Court Opinion

ID: 9377815
Source: CourtListenerOpinion
Date Created: 2023-03-08 20:02:27.41276+00
Date Added: 2024-06-11T17:17:17.020522
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

ONE CYPRESS TERMINALS,                     )
LLC,                                       )
                                           )
            Plaintiff,                     )
                                           )
     v.                                    )       C.A. No. 2022-0694-BWD
                                           )
BLUEWING MIDSTREAM, LLC,                   )
                                           )
            Defendant.                     )

                         MASTER’S FINAL REPORT

                         Date Submitted: January 5, 2023
                          Final Report: March 8, 2023

Raymond J. DiCamillo, Matthew W. Murphy & Jordan L. Cramer, RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; OF COUNSEL: Collin J. Cox
& Johanna E. Smith, GIBSON, DUNN & CRUTCHER LLP, Houston, Texas;
Attorneys for Plaintiff One Cypress Terminals, LLC.

Catherine A. Gaul & Michael J. Vail, ASHBY & GEDDES, P.A., Wilmington,
Delaware; OF COUNSEL: James G. Munisteri & Rachel K. O’Neil, FOLEY &
LARDNER, LLP, Houston, Texas; Attorneys for Defendant Bluewing Midstream,
LLC.

DAVID, M.
      This final report addresses Defendant Bluewing Midstream, LLC’s Motion

for Partial Summary Judgment (the “Motion”).1

      Plaintiff One Cypress Terminals, LLC (“OCT”) and Defendant Bluewing

Midstream, LLC (“Midstream”) are the sole members of non-party Bluewing One

HoldCo, LLC (the “Company”), a Delaware limited liability company that owns and

operates fuel storage facilities, called “terminals,” in Brownsville, Texas. Under the

terms of the limited liability company agreement, OCT is entitled to carried interest

on Midstream’s capital contributions used to expand or improve the Company’s

initial terminal, the “Bluewing One Terminal,” located at 11700 Old Texas Highway

48. In 2019, the Company procured a loan to fund construction at two new locations

across the highway. The central question presented by the Motion is whether, under

the unambiguous terms of the contract, those new locations are “expansions” of the

Bluewing One Terminal, such that OCT is entitled to carried interest, or if they are

“other assets adjacent to the Bluewing One Terminal site,” such that carried interest

is not owed.

      For the reasons that follow, I conclude that the LLC Agreement

unambiguously compels Midstream’s interpretation that these new locations are

1
  This case was transferred to me from Vice Chancellor Glasscock after the Motion was
fully briefed and the parties presented oral argument. After examining the briefs and oral
argument transcript, I concluded that further argument before me was unnecessary.
“other assets adjacent to the Bluewing One Terminal site,” and not expansions of the

“Bluewing One Terminal” itself. Accordingly, I recommend that the Motion be

granted.

I.    BACKGROUND2
      A.     The Parties

      Texas limited liability companies OCT and Midstream are the sole Members

of non-party Bluewing One HoldCo, LLC, referred to herein as the “Company.”

Midstream is also the Managing Member of the Company.

      The Company is governed by the Limited Liability Company Agreement of

Bluewing One Holdco, LLC by and between Bluewing Midstream, LLC and One

Cypress Terminals, LLC dated March 12, 2018 (the “LLC Agreement”). Through

its subsidiaries, the Company owns and operates bulk fuel storage facilities, called

“terminals,” in Brownsville, Texas. These terminals consist of fuel storage facilities

with large, above-ground fuel storage tanks and infrastructure to load and unload the

tanks. The LLC Agreement defines the Company’s “Business” to include “the

receipt, redelivery, storage, throughput, and terminalling of hydrocarbons and

hydrocarbon-derived products at the Terminals” and “the ownership, operation,

2
 Although the parties agree that the LLC Agreement is unambiguous, their briefing in
connection with the Motion attaches and cites to numerous documents outside the LLC
Agreement. Because the contract language at issue is unambiguous, as explained below, I
do not summarize that extrinsic evidence here.

                                          2
maintenance and management of the Terminals and other assets and properties of

the Company and its Subsidiaries.” Verified Compl., Ex. 1 at Section 1.1, Dkt. No.

1 [hereinafter, the “LLC Agreement”].

      B.     The Bluewing Agreement
      Prior to the formation of the Company, from approximately 2012 through late

2016, OCT owned and operated a terminal located at 11700 Old Texas Highway 48

in Brownsville, Texas, later termed the “Bluewing One Terminal.” In early 2016,

OCT and Midstream began negotiating a transaction involving the Bluewing One

Terminal.

