Contogouris et al v. WestPac Resources, LLC et al

Filing 203

ORDER AND REASONS denying 167 Motion for Partial Summary Judgment. Signed by Judge Martin L.C. Feldman on 2/7/2012. (caa, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
SPYRIDON C. CONTOGOURIS, ET AL.

CIVIL ACTION

Versus

NO: 10-4609

WESTPAC RESOURCES, ET AL.

SECTION “F”
ORDER & REASONS

Before the Court is the plaintiffs’ motion for partial
summary judgment on the defendants’ counterclaims.

For the

following reasons, the motion is DENIED.
Background
This case arises out of a marketing agreement inspired in
the wake of the Deepwater Horizon oil spill.

Despite its initial

success, it soon soured.
At some time in the 1990s, Kevin Costner, through his
corporation C.I.N.C., Inc., financed and oversaw the development
of technology which could separate oil from water.

Toward the

beginning of the 2000s, Costner coordinated with Spyridon
Contogouris, a New Orleans-area resident, to market the
technology and the separation device which implements it.
Contogouris and C.I.N.C. entered into an agreement under which
Contogouris would receive a commission for any units he sold.

It

is unclear how long this agreement was to endure.
Flashforward to Spring 2010.

Contogouris and his family met

Costner for a meal on April 17, 2010 in Biloxi, Mississippi.

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Costner told Contogouris that he had sold his rights to the
separator technology and his ownership stake in C.I.N.C. to Bret
Sheldon after attempts to market the oil-separation system were
not successful.

Providentially, only three days later, a now-

infamous drilling rig called Deepwater Horizon exploded.

The

result: a catastrophic oil spill that saturated much of the Gulf
of Mexico.
In the first days of the spill, Contogouris claims that
contacts within the oil-and-gas industry revealed to him the
extent of the catastrophe before it was public knowledge; he
quickly recognized a significant opportunity for C.I.N.C. and
himself.

He first tried to reach Costner to discuss marketing

the technology for its use in the unfolding clean-up effort.
When that was unsuccessful, Contogouris contacted Sheldon and
C.I.N.C. directly to discuss obtaining an exclusive agreement to
acquire the units for use in the Gulf of Mexico region.

It is

unclear what came of that conversation.
Unsuccessful in his attempts to approach BP directly,
Contogouris determined that he would need to bring in partners
who could lend assistance in gaining access to BP.

He formed a

joint-venture agreement, which eventually transformed into a
partnership under the name of Ocean Therapy Solutions, LLC (OTS),
comprising the following people and entities, some based in
Louisiana, some not:

Stephen Baldwin, John Houghtaling, Patrick

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Smith, WestPac Resources, LLC (an organization in which both
Costner and Smith owned shares), and L&L Properties (an entity
formed by WestPac together with locals Frank Levy and Franco
Valobra).

OTS quickly accomplished a threshold goal:

On May 3,

2010, OTS and C.I.N.C. entered into a marketing agreement,
granting OTS exclusive rights to market the oil-separation system
in the Gulf of Mexico.
By May 10, 2010, Contougoris registered OTS with the
Louisiana Secretary of State.

An operating agreement soon

resettled and established their ownership stakes as follows:
Contougoris, 28 percent; Baldwin, 10 percent; Houghtaling, 21.5
percent; Valobra, 5 percent; L&L Properties, 15.5 percent; and
WestPac, 20 percent.

The agreement required a 60 percent super-

majority for OTS to take any action.

From this point through his

withdrawal from OTS, Contogouris asserts that he was OTS’s “first
founding member, managing member, and largest shareholder.”

Levy

was installed as OTS’s CEO.
OTS soon suffered from internal disagreement and distrust
among its membership.

On the one hand, Contogouris, holding the

largest stake in OTS, and Levy, OTS’s CEO, wanted the company to
use a business model which would insure recurring business and
the possibility of marketing the device to other major oil
companies.

They proposed renting units to BP at a fair price in

a long-term agreement.

