Centerboard Securities LLC v. Benefuel Inc

Filing 139

MEMORANDUM OPINION AND ORDER granting in part and denying in part 39 Motion for Summary Judgment; denying 117 Supplemental Motion for Summary Judgment. (Ordered by Senior Judge A. Joe Fish on 6/29/2016) (rekc)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

CENTERBOARD SECURITIES, LLC,
Plaintiff,
VS.
BENEFUEL, INC.,
Defendant.

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CIVIL ACTION NO.
3:15-CV-2611-G

MEMORANDUM OPINION AND ORDER

Before the court are (1) the defendant Benefuel Inc. (“Benefuel”)’s motion for
summary judgment (docket entry 39) and (2) Benefuel’s supplemental motion for
summary judgment (docket entry 117). For the reasons stated below, Benefuel’s
motion for summary judgment is granted in part, and denied in part, and Benefuel’s
supplemental motion for summary judgment is denied.
I. BACKGROUND
A. Factual Background
This dispute arises out of a contract in which the plaintiff, Centerboard
Securities, LLC (“Centerboard”), agreed to provide Benefuel with financial advisory

services. See generally Centerboard’s Amended Complaint (“Amended Complaint”)
(docket entry 44). Centerboard is a broker dealer registered with the Securities and
Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory
Authority, Inc. (“FINRA”). Id. ¶ 6. “Benefuel is an alternative energy company
focused on producing fuels, lubricants and chemicals derived from non-food related
fats and oils.” Id. ¶ 7.
Around March 2012, Benefuel entered into a joint venture with Flint Hills
Resources Renewables, LLC (“Flint Hills”) to develop biodiesel production
capabilities, including retrofitting the Beatrice Nebraska biodiesel plant (the “Beatrice
project”) for operation. Id. ¶ 9. Flint Hills is also a shareholder of Benefuel and holds
pre-emptive rights, which give Flint Hills and other investors the right to purchase
additional shares in Benefuel in order to prevent dilution of their pro rata equity
ownership. Id. ¶ 10.
In October 2013, Centerboard and Benefuel met in Dallas, Texas to begin
initial discussions regarding the terms of an engagement agreement between
Centerboard and Benefuel. See Defendant’s Motion for Summary Judgment
(“Motion”) ¶ 6 (docket entry 39). The parties sent drafts of the engagement
agreement back and forth before entering into an agreement on December 1, 2013.
Id. ¶¶ 7-12; see also Plaintiff’s Response in Opposition to Defendant’s Motion for
Summary Judgment and Response to Defendant’s Statement of Undisputed Facts

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(“Response”) ¶¶ 7-12 (docket entry 55); Centerboard’s Appendix in Support of
Plaintiff’s Opposition to Defendant’s Motion for Summary Judgment (“Centerboard’s
MSJ App.”) at CB App. 00015-18 (docket entry 57). Under the agreement,
Centerboard agreed to act as financial advisor to Benefuel “in connection with a
Transaction” to help identify and contact potential investors and/or strategic partners,
analyze investments, and assist in the negotiation and financial aspects of the
investments. Id. at CB App. 00015.
Centerboard agreed to act as financial advisor to Benefuel “in connection with
an investment in [Benefuel] or in another vehicle (including, but not limited to, [the
Beatrice project]) or through an extraordinary transaction with any of the foregoing
to fund [Benefuel’s] corporate development, and/or [the Beatrice project] (a
“Transaction”).” Id. Benefuel agreed to pay Centerboard -- as compensation for its
services under the agreement -- work fees and success fees. Id. Benefuel agreed to pay
Centerboard a work fee of “$15,000 payable in cash each month, such amount to be
deducted from any success fee.” Id. (hereinafter “work fee (cash)”). Additionally,
Benefuel agreed to pay Centerboard a work fee of “$15,000 per month, payable in
equity at the Transaction price, and due upon successful completion of a
Transaction.” Id. (hereinafter “work fee (equity)”).
Further, Benefuel agreed to pay Centerboard a success fee of:
7% of any Aggregate investment, payable in cash at the
time cash proceeds of such investment are received
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(reduced by the amount of the cash work fee paid). For
purposes hereof, Aggregate Investment shall mean the total
amount of all investments received in connection with a
Transaction and shall include any amounts committed
during the term of this Agreement or during the Tail
Period and funded subsequent to the expiration of this
Agreement.
Id. If the aggregate investment is provided by any of Hercules Technology Growth
Capital, Suncor Energy Inc. (“Suncor”), Silver Lake Management LLC, Black Corral
Capital or CHS Inc. or the affiliates of each of the foregoing, “the success fee will be
reduced to 5% of any Aggregate Investment.” Id. “Further, for current investors of
[Benefuel] or any investment vehicle related to the Beatrice project, the 7% Success
Fee will be applied to only that Aggregate Investment which increases their pro rata
equity ownership.” Id. Lastly, the agreement included a provision that Benefuel did
not owe Centerboard a success fee for “the exercise of currently outstanding warrants
or the equity issues upon conversion of currently outstanding convertible debt” or any
investment into the Beatrice project that might arise out of Benefuel’s current
discussions with investors. Id. at CB App. 00015-16.
Some of Benefuel’s investors -- including Flint Hills and Centerboard -- hold
pre-emptive rights that give those investors the right to purchase additional equity to
maintain their respective pro rata equity ownership. Id. at CB App. 00020, CB App.
00046-47. Pursuant to these rights, Benefuel issues a notice of pre-emptive rights to
all investors, including Centerboard, giving the investors the right of first refusal if the