      In October 2016, the parties memorialized their co-membership in a Delaware

limited liability company, Bluewing One, LLC, through an Amended and Restated

Limited Liability Company Agreement of Bluewing One, LLC by and between

Bluewing Midstream, LLC and One Cypress Terminals, LLC dated October 25,

2016 (the “Bluewing Agreement”).3 As part of that transaction, OCT contributed

the Bluewing One Terminal plus $35,000 in cash, and Midstream contributed

3
  As stated in the Bluewing Agreement, Bluewing One, LLC was formed “solely to engage
in the Business,” defined to include “the receipt, redelivery, storage, throughput, and
terminalling of hydrocarbons and hydrocarbon-derived products at the [Bluewing One]
Terminal,” “the ownership, operation, maintenance and management of the [Bluewing
One] Terminal and other assets and properties of the Company,” and other “ancillary
activities.” Def.’s Mot. for Partial Summ. J., Ex. 2 at Section 2.4 [hereinafter, the
“Bluewing Agreement”]; id. at Section 1.1 (“Business” definition).

                                          3
$3,185,000 in cash, to Bluewing One, LLC. Bluewing Agreement at Section

7.1(a)-(b).

      The Bluewing Agreement also contemplated that OCT would receive

additional consideration in the form of “carried interest” on certain capital

contributions made by Midstream. Id. at Section 7.2(b)-(c). Through provisions

that were later adopted nearly verbatim in the LLC Agreement, the Bluewing

Agreement authorizes Midstream, as Managing Member, to issue capital calls for

amounts necessary to fund Bluewing One, LLC. Id. at Section 7.2(a)(i); LLC

Agreement at Section 7.2(a)(i). Bluewing One, LLC’s Members, Midstream and

OCT, are not required to participate in each capital call, but upon each capital

contribution by a Member, the percentage interests of the Members are immediately

adjusted by re-calculating the Members’ respective percentage interests. Bluewing

Agreement at Section 7.2(a)(iv). Notwithstanding that general framework, the

Bluewing Agreement further provides that OCT will receive carried interest on

capital contributions made by Midstream in order to fund capital expenditures to

expand or improve the Bluewing One Terminal, which would have the effect of

reducing the amount of funds that OCT would have to contribute in a capital call to

maintain its ownership percentage in Bluewing One, LLC. Id. at Section 7.2(b)-(c).

                                        4
      C.     Capital Calls and Carried Interest Under the LLC Agreement

      In 2018, the parties formed the Company under the terms set forth in the LLC

Agreement. At that time, the Company became the sole owner of (1) Bluewing One,

LLC, which continued to own the Bluewing One Terminal, and (2) a new Delaware

limited liability company, Bluewing Royal, LLC, which was formed to acquire a

terminal and related facilities located at 1005 Anchor Road in Brownsville, Texas

(the “Bluewing Royal Terminal”).4 LLC Agreement at 1 (Recitals).

      Like the Bluewing Agreement, the LLC Agreement contemplates that OCT

will receive carried interest on certain capital contributions by Midstream.

Specifically, the LLC Agreement authorizes Midstream, as Managing Member, to

issue capital calls for amounts necessary to fund the Company and its Subsidiaries:

      Capital Calls. Each Member shall have the right, but not the obligation,
      to make additional Capital Contributions at such times as shall be
      determined by the Managing Member and communicated by written
      notice to the Non-Managing Member (a “Capital Call”). Subject to
      Sections 3.9, 3.10, and 3.11, the Managing Member may, from time
      to time, issue Capital Calls for amounts necessary to fund the
      Company and its Subsidiaries, including . . . amounts necessary to fund
      the development and construction of any expansion, modification or
      other capital expenditures related to any of the Terminals and any other
      Approved Project . . . provided, however, that, subject to the last
      sentence of this Section 7.2(a)(i) and Section 7.2(a)(iii), each Member
      will have the right to fund a portion of the amount requested pursuant

4
 The Bluewing One Terminal located at 11700 Old Texas Highway 48 is labeled “A” on
Exhibit 1 hereto. The Bluewing One Terminal is adjacent to the Bluewing Royal Terminal,
which is located at 1005 Anchor Road and labeled “B” on Exhibit 1 hereto.

                                          5
      to any particular Capital Call equal to such Member’s Percentage
      Interest share of the total amount requested pursuant to such Capital
      Call.

Id. at Section 7.2(a)(i) (emphasis added).           While the Company’s Members,

Midstream and OCT, are not required to participate in the capital calls, upon a capital

contribution made by one or both Members, “the Percentage Interest of the Members

shall be immediately adjusted by re-calculating (as of such time) the Pro-Forma

Percentage Interest of each Member.” Id. at Section 7.2(a)(iv).

