     Case: 17-10344      Document: 00514382832         Page: 1    Date Filed: 03/12/2018




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT

                                                                       United States Court of Appeals

                                      No. 17-10344
                                                                                Fifth Circuit

                                                                              FILED
                                                                        March 12, 2018

CENTERBOARD SECURITIES, L.L.C.,                                          Lyle W. Cayce
                                                                              Clerk

                                                 Plaintiff - Appellee
v.

BENEFUEL, INCORPORATED,


                                                 Defendant - Appellant




                   Appeal from the United States District Court
                        for the Northern District of Texas
                             USDC No. 3:15-CV-2611


Before KING, ELROD, and GRAVES, Circuit Judges.
PER CURIAM:*
       Centerboard Securities, LLC, sued Benefuel, Inc., for breach of a
financial services agreement, alleging that Benefuel did not pay success fees
on two transactions covered under the agreement. The district court held a
bench trial. It found that these transactions were indeed covered by the
contract and that FHR Treasury I, LLC—the entity that invested in these



       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                  No. 17-10344
transactions—did not qualify as a current investor under the agreement.
Accordingly, it concluded that Benefuel owed Centerboard the full seven
percent success fee on both of these transactions. We AFFIRM.
                                       I.
      Benefuel, Inc. (“Benefuel”), is an alternative energy company. In
January 2011, Benefuel entered into a joint venture with Flint Hills Resources
Renewables, LLC (“FHR Renewables”), to retrofit a biodiesel plant in Beatrice,
Nebraska. On December 1, 2013, Benefuel entered into an agreement with
Centerboard   Securities,   LLC    (“Centerboard”).   Under    the   agreement,
Centerboard would act as Benefuel’s “financial advisor” and 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.” Transaction is defined 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.” The term “investment” is not defined.
      The agreement stated that Benefuel would pay Centerboard as
compensation a “work fee” and a “success fee.” The work fee consists of (1) a
cash work fee of $15,000 per month and (2) an equity work fee of “$15,000 per
month, payable in equity at the Transaction price, and due upon successful
completion of a Transaction.” The success fee is “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).” “Aggregate
Investment” is “the total amount of all investments received in connection with
a Transaction and shall include any amounts committed during the term of
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                                  No. 17-10344
this Agreement or during the Tail Period and funded subsequent to the
expiration of this Agreement.” Again, the term “investment” is not defined.
      The “Tail Period” is the 12-month period following the date of
termination. The agreement terminated on December 31, 2014. Accordingly,
the Tail Period was January 1 to December 31, 2015. The agreement stated
that Centerboard would be entitled to success fees for “Transaction[s]” entered
into during the Tail Period.
      Moreover, 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 from seven to five percent. “[F]or 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” (“pro rata ownership clause”).
The term “current investors” is not defined.
      In December 2014, Centerboard initiated this action against Benefuel in
New York state court. In January 2015, Benefuel removed this suit to the
Southern District of New York, which then transferred this suit to the
Northern District of Texas in August 2015. Centerboard filed an amended
complaint in January 2016. It alleged, inter alia, that Benefuel breached the
agreement by (1) not paying the equity work fee from July to December 2014;
(2) not paying the success fee for the “mezzanine transaction”; and (3) not
paying the success fee for the “2015 transaction.” The “mezzanine transaction,”
which occurred in December 2014, involved the issuance of units comprised of
secured promissory notes and warrants. That is, the mezzanine transaction
was comprised of debt and equity. The primary purchaser in this transaction
was FHR Treasury I, LLC (“FHR Treasury”), an affiliate of FHR Renewables.
FHR Renewables and FHR Treasury are subsidiaries of Flint Hills Resources,
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LLC (“Flint Hills”), which is a subsidiary of Koch Industries, Inc. (“Koch”).
While FHR Renewables was an investor of Benefuel’s as of the date of the
agreement (i.e., December 1, 2013), FHR Treasury was formed six months after
this date (i.e., in June 2014). The “2015 transaction,” which occurred in
December 2015, consisted of a convertible promissory note with debt and
equity aspects. FHR Treasury also invested in this transaction.
      The district court held a bench trial on October 7, 2016. On January 20,
2017, it ruled against Centerboard with respect to the equity work fee claim,
but ruled in favor of Centerboard on the two success fee claims. Specifically,
with respect to the success fee claims, the district court concluded that
“investment” unambiguously includes equity and debt and, thus, Benefuel’s
refusal to pay Centerboard success fees for the mezzanine and 2015
transactions constituted a breach of the agreement. The district court also
concluded that “current investor” unambiguously “refer[s] to only those
entities who had invested in Benefuel at the time the agreement was signed”
and does not include FHR Treasury. Accordingly, it determined that
Centerboard was entitled to the full seven percent success fee on both of these
