Zenith Energy Terminals Joliet Holdings LLC v. CenterPoint Properties Trust

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
ZENITH ENERGY TERMINALS )
JOLIET HOLDINGS LLC, a Delaware )
Limited Liability Company, JOLIET )
BULK, BARGE & RAIL LLC, a )
Delaware Limited Liability Company, )
)
Plaintiffs, ) C.A. No.: N19C-10-054 EMD CCLD
)
v. )
)
CENTERPOINT PROPERTIES TRUST, )
a Maryland Real Estate Investment Trust, )
)
Defendant. )
DECISION AFTER TRIAL
Submitted: March 12, 2024
Decided: July 29, 2024
Christopher Viceconte, Esquire, Gibbons P.C., Wilmington, Delaware, Patrick J. Lamb, Esquire,
J’Aimee Crockett, Esquire, ElevateNext Law, Chicago, Illinois. Attorneys for Plaintiffs Zenith
Energy Terminals Joliet Holdings LLC and Joliet Bulk, Barge & Rail LLC.
F. Troupe Mickler IV, Esquire, Randall J. Teti, Esquire, Ashby & Geddes, P.A., Wilmington,
Delaware, James D. Dasso, Esquire, Mason D. Roberts, Esquire, Jennifer S. Park, Esquire,
Zachary R. Kumar, Foley & Lardner LLP, Chicago, Illinois. Attorneys for Defendant
CenterPoint Properties Trust.
DAVIS, J.
I. INTRODUCTION
This is a breach of contract action assigned to the Complex Commercial Litigation
Division of this Court. Plaintiffs Zenith Energy Terminals Joliet Holdings LLC (“Zenith”) and
Joliet Bulk, Barge & Rail LLC (“JBBR”) (collectively, “Zenith” or the “Plaintiffs”) filed an
Amended Complaint on September 10, 2021, against Defendants CenterPoint Properties Trust
(“CenterPoint” or the “Defendant”) for breach of contract.1
CenterPoint previously owned JBBR.2 CenterPoint, through JBBR, entered into
contracts to design and build a crude-by-rail off-loading terminal in Joliet, Illinois (the
“Terminal”).3 CenterPoint planned that the Terminal would receive, off-load, store, and
distribute crude oil from the Mojo Pipeline.4
CenterPoint and Arc Terminals Joliet Holdings LLC (now known as Zenith Terminals
Joliet Holdings LLC) entered into a Membership Interest Purchase Agreement (the “Purchase
Agreement”).5 Under the Purchase Agreement, CenterPoint sold JBBR and, in effect, the
Terminal to Zenith before the construction project on the Terminal was completed.6 Thereafter,
Zenith, on behalf of JBBR, and CenterPoint negotiated a Construction Management Agreement,
whereby CenterPoint was to continue to manage the construction project.7 Ultimately, the
construction project was incomplete, not meeting alleged key requirements under the design and
build plans.8
Zenith filed suit, alleging CenterPoint breached the Purchase Agreement and the
Construction Management Agreement. CenterPoint maintains no such breaches occurred.
II. PROCEDURAL BACKGROUND
On October 7, 2019, Zenith filed its original Complaint, asserting (1) breach of contract
against CenterPoint under the Purchase Agreement between Zenith and CenterPoint, and (2)
1
Amended Complaint (“Am. Compl.”), Sept. 10, 2021 (D.I. No. 89).
2
See id. ¶ 4.
3
Id. ¶ 3.
4
Id. ¶ 1.
5
Id. ¶ 4.
6
Id.
7
Id. ¶¶ 4-5.
8
Id. ¶ 6.
2
breach of contract against CenterPoint under the Construction Management Agreement between
JBBR and CenterPoint.9 On November 9, 2019, CenterPoint filed its first Motion to Dismiss, or,
in the Alternative, Motion to Stay the Action Pending Resolution of the Related Litigation (the
Motion to Dismiss”).10 On January 28, 2020, the Court heard argument on the Motion to
Dismiss.11 On February 14, 2020, the Court denied the Motion to Dismiss.12 On February 21,
2020, CenterPoint filed its Answer and Affirmative Defenses.13
On August 27, 2021, Zenith filed a Motion to Amend the Complaint under Delaware
Superior Court Civil Rule 15(a),14 which the Court granted on September 9, 2021.15 Zenith filed
the current Amended Complaint on September 10, 2021, which asserts the same two breach of
contract counts as the original Complaint.16 CenterPoint thereafter filed its Answer and
Affirmative Defenses on September 24, 2021.17 CenterPoint then filed a Motion to Amend the
Answer (the “Motion to Amend”) to assert counterclaims on the same day.18 The Court heard
argument on the Motion to Amend on October 18, 2021,19 and denied the Motion to Amend on
January 7, 2022.20
On August 5, 2022, Zenith filed a Motion for Summary Judgment, seeking judgment in
its favor on both counts as to liability and requesting a trial as to damages.21 Also on August 5,
2022, CenterPoint filed its own Motion for Summary Judgment, requesting judgment in its favor
9
See Original Complaint (“Original Compl.”), Oct. 7, 2019 (D.I. No. 1).
10
See Defendant’s First Motion to Dismiss (“First Mot. to Dismiss”), Nov. 19, 2019 (D.I. No. 9).
11
See Judicial Action Form, Jan. 28, 2020 (D.I. No. 25).
12
See Order, Feb. 14, 2020 (D.I. No. 27).
13
See Answer, Feb. 21, 2020 (D.I. No. 28).
14
See Motion to Amend Complaint, Aug. 27, 2021 (D.I. No. 86).
15
Order, Sept. 9, 2021 (D.I. No. 88).
16
See Am. Compl.
17
See Answer, Sept. 24, 2021 (D.I. No. 90).
18
See Motion to Amend Answer, Sept. 24, 2021 (D.I. No. 91).
19
See Judicial Action Form, Oct. 18, 2021 (D.I. No. 94).
20
See Order, Jan. 27, 2022 (D.I. No. 105).
21
See Plaintiffs’ Motion for Summary Judgment (“Pls.’ Mot. for Summ. J.”) (D.I. No. 131).
3
on both counts in the Amended Complaint.22 The Court heard argument on those Motions on
October 28, 2022 and took the Motions under advisement at the conclusion of the hearing. The
Court denied the Motions for Summary Judgment on January 23, 2023 (the “Opinion”).23
The Opinion resolved substantially all of the legal issues between the parties. The Court
held that Delaware’s applicable statute of limitations did not bar Zenith’s breach of contract
claims—i.e., Count I and Count II.24 The Court also addressed issues of contract interpretation.
The Court held that the Purchase Agreement and the Construction Management Agreement were
unambiguous.25 The Court will not readdress these legal issues as part of this Decision. The
Court notes that nothing presented during the Trial (as defined below) would cause the Court to
change any holding as to a legal issue addressed in the Opinion—e.g., that the statute of
limitations bars Zenith’s claim or that the contracts were ambiguous. Finally, the Court found
that genuine issues of material fact existed as to: (i) “Final Completion;”26 (ii) whether
CenterPoint breached Purchase Agreement Section 6.16(a);27 and (iii) whether CenterPoint
breached Construction Management Agreement Section 2(b).28
III. THE TRIAL
The Court held a bench trial on Zenith’s claims from July 5, 2023 through July 7, 2023
and again on August 21, 2023 (collectively, the “Trial”).29 The Court then had both parties
22
See Defendant’s Motion for Summary Judgment (‘Def.’s Mot. for Summ. J.”) (D.I. No. 139).
23
Zenith Energy Terminals Joliet Holdings LLC v. CenterPoint Properties Trust, 2023 WL 615997 (Del. Super. Jan.
23, 2023).
24
Id. at *8-9.
25
Id. at *9-11.
26
Id. at *12 (“Final Completion” as defined below).
27
Id. at *11-12.
28
Id. at *12-14.