      As in the Bluewing Agreement, the LLC Agreement provides that OCT will

receive carried interest on capital contributions made by Midstream in order to fund

capital expenditures to expand or improve the “Bluewing One Terminal,” which is

defined as:

      [T]he marine terminal, tank farm and related facilities and
      infrastructure located at 11700 Old Texas 48, Brownsville, Texas
      78521 and serving the Port of Brownsville, Texas to be owned by
      Bluewing One, as such facility exists as of the Effective Date, and as
      the same may be expanded, modernized, de-bottlenecked, improved,
      refurbished, repaired or otherwise modified or altered following the
      Effective Date . . . .

Id. at Section 1.1. Pursuant to Section 7.2(a)(i),

      [T]o the extent (and only to the extent) that funds requested pursuant
      to any Capital Call pertain to capital expenditures directly and solely
      related to the Bluewing One Terminal, then until the thresholds in each
      of Section 7.2(b) (with respect to the Initial Carried Interest) and
      Section 7.2(c) (with respect to the Additional Carried Interest) have
      been achieved, OCT’s right to make Capital Contributions pursuant
      to such Capital Call shall be automatically reduced by an amount

                                          6
      equal to the Initial Carried Interest or the Additional Carried Interest
      (as applicable) earned by OCT as a result of Capital Contributions made
      by [Midstream] in connection with such Capital Call (it being
      acknowledged and agreed among the Members that nothing in Section
      7.2(b) or Section 7.2(c) below shall entitle OCT to effect a reduction
      in, or otherwise dilute, [Midstream]’s Percentage Interest, relative to
      the aggregate amount of all of the Members’ Percentage Interest).

Id. at Section 7.2(a)(i) (emphasis added). “Initial Carried Interest” and “Additional

Carried Interest” are defined as follows:

      (b) Initial Carried Interest. Notwithstanding anything to the contrary in
      Section 7.2(a)(i) above, with respect to the first $4,003,788 of Capital
      Contributions made by Bluewing after the Effective Date (determined,
      for the avoidance of doubt, prior to giving effect to the Capital
      Contribution of $1,500,000 that is due on March 23, 2018) for the sole
      purpose of funding capital expenditures to expand or improve the
      Bluewing One Terminal (as opposed to any other expenditures of the
      Company, including, but not limited to, those pertaining to the
      acquisition of, or expansion or improvements with respect to, the
      Bluewing Royal Terminal, any other assets adjacent to the Bluewing
      One Terminal site or any other Terminals), OCT shall be deemed,
      contemporaneously with each such Capital Contribution made by
      Bluewing, to have made a Capital Contribution equal to twenty percent
      (20%) of such Bluewing Capital Contribution, and the Pro-Forma
      Percentage Interest of each Member shall adjust accordingly (each such
      amount deemed to have been contributed by OCT being referred to as
      an “Initial Carried Interest”). . . .

      (c) Additional Carried Interest. Without limiting Section 7.2(a)(i)
      above, once Bluewing has made Capital Contributions after the
      Effective Date equal to $4,003,788 in the aggregate for the sole
      purpose of funding capital expenditures related to the Bluewing One
      Terminal, then with respect to the next $15,000,000 of Capital
      Contributions made by Bluewing for the sole purpose of funding
      capital expenditures to expand or improve the Bluewing One
      Terminal (as opposed to any other expenditures of the Company,
      including, but not limited to, those pertaining to the acquisition of, or

                                            7
      expansion or improvements with respect to, the Bluewing Royal
      Terminal, any other assets adjacent to the Bluewing One Terminal
      site or any other Terminals), OCT shall be deemed,
      contemporaneously with each such Capital Contribution made by
      Bluewing, to have made a Capital Contribution equal to five percent
      (5%) of such Bluewing Capital Contribution, and the Pro-Forma
      Percentage Interest of each Member shall adjust accordingly (each such
      amount deemed to have been contributed by OCT being referred to as
      an “Additional Carried Interest”).

Id. at Section 7.2(b), (c) (emphasis added).

      D.     The Company Procures a Loan to Fund Construction of the “Phase
             I Terminal” and the “Phase II Terminal.”
      In July 2019, the Company procured a loan from Cadence Bank (the “Loan”)

to fund the construction of fuel storage facilities at two new addresses on Old Texas

Highway 48. The first new location, the “Phase II Terminal,” is located at 10451

Old Texas Highway 48. That site, situated across the highway and to the west of

11700 Old Texas Highway 48 and 1005 Anchor Road, is labeled “C” on Exhibit 1

hereto.

