Centerboard Securities LLC v. Benefuel Inc

Filing 200

MEMORANDUM OF DECISION: Centerboard is entitled to its requested relief on Count II and Count III. However, Centerboard is not entitled to relief on Count I. Counsel for Centerboard shall, within ten days of this date, submit a proposed form of judgment in conformity with this memorandum of decision. (Ordered by Senior Judge A. Joe Fish on 1/20/2017) (sss)

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 OF DECISION

I. INTRODUCTION
This action was brought by the plaintiff, Centerboard Securities, LLC
(“Centerboard”), against the defendant, Benefuel, Inc. (“Benefuel”), for breach of
contract. Following a bench trial concluding on October 7, 2016, the court makes
the following findings of fact and conclusions of law.
II. FINDINGS OF FACT
1.

Benefuel is an alternative energy company focused on producing fuels,

lubricants, and chemicals derived from non-food related fats and oils through a

proprietary chemical process derived from a process known as the “Ensel technology.”
Trial Transcript, Vol. I, 8:14-19 (docket entry 194).
2.

Benefuel’s chairman is Thomas Ryley (“Ryley”) and its chief executive

officer is Robert Tripp (“Tripp”). Trial Transcript, Vol. II, 136:20, 25 (docket entry
195).
3.

Centerboard is a broker dealer registered with the Securities and

Exchange Commission and a member of the Financial Industry Regulatory Authority,
Inc. Trial Transcript, Vol. I, 9:21-23; Plaintiff Centerboard’s Post-Trial Brief
(“Centerboard’s Brief”) at 1 (docket entry 199).
4.

In January 2011, Benefuel entered into a joint venture with Flint Hills

Resource Renewables, LLC (“Flint Hills”) to develop biodiesel production
capabilities, including retrofitting the Beatrice Nebraska biodiesel plant (the “Beatrice
project”) for operation. See PTE 151 at CBO 34723; Trial Transcript, Vol. III, 41:1742:24 (docket entry 196).
5.

On October 14, 2013, Centerboard and Benefuel began discussing a

possible engagement agreement. See Trial Transcript, Vol. I, 48:3-12.
6.

On October 21, 2013, Centerboard emailed an initial outline of its

proposed terms of engagement to Benefuel. See id. at 48:14-16; PTE 2; DTE 1.

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7.

In the initial outline, Centerboard indicated that its fee would include a

monthly retainer of $30,000 and a success fee of 7% of the capital funding. PTE 2;
DTE 1.
8.

On November 2, 2013, Centerboard emailed an initial draft of the

engagement letter to Benefuel. PTE 3; DTE 2; Trial Transcript, Vol I, 54:22-55:11.
9.

On November 6, 2013, Benefuel emailed Centerboard its comments on

the engagement letter’s terms. PTE 6; DTE 2B; Trial Transcript, Vol I, 55:15-16.
10.

Furthermore, on November 6, 2013, upon reviewing the draft, Ryley

expressed to Centerboard member Michael Maloney (“Maloney”) that Benefuel’s
goal was raising equity investment of approximately $30 million. DTE 2B. In
addition, Ryley stated that the scope of the engagement should be “[T]ied at this
point to the issuance of equity by Benefuel, as that is the current intention. If
[Benefuel] were subsequently to do issuance of other forms of finance, or enter into
other venture financing structures, these should be the subject of separate
engagement agreements.” DTE 2B.
11.

On November 10, 2013, Tripp and Ryley had further email exchanges

regarding the terms of Centerboard’s engagement and Ryley provided his comments
to Tripp on the outstanding points. See PTE 8; DTE 6.

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12.

Later in the day on November 10, 2013, following the email exchanges

between Tripp and Ryley, Tripp emailed Centerboard with additional comments on
the engagement letter. See PTE 9; Trial Transcript, Vol. II, 152:9-16.
13.

Following subsequent negotiations over the engagement letter’s terms,

on November 12, 2013, negotiations ceased. Trial Transcript, Vol. I, 67:10-16.
14.

On November 15, 2013, Centerboard and Benefuel renewed their

discussions regarding the engagement and Centerboard emailed Benefuel its position
on Benefuel’s outstanding comments on the engagement letter. See PTE 10; DTE 7.
15.

On November 18, 2013, Centerboard emailed Benefuel a redlined draft

of the engagement letter adding language that the monthly equity component of the
work fee would be “payable in equity at the Transaction price and due upon
successful completion of a Transaction.” See PTE 11; DTE 8.
16.

Furthermore, Maloney included the following language: “In the event

the Aggregate Investment is provided by Suncor, SilverLake, Black Corral or CHS,
the success fee will be reduced to 5% of any Aggregate Investment. Further, for
current investors, the 7% Success Fee will be applied to only that Aggregate
Investment which increases their pro rata equity ownership.” PTE 11; DTE 8.
17.

On November 21, 2013, Benefuel deleted language from the draft

engagement letter which defined an investment as including debt. PTE 12; DTE 9.
Specifically, Benefuel deleted the following language: “convertible securities, and

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joint venture arrangements in lieu of a direct Company investment.” PTE 12; DTE
9.
18.

Benefuel’s November 21st redline draft of the engagement letter

included “preferred stock” in an attempt to limit the engagement to the raising of
equity. See PTE 12; DTE 9; Trial Transcript, Vol. I, 149:22-24, 150:7-19.
19.

