U.S. Enercorp, Ltd. v. SDC Montana Bakken Exploration, LLC et al
ORDER GRANTING #44 Motion to Dismiss for Failure to State a Claim; GRANTING #46 Motion to Dismiss for Failure to State a Claim; GRANTING #48 Motion to Dismiss for Failure to State a Claim. Signed by Judge David A. Ezra. (rf)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
U.S. ENERCORP, LTD.,
SDC MONTANA BAKKEN
EXPLORATION, LLC, VAL VERDE
INVESTMENTS, LLC, and RINGO
SDC MONTANA BAKKEN
EXPLORATION, LLC, VAL VERDE §
INVESTMENTS, LLC, and RINGO
U.S. ENERCORP, LTD,
SDC MONTANA BAKKEN
EXPLORATION, LLC, VAL VERDE §
INVESTMENTS, LLC, and RINGO
BRUCE GATES, JACK GUNTHER, §
CHRISTOPHER DEDMON; SDC
MONTANA CONSULTING, LLC,
SDC MONTANA, LLC
ORDER (1) GRANTING ENERCORP’S MOTION TO DISMISS; (2)
GRANTING BRUCE GATES’ MOTION TO DISMISS; AND (3) GRANTING
JACK GUNTHER’S MOTION TO DISMISS
U.S. Enercorp (“Enercorp”) initially filed suit in state court (“the
Enercorp Complaint”) against SDC Montana Bakken Exploration, LLC; Val Verde
Investments, LLC, and Ringo Shapiro (collectively, “Bakken”). (Dkt. # 1.)
Bakken removed the case to federal court on December 31, 2012. (Id.) On
February 11, 2013, Bakken filed a motion to dismiss the Enercorp Complaint.
(Dkt. # 16.) After the parties submitted responses and replies, the Court heard
argument on the motion to dismiss, granted the motion in part, denied the motion
in part, and granted Enercorp leave to amend. (Dkt. # 37.)
Shortly thereafter, Bakken filed a third-party complaint against Bruce
Gates (“Gates”), Jack Gunther (“Gunther”), Christopher Dedmon (“Dedmon”),
SDC Montana Consulting, LLC, and SDC Montana, LLC and also asserted
counter-claims against Enercorp (“the Bakken Complaint”). ((“Compl.,” Dkt.
# 40.) The pending motions from Enercorp, Gates, and Gunther each move to
dismiss the sixth cause of action in the Bakken Complaint—Civil Conspiracy to
Commit Fraud. (Dkt. ## 44, 46, 48.) Bakken did not respond to these motions to
dismiss and stated in their ADR report that they “[have] not filed an opposition to
the [motions] and [do] not intend to do so. We then anticipate that Mr. Gunther
will be dismissed from the case and that the Sixth Cause of Action will be
dismissed against U.S. Enercorp and Mr. Gates as well.” (Dkt. # 62 at 3.) Based
on these statements and Bakken’s lack of response, Enercorp, Gunther, and Gates
filed an Advisory to the Court seeking to cancel the hearing on the motions to
dismiss set for Monday, March 17, 2014 stating it would be a waste of the parties’
and Court’s time and resources. (Dkt. # 75.) The Court agrees and finds this
matter suitable for disposition without a hearing pursuant to Local Rule 7(h).
For the purposes of the pending motions to dismiss, the following
facts are taken as true from the Bakken Complaint.1 The Bakken Complaint
alleges that Enercorp, Gunther, and Gates engaged “in a pattern of wrongful
behavior designed to deprive Shapiro of the fruit of his labor and investments and
to drive him into economic duress. (Compl. ¶ 21.) Accordingly, Shapiro alleges
that a broker approached him to secure bridge financing to facilitate a transaction
between SDC Montana Consulting, LLC and SDC Montana, LLC, controlled by
Christopher Dedmon (collectively, “SDC Montana”) and Enercorp and JL
Resources (collectively, “the Drillers”). (Id. ¶¶ 24–27.) The transaction involved
SDC Montana transferring specific mineral leases at a specific price in an area of
As a note, the Enercorp Complaint alleges a very different set of circumstances.