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company proposes to offer for sale any new securities. See id. at CB App. 00020.
The Investor Rights Agreement defines “new securities” as “equity securities of
[Benefuel], whether or not currently authorized, as well as rights, options, or warrants
to purchase equity securities, or securities of any type whatsoever that are, or may
become, convertible or exchangeable into or exercisable for such equity securities.”
Id. at CB App. 00031.
Between December 2013 and December 2014, Centerboard contacted 400
equity investors and 25 debt investors on Benefuel’s behalf. Amended Complaint
¶ 23. In June 2014, Suncor invested $10,000,000 in Benefuel, and, in exchange,
Suncor received 2 million shares of Benefuel. Id. ¶ 28; Motion ¶ 19. As a result of
this transaction, Benefuel paid Centerboard a work fee (cash) in the amount of
$15,000; a work fee (equity) in the amount of $105,000 at the Suncor transaction
price; and a success fee in the amount of $410,000 (calculated as 5% of $10,000,000
reduced by the work fee (cash) paid from December 2013 to May 2014 ($90,000)).
Amended Complaint ¶ 30. At the same time, Flint Hills invested $1,000,000 in
Benefuel, $200,000 of which was related to the exercise of previously issued warrants,
and $800,000 of which was related to the exercise of its pre-emptive rights, such that
Flint Hills would maintain its pro rata equity ownership after the Suncor transaction.
Id. ¶ 29. Centerboard did not invoice Benefuel for any amounts invested by Flint
Hills since -- pursuant to the agreement -- Centerboard was not entitled to a success

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fee for either Flint Hill’s exercise of previously issued warrants or Flint Hill’s exercise
of its pre-emptive right. Id. ¶ 31. Centerboard continued to invoice Benefuel for the
monthly work fee (cash) and notified Benefuel that Centerboard was accruing the
monthly work fee (equity), which CB contends was payable on a monthly basis due
to the successful completion of the Suncor transaction. Id. ¶ 33.
In August 2014, Benefuel began pursuing alternative investment options with
its existing shareholders, as it had not received sufficient equity investments to reach
its capital targets. Id. ¶ 34. Centerboard assisted Benefuel’s efforts by locating
financing alternatives, providing detailed mezzanine financing analysis and illustrative
term sheets, and preparing a draft term sheet for a mezzanine financing of roughly
$30 million. Id. ¶¶ 34-42.
On December 1, 2014, Benefuel sent Centerboard written notice terminating
the engagement agreement after December 2014. Id. ¶¶ 52-53. Under the
engagement agreement, if Benefuel enters into a transaction during “the 12 month
period following the date of termination (the “Tail Period”), Centerboard shall be
entitled to a Success Fee as if the agreement were still in effect” if certain conditions
are met. Centerboard’s MSJ App. at CB App. 00016. “[U]nless at least $10,000,000
in Aggregate Consideration has been committed or funded prior to termination,”
Centerboard is only entitled to the success fee for transactions entered into during the
tail period if “(i) Centerboard can demonstrate [the investors] became aware of the

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Transaction through the efforts of Centerboard; or (ii) [the investors] were in
discussions with [Benefuel] during the time [the engagement agreement] was in
effect.” Id.
On December 19, 2014, Benefuel and investors, led by FHR Treasury I, LLC
(“FHR”), closed a $32,000,000 mezzanine transaction (hereinafter the “FHR
mezzanine transaction” or “mezzanine transaction”). Amended Complaint ¶ 39;
Motion ¶ 27. Prior to closing the mezzanine transaction, Benefuel issued a notice of
pre-emptive rights to certain of its shareholders, including Centerboard, stating that
the Section 4.1 of the Second Amended and Restated Investor Rights Agreement
entitled Centerboard to participate in the 2015 transaction. Centerboard’s MSJ App.
at CB App. 00020. Benefuel received $27,150,000 from FHR and in exchange,
Benefuel executed a secured promissory note in favor of FHR in the amount of
$27,693,000, and Benefuel issued to FHR warrants for the purchase of 814,500
shares. Motion ¶ 27.
In its motion for summary judgment, Benefuel avers that Flint Hills invested in
the mezzanine transaction. Id. ¶¶ 2, 3, 22, 27, 31, 33. Benefuel treats Flint Hills
(Flint Hills Resources Renewables LLC) and FHR (FHR Treasury I, LLC) as identical
entities, referring to both as FHR in its filings. Compare id. ¶ 2; with Defendant’s
Brief in Support of its Supplemental Motion for Summary Judgment (“Supplemental
Motion”) ¶ 2 (docket entry 117). Flint Hills and FHR are completely separate legal

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and operating entities. Centerboard’s Sur-Reply Brief in Opposition to Defendant’s
Motion for Summary Judgment and Supplemental Motion for Summary Judgment
(“Centerboard’s Sur-Reply”) at 2-5 (docket entry 135) (citing Centerboard’s
Appendix to its Sur-Reply in Opposition to Defendant’s Motion for Summary
Judgment and Motion for Supplemental Motion for Summary Judgment
(“Centerboard’s Sur-Reply App.”) at 045-48, 051 (docket entry 136)). At the time
the engagement agreement was executed, Flint Hills was an investor in Benefuel,
while FHR was not. Centerboard’s Sur-Reply App at 046-48. FHR was formed after
the engagement agreement was executed. Id. at 051. The two entities have separate
bank accounts, ledger accounts and financial score cards. Id. at 045-46. FHR, not
Flint Hills, invested in Benefuel through the mezzanine transaction. Id. at 047.
On December 18, 2015, Benefuel executed a promissory note payable to FHR,
not Flint Hills, in the principal sum of $6,000,000 (the “2015 transaction”).
Supplemental Motion ¶ 2. Prior to executing the promissory note, Benefuel issued a
notice of pre-emptive rights to certain of its shareholders, including Centerboard,
stating that the Section 4.1 of the Second Amended and Restated Investor Rights
Agreement entitled Centerboard to participate in the 2015 transaction.
Centerboard’s Supp. App. at CB App. 015. On January 4, 2016, Benefuel filed a
Form D with the Securities and Exchange Commission in which it reported this

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transaction. Supplemental Motion ¶ 6. On January 6, 2016, Centerboard invoiced
Benefuel for $420,000 (7% of $6,000,000) related to this transaction. Id. ¶ 7.
B. Procedural Background
On December 5, 2014, Centerboard filed this suit against Benefuel in the
Supreme Court of the State of New York, County of New York. See generally
Amended Complaint (docket entry 1-1). On January 7, 2015, Benefuel removed the
case to the United States District Court for the Southern District of New York. See
Notice of Removal (docket entry 1). On August 3, 2015, United States District
Judge Paul A. Crotty transferred the case to this court (docket entry 25).
On January 21, 2016, Benefuel filed its motion for summary judgment (docket
entry 39). Centerboard filed a timely response (docket entry 55), to which Benefuel
served a timely reply (docket entry 78). On January 25, 2016, Centerboard filed an
amended complaint adding facts and allegations (docket entry 44). On May 16,
2016, after obtaining leave of court, Benefuel filed its supplemental motion for
summary judgment (docket entry 117). Centerboard filed a timely response (docket
entry 121), to which Benefuel served a timely reply (docket entry 130). After
obtaining leave to file a sur-reply in opposition to Benefuel’s motions (docket entry
1342), Centerboard filed a sur-reply in opposition to Benefuel’s motions (docket
entry 135). Benefuel did not elect to file a sur-reply. The motions are thus ripe for
decision.