On November 25, 2013, Centerboard emailed Benefuel a redlined draft

of the engagement letter. See PTE 13; DTE 10. Centerboard’s redlined draft rejected
Benefuel’s attempt to limit the engagement to the raising of equity by deleting the
words “preferred stock.” See DTE 10; PTE 13; Trial Transcript, Vol. II, 161:1-8.
20.

On November 26, 2013, Centerboard member Lee Eichen (“Eichen”)

added the term “extraordinary transaction” to the engagement letter. DTE 11.
21.

The final signed engagement letter agreement is dated December 1,

2013 (“the agreement”). See PTE 15; DTE 13.
22.

The agreement called for Centerboard to act as a financial advisor to

Benefuel and to provide Benefuel with “financial advice and assistance in connection
with a Transaction, including: (i) identifying and contacting potential investors
and/or strategic partners; (ii) assisting [Benefuel] in its consideration and analysis of a
Transaction; and (iii) assisting [Benefuel] in its negotiation of the financial aspects of
a Transaction.” See PTE 15; DTE 13.

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23.

The agreement defines “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, Nebraska biodiesel project.” See PTE 15; DTE 13;
Trial Transcript, Vol. I, 90:1-7.
24.

The agreement does not specify that the engagement is limited to equity

transactions. PTE 15; DTE 13.
25.

Pursuant to the agreement, Benefuel agreed to pay Centerboard two

forms of compensation: (1) a work fee; and (2) a success fee. See PTE 15; DTE 13.
26.

The work fee is comprised of two components: a cash component of

$15,000 per month (“work fee (cash)”) and an equity component of $15,000 per
month (“work fee (equity)”), payable in equity at the Transaction price and due upon
successful completion of a Transaction. See PTE 15; DTE 13.
27.

The success fee is defined as 7% of any Aggregate Investment and is

“payable in cash at the time cash proceeds of such Investment are received (reduced
by the amount of the cash work fee paid).” See PTE 15; DTE 13.
28.

“Aggregate Investment” is defined as “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

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subsequent to the expiration of this Agreement.” PTE 15; DTE 13; Trial Transcript,
Vol. I, 114:6-11.
29.

The 7% success fee is reduced from 7% to 5% for any investment by

“any of Hercules Technology Growth Capital, Suncor Energy Inc., SilverLake
Management LLC, Black Corral Capital or CHS Inc. or the affiliates of each of the
foregoing.” PTE 15; DTE 13.
30.

The 5% clause applies to affiliates of the named entities. See PTE 15;

DTE 13.
31.

For investments by “current investors” of Benefuel or any investment

vehicle related to the Beatrice project, the 7% success fee applies “to only that
Aggregate Investment which increases their pro rata equity ownership” (the “pro rata
ownership clause”). See PTE 15; DTE 13.
32.

The term “current investor” is not defined in the agreement. See PTE

15; DTE 13.
33.

As of the date of the agreement, December 1, 2013, Flint Hills was an

investor in Benefuel and was listed on Benfuel’s stock register. PTE 16; DTE 12.
34.

FHR Treasury I, LLC (“FHR”) was formed as a Delaware limited

liability company on June 20, 2014, more than six months after Centerboard and
Benefuel executed the agreement. PTE 136.

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35.

At the time Centerboard and Benefuel executed the agreement, FHR

was not an investor of Benefuel and was not listed on Benefuel’s stock register. PTE
16; DTE 12; Trial Transcript, Vol. III, 37:8-15.
36.

The agreement did not extend the pro rata ownership clause to affiliates

of current investors. PTE 15; DTE 13; Trial Transcript, Vol. I, 96:22-25.
37.

The agreement included a provision that Benefuel did not owe

Centerboard a success fee for “the exercise of currently outstanding warrants or the
equity issued 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. PTE 15; DTE 13.
38.

The agreement also provided for a tail period of twelve months

following the date of termination. PTE 15; DTE 13.
39.

For any Transaction entered into by Benefuel during the tail period,

“Centerboard shall be entitled to a Success Fee as if this Agreement were in effect;
PROVIDED THAT, unless at least $10,000,000 in Aggregate Consideration has been
committed or funded prior to termination, compensation under this clause 3 (b) shall
be applicable only to parties that: (i) Centerboard can demonstrate became aware of
the Transaction through the efforts of Centerboard; or (ii) were in discussions with
[Benefuel] during the time this Agreement was in effect.” PTE 15; DTE 13.

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40.

The agreement required 30 days’ written notice for termination to be

effective. PTE 15; DTE 13.
41.

Benefuel provided written notice of termination of the agreement on

December 1, 2014. See PTE 92.
42.

The agreement terminated on December 31, 2014. PTE 15, 92; DTE

13; Trial Transcript, Vol. III, 89:4-6.
43.

The tail period was from January 1, 2015, to December 31, 2015. PTE

15; DTE 13.
44.

Prior to the termination of the agreement, on June 5, 2014, Benefuel

entered into a series of transactions with various investors, including the sale of
2,000,000 shares of series C preferred stock to Suncor Energy (U.S.A.), Inc., a wholly
owned subsidiary of Suncor Energy, Inc., in exchange for $10,000,000 (“Suncor
Transaction”). PTE 32; Trial Transcript, Vol. I, 200:22-201:8.
45.

