COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2024

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, LLC (“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.

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”). The parties agreed to move the pending claims and defenses in the Texas state court lawsuit into the federal court lawsuit.

On March 7, 2024, the Judge in the action issued a Final Judgment and Findings of Fact & Conclusions of Law. In sum, Penthol lost all of its claims against Vertex, including all of its breach of contract theories. Vertex won its unpaid commission claim in the amount of $1.4 million plus five percent interest on the unpaid claim amount.

Vertex is presently considering whether to appeal the judgment and it is also possible that Penthol appeals the judgment against it.

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, 2024, after considering party briefing, the United States District Court for the Southern District of Alabama ordered that the three putative class action lawsuits be consolidated and transferred to the Southern District of Texas for further proceedings. On February 1, 2024, the court issued an order appointing lead plaintiffs and lead counsel for the putative class, who then filed a consolidated amended complaint. The Company anticipates moving to dismiss the claims in the consolidated amended complaint, with briefing on the motion currently scheduled to be complete by August 20, 2024.

Shareholder Derivative Lawsuits:

In June 2023, two plaintiffs filed shareholder derivative lawsuits against certain Directors (both current and former) and Officers in the state courts of Texas and Nevada. The suits are substantially similar and allege 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. Both the Texas and Nevada plaintiffs have asserted claims for breach of fiduciary duty, and the Texas plaintiff has asserted an additional claim for unjust enrichment. Plaintiffs seek multiple forms of relief, including high-level resolutions for amendments to the Company’s corporate governance documents. On July 19, 2023, the Texas court granted the plaintiff’s notice of non-suit as to two current Directors, who were only named in the Texas case, dismissing them from the lawsuit without prejudice, and on August 28, 2023, the Court granted the parties’ joint motion to stay the derivative lawsuit pending the outcome of an anticipated motion to dismiss in the putative securities class action. Similarly, on October 5, 2023, the Nevada court granted the parties’ joint stipulation to stay the case pending the outcome of the anticipated motion to dismiss in the putative securities class action.

The Company has also been informed that a third shareholder derivative lawsuit was filed in the United States District Court for the Southern District of Texas on February 26, 2024, against certain Directors and Officers of the Company. The factual allegations in the third derivative lawsuit are substantially similar to the derivative lawsuits that are stayed in Texas and Nevada. This third derivative lawsuit, however, contains five claims in total, including claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and waste of corporate assets. The Company plans to seek a stay of the third derivative lawsuit that is similar to the stay entered in the other derivative lawsuits, as well as dismissal of the two Directors who were dismissed from the first derivative lawsuit in Texas state court.

The Company has retained counsel to respond to the putative class action and the shareholder derivative lawsuits, and its assessment of the respective allegations is ongoing. All defendants intend to vigorously defend against the allegations.

At this stage of the lawsuits described above, we are unable to anticipate the ultimate impact, if any, that the legal proceedings may have on the consolidated financial position, liquidity, results of operations, or cash flows of the Company. As a result, we have not estimated a range of potential exposure for amounts, if any, that might become payable in connection with these matters and reserves have not been established. If an unfavorable ruling or development were to occur in these or other possible legal proceedings and claims, there exists the possibility of a material adverse impact on our business, results of operations, prospects, cash flows, or financial position and it is possible that an adverse outcome in any of such matters may have a material adverse impact on the Company.

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 March 31, 2024 and December 31, 2023, we reserved $1.4 million for anticipated environment clean-up costs.