29
Civil Trial Activity Sheet (D.I. No. 186).
4
submit their closing arguments in written form, receiving the final post-trial paper on or about
November 20, 2023.30 The Court then held closing arguments on November 28, 2023.31
A. WITNESSES
During the Trial, the Court heard from and considered testimony from the following
witnesses:
Gavin Palmer
Tony Henshaw
Ira Hanan
Douglas Haduch
Steven Schnitzer
Eric Gilbert
Michael Murphy
Robert David Vinson
All the witnesses testified on direct and were available for cross-examination. The fact
witnesses in this civil action were Mr. Haduch, Mr. Schnitzer, Mr. Gilbert and Mr. Murphy. The
expert witnesses were Mr. Palmer,32 Mr. Henshaw,33 Mr. Hanan34 and Mr. Vinson.35 The parties
agreed not to admit the various expert reports into evidence.
Normally, the Court would list the witnesses in the order they testified and which party
called the witness; however, because the Trial was a bench trial, the Court could take witnesses
out of order. In addition, the Court allowed for examination of each witness in both parties’
case-in-chief pursuant to Delaware Evidence Rule 611.
Brian Sheehan, CenterPoint’s appointed Construction Manager for JBBR, did not testify
at the Trial. No representatives from Ragnar Benson Construction LLC (“Ragnar”) or Wilson &
30
D.I. No. 201.
31
D.I. No. 202.
32
Mr. Palmer testified and rendered his opinions on July 5, 2023.
33
Mr. Henshaw testified and rendered his opinions on July 5, 2023.
34
Mr. Hanan testified and rendered his opinions on July 5, 2023.
35
Mr. Vinson testified and rendered his opinions on August 21, 2023.
5
Company, Inc. Engineers & Architects (“Wilson”) testified at the Trial. Deposition testimony
has been used in some instances in lieu of live testimony.
B. CREDIBILITY OF WITNESSES
Here, the Court is the sole judge of each witness's credibility, including the parties.36 The
Court considers each witness's means of knowledge; strength of memory; opportunity to
observe; how reasonable or unreasonable the testimony is; whether it is consistent or
inconsistent; whether it has been contradicted; the witnesses’ biases, prejudices, or interests; the
witnesses’ manner or demeanor on the witness stand; and all circumstances that, according to the
evidence, could affect the credibility of the testimony.37
The Court finds that—based on their testimony at the Trial and the factors listed above—the
witnesses that testified were generally credible. All witnesses had some form of relationship to
the parties and the Court accounted for that bias. The Court, however, believes that the
witnesses were not evasive, nor did they provide testimony that was not somehow supported by
other evidence. While the Court finds that the witnesses were generally credible, the Court gave
more weight to some testimony based on evidence supporting that testimony. For example, the
Court found Mr. Vinson to be credible but did not give his testimony as much weight as other
experts due to certain evidentiary facts regarding Mr. Sheehan’s conduct.
C. EXHIBITS
The parties submitted an extensive number of exhibits. Most of these exhibits were
admitted without objection. The parties provided the Court with the exhibits in the form of joint
exhibits (“JX”). The exhibits numbered JX1-1511.
36
See Superior Court Civil Pattern Jury Instruction 23.9.
37
Id.
6
IV. FACTUAL FINDINGS
A. THE PARTIES
Zenith is a Delaware limited liability company formerly named Arc Terminals Joliet
Holdings LLC (“ARC”).38 Arc contracted with CenterPoint under the Purchase Agreement to
purchase JBBR.39 As stated above, JBBR controls the Terminal. To avoid confusion, the Court
will refer to Zenith in this Decision, but the Court (and the parties) consider Arc and Zenith to be
the same entity.
CenterPoint is a “Maryland real estate investment trust” that “acquires, develops,
manages and leases warehouse, distribution and manufacturing facilities near major
transportation nodes and is an expert in large rail infrastructure assets.”40 CenterPoint was the
owner of the Terminal prior to the execution of the Purchase Agreement.41 Additionally,
CenterPoint managed the continuing construction of the Terminal post-sale under the
Construction Management Agreement.42
JBBR is a Delaware limited liability company formed by CenterPoint on or around
November 9, 2011.43 CenterPoint, through JBBR, negotiated contracts to design and construct
the Terminal.44 JBBR has owned the Terminal and, by extension, the construction project at all
times relevant to this action.45 On May 14, 2015, CenterPoint sold JBBR to Zenith (still known
as Arc Terminals at the time) under the Purchase Agreement.46
38
Id. ¶ 8.
39
Id.
40
Id. ¶ 10.
41
Id. ¶¶ 2-4; see also Pls.’ Mot. for Summ. J. at 2.
42
Am. Compl. ¶ 4.
43
Id. ¶ 9; Pls.’ Mot. for Summ. J. at 2.
44
Pls.’ Mot. for Summ. J. at 3; Def.’s Mot. for Summ. J. at 5.
45
Am. Compl. ¶ 9.
46
Id. ¶ 11.
7
B. PLANNING AND DEVELOPMENT OF THE TERMINAL
In 2013, CenterPoint determined to develop land it owned into a crude-by-rail offloading
facility.47 CenterPoint began this process by engaging Wilson to design the facility. On April
16, 2014, Wilson and JBBR entered into a Master Services Agreement (“MSA”).48 The MSA
tasked Wilson with providing design, engineering, and construction oversight on the construction
project.49 Additionally, Wilson entered into various task orders that provided details on the
scope of work for the construction project.50
CenterPoint then engaged in negotiations with ExxonMobil Oil Corporation (“Exxon”).51
Exxon owned and operated an oil refinery near CenterPoint’s development site.52 On May 28,
2014, JBBR and Exxon entered into the Terminal Services Agreement (the “TSA”).53 JBBR was
then a wholly owned entity of CenterPoint.
The TSA was a “take or pay” contract, meaning Exxon was required to make regular
minimum payments even if Exxon did not need a specified number of trains unloaded for the
requisite period.54 TSA Section 7.5 provides: “[Exxon] shall be obligated to pay the Monthly
Committed Payment…regardless of whether [Exxon] in fact delivers all or any of the Committed
Volume….”55
The TSA required that the Terminal be available at all times except “short periods of time
due to routine maintenance and repair.”56 Mr. Gilbert testified that an “essential element” of the
47
Aug. 21 Tr. 9:4-16.
48
JX3.
49
Id.
50
Id.
51
Aug. 21 Tr. 9:17-10:7.
52
Id.
53
JX25.
54
Id. §7 (“Volume and Fees”) and §7.5.
55
Id. § 7.5.
56
Id. § 2.8.
8
TSA was the Terminal’s capability to steam and unload a unit train (120 railcars) within 24
hours, including that part of the year between October 1 and March 31.57
On August 26, 2014, Ragnar and JBBR entered into a Construction Contract.58 Under
the Construction Contract, Ragnar was the engineering, procurement, and construction contractor
on the construction project.59 Ragnar purportedly “agreed to construct the Terminal in
conformity with [s]pecifications and the provisions of the Construction Contract.”60
C. THE PURCHASE AGREEMENT AND THE CONSTRUCTION CONTRACT
Shortly after entering the Construction Contract, however, CenterPoint decided to sell the
Terminal.61 CenterPoint hired Wells Fargo to broker the sale and considered several prospective
purchasers.62
Zenith sought to purchase the Terminal. CenterPoint did not accept Zenith’s initial
proposal to purchase the Terminal. However, after CenterPoint failed to obtain a better purchase
proposal CenterPoint re-engaged with Zenith.63 On December 14, 2014, Zenith submitted a
letter of intent to acquire the membership interests of JBBR from CenterPoint.64
On February 19, 2015, after a brief due diligence period, Zenith and CenterPoint entered
into the Membership Interest Purchase Agreement—i.e., the Purchase Agreement.65 Zenith
purchased JBBR from CenterPoint for $216 million, plus $27 million in deferred payments, for
57
Aug. 21 Tr. 44:16-45:19.
