to DG Cogen, including loss of revenue from its customer leases. 30. Given Hess' failure and refusal to remedy the problems with the systems, in early

2006, DG Cogen attempted to service the failed cogeneration units itself. Toward that end, DG Cogen sent a formal request to Hess, requesting that Hess provide DG Cogen with the Daewoo 12000 series engine heads that DG Cogen understood had been supplied to Hess by Daewoo for purposes of the DG Cogen fleet retrofit that had been promised by Hess.

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31.

In response to DG Cogen's request, on February 28, 2006, Hess abandoned its

promises, refused to provide the engine heads and instead "recommended" that DG Cogen contact Daewoo to obtain the heads directly. 32. As a result of Hess' failure to provide the heads as repeatedly promised, DG

Cogen was left with no choice but to obtain replacement heads directly from Daewoo. When DG Cogen contacted Daewoo to obtain the equipment; however, Daewoo represented to DG Cogen that the 12000 series heads had been superseded by a 13000 series head and that the 13000 series heads were the equipment DG Cogen needed to address the problems with the Hess units. In justifiable reliance on Daewoo's purported technical expertise, DG Cogen purchased 13000 series heads from Daewoo, through Advanced Power. See Exhibit C. In selling DG Cogen the 13000 series engine heads, Daewoo was aware of the problems the Hess units had been experiencing and was aware of DG Cogen's intended use of the heads. Daewoo represented that the heads it sold to DG Cogen would meet DG Cogen's needs and would remedy the operational problems with the cogeneration systems. 33. Despite Daewoo's representations that the 13000 series heads would remedy the

problems, the engine head retrofit kits failed to correct the problems with the DG Cogen cogeneration systems. Those engine heads still fail to work as of the time of the filing of this action, despite subsequent modifications to the heads by Daewoo. As a result, the cogeneration systems now sit idle on the leased properties, resulting in significant losses and damages to DG Cogen. 34. As a result of the defects and failures of the Hess cogeneration systems and the

Daewoo engine heads, the misrepresentations made by Defendants, and the other wrongful acts and omissions of Defendants, DG Cogen has suffered, and continues to suffer, losses and damages, including but not limited to the purchase price of the units, the cost of installing and/or removing the units, amounts expended in service and maintenance of the units and retrofit parts, the cost of the Daewoo retrofit kits, lost revenues and profits, and other business losses, including related to the leases with DG Cogen's customers, attorneys' fees and costs, interest, and other general and special damages, to be proven at trial. - 10 AMENDED COMPLAINT; DEMAND FOR JURY TRIAL CASE NO. 4:08-CV-03249-SBA

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FIRST CLAIM FOR RELIEF (Unfair Competition and False Advertising under the Lanham Act against Hess) 35. DG Cogen incorporates by reference the allegations of Paragraphs 1 through 34,

Hess is in the business of leasing, installing and operating cogeneration systems,

including in the State of California, in competition with DG Cogen. 37. As detailed in this Complaint, Hess made false and misleading statements in

commercial advertising, on the Internet, and in technical documentation that misrepresented the nature and quality of their products. 38. Hess has engaged in false, misleading and deceptive business practices by falsely

marketing their products to be able to perform at certain represented specifications. 39. As a result of Hess' unfair competition and false advertising, DG Cogen has

suffered, and continues to suffer, significant damages in an amount to be proven at trial. SECOND CLAIM FOR RELIEF (Breach of Contract against Hess) DG Cogen incorporates by reference the allegations of Paragraphs 1 through 39,

In or about December 2000, Hess and RealEnergy entered into the written Hess-

RealEnergy Contract, which is attached as Exhibit A and made a part of this Complaint. 42. DG Cogen acquired all of RealEnergy's rights and interests under the Hess-

RealEnergy Contract, pursuant to a valid assignment, including "all rights, claims and causes of action" related to the cogeneration units. That valid assignment is reflected by a written agreement between RealEnergy and DG Cogen, which is attached as Exhibit B and made a part of this Complaint. 43. DG Cogen has performed all conditions, covenants and promises required on its

part to be performed, to the extent its obligations have not been frustrated or prevented by the wrongful acts and omissions of Hess.

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44.

Hess breached the Hess-RealEnergy Contract by failing to provide cogeneration

systems that met the descriptions and specifications as represented and warranted by Hess. Among other things, the systems were defective, were not "rich burn" and did not operate at 200kWH on natural gas. 45. Despite repeated requests by DG Cogen, Hess has failed and refused to perform

its obligations under the contract. 46. As a result of Hess' breach of contract, DG Cogen has suffered, and continues to

suffer, significant damages in an amount to be proven at trial. THIRD CLAIM FOR RELIEF (Breach of Contract against Doosan/Daewoo and Advanced Power) 47. DG Cogen incorporates by reference the allegations of Paragraphs 1 through 46,

48.