At the time of the Suncor Transaction, Suncor Energy (U.S.A.), Inc. was

a new investor to Benefuel. See PTE 16; DTE 12.
46.

Centerboard did not introduce Suncor Energy, Inc. or Suncor Energy

(U.S.A.), Inc. to Benefuel. See Trial Transcript, Vol. I, 201:10-14.
47.

Centerboard participated in the Suncor Transaction by performing

financial analysis for Benefuel. PTE 27; DTE 33; Trial Transcript, Vol. I, 201:21202:4.

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48.

At the time of the Suncor Transaction, Benefuel had paid the $15,000

monthly work fee (cash) to Centerboard from December 2013 to May 2014, for a
total of $90,000. PTE 34.
49.

Because Suncor Energy (U.S.A.), Inc., an affiliate of Suncor Energy,

Inc., made the investment in Benefuel, the success fee was reduced from 7% to 5%,
i.e., from $700,000 (7% of $10,000,000) to $500,000 (5% of $10,000,000) pursuant
to the terms of the agreement. See PTE 15, 34; DTE 13.
50.

The $90,000 in work fee (cash) previously paid for December 2013 to

May 2014 was credited against the success fee due as a result of the Suncor
Transaction. See PTE 34.
51.

Upon closing the Suncor Transaction, Benefuel paid to Centerboard

$410,000 (success fee of $500,000 less $90,000 in work fee (cash) previously paid).
See PTE 34. Also upon closing the Suncor Transaction, Benefuel delivered to
Centerboard a stock certificate for 21,000 shares of series C preferred stock as
payment for the work fee (equity) from December 2013 to June 2014. See PTE 38.
52.

In September 2014, Benefuel began discussions about a mezzanine

investment. See Trial Transcript, Vol I, 197:10-13, 198:16-20.
53.

Centerboard assisted Benefuel in its consideration and analysis of a

potential mezzanine financing of roughly $30 million and assisted Benefuel in its

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negotiation of the financial aspects of the transaction. See PTE 49; Trial Transcript,
Vol. I, 200:13-17.
54.

On October 28, 2014, Kevin Singer (“Singer”) from Centerboard and

Ryley from Benefuel had a conference call to discuss the success fee payable to
Centerboard for the upcoming mezzanine financing. PTE 68, 69; Trial Transcript,
Vol. I, 204:10-14.
55.

On December 19, 2014, Benefuel entered into a note purchase and

warrant agreement with various purchasers for the principal amount of $32,000,000
(“FHR mezzanine transaction”). See generally PTE 101.
56.

The FHR mezzanine transaction consisted of the issuance of units

comprised of secured promissory notes and warrants. PTE 101; Trial Transcript, Vol.
II, 14:4-18. The units were hybrid securities with aspects of debt and aspects of
equity. Trial Transcript, Vol. II, 14:19-24.
57.

The warrants are detachable, have an exercise price equal to $0.01 per

share of common stock and automatically convert to equity upon expiration, if not
previously exercised, or if Benefuel filed bankruptcy or paid off the mezzanine loan.
See generally PTE 10, 103.
58.

FHR was the primary purchaser in the FHR mezzanine transaction,

purchasing units for a note in the amount of $27,150,000 and receiving warrants for
814,500 shares of common stock. PTE 101; Trial Transcript, Vol. II, 20:16-18.

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59.

FHR Treasury is a separate legal and operating entity from Flint Hills.

See PTE 136.
60.

Benefuel has refused to pay Centerboard any success fee for the FHR

mezzanine transaction. Centerboard’s Brief at 10.
61.

As to the dispute over the work fee (equity), the completion of the

Suncor Transaction met the condition in the tail period provision requiring at least
$10,000,000 in aggregate consideration to have been committed or funded prior to
termination. See PTE 15; DTE 13.
62.

On July 18, 2014, Centerboard emailed Benefuel an invoice for the

work fee (cash) for July 2014 and informed Benefuel that the work fee (equity) for
July 2014 was still accruing. PTE 43, 44.
63.

On December 7, 2015, Benefuel’s board of directors approved a

$6,900,000 offering of convertible promissory notes and invited its shareholders to
participate. See PTE 126.
64.

On December 18, 2015, Benefuel executed a convertible promissory

note payable to FHR in the principal amount of $6,000,000 (“2015 transaction”).
DTE 121; Trial Transcript, Vol. III, 25:18-20.
65.

The 2015 transaction closed during the tail period. See PTE 15; DTE

13.

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66.

The 2015 transaction was a convertible promissory note and had both

debt and equity features. PTE 123; Trial Transcript, Vol. I, 116:15-18.
67.

Flint Hills did not invest in the 2015 transaction; rather, FHR invested

in the 2015 transaction. See generally PTE 127, 128.
68.

Benefuel has refused to pay Centerboard any success fee for the 2015

transaction. Centerboard’s Brief at 11.
III. ANALYSIS
A. Legal Standards
1. Breach of Contract
Delaware law governs this dispute. See Resolution Trust Corporation v. Northpark
Joint Venture, 958 F.2d 1313, 1318 (5th Cir. 1992) (holding that a “federal court is
required to follow the choice of law rules of the state in which it sits. . . . [U]nder the
Texas rules, in those contract cases in which the parties have agreed to an enforceable
choice of law clause, the law of the chosen state must be applied”), cert. denied, 506
U.S. 1048 (1993); see also PTE 15; DTE 13. “Under Delaware law, the elements of a
breach of contract claim are: (1) a contractual obligation; (2) a breach of that
obligation by the defendant; and (3) a resulting damage to the plaintiff.” H-M
Wexford LLC v. Encorp, Inc., 832 A.2d 129, 140 (Del. Ch. 2003); Connelly v. State Farm
Mutual Automobile Insurance Company, 135 A.3d 1271, 1280 n.28 (Del. 2016).