58
JX1.
59
Id.; JX2.
60
Def.’s Mot. for Summ. J. at 8-9.
61
Id. 22:1-23:21.
62
Id. 22:1-23:21; 24:2-8.
63
Id. 24:2-8.
64
JX19.
65
JX20.
9
an aggregate amount of $243 million.66 The parties completed closing on May 14, 2015.67 On
May 14, 2015, therefore, Zenith became JBBR’s parent company.68
The Terminal was still under construction when Zenith and CenterPoint entered into the
Purchase Agreement.69 Zenith had no experience with the construction of a project like the
Terminal.70 Moreover, Zenith had no prior relationship with Ragnar or Wilson.71 CenterPoint
had the needed construction experience and relationships with critical vendors.72 The parties
memorialized this in Section 6.15(a) of the Purchase Agreement, titled “Final Completion,”
which states:
After Closing, on and subject to the terms of the Construction Contract [with
Ragnar] and the Construction Management Agreement, [CenterPoint] shall use its
reasonable best efforts to achieve, and to cause the EPC Contractor [Ragnar] (and
any other applicable third party contractors or service providers) to achieve, Final
Completion in accordance with the Approved Cost Plan and the Project Schedule
and otherwise in accordance with the terms and conditions of the Construction
Contract and the Construction Management Agreement in all material respects.73
In the Purchase Agreement, “Final Completion” is defined as “the meaning given in the
Construction Contract.”74 The Construction Contract between JBBR and Ragnar, dated August
26, 2014, defines “Final Completion” as:
[T]hat point in time in the progress of the Work after Mechanical Completion when
(a) the Work has been completed and is operational; (b) all testing (including
hydrotesting) and coating is complete; (c) all pipe, valves, and Equipment
installation and tie-ins are complete; (d) all essential Equipment and lines have been
hydrotested and had a geometry tool run through them; (e) the Work is capable of
transporting refined products in a safe uninterrupted manner 24 hours per day,
seven days per week without further anticipated shutdowns, except for preventative
maintenance; (f) and all other requirements of this [Construction Contract] with
66
Am. Compl. ¶ 4; JX20.
67
JX29.
68
Pls.’ Mot. for Summ. J. at 11; Def.’s Mot. for Summ. J. at 5.
69
JX20; JX5.
70
Cubbage Dep. 33:2-34:24; 103:22-104:23.
71
Id.
72
Aug. 21 Tr. 27:19-28:18.
73
JX20 § 6.15(a) (emphasis added).
74
Id. at Annex I.
10
respect to Final Completion ([including those set forth in Construction Contract
Exhibit A]) have been satisfied.75
The Construction Contract defines “Work” to
[M]ean all of [Ragnar’s] obligations, duties and responsibilities under this
[Construction Contract], including the design, engineering, procurement,
manufacturing, supply, installation, erection, construction, commissioning, and
testing of the Facilities, all work and services described in Exhibit A and all
Warranty Work.”76
Exhibit A of the Construction Contract sets out the “Minimum Requirements for Final
Completion” and defines them as:
(a) Final Completion includes, at a minimum, the following: (i) any liquidated
damages payable by [Ragnar] to [JBBR] pursuant to th[is Construction Contract]
have been paid and/or satisfied; (ii) [Ragnar] has completed all the Work required
by this [Construction Contract]; (iii) [Ragnar] has executed and delivered to [JBBR]
and [JBBR] has accepted the lien waiver . . .; (iv) [Ragnar] has provided the final
close-out report to [JBBR]; (v) there are no outstanding claims or disputes as
between [Ragnar and JBBR]….77
Exhibit A additionally required that “any liquidated damages payable by Contractor to
Company pursuant to the Agreement have been paid and/or satisfied” and that “there are no
outstanding claims or disputes between the Parties.”78
The Construction Contract also required Final Lien Waivers from the Contractor and all
subcontractors be provided to and accepted by JBBR before Final Completion was achieved.79
D. THE CONSTRUCTION MANAGEMENT AGREEMENT
In tandem with the Purchase Agreement, Zenith and CenterPoint executed the
Construction Management Agreement on May 14, 2015.80 The Construction Management
75
Am. Compl., JX1 § 1.1.
76
Id. § 1.1 (underlining in original).
77
Id. at Ex. A.
78
Id.
79
Id. at Ex. E.
80
JX6.
11
Agreement made CenterPoint the agent of JBBR,81 and it states that “[JBBR] has requested that
[CenterPoint] provide certain construction management services to [JBBR] . . . for a limited
period following the Closing Date, and [CenterPoint] has agreed to provide such services.”82
Construction Management Section 2(a), titled “Construction Management Services,”
states:
Subject to the terms of this Agreement, [CenterPoint] agrees to provide to [JBBR]
and [JBBR] agrees to accept from [CenterPoint], the construction management
services described on Schedule A . . .. [JBBR] hereby (i) [appoints CenterPoint as
its agent for all purposes] under the Construction Contract [and CenterPoint
accepts], and (ii) authorizes [CenterPoint] to take all actions on behalf of [JBBR]
that [CenterPoint], in [CenterPoint]’s sole and good faith discretion, considers
reasonably necessary to provide the Services, including all invoices, payments,
change orders and certifications under the Construction Contract; provided that
[CenterPoint] shall (A) obtain [JBBR]’s prior written consent (which shall not be
unreasonably withheld, conditioned or delayed) before (1) issuing the Final
Completion Certificate (as defined in the Construction Contract) and making
payment therefor.83
Construction Management Agreement Schedule A states that “[CenterPoint] shall
manage EPC Contractor’s [Ragnar’s] performance and completion of the Work under the
Construction Contract until the Final Completion Certificate is issued and accepted by [JBBR]
thereunder and payment is made therefor.”84
Construction Management Section 2(b) is also referenced. Section 2(b) provides:
[CenterPoint] shall perform the Services with substantially the same standard of
care (including quality) as the Services were performed by or on behalf of [JBBR]
prior to the Effective Date, including, without limitation, by performing the
Services, at all times, as would a reasonably prudent construction manager in the
construction management industry.85
81
Id.
82
Id. at Recitals.
83
Id. § 2(a) (underlining in original).
84
Id. at Schedule A.
85
Id. § 2(b).
12
Construction Management Agreement Section 2(h) limits the obligations under Section 2,
and it provides that “except as expressly set forth in Section 2, no representations, warranties or
guaranties of any kind, express or implied . . . are made by [CenterPoint] with respect to the
services provided under [the Construction Management Agreement],” and that all representations
and warranties are waived and disclaimed to the fullest extent of the law.86
E. EVENTS AFTER EXECUTION OF THE AGREEMENTS AT THE TERMINAL
1. Final Completion was not achieved.
The record on Final Completion is one created by JBBR and CenterPoint. CenterPoint’s
decision (and contractual right)87 to litigate its issues with JBBR in Delaware and not participate
in the Illinois Action88 means that the participation of Ragnar and Wilson was, at best, limited.
From the record at Trial, the Court finds, by a preponderance of the evidence, that Final
Completion was never achieved by Ragnar.
JBBR and Ragnar certified and agreed that conditions for Mechanical Completion had
been satisfied. On April 30, 2015, JBBR and Ragnar signed the Mechanical Completion
Certificate.89 The Mechanical Completion Certificate provides that all conditions for Mechanical
Completion had been satisfied.90 In addition, the Mechanical Completion Certificate provided:
Notwithstanding the issuance of the issuance of this Mechanical Completion
Certificate, [Ragnar] shall not be relieved of any obligations under the
[Construction Contract] or at law that survive the issuance of this Mechanical
Completion Certificate.91
86
Id.§ 2(h).
87
JX6 § 11(h); JX20 § 12.10(a).
88
The Illinois Action is defined and discussed below.
89
JX5.
90
Id.