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II. ANALYSIS
A. Motion for Summary Judgment Standard
Summary judgment is proper when the pleadings, depositions, admissions,
disclosure materials on file, and affidavits, if any, “show[] that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” FED. R. CIV. P. 56(a), (c)(1). A fact is material if the governing substantive law
identifies it as having the potential to affect the outcome of the suit. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue as to a material fact is
genuine “if the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.” Id.; see also Bazan ex rel. Bazan v. Hidalgo County, 246 F.3d 481,
489 (5th Cir. 2001) (“An issue is ‘genuine’ if it is real and substantial, as opposed to
merely formal, pretended, or a sham.”). To demonstrate a genuine issue as to the
material facts, the nonmoving party “must do more than simply show that there is
some metaphysical doubt as to the material facts.” Matsushita Electric Industrial
Company v. Zenith Radio Corporation, 475 U.S. 574, 586 (1986). The nonmoving
party must show that the evidence is sufficient to support the resolution of the
material factual issues in his favor. Anderson, 477 U.S. at 249 (citing First National
Bank of Arizona v. Cities Service Company, 391 U.S. 253, 288-89 (1968)).
When evaluating a motion for summary judgment, the court views the
evidence in the light most favorable to the nonmoving party. Id. at 255 (citing Adickes

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v. S.H. Kress & Company, 398 U.S. 144, 158-59 (1970)). However, it is not
incumbent upon the court to comb the record in search of evidence that creates a
genuine issue as to a material fact. See Malacara v. Garber, 353 F.3d 393, 405 (5th
Cir. 2003). The nonmoving party has a duty to designate the evidence in the record
that establishes the existence of genuine issues as to the material facts. Celotex
Corporation v. Catrett, 477 U.S. 317, 324 (1986). “When evidence exists in the
summary judgment record but the nonmovant fails even to refer to it in the response
to the motion for summary judgment, that evidence is not properly before the district
court.” Malacara, 353 F.3d at 405.
B. Discussion
Benefuel contends that the court should grant its motion for summary
judgment and dismiss all of Centerboard’s claims with prejudice. Motion at 13;
Supplemental Motion at 8. Benefuel asserts that Centerboard’s breach of contract
claims fail as a matter of law for several reasons. First, Benefuel maintains that it did
not breach the parties’ engagement agreement because the FHR mezzanine
transaction “did not trigger the payment of a work fee (equity) or success fee under
the contract.” Motion ¶ 3. Benefuel avers that the engagement agreement’s
definition of “transaction” explicitly limits the scope of the agreement to equity
transactions, not debt transactions. Motion ¶ 32. Specifically, Benefuel contends
that it does not owe Centerboard a work fee (equity) for July through December 2014

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because the FHR mezzanine transaction -- allegedly a debt transaction -- did not
trigger the fee. Id. Also, Benefuel claims that it does not owe Centerboard a success
fee for the FHR mezzanine transaction because the FHR mezzanine transaction was a
debt transaction that did not increase FHR’s pro rata equity ownership. Id. ¶ 33.
Further, Benefuel urges that it does not owe Centerboard a success fee for the 2015
transaction because the engagement agreement does not govern debt transactions and
the 2015 transaction did not increase FHR’s pro rata equity ownership.
Supplemental Motion ¶¶ 10-17. Benefuel also contends that Centerboard is not
owed a success fee for the 2015 transaction because the transaction was executed
during the tail period, and Centerboard did not exert any effort in securing the
transaction, nor were the parties in discussions regarding the 2015 transaction when
the engagement agreement was in effect. Defendant’s Reply to Response to
Supplemental Motion for Summary Judgment (“Supplemental Reply”) ¶¶ 12-15
(docket entry 130).
In response, Centerboard asserts that the term transaction in the engagement
agreement covered all funding transactions, not just equity transactions. Plaintiff’s
Brief in Opposition to Defendant’s Motion for Summary Judgment (“Opposition
Brief”) at 7-9 (docket entry 56). Centerboard insists that there is a genuine issue of
material fact as to whether the FHR mezzanine transaction is an equity transaction.
Id. at 9-11. Centerboard avers that Benefuel’s interpretation of the engagement

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agreement -- requiring another successful closing of a transaction to trigger the work
fee (equity) -- is contrary to Delaware law.1 Id. at 11. Even if the engagement
agreement requires another successful closing of a transaction, Centerboard claims the
FHR mezzanine transaction qualifies as one triggering the payment of the work fee
(equity). Id. at 11-12. Centerboard contends that there is a genuine issue of material
fact as to Benefuel’s contractual obligation to pay the success fee under the agreement
for the FHR mezzanine transaction because FHR mezzanine transaction qualifies as a
transaction under the engagement agreement and that the FHR mezzanine
transaction increased its pro rata equity ownership. Id. at 4-5, 12. Centerboard avers
that it is owed a success fee for the FHR mezzanine transaction because FHR was not
a current investor at the time of the engagement agreement, and thus the pro rata
ownership clause does not apply to FHR’s investment in Benefuel. See Centerboard’s
Sur-Reply at 2-5. Further, Centerboard maintains that there is a genuine issue of
material fact as to Benefuel’s contractual obligation to pay the success fee under the
agreement for the 2015 transaction because the 2015 transaction qualifies as a
transaction under the engagement agreement and that any investment by FHR is not
subject to the pro rata ownership clause. Plaintiff’s Brief in Opposition to
Defendant’s Supplemental Motion for Summary Judgment (“Supplemental
Opposition Brief”) at 2-6 (docket entry 122); Centerboard’s Sur-Reply at 2-5.
1

