An Indiana school corporation won’t have to pay more than $1.5 million in damages stemming from a wind turbine contract, the state supreme court ruled on Wednesday. (Getty Images)

By Casey Smith

INDIANAPOLIS — An East Central Indiana school corporation that sought access to a wind turbine will not be on the hook for more than $1.5 million in damages after the state supreme court ruled Wednesday that the construction contract “is void and unenforceable.”

At issue in the case was whether school officials sought the wind turbine for power generation or profit.

In the unanimous ruling, high court justices determined that the school cooperation did not have the authority to enter into the contract because it amounted, primarily, to a revenue-generating agreement. Indiana law limits school corporations and local government from investing public funds.

“An old proverb provides that those who sow the wind shall reap the whirlwind. This observation that actions have consequences is particularly apt when, as here, a company contracts with a school corporation for a wind-turbine project,” Chief Justice Loretta Rush wrote.

“Regardless of how attractive a project may be, private parties must pay close attention to the laws limiting a governmental entity’s authority when contracting with them.”

More Than A Decade In Dispute

The underlying lawsuit was filed in 2021 by Performance Services Inc., which in 2008 approached Randolph Eastern Schools about constructing a wind turbine in Union City.

Following school-board approval in 2009, the parties entered into a contract to move forward with the project.

Performance Services agreed to construct and operate the turbine, sell the generated power and renewable energy credits on the open market, “pay all costs of operating, maintaining and insuring” the turbine, receive the applicable tax credits, and provide the school corporation with access to the turbine for educational purposes.

In exchange, Randolph Eastern Schools agreed to pay Performance Services $154,000 annually. The school corporation would also receive “a credit against each payment” — based on a percentage of the turbine’s net revenue — and if the net revenue exceeded the payment, the construction company agreed to place the first $10,000 in an “operating reserve account” and remit excess dollars.

In court documents, Randolph Eastern Schools’ then-superintendent said that if the project performed “as expected,” the school corporation would receive “a surplus each year” — to the tune of $3.1 million above the payments after 25 years.

But the State Board of Accounts (SBOA) later informed Performance Services that school corporations lack the statutory authority to invest in a wind-turbine project as a way to generate revenue.

Indiana Supreme Court Justice Loretta Rush (Provided by Indiana Supreme Court)

An SBOA audit later determined the school corporation “invested in a wind turbine in 2009,” calling the project an investment “not authorized by statute,” and noting that Randolph Eastern Schools “did not receive any of its energy needs from the wind turbine.”

Ultimately, the school corporation never made any payments to Performance Services, and in 2021, Randolph Eastern Schools sought a “declaratory judgment” making the 2009 contract null and void.

A Delaware County judge granted the school corporation’s motion for summary judgment, in part ruling the 2009 contract had “reflected an illegal ‘investment’ on the part of a political subdivision.”

A 2-1 opinion from the Indiana Court of Appeals overturned that decision in September 2022, however, ruling that the contract did not reflect an illegal investment.

In the split reversal, the Court of Appeals concluded that the contract “never amounted to more than the school corporation owing payments for services rendered by Performance (Services).”

The majority noted in the ruling that the plain definition of “invest” applies the desired financial return to the same person or entity that provides the initial commitment of money, not to the recipient of those dollars.

The company built the turbine but it was later demolished.

Indiana Supreme Court justices heard oral arguments in the case in April.

In their ruling, justices turned to the dictionary definition of “invest,” which they determined to mean “committing money in hopes of obtaining a financial return.”

Although Randolph Eastern Schools agreed to make payments in exchange for the wind turbine, the high court opined that the school corporation did so “with the expectation of obtaining a financial return.”

“While we recognize that (Randolph Eastern Schools’) access to the turbine constitutes an immediate, tangible benefit, this benefit does not preclude the contract from also constituting an investment,” the ruling reads.

Justices emphasized, too, that while the school corporation committed money to Performance Services in exchange for access to the turbine, Randolph Eastern Schools “also committed money in hopes of obtaining a financial return,” making the contract “an illegal investment by a school corporation.”

This article came from Indiana Capital Chronicle.