Court Opinion

ID: 4020054
Source: CourtListenerOpinion
Date Created: 2016-07-29 15:04:10.314129+00
Date Added: 2024-06-11T12:12:03.124317
License: Public Domain

FILED
                                                            Jul 29 2016, 10:09 am

                                                                 CLERK
                                                             Indiana Supreme Court
                                                                Court of Appeals
                                                                  and Tax Court

ATTORNEYS FOR APPELLANT                                    ATTORNEYS FOR APPELLEE
Jenny R. Buchheit                                          Richard A. Kempf
Eileen P.H. Moore                                          Paul T. Deignan
Ice Miller LLP                                             Thomas F. O’Gara
Indianapolis, Indiana                                      Taft Stettinius & Hollister LLP
                                                           Indianapolis, Indiana

                                            IN THE
    COURT OF APPEALS OF INDIANA

Champlain Capital Partners,                                July 29, 2016
L.P.,                                                      Court of Appeals Case No.
Appellant (Defendant/Counterclaim                          55A04-1510-CC-1630
Plaintiff below)                                           Appeal from the Morgan Superior
                                                           Court
        v.                                                 The Honorable Christopher L.
                                                           Burnham, Judge
Elway Company, LLP, Dale K.                                Trial Court Cause No.
Elrod, Jeffrey L. Elrod, and                               55D02-1105-CC-1032
Mary Ann Waymire,
Appellees (Plaintiffs/Counterclaim
Defendants below)

Bailey, Judge.

                                      Case Summary

Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016               Page 1 of 44
[1]   Champlain Capital Partners, L.P. (“Champlain”) and Elway Company, L.P.

      (“Elway Company”), Dale K. Elrod (“Dale”), Jeffrey L. Elrod (“Jeffrey”), and

      Mary Ann Waymire (“Mary Ann”) (collectively, “the Elrods”; taken together,

      the Elrods and the Elway Company shall be referred to as “the Elrod

      Plaintiffs”) were engaged in litigation in which Champlain alleged that the

      Elrod Plaintiffs had breached a Bonding Collateral Agreement (“the

      Agreement”) with Champlain, and that they had not acted in accordance with

      the Agreement’s implied covenant of good faith and fair dealing. After a bench

      trial, the trial court found in favor of the Elrod Plaintiffs.

[2]   Champlain now appeals. We affirm in part, reverse in part, and remand with

      instructions.

                                                     Issues
[3]   Champlain presents three issues for our review. We restate these as:

                 I.    Whether the trial court erred when it found that the Elrod
                       Plaintiffs did not breach the Agreement although they did
                       not provide $3.5 million in collateral to a bonding
                       company;

                II.    Whether the trial court erred when it did not find that the
                       Elrod Plaintiffs had breached the Agreement although
                       they did not reimburse Champlain when a portion of
                       Champlain’s collateral was used to pay bond claims; and

      Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016       Page 2 of 44
              III.     Whether the trial court erred when it did not find that the
                       Elrod Plaintiffs breached the Agreement’s implied
                       covenant of good faith and fair dealing.

                             Facts and Procedural History
[4]   In 2004, the Elrods were majority shareholders in the John K. Elrod Company

      (“JKE”). JKE’s business involved the construction of stadium seating,

      construction of racing safety barriers, and renting seating for large events. To

      bid on and perform many of the construction contracts, JKE needed to obtain

      performance bonds, payment bonds, and supply bonds to assure its customers,

      contractors, and subcontractors that work would be performed and paid for in

      the event JKE were to default on one or more of its contracts.

[5]   During 2004 and into 2005, the Elrods sought an investor that would be willing

      to acquire a majority interest in JKE. Champlain, an investment firm that

      focused on acquiring and growing small- and medium-size enterprises,

      eventually agreed to acquire JKE. A portion of Champlain’s pool of funds for

      making investments came from the United States Small Business

      Administration (“SBA”) and an associated agency, the Small Business

      Investment Company (“SBIC”).

[6]   In 2005, Champlain acquired a majority interest in JKE through a leveraged

      buyout. The Elrods remained as minority shareholders. Dale and Jeffrey

      continued to serve as corporate officers in JKE, with Dale serving as a chief

      financial officer and Jeffrey serving as JKE’s president.

      Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016       Page 3 of 44
[7]   Both before the leveraged buyout and after it, JKE obtained its bonds from

      Safeco Surety (“Safeco”).1 Safeco’s surety business focused on issuing

      construction and contractor bonds. To secure itself against losses in the event

      of claims against its construction bonds, Safeco required security from JKE.

      Prior to Champlain’s acquisition of JKE, Safeco’s security came in the form of

      personal indemnities from the Elrods. With Champlain’s acquisition of JKE,

      Safeco’s terms for continuing to issue bonds on JKE’s behalf changed: rather

      than personal indemnities from the Elrods, Safeco demanded $3.5 million in

      collateral in the form of an irrevocable letter of credit (“ILOC” or “JKE

      ILOC”). The Elrods agreed to loan $3.5 million to JKE from the proceeds of

      the sale of the business to Champlain, with the loaned capital to be used to fund

      the ILOC. JKE’s ILOC guarantying Safeco’s collateral was placed with Fifth

      Third Bank.

[8]   Shortly after Champlain acquired its majority interest in JKE, JKE encountered

      financial problems due to lost revenues when competitors unexpectedly

      underbid JKE for several contracts. JKE was also trying at this time to expand

      its business into larger jobs, and this effort required that JKE obtain an increase

      in its bonding limits from Safeco. In early 2006, JKE, acting through Dale and

      JKE’s insurance agent, Ed Mournighan (“Mournighan”), sought to increase its

      bonding limits. After reviewing JKE’s financial situation, which reflected a loss

      1
        After the events at issue in this case, but before the instant litigation was initiated, Safeco was acquired by
      Liberty Mutual Insurance Company. For simplicity’s sake, and because neither company is a party to the
      litigation, we refer to Safeco throughout.

      Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016                              Page 4 of 44
       for 2005 and significant debt on its balance sheet, Safeco indicated that it would

       not increase JKE’s bonding capacity unless JKE provided additional security to

       Safeco in the form of either an additional $3.5 million in collateral, or an

       additional $2.5 million in collateral and personal indemnity guarantees from the

       Elrods.

[9]    Champlain and the Elrods sought a source for the additional $3.5 million in

       collateral during the first half of 2006. Champlain was restricted from

       increasing its investment in JKE unilaterally because of conditions placed upon

       Champlain’s use of investment funds from SBA and SBIC. In June 2006, after

       correspondence among Mournighan, Champlain, SBA, and Safeco, Champlain

       obtained approval from SBA and SBIC to use its capital to fund the additional

       $3.5 million in collateral for Safeco’s bonding guaranty.

[10]   Around this time, JKE’s finances became even more unstable. Fifth Third

       Bank, which was JKE’s senior lender as well as holding the ILOC that served

       as JKE’s collateral for Safeco bonds, determined that JKE’s financial situation

       violated covenants in loan agreements. Fifth Third Bank therefore moved

       JKE’s loans to its workout division in anticipation of foreclosing on the loans;

       this would, both the Elrods and Champlain recognized, mean the end of JKE’s

       business.

[11]   To avoid this event, during July and August 2006 the Elrods, Champlain,

       JKE’s lenders, and other minority shareholders in JKE negotiated a transaction

       that would restructure JKE’s finances. In this transaction, the Elrods would

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 5 of 44
       themselves contribute several million dollars in capital to JKE, and would ask

       Safeco to release the $3.5 million ILOC that JKE had posted using the Elrods’

       loan in 2005. The JKE ILOC would be replaced by a $3.5 million ILOC using

       capital from Champlain (“the substitute LOC”). The funding for the substitute

       LOC was to come from the capital SBA had agreed to permit Champlain to use

       as additional collateral to increase JKE’s bonding limits with Safeco.

[12]   Another facet of the recapitalization involved JKE selling to the Elway

       Company certain real estate and manufacturing assets that belonged to JKE.

