Lg & E Capital Corp. v. Tenaska Vi, L.P. Tenaska Grimes Partners, L.P.

BYE, Circuit Judge.

This is a dispute over the exercise of an option to acquire a 10% interest in a limited partnership. Tenaska VI, L.P., and Tenaska Grimes Partners, L.P., two affiliates of Tenaska, Inc. (collectively, Tenas-ka) who held a majority interest in the limited partnership, allege LG & E Capital Corp. violated the option’s anti-assignment provision by exercising the option with an agreement already in place to transfer the interest to a third party. Tenaska also alleges LG & E’s failure to disclose the reason for requesting an extension of the option deadline (which Tenaska granted) should void the exercise of the option. The district court2 rejected Tenaska’s claims. We affirm.

I

In 1995, four entities' — -Tenaska, KU Capitol Corp. (KUCC), and affiliates of Illinova Generating Co. (Illinova) and Continental Energy Services (Continental)— formed a partnership called Tenaska Power Partners (Power Partners) to develop power plant projects in the western United States. Tenaska served as managing partner.

In 1997, Power Partners considered developing a power plant in Grimes County, Texas. After Power Partners spent over $1 million on the project, including $150,000 of KUCC’s money, Tenaska determined the Grimes plant did not meet Power Partner’s criteria for project development. When the other partners objected, Tenaska invited Continental and Illino-va to form a separate limited partnership called Tenaska Frontier Partners, Ltd. (Frontier Partners) to develop and operate the Grimes plant. Tenaska wanted to exclude KUCC because Howard Hawks, Te-naska’s CEO/chairman/president, disagreed with positions taken by KUCC in *1062the operation and financing of Power Partners. The other partners, however, believed KUCC should be allowed to join the new limited partnership. Tenaska ultimately relented and invited KUCC to join Frontier Partners, but by that time it was too late for KUCC to obtain corporate approval. So, instead of joining Frontier Partners outright, KUCC negotiated an option to participate in Frontier Partners.

The option allowed KUCC to acquire a 10% interest in Frontier Partners in exchange for KUCC’s promise to advance up to $1.5 million to fund the Grimes plant, and other funding promises. The option agreement contained an anti-assignment provision which stated “[tjhis Agreement may not be assigned by any Party to any other Person.” App. 927. The agreement placed no restrictions, however, on KUCC’s ability to transfer the interest after the option was exercised. LG & E had to use or lose the option by June 30, 1998.

As a result of a corporate merger in the spring of 1998, LG & E became KUCC’s parent company and succeeded to KUCC’s rights and obligations under the option agreement. LG & E evaluated whether to exercise the option and ultimately decided not to participate in Frontier Partners. At the same time, Illinova wanted a bigger share of the limited partnership (Illinova had 10%, Continental 25%, and the two Tenaska affiliates 65%), and approached LG & E about exercising the option for the sole purpose of immediately transferring the interest to it. LG & E was willing to deal, but it wanted to be fully protected from the economic consequences of exercising the option. LG & E therefore insisted that an agreement be in place with Illinova prior to the option’s exercise.

By June 30, 1998, the date the option was to expire, LG & E had not reached an agreement with Illinova. LG & E called Tenaska and asked for a two-week extension. LG & E did not say why it needed the extension and Tenaska did not ask. Tenaska granted a one-week extension. During that week, LG & E and Illinova finalized a “Memorandum of Agreement” in which Illinova agreed to purchase LG & E’s interest after LG & E exercised the option. Illinova also agreed to indemnify LG & E for all financial obligations resulting from the exercise of the option.

On July 6, 1998, LG & E exercised the option and then immediately transferred the interest to Illinova. LG & E waited about a month before telling Tenaska about the transfer. By that time, the financial closing on the Grimes plant was just a week away. Tenaska claims it objected to the transfer, but because it was concerned about the closing, Tenaska represented to the lender that it approved of the transfer. Tenaska assured LG & E in correspondence regarding LG & E’s financial obligations that it would “straighten out all of the disarray after financial closing.” App. 1010.