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Delaware strictly adheres to the objective theory of contract interpretation.
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010). Under that theory,
“a contract’s construction should be that which would be understood by an objective,
reasonable third party.” Id. When a term’s definition is not altered or has “no ‘gloss’
in the [relevant] industry it should be construed in accordance with its ordinary
dictionary meaning.” Lorillard Tobacco Company v. American Legacy Foundation, 903
A.2d 728, 740 (Del. 2006) (quoting USA Cable v. World Wrestling Federation
Entertainment, Inc., 766 A.2d 462, 474 (Del. 2000)).
2. Parol Evidence Rule
The parol evidence rule bars admission of extrinsic evidence to contradict or
vary unambiguous terms. GMG Capital Investments, LLC v. Athenian Venture Partners
I, L.P., 36 A.3d 776, 783 (Del. 2012). Ambiguity does not exist simply because the
parties disagree about a term’s construction. Seidensticker v. Gasparilla Inn, Inc., Civ.
A. No. 2555-CC, 2007 WL 4054473, at *2 (Del. Ch. Nov. 8, 2007). Moreover,
courts will not “destroy or twist” contract language to find an ambiguity when its
meaning is evident from the general nature of language. Rhone-Poulenc Basic Chemicals
Company v. American Motorists Insurance Company, 616 A.2d 1192, 1195-96 (Del.
1992). Contracts are ambiguous “when the provisions in controversy are reasonably
or fairly susceptible of different interpretations or may have two or more different
meanings.” Id. at 1196. The court must review the agreement for ambiguity through

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the lens of “what a reasonable person in the position of the parties would have
thought [the contract] meant.” Id. at 1197.
B. Application of the Law
Centerboard asserts three claims for breach of contract: (1) for the work fee
(equity) (Count I) from July 2014 through December 2014; (2) for the success fee for
the FHR mezzanine transaction (Count II); and (3) for the success fee for the 2015
transaction (Count III). Centerboard’s Amended Complaint Against Benefuel ¶¶ 6989 (docket entry 44). Counts II and III depend on whether the FHR mezzanine
transaction and 2015 transaction fall within the agreement’s definition of
“Transaction.” If the court determines that the FHR mezzanine transaction and/or
the 2015 transaction are “Transactions,” then calculation of the appropriate success
fee depends on whether FHR was a “current investor” under the agreement.
However, the court must first determine whether the terms “Transaction” and/or
“current investor” are ambiguous. If the terms are ambiguous, parol evidence may be
considered to aid the court in its interpretation.
Lastly, as to Count I, the court must determine whether Centerboard is
entitled to a work fee (equity) under the agreement.

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1. Count II and Count III
a. The FHR Mezzanine Transaction and the 2015 Transaction
Are “Transactions” as Defined in the Agreement
The agreement defines “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, Nebraska biodiesel project.” See PTE 15; DTE 13.
Accordingly, the court must determine whether the terms “investment” and/or
“extraordinary transaction” are ambiguous and then construe each term.
The court will begin by looking to the dictionary definition of “investment.”
See Lorillard Tobacco Company, 903 A.2d at 740. “Investment” is defined as an
“outlay of money usually for income or profit.” Investment, MERRIAM-WEBSTER’S
COLLEGIATE DICTIONARY 616 (10th ed. 1999); Investment, BLACK’S LAW
DICTIONARY 902 (9th ed. 2009) (“An expenditure to acquire property or assets to
produce revenue; a capital outlay.”). Benefuel contends that it is reasonable to
restrict the term “investment” solely to equity investments; therefore, the term
“investment” is ambiguous. Defendant Benefuel’s Closing Argument Brief
(“Benefuel’s Brief”) at 2 (docket entry 198). Centerboard contends that the term
“investment” is broad and includes both debt and equity investments. See
Centerboard’s Brief at 14-15.

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Here, the term “investment” is not reasonably susceptible to Benefuel’s
proposed definition.1 See Seaford Golf & Country Club v. E.I. duPont de Nemours &
Company, 925 A.2d 1255, 1261-62 (Del. 2007) (looking to whether the term is
susceptible to the interpretation of one of the parties to determine ambiguity). First,
Benefuel’s interpretation cannot be reconciled with the dictionary definition of the
word “investment.” An “outlay of money usually for income or profit” does not
remotely limit the specific types of financing that constitute an “investment.”
Although the dictionary definition of “investment” is broad, breadth does not render
a term ambiguous. Levitt Corp. v. Office Depot, Inc., No. CIV.A. 3622-VCN, 2008 WL
1724244, at *5 (Del. Ch. Apr. 14, 2008) (“[T]here is a difference between breadth
and ambiguity.”).

