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Mack Energy Co. v. Red Stick Energy, L.L.C.

United States District Court, W.D. Louisiana

July 26, 2019

MACK ENERGY CO.
v.
RED STICK ENERGY, L.L.C., ET AL.

         SECTION: “E” (1)

          SUSIE MORGAN JUDGE

          ORDER AND REASONS

          JANIS VAN MEERVELD UNITED STATES MAGISTRATE JUDGE

         Before the Court is the Motion to Compel filed by Mack Energy Co. (Rec. Doc. 177). Oral argument was held on July 24, 2019, and several objections were resolved. The court took under submission the remaining issues concerning whether discovery into the alter ego and corporate veil piercing claims would be allowed. For the following reasons, as to the remaining issues, the Motion is GRANTED.

         Background

         This lawsuit arises out of a contract to acquire and develop an exploratory drilling prospect off the coast of Plaquemines Parish (“Main Pass 21 Prospect”). Houston Energy, L.P. (“Houston Energy”), acquired seismic data covering the Main Pass 21 Prospect, acquired a lease covering the lands in the Main Pass 21 Prospect, and contacted various parties to participate in the prospect. Mack Energy Co. (“Mack”) says it was recruited to participate as the operator under a participation agreement (“PA”) and a joint operating agreement (“JOA”). Under the PA, all of the parties agreed to bear their proportionate share of the cost to acquire the lease and the seismic data, to develop the prospect, and to drill the initial test well. As operator, Mack was responsible to drill the initial well, including paying the costs thereof, which it would invoice to the parties in their proportionate share. Mack claims that when it was first approached by Houston Energy, there was still a 26.5% interest available and that Mack was unwilling to agree to act as operator until that remaining interest was purchased and Mack was satisfied that the purchaser would have sufficient funds to pay their share of the costs. Mack says that Houston Energy represented that Thomas Burnett and Albert W. Gunther, Jr. where interested buyers, had previously participated with Houston Energy in a prospect named Barber's Hill, and that they had timely paid their share of their costs for the Barber's Hill Prospect.

         Citing a December 3, 2015, email, [1] Mack alleges that Gunther, Jr., and Burnett agreed to acquire a 26.5% interest in the Main Pass 21 Prospect. In that email, Burnett writes that he and Gunther, Jr., “have decided to participate in another oil & gas deal together. The test well will spud in December, 2015. Therefore, as soon as possible, we will need to set-up another property specific LLC (MP 21, LLC?) and bank account in identical fashion to the manner in which we set-up the Barber's Hill, LLC.” (Rec. Doc. 191-1). The email is addressed to individuals that Mack describes as Gunther, Jr.'s authorized agents or representatives: Gunther, III; Jill Cxapla, Marshall Hebert, and Donna Begovich. In response, Jill wrote “Bill [Gunther, Jr.] and I discussed setting up the company so I will move forward right away.” Id.

         Mack says that Houston Energy and/or Burnett informed it that Burnett and Gunther, Jr., had agreed to buy the 26.5% interest through an entity to be formed in the future and that the entity would be funded 90% by Gunther, Jr., and 10% by Burnett through his company Red Stick Energy, L.L.C. (“Red Stick”). Due to time constraints and deadlines, Mack says it agreed to allow Red Stick to execute the PA and JOA as buyer of the full 26.5% interest with the understanding that pursuant to an agreement between Red Stick and Gunther, Jr., the 26.5% interest would be assigned to Main Pass 21, LLC (“Main Pass”), the new entity that had not yet been formed. Mack says that attached to the executed PA is an Authority for Expenditures (“AFE”) estimating the cost of a completed initial test well to be $4, 924, 795. According to Mack, by executing the PA, Red Stick agreed to pay $109, 285.25 to Houston Energy, an initial payment of $830, 602.75 towards the cost of drilling the initial test well, and 26.5% of any additional costs incurred to drill and test the initial well and either completing it for production or plugging and abandoning it if it was a dry hole.

         Mack says that it believes Main Pass was formed on December 16, 2015, six days before the PA and JOA were executed by Red Stick. Mack says that Main Pass paid it $830, 602.75 by wire transfer on December 23, 2015, and that Main Pass paid Houston Energy $109, 285.52 by check on January 4, 2016, all pursuant to the PA. Mack asserts on information and belief that the two payments were made from Gunther, Jr.'s personal funds “using Main Pass as a shell to shield Gunther, Jr., from liability under the PA and JOA.” According to the defendants, they have produced documents showing that Main Pass was funded by its members, Red Stick and Natrona Resources, LLC.

