BAKER v. PFEIFER No. C2-94-099.
940 F.Supp. 1168 (1996)
Harold D. BAKER, et al., Plaintiffs, v. Herbert J. PFEIFER, et al., Defendants.
United States District Court, S.D. Ohio, Eastern Division.
September 20, 1996.
John Hamrick Burtch, Baker & Hostetler, Columbus, OH, for Harold D. Baker, M. Curtiss McKee, Emile C. Ott.
Laurence Edward Sturtz, Carlile, Patchen & Murphy, Columbus, OH, for Herbert J. Pfeifer, Tiger Oil, Inc.
Thomas Michael Tyack, Tyack & Blackmore Co. L.P.A., Columbus, OH, for Henrietta Pfeifer.
Thomas Michael Tyack, Tyack & Blackmore Co., L.P.A., Columbus, OH, for MidOhio Historical Museum Inc., Gerald Pfeifer.
Thomas Michael Tyack, Tyack & Blackmore Co., L.P.A., Columbus, OH, John Henry Pettorini, Lancaster, OH, for J & P Oil Corp.
OPINION AND ORDER
DLOTT, District Judge.
This matter is before the Court on Defendants' Motions for Summary Judgment (Doc. Nos. 82, 83, and 84). The parties appeared for oral argument on May 9, 1996. Having considered the arguments and the law in this case, the Court hereby
Plaintiffs Harold D. Baker, Emile C. Ott and M. Curtiss McKee are Mississippi residents who invested in oil and gas wells in Ohio. The Complaint names the following
During the 1970's and 1980's, Plaintiff Harold Baker entered into a series of oil and gas "Development Agreements" with Tiger. Under these agreements, Baker
Plaintiffs now allege that Defendants engaged in several fraudulent schemes in connection with Plaintiffs' investments and participation in the Development Agreements.
First, Plaintiffs allege that Tiger engaged in a scheme to understate the amount of gas and oil produced by the wells while, at the same time, overstating the costs associated with operating the wells. This allegedly allowed Defendants to understate profits and reduce revenue payments to Plaintiffs under the Development Agreements. Compl. at ¶ 16.
Second, Plaintiffs allege that Tiger intentionally caused the wells to underproduce in order to induce Plaintiffs to reassign their interests in the wells. Specifically, Plaintiffs contend that Herbert and Tiger falsely stated that certain wells had reached their economic limits and could no longer be operated profitably. Therefore, Herbert informed them, Tiger was assigning its interests in the wells to Mid-Ohio, the non-profit doll museum. Based on this information, Plaintiffs also decided to assign their interests in the wells to Mid-Ohio. Tiger, however, never transferred its interests in the wells. Instead, Plaintiffs allege that Tiger continues to operate the wells and that production increased after Plaintiffs parted with their interests in the wells. Compl. at ¶¶ 17-23.
Plaintiffs also claim that Defendants fraudulently induced them to assign their interests in some of the wells to J & P. According to Plaintiffs, Tiger informed them that J & P was in the business of reclaiming and plugging spent natural gas wells. Herbert Pfeifer advised them to assign their interests in the spent wells to J & P rather than paying to plug and shutdown the wells themselves. What Herbert did not say, however, was that Herbert and Gerald owned J & P and that Plaintiffs, therefore, were transferring their interests to Herbert and Gerald. Further, the Complaint alleges that Tiger Oil continues to operate these wells, producing gas revenues for itself. See Compl. at ¶¶ 26-27.
Plaintiffs further allege that Tiger failed to file production reports with the State in order to conceal the above misconduct. According to Plaintiffs, these reports would have demonstrated that the wells were in fact still productive and economically viable after Plaintiffs assigned their interests to the various Defendants. Compl. at ¶ 28.
