# Penthol LLC v. Vertex Energy Operating, LLC

> District Court, S.D. Texas · March 7, 2024

URL: https://www.frixlaw.com/law-library/cases/10677544

## Case

- **Court:** District Court, S.D. Texas
- **Decided:** March 7, 2024
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10677544

## How later opinions describe it (automated extraction)

- noting that “the assertion of such a right, whether done correctly or not, was not in itself an unequivocal repudiation of the contract”

## Opinion text

□ Southern District of Texas
ENTERED
IN THE UNITED STATES DISTRICT COURT Maren 07, 2024
FOR THE SOUTHERN DISTRICT OF TEXAS Nathan Ochsner, Clerk
HOUSTON DIVISION
PENTHOL, LLC §
§
Plaintiff/Counter-Defendant, §
§
v. § CIVIL ACTION NO. 4:21-cv-416
§
§
VERTEX ENERGY OPERATING, LLC §
§
Defendant/Counter-Plaintiff. §

FINDINGS OF FACT AND CONCLUSIONS OF LAW

After considering the evidence presented at trial and the arguments of counsel, this Court
makes the following findings of fact and conclusions of law. Except where otherwise noted, the
facts set out in the following recitation should be considered as findings of fact and the
application of the law to the facts conclusions of law.
I. Introduction
Penthol C.V. is a Dutch trading company active around the world, but with a number of
contacts in the Middle East. It is principally operated by a Turkish family. Penthol C.V. was
headed up by Zeynap Cizmeci, with Cizmeci’s father, Faruk Erkoc, acting as honorary chairman
to the company. As chairman of Penthol C.V., Faruk also became the President of Penthol, LLC
at its inception in 2016. Hakan Erkoc, Cizmeci’s brother and Faruk’s son, became the Vice
President of Penthol LLC. Penthol LLC is the plaintiff herein.
Faruk had business ties in the Middle-East and gradually convinced the Abu Dhabi
National Oil Company (“ADNOC”) to make Penthol C.V. its exclusive marketing agent for base
oil in North America. This relationship began first on a “spot sale” basis that subsequently

evolved into a formal contractual relationship between Penthol C.V. and ADNOC once Penthol
proved it was able to establish a foothold in the market. Penthol had no experience selling base
oil in the United States market and eventually decided it needed a company more well-versed in
the marketplace to help it gain its foothold. To that end it contacted Vertex, an American based
base oil company.
In June of 2016, Plaintiff/Cross-Defendant Penthol, LLC (‘“Penthol”) and
Defendant/Cross-Plaintiff Vertex Energy Operating, LLC (“Vertex”) entered into a Sales
Representative and Marketing Agreement (““SRMA”). Under the SRMA, Vertex was to be
Penthol’s exclusive sales representative in North America for the product “ADBase” (a Group III
base oil produced by ADNOC). Vertex was well-established in the North American base oil
industry. It had been producing and selling VTX-6, a Group II base oil made from Used Motor
Oil (““UMO”) for years. Thus, Vertex already had logistics expertise and a ready-made customer
base that it could tap in order to sell the ADBase that Penthol was going to import. At the same
time, Vertex did not pose a commercial threat since Group III base oil is a much higher quality
oil than Group II and sells for a higher price.'! Moreover, the SRMA generally prevented Vertex
from selling a product that would compete with ADBase. For its services, Vertex was to receive
$0.05 per gallon commission (provided that Penthol received the customer’s payment) and a
performance incentive equal to 25% of the Net Sales Proceeds in excess of $50,000. The SRMA
was set to have a term of approximately five and a half years, terminating on December 31,
2021.

' Group II and Group III are different groupings of base oil according to the American Petroleum Institute (“API”).
The API uses three main specifications (“specs”) to classify base oils: viscosity index (“VI’’), saturates, and sulfur.
Group II and Group III share the same requirements for saturates and sulfur, but to be grouped and approved as
III, the base oil must have a VI of 120 or higher, while the VI for Group II generally falls between 80 and

The SRMA is the document around which this controversy swirls, and the most relevant
terms of the SRMA are outlined below.
SRMA 3.4 Prohibited Acts. Notwithstanding anything to the contrary in this
Agreement, neither Vertex nor its Personnel shall directly or indirectly:
(c) sell, market, advertise, promote, solicit the sale of or offer to sell
any product that competes with the Product procured or sourced by
Penthol, except to the extent this restriction is prohibited by
Applicable Law.
SRMA 3.3 Vertex Sales Obligations. Vertex shall at its own expense:
(a) market, promote, and solicit the sale of the Product to prospective
and existing Customers consistent with good business practice, in each
case using its commercially reasonable efforts to maximize Product
sales volume in the Territory.
SRMA 4.2 Storage and Logistics. Vertex will have the sole responsibility for
coordinating, arranging and procuring (a) facilities for storage of the Product in
the Territory and (b) logistics in respect of loading, transportation and/or freight
(whether by rail car or tank truck) of the Product to Customers. The agreements
that are commercially necessary to support storage and/or transportation of the
Product (collectively, the “Logistics Agreements”) shall be entered into solely by
Penthol. Vertex shall not execute, amend or modify any Logistics Agreements
without Penthol’s prior consent.
SRMA 7.1 Early Termination Events. This Agreement is subject to termination as
follows:
(a) Either Party shall have the right to immediately terminate this
Agreement upon Notice to the other Party at any time in the event (i)
any representation or warranty made by such Party herein is false or
misleading in any material respect when made or when deemed made
or repealed; (ii) such other Party becomes Bankrupt; or (iii) such other
Party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all of its asserts to, another entity and, at
the time of such consolidation, amalgamation, merger or transfer, the
resulting, surviving or transferee entity fails to assume all the
obligations of such Party under this Agreement to which it or its
predecessor was a party by operation of law or pursuant to an
agreement reasonably satisfactory to the non-transferring Party; or

(b) Either Party shall have the right to terminate this Agreement upon
(i) the failure of a Party to make, when due, any payment required
pursuant to this Agreement if such failure is not remedied within ten
(10) Business Days after receipt of a Notice; or (ii) the failure of a
Party to perform any material covenant or obligation set forth in this
Agreement if such failure is not remedied within thirty (30) Business
Days after receipt of a Notice specifically describing the nature of the
default; provided, however, that in the event the alleged default is
cured within such thirty (30) day period, this Agreement shall remain
in full force and effect and not be terminated as a result of such
default; or
(c) Penthol gives a Notice as provided in Section 4.7(a) [regarding
Penthol discontinuing the sale of the Product]; or
(d) The Parties mutually agree to terminate this Agreement
SRMA _7.2 Termination Rights. The Parties agree that within a commercially
reasonable time after termination of this Agreement as provided in Section 7.1,
the Parties will settle and liquidate all transactions and obligations entered into
pursuant to this Agreement in an orderly and commercially reasonable manner.
The non-defaulting Party shall be entitled, in its sole discretion, to set-off any
amount payable by the non-defaulting Party to the defaulting Party under this
Agreement or otherwise, against any amounts payable by the non-defaulting Party
to the defaulting Party under this Agreement or otherwise. The defaulting Party
shall reimburse the non-defaulting Party, on demand, for actual, reasonable, out-
of-pocket expenses (with interest at the Interest Rate), including, without
limitation, reasonable legal fees and expenses incurred by the non-defaulting
Party in connection with the enforcement of the non-defaulting Party’s rights and
remedies. The non-defaulting Party’s rights under this Section 7.2 shall be in
addition to any and all rights and remedies such Party may have under Applicable
Law or in equity, except as such rights may be limited by the express terms
hereof, including, without limitation, Section 8.4.
As the years progressed, the relationship appeared to be going well. Vertex leveraged its
relationships with customers and began selling ADBase in the very first year. Additionally, it
used its contacts with certain additive companies to obtain approvals for ADBase, and ADBase’s
North American customer base grew. Within four years, Vertex sold 150 million gallons of

ADBase on behalf of Penthol. Yet in 2018/2019, the first cracks in the relationship started to
appear. Penthol was upset to learn that Vertex had been seeking outside investors and that the
search had culminated in a new partnership with investment company Tensile Capital
Management (“Tensile”).
Vertex had been seeking a capital infusion for a number of reasons/projects. In a
presentation for Tensile, one of the projects that Vertex mentioned involved investigating the
possibility of Vertex upgrading its facilities and/or instituting a new process by which it could
begin producing its own Group III oil. While this eventuality never occurred, Vertex did get far
enough along to actually run a number of different trials—none of which were commercially
successful. Penthol denied being informed of this project, but the evidence clearly demonstrates
that an email was sent to Faruk Erkoc that plainly set this out.? This email could have been the
first seed planted in Penthol’s mind that Vertex was planning to compete with Penthol in the sale
of Group III base oil.
As the relationship progressed, the sales of ADBase increased—it was a highly rated
Group III product. As sales increased, the products’ reputation increased and so did the
commissions and performance incentives that Penthol was required to pay Vertex. Then, in the
fall of 2020, Penthol hired a new North American CEO, Harji Gill. Gill was Penthol’s first
American based CEO. Whether spurred by the fact that Vertex was flirting with making its own
Group III product or because the SRMA was soon to enter its final year (or for some other
unknown reason), Gill began to contact customers outside of Vertex’s presence. These contacts
concerned Vertex greatly and were also arguably a violation of § 8.11 of the SRMA (an issue
this Court need not address). Whether a violation or not, many of the ADBase customers were

