A judge has allowed Iwatani Corporation of America’s claims of fraud and contractual breaches against Nel to proceed in a dispute over the fraught deployment of hydrogen fueling stations in California.
Judge James Selna from the Central District of California also threw out multiple other allegations brought by Iwatani, narrowing the Japanese industrial gas company’s case against Norway-based Nel in a lawsuit filed earlier this year.
Iwatani alleges that Nel and former and current executives, including its CEO, engaged in deceptive practices, such as misrepresenting the capabilities of their hydrogen fueling stations, known as H2Stations, which were sold to Iwatani in 2019 and later deployed in California with disastrous results.
According to Iwatani, which at the time had grand ambitions for hydrogen fueling stations in California – it planned to order 100 units over five years – the Nel fueling stations failed almost immediately after commissioning, and never worked properly, leading to years of delays and millions of dollars in added costs.
In aggressively selling its H2Stations to Iwatani, Nel acted out of desperation, Iwatani claims, as its hydrogen fueling business was running at a loss, and Nel was falling far behind its ambition of producing 200 H2Stations each year, with only 30 new stations sold in 2019.
“In truth,” Iwatani wrote in court papers, “the H2Stations sold to [Iwatani] in 2019 were barely at the R&D stage and had never been rigorously operated and tested in a real-world commercial environment like California. So, [Nel] concocted a scheme to require their customers to contract with them for the commissioning, service, maintenance, and operation of the H2Stations, which would allow them to discover and conceal any defects in the equipment, control the information customers received about the defects, and work to try to repair and correct the defects without the customers’ knowledge.”
While Nel and Iwatani continued to work together to fix the stations, the filing of the lawsuit precipitated a complete breakdown in communications. On January 22, 2024, Iwatani asked a Nel employee for access to programs that would allow them to see and manage H2Stations remotely. The employee, John Sanderson, responded, “I don’t think I will be able to fulfill that request at this time. We have just been informed that Iwatani Corp of America has filed a lawsuit against Nel. I will email you if there is any update to your request though.”
In June, Nel completed the spin-off of its hydrogen fueling division, renaming it Cavendish Hydrogen and listing it on the Oslo Stock Exchange.
The dispute between Iwatani and Nel represents a boiling point in frustrations over the widespread failure of hydrogen stations in California, a state that committed significant resources to the advancement of fueling stations for a range of vehicle types.
Nel also sold the H2Stations to other customers in California, such as Shell and the Sunline Transit Agency. Shell subsequently shut down its light-duty fueling stations, while Sunline experienced similar struggles with a Nel-owned station.
Motion to dismiss
Nel’s motion to dismiss Iwatani’s claims largely hinged around procedural arguments, including that the California court does not have personal jurisdiction over Nel and its executives, and that Iwatani failed to state a claim in its complaint.
Oral arguments over the motions to dismiss were heard on July 1, and the judge’s order was filed on July 10. The judge’s order addresses the jurisdictional questions in detail, particularly concerning personal jurisdiction over the foreign entity defendants (Nel ASA and Nel Hydrogen A/S) and the individual defendants (Jon André Løkke, Volldal, Borin, and Erdal).
The judge found that both Nel ASA and Nel Hydrogen A/S had purposefully directed their activities at California. These activities included marketing and selling hydrogen fueling stations to Iwatani, negotiating contracts, and providing ongoing support and maintenance services for the stations located in California.
The individual defendants were similarly found to have sufficient contacts with California through their roles in the alleged fraudulent scheme and misrepresentations directed at Iwatani.
Specific alleged actions by the individual defendants, such as attending meetings in California, engaging in communications (both in-person and virtual) regarding the hydrogen stations, and making false representations about the product’s performance, were highlighted as purposeful activities aimed at California.
The court found that Iwatani’s first amended complaint sufficiently alleged that specific misrepresentations were made by Nel ASA and Nel Hydrogen A/S, as well as by individual defendants, to meet the Rule 9(b) standard for specificity in fraud claims.
However, the court dismissed misrepresentation claims against Nel Hydrogen Inc. due to a lack of specific allegations directly attributing misrepresentations to this entity.
- Breach of Contract
- Iwatani alleged that all three Nel entities breached various contracts related to the hydrogen fueling stations.
- The court noted that Nel Hydrogen Inc. was the only signatory to the contracts in question and dismissed breach of contract claims against Nel ASA and Nel Hydrogen A/S for failing to specify how these entities breached the contracts.
- The breach of contract claim against Nel Hydrogen Inc. was allowed to proceed.
- Claims for Concealment, False Promises, and Fraud in Making Contracts
- These claims were dismissed against all defendants due to insufficient attribution of specific acts to any particular defendant.
- Unfair Competition Law (UCL)
- Iwatani’s UCL claims, which were based on allegations of fraud and misrepresentation, were dismissed. The court found that Iwatani had not adequately pled the elements of a UCL claim under any prong (fraudulent, unlawful, or unfair) in a non-conclusory manner.
- Claims for Rescission, Accounting, and Constructive Trust
- These claims were dismissed as the court agreed that they are equitable remedies and not standalone causes of action.
- Unjust Enrichment and Money Had and Received
- The court allowed these claims to survive, noting that they could be pled in the alternative to breach of contract claims.
Continuing Claims Against Nel Following the judge’s order on the motions to dismiss, the remaining claims against Nel are:
- Misrepresentation claims against Nel ASA and Nel Hydrogen A/S.
- Breach of contract claim against Nel Hydrogen Inc.
- Unjust enrichment and money had and received claims.
