What began as a promising multimillion-dollar economic venture to generate hundreds of wind energy-related jobs in San Angelo turned into an undertaking that blew south.
The city of San Angelo Development Corp. and the city are seeking to recoup more than $2.7 million in damages, attorneys' fees and minor costs resulting from a 2009 investment to bring a wind turbine tower fabrication plant to town.
COSADC and the city hope to recover the money through a summary judgment hearing scheduled Wednesday in the 119th District Court and avoid going to trial.
COSADC and the city filed the lawsuit against Martifer-Hirschfeld Energy Systems LLC, and co-defendants Hirschfeld Wind Energy Solutions I and II LLC early last year, alleging breaches of two economic development contracts — one executed with COSADC on Dec. 28, 2009, and another with the city on Dec. 17, 2010.
The Portuguese company Martifer Wind Energy Systems, a division of the multinational energy giant Martifer Group, moved to San Angelo in 2008 after the city, county and state offered more than $22 million in tax incentives, abatements and grants for the corporation to build a wind tower fabrication facility at 2901 Old Ballinger Highway.
The Texas Department of Transportation even widened a railroad bridge in Ballinger to accommodate shipments of the massive towers. The Obama administration awarded the project $3.5 million in tax credits while COSADC and the city gave the venture about $2.3 million in taxpayer dollars with anticipation that the enterprise would foster economic development and put San Angelo on the national energy industry map.
On June 19, 2009, Hirschfeld Wind Energy Solutions — a part of Hirschfeld Industries LP and a long-established San Angelo structural steel company — became a partner in the Martifer venture with a 50 percent stake. The propositions were contingent on Martifer-Hirschfeld's promise to invest $40 million to construct and operate the facility for 10 years as well as hire and maintain 225 full-time equivalent positions — measured by payroll rather than people — for three years filled by a labor pool from San Angelo and surrounding area, among other requirements.
COSADC struck the deal "in reliance on MHES' representations that the company had the necessary financial ability to acquire the land and construct and operate the Plant," according to court documents.
While the project made progress, with Martifer-Hirschfeld completing its first section of a wind turbine tower in summer 2011, the market for wind energy tanked around 2010-11, causing uncertainty within the industry that led to a slowdown in orders, in part related to a federal tax credit for wind power that was set to expire, according to court documents.
Martifer and its associates also experienced their "own financial problems" that affected Martifer-Hirschfeld, according to court documents. Martifer was forced to sell its interests across the country after Martifer's stock lost 80 percent of its value and limited its ability to continue facility operations, the documents stated.
Martifer eventually pulled out of the Martifer-Hirschfeld endeavor in April 2012, and Hirschfeld acquired 100 percent ownership on July 18, 2012.
Hirschfeld says in court documents that "after Martifer-Hirschfeld constructed Phase I of the Plant, industry and other forces made it clear the Plant was destined to fail." Hirschfeld says it "had to do something to save the Plant from bankruptcy" and "in order to save the COSA and COSADC investments" as well as its own assets, "Hirschfeld bought out Martifer and converted the Plant" from wind turbine production to other products. The manufacturer began building tanks for a few oil and natural gas companies to bring in some revenue from the facility and then switched to producing structural steel.
Hirschfeld also says in court documents that it kept COSA and COSADC informed of its conversion plans through communication with the city's economic development coordinator at the time, Robert A. Schneeman, who is currently the city's business retention and expansion coordinator.
Hirschfeld says that Schneeman met with the San Angelo City Council and "assured Martifer-Hirschfeld that the parties would convert the COSA and COSADC Agreements to reflect the conversion," and "based in part on these assurances, Martifer-Hirschfeld continued to invest money converting the Plant."
Hirschfeld says, however, that the agreements were never revised to reflect the changes and states that this brings into question whether city representation was false, "which apparently it was, given that the contracts were not modified," court documents state.
The wordings in the contracts and arguments presented within the petition and response are left to 119th District Judge Ben Woodward's court to interpret and define.
COSADC and the city say in a news release that while Martifer-Hirschfeld "has confessed in court documents that it failed to live up to its contractual obligations with the City," the company has never offered to repay more than a fraction in remedies.
"The City and the COSADC could not agree to a minimal repayment," the release stated. "Doing so, and allowing Martifer-Hirschfeld to walk away with millions in taxpayer dollars, would constitute a serious breach of public trust."
COSADC and the city in summary are suing Martifer-Hirschfeld for failing to meet both its contractual obligations such as failure to make the total $40 million capital investment, making no meaningful attempts to construct Phase II of the renewable energy plant before the deadline, coming nowhere close to creating or retaining the minimum number of full-time equivalent positions, not continuously operating the plant and failing to uphold promises outlined in "Comfort Letters," among others, the lawsuit alleges.
The lawsuit says the "Comfort Letters" were executed in April 2012 by Hirschfeld Wind Energy System I and II, which claimed 100 percent ownership of Martifer-Hirschfeld and agreed to reimburse COSADC in the event of a default by Martifer-Hirschfeld.
"As MHES refuses to repay any of the money it owes COSADC, HWES and HWES II are obligated under their respective 'Comfort Letters' to reimburse COSADC for the advances made under the COSAD Agreement," court documents state.
COSADC and the city say in the news release they have filed for summary judgment because inaction would set a dangerous precedent for future business deals to be nonbinding if there is a failure to meet contractual obligations.
"At the heart of this case is Martifer-Hirschfeld's failure to invest in its local plant and to create jobs in San Angelo," the release states. "Now Hirschfeld is doing just that in another West Texas City."
Hirschfeld published an ad in the Standard-Times on Feb. 14 announcing that it added more than 30 employees to its plant in Abilene and expects to add more jobs there in the future. Hirschfeld says, however, that it is reluctant to create employment opportunities in San Angelo because of the lawsuit.
Todd Joseph Harlow, an attorney from Dallas, represents COSADC and the city. Local attorney Jeffrey S. Lisson represents Martifer-Hirschfeld and co-defendants.
A representative for Hirschfeld did not respond to requests for comment.