2 Faruk admitted that he never read that email or the attachment. The email attachment explains that Vertex was
exploring avenues to manufacture its own Group III base oil. (DX-24).

also Vertex’s customers for VTX-6. This made Vertex so uneasy that it actually sued Penthol
and sought injunctive relief in state court. On November 11, 2020, a Texas state court issued a
Temporary Injunction that, among other things, prevented Penthol from reaching out directly to
customers sourced by Vertex, despite the fact that they were also Penthol customers. Not
surprisingly, this state court action displeased Penthol immensely.
After the injunction issued, an employee of Pinnacle, which was a purchaser of both
ADBase and VTX-6 (and who, perhaps coincidentally, was an old acquaintance of Gill), sent a
few VTX-6 COAs to Gill. In this context, a Certificate of Analysis, or “COA,” is an analysis of a
load of base oil that breaks down and grades/describes its primary components. These COAs
usually accompany the product when it is delivered to the customer. In this instance, the COAs
had been for shipments of VTX-6 that Vertex sent to Pinnacle. Gill testified that these particular
COAs were sent to him unprompted, although this testimony is somewhat questionable as Gill
would have no obvious use for VTX-6 COAs. More likely, as Faruk Erkoc admitted, Gill
solicited these COAs after Vertex had filed its state court action. Regardless of the reason, at
least one of those COAs demonstrated that a shipment of VTX-6 had a VI of over 120. On that
basis, Penthol sent Vertex a notice letter on December 18, 2020, accusing Vertex of improperly
competing by selling VTX-6 with a viscosity index above 120 and demanding that Vertex stop
doing so. The wording of this notice and Vertex’s response is one of the critical parts of this
dispute. On January 19, 2021, Vertex sent a response letter denying that it was in breach because
VTX-6 was sold as a Group II oil. It pointed out that it sold VTX-6 long before the SRMA was
entered into, and it refused to stop selling VTX-6. The relationship continued to devolve, until it
was clear that the SRMA was terminated (in late January of 2021). This lawsuit ensued.

Before proceeding, the Court understands that the term “Group III] VTX-6” as it is
referred to in some briefing is a source of contention for the parties. On one hand, Penthol
believes it accurately describes the batches of VTX-6 that had a VI of 120 or higher as a Group
III oil. Meanwhile, Vertex believes it is an oxymoron since VTX-6 has always been a Group II
product. In order to use a more neutral term, the Court will use the phrase “‘High VI VTX-6” to
describe the instances where a shipment of VTX-6 had a VI of 120 or above and was sold by
Vertex in the relevant time period.
Il. Penthol’s Claim for Breach of § 3.4(c): Competition
Penthol’s first breach of contract theory—the focus of much of the evidence at trial—is
that Vertex breached § 3.4(c) of the SRMA by selling a competing product to the ADBase
product. This alleged breach was also Penthol’s basis for sending its December 18" notice letter
to Vertex. Specifically, Penthol argues that a portion of Vertex’s own VTX-6, despite having
been marketed, sold, and priced as Group II, was in reality Group III because certain batches had
a VI of 120 or above. According to Penthol, selling High VI VTX-6 constituted competition
because those sales could have been sales of its ADBase product. According to Penthol, this
constitutes a breach of the SRMA.
Before addressing the competition theories, the Court finds it necessary to discuss the
evidence as to base oil pricing because it sets the framework for the competition discussion.
While the evidence varies, it is clear (and undisputed) that Group III oil sells for a significantly
higher price than Group II oil. The evidence demonstrates that the differential can be as much as
$0.85 to $1.00 per gallon. As such, the preponderance of the evidence demonstrates that no
supplier would sell a Group III oil for Group II prices and no buyer would pay a Group III price
when a lower priced Group II oil would suffice. In fact, the only two customers that testified

stated that they would not substitute ADBase for the VTX-6 they were buying for economic
reasons.
Section 3.4(c) of the SRMA states that “neither Vertex nor its Personnel shall directly or
indirectly .. . sell, market, advertise, promote, solicit the sale of or offer to sell any product that
competes with the Product [|ADBase], except to the extent this restriction is prohibited by
Applicable Law.” (emphasis added). The SRMA defines the “Product” as “Group III Base Oil
meeting the specifications set forth in Exhibit ‘A.’”
Penthol presented essentially three theories of how it claims Vertex breached § 3.4(c).
Each theory is articulated in Penthol’s Proposed Findings of Fact and Conclusions of Law (Doc.
No. 183-2).
I. Literal Competition
Penthol’s first argument is a literal one—that Vertex competed by “marketing and selling
Group III VTX-6 that meets the specifications in Exhibit A to the SRMA.” (Doc. No. 183-2 at
29). This claim was clearly not supported by the evidence. In fact, the preponderance of the
evidence demonstrates that there was no literal competition. As an initial matter, Penthol
mischaracterizes the SRMA. The fallacy in Penthol’s reasoning is demonstrated in what it
proposes to the Court. In its Proposed Findings of Fact and Conclusions of Law, paragraph
number 28, Penthol proposes that this Court finds that the “Product” is “defined as any base oil
meeting the specifications in Exhibit A.” (emphasis added). This is not completely accurate. As
noted above, the Product is defined as a “Group III Base Oil meeting the specifications in
Exhibit A.” Thus, under a literal-competition theory, VTX-6 could not have competed with the
Product because it was not priced, approved, marketed, sold, or purchased as a Group III base
oil, regardless of the VI level.

Even if one sets the contract definition aside, the Court’s finding is reinforced by the fact
that the High VI VTX-6 did not meet the specifications in Exhibit A. The first two lines of
Exhibit A to the SRMA are telling. They read:
“Product Specification
Grade: ADBase 4cSt (Group III)”
Thus, the contract requires a Group III oil not only in the text (§1.1 Definition of Product), but it
also requires a Group III oil in the specifications. It does not prohibit a Group II oil sold with
some Group III characteristics. Consequently, a Group II oil with a VI over 120 and similar
sulfur and saturate numbers would still not meet the contract’s definition. Moreover, Exhibit A
does not solely list the three API specifications (or “specs”) for Group III oil; it also lists other
specs like appearance, Noack (measure of volatility), and CCS (cold crank simulator). There is
no evidence to support a claim that any VTX-6 ever achieved the appearance, Noack, and CCS
listed in Exhibit A. Several witnesses, including David Peel, testified that appearance, Noack,
and CCS were all critical base oil specs that affect the specs of the ultimate formulation. This
evidence clearly demonstrates that VTX-6, even High VI VTX-6, did not meet the contractual
requirements of a competing product. Therefore, the Court finds Penthol’s literal theory of
competition fails.
2. R&D for Future Group III Product and Relationship with Tensile
Penthol’s second theory of competition that violates the SRMA involves Vertex’s three
pilot attempts at developing a Group III base oil and its relationship with investor Tensile.
Penthol argues and provides some credible evidence that Vertex was actively trying to research
and develop its own Group III product and that Vertex perhaps hid that research and

3 The “4cSt” represents another metric of grouping within base oils. Evidence at trial indicated that base oils could
be 4cSt, 6cSt, 8cSt, etc.

development (“R&D”) from Penthol.* For example, Vertex obtained a $23 million loan from
Tensile in 2019, $7 million of which was to go towards R&D into the production of an
economically viable Group III base oil. Penthol quotes documents in the record in an attempt to
argue that during the SRMA Vertex was already holding itself out as a Group III manufacturer.
These “quotes,” however, are taken out of context and are seriously misleading. The
preponderance of the evidence demonstrates that the quoted documents were all aspirational, and
that Vertex communicated to Tensile goals for what could happen in the future, should the
investment be made and the R&D prove to be successful. Thus, there was no evidence that
Vertex ever held itself out as a current Group II manufacturer.
To Penthol’s credit, the evidence does establish that Vertex was actively experimenting
as to whether it could develop an economically viable Group III base oil. No one from Vertex
testified how it planned to market such a product without violating the SRMA, assuming it was
still in effect. Researching and developing a competing product, however, is different than
selling, marketing, promoting, or offering to sell a competing product that the SRMA prohibits.
The preponderance of the evidence establishes that Vertex never conducted itself in a manner to
breach this clause of the SRMA. The Court does not find that Vertex’s failed attempts to
determine if it could produce a Group III product competed with ADBase. The evidence
conclusively demonstrates that Vertex never made an economically viable or consistent Group
III base oil. It certainly never tried to sell one. Moreover, the preponderance of the evidence
shows that the only reason Vertex was able to create VTX-6 with a consistent VI approaching