After exercising the option, LG & E provided letters of credit for the project totaling $8.58 million, which Illinova independently guaranteed. In addition, after the material terms of the “Memorandum of Agreement” were disclosed, Tenaska accepted certain payments directly from Illi-nova to satisfy funding obligations for the project. But after a successful closing, Tenaska refused to convey the 10% interest to LG & E. Tenaska claimed the exercise of the option was void because it would not have extended the option deadline if LG & E had disclosed the reason for requesting the extension. Tenaska also claimed LG & E’s exercise of the option— with an agreement already in place to transfer the interest to Illinova — violated the option’s anti-assignment provision.

LG & E filed an action in federal district court alleging breach of contract and re*1063questing the court to order a transfer of the interest. The parties brought cross-motions for summary judgment. The district court found in LG & E’s favor and ordered Tenaska to transfer the 10% interest to LG & E. Tenaska timely appealed the district court’s decision.

II

The district court’s determination that LG & E had no duty to disclose the reason for requesting an extension of the option deadline, as well as its determination that the LG & E/Illinova transaction was not an impermissible assignment of the option, present issues of Nebraska law we review de novo. See ACTONet, Ltd. v. Allou Health & Beauty Care, 219 F.3d 836, 843 (8th Cir.2000).

A. The Request to Extend the Option Deadline

Tenaska contends LG & E’s failure to disclose the reason for requesting an extension of the option deadline supports a claim of fraudulent concealment under Nebraska law. A claim of fraudulent concealment consists of several elements, the first of which requires proof that a party had a duty to disclose a material fact. Streeks, Inc. v. Diamond Hill Farms, Inc., 268 Neb. 581, 605 N.W.2d 110, 118 (2000). The parties dispute whether Tenaska has shown LG & E had a duty to disclose its reason for requesting an extension of the option deadline.

In determining whether a duty to disclose has been triggered, Nebraska follows the Restatement (Second) of Torts, Streeks, 605 N.W.2d at 118-19, which provides in relevant part that

[o]ne party to a business transaction is under a duty to exercise reasonable care to disclose to the other before the transaction is consummated,
(a) matters known to him that the other is entitled to know because of a fiduciary or other similar relation of trust and confidence between them; and
(e) facts basic to the transaction, if he knows that the other is about to enter into it under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts.

Restatement (Second) of Torts § 551(2) (1977). Tenaska relies on these provisions to contend LG & E had an obligation to disclose the reason for the requested extension.

1. Fiduciary Relationship

Tenaska contends LG & E owed it a fiduciary duty because of the contractual relationship between the parties, that is, the option agreement. We disagree. The general rule is that a contract between two parties does not give rise to a fiduciary relationship or trigger a duty to disclose material facts. Lincoln Benefit Life Co. v. Edwards, 45 F.Supp.2d 722, 747 (D.Neb.1999), aff'd, 243 F.3d 457 (8th Cir.2001). Tenaska nevertheless argues a fiduciary relationship arose because LG & E was planning to assign the option in violation of the contract. We are not persuaded by that argument because it presupposes LG & E’s transaction with Illinova breached the contract, a premise we reject. Furthermore, it suggests a party’s intended breach of contract triggers a fiduciary duty to disclose that intention. That would transform many breach of contract actions into tort actions involving a fiduciary duty to disclose, a proposition we reject out of hand.

Tenaska next asserts that, if the option agreement alone did not create a duty to disclose, LG & E’s other business *1064relationships with Tenaska did. As a result of its acquisition of KUCC, LG & E obtained interests in several Tenaska projects. Tenaska argues those ancillary business relationships triggered a fiduciary duty, as well as LG & E’s prospective partnership in Frontier Partners. We disagree. Whatever fiduciary duties LG & E may have owed Tenaska in other Tenaska projects were limited to those ventures. E.g., Silverman v. Miller (In re Silverman), 155 B.R. 362, 374 (Bankr.E.D.N.C.1993) (“[Fiduciary status ... cannot be extended beyond [this corporate relationship] to apply to all subsequent business dealings between these parties.”); GCM, Inc. v. Ky. Cent. Life Ins. Co., 124 N.M. 186, 947 P.2d 143, 150 (1997) (“Whether a partner owes a fiduciary duty to another partner or the partnership, the scope of that duty is limited to partnership dealings.”); Lipinski v. Lipinski, 227 Minn. 511, 35 N.W.2d 708, 713 (1949) (addressing a joint venture and holding that “the relationship between the parties was fiduciary in character ... but that such relationship and its obligations were limited to the enterprise in which they were mutually engaged.”). In addition, the partnership agreement for Frontier Partners was governed by Texas law, which imposes no pre-formation duties on a prospective partner. Tex.Rev.Civ.Stat.Ann. art. 6132b-4.04; see also Neb.Rev.Stat. § 67-424 (eliminating the fiduciary duty Nebraska had previously recognized during the formation stage of a partnership).