       The Elway Company was to use funds from the Elrods to make this purchase,

       thereby contributing $4.7 million to JKE. (App’x at 640.) The Elway

       Company would, in turn, lease these assets back to JKE to allow JKE to

       continue to operate using the assets it had sold to the Elway Company. (App’x

       at 571-72.) Further, the Elrod Plaintiffs were to loan JKE an aggregate sum of

       $3.9 million; these funds were to be used to retire debt held by Fifth Third

       Bank. (App’x at 577.) In addition, JKE’s other lenders (“the mezzanine

       lenders”) were to agree to reduce the amount of their claims on the debts owed

       to them by JKE in exchange for additional shares of stock in JKE.

[13]   Safeco agreed to release the funds from the JKE ILOC and to accept the

       substitute LOC. After Safeco released the funds, the various parties—

       Champlain, the Elrods, JKE’s mezzanine debtors, and Fifth Third Bank—

       closed on the restructuring transaction on August 18, 2006.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 6 of 44
[14]   This set of transactions placed JKE on more solid financial footing, but did not

       address JKE’s need to continue to expand its business to larger jobs. To

       expand, JKE still needed to increase its bonding limits with Safeco. Safeco,

       however, still required an additional $3.5 million in collateral before it would

       agree to increase the limits on the bonds it would issue on JKE’s behalf. The

       restructuring of JKE meant that the $3.5 million that SBA had agreed to permit

       Champlain to use had already been placed into the substitute LOC.

[15]   In an effort to ensure that collateral would be available so that Safeco would

       agree to increase JKE’s bonding limits, the restructuring transaction included

       the Agreement between Champlain and the Elrods. The Agreement included

       provisions that required Champlain to provide a substitute LOC in a value “not

       to exceed $3.5 [m]illion,” and for the Elrods to provide collateral “not to exceed

       $3.5 [m]illion” to Safeco. (App’x at 59.) By the time the Agreement and the

       other documents in the restructuring transaction were executed on August 18,

       2006, Champlain had already provided Safeco with the substitute LOC. The

       Agreement set forth no time limit under which the Elrods were to provide

       Safeco with additional collateral.

[16]   After the restructuring transaction had been finalized, Dale requested that

       Mournighan arrange a meeting with Safeco representatives concerning the

       requirement for additional collateral. A meeting occurred at the JKE home

       office on September 7, 2006. Dale and Mournighan attended the meeting, as

       did Dan Partin (“Partin”) and Mike Ulrich (“Ulrich”), who were underwriters

       for Safeco assigned to JKE’s account. During the meeting, Dale attempted to

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 7 of 44
       negotiate a lower total collateral amount, arguing that Safeco should have

       confidence in the management team at JKE, that Safeco’s exposure to liability

       on JKE bonds was at a low point and thus additional collateral was

       unnecessary, and that the removal of a significant amount of debt from JKE’s

       balance sheet after the restructuring should allay Safeco’s concerns about JKE’s

       financial situation.

[17]   Within a few days of the meeting, Safeco decided not only to decline JKE’s

       request for an increase in its bonding limits, but also to decline to issue any new

       bonds of any type on JKE’s behalf. Safeco’s internal documents memorializing

       the decision addressed a number of reasons for this decision, including the

       “rather convoluted” restructuring transaction of August 2006, lack of

       profitability, lack of current tangible net worth, and JKE’s budgeting practices

       in comparison to its income model. Safeco concluded that “[i]t is outside of our

       scope to support a regular bonding program given such volatility,” and

       informed Mournighan that it would no longer underwrite JKE’s bonds. (Ex.

       FFF.) Mournighan continued to try to persuade Safeco to continue to work

       with JKE, but was ultimately unsuccessful in his efforts and informed Dale of

       this on September 22, 2006. (Ex. DD.)

[18]   In late September 2006, the Elrods put together a proposal for an additional

       restructuring transaction with Champlain that Dale believed would help further

       strengthen JKE. Champlain declined the offer in early October 2006, and

       tendered a counteroffer to the Elrods with an acceptance deadline of October

       17, 2006. By this time, however, JKE’s cash flow situation was dire, and it

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 8 of 44
       defaulted on its lease payments to the Elway Corporation for the real estate and

       manufacturing assets. By October 10, 2006, it became clear to Jeffrey and

       others that JKE would be unable to continue operations, and that JKE might

       lack sufficient funds to pay its employees their wages.

[19]   On October 11, 2006, Jeffrey informed JKE’s employees that JKE was closing,

       and issued final paychecks. Dale and Jeffrey at this time resigned their

       employment positions at JKE and on JKE’s board. Soon after this, the Elway

       Company, through Midwest Seating Corporation (“MSC”), which had been

       formed to handle the reacquisition of the Elway Company’s leased assets from

       JKE, hired approximately two-dozen of JKE’s former employees. MSC began

       the process of reacquiring from JKE the sold-and-leased-back assets, some of

       which were at JKE’s Mooresville headquarters, and others of which were at job

       sites in different parts of the United States.

[20]   On October 16, 2006, Champlain, acting as the majority owner of JKE, placed

       JKE into Chapter 7 liquidation bankruptcy in the United States Bankruptcy

       Court of Delaware. Mournighan learned of Champlain’s decision through

       Dale; in turn, Mournighan informed Safeco of Champlain’s decision to place

       JKE in bankruptcy. As a result, Safeco acted to draw down the funds in the

       substitute LOC. Safeco placed the $3.5 million into a bank account to use for

       paying claims against bonds Safeco had issued on JKE’s behalf. Over the

       course of the ensuing years, Safeco used all but $591,023.98 of funds from the

       substitute LOC to reimburse itself for claims against JKE bonds and to

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 9 of 44
       compensate itself for legal and other expenses associated with payment of bond

       claims and litigation concerning JKE’s bonds. (App’x at 896.)

[21]   As a result of the draw-down of Champlain’s $3.5 million substitute LOC,

       Champlain demanded reimbursement from the Elrods under several provisions

       of the Agreement. The Elrods disputed Champlain’s demands, insisting that

       they had no obligation to provide Champlain with any compensation associated

       with the substitute LOC funds.

[22]   On December 22, 2010, the Elrod Plaintiffs filed a complaint seeking a

       declaratory judgment as to their obligations under the Agreement. The Elrod

       Plaintiffs alleged that their obligations under the Agreement were limited only

       to payments made from substitute LOC funds for defaults on performance

       bonds, that the Elrod Plaintiffs had no obligation to reimburse Champlain while

       there were still unsettled liabilities on performance bonds, and that Champlain

       had not adequately mitigated its damages.

[23]   Champlain filed an answer and counterclaims in which it alleged that the Elrod

       Plaintiffs breached the terms of the Agreement when they did not post an

       additional $3.5 million in collateral and did not reimburse Champlain for funds

       Safeco drew down from the substitute LOC, that the Elrod Plaintiffs breached

       the Agreement’s implied covenant of good faith and fair dealing, and that the

       Elrod Plaintiffs had been unjustly enriched. Amended complaints and

       counterclaims were filed; in its amended counterclaims, Champlain added a

       count seeking that the trial court reform the provisions of the Agreement so that

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 10 of 44
       language related to performance bonds would also include payment bonds or all

       bonds.

[24]   The parties filed motions for summary judgment, in which the Elrod Plaintiffs

       sought summary judgment that the Agreement applied only to performance

       bonds, and in which Champlain sought summary judgment on its breach of

       contract claim. The trial court granted the Elrod Plaintiffs’ motion as to the

       applicability of the Agreement only to performance bonds, and denied

       Champlain’s motion as to its breach of contract claim. The trial court also

       entered summary judgment as to Champlain’s unjust enrichment claim,

       determining that because a contract governed the relationship between the

       parties, an unjust enrichment claim was not available to Champlain.

[25]   On July 19, 2013, Champlain sought certification of the trial court’s order for

       interlocutory appeal; the trial court granted certification, but this Court declined

       to hear the appeal. Back in the trial court, Champlain filed a motion for

       clarification of the trial court’s summary judgment order. On December 29,

       2014, the trial court issued an entry clarifying its order. In that order, the trial

       court concluded that it had disposed of both the unjust enrichment claim and,

       based upon its conclusion that the Agreement applied only to performance

       bonds, the request for reformation of the Agreement. This left only the

       questions of whether the Elrod Plaintiffs breached the Agreement when they

       did not post $3.5 million in collateral for Safeco and did not reimburse

       Champlain for Safeco’s use of the substitute LOC funds for performance bond

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016    Page 11 of 44
       claims, and whether the Elrod Plaintiffs had breached the implied warranty of

       good faith and fair dealing.