4 As noted earlier, the evidence is controverted as to whether Vertex “hid” the extent of its relationship with Tensile
from Penthol. Penthol provided an internal email from Vertex CEO Ben Cowart to Tensile saying to “steer clear” of
discussing a potential Group III base oil. Meanwhile Vertex provided another email from Cowart to Penthol
President Faruk Erkoc as early as January 2018 that includes a slide deck used for the Tensile investment that clearly
discusses Vertex’s Group III plans (Erkoc testified that he did not read this email). Regardless of whether Vertex
concealed its conduct with Tensile, the Court finds the conduct did not breach the SRMA, as discussed in the text.
10

the 117-120 range was more by happenstance than by design. The VI of the VTX-6 output
depended, largely, on the quality of the input. As American cars started using more full synthetic
oil, the UMO that they produced became higher quality. It was this UMO that was the primary
feedstock for Vertex’s product. If that feedstock had an elevated VI level, so would the end
product. It was not a planned result, and whatever the VI level, VITX-6 was sold as a Group Ii
oil. Therefore, Penthol’s second breach of contract theory fails as well.
3. Interchangeability and Substitutability
This brings the Court to Penthol’s third theory of breach—that Vertex marketed,
promoted, and sold a High VI VTX-6 that, practically speaking, customers could use
interchangeably with ADBase or substitute into their formulations in lieu of ADBase. According
to this theory, every gallon of “Group III” VTX-6 sold should have been a gallon of ADBase
sold.
To support this allegation, Penthol presented the following evidence. Penthol points to
COAs indicating that some of the VTX-6 leaving Vertex’s Hartland facility had a VI of 120 or
higher. Penthol presented evidence that, for the year of 2020, almost 20% of the COAs leaving
Heartland indicated a VI of 120 or higher. Additionally, Penthol points to Vertex’s customer-
facing spec sheet. (PTX 007). While this marketing sheet lists the VI as 118, it also lists typical
properties of VTX-6 at 40°C and 100°C. Penthol postulates that if a customer were to calculate
the VI using these two numbers and using the accepted VI formula, the customer would get a
typical VI of 120 for VTX-6. Thus, Penthol argues that Vertex advertised to customers that
VTX-6 was technically a Group III base oil.
Despite this evidence, the Court finds that Penthol has not met its burden of proof in
showing that Vertex’s “Group III” VTX-6 competed with ADBase in any meaningful way or in

11

any way contemplated by the SRMA. First of all, there is no evidence that anyone other than
Penthol, especially customers, ever did this calculation. What the preponderance of the evidence
demonstrates is that VTX-6 was always sold as a Group II base oil. No evidence demonstrates
that Vertex ever held VTX-6 out as a Group III product, nor does the evidence suggest that any
customer ever did the VI calculation using the 40°C and 100°C specs instead of relying on the
listed VI. There was testimony that Vertex in places referred to VTX-6 as a “Group II plus”
product because it had a comparably high VI as opposed to other Group II products. The “plus”
description is not one recognized by the API but is merely a marketing term. Penthol similarly
referred to ADBase as a “Group III plus” due to its comparably high VI. While it appears that the
term “plus” is gaining some traction in the industry, neither party attributed it to the API nor used
it in a misleading manner. To paraphrase an analogy counsel used at trial: does Barefoot
Prosecco really compete with Dom Perignon? Barefoot customers may be pleasantly surprised to
find out the wine they purchased in fact tastes like Dom Perignon, but Dom Perignon customers
certainly would not take the risk of ordering Barefoot and “hoping for the best.”
Moreover, Penthol’s expert admitted that he did not have any formulations from
customers illustrating that they could use either ADBase or VTX-6 interchangeably.
Additionally, David Peel testified that, even with a VI over 120, VTX-6 could not be substituted
for a formulation requiring ADBase and still yield the same final product for the end user.
Finally, even though customers from Valvoline and Pinnacle testified that, technically, both
ADBase and VTX-6 could be used for dilution, both stated that they had never done it and that,
economically, it would not make sense to purchase ADBase instead of VTX-6 when they sought
a Group II oil. The Court finds by a preponderance of the evidence that the products were not
practically or commercially interchangeable, nor did they compete.

12

The Court was presented with some evidence that Vertex’s experimental attempts to
change VTX-6 into a Group III product made some Penthol personnel uneasy. This feeling is
understandable, but Vertex’s research did not breach the SRMA. It could not have been a
surprise to Penthol, however, that Vertex was selling high quality Group II oil. The reason
Penthol approached Vertex in the first place was that it had, by virtue of selling a good quality
product, numerous, beneficial contacts through which Penthol could also sell ADBase.
Even if the Court had been persuaded that Vertex competed and thus breached the
SRMA, Penthol has not proven any damages flowing from the alleged breach. ADBase sales
steadily increased over the course of the SRMA, and profits skyrocketed in 2021. There is no
evidence that even one customer bought High VI VTX-6 because it knew it had a VI index of
over 120 or that it bought High VI VTX-6 instead of ADBase. Specifically, there is no evidence
that customers received the COAs before placing an order. In fact, the evidence established just
the opposite. The COA (which is the only document that would demonstrate that the Vertex
product had a VI of 120 or above) was sent at the time the product was shipped—well after the
time it was purchased. The evidence also shows that during the period from January, 2019 and
January 27, 2021, there were 1,295 VTX-6 COAs issued, and only 141 of those showed a VI
above 119. Thus, a potential customer betting that its purchase of VTX-6 would have a higher
(Group VI would be taking a considerable risk. Finally, even if a customer received the COA
before the purchase, there was no evidence that these customers would have paid the higher price
for ADBase, and there is abundant evidence they would not. In short, there is no evidence that
Penthol ever lost a sale. Moreover, evidence at trial showed that Vertex sold all of the ADBase
that was available to sell and, on occasion, even had to cancel sales for lack of product. Penthol
has not proven by a preponderance of the evidence that it was damaged in 2021 after the contract

13

was terminated. It had record sales and it paid no commission on those sales. Penthol, therefore,
has not proven that it actually suffered any damage from this alleged breach.
Finally, Penthol’s estimated damages calculation of $490,903 due to the alleged breach is
also problematic. Penthol arrived at this number by taking the number of COAs indicating a VI
over 120 (141) divided by the total number of VTX-6 COAs (1,295) for the period of January 1,
2019 to January 27, 2021. Penthol then multiplied this COA fraction (=) by the total gallons
of VTX-6 sold over the period (30,057,659) to, supposedly, get the total gallons of High VI
VTX-6 sold. Lastly, Penthol multiplied the gallons of High VI VTX-6 by a profit margin of
$0.15/gallon.
The Court sees multiple problems with this calculation of alleged damages. First and
foremost, it assumes that the ratio of COAs to gallons is uniform. In reality, however, every
COA does not represent the same number of gallons; some represent railcars (~25,000 gallons),
while others represent truck loads (~6,000 gallons). Thus, multiplying the COA fraction by total
gallons sold does not yield a reliable estimate of how many gallons of High VI VTX-6 were sold.
Second, the $0.15/gallon profit margin is Penthol’s typical profit margin for Group III
ADBase (albeit unverified). This profit margin improperly assumes that customers who bought
High VI VTX-6 from Vertex at a Group II price would have, instead, paid the Group III ADBase
price for the same product. There was no testimony that Group II base oil consumers would do
that. In fact, the evidence proves the opposite. The evidence demonstrates that the difference
between the two prices was approximately $0.85-$1.00. Had Penthol really wanted these sales, it
would have had to compete with VTX-6 and other Group II oils pricewise. The customers that
did testify stated they would not buy ADBase instead of VTX-6, even if they were
interchangeable, for economic reasons. No company would sell its premium product for a lower

14

price when it is already selling all of the product it could get at the higher price. Certainly no one
testified Penthol would. In short, there was no evidence that Penthol was willing to discount
ADBase in order to get these sales, or, alternatively, that VITX-6 customers were willing to pay
ADBase’s typical price for a Vertex product. Therefore, the $0.15 profit margin is wholly
speculative and not based in reality.
For all the above reasons, the Court finds Vertex did not violate § 3.4 of the SRMA. The
Court hereby finds for Vertex on Penthol’s competition claim for breach of the SRMA.
III. Penthol’s Claim for Breach of § 3.3(a): Failure to Maximize Sales
The Court now considers Penthol’s second theory of breach of the SRMA. Penthol
argued that Vertex breached SRMA § 3.3(a) by failing to maximize sales of ADBase in markets
more profitable than the Passenger Car Motor Oils (“PCMO”) market. The Court finds that
Penthol fails to meet its burden of proof on this cause of action as well.
Section 3.3(a) of the SRMA requires that Vertex “market, promote and solicit the sale of
the Product to prospective and existing Customers consistent with good business practice, in
each case using its commercially reasonable efforts to maximize Product sales volume in the
territory.” (emphasis added). The first step of any contract interpretation is to look at the plain
language of the contract. The plain language of the contract clearly dictates that Vertex was to
maximize the volume of ADBase sold, not the profits. The testimony demonstrates that two
goals of the SRMA were (1) to enable Penthol to get a foothold in the United States marketplace
and (2) to prove to ADNOC that Penthol was a reliable partner. Both goals were achieved. The
evidence shows that Vertex did maximize volume. Every gallon of ADBase acquired by Penthol
and shipped to North America was ultimately sold by Vertex during the relevant time period.