The parties’ engagement agreement expressly provides that Delaware law
governs this dispute. See Centerboard’s MSJ App. at CB App. 00016.
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Additionally, Benefuel maintains that Centerboard’s unjust enrichment and
quantum meruit claims fail as a matter of law because as an “express contract covers the
subject matter of the parties’ dispute” there can be no recovery under an equitable
theory. Motion ¶¶ 35-40. Centerboard responds that Benefuel cannot, on the one
hand, contend that the agreement does not govern the FHR mezzanine transaction
and, on the other, claim that a contract governs the subject matter of the parties’
relationship so as to bar Centerboard from recovering under the theories of quantum
meruit and unjust enrichment. Opposition Brief at 12-14.
1. Definition of Transaction under the Engagement Agreement
Benefuel asserts that the parties’ engagement agreement unambiguously
defines a transaction and unambiguously limits the scope of the parties’ agreement to
equity transactions. Motion ¶ 32. The engagement agreement defines a transaction
as “an investment in [Benefuel] or in another vehicle (including, but not limited to,
Beatrice Funding, LLC) or through an extraordinary transaction with any of the
foregoing to fund [Benefuel’s] corporate development, and/or [the Beatrice project].”
Centerboard’s MSJ App. at CB App. 00015. Benefuel maintains that the term
investment means “contribution of equity.” Motion ¶ 32. Centerboard contends
that “extraordinary transaction” is a “common investment banking term that is meant
to be extremely broad and encompass all types of funding, debt, equity and hybrids,
regardless of the form of the transaction.” Opposition Brief at 2.

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When the issue before the court involves the interpretation of a contract,
summary judgment is appropriate only if the contract in question is unambiguous.
Geoscan, Inc. of Texas v. Geotrace Technologies, Inc., 226 F.3d 387, 390 (5th Cir. 2000);
United Rentals, Inc. v. RAM Holdings, Inc., 937 A.2d 810, 830 (Del. Ch. 2007).
Therefore, the threshold inquiry when presented with a contract dispute on a motion
for summary judgment is whether the contract is ambiguous. Northwestern National
Insurance Company v. Esmark, Inc., 672 A.2d 41, 43 (Del. 1996). Ambiguity does not
exist simply because the parties disagree about what the contract means. Id. at 43;
Seidensticker v. Gasparilla Inn, Inc., Civ. A. No. 2555-CC, 2007 WL 4054473, at *2
(Del. Ch. Nov. 8, 2007). Moreover, extrinsic, parol evidence cannot be used to
manufacture an ambiguity in a contract that facially has only one reasonable
meaning. Eagle Industries, Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232
(Del. 1997) (“If a contract is unambiguous, extrinsic evidence may not be used to
interpret the intent of the parties, to vary the terms of the contract or to create an
ambiguity.”). Rather, contracts are ambiguous “when the provisions in controversy
are reasonably or fairly susceptible of different interpretations or may have two or
more different meanings.” Rhone-Poulenc Basic Chemicals Company v. American Motorists
Insurance Company, 616 A.2d 1192, 1196 (Del. 1992). Stated differently, to succeed
on its motion for summary judgment, Benefuel must establish that its construction of
the engagement agreement is the only reasonable interpretation. See Modern

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Telecommunications, Inc. v. Modern Talking Picture Service, Civ. A. No. 8688, 1987 WL
11286, at *3 (Del. Ch. May 27, 1987). Guided by “Delaware’s well-understood
principles of contract interpretation,” HIFN, Inc. v. Intel Corporation, Civ. A. No.
1835-VCS, 2007 WL 1309376, at *9 (Del. Ch. May 2, 2007), the court concludes
that Benefuel has not succeeded in establishing that its interpretation of the disputed
engagement agreement is the only reasonable one. Because the court concludes that
there are genuine issues of material fact and that the provisions are fairly susceptible
to at least two reasonable interpretations, the contract is ambiguous and summary
judgment is inappropriate.
The engagement agreement’s definition for transaction is far from clear.
Investment does not simply mean contribution of equity. See, e.g., In re Nine Systems
Corporation Shareholders Litigation, Civ. A. No. 3940-VCN, 2014 WL 4383127, at *6
(Del. Ch. Sept. 4, 2014) (“The equity investment proposal shared with [the investor]
shifted to a possible debt investment.”), aff’d sub nom., Fuchs v. Wren Holdings, LLC,
129 A.3d 882 (Del. 2015); Finger Lakes Capital Partners, LLC v. Honeoye Lake
Acquisition, LLC, Civ. A. No. 9742-VCL, 2015 WL 6455367, at *8 (Del. Ch. Oct. 26,
2015) (referencing both equity and debt investments). Investment means an “outlay
of money usually for income or profit.” Investment, MERRIAM-WEBSTER’S
COLLEGIATE DICTIONARY 367-68 (10th ed. 1999); Investment, BLACK’S LAW
DICTIONARY 902 (9th ed. 2009) (“An expenditure to acquire property or assets to

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produce revenue, a capital outlay.”). Benefuel’s proposed definition of the term
unduly restricts the term investment to equity investments, and nowhere in the
agreement is transaction defined simply as an investment of equity in Benefuel.
Buying a company’s issued debt is an investment because the lender gives the
company capital in hopes that the company will repay the lender at some future time
with interest. See, e.g., Greenwald v. Batterson, Civ. A. No. 16475, 1999 WL 596276,
at *2 (Del. Ch. July 26, 1999). Greenwald is an example of an investor’s purchase of
“bonds with interest payable at the rate of 8% per year in cash, or additional debt,
convertible to [the company’s] stock.” Debt transactions structured like this are less
risky investments than pure equity investments, but are investments nonetheless.
On the other hand, Centerboard cites no authority to support its contention
that the term “extraordinary transaction” is a common banking term that
encompasses all types of funding, including debt. Opposition Brief at 2;
Supplemental Opposition Brief at 2. Therefore, the court cannot conclude that the
term transaction unambiguously limits the engagement agreement to equity
transactions or unambiguously includes debt transactions. The definition of
“transaction” includes vague terms that are simply not defined in the agreement.
Both parties seek to have the court clarify the definition of transaction to serve their
purposes. The court will not do so at this juncture. The definition of “transaction” is
ambiguous because the term is susceptible to more than one reasonable