1

The court’s order denying Benefuel’s motion for summary judgment
states, “The engagement agreement’s definition for transaction is far from clear.”
Memorandum Opinion and Order Granting in Part and Denying in Part Benefuel’s
Motion and Supplemental Motion for Summary Judgment at 16 (docket entry 139).
Benefuel cites this sentence for the proposition that the term “Transaction” is
ambiguous. Benefuel’s Brief at 2. However, the court is not bound by its summary
judgment order. Where a court denies a motion for summary judgment, “the order
establishes nothing as the facts and all issues made by the pleadings are open at
trial.” United States v. Horton, 622 F.2d 144, 148 (5th Cir. 1980) (quoting 6 J.
MOORE’S FEDERAL PRACTICE § 56.04(1) (1975)). In the quotation cited by Benefuel,
the court implied that Benefuel had not met its summary judgment burden of
showing that the term “Transaction” was limited to equity. However, it made no
ultimate determination on whether the term is facially ambiguous. Therefore, the
order is not controlling on this issue.
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The plain meaning of the word “investment” clearly includes debt transactions.
For example, buying a company’s issued debt is an “outlay of money” 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] common stock.” Debt
transactions structured like this are presumably less risky than pure equity
investments but, under the dictionary definition, are investments nonetheless.
Furthermore, examining the term “investment” from the lens of a reasonable
person in the parties’ positions only supports the conclusion that “investment”
includes both debt and equity. The parties are both sophisticated business entities,
and both were represented by counsel. See Trial Transcript, Vol. I, 73:6-12. If the
parties had intended for the term “investment” to only include equity, they were
more than capable of drafting the agreement to reflect such an intention. They opted
not to, however, in the final agreement. Because the parties agreed to use the
expansive term “investment,” Centerboard’s broad interpretation of the word
“investment” is the “superior interpretation.” See Wills v. Morris, James, Hitchens &
Williams, No. CIV. A. 15297, 1998 WL 842325, at *2 (Del. Ch. Nov. 6, 1998)
(looking to the “superior” interpretation of the parties’ offered interpretations);

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Cornell Glasgow, LLC v. LaGrange Properties, LLC, No. CIV.A. N11C-05-016-JRS, 2012
WL 6840625, at *12 (Del. Super. Ct. Dec. 7, 2012) (looking to the “more
reasonable” interpretation of the parties’ offered interpretations). Given the breadth
of the term “investment,” limiting its application solely to equity transactions is
incongruous.
Moreover, Delaware courts use the word “investment” to refer to both debt
and equity. See, e.g., In re Nine Systems Corporation Shareholders Litigation, No. Civ. A.
3940-VCN, 2014 WL 4383127, at *6 (Del. Ch. Sept. 4, 2014) (“The equity
investment proposal shared with [the shareholder] shifted to a possible debt
investment”), aff’d sub nom., Fuchs v. Wren Holdings, LLC, 129 A.3d 882 (Del. 2015);
Greenwald, 1999 WL 596276, at *2 (noting that “investment” included purchase of
bonds or debt convertible to company stock). Thus, the court holds that the term
“investment” is not ambiguous and parol evidence should not be considered. Allied
Capital Corporation v. GC-Sun Holdings, L.P., 910 A.2d 1020, 1030 (Del. Ch. 2006)
(holding that only after determining that a contractual provision is ambiguous can
the court consider extrinsic evidence in interpreting such a provision).
Even if it is assumed arguendo that the term “investment” is ambiguous, thus
allowing extrinsic evidence to be considered, Benefuel’s interpretation would still fail.
Under Delaware law, where there is an ambiguous provision in a negotiated bilateral
agreement, extrinsic evidence should be considered if it would help the court

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interpret such a provision. Eagle Industries, Inc. v. DeVilbiss Health Care, Inc., 702 A.2d
1228, 1232-33 (Del. 1997). Delaware courts may consider all admissible evidence
relating to the objective circumstances of the contract’s formation. See Salamone v.
Gorman, 106 A.3d 354, 374 (Del. 2014). Sources of such evidence include “overt
statements and acts of the parties, the business context [of the contract], prior
dealings between the parties, business custom, and usage in the industry.” Dittrick v.
Chalfant, 948 A.2d 400, 406 (Del. Ch.) (quoting The Liquor Exchange, Inc. v. Tsaganos,
No. Civ. A. 19312-NC, 2004 WL 2694912, at *2 (Del. Ch. Nov. 16, 2004)), aff’d,
935 A.2d 255 (Del. 2007).
Here, the parties presented prior drafts of the agreement. The drafts show that
the term “investment” was, at times, clearly limited to equity. For example,
Benefuel’s additions to the November 21, 2013 version of the agreement limited
investment to “preferred stock of the Company.” Trial Transcript, Vol. I, 74:22-75:4;
DTE 9. However, in the final version of the agreement, the parties opted for broad
language -- the word “investment” -- without any limitations. The final agreement
does not support the notion that investment is limited to equity. See T.P. Inc. v.
J&D’s Pets, Inc., No. 98C-01-205-WTQ, 1999 WL 135243, at *5 (Del. Ch. Feb. 26,
1999) (holding that a subsequently-removed clause included in prior drafts does not
evidence an intent to agree to the clause in the final draft); Emmons v. Hartford
Underwriters Insurance Company, 697 A.2d 742, 746 (Del. 1997) (“Contract