91
Id.
13
The Construction Contract initially required Final Completion to be achieved by March
15, 2015.92 Ragnar first requested to extend the date to July 1, 2015.93 Ragnar then asked to
extend Final Completion until September 30, 2015.94 Ragnar finally asked to extend the Final
Completion Date until October 16, 2015.95 JBBR (through CenterPoint) approved each of
Ragnar’s requests.
The change order submitted by Ragnar, approved by CenterPoint and then by JBBR,
cited the lack of trains as one reason for extending the Final Completion date.96 Specifically, the
October 9, 2015 request from Pablo M. Hernandez of Ragnar reads as follows:
Dear Eric [Gilbert],
JBBR’s executed Change Order Request #15 previously extended the dates for
Mechanical Completion to April 16, 2015 and for Final Completion to July 1, 2015. In
accordance with the aforementioned change order request, Mechanical Completion was
achieved on April 16, 2015. However, due to several factors beyond Ragnar Benson’s
control, we are hereby requesting an extension to the Date for Final Completion from
July 1, 2015 to October 16, 2015.
Factors which contributed to the delayed Date for Final Completion include, but are not
limited to the following:
• Delays in Train Schedules.
Start-up and commissioning were completed in order to satisfy Mechanical Completion,
however, certain items required additional commissioning efforts beyond the first couple
of trains. The delays in train schedules delayed the additional commissioning efforts
which impacted the critical path for Final Completion.
• Added Scope Items.
Scope items were added to Ragnar Benson’s contract which also directly affected the
critical path for Final Completion. Please reference Change Order Request #17 R-2.
Increased scope items included, but were not limited to, Pipeline Cathodic Protection,
heat trace redesign (added pumps and structural supports) and industrial waste
monitoring.97
92
JX1460.
93
Id.
94
JX1457.
95
JX1408.
96
Id.
97
Id.
14
The evidence at Trial shows that, as of October 9, 2015, Ragnar, CenterPoint and JBBR
agreed that Mechanical Completion had been achieved and that Final Completion had not been
achieved. The reasons why the Date of Final Completion needed to be extended were “delays in
train schedules” and “added scope items.”
On October 16, 2015, Ragnar delivered its request for Final Completion to Michael
Murphy of CenterPoint.98 Mr. Sheehan, CenterPoint’s Construction Manager for the Terminal,
forwarded the request to JBBR requesting JBBR’s approval.99
Ragnar’s certification for Final Completion was signed by Ragnar’s project manager, Mr.
Hernandez. Mr. Hernandez did not have personal knowledge as to the facts and executed a letter
provided by David Bergstrom, Ragnar’s Senior Vice President.100
The record reflects that Ragnar did not satisfy the Exhibit A Construction Contract’s lien
waiver requirement.101 For example, Ragnar did not obtains final lien waivers from Wilson or
Mechanical, Inc., the entities responsible for commissioning the steam condensate system.102
The record also indicates that other waivers were missing as well.103
As Construction Manager, Mr. Sheehan would have known the identity of Ragnar’s
subcontractors.104 The record is incomplete on whether Mr. Sheehan (or CenterPoint) did
anything to verify the accuracy of Ragnar’s representations regarding any lien waivers or any
other aspect of its “Certification.” Testimony indicated that CenterPoint believed that Final
Completion could be achieved by completion of items on Ragnar’s punch lists.105
98
JX7.
99
JX10.
100
Hernandez Dep. 35:14-37:21.
101
JX1 at Ex. A.
102
JX8.
103
JX150 (Ragnar informing Chicago Title Ins. Co. of missing final lien waivers).
104
July 5 Tr. at 167:1-170:12.
105
Aug. 21 Tr. at 40:10-15; Aug. 21 Tr. at 86:20-88:20.
15
Ragnar knew commissioning the steam condensate system was a prerequisite to Final
Completion.106 Final Completion, in part, means that point in time after Mechanical Completion
when the “Work has been completed and is operational.” Work is defined as meaning all
Ragnar’s obligations including commissioning and testing of the Terminal.107
Ragnar engaged Wilson as its subcontractor to commission the system.108 Ragnar and
Wilson entered into the MSA109 and after agreeing to a change order, Wilson was to “provide
design/engineering support of the verification/commissioning of the steam/condensate, hot oil
and inbound crude systems.”110 Wilson’s invoices to Ragnar indicated that commissioning was
not attempted until March through May 2016—a date after Ragnar’s Final Completion
request.111 As such, Ragnar should have known that commissioning was not done prior to its
requesting Final Completion.
CenterPoint, as Construction Manager, 112 knew or should have known that the system
had not been commissioned when Ragnar requested Final Completion.113
Mr. Haduch, JBBR’s terminal manager, communicated to Mr. Sheehan the lack of
commissioning on October 7, 2015, in an email stating Mr. Haduch believed the system had not
been commissioned.114 Moreover, on October 27, 2015, Mason Whipple, Wilson’s senior
project engineer who designed the steam condensate system, responded to Mr. Haduch, copying
Mr. Sheehan, noting that “steam needs to be commissioned under load.”115
106
JX1§ 1.1.
107
Id.
108
JX1400.
109
Id.
110
JX151.
111
JX1401; JX1402; Jx1403; JX1404.
112
JX20, § 6.15(a); JX6, §2(a)-(b).
113
July 5 Tr. at 149:12-150:6; 158:17-161:16; 166:20-167:18; 214:21-215:16.
114
JX1180.
115
Id.
16
There is no evidence that Mr. Sheehan notified Steven Schnitzer, JBBR’s General
Counsel, of the lack of commissioning before Mr. Schnitzer submitted JBBR’s response to
Ragnar on October 29, 2015. As such, JBBR’s response to Ragnar denying the request for Final
Completion necessarily focused on deficiencies with the hot oil system.116
Evidence at Trial shows that the Terminal did not function properly. Mr. Haduch
testified that the “hot oil system was problematic essentially from the day it was commissioned”
and there were “a number of seal failures on a fairly regular occurrence where these booster
pumps [would] blow their seals” leaving thermal oil on the ground.117 Moreover, the pump seals
repeatedly failed on the thermal booster oil pumps.118 Mr. Haduch also testified (and Ragnar
acknowledged) that two years into operations, JBBR had to “replace the same seal that keeps
failing time and time again.”119
The record supports the conclusion that steam condensate system deficiencies were not
discovered until the parties attempted to commission the system. Mr. Haduch testified the
steam/condensate system had multiple issues that became apparent from its first cold weather
use.120 At an attempted offloading on February 10, 2016, he observed “poor unloading rates”
because “[t]he temperature of the oil [in the railcars] wasn’t hot enough, and we had just a very
difficult time getting the crude oil … unloaded from the railcars.”121
Issues with the system continued into February and March.122 The problems involved
both the condensate system and the boilers.123 Eventually JBBR and Wilson came up with an
116
JX11.
117
Aug. 21 Tr. at 31:14-32:17.
118
Aug. 21 Tr. at 39:18-22.
119
Aug. 21 Tr. at 48:3-9. See also JX1125 (Ragnar acknowledging the issue but disagreeing that it applies to “Final
Completion”).
120
July 6 Tr. at 50:2-5.
121
July 6 Tr. at 50:2-5. See also JX1421.
122
July 6 Tr. at 54:13; JX1421; July 5 Tr. at 57:4-16; JX1185; July 6 Tr. at 62:8-11; JX1117.
123
July 6 Tr. at 65:22-66:18.