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interpretation. Rhone-Poulenc Basic Chemicals Company, 616 A.2d at 1196. Benefuel
has failed to prove that there are no genuine issues of material fact and that the
engagement agreement unambiguously limits transactions to equity investments.
2. Work Fee (Equity) (Count I)
Next, Benefuel contends that even if the engagement agreement applies to
non-equity transactions, it does not owe Centerboard the work fee (equity) because
the work fee (equity) is only due upon the successful completion of another
transaction. Motion ¶ 32. Benefuel insists that the work fee (equity) applies only to
equity transactions because it is “payable in equity at the Transaction price,” which
implies that the fee is only relevant for equity transactions because “debt can have no
transaction price.” Id. Centerboard avers that Benefuel’s interpretation of the
engagement agreement -- requiring another successful closing of a transaction to
trigger the work fee (equity) -- is contrary to Delaware law and is an incorrect
interpretation of the agreement. Opposition Brief at 11. Even if the engagement
agreement requires another successful closing of a transaction, Centerboard claims,
the FHR mezzanine transaction qualifies as one, triggering the payment of the work
fee (equity). Id. at 11-12.
The engagement agreement provides that Benefuel agrees to pay Centerboard
“[a]n additional work fee of $15,000 per month, payable in equity at the Transaction
price, and due upon successful completion of a Transaction.” Centerboard’s MSJ

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App. at CB App. 00015. The provision for the work fee (equity) does not clearly
require the close of an additional transaction. The engagement agreement simply
states that the fee is due upon the close of a transaction. Id. As discussed above, the
term transaction is not limited to equity investments. However, Benefuel correctly
asserts that “payable in equity at the transaction price” implies that the fee is only
relevant for equity transactions. Motion ¶ 32 (citing Centerboard’s MSJ App. at CB
App. 00015). It would be odd for the payment of the $15,000 per month fee to be
in equity at the transaction price if the investment were solely a debt transaction.
In the FHR mezzanine transaction, Benefuel executed a secured promissory
note in favor of FHR in the amount of $27,693,000, and Benefuel issued to FHR
warrants for the purchase of 814,500 shares. Motion ¶ 27. The warrants are
detachable from the note, and upon exercise, require Benefuel to “issue to the
[w]arrantholder a certificate for the [c]ompany [s]hares purchased.” Benefuel’s
Appendix in Support its Motion for Summary Judgment at BF App. 000093 (docket
entry 40-10). The warrants have a ten year exercise period and automatically convert
to equity prior to expiration without any action or payment on the part of the
warrantholder. Id. at BF App. 000094. Benefuel maintains that the FHR mezzanine
transaction is solely a debt transaction, not an equity transaction, yet Benefuel cites
no authority for this assertion. Motion ¶ 32.

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Warrants, however, are not without question considered debt. Under generally
accepted accounting principles (“GAAP”), detachable warrants are equity instruments
with value that must be included in the number of shares outstanding. See
Centerboard’s Opp. Brief at 11 n.47. The warrants at issue here are detachable. See
Centerboard’s MSJ App. at CB App. 00023. According to both Ernst & Young LP2
and PricewaterhouseCooper LLP,3 detachable warrants are considered equity under
certain circumstances, and liabilities (debt) under other circumstances. Benefuel does
not attempt to explain why the warrants at issue are not equity. See generally Motion;
Defendant’s Reply to Response to Motion for Summary Judgment (“Reply”) ¶ 6
(docket entry 78).
In its supplemental motion for summary judgment and reply in support of its
motion for summary judgment, Benefuel avers that the 2015 transaction constitutes a
debt transaction -- not an equity transaction -- citing a multi-factor test courts
consider when analyzing whether a security constitutes equity or debt to determine if
a fraudulent transfer occurred in relation to bankruptcy. See Defendant’s Supp.

2

Warrants on redeemable shares, Technical Line, ERNST & YOUNG, No. 200916 at 5-6, October 21, 2009,
file:///C:/Users/3918lc1/Downloads/technicalline_bb1844_financialinstruments_21oct
ober2009.pdf (“E&Y guideline”).
3

Financing transactions: debt, equity and the instruments in between, 2nd ed.
Mar. 2015, PRICEWATERHOUSECOOPER LLP, at 8-2, 8-7 - 8-8,
https://www.pwc.com/us/en/cfodirect/assets/pdf/accounting-guides/pwc-guidefinancing-transactions-debt-equity-second-edition-2015.pdf (“PwC guideline”).
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Motion ¶¶ 13-15 (citing In re Color Tile, Inc., Civ. A. No. 96-76 (HSB), 2000 WL
152129, at *4 (D. Del. Feb. 9, 2000)); Supplemental Reply ¶¶ 3-4. Courts use a
similar multi-factor test to determine whether a security is equity or debt under the
federal tax code. See Slappey Drive Industrial Park v. United States, 561 F.2d 572, 58182 (5th Cir. 1977); 26 U.S.C.A. § 385. Neither Benefuel nor Centerboard, however,
cites this test or any other test to support their respective positions that the
mezzanine transaction constitutes a debt or equity transaction. See generally Motion;
Response.
Whether the multi-factor test is applicable here or not, the test is a fact
intensive analysis that considers not only the underlying transaction, but the
economic reality surrounding the transaction. In re SubMicron Systems Corporation,
432 F.3d 448, 455-56 and n.8 (3d Cir. 2006). Since neither party offers any analysis
of the factors in relation to the FHR mezzanine transaction, the court will not sua
sponte analyze the factors in relation to the mezzanine transaction without assistance
from the parties.
As the movant, Benefuel bears the burden to prove that there is no genuine
issue of material fact that Centerboard’s claims should be dismissed. Celotex
Corporation, 477 U.S. at 330. Benefuel simply assumes that the mezzanine
transaction is a debt transaction, and that warrants are not equity. Motion ¶ 32.
This assumption forms the basis of Benefuel’s contention that it does not owe