Finally, Tenaska argues LG & E had a fiduciary duty to disclose the reason for requesting the extension of the option deadline because Illinova, as an existing partner, breached a fiduciary duty to Te-naska by negotiating with LG & E behind Tenaska’s back. Tenaska contends Illino-va’s fiduciary duties should extend to LG & E. We disagree with this novel position, for which Tenaska cites no authority. Whether Illinova breached a fiduciary duty to Tenaska by dealing with LG & E is entirely separate, we believe, from whether LG & E itself had a duty to disclose its reason for requesting an extension.

2. Facts Basic to the Transaction

Tenaska also claims LG & E had an obligation to disclose the reason for the extension request because it was a “fact basic to the transaction.” The district court concluded LG & E’s intent to sell the prospective partnership agreement to Illi-nova did not concern the basis or essence of LG & E’s transaction with Tenaska, and thus did not give rise to a duty to disclose. We agree with the district court.

The facts basic to the transaction between LG & E and Tenaska concerned the value of the 10% partnership interest, and the other consideration exchanged for the right to the option. LG & E’s possible intentions after exercising the option were immaterial to the option agreement itself. Thus, when LG & E requested an extension, it was not obligated to disclose its intention to sell to Illinova because that transaction was not a fact basic to the transaction with Tenaska.

B. Violation of the Anti-Assignment Provision

Tenaska argues the LG & E/Illinova transaction should be construed as an assignment of the option (thereby breaching the anti-assignment provision), because LG & E had already reached an agreement with Illinova to transfer the 10% interest before the option was exercised. We disagree for several reasons.

First, we conclude Tenaska is es-topped from contending LG & E breached the option’s anti-assignment provision. Tenaska received a copy of the LG & E/Illinova “Memorandum of Agreement” on August 22, 1998, and thus knew all the material details regarding the LG & E/Illi-*1065nova transaction on that date. Nevertheless, Tenaska subsequently accepted letters of credit from LG & E totaling $8.58 million. Tenaska also accepted money directly from Illinova in response to a cash call to fund a turbine payment for the Grimes project. The cash call occurred after the “Memorandum of Agreement” had been disclosed and Tenaska accepted Illinova’s payments without reserving its right to contest the exercise of the option. Thus, contrary to the dissent’s suggestion, it is undisputed that Tenaska accepted benefits resulting from LG & E’s exercise of the option and subsequent sale to Illino-va with full knowledge of the material terms of the “Memorandum of Agreement.” Despite this, Tenaska now wants to avoid its corresponding obligation to transfer the interest. “The acceptance of any benefit from a transaction or contract, with knowledge or notice of the facts and rights, will create an estoppel.” Baye v. Airlite Plastics Co., 260 Neb. 385, 618 N.W.2d 145, 150 (2000) (collecting Nebraska cases setting forth the test for applying estoppel in a contract case); see also Total Petroleum, Inc. v. Davis, 822 F.2d 734, 737 (8th Cir.1987) (holding equitable estoppel prevents “a party who has full knowledge of the facts from accepting the benefits of a transaction, contract, or order and subsequently taking an inconsistent position to avoid corresponding obligations.”).3