      The second new location, the “Phase III Terminal,” is located at 10951 Old

Texas Highway. That site, located to the north and east of 11700 Old Texas

Highway 48 and 1005 Anchor Road, is labeled “D” on Exhibit 1 hereto.

                                          8
      E.    Midstream Issues a Capital Call to Repay the Loan, and the Parties
            Dispute OCT’s Entitlement to Carried Interest.
      On June 9, 2022, Midstream issued a capital call to pay off the outstanding

balance of the Loan, which the parties agree was used to fund the Phase II Terminal

and the Phase III Terminal.

      The June 9, 2022 capital call requested $4,175,500 from OCT. OCT paid

$3,540,204, claiming entitlement to carried interest for the $635,296 balance.

Disputing OCT’s entitlement to carried interest on amounts used to repay the Loan

that funded the Phase II Terminal and the Phase III Terminal (as opposed to the

Bluewing One Terminal), Midstream paid the balance itself and asserted that the

parties’ interests in the Company automatically adjusted pursuant to Section

7.2(a)(iv) of the LLC Agreement.

      F.    The Complaint and the Motion

      On August 8, 2022, OCT filed its Verified Complaint (the “Complaint”),

seeking, among other things, a declaration “that OCT is entitled to carried interest

based on funds paid by [Midstream] to repay borrowings used for Bluewing One

Terminal expansion,” and “that [Midstream] breached its contractual duties under

the LLC Agreement to grant OCT carried interest based on funds paid by

[Midstream] to repay borrowings used for Bluewing One Terminal expansion.”

Verified Compl. 21-22, Dkt. No. 1 (emphasis added). The Complaint also seeks an

                                         9
injunction against further breaches of the LLC Agreement, as well as monetary

damages.5

      On November 1, 2022, Midstream filed the Motion, seeking “entry of

summary judgment that (a) [OCT] is not entitled to carried interest based on funds

paid by Midstream to repay borrowings for Bluewing One, LLC’s expansion of

terminals adjacent to the Bluewing One Terminal located at 11700 Old Texas

Highway 48, Brownsville, Texas 78521, and (b) Midstream has not breached its

contractual duties under the parties’ operating agreement to grant [OCT] carried

interest based on funds paid by Midstream to repay borrowings used for Bluewing

One, LLC’s expansion of terminals adjacent to the Bluewing One Terminal located

at 11700 Old Texas Highway 48, Brownsville, Texas 78521.” Def.’s Mot. for Partial

Summ. J., Dkt. No. 16 (emphasis added).

      On January 5, 2023, Vice Chancellor Glasscock heard oral argument on the

Motion. Tr. of 1.5.23 Oral Arg., Dkt. No. 38. The matter was reassigned to me on

February 15, 2023. Reassignment Letter, Dkt. No. 39.

5
 The Complaint asserts two counts: Count I for breach of contract against Midstream, and
Count II for intentional interference with a contractual relationship against Energy
Spectrum Partners VII LP (“Energy Spectrum”), an investor of Midstream. Verified
Compl. ¶¶ 98-112. On September 9, 2022, Energy Spectrum moved to dismiss Count II,
and on September 21, 2022, OCT voluntarily dismissed that count. Energy Spectrum
Partners VII LP’s Mot. to Dismiss, Dkt. No. 8; Notice of Voluntary Dismissal Without
Prejudice, Dkt. No. 9.

                                          10
II.    ANALYSIS

       The central question presented by the Motion is whether, under the

unambiguous terms of the LLC Agreement, construction of the Phase II Terminal

and the Phase III Terminal constituted “expansions” of the Bluewing One Terminal,

such that OCT is entitled to carried interest on Midstream’s capital contributions

used to fund those projects, or if the Phase II Terminal and the Phase III Terminal

are “other assets adjacent to the Bluewing One Terminal site,” such that carried

interest is not owed. Each side contends that the LLC Agreement unambiguously

compels its respective interpretation.

       Delaware courts routinely enter “summary judgment in contract disputes

where the language at issue is clear and unambiguous.” GMG Capital Investments,

LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 783 (Del. 2012) (citations

omitted). “In such cases, the parol evidence rule bars the admission of evidence

from outside the contract’s four corners to vary or contradict that unambiguous

language.”6 Id. On the other hand, “summary judgment may not be awarded [in a

contract dispute] if the language is ambiguous and the moving party has failed to

6
 The LLC Agreement also contains a comprehensive integration clause providing that the
LLC Agreement “supersedes all previous agreements, negotiations, or communications”
between the parties. LLC Agreement at Section 11.4. Such provisions are enforceable,
particularly where, as here, they are the result of negotiations by sophisticated parties. See
Progressive Int’l Corp. v. E.I. Du Pont de Nemours & Co., 2002 WL 1558382, at *10-11
(Del. Ch. July 9, 2002).