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Centerboard the work fee (equity). See id. In response, Centerboard showed that
there is a genuine issue of material fact that the warrants in the mezzanine
transaction constitute equity, and thus there is a genuine issue of material fact as to
whether Benefuel owes it the work fee (equity) for the relevant months. Response at
9-11. Benefuel has failed to prove that the warrants at issue in the FHR mezzanine
transaction are considered debt. Therefore, if the definition of work fee (equity)
requires an additional equity transaction, there is a genuine issue of material fact as to
whether the FHR mezzanine transaction triggered the payment of the work fee
(equity) because the FHR mezzanine transaction can reasonably be classified as an
equity investment. Celotex Corporation, 477 U.S. at 330.
The work fee (equity) for which Centerboard has made a claim arises out of the
Suncor transaction, not the FHR mezzanine transaction. Amended Complaint ¶ 33,
at 16 (Prayer for Relief (a)). Benefuel contends that since “no shares were issued” in
the FHR mezzanine transaction, no work fee (equity) is due because the FHR
mezzanine transaction does not have a closing price or transaction price. Reply ¶ 6.
Benefuel’s assertion incorrectly applies its interpretation of the work fee (equity) in
its motion for summary judgment. In its motion for summary judgment, Benefuel
contends that it does not owe Centerboard the work fee (equity) on the Suncor
transaction because the FHR mezzanine transaction is a debt transaction, not an
equity investment. Motion ¶ 32. Yet, after Centerboard maintained that the FHR

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mezzanine transaction is an equity transaction, Benefuel responded by averring that
the work fee (equity) could not be paid to Centerboard as it pertains to the FHR
mezzanine transaction because no shares have been issued. Reply ¶¶ 5-6. It is not
the shares from the FHR mezzanine transaction for which Centerboard asserts a
claim. Centerboard asserted a claim for work fees (equity) from July to December
2014 from the Suncor transaction, not work fees (equity) from the FHR mezzanine
transaction. Amended Complaint ¶ 33, at 16 (Prayer for Relief (a)).
Benefuel contended that Centerboard is not due work fees (equity) because an
additional transaction was needed to trigger the payment of work fees. Reply ¶¶ 6-7.
As Centerboard argued, the engagement agreement does not clearly require this
additional transaction. See Centerboard’s MSJ App. at CB App. 00015. Centerboard
argued that even if the engagement agreement required an additional transaction, the
FHR mezzanine transaction constituted such a transaction. Opposition Brief at 1112. Benefuel then cites certain emails to support its contention that the fee is not
owed until the next issuance of stock. Reply ¶ 7. Given that Benefuel contends the
engagement agreement is unambiguous, however, documents outside of the four
corners of the engagement agreement can only be considered if the engagement
agreement is ambiguous. United Rentals, Inc., 937 A.2d at 830 (“[T]he threshold
inquiry when presented with a contract dispute on a motion for summary judgment is
whether the contract is ambiguous.”); McAnulla Electrical Construction, Inc. v. Radius

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Technologies, LLC, Civ. A. No. N10C-03-076 PLA, 2010 WL 3792129, at *1 (Del.
Super. Sept. 24, 2010) (denying summary judgment where “ambiguous and
potentially conflicting provisions of the parties’ contract present material disputes
regarding their intent”); Premcor Refining Group Inc. v. Matrix Service Industrial
Contractors, Inc., Civ. A. No. 07C-01-095-JOH, 2008 WL 2232641, at *6 (Del. Super.
Ct. May 7, 2008) (“Under Delaware Law, where, as here, the issue is contract
interpretation, summary judgment is only appropriate where the contract is deemed
unambiguous.”) (emphasis in original), appeal refused, 950 A. 2d 659 (Del. 2008). If
the engagement agreement is ambiguous, the fact finder must consider extrinsic
evidence, and summary judgment is not proper. GMG Capital Investments, LLC v.
Athenian Venture Partners I, L.P., 36 A.3d 776, 784 (Del. 2012). Therefore, Benefuel
cannot rely on to extrinsic evidence to prove the intent of the parties to support its
motion for summary judgment because the agreement is either unambiguous and the
court cannot rely on parol evidence, or the agreement is ambiguous, there is a genuine
issues of material fact as to the parties’ intent, and summary judgment is not proper.
Id.; Modern Telecommunications, Inc., 1987 WL 11286, at *3.
In short, the court is not convinced that the engagement agreement
unambiguously prevents Centerboard’s claim for work fees (equity) from July to
December 2014 as a matter of law. First, the work fee (equity) provision is
ambiguous because it is not clear whether the work fee is due upon the completion of

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a transaction, is due for the months preceding or subsequent to the completion of a
transaction, or is due upon an additional subsequent transaction. See Centerboard’s
MSJ App. at CB App. 00015. Second, there is a genuine issue of material fact as to
whether the FHR mezzanine transaction is a transaction triggering the payment of
the work fee (equity). Therefore, Benefuel’s motion for summary judgment for
Centerboard’s claim for work fee (equity) from the Suncor transaction is denied.
3. Success Fee (Pro Rata Equity) (Count II)
Benefuel claims that it does not owe Centerboard a success fee for the FHR
mezzanine transaction because the FHR mezzanine transaction was a debt
transaction that did not increase FHR’s pro rata equity ownership. Motion ¶ 33.
Centerboard contends that there is a genuine issue of material fact as to Benefuel’s
contractual obligation to pay the success fee under the agreement for the FHR
mezzanine transaction because the FHR mezzanine transaction qualifies as a
transaction under the engagement agreement. Opposition Brief at 4-5, 12.
As the court concluded above, the engagement agreement does not
unambiguously cover only equity transactions. Benefuel contends, nonetheless, that
it does not owe Centerboard a success fee under the engagement agreement because
the mezzanine transaction did not increase Flint Hills’ pro rata equity ownership.
Motion ¶ 33. Under the engagement agreement, “for current investors of [Benefuel]
or any investment vehicle related to the Beatrice project, the 7% Success Fee will be