Second, even if we turn a blind eye to the estoppel issue, and further assume the LG & E/Ulinova transaction constituted an assignment of the option, we still could not side with Tenaska. In several cases involving land-sale contracts, the Nebraska Supreme Court has refused to enforce anti-assignment provisions where the “contract has been fully performed or if assignee offers and is able to .complete performance.” Panwitz v. Miller Farm-Home Oil Serv., 228 Neb. 220, 422 N.W.2d 63, 66 (1988) (emphasis in original); see also Obermeier v. Bennett, 230 Neb. 184, 430 N.W.2d 524, 528-29 (1988); Martin v. Baxter, 198 Neb. 640, 254 N.W.2d 420, 421 (1977); Riffey v. Schulke, 193 Neb. 317, 227 N.W.2d 4, 6-7 (1975); Wagner v. Cheney, 16 Neb. 202, 20 N.W. 222, 223 (1884). The Nebraska Supreme Court recently applied this principle to a case outside the land-sale context. Folgers Architects Ltd. v. Kerns, 262 Neb. 530, 633 N.W.2d 114, 126-27 (2001) (citing Panwitz). The court noted “the intent of [a] provision against assignment of rights under a contract [is] generally [ ] to allow the parties to choose with whom they contract,” and refused to enforce an anti-assignment provision where the assignment did not affect the parties’ actual performance of the contract. Id. When read together, we believe these cases indicate Nebraska would not enforce an anti-assignment provision under the circumstances involved in this case. Clearly, the alleged assignee, Illinova, had offered and was able to complete performance of its obligations under the limited partnership.

Furthermore, Tenaska can hardly complain that its right to choose with whom it contracts is hindered, since Illinova is already an existing partner in the limited partnership. The dissent disagrees, emphasizing Tenaska’s “right to control with whom and at what time it chose to offer a percentage of its own partnership interest.” Post at 16. But the facts of record undercut this argument. Before the LG & E option was exercised, Tenaska had engaged in negotiations to transfer to Illi-nova an additional 7.5% interest in the limited partnership in the event LG & E *1066elected not to participate in the partnership. App. 311-12, 503. Indeed, the facts suggest Tenaska was more than willing to transfer some of its partnership share to Illinova, so long as Tenaska received the financial benefit of that transaction. See App. 221 (recounting Hawks’ displeasure with the LG & E/Illinova transaction merely “[bjecause I didn’t get anything.”).

Finally, and most importantly, the LG & E/Illinova transaction was a permissible sale of the interest following an exercise of the option, and did not constitute an assignment of the option itself. Under Nebraska law, “the intention of the assignor must be to transfer a present interest in the debt or fund or subject matter; if this is clearly expressed, the transaction is an assignment; otherwise not.” Tilden v. Beckmann, 203 Neb. 293, 278 N.W.2d 581, 586 (1979) (emphasis added). Tenaska cannot show that the “Memorandum of Agreement” reflects LG & E’s clear intention to transfer to Illinova a present interest in the option agreement. The “Memorandum of Agreement” states that LG & E “hereby grants [Illinova] the exclusive right and option to purchase the KUCC Partnership Interest at any time after the transfer of such Partnership Interest to [LG & E] pursuant to the Option Agreement.” App. 693 (emphasis added). Thus, the “Memorandum of Agreement” expressly sets forth LG & E’s intention to transfer ajfuture interest should it exercise the option.

In Craig v. Farmers Mut. Ins. Co., 239 Neb. 271, 476 N.W.2d 529 (1991), the Nebraska Supreme Court applied Tilden to the assignment provisions of a ranch sale agreement, and drew a clear distinction between agreements transferring present and future interests. Id. at 531-32. The ranch at issue was an asset of a bankrupt corporation, to which the bankruptcy trustee, Craig, was found to have title in late 1986. In February 1987, Craig purchased a policy from Farmers Mutual that provided property damage coverage for certain ranchhouses and buildings, then made attempts to sell the property. Before Craig negotiated a sale, some of the ranch buildings were vandalized. In August 1987, Craig sold the ranch in an agreement that provided

Seller [Craig] shall assign to Buyer [Big B, Inc.] all right, title and interest of Seller to any insurance proceeds for damage in regard to any claims prior to the date of this Agreement ... and for damage in regard to any claim subsequent to the date of this Agreement ... provided, however, that Buyer shall use any insurance proceeds to repair or improve the property.

Id.