15

Even putting aside the volume/profit distinction, Penthol still fails to demonstrate that
other markets would have, in fact, been more profitable than the PCMO market or that any act or
omission by Vertex constituted a breach. Aside from Gill’s testimony that other markets
(windmills, lubricants, metalworking, plastics, etc.) would have been more profitable, there has
been no evidence presented that pursuing the PCMO market was anything but commercially
reasonable. When the parties first entered the SRMA, Vertex was working in the PCMO space.
Penthol knew this. Vertex’s experience in the PCMO market was the reason why Penthol
engaged Vertex in the first place. By all indications, Penthol benefited from Vertex’s pre-
existing client base in the PCMO market. Moreover, if Vertex was selling all the ADBase it
could get, there was no proof that Penthol could actually deliver a product to this speculative
new customer base.
Other portions of Gill’s testimony further support the conclusion that pursuing the PCMO
market, as opposed to other allegedly more profitable markets, was commercially reasonable
under the SRMA. Gill admitted that Penthol only added one or two more customers after the
SRMA terminated and Penthol took over operations. Had other markets been so much more
accessible and profitable, one would think Gill would have reached out and promoted ADBase to
those markets as soon as Penthol got out of the SRMA and took over its own projects. Instead,
Penthol continued selling primarily in the PCMO space. Hence, Penthol’s own business
decisions and post-SRMA sales support the conclusion that promoting ADBase in the PCMO
market complied with the SRMA.
Moreover, even assuming that other markets would have been more profitable, and that
Vertex had a contractual obligation to pursue those markets, Penthol’s damages calculations on
this issue are again riddled with problems. Gill’s testimony is once again instructive. Gill

16

testified that, had Vertex diversified the business portfolio to increase profit margins, Penthol
would have seen about $1,050,000 increase in profits. This testimony was not credible.
He arrived at this number by multiplying seven million gallons by a profit margin of
$0.30/gallon. He testified that the seven million gallons represents the number of gallons of
ADBase that Vertex allegedly could have, and should have, sold in other markets. This number
was reached by merely finding 10% of roughly 70 million, which is the total number of ADBase
gallons sold by Vertex during the SRMA. The 10% figure is arbitrary and speculative; it is the
very kind of ipse dixit prohibited by Daubert. See Daubert v. Merrell Dow Pharmaceuticals Inc.,
509 U.S. 579 (1993). The record is devoid of evidence that 10% of sales is a commercially
reasonable percentage, or that the SRMA requires this proportion of diversification.
The thirty-cent profit margin is similarly speculative. This number purportedly represents
Penthol’s “realized” profit margin (albeit unverified) of $0.15/gallon in the PCMO market plus
an additional $0.15/gallon for the hypothetically higher profits in other markets. There is,
however, no credible evidence that prices in other markets were, on average, fifteen cents higher.
There is similarly no credible evidence that customers in other markets were willing and able to
purchase ADBase, specifically, for an additional $0.15/gallon or that there was ADBase to be
delivered. This “evidence” is not grounded in the real world and is so speculative and
inconclusive that it cannot be categorized as more than guesswork.
The Court concludes that Vertex did not breach § 3.3(a) of the SRMA by concentrating
sales efforts of ADBase in the PCMO market. Doing so complied with the SRMA and was
commercially reasonable. The evidence shows that Vertex maximized the volume of ADBase
sales as was required by the contract. For the above reasons, the Court finds for Vertex on this
theory of breach.

17

IV. _Penthol’s Claim for Breach of § 4.2(b): Failure to Coordinate Railear Logistics
Penthol’s next theory of breach of the SRMA involves the cleaning of certain railcars
under lease between August 1, 2020, and January 22, 2021. Penthol argues that Vertex breached
SRMA § 4.2(b) by failing to coordinate railcar logistics, which resulted in Penthol (1) getting
invoiced roughly $400,000 from The International Rail Transport Committee (“CIT”) for railcar
cleaning, (2) spending about $100,000 to hire a rail consultant to negotiate this number down,
and (3) having to re-sign railcar leases as a result of this negotiation.
Section 4.2(b) of the SRMA states that “Vertex will have sole responsibility for
coordinating, arranging and procuring (a) facilities for storage of the Product in the Territory and
(b) logistics in respect of loading, transportation and/or freight (whether by rail car or tank truck)
of the Product to Customers. The agreements that are commercially necessary to support storage
and/or transportation of the Product . . . shall be entered into solely by Penthol.”
In sum, Vertex was to arrange logistics for storing and transporting ADBase, and Penthol
was to sign the checks. Penthol argues that Vertex failed to ensure that the leased railcars were
properly cleaned and returned, which resulted in damages. As the Court understands Penthol’s
argument, leasing railcars from CIT is analogous to renting a car. Just as a car renter would
independently refuel the vehicle before returning it to the rental agent to prevent a fuel upcharge,
so too would a rail car lessee independently clean the railcar before returning the cars to CIT to
prevent it from levying a cleaning upcharge. Penthol was the entity already contractually bound
to pay for the cleaning. Penthol initially claimed the amount of damages for Vertex’s failure to
return the railcars cleaned was around $400,000 in its Proposed Findings of Fact and
Conclusions of Law, paragraph 73. Testimony at trial, however, suggested that Penthol never
actually paid the $400,000 figure to CIT; instead, it paid roughly $100,000 to a railcar consultant

18

who negotiated with CIT on Penthol’s behalf. As a result of the negotiation, instead of paying the
$400,000 cleaning fee, Penthol had to re-sign the railcar leases with CIT.
After reviewing the evidence, the Court finds that Penthol’s railcar theory of breach fails
for two reasons. First, the evidence produced at trial failed to prove by a preponderance of the
evidence that Vertex erred or breached any contractual provision. The rail consultant did not
testify, and the invoices that Vertex allegedly delivered late were never produced at trial. In fact,
to the contrary, Vertex produced evidence that Robin Snyder, who oversaw rail logistics for
Vertex, sent an email giving Penthol a heads-up about the leases expiring and sent a second
email laying out three options for cleaning the railcars, the cheapest of which was returning them
directly to CIT. This second email predicted that the CIT cleaning would cost Penthol $100,000-
$150,000, which matches the amount Penthol actually paid and is seeking here.
This estimate leads to the second reason Penthol’s claim fails. Penthol has failed to prove
by a preponderance of the evidence that it sustained any resulting damages. As Snyder’s email
noted, the expected cleaning cost was between $100,000 and $150,000. Indeed, the evidence
shows that Penthol ultimately paid $100,000 for cleaning (by hiring the consultant and re-signing
the leases). There is no evidence that but-for Vertex’s alleged breach, Penthol would not have re-
signed the leases anyway, nor was there evidence that the renewed leases were more expensive
or otherwise damaging to Penthol. By all indications, Penthol used the leased cars in 2021 and
would have needed them regardless of when the SRMA terminated. Therefore, even if there was
evidence of breach by Vertex, there are no resulting damages to Penthol that were proven by a
preponderance of the evidence. Penthol knew it was going to have to pay $100,000-$150,000,
and it did pay $100,000.

19

The Court finds that Vertex did not breach its contract in this regard and that Penthol has
not proven damages even if it had proven a Vertex breach. For the above reasons, the Court finds
for Vertex on this cause of action.
V. Misappropriation of Trade Secrets
Penthol also brings a claim for misappropriation of trade secrets. To succeed on a claim
for misappropriation of trade secrets under the DTSA and/or TUTSA, a plaintiff must prove “(1)
a trade secret existed, (2) the trade secret was acquired through breach of a confidential
relationship or discovered by improper means, and (3) the defendant used the trade secret
without authorization from the plaintiff.” M-I Z.L.C. v. Q’Max Sols., Inc., 2019 WL 3565104, at
*3 (S.D. Tex. Aug. 6, 2019). “Improper means” includes theft, bribery, misrepresentation, breach
or inducement of a breach of a duty to maintain secrecy, to limit use, or to prohibit discovery of a
trade secret, or espionage through electronic or other means. Tex. Civ. Prac. & Rem. Code §
134A.002(2) (“‘TUTSA”); 18 U.S.C. § 1839(6) (“DTSA”). Improper means does not include
“reverse engineering, independent derivation, or any other lawful means of acquisition.” Jd.
Under both TUTSA and DTSA, trade secret is defined as “information . . . that (A)
derives independent economic value, actual or potential, from not being generally known to, and
not being readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; and (B) is the subject of efforts reasonable under the
circumstances to maintain its secrecy.” Tex. Civ. Prac. & Rem. Code § 134A.002(6)(A)&(B); 18
U.S.C. § 1839(3). “[M]atters of general knowledge in an industry are not trade secrets.” Miner,
Ltd. v. Anguiano, 383 F. Supp. 3d 682, 705 (W.D. Tex. 2019). There is no competitive advantage
if something is equally available to all competitors in the market. See In re Bass, 113 S.W.3d
735, 739 (Tex. 2003).