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applied to only that Aggregate Investment which increases their pro rata equity
ownership.” Centerboard’s MSJ App. at CB App. 00015. Benefuel is correct that the
FHR mezzanine transaction did not increase Flint Hills’ pro rata equity ownership.
Benefuel is correct because Flint Hills did not participate in the FHR mezzanine
transaction. Centerboard’s Sur-Reply at 2-5; Centerboard’s Sur-Reply App. at 04548. FHR invested in the mezzanine transaction. Centerboard’s Sur-Reply at 2-5;
Centerboard’s Sur-Reply App. at 045-48. FHR is not a current investor, as defined in
the engagement agreement, because FHR was not an investor in Benefuel at the time
the engagement agreement was executed, Centerboard’s Sur-Reply App. 045-48, and
did not even exist at the time the engagement agreement was executed. Id. at 045.
The relevant clause does not apply to the FHR mezzanine transaction because FHR
was not a current investor. See id. at 045-48, 51. Therefore, whether or not the FHR
mezzanine transaction increased FHR’s pro rata equity ownership is irrelevant to
whether Centerboard is owed a 7% success fee on the FHR mezzanine transaction.
See Centerboard’s MSJ App. at CB App. 00015.
For these reasons, Benefuel’s motion for summary judgment on Centerboard’s
claim for the 7% success fee on any increase in FHR’s pro rata equity ownership is
denied.

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4. 2015 Promissory Note (Count III)
Benefuel maintains that that summary judgment is proper on Centerboard’s
claim for a success fee on the 2015 transaction because the 2015 transaction does not
qualify as a transaction under the engagement agreement and the 2015 transaction
did not increase FHR’s pro rata equity ownership. Supplemental Motion ¶¶ 10-17.
Further, Benefuel avers that the engagement agreement specifically excludes
Centerboard from a success fee for this transaction during the tail period because
Centerboard’s efforts did not assist in securing the 2015 transaction, and the parties
were not in discussions regarding the 2015 transaction during the time period the
engagement agreement was in effect. Supplemental Reply ¶¶ 12-15. In response,
Centerboard contends that there is a genuine issue of material fact as to Benefuel’s
contractual obligation to pay the success fee under the agreement for the 2015
transaction because the 2015 transaction qualifies as a transaction under the
engagement agreement and because the 2015 transaction increased FHR’s pro rata
equity ownership. Supplemental Opposition Brief at 2-6.
As the court concluded above, the engagement agreement does not
unambiguously cover only equity transactions. In its supplemental motion for
summary judgment, id. ¶ 12, Benefuel maintains that the term transaction does not
cover the 2015 transaction for the same reasons it contended that the transaction
does not cover the FHR mezzanine transaction in its motion for summary judgment.

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Motion ¶ 32. Benefuel has failed to convince the court that its interpretation of the
term transaction is the only reasonable interpretation of the term under the
engagement contract. Rhone-Poulenc Basic Chemicals Company, 616 A.2d at 1196.
In its reply, Benefuel -- for the first time -- contended that the engagement
agreement specifically excludes Centerboard from a success fee for this transaction
during the tail period because Centerboard’s efforts did not assist in the securing of
the 2015 transaction, and the parties were not in discussions regarding the 2015
transaction during the time period the engagement agreement was in effect.
Supplemental Reply ¶¶ 12-15. Benefuel, however, misquotes the engagement
agreement provision upon which it relies. See Centerboard’s MSJ App. at CB App.
016. The conditions Benefuel relies on preclude Centerboard from receiving the
success fee for a tail period transaction only if less than “$10,000,000 in Aggregate
Consideration has been committed or funded prior to termination.” See id. Through
the Suncor transaction ($10,000,000), investors committed or funded at least
$10,000,000 to Benefuel during the term of the engagement agreement prior to
termination. Amended Complaint ¶¶ 28-30. Therefore, the conditions limited the
applicability of the success fee for the 2015 transaction do not apply.
Benefuel contends that it does not owe Centerboard a success fee for the 2015
transaction for the same reason it contends that it does not owe Centerboard a
success fee for the FHR mezzanine transaction -- that it did not increase Flint Hills’

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pro rata equity ownership. Supplemental Motion at 1. Benefuel admits that Flint
Hills did not participate in the 2015 transaction. Id. ¶ 2. However, in its filings, it
used the same abbreviation for Flint Hills as it did for FHR, possibly to gull the court
and Centerboard into thinking it was the same entity. See id.; Motion ¶ 2. FHR, not
Flint Hills, participated in the 2015 transaction. Centerboard’s Sur-Reply at 2-5;
Centerboard’s Sur-Reply App. at 045-48, 051. Since FHR is not a current investor as
defined under the engagement agreement, whether or not the 2015 transaction
increased its pro rata equity ownership is irrelevant to whether Benefuel owes
Centerboard a success fee under the engagement agreement.
Therefore, Beneuel has failed to show there is no a genuine issue of material
fact that it does not owe Centerboard a success fee for the 2015 transaction. Celotex
Corporation, 477 U.S. at 323-24; H-W Technology, LC v. Overstock.com. Inc., 973
F. Supp. 2d 689, 692 (N.D. Tex. 2013) (Fish, J.), aff’d as modified sub nom. H-W
Technology, L.C. v. Overstock.com, Inc., 758 F.3d 1329 (Fed. Cir. 2014).
5. Unjust Enrichment Claim (Counts IV and V)
Benefuel maintains that Centerboard’s unjust enrichment and quantum meruit
claims fail as a matter of law since an “express contract . . . covers the subject matter
of the parties’ dispute” there can be no recovery under an equitable theory. Motion
¶¶ 35-40. Further, Benefuel avers that it did not receive any unjust benefit. Id. ¶ 35.
In response, Centerboard maintains that Benefuel cannot, on the one hand, contend