[26]   A bench trial was conducted from June 30 to July 2, 2015. Prior to the trial, the

       Elrod Plaintiffs filed a request that the trial court enter its judgment in the form

       of written findings and conclusions.

[27]   On September 15, 2015, after receiving proposed orders from both parties, the

       trial court entered its findings, conclusions, and judgment in the case. The trial

       court’s judgment adopted verbatim, or nearly so, the proposed findings and

       conclusions tendered by the Elrod Plaintiffs. The trial court concluded that the

       Elrod Plaintiffs had not breached the Agreement either with respect to posting

       collateral or reimbursing Champlain for funds Safeco drew down from the

       substitute LOC, and had not breached the implied covenant of good faith and

       fair dealing. Accordingly, the court entered judgment entirely in favor of the

       Elrod Plaintiffs.

[28]   This appeal ensued.

                                   Discussion and Decision
                                          Standard of Review
[29]   Prior to trial, the Elrod Plaintiffs filed a written request for findings and

       conclusions from the trial court. Our standard of review in such cases is well

       settled. We apply a two-tiered standard of review:

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016    Page 12 of 44
               First, we determine whether the evidence supports the findings
               and second, whether the findings support the judgment. In
               deference to the trial court’s proximity to the issues, we disturb
               the judgment only where there is no evidence supporting the
               findings or the findings fail to support the judgment. We do not
               reweigh the evidence, but consider only the evidence favorable to
               the trial court’s judgment. Challengers must establish that the
               trial court’s findings are clearly erroneous. Findings are clearly
               erroneous when a review of the record leaves us firmly convinced
               a mistake has been made. However, while we defer substantially
               to findings of fact, we do not do so to conclusions of law.
               Additionally, a judgment is clearly erroneous under Indiana Trial
               Rule 52 if it relies on an incorrect legal standard. We evaluate
               questions of law de novo and owe no deference to a trial court’s
               determination of such questions.

       Trabucco v. Trabucco, 944 N.E.2d 544, 548-49 (Ind. Ct. App. 2011) (citations

       omitted), trans. denied. When a trial court has entered special findings on a

       party’s request under Trial Rule 52(A), we may affirm the judgment on any

       legal theory the findings support. Id. at 549 (citing Mitchell v. Mitchell, 695
N.E.2d 920, 923 (Ind. 1998)). Before affirming on a legal theory not set forth

       by the trial court, “we should be confident that our conclusions are consistent

       with all of the trial court’s findings of fact and the reasonable inferences flowing

       therefrom.” Id.

[30]   Here, the trial court adopted the Elrod Plaintiffs’ proposed findings and

       conclusions. This Court does not encourage the verbatim adoption of a party’s

       proposed findings and conclusions because of this practice’s tendency to

       “leave[] us with a lower level of confidence that the findings reflect the

       independent judgment of the trial court.” Kitchell v. Franklin, 26 N.E.3d 1050,

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 13 of 44
       1058 (Ind. Ct. App. 2015), trans. denied. Such a practice is not prohibited,

       however, and “‘the critical inquiry is whether such findings, as adopted by the

       court, are clearly erroneous.’” Id. (quoting In re Marriage of Nickels, 834 N.E.2d
1091, 1096 (Ind. Ct. App. 2005)).

                                               Choice of Law
[31]   The Agreement includes a choice-of-law clause that provides, “This Agreement

       shall be governed under Delaware law.” (App’x at 60.) None of the parties

       dispute that the Agreement itself should be interpreted under Delaware law.

       Accordingly, we apply Delaware law where appropriate to review the trial

       court’s legal conclusions. See Allen v. Great Am. Reserve Ins. Co., 766 N.E.2d
1157, 1162 (Ind. 2002) (“Indiana choice of law doctrine favors contractual

       stipulations as to governing law.”). To the extent the parties dispute the

       applicability of Delaware or Indiana law with respect to Champlain’s claim that

       the Elrod Plaintiffs breached the implied covenant of good faith and fair

       dealing, we shall address that dispute later in this opinion.

                  Breach of Contract Claim: Posting Collateral
[32]   We turn now to Champlain’s first issue on appeal, whether the Elrod Plaintiffs

       breached the Agreement when they did not post $3.5 million in collateral to

       satisfy Safeco’s request for additional collateral in exchange for increased

       bonding levels for JKE. Neither party disputes that the Elrod Plaintiffs did not

       post additional collateral. Rather, the question at trial was whether the

       Agreement required the Elrod Plaintiffs simply to tender $3.5 million in

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 14 of 44
       collateral to Safeco, and whether Dale’s decision to instead attempt to negotiate

       lower or no collateral with Safeco constituted a breach of the Agreement.

       Champlain challenges both the trial court’s findings and its legal conclusions.

[33]   To the extent Champlain’s arguments present questions of contractual

       construction, the Supreme Court of Delaware has stated:

               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. We will read
               a contract as a whole and we will give each provision and term
               effect, so as not to render any part of the contract mere
               surplusage. We will not read a contract to render a provision or
               term meaningless or illusory. [A] contract must contain all
               material terms in order to be enforceable, and specific
               performance will only be granted when an agreement is clear and
               definite and a court does not need to supply essential contract
               terms.

               When the contract is clear and unambiguous, we will give effect
               to the plain-meaning of the contract’s terms and provisions. On
               the contrary, when we may reasonably ascribe multiple and
               different interpretations to a contract, we will find that the
               contract is ambiguous. An unreasonable interpretation produces
               an absurd result or one that no reasonable person would have
               accepted when entering the contract.

               If a contract is ambiguous, we will apply the doctrine of contra
               proferentem against the drafting party and interpret the contract in
               favor of the non-drafting party. The parties’ steadfast
               disagreement over interpretation will not, alone, render the
               contract ambiguous. The determination of ambiguity lies within
               the sole province of the court.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 15 of 44
       Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1159-60 (Del. 2010) (citations,

       quotations, and notes omitted).

                                     Challenges to the Findings
[34]   Champlain contends that the trial court’s finding that Safeco would not accept

       collateral from the Elrod Plaintiffs before September 7, 2006 was in error, and

       that in any case the finding is irrelevant because “the Elrod Plaintiffs were

       contractually obligated to make [the funds for the collateral] available for the

       benefit of both JKE and Champlain.” (Champlain’s Br. at 28 n.13.)

[35]   The trial court here found that there was “no evidence indicating that Safeco’s

       decision not to provide future bonding to JKE was related in any way to [the

       Elrod Plaintiffs’] alleged failure to post collateral in a particular form or certain

       amount.” (App’x at 33.) Rather, the trial court concluded that no breach had

       occurred because Dale took action to meet with Safeco, provided Safeco with

       updated financial information concerning JKE for Safeco’s due diligence

       process, provided Safeco with his and Jeffrey’s personal financial statements,

       and negotiated with Safeco over a collateral commitment for higher bonding

       levels for JKE. Moreover, the trial court found that “Safeco would not take any

       additional collateral from [the Elrod Plaintiffs] to support a future bonding

       program,” and thus the Elrod Plaintiffs did not breach the Agreement by

       “failing to provide Safeco something it never requested from them” after

       determining to terminate its business relationship with JKE. (App’x at 33.)

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 16 of 44
[36]   The evidence introduced at trial, taken together with inferences favoring the

       judgment, does not invariably establish the contrary of the trial court’s finding

       that “Safeco would not ‘take’ any collateral.” (Champlain’s Br. at 28.) Arguing

       that the court’s finding is in error, Champlain directs us to evidence that

       indicates that Safeco reiterated its requirement for additional collateral at

       numerous points in 2006, and that, during a deposition in a bankruptcy case,

       Ulrich testified that had Dale come to the September 7, 2006 meeting with $3.5

       million in collateral ready, Safeco would have continued to underwrite JKE’s

       bonds. However, the last of Safeco’s requests for additional collateral came in

       June 2006, two months prior to the restructuring transaction in August 2006.

       Further, the trial court was entitled to weigh against Ulrich’s deposition

       testimony during the bankruptcy proceedings his testimony at the trial in this

       case that 1) Safeco would not provide additional underwriting without going

       through a due diligence process involving JKE’s financial situation, and 2) after

       the September 7, 2006 meeting, Safeco would no longer accept any collateral

       from the Elrod Plaintiffs to support JKE’s bonding needs.