Beginning in or about July 2006, DG Cogen entered into valid written agreements

for the purchase and sale of Daewoo 13000 series engine heads, for the purposes of retrofitting the Hess cogeneration systems in DG Cogen's fleet. DG Cogen purchased those engine heads from Daewoo through Advanced Power. The purchase orders evidencing the written agreements between DG Cogen and Daewoo and Advanced Power are attached collectively as Exhibit C and made a part of this Complaint. 49. DC Cogen has performed all conditions, covenants and promises required on its

part to be performed, to the extent its obligations have not been frustrated or prevented by Daewoo and/or Advanced Power. 50. Daewoo and Advanced Power breached the contracts with DG Cogen in that the

13000 series engine heads were defective and failed to perform as represented and warranted. 51. As a result of the breach of the contracts by Daewoo and Advanced Power, DG

Cogen has suffered, and continues to suffer, significant damages in an amount to be proven at trial.

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FOURTH CLAIM FOR RELIEF (Breach of Implied Covenant of Good Faith and Fair Dealing against Hess) 52. DG Cogen incorporates by reference the allegations of Paragraphs 1 through 51,

Under California law, in the Hess-RealEnergy Contract there was an implied

covenant of good faith and fair dealing that neither party would do anything to injure, frustrate or interfere with the rights of the other party to receive the benefits of the contract. DG Cogen is the valid assignee of that promise. 54. Hess breached its duty of good faith and fair dealing by, among other things,

making false statements about the reliability and functionality of the Hess cogeneration systems, fraudulently inducing RealEnergy to enter into the Hess-RealEnergy Contract, fraudulently inducing DG Cogen to accept an assignment of RealEnergy's rights and interests under that contract, and consciously and deliberately refusing to perform the acts required of it under the contract, thereby depriving DG Cogen of the benefits under the contract. 55. As a result of Hess' breach of the implied covenant of good faith and fair dealing,

DG Cogen has suffered, and continues to suffer, significant damages in an amount to be proven at trial. FIFTH CLAIM FOR RELIEF (Breach of Implied Covenant of Good Faith and Fair Dealing against Doosan/Daewoo and Advanced Power) DG Cogen incorporates by reference the allegations of Paragraphs 1 through 55,

Under California law, in the contracts for sale between DG Cogen and Daewoo

and Advanced Power, there was an implied covenant of good faith and fair dealing that neither party would do anything to injure, frustrate or interfere with the rights of the other party to receive the benefits of the contract. 58. Daewoo and Advanced Power breached their duties of good faith and fair dealing

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Daewoo 13000 series engine heads, fraudulently inducing DG Cogen to enter into the purchase contracts, and providing defective equipment, thereby depriving DG Cogen of the benefits under the contracts. 59. As a result of the breach of the implied covenant of good faith and fair dealing by

Daewoo and Advanced Power, DG Cogen has suffered, and continues to suffer, significant damages in an amount to be proven at trial. SIXTH CLAIM FOR RELIEF (Breach of Express Warranty against All Defendants) 60. above. 61. Defendants made express verbal and written warranties about the quality and DG Cogen incorporates by reference the allegations of Paragraphs 1 through 59,

performance of the Hess cogeneration systems and the Daewoo engine heads, specifically including that the units were "rich burn" and would operate at the rated capacity of 200kWH using natural gas and that the Daewoo engines would work successfully with the Hess cogeneration systems. 62. Defendants breached the express warranties, as the cogeneration systems and

engine heads did not function as represented by Defendants. 63. DG Cogen notified Defendants of the breach of the express warranties on

repeated occasions; yet, Defendants failed and refused to remedy the breaches. 64. As a result of Defendants' breaches of express warranties, DG Cogen has

suffered, and continues to suffer, significant damages in an amount to be proven at trial. SEVENTH CLAIM FOR RELIEF (Breach of Implied Warranty of Fitness for a Particular Purpose against All Defendants) 65. above. 66. Defendants knew that the purpose for which DG Cogen intended to use the DG Cogen incorporates by reference the allegations of Paragraphs 1 through 64,

cogeneration systems and engine heads was to generate electricity and heat, using natural gas, for sale to commercial property owners. Defendants represented to DG Cogen, in inducing DG - 14 AMENDED COMPLAINT; DEMAND FOR JURY TRIAL CASE NO. 4:08-CV-03249-SBA