transactions. On January 23, 2017, the district court entered judgment and
awarded Centerboard $1,900,500 on the mezzanine transaction and $420,000
on the 2015 transaction—plus pre- and post-judgment interest. Subsequently,
Benefuel filed a motion for reconsideration or, alternatively, for a new trial.
The district court denied this motion. Benefuel now appeals the district court’s
rulings on the success fee claims.
                                       II.
      The agreement was executed in Texas but contains a choice of law clause
that states any disputes arising out of the agreement shall be governed by
Delaware law. “A federal court is required to follow the choice of law rules of
the state in which it sits.” Resolution Tr. Corp. v. Northpark Joint Venture, 958
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F.2d 1313, 1318 (5th Cir. 1992) (citing Klaxon v. Stentor Elec. Mfg. Co., 313
U.S. 487, 496 (1941)). “Under 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.” Id. (citing DeSantis v. Wackenhut Corp., 793
S.W.2d 670, 678 (Tex. 1990)). Thus, the district court properly applied Texas
choice of law rules, and Delaware law governs this dispute.
      This court reviews the district court’s findings of fact for clear error and
conclusions of law de novo. See Conn. Gen. Life Ins. Co. v. Humble Surgical
Hosp., L.L.C., 878 F.3d 478, 483 (5th Cir. 2017). This court reviews “matters of
contract interpretation de novo.” Habets v. Waste Mgmt., Inc., 363 F.3d 378,
382 (5th Cir. 2004) (citing HS Res., Inc. v. Wingate, 327 F.3d 432, 440 (5th Cir.
2003)). “Delaware law adheres to the objective theory of contracts, i.e., a
contract’s construction should be that which would be understood by an
objective, reasonable third party.” Salamone v. Gorman, 106 A.3d 354, 367–68
(Del. 2014) (quoting Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del.
2010)). When interpreting a contract, Delaware courts give “‘priority to the
parties’ intentions as reflected in the four corners of the agreement,’ construing
the agreement as a whole and giving effect to all its provisions.” Id. at 368
(quoting GMG Capital Invs., LLC. v. Athenian Venture Partners I, L.P., 36 A.3d
776, 779 (Del. 2012)). “Contract terms themselves will be controlling when they
establish the parties’ common meaning so that a reasonable person in the
position of either party would have no expectations inconsistent with the
contract language.” Id. (quoting Eagle Indus., Inc. v. DeVilbiss Health Care,
Inc., 702 A.2d 1228, 1232 (Del. 1997)). “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 Co. v. Am. Legacy
Found., 903 A.2d 728, 740 (Del. 2006) (alteration in original) (quoting USA
Cable v. World Wrestling Fed’n Entm’t, Inc., 766 A.2d 462, 474 (Del. 2000)).
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      “A court must accept and apply the plain meaning of an unambiguous
term in the context of the contract language and circumstances, insofar as the
parties themselves would have agreed ex ante.” Id. “A contract is not rendered
ambiguous simply because the parties do not agree upon its proper
construction. Rather, a contract is ambiguous only when the provisions in
controversy are reasonably or fairly susceptible of different interpretations or
may have two or more different meanings.” Rhone-Poulenc Basic Chems. Co.
v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992). “[W]here reasonable
minds could differ as to the contract’s meaning, a factual dispute results and
the fact-finder must consider admissible extrinsic evidence.” GMG Capital
Invs., 36 A.3d at 783. “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.” Eagle Indus., 702 A.2d at 1232.
      We begin by examining whether the mezzanine and 2015 transactions
are covered under the agreement. A transaction covered under the agreement
is defined 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.” The term
“investment” is not defined. Benefuel argues that the term “investment” is
limited to equity and, thus, the mezzanine and 2015 transactions—both of
which have aspects of debt and equity—are not covered transactions. We
disagree.
      The term “investment” is unambiguous and includes debt and equity.
Nothing in the dictionary definitions of “investment” limits it to equity. See,
e.g., Investment, Black’s Law Dictionary (10th ed. 2014) (“An expenditure to
acquire property or assets to produce revenue; a capital outlay”); Investment,
Merriam-Webster’s Collegiate Dictionary (11th ed. 2003) (“the outlay of money
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                                  No. 17-10344
usu[ally] for income or profit”); Investment, American Heritage Dictionary (4th
ed. 2000) (“property or another possession acquired for future financial return
or benefit”). The agreement specifies “equity” in different clauses for different
purposes (e.g., in the equity work fee clause and pro rata ownership clause).
Therefore, not expressly limiting “investment” to equity suggests that the term
includes debt.
      Further, Delaware courts have used the term “investment” to refer to
equity and debt. See, e.g., In re Nine Sys. Corp. S’holders Litig., 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) (unpublished table decision); Greenwald v. Batterson, No. 16475, 1999
WL 596276, at *2 (Del. Ch. July 26, 1999) (describing an investment of money
that could be made through the purchase of bonds or debt that is convertible
to stock). We thus conclude that the term “investment” includes equity and
debt. Accordingly, the mezzanine and 2015 transactions both qualify as
transactions under the agreement, and Centerboard is therefore entitled to
success fees for them.
      Next, we determine how the success fees should be calculated (i.e.,
whether Centerboard is entitled to the full seven percent success fee or a
modified amount). The agreement states that “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.” The term “current investors” is not defined.
Benefuel contends that if the mezzanine and 2015 transactions are covered
under the agreement, then FHR Treasury should be considered a “current
investor[]” in the calculation of the success fees. We disagree.