In the suit brought by Craig to recover insurance proceeds for the vandalism, Farmers Mutual argued that Craig assigned his entire interest in the insurance contract to Big B, and therefore was not the proper party and lacked standing to bring the suit against Farmers Mutual. Id. at 532. Craig contended “the language of the sale agreement indicates an agreement for future assignment of interest in the proceeds of an insurance policy” and that while the insurance proceeds were assigned, the cause of action to obtain the proceeds was not. Id. (emphasis added). The Nebraska Supreme Court agreed, stating “the evidence shows that Craig had no intent to transfer a present interest in the policy, but, rather, that he agreed to transfer the proceeds, if any, of the policy when those proceeds were obtained.” Id.

The LG & E/Illinova “Memorandum of Agreement” is comparable to the Craig/ Big B ranch sale agreement. Neither agreement expresses an intent to transfer a present interest in the subject matter of the agreement. Both agreements demonstrate an intent to transfer the subject matter in the future should that interest *1067be obtained. We believe the present/future interest distinction made in Craig controls this case, and thus conclude the LG & E/Illinova transaction did not constitute an impermissible assignment of the option.

The dissent claims section 3 of the “Memorandum of Agreement” made Illino-va “obligated for all financial burdens associated with the option interest before LG & E even became a partner of TFP.” Post at 20 (emphasis added). We disagree. Section 3 sets forth the manner in which the purchase price of the partnership interest was to be calculated—that is its clear and only purpose. One of the three components of the purchase price was the amount needed to reimburse LG & E for any funding obligations it might incur pri- or to exercising its option. App. 694. The agreement’s reference to that amount as part of the purchase price did not somehow impose a present financial obligation upon Illinova (triggered before LG & E even exercised the option or before Illino-va had purchased the interest), and thus did not transform the “Memorandum of Agreement” into the transfer of a present interest in the option agreement.

Ill

We feel obliged to respond to an argument Tenaska did not make in the district court, and did not make on appeal, but which the dissent raises for the first time. The dissent contends LG & E breached the Power Partners’ limited partnership agreement, specifically, that the Illino-va/LG & E transaction violates section 14.3(iii), which the dissent construes as a notice provision. Post at 17-19 & n. 7.

First, we disagree that section 14.3(iii) operates as a notice provision. That section provides, in its entirety, that “no Partnership interest may be transferred by sale, transfer, or otherwise if: ... (iii) such transfer would adversely affect the financial and operating integrity of the Partnership, any individual Partner, Parent, or Affiliate thereof.” App. 882. Thus, the partnership could refuse to approve a transfer of interest because the transfer “would adversely affect the financial and operating integrity of the Partnership,” but not because a partner failed to give notice prior to the transfer.

Second, Tenaska never claimed or argued in the district court (or before this court) that LG & E breached the limited partnership agreement, either on the ground the transfer would adversely affect the financial and operating integrity of the partnership, or because of an alleged deficiency in notice. Therefore, any such claim has been waived. Turpin v. County of Rock, 262 F.3d 779, 782 (8th Cir.2001).

Finally, the dissent suggests LG & E violated the partnership agreement to the extent the agreement incorporates the notice requirements of the Texas Revised Partnership Act. See post at 19. But Tex. Rev.Civ.Stat.Ann. 6132b-5.03(d) addresses a partnership’s duty to give effect to a transferee’s rights after receiving notice of a transfer: the statute does not impose a duty on the transferor to give notice to the partnership prior to the transfer. It is undisputed that LG & E notified Tenaska it had transferred its interest to Illinova— this dispute concerns Tenaska’s refusal to give effect to Illinova’s (the transferee’s) rights after receiving notice. Thus, the dissent’s suggestion that Texas law and the limited partnership agreement imposed a pre-transfer notice obligation upon LG & E is simply unfounded.

IV

We affirm the judgment of the district court in all respects.

. The Honorable Thomas M. Shanahan, United States District Judge for the District of Nebraska.

. The dissent relies on a fraud case, Nathan v. McKeman, 170 Neb. 1, 101 N.W.2d 756, 768 (1960), which is, of course, inapposite because we are here concerned with Tenaska's breach-of-contract claim, not its fraud claim.