[37]   Taken together, the trial court could properly infer that Safeco would not

       simply exchange collateral for a bonding program without at least some

       additional inquiry. To the extent Champlain emphasizes some portions of the

       record over others to which the trial court gave more weight, the argument

       amounts to an invitation to reweigh evidence that we must decline. We

       accordingly find no clear error in the trial court’s conclusion that there was no

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 17 of 44
       request from Safeco for collateral that in turn required the Elrod Plaintiffs to

       post collateral at the time of or after the August 2006 restructuring.

                            Time for and Amount of Performance
[38]   Nor do we think the language of the Agreement required the Elrod Plaintiffs to

       simply part with $3.5 million in the manner Champlain suggests in its brief.

       The Agreement provides:

               In addition to the Substitute LOC, Safeco is requiring additional
               collateral be made available in connection with its continued
               underwriting and issuance of performance bonds for JKE
               Bonded Projects. To that end, [the Elrod Plaintiffs] have agreed
               … to provide, as additional collateral to Safeco, the Elrod/Elway
               Guaranty up to an aggregate amount not to exceed $3.5 Million.

       (App’x at 59.) Champlain argues that this provision, together with a precatory

       statement earlier in the Agreement, required the Elrod Plaintiffs to provide $3.5

       million to Safeco no later than the time of the September 7, 2006 meeting.

[39]   Yet the Agreement does not demand this result. The precatory clause upon

       which Champlain relies states that JKE had “requested” of the Elrod Plaintiffs

       (which request the Elrod Plaintiffs had agreed to) a commitment to

               support JKE’s ongoing bonding requirements by collateralizing
               performance bonds issued and to be issued by Safeco or another
               bonding company acceptable to the parties of up to $3.5 Million
               by issuing a guarantee of up to $3.5 Million or other collateral
               acceptable to Safeco or such other bonding company acceptable
               to the parties…

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 18 of 44
       (App’x at 58.) With respect to the Elrod Plaintiffs’ actions, the Agreement

       provided that the Elrod Plaintiffs had agreed to provide a guaranty of “up to an

       aggregate amount not to exceed $3.5 Million.” (App’x at 59.) In exchange for

       providing the guarantee, the Elrod Plaintiffs were entitled to “be paid a cash fee

       by JKE … in an annual amount equal to 3% of the face amount thereof payable

       in four equal quarterly installments, commencing the first day of the month

       after the effective date of the [guaranty],” with JKE’s payment obligation to

       endure so long as the guaranty remained outstanding. (App’x at 59.)

[40]   There is, however, no language in the Agreement that specifies a time limit for

       tender of the Elrod/Elway Guaranty. “If no time for performance is fixed, the

       court will imply a reasonable time.” Martin v. Star Pub. Co., 126 A.2d 238, 244

       (Del. 1956); Comet Sys. Inc. S’holders’ Agent v. MIVA, Inc., 980 A.2d 1024, 1035

       (Del. Ch. 2008). Champlain argues that the longest reasonable period of time

       the Elrod Plaintiffs could have delayed posting collateral for Safeco’s use ran

       from August 18 to September 7, and points to its own posting of collateral for

       the substitute LOC prior to the August 18, 2006 restructuring transaction.

       Champlain’s position, then, is that the Elrod Plaintiffs should have walked into

       the meeting with Safeco with $3.5 million in collateral in hand and tendered

       that collateral to Safeco, and that the trial court erred when it did not construe

       the Agreement to include such a provision requiring at least that the Elrod

       Plaintiffs provide some amount of collateral by that time.

[41]   We cannot conclude that Champlain has carried its burden on appeal to

       demonstrate that the trial court erred when it did not adopt Champlain’s

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 19 of 44
       argument that September 7, 2006 was the last reasonable date on which the

       Elrod Plaintiffs could have performed their obligations under the Agreement.

       The Agreement’s own terms appear to contemplate that Safeco might request a

       different amount or form of collateral than $3.5 million in the form of cash or a

       letter of credit. The use of terms such as “up to $3.5 Million” and “other

       collateral acceptable to Safeco,” and the Agreement’s provision of a 3% fee

       based upon the amount of collateral provided all indicate that the parties

       understood the $3.5 million amount to be subject to some variation. At one

       point during 2006, Safeco had offered alternatives of either $3.5 million cash

       collateral or $2.5 million cash collateral and personal indemnities from Dale,

       Jeffrey, and Mary Ann. The amount of collateral, and the time at which it was

       to be provided, was subject to determination by Safeco. Champlain has not

       established that the trial court erred when it reached such a conclusion. 2

                                  Effect of the Priority Provision
[42]   Champlain also argues that the Elrod Plaintiffs were required to provide $3.5

       million up front based upon the following provision (“the Priority Provision”):

               Notwithstanding any documentation to the contrary between
               Safeco and [Champlain or] Safeco and [the Elrod Plaintiffs], in
               the event that Safeco releases, refunds or reduces its requirement

       2
        Champlain suggests that the trial court improperly used the doctrine of commercial frustration, as set forth
       by Delaware courts, to excuse the Elrod Plaintiffs’ performance. Because we conclude that the terms of the
       Agreement did not in themselves give rise to a specific moment or amount of money that would constitute
       performance, the question of excuse as a result of commercial frustration is obviated. We accordingly do not
       address Champlain’s argument related to this doctrine.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016                        Page 20 of 44
               of an aggregate $7 Million collateral commitment … the parties
               agree as follows:

               1.     Any release, refund or reduction of the $7 Million
               aggregate collateral commitment required by Safeco will first
               inure to the benefit of Champlain in the form of a
               reimbursement, on a dollar-for-dollar basis, of cash collateral
               made available by Champlain to the issuer of the Substitute LOC
               … in an amount not to exceed $3.5 Million in recognition of the
               out-of-pocket cash collateral provided by Champlain in arranging
               the Substitute LOC.

       (App’x at 60.)

[43]   Champlain contends that the Priority Provision requires that the Elrod Plaintiffs

       were obligated under the Agreement to reimburse Champlain for the funding of

       the substitute LOC, because Safeco refused any further dealings with JKE. Yet

       the Priority Provision does not in any manner consider that Safeco would

       terminate dealings with JKE—rather, it contemplates that Safeco would accept

       $7 million total collateral, and that Champlain would be the first to benefit from

       any subsequent reduction of the $7 million total. There is, in fact, no provision

       anywhere in the Agreement for the possibility that Safeco would simply refuse

       to continue issuing bonds for JKE.

[44]   In light of that omission, we are left to resolve an ambiguity in the Agreement.

               If a contract is unambiguous, extrinsic evidence may not be used
               to interpret the intent of the parties, to vary the terms of the
               contract or to create an ambiguity. But when there is uncertainty
               in the meaning and application of contract language, the

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 21 of 44
               reviewing court must consider the evidence offered in order to
               arrive at a proper interpretation of contractual terms.

       GMG Capital Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 783-84

       (Del. 2012). Further, “Delaware law tends to disfavor” forfeiture. Hillman v.

       Hillman, 910 A.2d 262, 271 (Del. Ch. 2006).

[45]   The Agreement here is tied closely to the purpose of the broader August 18

       restructuring of JKE’s finances, of which the Agreement was one part. The

       purpose of the transaction as a whole was to recapitalize JKE in order to put

       the business on sounder financial footing. This was to happen largely through

       contributions of capital, retirement of debt, and the sale and lease-back of JKE’s

       assets. To obtain capital with which to retire the debt owed to Fifth Third

       Bank, the parties agreed that Champlain would contribute $3.5 million for the

       substitute LOC, which would replace the $3.5 million ILOC. The ILOC funds

       had come from the Elrod Plaintiffs’ proceeds from Champlain’s leveraged

       buyout of JKE. Replacing the ILOC with the substitute LOC and returning the

       money to the Elrod Plaintiffs permitted the Elrod Plaintiffs to use the returned

       $3.5 million to invest in JKE. The Elrod Plaintiffs did so.

