LCT Capital, LLC v. NGL Energy Partners LP

• Decision Date: 28 January 2021
• Docket Number: No. 565, 2019,No. 568, 2019,565, 2019,568, 2019
• Citation: 249 A.3d 77
• Parties: LCT CAPITAL, LLC, Appellant/Cross-Appellee, Plaintiff below, v. NGL ENERGY PARTNERS LP and NGL Energy Holdings LLC, Appellees/Cross-Appellants, Defendants below.
• Court: Supreme Court of Delaware

249 A.3d 77

LCT CAPITAL, LLC, Appellant/Cross-Appellee, Plaintiff below,

v.NGL ENERGY PARTNERS LP and NGL Energy Holdings LLC, Appellees/Cross-Appellants, Defendants below.

No. 565, 2019

No. 568, 2019

Supreme Court of Delaware.

Submitted: November 4, 2020

Decided: January 28, 2021

Corrected: March 4, 2021

Steven L. Caponi, Esquire, K&L GATES, LLP, Wilmington, Delaware; Roger R. Crane, Esquire (argued), and Thomas A. Warns, Esquire, K&L GATES, LLP, New York, New York; for Appellant/Cross-Appellee LCT Capital, LLC.

Steven T. Margolin, Esquire (argued) and Samuel L. Moultrie, Esquire, GREENBERG TRAURIG, LLP, Wilmington, Delaware; Hal S. Shaftel, Esquire (argued), Obiamaka P. Madubuko, Esquire, and Daniel Friedman, Esquire, GREENBERG TRAURIG, LLP, New York, New York; for Appellees/Cross-Appellants NGL Energy Partners LP and NGL Energy Holdings LLC.

Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and MONTGOMERY-REEVES, Justices, constituting the Court en Banc.

MONTGOMERY-REEVES, Justice, for the Majority:

In 2014, appellant and cross-appellee LCT Capital, LLC ("LCT") helped appellee and cross-appellants NGL Energy Partners, LP and NGL Energy Holdings LLC (collectively, "NGL") acquire TransMontaigne, a refined petroleum products distributor. LCT played an unusually valuable role in the transaction, bringing the sale to NGL's attention, helping NGL to understand opaque but profitable aspects of TransMontaigne's business, and enabling NGL to submit its winning bid outside of an auction process. The transaction generated $500 million in value for NGL, more than double the $200 million price that NGL paid to acquire TransMontaigne.

NGL's CEO Mike Krimbill represented on several occasions that LCT would receive an unusually large investment banking fee, but the parties failed to reach an agreement on all of the material terms. After negotiations broke down completely, LCT filed suit in the Superior Court seeking compensation for its work under several theories, including quantum meruit and common law fraud.

At trial, LCT presented a unitary theory of damages that focused on the value of the services that it provided, measured by the fee that Krimbill proposed for LCT's work. Nonetheless, the jury verdict sheet had two separate lines for damages awards, one for the quantum meruit claim and another for the fraud claim. The jury found NGL liable for both counts, awarded LCT an amount of quantum meruit damages equal to a standard investment banking fee, and awarded LCT a much larger amount of fraud damages approximately equal to the unusually large fee that Krimbill proposed.

Following post-trial briefing, the Superior Court set aside the jury's awards and ordered a new trial on damages. The court set aside the fraud award on the basis that the jury impermissibly awarded LCT benefit-of-the-bargain damages in the absence of an enforceable contract. The court set aside the quantum meruit award on the basis that providing the jury with multiple damages lines for a unitary theory of damages was confusing and may have caused the jury to spread a single award between the quantum meruit and fraud claims.

LCT and NGL both filed interlocutory appeals of the Superior Court's order. On appeal, LCT argues that benefit-of-the-bargain damages are available without an enforceable contract. Thus, the Superior Court erred by setting aside the jury's fraud award.

On cross-appeal, NGL argues that the Superior Court erred by ordering a new trial on damages because the jury's quantum meruit award fully compensated LCT for its harm. NGL also argues that it was entitled to judgment as a matter of law on the fraud claim. Finally, NGL argues that the Superior Court provided the jury with erroneous fraudulent misrepresentation jury instructions.

Having reviewed the parties' briefs and the record on appeal, and after oral argument, this Court holds that LCT was not entitled to benefit-of-the-bargain damages and that the Superior Court did not abuse its discretion by ordering a new trial on quantum meruit damages. Nonetheless, this Court also holds that the Superior Court abused its discretion by ordering a new trial on fraud damages because LCT did not assert any independent damages to support its fraud claim. Accordingly, the Court affirms in part and reverses in part the Superior Court's December 5, 2019 Memorandum Opinion.