20

Here, Vertex allegedly misappropriated Penthol’s trade secrets when seeking an
investment from Tensile.” As discussed above, Vertex sought an investment from Tensile for a
multitude of reasons, including for research and development of a Group III base oil made from
UMO. In various presentations and emails to Tensile, Vertex included profit projections and
some predicted costs associated with selling a domestically produced Group III base oil. Penthol
argues that these profit and freight cost projections used data derived from ADBase sales, that
the pricing of ADBase sales was confidential business information, and that Vertex only had
access to this information because of the SRMA.
Penthol claims Vertex used Penthol trade secrets regarding pricing in an email dated July
18, 2019, which listed an “average” selling price for ADBase approved formulations. This
average selling price included mostly non-confidential spot sale prices. Penthol also claims that
Vertex used its trade secrets in its pitch presentations to Tensile. Penthol claims the following
statements (made by Vertex to Tensile) contain its trade secrets:
1. “Domestic capacity will be freight advantaged over foreign supply by $0.25 per
gallon” and “Majority of Group III supplied to US are imported from the Middle East
and Asia representing an $0.25/gal transportation disadvantage.” (PTX-5 at 11, 15).
2. “Vertex-Penthol sold 16 million gallons imported in the first 12 months.” (Appx. at
576:5-12).

5 Penthol also argued that Vertex misappropriated trade secrets by sending customer Valvoline a post-termination
email. The email contained expected February 2021 pricing information for ADBase. The Court easily finds for
Vertex on this claim of misappropriation. Pentho] cannot fault Vertex for failing to help them wind up the SRMA
while simultaneously accusing Vertex of misappropriation of a trade secret for answering an important customer’s
request on Penthol’s behalf when it was trying to help it wind up. The email in question was sent as the Penthol-
Vertex relationship disintegrated. It gave Valvoline a pricing estimate for the upcoming month based on the prior
pricing schedule between the parties; as a customer, Valvoline already had access to its own previous pricing
schedule, which is the bulk of the alleged trade secrets. Finally, passing along requested information to an existing
customer is arguably a requirement of the SRMA and Penthol did not prove any resulting damages. Therefore, to the
extent that Penthol’s claim is based on this alleged misappropriation, the Court finds for Vertex.
21

3. “Group III priced at Group JI+ posting minus $0.42 per gallon.” (Appx. at 577:3-7).
Penthol did not ask Vertex to sign an NDA regarding any of this information. (Appx.
at 210:14-21, 839:22-840:8).
Regarding the second alleged trade secret—that 16 million gallons were imported in the
first 12 months—the Court finds that Penthol failed to show that this information was not
generally known or readily ascertainable, as it can be found on publicly available platforms like
ImportGenius. Therefore, this import information is not a trade secret under the DTSA or
TUTSA. The Court’s remaining analysis will therefore concern only the first and third alleged
trade secrets—the averaged pricing information.
The evidence is mixed on the first element as to whether a trade secret existed. A trade
secret must be not generally known or readily ascertainable, and the trade secret owner must
have taken reasonable steps to keep the information secret. Evidence shows that the pricing
information was maintained on an online database, kept by Vertex, requiring log-in credentials.
Erica Snedegar testified that, when making a sale to potential customers, she will often ask the
potential customer how much they are currently paying for their base oil. She testified that
customers almost always tell her as it is in their best interest to get a good deal. This testimony
suggests that how much a customer pays for their base oil is not always kept confidential.
Nevertheless, when being questioned about a spreadsheet containing pricing information,
Snedegar admitted that the information was of the sort which would normally be confidential and
kept away from competitors. Furthermore, it is unclear whether averaging the profits/pricing, as
Snedegar did here, affects the information’s confidentiality (given that many of the individual
figures were non-confidential spot prices and an average would disguise the actual prices).

22

The evidence on the second element of trade secret misappropriation is also a mixed bag.
The second element requires that Penthol show that the trade secrets were acquired through
breach of a confidential relationship or discovered through improper means. There was no
evidence that the pricing information was discovered through improper means, considering that
Vertex developed and maintained the spreadsheets in accordance with its contractual obligations.
Thus, the question is whether the trade secret was acquired through breach of a confidential
relationship. The parties did not sign an NDA regarding the pricing information, there was no
evidence that Penthol asked Vertex to keep the information confidential, and Penthol did not ask
Vertex to return or delete the pricing data after the SRMA terminated. Still, Vertex only had
access to Penthol’s pricing because of its role as sales representative under the SRMA.
The third element requires that Penthol show Vertex used the information without
Penthol’s authorization. This element is more straightforward because Vertex clearly did not
seek or have permission or authorization from Penthol. Snedegar admitted that she did not ask
Penthol if she could use their pricing information before sending the email to Tensile.
While Penthol may have met its burden for these three requirements, it also must prove
by a preponderance of the evidence that it owned the alleged trade secrets. Under the DTSA, the
term “owner,” with respect to a trade secret, “means the person or entity in whom or in which
rightful legal or equitable title to, or license in, the trade secret is reposed.” 18 U.S.C. 1839(4).
Vertex contends that Penthol is not the owner of the trade numbers Vertex maintained.
The Court finds that Penthol has not proven it is the owner of the above trade secrets, or,
rather, that it is the exclusive owner as compared to Vertex. The SRMA is silent as to which
party has rightful legal or equitable title to, or license in, the averaged pricing information. While
the ultimate product sales and prices were approved by Penthol, all pricing information was

23

created or obtained, compiled, stored, and maintained by Vertex. Evidence shows that Vertex
negotiated the prices with customers, recorded that pricing data into the online database, and then
provided the information to Penthol. Thus, evidence shows that creating, maintaining, and using
ADBase pricing information was a joint effort by Vertex and Penthol.
Thus, by a preponderance of the evidence, Vertex and Penthol shared joint ownership and
license in the alleged trade secrets.° Accordingly, Penthol has not proven that it created or
maintained the information it claims as trade secrets. See, e.g., Focused Impressions, Inc. v.
Sourcing Group, LLC, 2020 WL 1892062, *4 (D. Mass 2020) (in dispute over ownership of a
trade secret, who “created” and “maintained” the information is relevant to ownership question);
NJ Coed Sports LLC v. ISP Sports, LLC, 2023 WL 3993772, *4 (D.NJ. June 14, 2023) (creation,
maintenance, and efforts to keep secret are relevant to ownership).
Even if Penthol had established each element of trade secret misappropriation, including
ownership, the Court would still find that the evidence, or lack thereof, compels a finding for
Vertex on the issue of damages. As an initial matter, the Court finds that there is no evidence of
actual damage from the disclosures discussed above. In addition to authorizing recovery of actual
damages, however, the DTSA and TUTSA also authorize recovery of unjust enrichment or
disgorgement. Any unjust enrichment awarded must be “caused by the misappropriation of the
trade secret.” 18 U.S.C. 1836(b)(3)(B)@AD.
That being the case, Penthol argues that Vertex misappropriated its trade secrets to obtain
the Tensile investment. Penthol then concludes that it is entitled to disgorgement of Vertex’s

6 This is certainly not to say that in a typical agency relationship, the agent is an “owner” of any of the principal’s
trade secrets that the agent uses, maintains, or creates. Rather, the specific facts and circumstances of this
relationship with regard to these trade secrets indicate that Vertex was so intertwined and exercised such control
over the pricing information such that it was a joint owner. Furthermore, there appear to be no restrictions for
Vertex’s use of this data. For instance, nothing in the SRMA prevented Vertex from factoring in ADBase pricing
into its own pricing for VTX-6.
24

profits from the sales of High VI VTX 6. If those two premises seem unrelated, it is because they
are (at least, Penthol failed to prove any causal relationship). The conduct forming the basis for
Vertex’s alleged Jiability is communication to an investor; by contrast, the conduct forming the
basis for Penthol’s alleged damages is sales of a different product to customers. Penthol made
clear at trial that it is not seeking disgorgement of Vertex’s investment from Tensile.
Furthermore, Penthol failed to prove that Vertex’s VTX-6 sales or profits increased because of
the misappropriation in connection with the Tensile presentation. Given that award of unjust
enrichment must be caused by the misappropriation, and given the failure to prove by a
preponderance of the evidence any causal nexus between the Tensile investment and VTX-6
sales, the Court finds that Penthol is not entitled to any damages. As such, Penthol cannot
recover on this cause of action.
VI. Competing Claims for Breach of § 7.2: Termination
Finally, both parties have presented competing claims for breach under § 7.2 of the
SRMA. On one hand, Penthol believes that Vertex terminated the SRMA in its January 27, 2021
letter, and consequently, Penthol is entitled to approximately $40,000 in damages related to
hiring additional employees related to the termination. On the other hand, Vertex believes that
Penthol wrongfully repudiated’ the SRMA in its December 18" letter, or, alternatively, that the