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interpretation that adds a limitation not found in plain language of the contract is
untenable.”). Even considering the extrinsic evidence, the court cannot hold that the
deletion of Benefuel’s restrictive language did not reflect the parties intentions at the
time of the final agreement. American Family Mortgage Corporation v. Acierno, No. CIV.
A. 91C-09-214, 1993 WL 259113, at *1 (Del. Super. Ct. July 7, 1993) (“The Court
is not free to ignore the language in the agreement.”), aff’d, 640 A.2d 655 (Del.
1994).
Moreover, extrinsic evidence shows that Benefuel apparently understood the
term “investment” to broadly include both equity and debt. Both the note and
purchase agreement for the FHR mezzanine transaction and the promissory note for
the 2015 transaction define “investment” as including both equity and debt. See PTE
101 at Benefuel000053; PTE 127 at FHR 5864. While Benefuel has presented some
evidence that equity investments were its preferred source of funding, the court must
adhere to the objective theory of contract law. United Rentals, Inc. v. RAM Holdings,
Inc., 937 A.2d 810, 835 (Del. Ch. 2007) (“The Court must emphasize here that the
introduction of extrinsic, parol evidence does not alter or deviate from Delaware’s
adherence to the objective theory of contracts.”). Considering the plain meaning of
the term “investment,” the fact that the parties were two sophisticated business
entities, and that the clause was highly negotiated, the court holds that the term

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“investment” encompasses both equity and debt.2 Therefore, the FHR mezzanine
transaction and the 2015 transaction fall within the term “Transaction” under the
agreement.
b. FHR Is Not a Current Investor under the Agreement
The court must further construe the agreement to determine whether a success
fee is owed on the FHR mezzanine and 2015 transactions. Centerboard contends
that it is owed a success fee pursuant to the following clause in the agreement:
A success fee of 7% of any Aggregate Investment, payable
in cash at the time cash proceeds of such Investment are
received (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.
PTE 15; DTE 13.
Benefuel contends, however, that the following clause applies: “For current
investors of the Company . . ., the 7% Success Fee will be applied to only that
Aggregate Investment which increases their pro rata equity ownership.” See PTE 15; DTE 13
(emphasis added). Specifically, Benefuel contends, FHR is a “current investor” under
the agreement because it is part of the Koch family and the Koch family had already

2

Because the court has determined that the term “investment”
encompasses both debt and equity, it need not construe the term “extraordinary
transaction.”
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invested in Benefuel through Flint Hills. Benefuel’s Brief at 5, 7. Benefuel
concludes, therefore, that, at most, it owes the amount that Flint Hills increased its
pro rata equity ownership through FHR’s investment. See Benefuel’s Brief at 8-9.
First, the court must determine whether the term “current investor” is
ambiguous. “Current” is defined as “presently elapsing” or “occurring in or existing
at the present time.” Current, MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 284
(10th ed. 1999). “Investor” is defined as “[a] buyer of a security or other property
who seeks to profit from it without exhausting the principal” or “[b]roadly, a person
who spends money with an expectation of earning a profit.” Investor, BLACK’S LAW
DICTIONARY 903 (9th ed. 2009) (emphasis added). Taken together, the plain
meaning of “current investor” is “a presently-existing entity that has spent money on
the purchase of a security or other property with the expectation of earning a profit.”
Benefuel contends that the term “current investor” should be defined as “any
company currently invested in Benefuel, through any vehicle chosen to invest in
Benefuel, whether directly or indirectly.” Benefuel’s Brief at 5. Benefuel’s proposed
definition expands the definition of “current investor” beyond its plain meaning
through the phrases “directly or indirectly” and “any vehicle chosen.” Benefuel’s
definition seemingly opens the door to including entities that were not then
“existing.” Moreover, Benefuel seeks to expand the term “investor” beyond a single
entity, when the definition clearly refers to a single entity. Because Benefuel’s

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interpretation cannot be reconciled with its plain meaning, the term “current
investor” is not subject to two or more reasonable interpretations. See Norton v. KSea Transportation Partners L.P., 67 A.3d 354, 360 (Del. 2013) (holding that a
contract is ambiguous “only if it is susceptible to two or more reasonable
interpretations”) (emphasis added). Thus, the term “current investor” is not
ambiguous and parol evidence cannot be considered.
Applying the plain meaning of “current investor,” the court must determine
whether FHR can be considered an investor as of December 1, 2013 -- the date of the
agreement. It is undisputed that Flint Hills had invested in Benefuel prior to the
agreement. See PTE 16. Moreover, it is undisputed that FHR was formed after the
parties had entered into the agreement. See PTE 136. Benefuel contends that the
pro rata ownership clause should apply to Flint Hills and its affiliate FHR -- implying
that they are a single entity. See Benefuel’s Brief at 5. In order to succeed, Benefuel
must show that its interpretation is the superior interpretation.
While it may be true that Flint Hills and FHR are part of the “Koch family” of
companies, Benefuel has not sufficiently shown that the court should consider them
the same entity -- and thus “current investors” -- under the agreement. The logical
conclusion of Benefuel’s argument is that the court should consider Koch, and all
Koch-backed entities, as “current investors” under the agreement simply because one
entity, Flint Hills, had previously invested. Because there are an unknown number of

