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German firm sues for biodiesel plant in Wayne County

Rochester Business Journal
January 14, 2011

A German company is moving in court to take over the Wayne County alternative fuel plant of Northern Biodiesel Inc.

Northern Biodiesel produces diesel fuel made from recycled restaurant cooking oil and other vegetable-based materials.

Seeking to take ownership of the bio-diesel plant is GHP Biodiesel GmbH & Co. KG of Neumarkt, Germany, which was to have been a joint-venture partner in the operation.

In a complaint filed Dec. 23 in U.S. District Court in Rochester, GHP claims Northern Biodiesel owes it a half-million dollars for unpaid rent on production equipment and should repay money GHP advanced to help Northern Biodiesel jump-start its faltering operation.

The German firm's complaint names Northern Biodiesel president Jason Masters and Vice President Robert Bechtold as defendants along with Northern Biodiesel.

"I am advised by counsel not to comment on details, but I will say that I disagree with the allegations in the lawsuit and believe that it was GHP that in fact violated the terms of our agreement," Bechtold said.

GHP attorney John Schmidt Jr. of Philips Lytle LLP did not respond to a request for comment.

GHP's complaint says Northern Bio-diesel and GHP had talks in 2007 about forming a joint venture to run the biodiesel plant. Terms discussed called for the joint venture to buy equipment for the Wayne County plant from GHP and for Northern Biodiesel to run the facility. The companies were unable to reach an agreement, however, and instead signed a contract calling for Northern Biodiesel to lease equipment from GHP, the brief states.

GHP at the time was running a plant in Germany capable of turning out 4.2 million gallons of biodiesel a year and was working on a second installation that would produce 9 million gallons of vegetable-based diesel fuel a year. Northern Biodiesel was to have taken over both installations, GHP claims in court papers.

In its first three years, the Wayne County biodiesel plant was plagued by problems that kept Northern Biodiesel from producing any fuel, GHP claims. The plant's building was not finished on time and initially did not have the right piping or water-treatment equipment, the German firm claims. When Northern Biodiesel finally brought the alternative fuel plant online, the equipment still did not work right because the company was using inferior feedstock and did not have enough working capital to buy proper raw materials.

When the companies' rental agreement expired in mid-2009, Northern Biodiesel had not produced any fuel. "In an effort to continue negotiations and maintain an ongoing business relationship," GHP did not press Northern Biodiesel for payment, the German firm's complaint states.

It sent two employees to Wayne County to help Northern Biodiesel troubleshoot the plant, the GHP court brief states. GHP claims Northern Biodiesel paid $25,000 for the advice and agreed to foot the workers' travel expenses but still was not able to get the biodiesel plant working and continued to fall short on rental payments.

A modified rental agreement the firms then struck called for the rent to rise from $25,000 a month in April 2010 to $50,000 a month in October and to stay at that level in succeeding months, GHP states in court papers. But in 2010, Northern Biodiesel paid just one full month's rent, missed other payments entirely and made partial payments for remaining months.

Northern Biodiesel owed GHP $220,000 in back rent through November, and the bill is mounting at the rate of $50,000 a month since then, the German firm claims. Additionally, Northern Biodiesel owes $280,000 more for money GHP advanced to the venture to buy raw material that was to have been used in tests of the biodiesel plant.

In addition to more than $500,000 in cash compensation plus interest and possession of the biodiesel plant, GHP is asking for attorney fees and court costs.

Said Bechtold, "Northern Biodiesel intends to defend itself against this lawsuit vigorously."

Northern Biodiesel is a key tenant of the Wayne Industrial Sustainability Park in the town of Ontario. The green industrial park's other tenants are a wind-turbine manufacturer, Sustainable Energy Development Inc., and Harbec Plastics Inc.

Northern Biodiesel vice president Bech-told-a guiding force behind the industrial park-is Harbec's president.

Harbec, an injection molding company, powers its plant with an on-site 250-kilowatt wind turbine and a series of gas-powered microturbines and uses heat from its own production processes to power, heat and cool its facility. Eventually, Northern Biodiesel and Sustainable Energy are supposed to physically connect to Harbec.

The idea is to transfer resources among the companies, reducing each firm's energy consumption and carbon footprint and making the industrial park a model of interdependent, sustainable-energy cooperation.

The Wayne Industrial Sustainability Park was established in 2005 under an initiative backed by the Wayne County Industrial Development Agency. Figures cited on the IDA's website show some $286,000 of $781,694 in revenue that the park reported in 2009, the most recent year for which it has issued a final financial statement, came from state and municipal subsidies or grants.

Last year, Sen. Charles Schumer, D-N.Y., announced a $300,000 federal grant to bolster WISP finances.

What effect, if any, the lawsuit might have on the industrial park is not clear.

WCIDA executive director Margaret Churchill did not return a call seeking comment.

1/14/11 (c) 2011 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail service@rbj.net.
 


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