7 This repudiation theory is the subject of the parties’ briefing filed on the eve of trial. Considering the briefing, case
law, and evidence adduced at trial, the Court denies Penthol’s Motion to Strike Vertex’s unpled Claim of
Repudiation. To the extent repudiation requires a party to use the magic word “repudiation” in its pleadings, Penthol
is correct that Vertex did not plead the word in its pleadings. A distinction must be made, however, between
repudiation as a theory of breach of contract, and repudiation as an affirmative defense to a breach of contract
action. As an affirmative defense to a breach of contract claim, repudiation would presumably have to be pled as any
other affirmative defense. As an offensive theory/basis for breach of contract, repudiation appears to not need to be
pled separately. See, e.g, ExxonMobil Global Servs. Co. v. Gensym Corp. & Versata Enterprises, Inc., 54
F.Supp.3d 707, 710-711 (W.D. Tex. 2014) (granting Exxon’s motion for summary judgment on its breach of
contract claim, reasoning that the defendant’s “repeated failures to provide the license codes amounted to
repudiation,” though neither Exxon’s motion nor complaint mentions the word “repudiation”). Even if repudiation,
as a theory for breach, must be supported by the pleadings, the Court finds that Vertex has pled facts supporting a
theory of repudiation. “Under Rule 8 of the Federal Rules of Civil Procedure, it is enough that the plaintiff plead
sufficient facts to put the defense on notice of the theories on which the complaint is based.” T/G Ins. Co. v. Aon Re,
25

letter “lit the fuse” of termination once Vertex refused to cure the alleged defect. Consequently,
Vertex believes it is entitled to unpaid and future commissions and performance incentives.
Obviously, Vertex bears the burden of proof on these counterclaims.
Since the parties dispute how § 7.1 and § 7.2 of the SRMA apply to these facts, the Court
will look first to the language of the contract. The evidence established that the SRMA was not
set to expire until December 31, 2021. Thus, this dispute involves activities with 11-12 months
remaining on the SRMA. That being the case, one must look to the contractual terms governing
early termination.
Section 7.1 outlines early termination events. Subsection (b) states that:
Either Party shall have the right to terminate this Agreement upon . . . the
failure of a Party to perform any material covenant or obligation set forth in this
Agreement if such failure is not remedied within thirty (30) Business Days after
receipt of a Notice specifically describing the nature of the default; provided,
however, that in the event the alleged default is cured within such thirty (30) day
period, this Agreement shall remain in full force and effect and not be terminated
as a result of such default.
SRMA § 7.1(b) (emphasis added). The contract defines Business Days as days, other than
Saturday and Sunday, in which commercial banks in Houston, Texas operate. See SRMA § 1.1,
Definitions. Additionally, § 7.2 outlines the parties’ rights upon termination. It states that:
[T]he Parties agree that within a commercially reasonable time after termination
of this Agreement as provided in Section 7.1, the Parties will settle and liquidate
all transactions and obligations entered into pursuant to this Agreement in an
orderly and commercially reasonable manner. The non-defaulting party shall be
entitled, in its sole discretion, to set-off any amount payable by the non-defaulting
party to the defaulting party under this Agreement or otherwise, against any
amounts payable by the non-defaulting party to the defaulting party .. .

Inc., 521 F.3d 351, 357 (Sth Cir. 2008) (quoting Simpson v. James, 903 F.2d 372, 375 (5th Cir. 1990)). Vertex’s
position has been consistent throughout the case: that Penthol’s December 18" letter wrongfully terminated the
contract. Moreover, as explained in the text, the Court does not find the contract to have been repudiated on
December 18, 2020; thus, there is no harm to Penthol in addressing Vertex’s repudiation theory.
26

The primary evidence pertaining to this situation is a short series of letters. Therefore, the
Court must closely examine the pertinent letters exchanged between the parties and the relevant
timeline.
e On December 18, 2020, Penthol sent a letter to Vertex that Penthol described as a
“Notice of Certain Early Termination Events” pursuant to § 7.1(b). The letter
states that “if Vertex does not cure the defaults described below within thirty (30)
business days after receipt of this Notice, Penthol will terminate the Agreement
pursuant to Section 7.1(b).” (PTX 26) (emphasis added). The alleged “defaults”
described was Penthol’s belief that Vertex breached § 3.4 by selling a competing
product (High VI VTX-6). December 19" would be Day One (1) of the thirty
Business Day countdown.
e On January 19, 2021, Vertex responded to Penthol’s December 18" letter stating
that it believed Penthol had no legitimate basis to terminate the agreement under
§ 7.1(b). It states that “if Penthol does terminate the Agreement, that will
constitute a material breach of the Agreement, and Vertex will seek all
available remedies under the law for that breach, including damages and
attorneys’ fees. In the event Penthol does follow through on its threat to terminate
the Agreement, I must remind Penthol about its obligations not to disparage or
defame Vertex or any of its employees.” (PTX 67) (emphasis added).
e On January 27, 2021, having received no response to its January 19" letter,
Vertex sent another letter to Penthol. This letter stated “This letter pertains to your
December 18, 2020, correspondence. As we detailed in our January 19, 2021
letter back to you, Penthol’s default allegations are false. Nevertheless, Penthol
has not withdrawn its December 18, 2020 termination notice. So, pursuant to
Section 7.1, Vertex considers the Agreement terminated, albeit wrongfully by
Penthol.” (PTX 45) (emphasis added).
e On January 29, 2021, Penthol sent a response letter confirming that the SRMA
had been terminated. It states that “In your letter of January 27, you acknowledge
and confirm the termination of the Agreement. . . Rather than cure its material
breaches of the Agreement, Vertex has elected to ‘consider [jthe Agreement
terminated’ as stated in your January 27 letter. Thus Vertex has acknowledged
and consented to the termination. To be clear, Penthol agrees with Vertex that
the Agreement has been terminated under section 7.1 of the Agreement.”
(PTX 233) (emphasis added).
e Pursuant to the SRMA’s definition of “Business Days,” 30 days after Penthol’s
first letter would have been February 3, 2021. This date is reached by setting
December 18, 2020 as “day zero.” Under the SRMA, weekends and bank
holidays, including December 25, 2020, January 1, 2021, and January 18, 2021,
27

are not counted. Days 1-8 end on December 31, 2020. Days 9-27 end on January
29, 2021, and Day 28 is February 1, 2021. Day 30, therefore, falls on February 3,
2021, making February 4, 2021 the earliest date that Penthol could terminate.
Penthol argues that the December 18"" letter was a warning, or threat, to terminate. It
argues that the letter gave Vertex 30 days to cure its alleged breach (producing and selling High
VI VTX-6). The 30" day after the letter, according to the contract’s definition of “Business
Days,” would be February 3, 2021. Thus, under Penthol’s interpretation, the December 18" letter
itself could not have terminated the contract; it was, instead, Vertex’s January 27* letter, sent
before the close of the 30-day window, that actually terminated the contract. Penthol supports
this argument by pointing to evidence in which both parties continued performing the contract
until January 27". For example, it was not until after January 27" that Vertex cut off Penthol’s
access to the shared workbook and told customers that Vertex was no longer selling ADBase on
behalf of Penthol. These actions indicate that up until January 27", Vertex considered the SRMA
to be operative, but on the 27", Vertex considered the contract to have been terminated.
By contrast, Vertex presents two arguments for why the December 18" letter terminated
the SRMA. Vertex’s first argument is that the December 18" letter “lit the fuse” of termination
and set into motion an inevitable termination, which could only be stopped by Vertex “curing”
the alleged defect (producing and selling High VI VTX-6). To support this interpretation, Vertex
points to the clause in § 7.1 beginning with “provided, however, that . . ..” Vertex argues that the
word “provided” introduces the only event that could stop termination after the receipt of a
defect notice—cure. Given that Vertex refused to cure the alleged defect in its January 19"
letter, Vertex argues that the December 18" letter terminated the SRMA.
The Court disagrees with Vertex’s “lit the fuse” interpretation of § 7.1(b). The first line
of § 7.1(b) reads “Either Party shall have the right to terminate this Agreement upon,” and the

28

following lines describe the events that trigger the right to terminate, not termination itself.
Therefore, the clause beginning with “provided” is not modifying termination. It is modifying
the right to terminate. Contrary to Vertex’s interpretation, curing the defect identified in a notice
letter does not stop termination from occurring; rather, curing such defect means that the party
who sent the letter no longer has a right to terminate. Conversely, “not curing” within thirty days
only gives the notifying party the right to terminate.’ As such, the Court concludes, based on the
language of the SRMA, the language of the actual letter, the remainder of the evidence, and the
applicable law that the contract was not, by its terms, terminated by Penthol’s December 18"
letter. This is reinforced by the evidence that the December 18" letter is clearly addressing an
event in the future, and that Vertex’s January 19" response makes it clear that Vertex did not
consider the SRMA to have been terminated. While denying that Penthol had a right to terminate
based on High VI VTX-6, the response clearly recognizes that Penthol had not yet terminated
and that it would be a breach if it did so on this ground. That letter closes as follows:
Penthol has no legitimate basis to terminate the Agreement under § 7.1(b). If
Penthol does terminate the Agreement, that will constitute a material breach of
the Agreement, and Vertex will seek all available remedies under the law for that
breach, including damages and attorneys’ fees. In the event Penthol does follow
through on its threat to terminate the Agreement, J must remind Penthol about
its obligations not to disparage or defame Vertex or any of its employees.
Despite the ongoing litigation between the parties, Vertex believes that both
parties, and most importantly, the customers of the ADNOC Group III base oil,
are best served if Penthol maintains the Agreement until the previously
agreed termination date. We are therefore available to discuss your letter at your
convenience.
(PTX 67) (emphasis added).

