COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2023

Environmental Remediation Obligations [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Litigation

The Company, in its normal course of business, is involved in various claims and legal action. In the opinion of management, the outcome of these claims and actions will not have a material adverse impact upon the financial position of the Company. We are currently party to the following material litigation proceedings:

Doucet litigation:

Vertex Refining LA, LLC (“Vertex Refining LA”), the wholly-owned subsidiary of Vertex Operating was named as a defendant, along with numerous other parties, in five lawsuits filed on or about February 12, 2016, in the Second Parish Court for the Parish of Jefferson, State of Louisiana, Case No. 121749, by Russell Doucet et. al., Case No. 121750, by Kendra Cannon et. al., Case No. 121751, by Lashawn Jones et. al., Case No. 121752, by Joan Strauss et. al. and Case No. 121753, by Donna Allen et. al. The suits relate to alleged noxious and harmful emissions from our facility located in Marrero, Louisiana. The suits seek damages for physical and emotional injuries, pain and suffering, medical expenses and deprivation of the use and enjoyment of plaintiffs’ homes. We intend to vigorously defend ourselves and oppose the relief sought in the complaints, provided that at this stage of the litigation, the Company has no basis for determining whether there is any likelihood of material loss associated with the claims and/or the potential and/or the outcome of the litigation.

Penthol litigation:

On November 17, 2020, Vertex Energy Operating, LLC (“Vertex”) filed a lawsuit against Penthol LLC (“Penthol”) in the 61st Judicial District Court of Harris County, Texas, Cause No. 2020-65269, for breach of contract and simultaneously sought a Temporary Restraining Order and Temporary Injunction enjoining Penthol from, among other things, circumventing Vertex in violation of the terms of that certain June 5, 2016 Sales Representative and Marketing Agreement entered into between Vertex Operating and Penthol (the “Penthol Agreement”). Thereafter, Penthol terminated the Penthol Agreement more than a year prior to the contractual termination date. Vertex seeks damages, attorneys’ fees, costs of court, and all other relief to which it may be entitled.

On February 8, 2021, Penthol filed a complaint against Vertex in the United States District Court for the Southern District of Texas; Civil Action No. 4:21-CV- 416 (the “Complaint”). Penthol sought damages from Vertex for alleged violations of the Sherman Act, breach of contract, business disparagement, fraud, tortious interference with prospective and current business relations, and misappropriation of trade secrets under the Defend Trade Secrets Act and Texas Uniform Trade Secrets Act. On August 12, 2021, United States District Judge Andrew S. Hanen dismissed Penthol’s Sherman Act claim. On May 26, 2023, Judge Hanen granted in part Vertex’s motion for summary judgment and dismissed Penthol’s business disparagement, fraud, and tortious interference claims. Penthol’s remaining claims remain pending. Penthol is seeking a declaration that Vertex has materially breached the agreement; an injunction that prohibits Vertex from using Penthol’s alleged trade secrets and requires Vertex to return any of Penthol’s alleged trade secrets; awards of actual, consequential and exemplary damages, attorneys’ fees and costs of court; and other relief to which it may be entitled. Vertex denies Penthol’s allegations. Vertex denies Penthol’s claims, and believes that Penthol’s termination of the Penthol Agreement was wrongful and resulted in damages to Vertex. Further, Vertex contends that Penthol’s termination of the Penthol Agreement constitutes a breach by Penthol under the express terms of the Penthol Agreement, and that Vertex remains entitled to payment of the amounts due Vertex under the Penthol Agreement for unpaid commissions and unpaid performance incentives. Vertex disputes Penthol’s allegations of wrongdoing and intends to vigorously defend itself in this matter.

The parties agreed to move the pending claims and defenses in the Texas state court lawsuit into the federal court lawsuit. All pending claims between the parties are now in the federal court action.

The parties conducted numerous depositions and substantial document discovery. The case was tried to the bench on October 30, 2023, and a post-trial briefing was submitted on November 22, 2023. Judge Hanen has not yet issued a decision in the case.