Third, Plaintiffs allege that Defendants engaged in fraud in connection with two natural gas leases in Washington County: the Stockport Sand & Gravel Lease and the Schott Unit Lease. According to the Plaintiffs, in 1978, Baker entered into a Development Agreement with Tiger, in which he would
Fourth, in 1986 Baker paid Tiger $30,000 for working interests in three 40 acre leaseholds with one well to be drilled on each parcel (the "Lowell Area Leases"). Tiger owned an additional 700 acres adjacent to these leaseholds. Baker alleges that Herbert agreed 1) that Tiger would not drill any wells within 2,000 feet of Baker's leaseholds and 2) that Baker would have a right of first refusal to participate equally in any wells developed by Tiger on the 700 acres. Notwithstanding these promises, however, Tiger drilled wells on the 700 acres without offering Plaintiffs the right to participate in the operation of these wells. See Compl. at ¶¶ 32-33.
Fifth and finally, in 1989 Tiger and Baker (among others) were sued by East Ohio Coal Co. ("East Ohio"). East Ohio claimed that it had a 50% working interest in two wells that Tiger had developed. Tiger had assigned working interests in those wells to Baker. Allegedly in reliance on Tiger's promise to defend his interests and to account for any proceeds from the wells, Baker transferred his interests in the wells to Tiger during the pendency of the litigation. Upon settlement of the litigation, Tiger failed to give Baker his share of the settlement proceeds. Tiger also failed to pay Baker for certain equipment that was attached to the wells. Compl. at ¶ 35.
Plaintiffs assert that they first discovered that Defendants had defrauded them during the summer of 1992. At that time, Tiger was negotiating the sale of several wells to K Petroleum. K Petroleum contacted Baker regarding his apparent interests in some of these wells. This contact apparently caused Plaintiffs to question their dealings with Defendants and to launch an investigation. Compl. at ¶ 36. Plaintiffs commenced this litigation on February 2, 1994, asserting causes of action for, inter alia,
A. THE THIRTEENTH CLAIM FOR RELIEF — RULE 10b-5.
Defendants first argue that Plaintiffs' Thirteenth Claim for Relief, for violations of S.E.C. Rule 10b-5, is time-barred and therefore must be dismissed.
Claims for securities fraud pursuant to § 10b of the Securities Exchange Act of 1934 and Rule 10b-5 must be brought within one year of discovery and, in any, case no more than three years after the violation. Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 364, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991). Plaintiffs do not dispute that they discovered the fraud underlying their Rule 10b-5 claim approximately fourteen months before they commenced this litigation. Accordingly, Plaintiffs' Rule 10b-5 claim is time-barred and Defendants' motion for summary judgment is
B. THE FOURTEENTH AND FIFTEENTH CLAIMS FOR RELIEF — RICO AND CONSPIRACY TO VIOLATE RICO.
1. The Private Securities Litigation Reform Act of 1995.
On December 22, 1995, Congress enacted the Private Securities Litigation Reform Act of 1995 (the "Securities Reform Act") which amended numerous portions of the Securities Act of 1933 (the "1933 Act") and the Securities Exchange Act of 1934 (the "1934 Act"). The legislation, which was "prompted by significant evidence of abuse in private securities lawsuits ... implement[ed] needed procedural protections to discourage frivolous litigation." H.R.Conf.Rep. No. 369, 104th Cong., 1st Sess. 31-32 (1995) [hereinafter "H.R.Conf.Rep."]; see also In re Prudential Securities Incorporated Limited Partnerships Litigation, 930 F.Supp. 68, 77 (S.D.N.Y.1996) ("The new law is designed to protect corporations against the filing of frivolous securities actions.") (hereinafter Prudential Securities). Among other things, the Securities Reform Act strengthened pleading requirements for securities fraud claims and significantly altered the rules governing the conduct of private class action litigation.
In addition to redrafting numerous aspects of the 1933 and 1934 Acts, Congress also included § 107, which amended a portion of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961, et seq. (The Court will refer to the amendments contained in § 107 as the "RICO Amendments.") The RICO Amendments were an attempt to close what Congress perceived as a loophole in the former version of RICO.