         Mack proceeded to drill a test well, which was plugged and abandoned as a dry hole. Mack says the actual cost was less than estimated. It says it invoiced Red Stick for its share of the costs because the assignment from Red Stick to Main Pass had not yet been completed. Mack says a portion of Red Stick's shares of the costs have been paid late and a portion has not been paid at all. Mack sent a written demand to Red Stick on June 20, 2016. Red Stick paid $31, 699.93, which corresponds with 10% of Red Stick's share of costs. Mack says that it was informed by Burnett that pursuant to the agreement between him and Gunther, Jr., Red Stick is only responsible for 10% because Red Stick would assign its interest to Main Pass. It was also told that pursuant to the same agreement, Gunther, Jr., is responsible for funding 90% of Main Pass.

         Mack filed this lawsuit in the Western District of Louisiana on December 8, 2016, against Red Stick, Burnett, and Main Pass, seeking to compel arbitration of the payment dispute. Mack amended its complaint in February 2017, joining Dixie Management Services LLC (“Dixie”) as a defendant and alleging that Dixie Management Services, LLC, was a member of Main Pass. In September 2018, Red Stick and Burnett filed a cross-claim against Main Pass, Dixie and Gunther, Jr. At the same time, Red Stick and Burnett joined Natrona Resources, LLC (“Natrona”), RE Trust[2] (“RE Trust”), Old South Mechanical LLC (“OSM”), Old South Ventures LLC (“OSV” and with Natrona, RE Trust, OSM, and Dixie, the “Gunther Entities”), and Albert W. Gunther, III (“Gunther, III”) as third-party defendants. In these two pleadings, Red Stick alleges that the Gunther Entities have breached their agreement to accept assignment of 90% of the ownership interest in Main Pass and to be responsible for 90% of the drilling costs related to the project. Alternatively, it asserts a claim for detrimental reliance. Red Stick also alleges that Gunther, Jr., and the Gunther Entities improperly used the Gunther Entities and Main Pass to perpetrate a fraud on Red Stick by promising that Main Pass would purchase Red Stick's interests in the Main Pass 21 Prospect without the intent to follow through in the event that the well was a dry hole. It alleges that the Gunther Entities are so unified with each other that their misuse of the corporate form requires that the corporate veil should be pierced and the corporate form should be disregarded. Red Stick alleges that the Gunther Entities have common ownership and management and that they comingle property and assets. Red Stick alleged that the members of Main Pass are Red Stick and Natrona; that the members of Natrona are believed to be RE Trust and/or OSM and/or Gunther, Jr.; that the sole member or trustee of RE Trust is believed to be Gunther Jr.; that OSM's members are believed to be OSV and/or Gunther, Jr., and/or Dixie; that OSV is believed to be the manager of OSM; that OSV's members are believed to include Gunther, Jr., Gunther, III, and Kenneth Keeling and that these three are believed to be the managers of OSV; and that Dixie's sole member and manager is believed to be Gunther, Jr.

         Also, in September 2018, Mack amended its complaint, joining Natrona, RE Trust, OSM, OSV, and Gunther, III, as defendants. After the filing of a motion to dismiss by Gunther, Jr., Gunther, III, and the Gunther Entities and a status conference held by the district court regarding the motion, on May 2019, Mack moved to voluntarily dismiss its breach of contract and piercing the corporate veil claims. Mack also filed an amended complaint naming only Red Stick, Main Pass, and Gunther, Jr., as defendants. The present complaint is Mack's Fifth Superseding and Amended Complaint, filed on June 18, 2019. Mack asserts a claim for breach of the PA and JOA against Red Stick, it asserts a claim for detrimental reliance against Gunther, Jr., and it claims that “Main Pass assumed the obligations of Red Stick under the PA and JOA.” On June 4, 2019, Gunther, Jr., named Houston Energy as a third-party defendant, alleging that Houston Energy was not authorized to make any representations on behalf of Gunther, Jr., personally. Houston Energy has not yet filed responsive pleadings.

         Of some interest to the relevance issues raised by the present motion to compel is the fact that Mack has entered into a settlement agreement with Red Stick, Burnett, and Janet Burnett pursuant to which Red Stick and the Burnetts have (1) assigned to Mack their rights against the Gunther Parties, (2) paid Mack $25, 000, and (3) agreed not to contest a future motion for summary judgment filed by Mack against Red Stick. Mack has agreed (1) to release all claims against the Burnetts, (2) not to execute any judgment against Red Stick and the Burnetts, and (3) to pay the attorneys' fees of Red Stick and Burnett in this litigation.

         Mack filed the present motion to compel against Gunther, Jr., Gunther III, and the Gunther Entities (the “Gunther Parties”). Some of the issues raised were resolved in open court at oral argument on July 24, 2019. The court took under submission the issues raised by Mack's requests for discovery into the alter-ego/corporate veil piercing claim. Among other things, Mack seeks information about the ownership of Main Pass and the Gunther Entities, it seeks information about the funding and transfers to Main Pass and to the Barber's Hill prospect, it seeks information about the assets, liabilities, income sources, and net worth of Main Pass, it seeks the bank statements of Main Pass, Natrona, Dixie, and Gunther, Jr., it seeks tax returns for Main Pass, Gunther, Jr., and the Gunther ...


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