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Cogen to purchase the cogeneration systems and engines, that the equipment would perform for that particular purpose. DG Cogen relied on the purported expertise of Defendants in entering into the agreements to purchase the equipment. 67. The repeated underperformance and failures of the cogeneration systems,

including after being retrofit with the Daewoo 13000 series engine heads, and of the engine heads render the equipment unfit for the particular purpose for which it was intended. The problems with the systems and engines were not the result of any abnormal or unique use of the systems or engines. 68. DG Cogen notified Defendants of the breach of the implied warranty of fitness for

a particular purpose on repeated occasions; however, Defendants failed and refused to remedy. 69. As a result of Defendants' breach of the implied warranty of fitness for a

particular purpose, DG Cogen has suffered, and continues to suffer, significant damages in an amount to be proven at trial. EIGHTH CLAIM FOR RELIEF (Breach of Implied Warranty of Merchantability against All Defendants) 70. above. 71. The Hess cogeneration systems and Daewoo engine heads that DG Cogen DG Cogen incorporates by reference the allegations of Paragraphs 1 through 69,

purchased were not merchantable and were not fit for the ordinary purpose for which such equipment is used, i.e. the generation of heat and electricity according to operational specifications. 72. DG Cogen notified Defendants of the breach of the implied warranty of

merchantability on repeated occasions; however, Defendants failed and refused to remedy. 73. As a result of Defendants' breach of the implied warranty of merchantability, DG

Cogen has suffered, and continues to suffer, significant damages in an amount to be proven at trial.

- 15 AMENDED COMPLAINT; DEMAND FOR JURY TRIAL CASE NO. 4:08-CV-03249-SBA

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 above. 77. 76. above. 75. 74.

NINTH CLAIM FOR RELIEF (Unconscionability against All Defendants) DG Cogen incorporates by reference the allegations of Paragraphs 1 through 73,

To the extent that any provisions in the agreements between DG Cogen and any

of the Defendants purport to limit or restrict DG Cogen's right to recovery of damages, those provisions are unconscionable and unenforceable. TENTH CLAIM FOR RELIEF (Fraud against All Defendants) DG Cogen incorporates by reference the allegations of Paragraphs 1 through 75,

As detailed in this Complaint, Defendants' verbal and written representations that

the Hess cogeneration systems and Daewoo engine heads would perform according to the represented specifications were false. Among other things: (1) Defendants knew, but concealed the fact, that the Daewoo engines packaged with the Hess cogeneration systems were "lean burn" and not "rich burn" as represented; (2) Defendants packaged and marketed the systems as "rich burn," despite knowledge that the systems were not; (3) Defendants represented that the systems would operate at 200kWH on natural gas; (4) Defendants represented that the systems, including the engines, were not defective; and (5) Defendants represented that retrofit of the engines would successfully remedy the performance and operational problems with the systems. 78. Defendants made these representations with knowledge that they were false and

with the intent to deceive and defraud DG Cogen and to induce DG Cogen to act in reliance on the representations. 79. At the time the representations were made by Defendants, DG Cogen was

ignorant of the falsity of the representations and believed them to be true. In justifiable reliance on the representations, DG Cogen was induced to enter into the contracts and undertake the other actions referenced in this Complaint. Had DG Cogen known the truth, it would not have entered into the contracts or taken such action. - 16 AMENDED COMPLAINT; DEMAND FOR JURY TRIAL CASE NO. 4:08-CV-03249-SBA

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 above. above.

80.

As a result of the fraud committed by Defendants, DG Cogen has suffered, and

continues to suffer, significant damages in an amount to be proven at trial. 81. Defendants' conduct was done with intentional disregard of DG Cogen's rights

and with oppression, fraud and malice, entitling DG Cogen to exemplary and punitive damages. ELEVENTH CLAIM FOR RELIEF (Fraudulent Inducement against All Defendants) 82. DG Cogen incorporates by reference the allegations of Paragraphs 1 through 81,

83.

As detailed in this Complaint, Defendants knowingly made false and misleading

verbal and written representations to DG Cogen about the nature and quality of the Hess cogeneration systems and the Daewoo engine heads, to induce DG Cogen to purchase that equipment on the terms and conditions contained in the contracts referenced in this Complaint. 84. As a result of Defendants' fraudulent inducement, DG Cogen has suffered, and

continues to suffer, significant damages in an amount to be proven at trial. 85. Defendants' conduct was done with intentional disregard of DG Cogen's rights

and with oppression, fraud and malice, entitling DG Cogen to exemplary and punitive damages. TWELFTH CLAIM FOR RELIEF (Negligent Misrepresentation against All Defendants) 86. DG Cogen incorporates by reference the allegations of Paragraphs 1 through 85,

87.