[46]   The Agreement set forth terms under which the Elrod Plaintiffs would

       contribute up to $3.5 million in collateral for additional bonding capacity. The

       Agreement contemplates that the parties might agree to do business with a

       bonding company other than Safeco—but makes no provision for the situation

       in which no bonding support could be found. Yet precisely this contingency

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 22 of 44
       came to pass: Mournighan could locate no bonding support for JKE before its

       bankruptcy in October 2006.

[47]   In the background of the Agreement, then, is an apparent assumption that

       Safeco’s underwriting requirements—or at the very least its willingness to issue

       bonds on JKE’s behalf—would not change. During much of 2006, Safeco had

       stated that JKE would need to provide a total of $7 million in collateral to

       increase its bonding capacity; to keep the business’s existing bonding capacity,

       JKE would need only $3.5 million in collateral. The parties went through the

       process of obtaining permission from SBA and SBIC to use $3.5 million from

       Champlain to post collateral that was initially intended to induce Safeco to

       increase JKE’s bonding limits. Those funds were instead used to replace the

       ILOC with the substitute LOC. It thus appears that, at least to keep JKE

       operating, the parties intended to keep Champlain’s $3.5 million substitute

       LOC in place and to add the Elrod Plaintiffs’ funds to that amount—premised

       upon the unstated assumption that Safeco was willing to continue to underwrite

       the bonds.

[48]   Given the ambiguity in the Agreement, and in light of the intent of the parties

       as manifested by the entirety of the August 18 restructuring transaction, we

       conclude that the Agreement required that the Elrod Plaintiffs add to the

       bonding collateral only upon Safeco’s demand. The Agreement did not by its

       terms require the Elrod Plaintiffs to make $3.5 million available to Champlain

       or JKE. Nor did the Agreement provide that Safeco’s refusal to continue to

       underwrite JKE’s bonds amounted to a reduction of collateral that would first

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 23 of 44
       inure to Champlain’s benefit or otherwise require that the Elrod Plaintiffs

       replace the substitute LOC with a $3.5 million contribution of their own. We

       therefore cannot conclude that the trial court erred when it did not find that

       Elrod Plaintiffs breached by not making $3.5 million available to Safeco, JKE,

       or Champlain.

[49]   Finally, Champlain contends that the Elrod Plaintiffs—specifically, Dale—

       actively attempted to avoid contractual obligations to Champlain’s detriment,

       and that the trial court erred when it did not find that Dale’s conduct

       constituted a breach. Specifically, Champlain contends that Dale’s efforts to

       negotiate with Safeco, rather than simply to offer Safeco $3.5 million in

       collateral, amounted to a breach of the Agreement. This, again, relies on an

       interpretation of the Agreement that required the Elrod Plaintiffs to provide,

       unconditionally, $3.5 million to Safeco (or, presumably, to Champlain or JKE).

       The Agreement does not provide this by its terms, and we decline to find error

       in the trial court’s conclusion that Dale’s efforts to negotiate with Safeco were

       not a breach of contract.3

       3
         Champlain also argues that Dale’s conduct, if not a breach of the express terms of the Agreement, was at
       least a breach of the implied covenant of good faith and fair dealing. We address this issue below.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016                       Page 24 of 44
                          Breach of Contract: Reimbursement
              Whether the Agreement Established a Reimbursement
                                 Obligation
[50]   We turn now to Champlain’s other breach of contract claim: whether the Elrod

       Plaintiffs breached the terms of the Agreement when they refused to reimburse

       Champlain for the substitute LOC funds that Safeco used to pay claims on

       JKE’s bonds.

[51]   The provision of the Agreement at issue (“the Reimbursement Provision”)

       states:

                 Notwithstanding any documentation to the contrary setting forth
                 the legal effect, rights, obligations, and priority of Safeco as
                 against (i) Champlain under the Substitute LOC and (ii) [the
                 Elrod Plaintiffs] under the Elrod/Elway Guaranty, but subject to
                 section D.2 below, both Champlain and [the Elrod Plaintiffs]
                 agree that they will share and incur ultimate liability and
                 financial out-of-pocket exposure to Safeco on a pro rata and pari
                 passu basis with respect to the $7 Million aggregate Safeco
                 Collateral Commitment, which is being made under the
                 Substitute LOC and the Elrod/Elway Guaranty.

       (App’x at 59.)

[52]   Champlain argues on appeal that the trial court erred when it concluded that

       Champlain was not entitled to reimbursement of half the value of the substitute

       LOC under the Reimbursement Provision. In reaching its conclusion, the trial

       court construed the Reimbursement Provision together with portions of Section

       D of the Agreement so as to unequally allocate the risk of loss. Section D
       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 25 of 44
       provided broadly for allocation of risk between Champlain and the Elrod

       Plaintiffs in the event Safeco drew upon Champlain’s substitute LOC to pay for

       claims against JKE bonds, with language relating specifically to performance

       bonds:

                In the event that (i) any JKE performance bond is in default,
                terminated or otherwise called in connection with a Bonded
                Project and (ii) results in Safeco drawing down on the Substitute
                LOC (“an LOC Draw”) as permitted under the Substitute LOC
                arranged by Champlain, the parties agree as follows:

                ***

                2.     To the extent that an LOC Draw does not result in a
                commensurate and concurrent request from Safeco for [the Elrod
                Plaintiffs] to fund under the Elrod/Elway Guaranty, [the Elrod
                Plaintiffs] will reimburse Champlain fifty percent (50%) of any
                and all amounts drawn down under the Substitute LOC so as to
                reduce Champlain’s out-of-pocket liability and to ensure that
                Champlain and the Elrod/Elway exposure under their Collateral
                Commitment is pro rata and pari passu4…

       (App’x at 59-60.)

[53]   Champlain contends that the trial court erred in its construction of the

       Reimbursement Provision and Section D. The trial court determined that pro

       rata and pari passu compensation was to be determined relative to how much

       4
        Pro rata terms require proportional allocation, “according to an exact rate, measure, or interest.” Black’s
       Law Dictionary 1415 (10th ed. 2014). Pari passu terms require proportionality of pace, that is, compensation
       “without preference.” Id. at 1290.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016                          Page 26 of 44
       collateral the two parties—Champlain and the Elrod Plaintiffs—had

       contributed. The Elrod Plaintiffs ultimately did not provide any collateral under

       the Agreement. The trial court concluded that this meant that the Elrod

       Plaintiffs had no obligation to provide any reimbursement to Champlain:

               Because Safeco refused to provide additional bonding and take
               any collateral from the Elrods (and because no other surety
               company could be found to do so before JKE filed for
               bankruptcy), the resulting zero percent pro rata allocation
               attributable to the Elrods under [the Agreement] indicates that
               [the Elrod Plaintiffs have] no liability to Champlain under the pro
               rata and pari passu liability sharing provisions of Section D.2 or of
               Section C [the Reimbursement Provision].

       (App’x at at 34.) The trial court rejected Champlain’s “continued insistence”

       that “‘pro rata and pari passu’ means 50-50.” (App’x at 34.) In their brief, the

       Elrod Plaintiffs agree with the trial court, and argue that the phrase, “$7 Million

       aggregate Safeco Collateral Commitment” means that they would only have

       incurred liability under the Agreement once the $3.5 million threshold had been

       passed.

[54]   Reading the Agreement as a whole, we think Champlain is correct that the trial

       court’s construction of the terms of the Reimbursement Provision and Section

       D was erroneous. The Agreement provided that, “[n]otwithstanding” any

       contrary agreements with Safeco, and “subject to [the provisions of] section

       D.2,” Champlain and the Elrod Plaintiffs would share liability on the $7 million

       aggregate collateral commitment to Safeco on a “pro rata and pari passu” basis.

       (App’x at 59.) Section D.2, in turn, addressed a possible situation where Safeco

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 27 of 44
       would not seek compensation from any collateral posted by the Elrod Plaintiffs.

       In that case, the Agreement called for the Elrod Plaintiffs to reimburse

       Champlain for half of “any and all amounts drawn down under the Substitute

       LOC.” (App’x at 59.) This provision, properly construed, should have

       operated to ensure that exposure to risk of loss on a commitment of collateral

       would be shared equally—pro rata—and without preference with respect to

       payment—pari passu.

