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

United States District Court, W.D. Louisiana

September 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 are the Motion to Compel Discovery Responses from Mack Energy Company (“Mack”) (Rec. Doc. 220) and the Motion to Compel Discovery Responses from Red Stick Energy, L.L.C. (“Red Stick”) (Rec. Doc. 219), both filed by Main Pass 21, L.L.C. (“Main Pass 21”), Albert W. Gunther, Jr. (“Gunther Jr.”), Natrona Resources, L.L.C. (“Natrona”), Dixie Management Services, L.L.C. (“Dixie”), The RE Trust (“RE Trust”), Old South Mechanical, L.L.C. (“OSM”), Old South Ventures, L.L.C. (“OSV”), and Albert W. Gunther, III (“Gunther III” and with Main Pass 21, Gunther Jr., Natrona, Dixie, RE Trust, OSM, and OSV (the “Gunther Parties”). The motions have been submitted on the briefs. For the following reasons, the motions are GRANTED in part and DENIED in part.

         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 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. Mack claims it was unwilling to agree to act as operator until that remaining interest was purchased and it 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 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.

         Mack says that Houston Energy 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.[1] 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 to Mack, 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 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 have 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 and Gunther Jr. is responsible for funding 90% of Main Pass.

         Mack says that it believes Main Pass was formed on December 16, 2015, before the PA and JOA were executed. Mack says that Main Pass paid it $830, 602.75, on December 23, 2015, and that Main Pass paid Houston Energy $109, 285.52 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.”

         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. After four prior amendments (resulting in the joinder of Dixie, Natrona, OSM, OSV, Gunther III, and RE Trust, each alleged to be a member of Main Pass or a member of their members), Mack’s Fifth Superseding and Amended Complaint, filed on June 18, 2019, now names only Red Stick, Main Pass, and Gunther Jr. as defendants. 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.”

         Red Stick has asserted a Third-Party Complaint against the Gunther Parties, alleging that they 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, they assert a claim for detrimental reliance. Red Stick also asserts that Gunther Jr. and the Gunther Entities improperly used the Gunther Entities and Main Pass to perpetrate a fraud on Red Stick and that the Gunther Entities are so unified with each other that their misuse of the corporate form requires that 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.

         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 filed its Answer on July 8, 2019.

         Meanwhile, on October 16, 2018, Mack 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, and 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.

         The Gunther Parties filed a motion for summary judgment arguing that the settlement agreement created a right of litigious redemption[2] under Louisiana law such that the Gunther Parties could extinguish their debt to Red Stick by paying to Mack the attorneys’ fees and costs incurred by Mack for its representation of Red Stick and Burnett from the date of the assignment (October 16, 2018) to the date of demand for litigious redemption (November 12, 2018). The district court agreed that Red Stick and Burnett had assigned “litigious rights” and found that the Gunther Parties were prompt in making known their intent to exercise the right of litigious redemption. (Rec. Doc. 137). However, the court denied the motion for summary judgment, rejecting the Gunther Parties’ argument that the price Mack paid for the litigious rights was ...


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