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       The term “current investor” is unambiguous and does not include FHR
Treasury. According to Merriam-Webster’s Collegiate Dictionary (11th ed.
2003), the term “current” means “occurring in or existing at the present time.”
See also Current, American Heritage Dictionary (4th ed. 2000) (“belonging to
the present time”). According to Black’s Law Dictionary (10th ed. 2014), the
term “investor” means “[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.” 1 Put together, the plain
meaning of “current investor” is an entity—which exists at the present time—
that spends money with an expectation of earning a profit. As the date of the
agreement was December 1, 2013, the entity must have existed as of this date.
FHR Treasury was formed in June 2014, about six months after the date of the
agreement. Therefore, FHR Treasury was not a “current investor.”
       Benefuel specifically contends that “current investor” should encompass
Koch and Flint Hills and their subsidiaries. This argument is unavailing. It is
clear that FHR Renewables was a “current investor” at the time of the
agreement, as it was listed on Benefuel’s stock register at that time. Benefuel,
however, has not shown why Koch, Flint Hills, or FHR Treasury should be
treated as the same entity as FHR Renewables under the contract,
disregarding corporate formalities. In fact, Delaware law—which governs this
dispute—takes corporate formalities quite seriously. See Vichi v. Koninklijke
Philips Elecs. N.V., 62 A.3d 26, 49 (Del. Ch. 2012) (“Delaware courts take the
corporate form and corporate formalities very seriously . . . [and] will disregard
the corporate form only in the ‘exceptional case.’” (quoting Case Fin., Inc. v.
Alden, No. 1184, 2009 WL 2581873, at *4 (Del. Ch. Aug. 21, 2009))). Further,


       1 Other dictionaries, such as Merriam-Webster’s Collegiate Dictionary and American
Heritage Dictionary, do not include a separate definition for “investor.” Instead, “investor” is
treated as a form of the word “invest.”
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the agreement specified that the success fee should be reduced from seven to
five percent 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”
(emphasis added). This suggests that “current investor” does not include
affiliates of the entities that were investors at the time of the agreement, as
the parties did not specify this. Thus, FHR Treasury was not a “current
investor,” even though it was an affiliate of FHR Renewables. Accordingly,
Centerboard is entitled to the full seven percent success fee on the mezzanine
and the 2015 transactions.
                                      III.
      For the foregoing reasons, we AFFIRM the judgment of the district court.




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