17
ad hoc solution where the system was fueled by a local city fire hydrant with a fire hose to use
city water.124 Despite JBBR’s and Wilson’s attempts at a solution, there was another train
steaming failure on March 8, 2016.125
Another issue involved the deaerator and an oversized 10-inch butterfly valve that failed
to allow proper deaeration.126 As such, the failure to deaerate negated the benefits of chemical
treatment and contributed to boiler degradation.127 JBBR repeatedly experienced issues with the
deaerator overflowing and flooding rooms, including the boiler room.128 Attempts to address the
issue with modified drains failed.129 In addition, Wilson’s design utilized rubber hoses that were
not appropriate for cold weather unloading.130
The problems with the steam condensate system continued without resolution into
2017.131
The Court’s factual conclusions regarding “Final Completion” are supported by the
testimony of experts concerning the work done and problems with the Terminal: (i) Mr.
Henshaw’s testimony;132 (ii) Mr. Hanan’s testimony;133 and (iii) Mr. Palmer testifying that Final
Completion had not happened given the deficiencies in steam and condensate system, including
124
July 6 Tr. at 65:22-66:18 (Mr. Haduch testified about “…going to a local city fire hydrant with fire hose and
filling up this 1800-foot-long pipe with city water… so that condensate would return to our DA.”).
125
July 6 Tr. at 69:2-4; JX1187.
126
July 6 Tr. at 71:17-72:16; JX1088.
127
July 5 Tr. at 53:12-54:18.
128
July 6 Tr. at 73:8-74:1-8 (flooding into area containing medium voltage cabinet cause dangerous situations); July
5 July 5 Tr. at 52:2-53:1.
129
July 6 Tr. at 73:8-74:1-8.
130
July 6 Tr. at 80:3-82:12.
131
July 6 Tr. at 76:7-77:11; JX155 (notes indicating slugging and overflow issues).
132
July5 Tr. at 100:10-133:4 (includes testimony on problems at terminal and design flaws).
133
July 5 Tr. at 159:19-172:20 (Ragnar should not have requested a Final Completion certificate because the system
had not been successfully commissioned).
18
the inability of the system to operate in any reliable manner.134 CenterPoint did not provide any
expert testimony on whether Final Completion had been achieved.135
2. CenterPoint failed to use reasonable best efforts.
The Court has found that Final Completion was not achieved. The next factual question
is whether CenterPoint used its reasonable best efforts to achieve or cause Ragnar to achieve
Final Completion. The Court finds, by a preponderance of the evidence, that CenterPoint failed
to use reasonable best efforts. Central to this finding is the unusual conduct of CenterPoint as
agent to JBBR. The Construction Management Agreement provides that CenterPoint is the agent
of JBBR.136 In addition, the Construction Management Agreement states that CenterPoint needs
to exercise “good faith discretion” when providing Services under this agreement.137
The evidence at Trial showed that CenterPoint appeared to be assisting Ragnar and
Wilson instead of its principal, JBBR. The Court could come to no other conclusion given the
failure of Mr. Sheehan to testify and explain his conduct in 2015 and 2016.
CenterPoint had two separate obligations under Purchase Agreement Section 6.15: (i) to
“use its reasonable best efforts” to achieve Final Completion, and (ii) to “cause the EPC
Contractor [Ragnar] (and any other applicable third-party contractors or service providers) to
achieve Final Completion.”138 According to testimony, EPC Contractor means a contractor with
engineering, procurement, and construction responsibilities, rather than simply construction
responsibilities.139
Mr. Sheehan acted as the Construction Manager for the Terminal.140
134
July 5 Tr. at 62:19-65:1.
135
See, e.g. Aug. 21 Tr. at 147:15-21.
136
JX6, §2(a)(i).
137
Id., §2(a)(ii).
138
JX20 §6.15.
139
July 5 Tr. at 154:8-155:6.
140
Aug. 21 Tr. at 12:10-15 and 42:10-15.
19
Mr. Sheehan did not testify at Trial. Given this, Mr. Sheehan was not able to explain
some of his conduct that came out in Trial testimony and through exhibits. Mr. Sheehan seems
to have failed provided JBBR with relevant information even though he was an agent of JBBR.
This seemed especially true following Ragnar’s October 16, 2015 request for Final Completion.
For example, Mr. Sheehan did not respond to an email on the status of commissioning but did
give advice to Wilson on how to respond to that same email.141 Mr. Sheehan failed, on JBBR’s
behalf, to address information Wilson provided to Mr. Sheehan that “steam needs to be
commissioned under load,”142 with Ragnar even though Ragnar claimed Final Completion.143
At one point, S-Mechanical informed Mr. Sheehan about problems with the hot oil
system auxiliary pumps.144 However, the record does not show Mr. Sheehan sharing that
information with JBBR.145 Moreover, Mr. Sheehan does not seem to have forwarded to JBBR
information from Wilson that the condensate system was not fully operational.146
Mr. Sheehan had other lapses in communication and apparent misdirected loyalties. The
record shows that after Ragnar’s October 16, 2015 request for Final Completion, JBBR and
Ragnar exchanged letters on a regular basis regarding that issue.147 For JBBR, Mr. Schnitzer
authored each letter for Bradley Oswald to send.148 Mr. Sheehan communicated with Mr.
Schnitzer about Final Completion issues.149
141
JX302; July 6 Tr. at 24:9-25:22.
142
JX1180.
143
July 6 Tr. at 25:23-28:1.
144
JX1089.
145
July 6 Tr. at 32:18–39:3.
146
JX1185 (“condensate system not fully operational”); July 6 Tr. at 55:16–58:10.
147
See, e.g., JX4, JX12, JX13, JX109, JX1158, JX1159, JX1160a, JX1162, JX1163, JX1164, and JX1165
148
July 7 Tr. at 24:19-25:1; 32:16–33:2; 34:8-13; and 37:11-15.
149
July 7 Tr. at 16:2-19:3; 21:10–22:16; 23:2-8; and 36:8-14; see also JX9, JX10, JX1153, JX1155, JX1156,
JX1157, and JX1166.
20
Yet it appears that Mr. Sheehan also engaged with representatives of Ragnar to help
Ragnar respond to JBBR’s letters. For example, on October 19, 2015, Mr. Schnitzer emailed
Mr. Sheehan suggesting specific language acceptable to JBBR for a Final Completion
certificate.150 Mr. Sheehan, without including anyone from JBBR, emailed representatives of
Ragnar and Wilson.151 Mr. Sheehan addressed the Ragnar/Wilson group as “Team” and said,
“here is the language I propose.”152 Thereafter, Mr. Sheehan stated: “This is all related to the
construction contract between JBBR and Ragnar. As you know, Zenith now owns JBBR, so the
language can say whatever you guys want it to say. I’m just the messenger.”153 The email makes
sense only in the context of Mr. Sheehan’s having advised Ragnar and Wilson of Mr. Schnitzer’s
language and providing appropriate responses to that language.
On December 4, 2015, JBBR sent a letter to Ragnar.154 On December 5, 2015, Mr.
Sheehan assisted Ragnar on its negotiating posture, suggesting arguments to make and payouts to
request.155 Mr. Schnitzer testified that he did not know that Mr. Sheehan was communicating
with Ragnar and Wilson.156
On December 11, 2015, Mr. Hernandez, a Ragnar employee, drafted a response to a
JBBR letter.157 Mr. Hernandez sent the draft to Tim Jagielski, an attorney for Ragnar, and Mr.
Sheehan for comment.158 Mr. Sheehan responded with suggestions.159 Mr. Jagielski responded
with another draft.160 Mr. Sheehan then forwarded Mr. Jagielski’s email to CenterPoint’s
150
JX1411.
151
Id.
152
Id.
153
Id.
154
JX1159.
155
JX1123; JX1128.
156
July 7 Tr. at 30:3–31:21.
157
JX1128.
158
Id.
159
Id.
160
Id.
21
outside counsel at Vinson & Elkins.161 Outside counsel commented and supposedly redlined the
letter.162 Mr. Sheehan forwarded edits to Ragnar and requested times “later this week” for a
conference call with Vinson & Elkins.163 The draft letter was further edited with additional input
from Mr. Sheehan.164 Ragnar then sent a responsive letter to JBBR on December 16, 2015165
This responsive letter included some of Mr. Sheehan’s suggested changes, including proposing
“the ‘outside date’ of 1/31/16” for testing.166
The evidentiary record at Trial does not demonstrate that Mr. Sheehan ever made JBBR
aware of his work with Ragnar and Wilson regarding the correspondence related to Final
Completion.