                                             11
offer uncontested evidence as to the proper interpretation.” Id. “[A] contract term

is ambiguous ‘only when the provisions in controversy are reasonable or fairly

susceptible of different interpretations or may have two or more different

meanings.’” Comet Sys., Inc. Shareholders’ Agent v. MIVA, Inc., 980 A.2d 1024,

1030 (Del. Ch. 2008).

         For the reasons set forth below, I find that the plain language of the LLC

Agreement unambiguously supports Midstream’s interpretation, and therefore

recommend that the Motion be granted.

             A. The LLC Agreement Unambiguously Defines the Bluewing One
                Terminal as the Facility Located at 11700 Old Texas Highway 48
                and Not Any Other Assets Adjacent to That Site.

         “A contract is not rendered ambiguous simply because the parties do not agree

upon its proper construction. Rather, an ambiguity exists [w]hen the provisions in

controversy are fairly susceptible of different interpretations or may have two or

more different meanings.” GMG Capital Investments, LLC, 36 A.3d at 780.

         The parties here agree that the definition of “Bluewing One Terminal” is

unambiguous,7 but disagree on its meaning.               Midstream argues that the LLC

Agreement unambiguously defines “Bluewing One Terminal” as the facility located

at 11700 Old Texas Highway 48, and not any other location. OCT counters that the

7
    See, e.g., Tr. of 1.5.23 Oral Arg. 33:12-16, Dkt. No. 38.

                                               12
definition of “Bluewing One Terminal” contemplates that the facility “may be

expanded,” which could include geographic expansion beyond the Bluewing One

Terminal’s initial location at 11700 Old Texas Highway 48.

      As explained below, Midstream offers a compelling interpretation of the

definition of “Bluewing One Terminal” as limited to a specific location. On the

other hand, OCT’s argument that “expanded” must include geographic expansion is

not convincing. And, most importantly, reading the LLC Agreement as a whole, the

carried interest provisions in Sections 7.2(b) and (c) expressly conflict with OCT’s

interpretation, rendering it unreasonable.

             1. The Definition of “Bluewing One Terminal” is Limited to a
                Specific Location, Namely 11700 Old Texas Highway 48.

      In briefing, OCT and Midstream each carefully dissect the LLC Agreement’s

text, arriving at opposite outcomes.

      To recap, under the LLC Agreement, OCT is only entitled to carried interest

on Midstream’s capital contributions that are “directly and solely related to the

Bluewing One Terminal” and that are made “for the sole purpose of funding capital

expenditures to expand or improve the Bluewing One Terminal (as opposed to . . .

                                         13
any other assets adjacent to the Bluewing One Terminal site or any other

Terminals),”8 where the “Bluewing One Terminal” is defined as:

         [T]he marine terminal, tank farm and related facilities and
         infrastructure located at 11700 Old Texas 48, Brownsville, Texas
         78521 and serving the Port of Brownsville, Texas to be owned by
         Bluewing One, as such facility exists as of the Effective Date, and as
         the same may be expanded, modernized, de-bottlenecked, improved,
         refurbished, repaired or otherwise modified or altered following the
         Effective Date . . . .

LLC Agreement at Section 1.1 (emphasis added).

         Midstream argues that the LLC Agreement defines the “Bluewing One

Terminal” as “the marine terminal, tank farm and related facilities and infrastructure

located at 11700 Old Texas 48, Brownsville, Texas 78521”—confining the

Bluewing One Terminal to assets at a fixed location on the globe. Def.’s Opening

Br. in Supp. of Mot. for Partial Summ. J. 28-29, Dkt. No. 16 (emphasis omitted)

[hereinafter, the “OB”].        The definition also clarifies that the Bluewing One

Terminal includes “such facility”—i.e., the assets located at 11700 Old Texas

Highway 48—as it “exists as of the Effective Date, and as the same [assets located

at 11700 Old Texas Highway 48] may be expanded, modernized, de-bottlenecked,

improved, refurbished, repaired or otherwise modified or altered following the

Effective Date.” Id. In other words, while the Bluewing One Terminal facility at

8
    LLC Agreement at Section 7.2(a)(i); id. at Section 7.2(b)-(c).

                                              14
11700 Old Texas Highway 48 may change over time, the location of that facility

remains fixed.