Houghtaling and Smith, together

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representing 41.5 percent of total shares, on the other hand,
favored a less complicated approach involving a one-time sale of
the equipment to BP at a higher price.

As a result of this

disagreement (along with a separate conflict between Levy and
Hougtaling), Levy withdrew from OTS, conveying all his shares to
Houghtaling.

Houghtaling took Levy’s place as CEO and eventually

transferred Levy’s share to Costner.
At the same time, Contogouris and Smith began to clash.
Beginning in late May, Costner and Smith allegedly told
Contogouris and Baldwin that they needed to each make a $1.14
million cash contribution to fund OTS’s operation without
explaining why.

Contogouris agreed to raise part of this money,

but insisted upon being told to what uses the cash would be put.
The explanation never came.

Eventually, Smith notified

Contogouris and Baldwin that if they did not respond to the cash
call, their shares would be diluted.

Alternatively, Smith and/or

WestPac proposed to buy Contogouris’s and Baldwin’s shares for
$1.4 million and $500,000, respectively.

(Contogouris alleges

that these interests were to be acquired for Costner’s benefit.)
Fueling their conflict was Contogouris’s growing suspicion that
Costner and Smith were trying to maximize their own profit, by
hoodwinking Contogouris and Baldwin into selling their shares
while at the same time finalizing an undisclosed deal with BP.
Contogouris contends that he felt added pressure because Costner

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and Smith were in the position to force a cash call in that they
now had the support of Houghtaling and Valobra; collectively,
they had the needed sixty-percent super-majority called for in
the operating agreement.

(None of these people or the entities

they represented, however, independently held the necessary share
to form a super-majority.)
From an outsider’s perspective, however, BP had not yet been
particularly responsive to OTS.

OTS members pressed forward with

promoting the technology through the media and Costner’s
appearance before Congress to discuss the technology and his
efforts to have BP employ it to help deal with the oil spill.
These outreach efforts seemed to have their desired effect:
Before Costner testified, BP agreed to meet with OTS members at
Houghtaling’s house and signed a letter of intent to purchase
several units of the device.

Contogouris claims he was excluded

from this meeting at the last minute; only Houghtaling, Smith,
and Costner were present to advocate OTS’s interests.

The next

morning, when Baldwin and Contogouris asked Costner about his
meeting with BP, Costner allegedly denied that they had reached a
binding deal, responding only that a non-binding letter of intent
had issued.

Contogouris and Baldwin suspected that something

resembling a binding deal had in fact been reached.

Contogouris

further complains that no one told him that the letter of intent
would make OTS self-funding, possibly obviating the need for any

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investor cash contributions to the company.
Costner testified before Congress on June 9, 2010 and
announced that BP had placed an order for the technology.
Costner reiterated to the press his statement that BP had placed
an order.

Contogouris attempted to contact Costner without

success.

Costner’s attorney allegedly relayed to Contogouris

that no deal had been reached with BP and hoped public pressure
would cause BP to yield to a binding agreement.

It is clear from

the complaint, however, that Contogouris knew of the likelihood
of a binding deal by June 8.

That same day, because of continued

demands for a cash contribution without sufficient explanation of
the use to which it would be put—and perhaps due in part to
Costner’s (alleged) unraveling pattern of untruths—Contogouris
made a trip to Los Angeles to sell his interests.
The original proposed agreement called for WestPac or Smith
to pay the purchase price of $1.9 million ($500,000 of which
represented Baldwin’s share) upon execution of the agreement.
But by June 10, Smith sought to change the payment terms,
offering to pay a ten percent deposit by the next day, followed
by the remaining payment a week after that.