However, in determining whether the Bakken Complaint can survive a motion to
dismiss, the well-pleaded facts in the Bakken Complaint are taken as true.
Montana, known as the Bakken Play, to Dedmon, who would ultimately transfer
the oil and gas rights to Enercorp pursuant to an Acquisition Agreement. (Id.)
The Bakken Complaint states that SDC Montana required bridge
financing because the cost of leasing the mineral acres had increased significantly
since it entered into the contract with Dedmon. (Id. ¶ 28.) Dedmon represented
that once SDC Montana acquired the relevant leases, Enercorp had an obligation to
purchase them at $750 per acre and that Shapiro would be repaid. (Dkt. # 29.)
Shapiro initially loaned SDC Montana $200,000.00, collateralizing
the entire asset base, and provided assistance with the SDC Montana operation as a
whole. (Id. ¶ 30.) In exchange, SDC Montana signed a personal guarantee, a note
and a security agreement. (Id. ¶ 31.)
The Bakken Complaint alleges that Shapiro and SDC Montana
executed “Facility Agreement,” because it became apparent that more flexibility
was necessary in the lending instrument, and a Consulting Agreement. (Id. ¶¶ 33–
34.) Shapiro maintains that he continued to fund leases and loaned additional sums
and that SDC Montana referred to him as the financial arm of SDC Montana
during its business dealings. (Id. ¶¶ 34, 35.) Shapiro states that the Drillers had
known all along that he was financing SDC Montana and raised no objections. (Id.
Shapiro claims that as he began unraveling the “accounting mess”
SDC Montana had created he encountered “conflicting reports, and incomplete
account and record keeping materials.” (Id. ¶ 37.) According to the Bakken
Complaint, SDC Montana misrepresented themselves in leases prior to and during
Shapiro’s involvement. (Id. ¶ 38.) The Bakken Complaint alleges that SDC
Montana improperly used the funds originally from Enercorp to fund leases outside
of the buy areas outlined in the contracts. (Id. ¶ 39.) After learning of these
practices, Shapiro stopped funding the Facility Agreement. (Id. ¶ 40.)
Shapiro subsequently learned that there were additional contracts
between the Drillers and SDC Montana and that Enercorp and Gates owned
portions of SDC Montana. (Id. ¶¶ 43–44.) Shapiro claims he made his concerns
known to the Drillers, but the Drillers “offered no intention of performing on their
contracts with SDC at any level.” (Id. ¶ 45.)
Subsequently, all the parties, led by Shapiro, met to clear up the
issues. (Id. ¶ 46.) Shapiro states that a copy of the Facility Agreement was then
provided to Gates, even though “SDC [Montana] had already clarified the extent of
its relationship with Shapiro earlier.” (Id. ¶ 47.) Shapiro then met with Bruce
Gates “to get [himself] out of the deal entirely.” Shapiro states that Bruce Gates
then agreed to fund SDC Montana’s “loan amount plus the interest and fees owed
to Shapiro at that time in exchange for an assignment of the collateral obtained
through his agreements with [SDC Montana].” (Id. ¶ 49.)
Shapiro alleges that Bruce Gates never performed, forcing him to
“foreclose on the assets and look to other means to recoup this defaulted loan.”
(Id. ¶ 52.) Shapiro argues he was left with only disadvantageous choices, the best
of which was to work with the Drillers to sell the relevant land to a third party. (Id.
¶¶ 53–55.) Shapiro alleges that the Drillers’ actions forced him to go along with
this plan. (Id. ¶ 58.)
Southwestern Energy Production Company (“SEPCO”) became
interested in the land. (Id. ¶ 60.) Shapiro states that Enercorp said that SEPCO
would only deal with Enercorp in the ensuing negotiations because of Dedmon’s
“checkered past.” (Id. ¶¶ 62–63.) Shapiro alleges Bruce Gates used this as an
excuse to “hijack” the process and that he only agreed to the Collaboration
Agreement in an effort to sell the land quickly. (Id. ¶¶ 63–64.) Shapiro claims he
was forced to make major concessions on price and participation in order to
expedite the negotiations. (Id. ¶ 65.) Moreover, Shapiro states he only agreed to
these conditions because Enercorp and Gates assured him that he would get paid
according to the terms of the Collaboration Agreement. (Id.) Shapiro maintains
that SEPCO declared the deal a success, but claims that Enercorp distributed the
ensuing initial option payment of approximately $1,600,000 to him without a
proper accounting. (Id. ¶¶ 69–70.) Then, as the remaining land was leased,
SEPCO paid Enercorp, but Enercorp never paid Shapiro his share. (Id. ¶¶ 71, 73.)