      Midstream’s reading makes sense. If the parties had intended for the location

of the Bluewing One Terminal to change over time, they could have so provided.

For example, the parties could have defined the Bluewing One Terminal as “the

marine terminal, tank farm and related facilities and infrastructure currently located

at 11700 Old Texas 48 . . . as the same may be expanded,” but they did not. As

written, the definition of “Bluewing One Terminal” supports Midstream’s position

that the location at 11700 Old Texas Highway 48 remains fixed, while the facility at

that location “may be expanded . . . .”

      OCT parses the language differently. OCT contends that in the phrase “the

marine terminal, tank farm and related facilities and infrastructure located at 11700

Old Texas 48,” the modifier “located at 11700 Old Texas 48” applies only to the last

antecedent, “infrastructure.” Pl.’s Answering Br. in Opp’n to Def.’s Mot. for Partial

Summ. J. 14-15, Dkt. No. 23 [hereinafter, the “AB”]. Thus, under OCT’s reading,

only the location of “the then-existing infrastructure” remains fixed at 11700 Old

Texas Highway 48, while the location of other assets associated with the Bluewing

One Terminal may expand over time.

      Under the “rule of the last antecedent,” “referential and qualifying words and

phrases, where no contrary intention appears, refer solely to the last antecedent.”

                                          15
Daniel v. Hawkins, 2023 WL 115854, at *28 (Del. Jan. 6, 2023). On the other hand,

“‘[w]hen the sense of the entire [document] requires that a qualifying word or phrase

apply to several preceding or succeeding sections, the word or phrase will not be

restricted to its immediate antecedent.’” NBC Universal v. Paxson Commc’ns Corp.,

2005 WL 1038997, at *6 (Del. Ch. Apr. 29, 2005). Here, OCT concedes that the

second half of the modifying phrase—“to be owned by Bluewing One[, LLC]”9—

does, in fact, apply to all listed antecedents.10 In other words, even OCT seems to

agree that straightforwardly applying the last antecedent rule here does not

accurately capture the parties’ intent. 11

       In my view, the better, commonsense reading is the one that Midstream

proposes: that the entire phrase “located at 11700 Old Texas 48, Brownsville, Texas

78521 and serving the Port of Brownsville, Texas to be owned by Bluewing One,”

9
  Again, the entire modifying phrase is: “the marine terminal, tank farm and related
facilities and infrastructure located at 11700 Old Texas 48, Brownsville, Texas 78521 and
serving the Port of Brownsville, Texas to be owned by Bluewing One . . . .”
10
  See AB at 14-15 (contending that “(1) ‘the marine terminal,’ (2) ‘tank farm and related
facilities,’ and (3) ‘infrastructure located at 11700 Old Texas 48, Brownsville, Texas 78521
and serving the Port of Brownsville, Texas’” were all “‘to be owned by Bluewing One[,
LLC]’”).
11
  Even if the last antecedent rule applied, I am not convinced OCT is applying it correctly.
The presence of two coordinating conjunctions in the phrase “the marine terminal, tank
farm and related facilities and infrastructure,” instead of a comma between “tank farm”
and “related facilities,” suggests that “located at 11700 Old Texas 48” modifies the phrase
“related facilities and infrastructure,” rather than “infrastructure” alone.

                                             16
is intended to modify the entire phrase “the marine terminal, tank farm and related

facilities and infrastructure.” Under that reading, the Bluewing One Terminal’s

facility at 11700 Old Texas Highway 48 may expand over time, but the “Bluewing

One Terminal” itself is limited to that location.

              2. OCT’s Argument that “Expanded” Requires Geographic
                 Expansion is Not Persuasive.

       As summarized above, the “Bluewing One Terminal” is defined as “the

marine terminal, tank farm and related facilities and infrastructure located at 11700

Old Texas 48 . . . as the same may be expanded, modernized, de-bottlenecked, improved,

refurbished, repaired or otherwise modified or altered . . . .”

       OCT argues that the word “expanded” must permit geographic expansion

beyond the Bluewing One Terminal’s initial location at 11700 Old Texas Highway

48. According to OCT, interpreting “expanded” to mean expansion at the existing

facility, as opposed to geographic expansion, would render the term superfluous,

since an “expansion” at the existing location would also constitute an

“improvement.”12 See AB at 17 (“Taken together, ‘improved’ must mean something

different than—and distinct from—‘expanded.’”). See also NAMA Holdings, LLC

12
  OCT also points out that the LLC’s carried interest provisions, Sections 7.2(b) and (c),
limit carried interest to “capital expenditures to expand or improve the Bluewing One
Terminal,” similarly arguing that “expand” and “improve” must be interpreted as having
different meanings. LLC Agreement at Section 7.2(b), (c) (emphasis added).