8 Since it is the notifying party’s right to terminate after 30 days, the fact that Vertex did not wait until the expiration
of the 30-day period to send its January 27 letter does not control this aspect. Under the language of the contract, it
was never Vertex’s right to terminate after 30 days—if anyone had the right to terminate, it was Penthol. Of course,
a complicating factor is that there was no breach for Vertex to cure within those 30 days. Since Vertex exercised a
preemptive strike on January 27, 2021, what Penthol would have done on February 4, 2021 is mere speculation.
29

Clearly, at this stage, the preponderance of the evidence proves that neither side
considered the agreement terminated.
Nevertheless, Vertex presented a second theory for why Penthol’s December 18" letter
terminated the contract—the doctrine of repudiation. Vertex argues that, under the SRMA, it was
not required to stop selling VTX-6, even VTX-6 with a VI over 120. The Court agrees. Selling
Group II VTX-6 that occasionally had a VI over 120 was not a breach of the SRMA for the
reasons set out above. Given this finding, Vertex believes that Penthol’s December 18" letter
repudiated the SRMA by unequivocally conditioning its continued performance on Vertex doing
something it was not contractually obligated to do.
In Texas, in order to prevail on a claim for anticipatory repudiation, a plaintiff must
establish each of the following elements: (1) an absolute repudiation of the obligation; (2) a lack
of a just excuse for the repudiation; and (3) damage to the non-repudiating party. Gonzalez v.
Denning, 394 F.3d 388, 394 (Sth Cir. 2004). Texas case law holds that a repudiation has been
committed “when one party to the contract [1] demands of the other a performance to which he
has no right to under the contract and [2] states definitively that unless his demand is complied
with, he will not render his promised performance.” Jn re Windmill Run Assocs., Ltd., 566 B.R.
396, 445-46 (S.D. Tex. 2017) (citing Humphrey v. Placid Oil Co., 142 F. Supp. 246 (E.D. Tex.
1956), aff'd 244 F.2d 184)). The non-repudiating party may then “accept the agreement as being
terminated or consider the repudiation as a breach of contract and bring suit for damages.”
Windmill, 566 B.R. at 445 (citing Hauglum v. Durst, 769 S.W.2d 646 (Tex. App.—Corpus Christi
1989, no writ)). The non-repudiating party is entitled to maintain his action for damages at once
for the entire breach, and is entitled in one suit to receive in damages the present value of the
future payments payable to him by virtue of the contract. Taylor Pub. Co. v. Sys. Mktg. Inc., 686

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S.W.2d 213 (Tex. App. 1984), writ ref'd (May 8, 1985). It is important to note that under Texas
common law, for contracts not governed by the Uniform Commercial Code, a party faced with
anticipatory repudiation cannot claim damages for the anticipatory breach and at the same time
treat the contract as in force. Lumbermens Mutual Casualty Company v. Klotz, 251 F.2d 499, 506
(Sth Cir. 1958). It is also important to note that the wording of the actual contract in question sets
out each parties’ rights.
Here, Vertex’s theory of repudiation fails for multiple reasons. First, Penthol’s December
18" letter follows the prescribed language of the contract and was not an absolute repudiation.
Second, Vertex’s January 19" letter did not treat the December 18" letter as a repudiation,
instead electing to keep the SRMA in effect. Third, both parties performed under the contract
and behaved consistently with the SRMA until January 27, 2021. Finally, as far as Vertex was
aware, its January 19" letter may have had its desired effect and convinced Penthol that its
beliefs were misplaced.
The preponderance of the evidence shows that Penthol’s December 18" letter was not a
repudiation, even though it was a demand to stop selling High VI VTX-6 (something that Vertex
was not otherwise obligated to do). Anticipatory breach requires an “absolute repudiation of an
obligation” and a “lack of a just excuse for the repudiation.” Williams v. Wells Fargo Bank, N.A.,
560 F. App’x 233, 239 (Sth Cir. 2014). The evidence demonstrates that Penthol believed, albeit
based upon an incorrect premise, that its December 18" letter served only as a notice asserting
Penthol’s position under the SRMA. See In re Windmill Run Associates, Ltd., 566 B.R. 396, 447
(S.D. Tex. 2017) (noting that “the assertion of such a right, whether done correctly or not, was
not in itself an unequivocal repudiation of the contract”). In Windmill, the court noted that
repudiation occurred when the breaching party “took an action that was an unequivocal act that

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rendered impossible Debtor’s continued performance under the contract.” Jd. Here, no such act is
present. Though Penthol stated that it would terminate the SRMA if Vertex did not comply,
Penthol acknowledged that it would not have a right to do so until 30 days had passed. Given
these factors, the Court finds that Penthol’s mistaken understanding as to High VI VTX-6 was
not a repudiation.
Vertex’s January 19" letter clearly demonstrates that Vertex believed the contract to be in
place and it elected not to treat the repudiation as a breach. Under Texas law, repudiation gives
the non-repudiating party the option to treat the repudiation as a breach or ignore it and await the
agreed upon time of performance. Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203,
211 (Tex. 1999). The non-repudiating party must do one or the other; it cannot do both. Bumb v.
InterComp Techs., L.L.C., 64 $.W.3d 123, 125 (Tex. App.—Houston [14th Dist.] 2001, no pet.).
Vertex’s January 19" letter clearly talks about the SRMA in the present tense and states that the
parties and their customers would be best served if the SRMA remained in effect. Vertex even
attempted to correct Penthol’s mistaken belief about High VI VTX-6 being a default under the
SRMA. It was clearly awaiting the agreed time of performance. Therefore, the preponderance of
the evidence (including the January 19" letter) demonstrates that, at the time, Vertex did not
consider the SRMA to have been terminated and did not consider the December 18" letter to
have been a repudiation. Even if Vertex could have considered the December 18" letter to be a
repudiation, Vertex made its decision to ignore the repudiation and continue operating business
as usual under the SRMA.
Further, a preponderance of the evidence shows that both Vertex and Penthol continued
to perform under the SRMA until Penthol received Vertex’s January 27, 2021 termination letter.
Thus, as of January 26, 2021, the parties continued to perform their obligations under the SRMA.

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Finally, Penthol could have opted not to terminate after receiving Vertex’s January 19" letter. It
was Penthol’s impression that it sent a notice of default under the SRMA, which, had it not been
cured, would give Penthol the right to terminate. Upon receiving the January 19" letter, Penthol
could have realized that it was mistaken about the High VI VTX-6 or, even if it did not, it could
have opted not to exercise its supposed right to terminate.
For these reasons, Vertex has failed to prove, by a preponderance of the evidence, that it
is entitled to recover for breach of contract due to Penthol’s alleged repudiation. The Court finds
by a preponderance of the evidence that as of January 19, 2021—the date of Vertex’s response to
the December 18"" letter—the contract was in effect and both sides were performing at least to
some degree.
While both sides presented testimony at trial that, at the time of the January 19" letter
(and even as late as January 26, 2021), they wanted to continue the SRMA and were performing
under the SRMA, there is little evidence that either party made a meaningful attempt at
reconciliation. On the whole, the evidence proves that the relationship between the parties
permanently changed in late 2020. Vertex blames the hiring of Gill and his subsequent actions as
the pivotal turning point. Vertex became suspicious that Penthol’s new CEO, Gill, was
circumventing them by talking to shared clients (and he probably was) and ultimately filed suit.
Meanwhile, Penthol became suspicious that Vertex was trying to develop a Group III base oil or
that it would try to supplant Penthol as ADNOC’s marketeer (the former of which was certainly
true at one point in time). The temporary injunction issued by a Texas state court only
exacerbated tensions. By the time Penthol sent its December 18" letter, both sides harbored
concerns about continuing their relationship. Moreover, the price of Group III base oil was