Mr. Sheehan was given information on whether the Terminal was operational. Kenneth
Hancock, Wilson’s Senior VP, wrote on February 25, 2016, “As you know, the steam condensate
system is not currently operational and has not yet been commissioned.”167 In a March 2, 2016,
email to Mr. Sheehan, among others, Mr. Hancock said “please note that with the condensate
system not fully operational at this time…”168 Mr. Sheehan apparently never relayed that
information on to JBBR.
161
JX1127.
162
Id.
163
Id.
164
JX1128.
165
JX1160a.
166
Compare JX1128 with JX1160a.
167
JX1421.
168
JX1185.
22
3. Remediation by Ambitech.
JBBR retained Ambitech in early 2017 to deal with unresolved issues at the Terminal.169
Ambitech inspected the Terminal and prepared a report of its findings170 In addition, Ambitech
made recommendations to JBBR for Phase 1 and Phase 2 remediation work.171
Ambitech performed the Phase 1 remediation work in 2017 so that JBBR could fulfill its
obligations under the TSA for the 2017—2018 heating season.172 JBBR spent $3,091,157.64 on
the Phase 1 remediation work.173 Mr. Haduch testified that the Phase 1 remediation work caused
an improvement in the operability of the Terminal.174 JBBR was able to service 10-15 trains per
month during the 2017-2018 heating season175
JBBR made a demand for indemnification under Purchase Agreement Section 10.1.176
CenterPoint rejected that demand.177
F. RELATED LITIGATION
On January 23, 2017, Ragnar filed a lawsuit against JBBR in Will County, Illinois
seeking $992,990.40 (the “Illinois Action”).178 Ragnar seeks payment due upon Final
Completion under the Construction Contract.179 JBBR filed a counterclaim against Ragnar for
breach of the Construction Contract.180 On July 23, 2017, JBBR filed a third-party complaint
against Wilson for breach of the MSA.181
169
July 5 Tr. at 38:3-10.
170
JX16.
171
Id.
172
Id.; July 6 Tr. at 89:6-91:3.
173
July 6 Tr. at 93:5-97:23; JX15; JX1294; JX1480.
174
July 6 Tr. at 91:4-97:23.
175
July 6 Tr. at 91:4-92:7.
176
JX1426; JX1428; and JX1481.
177
JX1427; JX1429.
178
Am. Compl. ¶ 49; Def.’s Mot. for Summ. J. at 23.
179
Def.’s Mot. for Summ. J. at 23.
180
Am. Compl. ¶ 49 (noting the filing occurred on April 26, 2017); Def.’s Mot. for Summ. J. at 23 (noting the filing
occurred on March 23, 2017).
181
Am. Compl. ¶ 49; Def.’s Mot. for Summ. J. at 23.
23
CenterPoint is not a party to the Illinois Action.182
The Illinois Action is scheduled for trial on September 23, 2024.183
V. APPLICABLE LAW
The Court will be applying the following general legal principles:
A. GOVERNING SUBSTANTIVE LAW
Delaware law applies here. First, the Purchase Agreement is governed by Delaware law.
Purchase Agreement Section 12.10(a) states that “[t]his Agreement shall be governed by and
construed, interpreted and enforced in accordance with the Laws of the State of Delaware….”184
Construction Management Agreement Section 11(h) contains identical language.185
B. BREACH OF CONTRACT
Under Delaware law, to prove a breach of contract claim, a party must show: “(1) a
contractual obligation; (2) a breach of that obligation; and (3) resulting damages.”186 A party
harmed by a breach of contract is entitled to compensation that will place that party in the same
position that the party would have been in if the other party had performed under the contract.187
The standard remedy for breach of contract is based upon the reasonable expectations of
the contracting parties.188 Expectation damages are measured by determining “the amount of
money that would put the promisee in the same position as if the promisor had performed the
contract.”189 “Damages for a breach of contract must be proven with reasonable certainty.
182
JX6 § 11(h); JX20 § 12.10(a).
183
D.I. No. 205.
184
JX20 § 12.10(a).
185
JX6 § 11(h).
186
Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 548 (Del. Super. 2005).
187
See E.I. DuPont de Nemours and Co. v. Pressman, 679 A.2d 436, 445-46 (Del. 1996).
188
See Duncan v. Theratx, Inc., 775 A.2d 1019, 1022 (Del. 2001).
189
Id.24
Recovery is not available to the extent that the alleged damages are uncertain, contingent,
conjectural, or speculative.”190
“Delaware 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.”191 “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.”192 The Court has already held that the Purchase Agreement and the
Construction Management Agreement are unambiguous.193
C. PRINCIPAL-AGENT
Generally, agency is a fiduciary relationship that arises when a principal manifests assent
to another that the agent will act on the principal’s behalf and subject to the principal’s control
and the agent manifests assent or otherwise consents to act as agent.194 The existence of an
agency relationship empowers an agent to act on behalf of the principal.195 When accompanied
by trust that the agent will use the principal’s confidential information to pursue the principal’s
ends, that relationship also imposes fiduciary duties on the principal.196
Agents owe their principals a duty to disclose certain information.197 Agents also owe a
duty to avoid gaining an interest adverse to the principal.198 Under elemental principles of
agency law:
190
Lee-Scott v. Shute, 2017 WL 1201158, at *7 (Del. Com. Pl. Jan. 30, 2017).
191
Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010) (citing NBC Universal v. Paxson Commc’ns,
2005 WL 1038997, at *5 (Del. Ch. Apr. 29, 2005)).
192
Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997).
193
Zenith Energy Terminals Joliet Holdings LLC, 2023 WL 615997, at *9-11.
194
Estate of Eller v. Barton, 31 A.3d 895, 897 (Del. 2011).
195
Id. at 898.
196
Id. (citing to Meinhard v. Salmon, 164 N.E. 545 (N.Y. 1928).
197
Id.198
Id.
25
[A]n agent owes his principal a duty of good faith, loyalty and fair dealing.
Encompassed with such general duties of an agent is a duty to disclose information
that is relevant to the affairs of the agency entrusted to him. There is also a corollary
duty of an agent not to put himself in a position antagonistic to his principal
concerning the subject matter of his agency.199
D. BURDEN OF PROOF BY A PREPONDERANCE OF THE EVIDENCE
In a civil case, the burden of proof is by a preponderance of the evidence. Proof by a
preponderance of the evidence means proof that something is more likely than not. This means
that certain evidence, when compared to the evidence opposed to it, has the more convincing
force and makes the Court believe that something is more likely true than not. If the evidence on
any particular point is evenly balanced, the party having the burden of proof has not proved that
point by a preponderance of the evidence, and the Court must find against the party on that
point.200
In deciding whether any fact has been proved by a preponderance of the evidence, the
Court may consider the testimony of all witnesses regardless of who called them, and all exhibits
received into evidence regardless of who produced them.
In this particular case, Zenith carries the burden of proof by a preponderance of the
evidence on its claims under the Purchase Agreement and the Construction Management
Agreement.201
E. EVIDENCE EQUALLY BALANCED
If the evidence tends equally to suggest two inconsistent views, neither has been
established. That is, where the evidence shows that one or two things may have caused the
breach/damages: one for which a party was responsible and one for which a party was not, the
199
Sci. Accessories Corp. v. Summagraphics Corp., 425 A.2d 957, 962 (Del. 1980)
200
Superior Court Civil Pattern Jury Instruction 4.1.
201
See, e.g., Reynolds v. Reynolds, 237 A.2d 708, 711 (Del. 1967) (defining preponderance of the evidence); Oberly
v. Howard Hughes Medical Inst., 472 A.2d 366, 390 (Del. Ch, 1984) (same).