It appears

Contogouris had no objection to this arrangement at the time.
But Contogouris alleges now that Costner, Smith, and WestPac
orchestrated a nefarious scheme to acquire Contogouris’s and
Baldwin’s interests without having to pay any cash of their own,

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simultaneously depriving Contogouris and Baldwin of their share
of any profits from BP; as the story goes, Costner, Smith, and
WestPac scrambled to acquire Contogouris’s and Baldwin’s
interests knowing that BP soon would pay an $18 million deposit
to OTS; they would use part of BP’s deposit to buy the shares.
The ten percent deposit reached the Contogouris and Baldwin
bank account through a transfer from WestPac’s account with
Rabobank, N.A. in California on June 11, 2010, as promised.

The

next day, BP executed a purchase agreement with OTS for thirtytwo units.

The gross price was over $52 million; BP promised to

make an advance deposit of $18 million and publicly announced the
deal on June 15, 2010.
Rather than arrange for a deposit to an account already
opened by Contogouris for OTS in Louisiana, a different bank
account was opened in OTS’s name at Rabobank in California,
apparently without Houghtaling’s, Contogouris’s, or Baldwin’s
knowledge or authorization.

It was into this unauthorized

account that BP paid its $18 million deposit on June 16.
members of OTS received a distribution.
Contogouris.

All

All except Baldwin and

Baldwin and Contogouris claim that at the time the

$18 million deposit was made, they were still members of OTS and
thus entitled to a distribution because full payment for their
surrendered interests was still pending (even though they reached
a final agreement to sell their interests before the deposit was

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made).
That same day, Smith e-mailed Contogouris to let him know
that “he had the cash” and was prepared to close on the sale of
Contogouris’s and Baldwin’s interests.
was complete:

On June 18, 2010, payment

OTS transferred funds from its Rabobank account to

WestPac’s Rabobank account, and then transferred from the WestPac
Rabobank account to Contogouris and Baldwin.

The parties signed

documents to finalize the transfer.
Contogouris and Baldwin later sued Costner, Smith, WestPac,
and Rabobank.1

Plaintiffs bring a securities fraud claim under

Rule 10(b)(5) of the Securities and Exchange Act; a claim under
Louisiana law to avoid the sale of their interests based on
error; and another claim under Louisiana law alleging
misrepresentations and omissions of material fact on the
defendants’ part in connection with the sale of plaintiffs’
interests.

Defendants filed breach of contract counterclaims

against the plaintiffs, alleging that their claims violate a
release from liability provision found in the Agreement
transferring the plaintiffs’ interests in OTS to the defendants.
Plaintiffs now move for partial summary judgment, arguing
that their claims are not covered by the language of the release
from liability provision of the parties’ Agreement.

1

Rabobank has since been dismissed from the case.
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II.
Federal Rule of Civil Procedure 56 instructs that summary
judgment is proper if the record discloses no genuine issue as to
any material fact such that the moving party is entitled to
judgment as a matter of law.

No genuine issue of fact exists if

the record taken as a whole could not lead a rational trier of
fact to find for the non-moving party.

See Matsushita Elec.

Indus. Co. v. Zenith Radio., 475 U.S. 574, 586 (1986).

A genuine

issue of fact exists only "if the evidence is such that a
reasonable jury could return a verdict for the non-moving party."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The Court emphasizes that the mere argued existence of a
factual dispute does not defeat an otherwise properly supported
motion.

See id.

Therefore, "[i]f the evidence is merely

colorable, or is not significantly probative," summary judgment
is appropriate.

Id. at 249-50 (citations omitted).

Summary

judgment is also proper if the party opposing the motion fails to
establish an essential element of his case.
Catrett, 477 U.S. 317, 322-23 (1986).

See Celotex Corp. v.

In this regard, the non-

moving party must do more than simply deny the allegations raised
by the moving party.

See Donaghey v. Ocean Drilling &

Exploration Co., 974 F.2d 646, 649 (5th Cir. 1992).

Rather, he

must come forward with competent evidence, such as affidavits or
depositions, to buttress his claims.

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Id.

Hearsay evidence and

unsworn documents do not qualify as competent opposing evidence.
Martin v. John W. Stone Oil Distrib., Inc., 819 F.2d 547, 549
(5th Cir. 1987).

