Contractor sues Quoddy Bay over failure to make payment -- The Quoddy Tides, Eastport, Maine

A Massachusetts company hired by Quoddy Bay LNG LLC to perform engineering work on its proposed natural gas pipeline is suing the Oklahoma-based company and its two principals, Donald Smith and Brian Smith, for failure to pay outstanding bills. To recover its cost of services, Coler & Colantonio Inc. is asking the Washington County Superior Court to order a seizure of the Quoddy Bay LNG office in Perry, the former Lobster Crate restaurant on Route 190, which is owned jointly by Donald and Brian Smith.

The suit alleges that "Quoddy Bay is thinly capitalized and/or insolvent," and an April 2008 agreement between Quoddy Bay and Coler & Colantonio states other creditors are owed in excess of $2 million. The lawsuit asks the court to "pierce the corporate veil" and establish the joint liability of the Smiths, alleging that the Smiths have abused the limited liability company form by "confused intermingling of activity between the individuals and the limited liability company with substantial disregard of the separate nature of the business entities." The phrase "pierce the corporate veil" is a legal term to have the corporation set aside so that personal assets can be reached.

In March 2006, Coler & Colantonio entered into a contract with Quoddy Bay LNG to perform the engineering and survey work for a natural gas pipeline from the proposed LNG terminal at Pleasant Point to a connection with the Maritimes & Northeast Pipeline in Princeton. In June 2006, the law firm of Misick and Stanbrook of Providenciales Turks and Caicos paid the company $127,605. The Turks and Caicos Islands, a British dependent territory in the Caribbean, are known as a tax haven with laws conducive to conducting business in a tax-free environment. Then in a series of payments through May 2007 Smith Cogeneration Dominicana Inc. paid the company $357,533. An amount of $159,831 plus interest is still owed. The suit also seeks attorney's fees.

Attorneys for Coler & Colantonio, with the firm of Sandra Hylander Collier of Ellsworth, could not be reached or declined comment on the suit.

Quoddy Bay LNG President Donald Smith, while not commenting on the lawsuit, says the company is working on bringing in a financial partner, adding, "The project is still very positive."

In other action possibly indicating financial difficulties for Quoddy Bay LNG, the company informed the Pleasant Point tribal council in July 2008 that it would be suspending its quarterly lease payments of $46,875 to the tribe. Quoddy Bay had paid the tribe nearly $800,000 in lease and other bonus payments associated with the lease contract. At the time, Quoddy Bay LNG maintained that the permitting period commencement date had not begun and therefore lease payments were not required.

In October, the Federal Energy Regulatory Commission (FERC) dismissed Quoddy Bay LNG's application to construct the LNG terminal because the company had failed to provide information the agency had requested. Donald Smith said that the company was proceeding slowly because of the worldwide situation with LNG, as Quoddy Bay attempts to determine the type of LNG resource it would use. In addition to the FERC dismissal, Quoddy Bay's application to the Maine Board of Environmental Protection was placed on hold. Also, the company's office in Perry has not been open, and Adam Wilson, who was Quoddy Bay's deputy project manager, is no longer with the company, nor is Andrea Barstow, who staffed the office.

In an interview, Smith says Quoddy Bay LNG plans to resume its applications with FERC and the state "as soon as practical." He adds, "The economics are still favorable" for an initial start date for the project of 2013 or 2014.

Perry Selectman David Turner says the selectmen have not been informed about any changes in Quoddy Bay LNG's plans. One of the selectmen, John Spinney, attended a meeting with Donald Smith and others in December, during which Smith provided an update on the project. Turner says Quoddy Bay only holds options on its properties in Perry, except for the office building that is owned by the Smiths.

Quoddy Bay LNG is part of the Smith Cogeneration family of companies, which previously has been involved in a legal entanglement, stemming from an agreement between Smith Cogeneration International and Enron International to construct a power plant in the Dominican Republic in the 1990s. The relationship between the two companies began unraveling in 1996 when it became clear that Smith Cogeneration was unable to meet its financial obligations for the project, with legal disputes ensuing between the two companies. The Smith/Enron power plant eventually was constructed.