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expected to skyrocket in 2021 and Vertex saw this as a motivating factor. Thus, Penthol had the
incentive to manage its own logistics and stop giving a cut of their profits to Vertex.
The parties’ status changed on January 27, 2021, when Vertex wrote Penthol the
following:
This letter pertains to your December 18, 2020, correspondence. As we detailed in
our January 19, 2021 letter back to you, Penthol’s default allegations are false.
Nevertheless, Penthol has not withdrawn its December 18, 2020 termination
notice. So, pursuant to Section 7.1, Vertex considers the Agreement
terminated, albeit wrongfully by Penthol.
(PTX-45) (emphasis added).
The evidence demonstrates that this is the first time one of the parties, in the present
tense, actually considered the contract terminated. Vertex also cut off Penthol’s access to the
shared database on January 27, 2021. The evidence also demonstrates that while this termination
may not have complied with the requirements in the SRMA, those requirements became
irrelevant and were waived when two days later Penthol accepted the termination, by stating the
following in its January 29, 2021 correspondence:
The Agreement has been terminated
Rather than cure its material breaches of the Agreement, Vertex has elected to
“consider[] the Agreement terminated,” as stated in your January 27 letter. Thus
Vertex has acknowledged and consented to the termination. To be clear, Penthol
agrees with Vertex that the Agreement has been terminated under section 7.1
of the Agreement.
(PTX-233) (emphasis added).
Section § 7.1 of the SRMA is entitled “Early Termination” and includes termination by
mutual agreement.
Thus, the evidence proves that both sides agreed to a termination, perhaps with each side
motivated by incorrect assumptions or suspicions. Penthol made inaccurate assertions in both of

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its December 18" and January 29" letters by suggesting that Vertex’s production of High VI
VTX-6 was a breach. As the evidence at trial clearly demonstrated, this assertion was not
accurate. Vertex on the other hand, wrongfully claimed that as of January 27, 2021, if not a
month earlier, Penthol had wrongly terminated the contract. It is clear that Penthol had not, at
that point, terminated the contract nor did it have the right to terminate, as the 30-business day
period to cure had not passed. Penthol could have easily and justifiably considered the arguments
set out by Vertex in its January 19" letter (to the effect that Vertex was not in breach) to be
meritorious and either withdrawn its December 18" letter or, at the expiration of the cure time
period, merely opted to leave the contract intact.
Having found that the December 18" letter did not terminate the SRMA, the Court finds
that the SRMA was mutually terminated in accordance with SRMA § 7.1(d).? The Court hereby
rules that the contract was mutually terminated on January 29, 2021. The evidence proves that an
agreement existed between the parties that the SRMA had been terminated on this date. Given
that the SRMA was mutually terminated, neither Penthol nor Vertex is deemed the defaulting or
non-defaulting party under the SRMA. Thus, neither party is entitled to future damages for full
performance of the contract, nor is either party entitled to attorney’s fees under § 7.2. Though
neither party is entitled to future damages, the Court must still resolve where such a finding
leaves the parties’ respective claims for damages relating to the time periods surrounding the
termination itself.
I. Penthol’s Damages relating to termination
Penthol argues, despite the mutual termination, that it is nonetheless entitled to
approximately $40,000 in damages related to hiring additional employees following termination.

° The Court notes that Penthol has admitted, both at trial and in pretrial motions, that it “mutually terminated” the
SRMA in the letters it sent following the January 27® letter.
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It argues that Vertex failed to wind up the contract in a commercially reasonable and orderly
manner by, for example, cutting off access to the shared workbook.'° The Court finds for Vertex
on this issue. Evidence at trial showed that, with a few exceptions, these additional employees
are still employed by Penthol and would have been hired following either an early termination by
Penthol or the natural termination of the SRMA. Also, Penthol employee Bryan Stewart testified
that he was not made aware of the December 18" letter sent by Penthol and was not told by
anyone at the company that the SRMA might terminate. Had he been given a proper notice by
his superior, he could have begun the process of taking over sales logistics over a month earlier.
Thus, despite its December 18" letter, Penthol did nothing to mitigate any potential damages it
may have incurred. Finally, no credible evidence (such as accounting or employee records) was
presented to support the $40,000 figure. Rather, the $40,000 appears wholly speculative by Gill.
Additionally, Penthol argues that it is the “non-defaulting party” under § 7.2 and is
therefore entitled to set-off amounts owed to Vertex (namely the unpaid 2020 performance
incentive). This fails for two reasons. First, as held above, Penthol has failed to prove any
damages with which to off-set its amount owed. Second, the Court does not agree that Vertex is
a “defaulting” party within the meaning of § 7.2, considering that Penthol has admitted that the
SRMA was mutually terminated regardless of how the mutual termination was effectuated. As
such, Penthol is not entitled to offset any amounts owed to Vertex at the time of termination.
2. Vertex’s Damages relating to the SRMA
Vertex argues that Penthol wrongfully terminated the SRMA by breaching or repudiating
the contract in its December 18" letter. As such, Vertex believes it is entitled to (1) commissions

10 Section 7.2 of the SRMA requires both sides after a termination to settle and liquidate all transactions and
obligations in a “commercially reasonable manner.”
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and performance incentives that were due at the time of termination and (2) prospective
commissions and performance incentives for 2021.
The Court agrees that, regardless of whether it was a mutual termination or not, Vertex is
entitled to a “true-up,” unpaid commission and unpaid performance incentives through 2020.
Before setting out the numbers, the Court finds that Vertex’s damages expert witness, Sheila
Enriquez, was credible and that the breakdown of amounts owed in the time periods are
convincing. (DX-137, 001-003). The Court agrees with her testimony that the performance
incentives were improperly reduced because Penthol included bank fees and interest expenses
allegedly borne by Penthol C.V., which were duplicative of the same amounts already listed
under the expense column for Penthol LLC. The evidence at trial showed these values, and this
Court hereby finds as damages the following.
Unpaid Commission!!
June 2016—Dec. 31, 2018: $63,484.00
2019: $11,945.00
2020: $410,479.00
Total: $485,908.00

"| Penthol argues that, based on the language of the contract, commission is only payable to Vertex once a customer
has paid Penthol for the ADBase. It claims that there was no evidence that the customers, whose orders form the
basis of these unpaid commissions, ever paid, or failed to pay Penthol. Accordingly, Penthol argues that Vertex has
not met its burden showing that it is entitled to these commission amounts. Evidence at trial showed that every
gallon of ADBase was sold by Vertex, and that in 2021, Penthol continued to sell its ADBase product successfully
to the customer base built by Vertex. Moreover, Vertex’s expert, Enriquez, testified that she calculated these unpaid
commissions amounts using the amounts Penthol’s accountants had recorded were actually due to Vertex in
Penthol’s own accounting records. Even under Penthol’s argument, if these commissions were due according to
Penthol’s records, the customers must have paid. As such, notwithstanding the absence of evidence concerning
specific, individual customer payments, the Court finds that Vertex proved by a preponderance of the evidence that
it was owed unpaid commissions for the above time frame.
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Unpaid Performance Incentives
2016—2018: $218,790.00
2019: $162,031.00
2020: $529,984.00
‘Total: $91080500 ©.

Vertex, believing that it is the non-defaulting party, also seeks prospective commission
and performance incentives for 2021 to compensate them for the full term of the SRMA. Vertex
also seeks attorneys’ fees under the contract. As explained above, the Court does not find either
party to be the non-defaulting party and instead finds that, by a preponderance of the evidence,
the termination process was initiated by Vertex’s January 27" letter and was mutually terminated
on January 29, 2021, when Penthol accepted. Therefore, as Vertex is not the non-defaulting
party, it is not entitled to prospective commission and performance incentives for the entirety of
2021, nor is it entitled to attorneys’ fees and costs under § 7.2. The Court does find that Vertex
is entitled to commission and performance incentives through January 27, 2021, as Vertex
continued working under the SRMA through that date. Vertex, however, only provided one lump
sum for all of 2021 damages. That is, it did not separate out earnings for January of 2021. Given
that the Court does not have evidence supporting a damages figure for only the month of January
2021, it cannot award Vertex damages for its work performed in early 2021.

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VII. Conclusion
All factual findings above constitute the Court’s findings of fact. All legal conclusions
above constitute the Court’s conclusions of law. It is hereby ORDERED that Penthol, LLC, shall
pay all unpaid commissions in the amount of $485,908.00 and shall additionally pay the unpaid
performance incentives in the amount of $910,805.00. Neither party is entitled to attorneys’ fees
or costs under the SRMA because the termination is mutual, and therefore neither party is the
defaulting or non-defaulting party under § 7.2. The Court will enter a final judgment in a
separate document as contemplated by Rule 58(a) of the Federal Rules of Civil Procedure.

Signed at Houston, Texas, this 7" day of March, 2024.

Andrew S. Hanen
United States District Judge

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10677544. Public record. Not legal advice.