[55]   Thus, Section D.2 covers a number of situations in which Safeco either might

       accept collateral from the Elrod Plaintiffs but would not then draw upon that

       collateral in the event of a bond default, or would not require the Elrod

       Plaintiffs to provide collateral at all—conceivably by requiring personal

       indemnities from Dale, Jeffrey, and Mary Ann without any corresponding cash

       collateral, which had been Safeco’s form of security prior to Champlain’s

       leveraged buyout of JKE. In either of those situations, Safeco might have

       drawn only upon the substitute LOC and, by the terms of the Agreement, the

       Elrod Plaintiffs would have been required to reimburse Champlain one-half of

       the amount drawn down from the substitute LOC by Safeco.

[56]   Accordingly, we conclude that Section D.2 established an obligation on the

       Elrod Plaintiffs’ part to reimburse Champlain in the event Safeco drew down

       funds from the substitute LOC, with that obligation subject to other conditions

       that we discuss below. The language of the Agreement reflects the parties’

       intent, as part of the broader scheme of the August 18 restructuring, to ensure

       that the risk of loss of funds to Safeco bond claims would not rest solely with

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 28 of 44
       Champlain. The agreement evinces that this was the parties’ intent even in

       situations when the Elrod Plaintiffs did not provide any collateral for Safeco’s

       security.

[57]   Perhaps recognizing this difficulty, the Elrod Plaintiffs insist that the “$7

       Million aggregate Safeco Collateral Commitment” amounts to a condition

       precedent. They argue that without a requirement from Safeco that the

       aggregate collateral for bonds issued on JKE’s behalf exceed $3.5 million, no

       obligation arose to reimburse Champlain for funds drawn from the substitute

       LOC. We disagree. “A condition precedent is ‘[a]n act or event, other than a

       lapse of time, that must exist or occur before a duty to perform something

       promised arises.’” AES Puerto Rico, L.P. v. Alstom Power, Inc., 429 F. Supp. 2d
713, 717 (N.D. Del. 2006) (quoting Seaford Assocs. Ltd. P’ship v. Subway Real

       Estate Corp., 2003 WL 21254847, at *5 n.30 (Del. Ch. May 21, 2003)). Where

       the language of a contract is clear and unambiguous in establishing a condition

       precedent, the court must give that language its plain meaning. Commonwealth

       Const. Co. v. Cornerstone Fellowship Baptist Church, Inc., 2006 WL 2567916, at *21

       (Del. Super. Ct. Aug. 31, 2006). However, “[c]onditions precedent are not

       favored in contract interpretation because of their tendency to work a

       forfeiture.” Stoltz Realty Co. v. Paul, 1995 WL 654152, at *9 (Del. Super. Ct.

       Sept. 20, 1995) (citing 17A Am. Jur. 2d Contracts § 471 (1991)). Delaware law

       has adopted the approach of the Restatement (Second) of Contracts, which

       provides:

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 29 of 44
               In resolving doubts as to whether an event is made a condition of
               an obligor’s duty … an interpretation is preferred that will reduce
               the obligee’s risk of forfeiture, unless the event is within the obligee’s
               control or the circumstances indicate that he has assumed the risk.

       McAnulla Elect. Const., Inc. v. Radius Techs., LLC, 2010 WL 3792129, at *6 (Del.

       Super. Ct. Sept. 24, 2010) (quoting Restatement (Second) of Contracts § 227(1))

       (emphasis added).

[58]   The “$7 Million aggregate Safeco Collateral Commitment” language does not

       unambiguously give rise to a condition precedent. As with other provisions in

       the Agreement, the language expresses the parties’ assumption as to the amount

       of collateral Safeco would require to expand JKE’s bonding limits and as to

       Safeco’s continued willingness to provide bonding support. An assumption

       does not, however, amount to a condition precedent. Holding otherwise would

       put Champlain in the position of having to satisfy a condition precedent that

       could be satisfied only by the Elrod Plaintiffs: the contribution of additional

       capital to reach the $7 million aggregate amount of collateral. See McAnulla,

       supra. Contract principles militate against such an outcome, and we therefore

       find no condition precedent.

[59]   In that light, we cannot conclude that the trial court’s construction of the

       Reimbursement Provision and Section D.2 was correct. By the Agreement’s

       terms, Champlain and the Elrod Plaintiffs clearly contemplated the sharing of

       risk associated with the cost of LOC draw-downs from the substitute LOC,

       whether or not the Elrod Plaintiffs had contributed bonding collateral.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016        Page 30 of 44
                      The Extent of the Reimbursement Obligation
[60]   Having determined that the trial court erred in concluding that Champlain was

       not entitled to reimbursement unless the Elrod Plaintiffs had also contributed

       collateral, we turn now to whether the Agreement requires under the

       circumstances of this case that Champlain receive reimbursement and, if so,

       how much. This question takes on two dimensions. The Elrod Plaintiffs argue

       that even if the Agreement’s reimbursement provisions require payments to

       Champlain, nevertheless Champlain failed to meet prerequisites for

       reimbursement on certain projects. For its part, Champlain argues that it is

       entitled to $1.75 million from the Elrod Plaintiffs under the Reimbursement

       Provision; failing that, Champlain argues in the alternative that it is entitled to

       either: reimbursement of 50% of the amounts drawn down by Safeco from the

       substitute LOC or, at the very least, 50% of the amounts drawn down related to

       two specific projects.

[61]   The parties disagree as to whether the Reimbursement Provision works

       independently, or in conjunction with Section D.2. The first of the Elrod

       Plaintiffs’ two contentions—that Champlain was required to prove that projects

       subject to bond claims had been completed before any reimbursement

       obligation arose—construes the Reimbursement Provision together with

       Section D.2. Champlain contends that the Elrod Plaintiffs’ interpretation of

       Section D.2 is incorrect because the Reimbursement Provision operates

       independently of Section D.2. Thus, Champlain argues, it was entitled to half of

       the total amount of the substitute LOC.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 31 of 44
[62]   We disagree with Champlain’s construction of the Reimbursement Provision

       apart from Section D.2. The text of the Reimbursement Provision specifically

       provides that both Champlain and the Elrod Plaintiffs, “subject to section D.2

       below … agree that they will share and incur ultimate liability and financial

       out-of-pocket exposure to Safeco.” (App’x at 59.) (emphasis added) The

       provision is unambiguous: to obtain reimbursement from the Elrod Plaintiffs,

       the provisions of Section D.2 must also be satisfied. We accordingly disagree

       with Champlain’s assertion, resting solely on the language of the

       Reimbursement Provision, that it is entitled to a blanket reimbursement of 50%

       of the total Safeco draw-down from the substitute LOC solely because a draw-

       down occurred.5

[63]   Having determined that the Elrod Plaintiffs’ reimbursement obligations are

       subject to the provisions of Section D.2, and having previously rejected the trial

       court’s construction of the Reimbursement Provision and of Section D.2, we

       turn to the relevant portion of the Agreement. The parties dispute the proper

       interpretation of the following language:

                To the extent that an LOC Draw does not result in a
                commensurate and concurrent request from Safeco for the Elrods
                and/or Elway to fund under the Elrod/Elway Guaranty, the
                Elrods and/or Elway (as applicable) will reimburse Champlain
                fifty percent (50%) of any and all amounts drawn down …

       5
         We note as well that Champlain’s interpretation might result in some amount of a double recovery for
       Champlain, since nearly $600,000 remained of the substitute LOC funds drawn down by Safeco, and a
       Safeco representative testified at trial that, once all legal proceedings were concluded, an accounting and final
       reimbursement to Champlain of the remaining collateral might be possible.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016                           Page 32 of 44
               according to the following procedure: (a) if at any time, there is
               only one Bonded Project in which the Customer or Safeco has
               declared a default and Safeco has made an LOC Draw, then [the
               Elrod Plaintiffs] will pay or reimburse Champlain, in accordance
               with Sections C and D hereof, on or before 30 days after such
               Bonded Project is “Completed” (“Completed” is defined as
               either (I) acceptance by the customer, or (II) issuance of an
               occupancy permit by the applicable governmental authority); (b)
               if at any time, more than one Bonded Project is the subject of a
               notice of default … then the payment or reimbursement
               obligation of [the Elrod Plaintiffs] hereunder will not occur until
               30 days after the last one of all such Bonded Projects are
               Completed; moreover, for purposes of calculating the amount to
               be paid or reimbursed [by the Elrod Plaintiffs], all LOC Draws
               will be aggregated and “netted,” such that any credits or
               payments by the customer or Safeco in respect of any Bonded
               Project that serves to mitigate the amount of any LOC Draw will
               reduce such payment or reimbursement obligation of [the Elrod
               Plaitntiffs].