Similarly, Shapiro maintains that Enercorp never provided the assignment relating
to the overrides that he was owed. (Id. ¶ 74.) Shapiro alleges that Enercorp has
not only breached the Collaboration Agreement, but also that Enercorp never
intended to comply with it in the first place. (Id. ¶¶ 75–76.) Additionally, Shapiro
claims that Gates, Turner, and Guenther conspired together to defraud Shapiro by
withholding money due under the Collaboration Agreement and providing him
with false information. (Id. ¶ 77.)
A proper pleading under the Federal Rules of Civil Procedure must
contain a “short and plain statement of the claim showing that the pleader is
entitled to relief.” Fed. R. Civ. P. 8(a)(2). “[T]he pleading standard Rule 8
announces does not require ‘detailed factual allegations,’ but it demands more than
an unadorned, the-defendant-unlawfully-harmed-me accusation.” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). The complaint must contain more than
mere “labels and conclusions” or “a formulaic recitation of the elements of a cause
of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S.
In reviewing a motion to dismiss, the Court accepts as true all of the
well-pleaded factual allegations in the complaint. See id. at 678.
In order to survive a motion to dismiss, a claim must allege “enough
facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at
547. “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Iqbal, 556 U.S. at 677.
In adjudicating a motion to dismiss, the Court considers only the
pleadings and those matters of which it may take judicial notice under Rule 201 of
the Federal Rules of Evidence. Lovelace v. Software Spectrum Inc., 78 F.3d 1015,
1018–19 (5th Cir. 1996) (adopting a rule that a court in a securities fraud action
may take judicial notice of relevant public disclosure documents required to be
filed with the SEC); Hurd v. BAC Home Loans Servicing, LP, 880 F.Supp. 2d 747,
758 (N.D. Tex. 2012) (taking judicial notice of matters of public record and
considering documents attached to a motion to dismiss as part of the pleadings
because they were central to the claims in the complaint).
Additionally, when a party alleges fraud, the complaint must meet the
heightened pleading standards set forth in Federal Rule of Civil Procedure 9(b).
Rule 9(b) requires that a party pleading fraud or mistake “must state with
particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b).
Local Rule CV-7(e)(2)
The Court first notes that pursuant to Local Rule 7(e)(2), “[i]f there is
no response filed within the time period prescribed by this rule, the court may grant
the motion as unopposed.” W.D. Tex. Civ. R. 7(e)(2). Plaintiffs never filed a
Response, let alone within the fourteen days permitted by the local rule.
Nonetheless, the Court will independently examine the merits of Defendant’s
Motion to Dismiss.
Motions to Dismiss
Enercorp, Gates, and Gunther have moved to dismiss the sixth cause
of action in the Shapiro Complaint—Civil Conspiracy to Commit Fraud. (Dkt.
## 44, 46, 48.) A pleading alleging civil conspiracy to commit fraud must meet the
heightened pleading standard of Federal Rule of Civil Procedure 9(b). Castillo v.
First City Bancorporation of Texas, Inc., 43 F.3d 953, 961 (5th Cir. 1994).
The Bakken Complaint alleges that (1) Enercorp, Gates, Turner, and
Gunther “formed a conspiracy to defraud Shapiro from monies owed to him under
the Collaboration Agreement;” (2) Enercorp, Gates, Turner, and Gunther “meet on
a monthly basis to discuss the business of [Enercorp]”; (3) Enercorp, Gates,
Turner, and Gunther “conspired to provide materially false information to Shapiro
with the intent that Shapiro [would] be deceived about the amount of money owed
to him;” (4) “materially false information [was] given to Shapiro to induce Shapiro
to believe that Shapiro is owed less money than he actually is;” (5) Enercorp,
Gates, Turner, and Gunther knew of the conspiracy and participated in it; (6)
Enercorp and Gates then communicated the information to Shapiro in furtherance
of the conspiracy knowing it was false or with reckless disregard for its veracity;
and (7) Enercorp and Gates intended Shapiro to rely on it, and Shapiro did rely on
it, and was damaged. (Compl. ¶¶ 141–150.)