                                              17
v. World Mkt. Ctr. Venture, LLC, 948 A.2d 411, 419 (Del. Ch. 2007) (“Contractual

interpretation operates under the assumption that the parties never include

superfluous verbiage in their agreement, and that each word should be given

meaning and effect by the court.”), aff’d, 945 A.2d 594 (Del. 2008).

         This argument is not persuasive. First, the concepts of “expansion” and

“improvement” at an existing facility are not coterminous. OCT’s argument requires

applying the real property definition of improvement—“[t]o develop (land)”13—in a

contract that is not a real property transfer document.14 Applying the more common

usage of “improve”—“to increase the value or enhance the appearance of

(something)”15—the terms “expanded” and “improved” have distinct meanings. For

instance, contrary to OCT’s argument, an expansion of the storage capacity of an

existing terminal does mean something different than an improvement in the value

of that terminal.

13
     Improve, Black’s Law Dictionary (11th ed. 2019).
14
     Tr. of 1.5.23 Oral Arg. 47:1-2. See also AB at 17 (“Whereas ‘expansions’ are
enlargements of the geographic footprint, ‘improvements’ refer to developing that footprint
. . . .”).
15
     Improve, Black’s Law Dictionary (11th ed. 2019).

                                             18
      OCT’s argument also fails to acknowledge that most of the listed adjectives—

including “modernized,” “de-bottlenecked,”16 “refurbished,” “repaired,” and

“expanded”—could be characterized as “improvements” to the existing facility. As

Vice Chancellor Glasscock noted at oral argument, the definition includes a catch-

all “list that a lawyer would make of all the things you could call construction on a

property.” Tr. of 1.5.23 Oral Arg. 46:3-5. But “reading [the contract] as a normal

human being, I would expect expansion, like all these other adjectives, to relate to

the physical location which has been described.” Id. at 39:6-11.

      Accordingly, the plain language of the LLC Agreement does not support

OCT’s argument that the definition of Bluewing One Terminal must allow for

geographic expansion.

             3. Sections 7.2(b) and (c) of the LLC Agreement Render OCT’s
                Interpretation Unreasonable.

      Even if the Bluewing One Terminal definition standing alone were susceptible

to OCT’s interpretation, any potential ambiguity is entirely foreclosed by the other

provisions of the LLC Agreement. “[W]ell-settled rules of contract construction

16
   In the oil and gas industry, de-bottlenecking refers to the process of identifying and
optimizing areas or equipment that limit the flow of product. See Debottlenecking: What
It Is and How It Can Help Optimize Downstream Processes, Audubon Companies (Aug.
21, 2014), https://auduboncompanies.com/debottlenecking-what-it-is-and-how-it-can-
help-optimize-downstream-processes/.

                                           19
require that a contract be construed as a whole, giving effect to the parties’

intentions.” DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005);

see also Council of Dorset Condo. Apartments v. Gordon, 801 A.2d 1, 7 (Del. 2002)

(“A court must interpret contractual provisions in a way that gives effect to every

term of the instrument, and that, if possible, reconciles all of the provisions of the

instrument when read as a whole.”).          Read as a whole, the LLC Agreement

unambiguously demonstrates the parties’ intent to permit carried interest only on

capital contributions used to expand or improve the Bluewing One Terminal facility

at 11700 Old Texas Highway 48, and not for any other assets near or close to17 that

location.

       Several provisions of the LLC Agreement demonstrate that the parties

anticipated an expansion of the Company through the acquisition of assets other than

the Bluewing One Terminal and the Bluewing Royal Terminal.                      The LLC

Agreement defines the Company’s “Business” to include “the receipt, redelivery,

storage, throughput, and terminalling of hydrocarbons and hydrocarbon-derived

products at the Terminals,” defined as the two existing terminals plus “any other

marine terminal, tank farm and related facilities and infrastructure . . . that is acquired

after the [LLC Agreement’s] Effective Date[.]” LLC Agreement at Section 1.1

17
  Black’s Law Dictionary defines “adjacent” to mean “[l]ying near or close to, but not
necessarily touching.” Adjacent, Black’s Law Dictionary (11th ed. 2019).