26
Court cannot find for the party carrying the burden of proof if it is just as likely that the
breach/damages was caused by one thing as by the other.202
VI. DISCUSSION
A. THE COURT FINDS THAT ZENITH HAS SHOWN, BY A PREPONDERANCE OF THE EVIDENCE,
THAT CENTERPOINT BREACHED THE PURCHASE AGREEMENT.
In Count I, Zenith contends that CenterPoint breached the Purchase Agreement because
CenterPoint failed use reasonable best efforts to cause Final Completion. Per the Amended
Complaint and the theories advanced at Trial, Purchase Agreement Section 6.15(a) is especially
relevant. Section 6.15(a) is labeled “Final Completion,” and it states:
After Closing, on and subject to the terms of the Construction Contract [with
Ragnar] and the Construction Management Agreement, [CenterPoint] shall use its
reasonable best efforts to achieve, and to cause the EPC Contractor [Ragnar] (and
any other applicable third party contractors or service providers) to achieve, Final
Completion in accordance with the Approved Cost Plan and the Project Schedule
and otherwise in accordance with the terms and conditions of the Construction
Contract and the Construction Management Agreement in all material respects.203
The Court previously found that Section 6.15(a) is subject to only one reasonable
interpretation—CenterPoint was required to use its “reasonable best efforts” to achieve, and
cause any contractor to achieve, Final Completion.
In the Purchase Agreement, “Final Completion” is defined as “the meaning given in the
Construction Contract.”204 The Construction Contract between JBBR and Ragnar, dated August
26, 2014, defines “Final Completion” as:
[T]hat point in time in the progress of the Work after Mechanical Completion when
(a) the Work has been completed and is operational; (b) all testing (including
hydrotesting) and coating is complete; (c) all pipe, valves, and Equipment
installation and tie-ins are complete; (d) all essential Equipment and lines have been
hydrotested and had a geometry tool run through them; (e) the Work is capable of
transporting refined products in a safe uninterrupted manner 24 hours per day,
202
Superior Court Civil Pattern Jury Instruction 4.2.
203
Pls.’ Mot. for Summ. J., Ex. N (Purchase Agreement) § 6.15(a).
204
Id. at Annex I.
27
seven days per week without further anticipated shutdowns, except for preventative
maintenance; (f) and all other requirements of this [Construction Contract] with
respect to Final Completion ([including those set forth in Construction Contract
Exhibit A]) have been satisfied.205
Exhibit A of the Construction Contract sets out the “Minimum Requirements for Final
Completion” and defines them as:
(a) Final Completion includes, at a minimum, the following: (i) any liquidated
damages payable by [Ragnar] to [JBBR] pursuant to th[is Construction Contract]
have been paid and/or satisfied; (ii) [Ragnar] has completed all the Work required
by this [Construction Contract]; (iii) [Ragnar] has executed and delivered to [JBBR]
and [JBBR] has accepted the lien waiver . . .; (iv) [Ragnar] has provided the final
close-out report to [JBBR]; (v) there are no outstanding claims or disputes as
between [Ragnar and JBBR];….206
Exhibit A additionally required that “any liquidated damages payable by Contractor to
Company pursuant to the Agreement have been paid and/or satisfied” and that “there are no
outstanding claims or disputes between the Parties.”207
Two factual issues had to be decided at Trial. First, the Court had to determine whether
Final Completion had been achieved. Second, the Court needed to determine whether
CenterPoint used “reasonable best efforts” to achieve, and to cause Ragnar to achieve, Final
Completion in accordance with the Approved Cost Plan and the Project Schedule. The Court
finds that Final Completion was not achieved during the relevant time period. The Court also
finds that CenterPoint did not use reasonable best efforts.
Initially, the record demonstrates that Ragnar has not paid any liquidated damages to
JBBR or Zenith. The Court does not find that surprising as that issue is contested in the pending
205
Am. Compl., JX1 § 1.1; see also id. (“’Work’ shall mean all of [Ragnar’s] obligations, duties and responsibilities
under this [Construction Contract], including the design, engineering, procurement, manufacturing, supply,
installation, erection, construction, commissioning, and testing of the Facilities, all work and services described in
Exhibit A and all Warranty Work.”) (underlining in original).
206
Id. at Ex. A.
207
Id.
28
Illinois Action. Moreover, the Illinois Action demonstrates that there are still “outstanding
claims or disputes between” Ragnar and JBBR and Zenith.
The Court finds that the defined term “Work” is relevant to the ultimate finding that Final
Completion did not happen. The record shows that Mechanical Completion had happened.
However, the record also shows that Ragnar did not complete all the Work required by the
Construction Contract. The Construction Contract defines “Work” to
[M]ean all of [Ragnar’s] obligations, duties and responsibilities under this
[Construction Contract], including the design, engineering, procurement,
manufacturing, supply, installation, erection, construction, commissioning, and
testing of the Facilities, all work and services described in Exhibit A and all
Warranty Work.”208
The evidence demonstrates that the Terminal had not been properly commissioned or
tested.209 On October 9, 2015, Ragnar admitted this when asking for an extension of the “Date
for Final Completion from by July 1, 2015 to October 16, 2015.210 Wilson, on October 27,
2015, stated that “steam needs to be commissioned under load.”211 The steam condensate system
and commissioning issues continued into 2016. On February 10, 2016, Mr. Haduch noted that
uploading rates were poor because of difficulties getting crude oil uploaded from the railcars.212
In addition, the factual record does not support a finding that the “Work” done by Ragnar
was “capable of transporting refined products in a safe uninterrupted manner 24 hours per day,
seven days per week without further anticipated shutdowns, except for preventative
maintenance.”213 During all times relevant, the Terminal was unable to meet this standard.
CenterPoint knew this to be true. Mr. Sheehan, in an e-mail, stated:
208
Id. § 1.1 (underlining in original) (emphasis added).
209
CenterPoint contends that Final Completion does not include commissioning. The defined term “Work” is used
in the Construction Agreement and includes commissioning.
210
JX1408.
211
JX1180.
212
JX1421.
213
Am. Compl., JX1 § 1.1.
29
Thank you for the update on the upcoming train schedule, and thank you in advance
for passing along any additional updates that you may receive. CenterPoint will
continue to use reasonable best efforts to cause Ragnar Benson to achieve Final
Completion as agreed upon by all the parties, notwithstanding the ongoing
disagreement between [Zenith] and Ragnar with respect to the inbound pumping
system and the occurrence of Final Completion. It is my understanding that Ragnar
will to cause certain subcontractors and subconsultants to be present for the train
scheduled to arrive on 2/19/16. That sounds like good news from my
perspective.214
Wilson, Zenith and others continued to work on the steam issues and tried to arrive at
solutions. There was a train steaming failure on March 8, 2016.215 On March 28, 2016, Mr.
Didier identified continuing problems with steam levels while unloading railcars.216 E-mail
correspondence among Wilson, Ragnar, CenterPoint and Zenith indicates that, as of March 30,
2016, Wilson was addressing design issues and coming up with new recommendations.217
Under Delaware law, “reasonable best efforts” means a party is “obligat[ed] to take all
reasonable steps to solve problems and consummate the transaction.”218 However, “it cannot
mean everything possible under the sun.”219 In the context of merger agreements, the Court of
Chancery has “looked to whether the party subject to the clause (i) had reasonable grounds to
take the action it did and (ii) sought to address problems with its counterparty” in determining
whether the “reasonable best efforts” standard was met.220 “Determining whether a party used
reasonable best efforts is an inherently factual inquiry.”221
214
JX1417.
215
July Tr. at 69:2-4; JX1187.
216
JX1418.
217
Id.
218
Williams Cos., Inc. v. Energy Transfer Equity, L.P., 159 A.3d 264, 272 (Del. 2017) (citing Hexion Specialty
Chems., Inc. v. Huntsman Corp, 965 A.2d 715, 755-56 (Del. Ch. 2008)).