Finally, in evaluating the summary judgment

motion, the Court must read the facts in the light most favorable
to the non-moving party.

Anderson, 477 U.S. at 255.

As the Fifth Circuit has held:
Under Louisiana law, the interpretation of an
unambiguous contract is an issue of law for
the court. See Texas E. Transmission Corp. v.
Amerada Hess Corp., 145 F.3d 737, 741 (5th
Cir. 1998). "When the words of the contract
are clear and explicit and lead to no absurd
consequences, no further interpretation may
be made in search of the parties' intent."
La. Civ. Code Ann. art. 2046 (West 1995). "A
contract provision is not ambiguous where
only one of two competing interpretations is
reasonable or merely because one party can
create a dispute in hindsight." Texas E.
Transmission Corp., 145 F.3d at 741 (citing
Lloyds of London v. Transcontinental Gas Pipe
Line Corp., 101 F.3d 425, 429 (5th Cir.
1996)). In the context of contract
interpretation, only when there is a choice
of reasonable interpretations of the contract
is there a material fact issue concerning the
parties' intent that would preclude summary
judgment.
Amoco Prod. Co. v. Texas Meridian Resources Exploration, Inc.,
180 F.3d 664, 668-669 (5th Cir. 1999).
The parties in this case agree on which provisions govern
the release of liability question, but differ as to the scope of
the language used in those provisions.
governing Contogouris provides:

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The release provision

As of the closing, Contogouris releases,
waives, and forever discharges each of the
Remaining Members and any of their heirs,
administrators, executors, employees, agents,
servants, members, managers, officers,
directors, successors, assigns, and attorneys
(collectively the “Releasees”) from any and
all Claims that Contogouris now has or has
ever had against the Remaining Members and
any of the Releasees arising out of any
matter, cause, or event occurring on or prior
to the date of this Agreement, which claims
relate to or are in connection with (a) the
organization and operation of OTS (including
without limitation, the OTS Articles of
Organization and the Operating Agreement and
all contracts, agreements, or arrangements
entered into by or on behalf of OTS), (b) the
Proposed Joint Venture and any actions taken,
negotiations held, or proposals made with
respect to the Proposed Joint Venture and (c)
any and all claims Contogouris has or may
have against OTS, WestPac or any of its
members or managers, including, but not
limited to, Kevin Costner, for reimbursement
of any past commissions and/or expenses.
A separate but similar provision governs Baldwin:
As of the closing, Baldwin releases, waives,
and forever discharges each of the Remaining
Members and each of the Releasees from any
and all Claims that Baldwin now has or has
ever had against the Remaining Members and
any of the Releasees arising out of any
matter, cause, or event occurring on or prior
to the date of this Agreement, which claims
relate to or are in connection with (a) the
organization and operation of OTS (including
without limitation, the OTS Articles of
Organization and the Operating Agreement and
all contracts, agreements, or arrangements
entered into by or on behalf of OTS), (b) the
Proposed Joint Venture and any actions taken,
negotiations held, or proposals made with
respect to the Proposed Joint Venture.

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Both provisions make clear that claims related to contracts,
agreements or arrangements entered into by OTS will be released
from liability.

This plainly covers the purchase BP made from

OTS, which qualifies as an arrangement entered into by OTS, as
well as a contract.

The plaintiffs’ claims relate directly to

this arrangement: they are all grounded on the assertion that
defendants had misled them about the BP purchase as well as the
source of the money used in the transaction, and caused them to
sell their interests while possessing inaccurate information.
Moreover, the scope of the release provision is broad: no claims
relating to such arrangements are allowed.

Far from allowing

plaintiffs’ claims, the release provisions found in the Agreement
bar them.
Accordingly, IT IS ORDERED: the plaintiffs’ motion for
summary judgment is DENIED.

New Orleans, Louisiana, February 7, 2012.

______________________________
MARTIN L. C. FELDMAN
UNITED STATES DISTRICT JUDGE

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