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that the agreement does not govern the FHR mezzanine transaction and, on the other
hand, claim that a contract governs the subject matter of the parties’ relationship,
thus barring Centerboard from recovering under theories of quantum meruit and unjust
enrichment. Opposition Brief at 12-14. Also, Centerboard contends that it provided
significant financial advice and assistance to Benefuel for which it was not
compensated. Id. at 12-13.
Under Delaware law, when an express or implied-in-fact contract covers the
subject matter of the parties’ dispute, there can be no recovery under a theory of
unjust enrichment. Ameristar Casinos, Inc. v. Resorts International Holdings, LLC, Civ. A.
No. 3685-VCS, 2010 WL 1875631, at *13 (Del. Ch. May 11, 2010); Wal-Mart
Stores, Inc. v. AIG Life Insurance Company, 872 A.2d 611, 620 (Del. Ch. 2005), aff’d in
part, rev’d in part, 901 A.2d 106 (Del. 2006); MCG Capital Corporation v. Maginn, Civ.
A. No. 4521-CC, 2010 WL 1782271, at *24-25 (Del. Ch. May 5, 2010).
Centerboard plead its unjust enrichment and quantum meruit claims in the alternative.
Amended Complaint ¶¶ 90-99. Therefore, Centerboard contends that summary
judgment is not proper because if the court concludes that the engagement agreement
does not govern the FHR mezzanine transaction, then its claim that Benefuel was
unjustly enriched should stand. See Opposition Brief at 12-14.
“If a contract comprehensively governs the parties’ relationship, then it alone
must provide the measure of the plaintiff’s rights and any claim of unjust enrichment

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will be denied.” BAE Systems Information & Electronic Systems Integration, Inc. v. Lockheed
Martin Corporation, Civ. A. No. 3099-VCN, 2009 WL 264088, at *7 (Del. Ch. Feb. 3,
2009). “In some situations . . . both a breach of contract and an unjust enrichment
claim may survive a motion to dismiss when pled as alternative theories of recovery.”
Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLLP, Civ. A. No. 7906VCG, 2014 WL 6703980, at *27 (Del. Ch. Nov. 26, 2014). A plaintiff, however,
cannot “use an unjust enrichment theory to rewrite a comprehensive contract
governing the entirety of the parties’ relevant relationship after finding
disappointment in the resulting agreement.” BAE Systems Information & Electronic
Systems Integration, Inc., 2009 WL 264088, at *8. “[I]f there is a contract between the
complaining party and the party alleged to have been enriched unjustly, then the
contract remains “the measure of [the] plaintiff’s right.” MetCap Securities LLC v.
Pearl Senior Care, Inc., Civ. A. No. 2129-VCN, 2007 WL 1498989, at *5 (Del. Ch.
May 16, 2007); see also BAE Systems Information & Electronic Systems Integration, Inc.,
2009 WL 264088, at *8.
Here, the relationship between Benefuel and Centerboard is expressly governed
by the engagement agreement. See CB App. 00015. “Courts developed unjust
enrichment as a theory of recovery to remedy the absence of a formal contract.”
Bakerman v. Sidney Frank Importing Co., Inc., Civ. A. No. 1844-N, 2006 WL 3927242,
at *18 (Del. Ch. Oct. 10, 2006). Centerboard contends that summary judgment is

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not proper because if the court concludes that the engagement agreement does not
govern the FHR mezzanine transaction, then its claim that Benefuel was unjustly
enriched should stand. See Opposition Brief at 12-14. Yet, a possible conclusion that
the engagement agreement does not govern the FHR mezzanine transaction is
contingent on an interpretation of the engagement agreement. In BAE Systems
Information & Electronic Systems Integration, Inc., 2009 WL 264088, at *8, the plaintiff’s
alternative unjust enrichment claim was dismissed because a contract governed the
parties relationship. The court held that the plaintiff’s claim “must succeed or fail
entirely” on the breach of contract claim. Id.
Whether the court concludes that Centerboard is owed a work fee (equity) or
success fee on the FHR mezzanine transaction, the engagement agreement governs
the parties’ relationship. Therefore, since a contract governs the parties’ relationship,
Centerboard’s quantum meruit and unjust enrichment claims fail as a matter of law.
BAE Systems Information & Electronic Systems Integration, Inc., 2009 WL 264088, at *7;
Wal-Mart Stores, Inc., 872 A.2d at 620. Benefuel’s motion for summary judgment on
Centerboard’s claims for unjust enrichment (Count IV) and quantum meruit (Count V)
is granted.
In its supplemental motion for summary judgment, Benefuel contends that
Centerboard’s quantum meruit and unjust enrichment claims fail as a matter of law.
See Benefuel’s Supp. Motion ¶¶ 18-23. In its response, Centerboard maintains that it

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never asserted a claim for quantum meruit or unjust enrichment related to the 2015
transaction. See Plaintiff’s Brief in Opposition to Defendant’s Supplemental Motion
for Summary Judgment at 6 (docket entry 122). Centerboard only asserts claims for
unjust enrichment and quantum meruit in connection with the mezzanine transaction.
See Amended Complaint ¶¶ 91, 96. Therefore, Benefuel’s motion for summary
judgment on a claim that Centerboard never made is denied as moot.
III. CONCLUSION
For the reasons stated above, Benefuel’s motion for summary judgment on
Centerboard’s breach of contract -- work fee (equity) claim (Count I) and
Centerboard’s breach of contract -- mezzanine transaction claim (Count II) is
DENIED, Benefuel’s motion for summary judgment on Centerboard’s unjust
enrichment claim (Count IV) and quantum meruit claim (Count V) is GRANTED,
Benefuel’s supplemental motion for summary judgment on Centerboard’s breach of
contract -- 2015 transaction claim (Count III) is DENIED, and Benefuel’s
supplemental motion for summary judgment on Centerboard’s unjust enrichment and
quantum meruit claim for the 2015 transaction is DENIED as moot.
SO ORDERED.
June 29, 2016.
___________________________________
A. JOE FISH
Senior United States District Judge

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