As detailed in this Complaint, Defendants' verbal and written representations that

the Hess cogeneration systems and Daewoo engine heads would perform according to the represented specifications were made without any reasonable ground for believing them to be true. 88. Defendants made the representations with the intent to deceive and defraud DG

Cogen and to induce DG Cogen to act in reliance on the representations. 89. At the time the representations were made by Defendants, DG Cogen was

ignorant of the falsity of the representations and believed them to be true. In justifiable reliance - 17 AMENDED COMPLAINT; DEMAND FOR JURY TRIAL CASE NO. 4:08-CV-03249-SBA

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on the representations, DG Cogen was induced to enter into the contracts and undertake the other actions referenced in this Complaint. Had DG Cogen known the truth, it would not have entered into the contracts or taken such action. 90. As a result of Defendants' negligent misrepresentations, DG Cogen has suffered,

and continues to suffer, significant damages in an amount to be proven at trial. 91. Defendants' conduct was done with reckless disregard of DG Cogen's rights and

with oppression, fraud and malice, entitling DG Cogen to exemplary and punitive damages. THIRTEENTH CLAIM FOR RELIEF (Tortious Interference with Contract against Hess) 92. above. 93. Hess knew of the existence of DG Cogen's leases with commercial property DG Cogen incorporates by reference the allegations of Paragraphs 1 through 91,

owners in San Francisco and other parts of California, for the sale of the energy and heat generated by the Hess cogeneration plants. In fact, Hess met with and provided assurances to a number of those DG Cogen customers, with respect to the functionality of the systems. 94. As a direct result of Hess' breach of the Hess-RealEnergy Contract, its false

representations and assurances to DG Cogen and DG Cogen's customers regarding the Hess cogeneration systems, and its failure and refusal to provide services to DG Cogen or to remedy the problems with the cogeneration systems as promised, Hess knowingly disrupted DG Cogen's contractual relationships with its customers. As a result, DG Cogen has suffered, and continues to suffer, significant damages in an amount to be proven at trial. FOURTEENTH CLAIM FOR RELIEF (Intentional Interference with Prospective Economic Advantage against Hess) 95. above. 96. Hess knew of the existence of DG Cogen's leases with commercial property DG Cogen incorporates by reference the allegations of Paragraphs 1 through 94,

owners in San Francisco and other parts of California, for the sale of the energy and heat

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generated by the Hess cogeneration plants. In fact, Hess met with and provided assurances to a number of those DG Cogen customers, with respect to the functionality of the systems. 97. As a direct result of Hess' breach of the Hess-RealEnergy Contract, its false

representations and assurances to DG Cogen and DG Cogen's customers regarding the Hess cogeneration systems, and its failure and refusal to provide services to DG Cogen or to remedy the problems with the cogeneration systems as promised, Hess knowingly disrupted DG Cogen's relationships with its customers. As a result, DG Cogen has suffered, and continues to suffer, significant damages in an amount to be proven at trial. FIFTEENTH CLAIM FOR RELIEF (Negligent Interference with Prospective Economic Advantage against Hess) 98. above. 99. Hess knew of the existence of DG Cogen's leases with commercial property DG Cogen incorporates by reference the allegations of Paragraphs 1 through 97,

owners in San Francisco and other parts of California, for the sale of the energy and heat generated by the Hess cogeneration plants. In fact, Hess met with and provided assurances to a number of those DG Cogen customers, with respect to the functionality of the systems. 100. As a direct result of Hess' breach of the Hess-RealEnergy Contract, its false

representations and assurances to DG Cogen and DG Cogen's customers regarding the Hess cogeneration systems, and its failure and refusal to provide services to DG Cogen or to remedy the problems with the cogeneration systems as promised, Hess disrupted DG Cogen's relationships with its customers. It was reasonably foreseeable to Hess that this wrongful conduct would interfere with or disrupt the economic relationships between DG Cogen and its customers. As a result, DG Cogen has suffered, and continues to suffer, significant damages in an amount to be proven at trial. PRAYER FOR RELIEF WHEREFORE, DG Cogen respectfully prays for judgment against Defendants, as follows: 1. General and special damages, in an amount to be determined at trial; - 19 AMENDED COMPLAINT; DEMAND FOR JURY TRIAL CASE NO. 4:08-CV-03249-SBA

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2. 3. recovery; 4. 5. 6.

Exemplary and punitive damages, in an amount to be determined at trial; Voidance of any contract provision purporting to limit DG Cogen's right to

Attorney's fees and costs of suit incurred herein; Interest as provided by law; and Such other and further relief as this Court deems just and proper.

Dated: August 22, 2008

KING & SPALDING LLP /s/ Lisa Kobialka Lisa Kobialka Attorneys for Plaintiffs DG COGEN PARTNERS, LLC and 1211658 ALBERTA, LTD.

DEMAND FOR JURY TRIAL Plaintiffs DG Cogen Partners, LLC and 1211658 Alberta, Ltd. hereby demand a trial by jury of all facts and issues in this action so triable.

Dated: August 22, 2008

KING & SPALDING LLP /s/ Lisa Kobialka Lisa Kobialka Attorneys for Plaintiffs DG COGEN PARTNERS, LLC and 1211658 ALBERTA, LTD.

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