Putative Class Action Litigation:

On April 13, 2023, William C. Passmore filed a putative class action lawsuit against the Company; Benjamin P. Cowart, our Chief Executive Officer and Chairman; and Chris Carlson, our Chief Financial Officer; in the United States District Court for the Southern District of Alabama (Southern Division). In May 2023 and June 2023, additional plaintiffs filed virtually identical putative class action lawsuits against the same three defendants, the first of which was filed in the same courthouse and the second of which was filed in the United States District Court for the Southern District of Texas (Houston Division). These three putative class action lawsuits are substantially similar and allege that the Company, through Messrs. Cowart and Carlson, issued materially false and misleading statements, or omitted material information, regarding the projected future financial performance of the Mobile Refinery in 2022. The plaintiffs have asserted claims for violations of Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act, against all defendants. On January 24, 2023, the Court in the first-filed case granted the plaintiffs’ motions for consolidation and ordered that the consolidated cases be transferred from the Southern District of Alabama to the Southern District of Texas. The plaintiffs’ pending and competing motions to become lead plaintiff and lead plaintiff’s counsel in the putative class actions will be ruled on by the federal court in Houston.

Shareholder Derivative Lawsuits:

In June 2023, Zachary Sinrich, derivatively on behalf of the Company, filed a shareholder derivative lawsuit against certain current and former Directors (Mr. Benjamin P. Cowart, Mr. Dan Borgen, Mr. Christopher Stratton, Mr. Timothy Harvey, Ms. Karen Maston and Mr. Odeh Khoury) and Officers (Mr. Cowart and Mr. Chris Carlson) in the District Court of Harris County, Texas (Case 2023-35261). The suit alleges that the Directors and Officers of the Company breached duties owed to the Company by allowing the Company to issue materially false and misleading statements, or failing to disclose material information, regarding the projected future financial performance of the Mobile Refinery in 2022. The plaintiff has asserted claims for breach of fiduciary duty and for unjust enrichment against all defendants. Plaintiff is seeking multiple forms of relief, including high-level resolutions for amendments to the Company’s corporate governance documents. On July 19, 2023, the Court granted the plaintiff’s notice of non-suit as to two current Directors (Ms. Maston and Mr. Khoury), dismissing them from

the lawsuit without prejudice. On July 27, 2023, the parties filed a joint motion to stay the derivative lawsuit pending the outcome of an anticipated motion to dismiss in the putative securities class action (post-consolidation of the cases). The Court issued an order staying the case, as requested, on August 28, 2023.

The Company is also defending a second shareholder derivative lawsuit filed in late-June 2023. While the named defendants in the second-filed shareholder derivative lawsuit vary slightly from the first-filed shareholder derivative lawsuit, the allegations and relief sought are virtually identical. As was done in the first-filed derivative suits, on October 4, 2023, the parties jointly requested, and the Court granted, a stay of the lawsuit pending the outcome of an anticipated motion to dismiss in the putative securities class action litigation.

Notwithstanding the fact that the Company and the defendants have stayed these cases, even if the putative class actions are successfully dismissed, the Company will need to separately address the plaintiffs’ filing of these shareholder derivative lawsuits.

Martin Energy litigation:

On October 31, 2022, Martin Energy Services LLC (“Martin”) filed a petition against Vertex Refining Alabama LLC, Case No. 2022-71500, in the 234th District Court of Harris County, Texas. Martin claimed breach of contract under a Sales Contract between the parties, fraudulent inducement and fraud by non-disclosure. Vertex filed an answer and alleged various affirmative defenses. Vertex denies the allegations and is vigorously defending them. The parties completed discovery on December 1, 2023. The parties began a bench trial in front of Harris County District Court Judge Lauren Reeder on January 30, 2024, and completed the trial on January 31, 2024. On February 27, 2024, the court rendered judgment that Martin take nothing on its claims for breach of contract, fraudulent inducement and fraud by non-disclosure and each party bear its own costs. It’s unclear at this time whether Martin will appeal the judgment.

Environmental Matters

Like other petroleum refiners, we are subject to federal, state, and local environmental laws and regulations. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal. These governmental entities may also propose or assess fines or require corrective actions for these asserted violations. Except as disclosed below, we do not anticipate that any such matters currently known to management will have a material impact on our financial condition, results of operations, or cash flows. As of December 31, 2023 and 2022, we have $1.4 million recorded in accrued liabilities for anticipated environment clean-up costs.