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Koch-affiliated entities, Benefuel’s proposed definition would lead to absurd results
and expand the definition of “current investor” well beyond its plain meaning.
Osborn ex rel. Osborn, 991 A.2d at 1160 (“An unreasonable interpretation produces an
absurd result or one that no reasonable person would have accepted when entering
the contract.”).
Moreover, the parties are in accord that the agreement is governed by
Delaware law, which takes corporate formalities very seriously. Case Financial, Inc. v.
Alden, No. 1184-VCP, 2009 WL 2581873, at *4 (Del. Ch. Aug. 21, 2009) (holding
that corporate formalities are disregarded “only in the ‘exceptional case’”). Delaware
law specifically holds that a common corporate parent is not a proper basis for
disregarding separate corporate existence. See eCommerce Industries, Inc. v. MWA
Intelligence, Inc., No. CV 7471-VCP, 2013 WL 5621678, at *27-28 (Del. Ch.
Sept. 30, 2013); see also Vichi v. Koninklijke Philips Electronics N.V., 62 A.3d 26, 49
(Del. Ch. 2012) (holding that the corporate structure of the “Phillips family of
companies” should not be eradicated despite the Phillips’ slogan of “One Phillips”).
Similarly, here, the separate corporate existence of the Koch-backed companies
cannot be disregarded simply because one Koch entity -- Flint Hills -- invested in
Benefuel. Under Delaware law, the two Koch-affiliated companies in question -- Flint
Hills and FHR -- are separate entities. Given the plain meaning of “current investor”

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as construed under Delaware law, the court cannot conclude that FHR was a
“presently existing entity.”
Examining the agreement in its entirety reaffirms the conclusion that Flint
Hills and FHR should not be treated as the same entity under the agreement. The
word affiliates is used elsewhere in the agreement but does not appear in the pro rata
ownership clause. See PTE 15; DTE 13. For example, the agreement states that if
the aggregate investment is provided by “any of Hercules Technology Growth
Capital, Suncor Energy Inc., SilverLake 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.” PTE 15; DTE 13 (emphasis added).
The court cannot ignore the plain language of the agreement and cannot add
words that do not appear on the face of the agreement. See Charlotte Broadcasting,
LLC v. Davis Broadcasting of Atlanta, L.L.C., No. CV-13C04143-WCC-CCLD, 2015
WL 3863245, at *4-5 (Del. Super. June 10, 2015), aff’d, 134 A.3d 759 (Del. 2016);
Emmons, 697 A.2d at 746; Alpine Investment Partners v. LJM2 Capital Management, L.P.,
794 A.2d 1276, 1286 (Del. Ch. 2002), as revised (Mar. 28, 2002) (noting that it is
not the proper role of a court to supply omitted provisions to a written agreement).
As they did to other clauses in the agreement, the parties could have added the term
affiliates to the provision describing current investors if they intended that provision
to apply to affiliates of current investors. Moreover, Benefuel could have specifically

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required that the agreement note that all Koch-affiliated entities are deemed “current
investors.” However, under agreement as finally executed, the only reasonable
interpretation is that the parties did not intend “current investor” to include affiliates
of Flint Hills.
In sum, the words “current investor” refer to only those entities who had
invested in Benefuel at the time the agreement was signed. That includes only Flint
Hills but not FHR. The pro rata ownership clause, in consequence, applies neither to
the FHR mezzanine transaction nor to the 2015 transaction. Therefore, Benefuel
owes Centerboard a success fee of 7% of the aggregate investment for both
transactions.
2. Centerboard Is Not Entitled to the Work Fee (Equity) (Count I)
According to the agreement, the work fee (equity) was “due upon successful
completion of a Transaction.” PTE 15; DTE 13. The Suncor Transaction closed on
June 5, 2014, during the term of the agreement. PTE 32. The closing of the Suncor
Transaction constituted a “successful completion of a Transaction,” and triggered
Centerboard’s right to receive the work fee (equity). Centerboard’s Brief at 40;
Benefuel’s Brief at 9. The work fee (equity) was to be paid in equity “at the
Transaction price.” PTE 15; DTE 13. The Transaction price for the Suncor
Transaction was $5.00 per share. Centerboard’s Brief at 40; Benefuel’s Brief at 9.

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Centerboard contends that Benefuel’s interpretation of the agreement -requiring another successful closing of a transaction to trigger the work fee (equity) -is contrary to Delaware law and is an incorrect interpretation. Centerboard’s Brief at
40. Centerboard avers that the work fee (equity) was accruing from July 2014
through December 2014. Centerboard’s Brief at 41. Specifically Centerboard
maintains that the agreement states that the work fee (equity) would be due “upon
successful completion of a Transaction,” not “upon successful completion of each
Transaction.” Id. at 40. Benefuel, on the other hand, asserts that once the work fee
(equity) was paid, there is no specific language in the agreement stating that the fee
continues to accrue. Benefuel’s Brief at 9.
Benefuel’s interpretation is the superior interpretation. The work fee (equity)
states that such fee is “due upon” the successful completion of a Transaction. The
language “due upon” implies that the work fee (equity) must be paid in full at the
close of a Transaction. The agreement does not state that the work fee (equity)
continues to accrue each month after the completion of a transaction. Moreover, the
purpose of the work fee (equity) clause was to give Centerboard an incentive to raise
equity. However, this incentive would be diminished if Centerboard were
automatically entitled to the work fee (equity), for the duration of the agreement,
after the closing of a single Transaction. Surely the parties anticipated that
Centerboard would attempt to close more than one equity transaction during the