In light of the RICO Amendments, Defendants argue that Plaintiffs' RICO claims, which allege a pattern of racketeering based on securities fraud, are no longer viable and must be dismissed. That is, Defendants argue that the RICO Amendments should be applied retroactively to all claims pending on December 22, 1995. Plaintiffs concede that, if the RICO Amendments are applied retroactively, their RICO claims must fail because they have only pled predicate acts of securities fraud. Plaintiffs, however, argue that the Court should not apply the RICO Amendments retroactively.
It is well-established that, as a general rule, legislation will not be given retrospective application absent a clear expression of Congress' intent that the statute should be so applied. See e.g., Landgraf v. USI Film Prod., 511 U.S. 244, ___, 114 S.Ct. 1483, 1497, 128 L.Ed.2d 229 (1994) ("the presumption against retroactive legislation is deeply rooted in our jurisprudence, and embodies a legal doctrine centuries older than our Republic.").
The first step in determining whether or not a statute should be given retroactive application is to examine the terms of the statute "to determine whether Congress has expressly prescribed the statute's proper reach." Landgraf, 511 U.S. at ___, 114 S.Ct. at 1505. If Congress did not express clearly its intent regarding the prospective or retrospective application of the statute, the court must then resort to certain judicial default rules to determine whether or not the statute should be applied retroactively. Id. In particular, "the court must determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." Id. If the statute would have a retroactive effect, the general presumption against retroactively applies, the court must find that the statute has only prospective application. Id. If, however, the new statute confers or ousts jurisdiction, or changes procedural rules, the court need not apply the general presumption in favor of
Thus, the Court first must examine the Securities Reform Act "to determine whether Congress has expressly prescribed the statute's proper reach." Id. at ___, 114 S.Ct. at 1505. The RICO Amendments themselves do not address their prospective or retrospective applicability. The Securities Reform Act, however, does include a section entitled "Applicability", which expressly addresses Congress's intent that the amendments to the 1933 and the 1934 Acts should be applied prospectively only. Specifically, Section 108 of the Act states that
Section 108 (Pub.L. No. 104-67, 109 Stat. 737, 758 (Dec. 22, 1995)). While this section makes it clear that Congress did not intend the Securities Reform Act to be applied retrospectively to actions brought under the securities laws, it is silent as to the potential retroactivity of the RICO Amendments.
Defendants nevertheless argue that § 108 indicates that Congress intended the RICO Amendments to apply retrospectively, that is to cases pending on December 22, 1995. Defendants argue that "[i]f Congress had intended for RICO claims to be excepted from the retroactive application of the new statute, then certainly it would have added language which would have excepted causes of action brought under" RICO in section 108. Mtn. for Summary Judgment of Herbert Pfeifer and Tiger Oil at 18 ("Tiger Mtn."). Because § 108 only demands prospectivity with respect to claims brought under the 1933 and 1934 Acts, Defendants argue that Congress must have intended for the Act to be given retroactive application with respect to non-securities claims, such as claims brought under RICO.
Defendants further rely on the canon of statutory construction known as expressio unius est exclusio alterius — the expression of one thing is the exclusion of another. That is, Defendants argue that because Congress specifically listed those portions of the Securities Reform Act that should be given prospective application, its failure to include the RICO Amendments in this list must signify that Congress did not intend the RICO Amendments to be applied prospectively. Retroactivity, according to Defendants, is the only other option.
A similar argument was made and rejected in Landgraf,
Likewise, the two courts that have addressed the asserted retroactivity of the RICO Amendments have also rejected this argument. See District 65 Retirement Trust for Members of the Bureau of Wholesale Sales Representatives v. Prudential Securities, Inc., 925 F.Supp. 1551, 1569 (N.D.Ga. 1996) [hereinafter District 65]; Prudential Securities, 930 F.Supp. at 80-81. In both cases, the district court refused to adopt defendants' proposed negative inference. Instead, as Judge Pollack explained in Prudential Securities,
Prudential Securities, 930 F.Supp. at 81.