I. BACKGROUND

A. LCT Helps NGLAcquire TransMontaigne

After a long career at major financial institutions, Louis Talarico founded LCT.¹ LCT is a Delaware limited liability company that provides investment banking and other financial services related to transactions in the energy sector.²

In December 2013, Talarico learned that Morgan Stanley planned to sell TransMontaigne, a refined petroleum products distributor.³ Talarico was familiar with TransMontaigne, thought that the sale would be an attractive investment, and began working his contacts at Morgan Stanley to gain access to the sale process.⁴

After twice failing to arrange a successful bid with other buyers, Talarico approached the Energy and Minerals Group ("EMG"), a substantial investor in NGL.⁵ EMG agreed that TransMontaigne was an attractive target, but concluded that it lacked the ability to properly run TransMontaigne and suggested that Talarico approach NGL's CEO, Krimbill, about a partnership.⁶ Krimbill expressed interest in acquiring TransMontaigne and began working with Talarico, the UBS Group, and others to construct a winning bid.⁷

In May 2014, NGL submitted a winning bid of approximately $200 million to purchase all of TransMontaigne.⁸ The deal successfully closed in July 2014.⁹

Talarico played a "critical role" in the acquisition,¹⁰ enabling NGL to submit its winning bid "outside of an auction process" and allowing NGL to acquire TransMontaigne for "the very attractive purchase price of $200 million" when "[o]ther potential buyers ... were estimated to be offering $450 million ...."¹¹ Further, Talarico helped NGL identify and correct a problem with how Morgan Stanley treated TransMontaigne's working capital, an important component to valuing the company.¹²

Talarico also helped NGL understand the value of TransMontaigne's marketing business. TransMontaigne was comprised of two business segments, a "hard asset business" and a "marketing" business.¹³ Although Morgan Stanley wanted to sell all of TransMontaigne for regulatory reasons, most buyers were only interested in the hard asset business.¹⁴ Talarico recognized that this piecemeal approach was a mistake because the marketing business could generate substantial cash flows for a suitable acquirer.¹⁵

Acquiring TransMontaigne created approximately $500 million of value for NGL.¹⁶ According to a letter that Krimbill drafted months after closing, NGL "would never have had the opportunity to purchase TransMontaigne Inc. for $200 million" without LCT's help.¹⁷

B. The Fee Negotiations Break Down

Talarico and Krimbill did not reach an agreement on LCT's fee before the transaction closed. In May 2014, Talarico proposed that LCT receive a 15% ownership interest in TransMontaigne, an option to purchase an additional 10%, and a gross-up payment to cover taxes.¹⁸ NGL countered by offering a 2% interest in the NGL GP.¹⁹

According to Talarico's trial testimony, Krimbill thought that NGL's counteroffer was too low and verbally agreed to push NGL to offer LCT: (i) a 2% ownership interest in NGL, (ii) a tax gross-up payment, and (iii) an option to purchase an additional 3% ownership interest in NGL for $21 million.²⁰ Assuming that NGL GP was worth $1 billion following the TransMontaigne acquisition, this offer would equate to a fee worth approximately $43.8 million including the tax gross-up payment, or approximately $29 million without the tax gross-up payment.²¹

The record contains some uncertainty regarding the existence and details of this verbal offer. Krimbill testified that he never made such an offer.²² Further, Talarico wrote a contemporaneous message that can be read to suggest that Krimbill offered a mandatory buy-in of $21 million for a 5% ownership stake, not an automatic 2% ownership stake with an option to purchase an additional 3% stake.²³

In June 2014, Talarico, Krimbill, NGL's outside counsel Bruce Toth, and others met to discuss the TransMontaigne transaction. According to Talarico's trial testimony, during the meeting Krimbill introduced Talarico to Toth, told Talarico that Toth "does all my [NGL] GP transactions," and instructed Toth that "for Lou [Talarico] and his partners ... here's what we're going to do. We're going to give them 2 percent interest in the GP. We're going to pay their taxes. ... [A]nd we're going to give them an option on another 3 percent at [a] $700 million" valuation.²⁴ Busy with finalizing the acquisition, Toth asked Talarico to send the details in an email.²⁵

The next day, Talarico sent Toth an email providing the details of the fee transaction that Krimbill purportedly proposed.²⁶ Talarico's email noted that "there will be other details to figure out."²⁷ Talarico did not copy anyone else on the email,²⁸ and Toth did not respond.²⁹

A couple of weeks later Talarico called Toth to check-in on the fee transaction.³⁰ Toth told Talarico that "we are working on it," or words to that effect.³¹ Despite this statement, Toth testified that his team "was not working on documentation" regarding LCT's fee at that time. Instead, Toth testified that his team was "working" with Krimbill and NGL "on the process of structuring a transaction."³²

A few days later, Talarico sent Toth a follow-up email stating, "Mike [Krimbill] had indicated that I reach out to you to start the process of figuring out how we properly paper our GP interest—both 2% fee and 3% buy-in."³³ Talarico wrote that he was "open" to any thoughts that Toth had on structuring the transaction.³⁴ Talarico also acknowledged that he "briefly read thr[ough] the amended LLC agreement ... and appreciate that there may be some steps or a process...