       (App’x at 59-60.)

[64]   Champlain argues that, even if Section D.2 is applicable, the proper result is the

       same remedy it suggests it was entitled to without Section D.2: the Elrod

       Plaintiffs must reimburse Champlain half the value of the $3.5 million

       substitute LOC, because there was evidence that all projects for which Safeco

       had used the LOC draw-down were completed. Failing that, Champlain argues

       that it is entitled to reimbursement of $232,416.05 plus cost and interests; this

       sum represents 50% of the amounts Safeco paid for two specific performance

       bond claims. The Elrod Plaintiffs contend that any reimbursement obligations

       are conditioned upon Champlain conforming to the process set forth in the

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 33 of 44
       provisions of Section D.2 of the Agreement. By those terms, the Elrod

       Plaintiffs assert that Champlain proved, at most, one project completion, but

       that Champlain is not eligible for reimbursement even on that project because it

       failed to satisfy a condition precedent to payment by providing the Elrod

       Plaintiffs with a detailed accounting of the amounts paid by Safeco to the

       customer.

[65]   We dispense first with the Elrod Plaintiffs’ argument that Champlain was

       required to provide a detailed accounting as a condition precedent to payment.

       The Elrod Plaintiffs argue that clause (b) of Section D.2, which sets forth the

       process for reimbursement when multiple default claims have been made,

       requires a detailed accounting. They argue, “Champlain has never provided the

       Elrods with such an accounting, and it has not pursued or compelled Safeco to

       pursue any claims” in mitigation, and “[u]ntil such an accounting is performed,

       there is no reimbursement obligation under the contract.” (Appellees’ Br. at

       43.) Yet our review of Section D.2 does not reveal any expressed requirement

       for an accounting. Indeed, Section D.2(b) does not indicate which party is

       obligated under the agreement to perform the calculation of the reimbursement

       amount. In the absence of an unambiguous expression of a condition

       precedent, we will not impose one—let alone one that would lead to forfeiture.

       See Commonwealth, 2006 WL 2567916, at *21; Stoltz, 1995 WL 654152, at *9.

       We accordingly reject the Elrod Plaintiffs’ argument that failure to provide a

       detailed accounting requires Champlain’s forfeiture of reimbursement rights

       under the Agreement.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 34 of 44
[66]   We turn now to two additional questions: for which type of bonds Champlain

       is entitled to reimbursement, and whether the completion provision of Section

       D.2 further limits Champlain’s entitlement to reimbursement.

[67]   Champlain argues—as it argued before the trial court—that it was entitled to

       reimbursement of the half of the draw-down from the substitute LOC. The

       Elrod Plaintiffs argued, and the trial court agreed, that the reimbursement

       provisions of Section D limited Champlain’s possible recovery to only that

       portion of the LOC draw-down attributable to claims against performance

       bonds. This question is a threshold matter to considering the overall scope of

       action of Section D.2(a).

[68]   The crux of this dispute lies in the bonds Safeco issued on JKE’s behalf and in

       the Agreement’s language in reference to Safeco-issued bonds. Three types of

       bonds were routinely used in JKE projects: material bonds, payment bonds,

       and performance bonds. At issue in the litigation were performance bonds

       (bonds ensuring JKE customers that projects would be completed) and payment

       bonds (bonds ensuring JKE’s subcontractors of payment) that Safeco had issued

       on JKE’s behalf, and against which JKE customers made claims when JKE was

       placed into bankruptcy.

[69]   Against this background, Champlain argues (and argued before the trial court

       on summary judgment) that a Safeco draw against the LOC related to a

       performance bond default might have been necessary to trigger the

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 35 of 44
       reimbursement provisions of Section D.6 But upon triggering the

       reimbursement provisions, Champlain argues that the Agreement required 50%

       reimbursement of drawn-down substitute LOC funds without regard to the type

       of bond at issue. Champlain’s argument points to two portions of the language

       in Section D: “In the event that (i) any JKE performance bond is in default …

       and (ii) results in Safeco drawing down on the Substitute LOC,” and, later in

       Section D.2, “[t]o the extent … [a draw does not result in Safeco making a

       concurrent request from the Elrod Plaintiffs] … the Elrods and/or Elway (as

       applicable) will reimburse Champlain fifty percent (50%) of any and all

       amounts drawn down under the Substitute LOC.” (App’x at 59-60.) Given the

       language, “any and all amounts drawn down under the Substitute LOC,”

       Champlain asserts that the Elrod Plaintiffs were obligated to reimburse

       Champlain for half of any of the LOC draw-downs, so long as the other

       requirements in Section D.2 were met.

[70]   The Elrod Plaintiffs argue otherwise, insisting that the use of “performance

       bonds” at the beginning of Section D and elsewhere in the Agreement limits its

       reimbursement obligations to, at most, only substitute LOC draw-down funds

       used to secure Safeco against performance bond claims. The trial court agreed,

       clarifying this point after this Court declined to hear Champlain’s interlocutory

       6
        Champlain sought reformation of the Agreement so that all references to “performance bonds” would be
       changed to reflect Champlain’s insistence that the Agreement’s terms applied to all bonds. Champlain does
       not argue that question on appeal, despite the Elrod Plaintiffs’ insistence to the contrary.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016                     Page 36 of 44
       appeal on the question, and reiterating that conclusion in the judgment

       Champlain now appeals.

[71]   We think the trial court’s construction of Section D, limiting the Agreement’s

       reimbursement requirements only to performance bonds, was in error. Section

       D.2 does not, by its terms, condition the amount of reimbursement on the type

       of bond associated with the draw-down. That narrow construction does not

       comport with the overall intent of the parties, noted above, to provide equal

       exposure to risk of loss to both Champlain and the Elrod Plaintiffs. Section D

       makes a reimbursement obligation dependent upon JKE’s default on a

       performance bond, in turn causing Safeco to draw down on the substitute LOC.

       But it does not limit the scope of the reimbursement obligation only to amounts

       drawn down due to performance bond defaults.

[72]   As a final issue related to construction of the Agreement, we turn to the criteria

       for project completion. For a project to be deemed completed and thereby to

       create a reimbursement obligation on the part of the Elrod Plaintiffs, the

       Agreement in Section D.2(a) required “either (I) acceptance by the customer, or

       (II) issuance of an occupancy permit by the applicable governmental authority.”

       (App’x at 60.) The trial court construed this provision to require that

       “Champlain must produce certificates of occupancy or acceptance to confirm

       completion … in order to trigger any liability.” (App’x at 20.)

[73]   We again conclude that the trial court erred in its construction of the

       agreement. There simply is no expressed requirement for certificates of

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 37 of 44
       acceptance in the Agreement. The Agreement calls for either acceptance by the

       customer or an occupancy permit from an applicable governing authority.

[74]   The trial court’s misconstruction of this provision affected not only its legal

       reasoning, but also its fact-finding. The trial court found that only one project

       could be considered completed—the Rialto School Corporation project, for

       which Champlain produced a certificate of acceptance. The trial court

       concluded, however, that there was no acceptance of another project, at

       Michigan International Speedway, because though the customer had entered

       into a settlement agreement with respect to bond liability, “[n]o evidence was

       submitted that these repairs were ever completed or, if completed, when the

       completion was certified.” (App’x at 20.) This finding, of course, was

       premised on the erroneous conclusion that proof of completion could come

       only through a certificate of occupancy or completion.

[75]   The trial court’s erroneous construction of these provisions resulted in litigation

       that limited the scope of the evidence presented at trial. Accordingly, upon

       remand, we instruct the trial court to conduct appropriate proceedings to permit

       the introduction of evidence so that the trial court may consider and rule on

       whether the various projects from which bond claims arose—related to either

       performance or payment bonds—were completed within the scope of the

       meaning of completion as set forth by the Agreement, and in conformance with

       the interpretation of the Agreement as set forth above.