219
AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929, at *91 (Del. Ch. Nov. 30, 2020)
(citing Alliance Data Sys. Corp. v. Blackstone Cap. P’rs V L.P., 963 A.2d 746, 763 n.60 (Del. Ch. 2009)).
220
Menn v. ConMed Corp., 2022 WL 2387802, at *35 (Del. Ch. June 30, 2022) (citing Akron, Inc. v. Fresenius Kabi
AG, 2018 WL 4719347, at *91 (Del. Ch. Oct. 1, 2018)).
221
In re WeWork Litig., 2020 WL 6375438, at *9 (Del. Ch. Oct. 30, 2020). The Chancery Court stated this rule in
the context of a motion to dismiss, noting that whether a party used reasonable best efforts is an inquiry “not readily
amenable to resolution at the pleadings stage.” Id. Nonetheless, the inquiry is still “inherently factual.” See id.30
As discussed in the Findings of Fact, CenterPoint did not use “reasonable best efforts” to
cause Final Completion. CenterPoint is JBBR’s agent. As such, CenterPoint owed duties to
JBBR. CenterPoint violated theses duties. Mr. Sheehan, who did not testify, seemed to be
working with Ragnar and Wilson and against the interests of JBBR and Zenith. This conduct
demonstrates a breach of an agent’s duty of loyalty. Mr. Sheehan knew of issues in 2015 and
2016 and did not convey his knowledge to JBBR or Zenith. One of the many examples of this is
that Wilson advised Mr. Sheehan and others that the steam condensate system was not
operational or commissioned on February 25, 2016.222 Wilson again noted issues with the
system on March 2, 2016.223 The record does not show that Mr. Sheehan properly informed
JBBR of this. This conduct demonstrates a breach of an agent’s duty to disclose information that
is relevant to the affairs of the agency entrusted to CenterPoint.
The record is virtually devoid of actions taken by CenterPoint, on behalf of JBBR or
Zenith, in a manner that would have caused Ragnar to achieve Final Completion. CenterPoint
may have been able to rebut these points through Mr. Sheehan or others but failed to do so at the
Trial.
Eventually, Zenith went outside of CenterPoint and Ragnar and retained Ambitech to
address issues at the terminal.224
B. THE COURT FINDS THAT ZENITH HAS SHOWN, BY A PREPONDERANCE OF THE EVIDENCE,
THAT CENTERPOINT BREACHED THE CONSTRUCTION MANAGEMENT AGREEMENT.
Construction Management Agreement Section 2(b), titled “Construction Management
Services,” states:
[CenterPoint] shall perform the Services with substantially the same standard of
care (including quality) as the Services were performed by or on behalf of [JBBR]
222
JX1421.
223
JX1185.
224
July Tr. at 38:3-10.
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prior to the Effective Date, including, without limitation, by performing the
Services, at all times, as would a reasonably prudent construction manager in the
construction management industry.225
Construction Management Agreement Section 2(h) limits Section 2, and it provides that
“except as expressly set forth in Section 2, no representations, warranties or guaranties of any
kind, express or implied . . . are made by [CenterPoint] with respect to the services provided
under [the Construction Management Agreement],” and that all representations and warranties
are waived and disclaimed to the fullest extent of the law.226
On Count II, the Court notes that the issue for each party is whether CenterPoint
performed its services “as would a reasonably prudent construction manager in the construction
management industry.”227 The issue regarding the Construction Management Agreement is the
“reasonably prudent construction manager” language in Section 2(b). The “reasonably prudent
person” standard “is an objective standard” and a “fact-intensive inquiry.”228
The Court’s findings regarding CenterPoint’s conduct relating to Final Completion and
breach of its duties as agent are enough to demonstrate a breach here. In addition, the Court
heard from Mr. Vinson229 and Mr. Hanan230 on what a reasonably prudent construction manager
in the construction management industry must do when providing construction management
services. The Court does find each opinion credible; however, Mr. Hanan’s opinion that
CenterPoint did not perform its duties as a reasonable prudent construction manager is stronger
given the actual facts of this case. Mr. Vinson testified generally on what a reasonably prudent
225
Pls.’ Mot. for Summ. J., Ex. O § 2(b).
226
Id., Ex. O § 2(h).
227
See id., Ex. O § 2(b).
228
CMS Inv. Hldgs., LLC v. Castle, 2015 WL 3894021, at *11 (Del. Ch. June 23, 2015).
229
Aug. 21 Tr. 119:23-120:13; Aug. 21 Tr. 121:2-131:6.
230
July 5 Tr. at 162:20-163:4; July 5 Tr. at 167:1-8; July 5 Tr. at 168:21-170:12.
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construction manager would do; however, Mr. Vinson did not have an opinion as to
CenterPoint’s role under the applicable agreements.231
C. DAMAGES
The Court finds that Zenith has demonstrated damages proximately caused by
CenterPoint’s breach of the Purchase Agreement and the Construction Management Agreement.
Zenith had to engage in remediation work to complete the Terminal. Zenith proved by a
preponderance of the evidence that it suffered $3,091,157.64 in Phase I remediation work.232 In
addition, Zenith has been engaged in the Illinois Action and has a right to be indemnified for
losses in connection with that litigation under Construction Management Agreement Section 8(d)
and Purchase Agreement Section 10.1(b). At this point, the indemnification damages cannot be
quantified.
The Court does not find that Zenith is entitled to “Liquidated Damages.” Zenith
presented this damage theory only at the end of the litigation. Zenith has not asked the Court to
amend its Amended Complaint to add this damage claim. Instead, Zenith began raising the issue
in its pretrial brief and in post-Trial briefing. The Court denied a motion to strike Zenith’s claim
for Liquidated Damages but that was so the Court could review the entire record for support for
this damage claim.
The Court will allow Zenith to offset any earn out payments due to CenterPoint under
Purchase Agreement Section 10.8. However, the Court will not hold that such obligations are
“terminated” due to CenterPoint’s breaches of the Purchase Agreement and the Construction
231
Aug. 21 Tr. at 183:9-20.
232
See, e.g., JX15; JX1294; JX1480.
33
Management Agreement. Zenith has not asked for such relief. In fact, the Amended Complaint
only asks for a “setoff” of earn out payments and not a termination.233
The Court also finds that Zenith’s requests for Liquidated Damages and termination of
the earn out payments are over-reaching under the circumstances. As set out above, Exxon
owned and operated an oil refinery near the Terminal.234 JBBR and Exxon entered into the
TSA.235 The TSA was a “take or pay” contract, meaning Exxon was required to make regular
minimum payments even if Exxon did not need a specified number of trains unloaded for the
requisite period.236 TSA Section 7.5 provides: “[Exxon] shall be obligated to pay the Monthly
Committed Payment…regardless of whether [Exxon] in fact delivers all or any of the Committed
Volume….”237 One of the interesting facts of this case is that Exxon performed fully under the
TSA. As such, even with all of the problems relating to Final Completion and remediation,
JBBR received the full benefit of the TSA. Zenith did not demonstrate that any damages were
suffered by third parties like Exxon.
233
Am. Compl. at 21 (subsection D in prayer for relief).
234
Id.235
JX25.
236
Id. §7 (“Volume and Fees”) and §7.5.
237
Id. § 7.5.
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VII. CONCLUSION
The Court holds that Zenith has properly proved that CenterPoint breached the Purchase
Agreement and the Construction Management Agreement. Judgment shall be entered in favor of
Zenith on Count I and Count II of the Amended Complaint. Damages are initially set at
$3,091,157.64 with the right of Zenith to submit additional evidence on its indemnification
claims.
IT IS SO ORDERED
Dated: July 29, 2024
Wilmington, Delaware
/s/ Eric M. Davis
Eric M. Davis, Judge
cc: File&ServeXpress
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