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engagement period. Thus, the court holds that the Suncor transaction did not trigger
a work fee (equity) between July 2014 and December 2014.
However, the issue remains as to whether a work fee (equity) was due upon
the completion of the FHR mezzanine transaction. The court has already determined
that the FHR mezzanine transaction, which closed in December of 2014 was a
“successful completion of a Transaction.” However, unlike the definition of
Transaction, the work fee (equity) clause, by its plain language, contemplates
payment only upon the closing of a purely equity transaction.
Upon reviewing the evidence, the court determines that the FHR mezzanine
transaction involved a “hybrid security” “because it has aspects of debt and it has
aspects of equity.” See Trial Transcript, Vol. I, 113:8-17, 199:18-20, Vol. II, 14:2024. Specifically, Benefuel executed a secured promissory note in favor of FHR in the
amount of $27,150,000, and Benefuel issued to FHR warrants for the purchase of
814,500 shares of common stock. See generally PTE 101. Such a hybrid transaction
is clearly not a purely equity transaction that would trigger a work fee (equity). The
agreement contemplates that Benefuel would pay Centerboard in equity at the share
price of any equity raised by Centerboard. Therefore, Benefuel did not breach the

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agreement by withholding the work fee (equity) between July and December of
2014.3

C. Pre-Judgment and Post-Judgment Interest
1. Pre-Judgment Interest
Delaware law governs the award of pre-judgment interest in this case. Harris v.
Mickel, 15 F.3d 428, 429 (5th Cir. 1994) (“State law governs the award of
prejudgment interest in diversity cases.”). A plaintiff is entitled to recover prejudgment interest for a breach of contract claim. See Brandywine Smyrna, Inc. v.
Millennium Builders, LLC, 34 A.3d 482, 485 (Del. 2011). “Interest is awarded in
Delaware as a matter of right and not of judicial discretion.” Moskowitz v. Wilmington,
391 A.2d 209, 210 (Del. 1978); Delta Eta Corporation v. University of Delaware, 2 A.3d
73, *2 (Del. 2010) (“In a Delaware action based on breach of contract or debt,

3

The court notes that the doctrine of contra proferentum, construing the
term against the drafting party, is not mandatory. “The rule of contra proferentum is
one of last resort that will not apply if a document can be interpreted by applying
more favored rules of construction.” Zimmerman v. Crothall, 62 A.3d 676, 698 (Del.
Ch. 2013). “It is less likely to be appropriate where knowledgeable and experienced
parties to a contract engaged in a series of negotiations.” Id. Here, as discussed
above, the agreement went through extensive negotiations by two sophisticated
entities that were represented by counsel. Thus, contra proferentum should not be
applied in the instant case. See Union Fire Insurance Company of Pittsburgh, P.A. v. Pan
American Energy LLC, No. CIV.A. 19629-NC, 2003 WL 1432419, at *4 n.28 (Del.
Ch. Mar. 19, 2003) (“[The clause at issue] was the product of negotiation between
two highly sophisticated parties, of comparable bargaining power, who presumably
had access to counsel. As such, the principle of contra proferentum is inapplicable.”).
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prejudgment interest is awarded as a matter of right.”). Pursuant to the Delaware
statute, “the legal rate of interest shall be 5% over the Federal Reserve discount rate
including any surcharge as of the time from which interest is due.” 6 Del. C.
§ 2301(a); see also Carey v. McGinty, No. CIV.A. 86C-JL17, 1988 WL 55336, at *7
(Del. Super. Ct. May 18, 1988).
For the FHR mezzanine transaction, pre-judgment interest shall run on the
sum of $1,900,5004 at the rate stated in 6 Del. C. § 2301(a) from December 19,
2014, to the date that judgment is entered. For the 2015 transaction, pre-judgment
interest shall run on the sum of $420,0005 at the rate stated in 6 Del. C. § 2301(a)
from December 18, 2015, to the date that judgment is entered.
2. Post-Judgment Interest
“In a diversity case, the federal post-judgment interest statute applies.” DP
Solutions, Inc. v. Rollins, Inc., 353 F.3d 421, 435 (5th Cir. 2003); Boston Old Colony
Insurance Co. v. Tiner Associates Inc., 288 F.3d 222, 234 (5th Cir. 2002) (“[P]ostjudgment interest is calculated at the federal rate, while pre-judgment interest is
calculated under state law.”). In addition to contractual damages and pre-judgment
interest thereon, Centerboard is also entitled, under federal law, to post-judgment

4

7% of FHR’s investment of $27,150,000 in the FHR mezzanine
transaction. PTE 15; DTE 13.
5

7% of FHR’s investment of $6,000,000 in the 2015 transaction. PTE

15; DTE 13.
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interest on those sums. 28 U.S.C. 1961(a); see also Boston Old Colony Insurance Co.,
288 F.3d at 234 (“[T]his circuit has required that post-judgment interest at the
federal rate be assessed against the pre-judgment interest.”).
IV. CONCLUSION
For the reasons stated above, Centerboard is entitled to its requested relief on
Count II and Count III. However, Centerboard is not entitled to relief on Count I.
Counsel for Centerboard shall, within ten days of this date, submit a proposed
form of judgment in conformity with this memorandum of decision.
SO ORDERED.

January 20, 2017.

___________________________________
A. JOE FISH
Senior United States District Judge

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