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 38 of 44
[76]   We note here an issue relevant to the determination of what amounts the Elrod

       Plaintiffs owe to Champlain: the amount of money retained by Safeco from its

       draw-down on the substitute LOC funds. Champlain argues that it is entitled to

       $1.75 million from the Elrod Plaintiffs, without regard to the possibility of

       recovering the remaining substitute LOC funds. Upon remand, we note that

       the trial court may or may not, depending upon the evidence presented,

       conclude that the funds retained by Safeco are to be offset against amounts

       owed by the Elrod Plaintiffs. Such an offset may be required to avoid the

       possibility of a double recovery in light of the pro rata reimbursement terms of

       the Agreement. Accordingly, we instruct the trial court take into account the

       Safeco-retained LOC funds in its decision upon remand.

             Implied Covenant of Good Faith and Fair Dealing
[77]   We turn now to the final issue in Champlain’s appeal, whether the trial court

       erred when it did not find that the Elrod Plaintiffs acted in a manner that

       violated the Agreement’s implied covenant of good faith and fair dealing.

[78]   As a threshold matter, we address Champlain’s assertion that the trial court

       erred when it applied Indiana law related to the implied covenant of good faith

       and fair dealing, rather than Delaware law. Courts of the state in which a

       lawsuit is pending determine the applicable law; that is, choice-of-law rules are

       determined by the state in which the litigation occurs. National Union Fire Ins.

       Co. of Pittsburgh, PA v. Standard Fusee Corp., 940 N.E.2d 810, 813 (Ind. 2010).

       “Indiana choice of law doctrine favors contractual stipulations as to governing

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 39 of 44
       law.” Allen, 766 N.E.2d at 1163. The Agreement includes a brief but clear

       statement, “This Agreement shall be governed by Delaware law.” (App’x at

       60.) We see no reason to disregard this facet of the parties’ agreement. See

       Allen, 766 N.E.3d at 1163. Thus, we agree with Champlain that to the extent

       the trial court applied Indiana law in addressing Champlain’s claim that the

       Elrod Plaintiffs breached the implied covenant of good faith and fair dealing,

       the trial court erred.

[79]   We agree with the Elrod Plaintiffs, however, that this error is harmless, because

       the trial court applied both Indiana and Delaware law, and because the trial

       court did not err in its application of Delaware law.

[80]   The Delaware Supreme Court has held that “the implied covenant [of good

       faith and fair dealing] attaches to every contract.” Dunlap v. State Farm Fire &

       Cas. Ins. Co., 878 A.2d 434, 441 (Del. 2005). “The covenant is best understood

       as a way of implying terms in the agreement, whether employed to analyze

       unanticipated developments or to fill gaps in the contract’s provisions.” Id.

       (citations and quotations omitted). Thus, Delaware courts have “recognized

       the occasional necessity of implying contract terms to ensure the parties’

       reasonable expectations are fulfilled.” Id. at 442 (citations and quotations

       omitted).

               Stated in its most general terms, the implied covenant requires a
               party in a contractual relationship to refrain from arbitrary or
               unreasonable conduct which has the effect of preventing the
               other party to the contract from receiving the fruits of the
               bargain. Thus, parties are liable for breaching the covenant when

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 40 of 44
               their conduct frustrates the overarching purpose of the contract
               by taking advantage of their position to control implementation
               of the agreement’s terms. This Court has recognized the
               occasional necessity of implying contract terms to ensure the
               parties’ reasonable expectations are fulfilled. This quasi-
               reformation, however, should be [a] rare and fact-intensive
               exercise, governed solely by issues of compelling fairness. Only
               when it is clear from the writing that the contracting parties
               would have agreed to proscribe the act later complained of ... had
               they thought to negotiate with respect to that matter may a party
               invoke the covenant’s protections.

       Id. (citations and quotations omitted).

[81]   Summarizing the purpose of the implied covenant, the Dunlap Court observed

       that “the implied covenant of good faith is the obligation to preserve the spirit of

       the bargain rather than the letter, the adherence to substance rather than form.”

       Id. at 444 (citations and quotations omitted). The implied covenant of good

       faith and fair dealing will not permit courts to “infer language that contradicts a

       clear exercise of an express contractual right.” Nemec v. Shrader, 991 A.2d 1120,

       1127 (Del. 2010). Nevertheless, a party to an agreement may not act in a

       manner that does not further a legitimate interest of the party relying on the

       contract. Id.

[82]   Champlain premises much of its argument that the trial court erred in

       concluding that the Elrod Plaintiffs did not breach the implied covenant of good

       faith and fair dealing on a construction of the Agreement we have already

       rejected: that the Elrod Plaintiffs were obligated to provide no less than $3.5

       million in collateral, and that failure to do so obligates the Elrod Plaintiffs to

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 41 of 44
       pay Champlain $3.5 million in damages. To the extent Champlain’s argument

       rests on that construction—and much of it does—we find no error in the trial

       court’s determination that the implied covenant of good faith and fair dealing

       was not breached.

[83]   Moreover, as the Dunlap Court observed, “[o]nly when it is clear from the

       writing that the contracting parties would have agreed to proscribe the act later

       complained of … had they thought to negotiate with respect to that matter may

       a party invoke the covenant’s protections.” Id. Yet Champlain’s insistence that

       it and the Elrod Plaintiffs would have agreed to proscribe Dale’s efforts to

       negotiate less or no additional collateral is not at all clear from the face of the

       Agreement. And, contrary to Champlain’s assertion that Dale’s negotiation

       tactics were solely self-serving, the language of the Agreement itself suggests

       that a reduction in the total collateral requirement would have furthered both

       parties’ legitimate interests. See Nemec, 991 A.2d at 1127 (recognizing that

       challenged conduct may not breach the implied covenant if it advances the

       legitimate interest of a relying counter-party). Under the pro rata and pari passu

       provisions, less total collateral exposed the Elrod Plaintiffs to a reduced level of

       exposure to reimbursement risk. Under the provision requiring payment of a

       fee for use of collateral, JKE would be required to pay less money to the Elrod

       Plaintiffs, preserving more capital in the company and thereby mitigating both

       parties’ risks as shareholders.

[84]   Finally, we note that Champlain argues that by organizing a corporation while

       JKE was collapsing, the Elrod Plaintiffs were acting contrary to Champlain’s

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 42 of 44
       interests and were preparing to take over JKE’s business. The testimony at

       trial, which the trial court was entitled to credit, was that the corporation

       created by the Elrod Plaintiffs, MSC, was intended to serve as a holding

       company for the assets the Elrod Plaintiffs purchased and then leased back to

       JKE during the restructuring transaction. The company was also ultimately

       used to take possession of those assets after Champlain placed JKE into

       bankruptcy. To the extent Champlain simply insists that the Elrod Plaintiffs

       were disloyal to JKE and Champlain, the trial court was entitled to conclude

       differently based upon weight given to evidence from Jeffrey and Dale

       indicating that they and Mary Ann used personal assets to help preserve JKE

       and to ensure payment of wages to employees whose paychecks from JKE were

       dishonored. And to the extent Champlain argues that the formation of MSC

       had another purpose, or that the Elrod Plaintiffs were otherwise disloyal in a

       manner that breached the implied covenant of good faith and fair dealing, we

       decline the invitation to reweigh evidence.

                                                 Conclusion
[85]   The trial court did not err when it found that the Elrod Plaintiffs did not breach

       the Agreement when they did not 1) unilaterally make $3.5 million available as

       collateral for Safeco’s underwriting of future bonds, or 2) replace Champlain’s

       funds in the substitute LOC. The trial court erred as a matter of law in several

       aspects of its construction of various provisions of the Agreement, namely,

       reimbursement of Safeco draw-downs from the substitute LOC and the sharing

       Court of Appeals of Indiana | Opinion 55A04-1510-CC-1630 | July 29, 2016   Page 43 of 44
       of risk as to both payment and performance bonds. The trial court did not err

       when it found that the Elrod Plaintiffs did not breach the Agreement’s implied

       covenant of good faith and fair dealing.

[86]   Because the trial court’s conduct of the trial was premised upon its

       misconstruction of the Agreement’s reimbursement provisions, thereby limiting

       the evidence introduced and the trial court’s consideration of that evidence, we

       reverse the judgment solely on the question of reimbursement and remand for

       further proceedings consistent with our holding today.

[87]   Affirmed in part, reversed in part, and remanded.

       Bradford, J., and Altice, J., concur.

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