                                            20
(emphasis added).     Additionally, pursuant to Section 7.2(a)(i), the Managing

Member is authorized to issue capital calls to fund “capital expenditures related to

any of the Terminals and any other Approved Project.” Id. at Section 7.2(a)(i)

(emphasis added). Thus, the parties clearly contemplated the possibility of acquiring

additional terminals or facilities, or undertaking other projects, not encompassed by

the Bluewing One Terminal.

      Given that possibility, the LLC Agreement carefully delineates the

circumstances in which OCT will, and will not, receive carried interest. Specifically,

Sections 7.2(b) and (c) are clear that while OCT will receive carried interest on

Midstream’s capital contributions used “for the sole purpose of funding capital

expenditures to expand or improve the Bluewing One Terminal,” OCT will not

receive carried interest for expenditures pertaining to “any other assets adjacent to

the Bluewing One Terminal site.”18 LLC Agreement at Section 7.2(b), (c). In other

words, these provisions unambiguously demonstrate “that the parties contemplated

acquiring other terminals ‘adjacent’ to the Bluewing One Terminal site and that

those subsequently acquired terminals [would] not qualify for carried interest

18
  OCT and Midstream agree that the Bluewing One Terminal “site” refers to the Bluewing
One Terminal’s geographic location “as it existed when the LLC Agreement went into
effect”—i.e., 11700 Old Texas Highway 48. OB at 23; see also AB at 10.

                                         21
regardless of their close physical proximity to the Bluewing One Terminal.” OB at

11 (emphasis added).

       “An interpretation that conflicts with the plain language of a contract is not

reasonable.” Bank of New York Mellon v. Commerzbank Cap. Funding Tr. II, 65

A.3d 539, 555 (Del. 2013). And, “[a] meaning inferred from a particular provision

cannot control if that inference conflicts with the agreement’s overall scheme.”

Weinberg v. Waystar, Inc., 2022 WL 2452141, at *3 (Del. Ch. July 6, 2022),

judgment entered, (Del. Ch. 2022). Notwithstanding the exclusionary parentheticals

in Sections 7.2(b) and (c), OCT interprets the LLC Agreement to mean that the

Bluewing One Terminal could geographically expand to a parcel near 11700 Old

Texas Highway 48, entitling OCT to carried interest on expenditures even if they

pertain to “other assets adjacent to the Bluewing One Terminal site.”19 OCT’s

interpretation directly contradicts the plain language of Sections 7.2(b) and (c),

which make clear that carried interest in not available in that circumstance, and is

therefore unreasonable.

19
   OCT argues that the carveout of “any other assets adjacent to the Bluewing One Terminal
site” in Sections 7.2(b) and (c) demonstrates the parties’ intention that some adjacent assets
could be included in the definition of “Bluewing One Terminal.” AB at 23-24 (emphasis
added). A less convoluted reading is that the parties simply intended to distinguish between
the Bluewing One Terminal, on the one hand, and other assets (including assets adjacent
to the Bluewing One Terminal site), on the other hand.

                                             22
      In sum, reading the LLC Agreement as a whole and giving meaning to all

provisions therein, the “Bluewing One Terminal” unambiguously refers to the

facility located at 11700 Old Texas Highway 48, and cannot include other assets

adjacent to that location. Thus, the Phase II Terminal, which is located at 10451 Old

Texas Highway 48, and the Phase III Terminal, which is located at 10951 Old Texas

Highway 48, are not “expansions” of the Bluewing One Terminal—they are “other

assets adjacent to the Bluewing One Terminal site.” Based on the unambiguous

terms of the LLC Agreement, OCT is not entitled to carried interest on Midstream’s

capital contributions used to fund those projects.

         B. OCT is Not Entitled to Carried Interest on MidStream’s Capital
            Contribution Used to Repay the Loan.

      Midstream separately argues that even if the Loan were used to improve or

expand the Bluewing One Terminal, OCT is not entitled to carried interest on

Midstream’s capital contribution used to repay the Loan because “[r]epaying bank

debt is not the same as making an expenditure ‘directly and solely’ for the

improvement or expansion of any storage Terminal.” OB at 34-35. Because the

parties agree that the proceeds of the Loan were used to fund construction of the

Phase II Terminal and the Phase III Terminal, which I have concluded are not

expansions of the Bluewing One Terminal, I do not reach this alternative argument.

                                         23
III.   CONCLUSION

       For the reasons explained above, I recommend that the Motion be granted.

This is a final report pursuant to Court of Chancery Rule 144.

                                        24
                                                   Exhibit 1*

* This exhibit is intended to illustrate the respective locations of the terminals for the reader’s general
understanding. It is not intended as a finding of fact regarding the boundary of any terminal location.