“[A] plaintiff alleging a conspiracy to commit fraud must plead with
particularity the conspiracy as well as the overt acts . . . taken in furtherance of the
conspiracy.” Davis v. Karl, No. 10–875, 2010 WL 3312587, at *3 (E.D. La. Aug.
19, 2010); Sullivan v. Leor Energy, LLC, 600 F.3d 542, 550–551 (5th Cir. 2010)
(applying the heightened pleading requirements of Rule 9(b) to state law claims for
fraud). “To establish a civil conspiracy to commit fraud, [a party] must establish
(1) a combination of two or more persons; (2) seeking to accomplish an unlawful
purpose or a lawful purpose by unlawful means; (3) having a meeting of minds on
the object or course of action; (4) who commit one or more unlawful, overt acts;
(5) proximately resulting in damages.” Van Duzer v. U.S. Bank Nat. Ass’n, ---F.
Supp. 2d ----, 2014 WL 357878, at *15 (S.D. Tex. Jan. 31, 2014); P. McGregor
Enterprises, Inc. v. Hicks Const. Group, LLC, 420 S.W.3d 45, 52 (Tex. App. 2012)
(“A conspiracy to defraud on the part of two or more persons means a common
purpose, supported by a concerted action to defraud, that each has the intent to do
it, and that it is common to each of them, and each has the understanding that the
other has that purpose.” (internal quotation marks omitted)).
The Bakken Complaint does not meet the heightened pleading
standards required by Rule 9(b). First, the Bakken Complaint alleges that the
monthly meetings of Enercorp, Gates, Turner, and Gunther to discuss Enercorp’s
business was an overt act in furtherance of the conspiracy. (Compl. ¶ 143.) It is
unclear how Enercorp could attend the meeting owing to the fact it is a legal entity;
nonetheless, the fact these individuals met to discuss Enercorp’s business does not
support a claim for conspiracy to commit fraud. Rather, the allegation indicates
that these meetings were, in fact, business meetings. The Bakken Complaint does
not plead any facts supporting a conspiracy to commit an unlawful act or a meeting
of the minds on the object of the conspiracy or course of action.
Second, the Bakken Complaint alleges that Enercorp, Gates, Turner,
and Gunther conspired to provide Shapiro with material information they knew to
be false (or recklessly disregarded the possibility it was false) with the intention
that he rely on it. (Id. ¶¶ 144–45.) This claim fails to satisfy the heightened
pleading requirements of Rule 9(b). The Bakken Complaint’s allegation is
disturbingly vague—he only claims that Enercorp, Gates, Turner, and Gunther
provided “materially false information” that induced Shapiro to believe he was
owed less money. (Id. ¶ 145.) The Bakken Complaint makes no mention of the
type of information this was, what form he received it in, or even who specifically
provided it to him.
The Bakken Complaint fails to plead the required elements of civil
conspiracy to commit fraud with sufficient particularity under Rule 9(b) to
withstand a motion to dismiss. The Bakken Complaint lacks any facts supporting a
meeting of the minds and does not plead with particularity any overt act taken in
furtherance of the alleged conspiracy. Therefore, the Court GRANTS the Motions
to Dismiss (Dkt. ## 44, 46, 48).
For the reasons stated above, the Court GRANTS Enercorp’s Motion
to Dismiss the Sixth Cause of Action for Civil Conspiracy to Commit Fraud (Dkt.
# 44), GRANTS Gates’ Motion to Dismiss the Sixth Cause of Action for Civil
Conspiracy to Commit Fraud (Dkt. # 46), and GRANTS Gunther’s Motion to
Dismiss the Sixth Cause of Action for Civil Conspiracy to Commit Fraud (Dkt.
IT IS SO ORDERED.
DATED: San Antonio, Texas, April 15, 2014.
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