This Court agrees with the trailblazing judges in District 65 and Prudential Securities. As in Landgraf, it is unlikely that Congress chose to indicate its desire for retroactive application of the RICO Amendments — which will likely affect hundreds of pending cases — by such a roundabout method. Indeed, given the default rule in favor of prospective application, see infra at 1178-1179, it strains logic to argue that this "negative inference" creates the necessary express statement in favor of retroactivity.
Defendants further rely upon their interpretation of the legislative history of the Securities Reform Act — and in particular the RICO Amendments — to impart the necessary clear expression of Congressional intent. Such a reliance on the statements of legislators in the heat of battle, however, is fraught with difficulties.
As a starting point, the Court observes that Defendants have not cited to anything in the legislative history that expressly addresses the retrospective or prospective application of this statute. Instead, the cornerstone of Defendants' legislative history argument is the comments of Representative McCollum, who spoke in favor of the bill. Mr. McCollum stated, inter alia, that
Pl.Exh.B. at 108.
Further, Mr. McCollum's statement that the RICO Amendments would "restor[e] the civil RICO statute to the uses that Congress intended...." does not provide the required explicit statement of intent. It simply expresses Congress's desire to change the course of RICO litigation. Whether these changes should apply to cases already pending on the date of enactment is a wholly separate matter. See Rivers v. Roadway Express, Inc., 511 U.S. 298, ___ - ___, n. 7, 114 S.Ct. 1510, 1516-17, n. 7, 128 L.Ed.2d 274 (1994) ("We do not suggest that Congress's use of the word `restore' necessarily bespeaks an intent to restore retroactively. ... Instead, `to restore' might sensibly be read as meaning `to correct, from now on.'") (emphasis in original); DeVargas v. Mason & Hanger-Silas Mason, Co., Inc., 911 F.2d 1377, 1385 (10th Cir.1990) (finding Congress' statement that it intended to "`restore' section 504 [of the Rehabilitation Act of 1973] to its pre-Grove City College [v. Bell, 465 U.S. 555, 104 S.Ct. 1211, 79 L.Ed.2d 516] [(1984)] interpretation" was not a clear expression that Congress intended the amendment to be applied retroactively). As the DeVargas court explained, "an ambiguous statement in the Senate report on the need for action does not amount to the clear intent required to invoke retroactivity." Id. at 1386.
Likewise, the procedural history surrounding the inclusion of the RICO Amendments in the Securities Reform Act militates against a finding that Congress considered and affirmatively decided to create legislation that would be applied retrospectively. To the contrary, the legislative history indicates that the RICO Amendments were an eleventh hour addition to the Securities Reform Act. Prudential Securities, 930 F.Supp. at 78 (discussing the genesis of the RICO Amendments and noting that the "Committee on Rules [had] a special hearing last night to put in order a nongermane amendment to a piece of legislation that has nothing to do with the business, ..."). The RICO Amendments did not go through the normal legislative hearings process and were not subject to the usual level of discussion. Pl.Exh.B. at 109 ("We are amending a statute ... without ever having a word of hearings or a bit of evidence or testimony taken on the subject ...") (comments of Mr. Dingell).
The late inclusion of the RICO Amendments makes this Court even less inclined to find that Congress was expressing a desire that the RICO Amendments be applied retrospectively. To the contrary, this history of eleventh hour additions to the Act detracts from Defendants' negative inference argument.
In this case, the RICO Amendments operate retroactively by impairing a right that the Plaintiffs possessed when they acted.
Defendants, nevertheless, argue that the presumption against retroactivity does not apply because the RICO Amendments constitute a mere procedural change. This contention takes an overly cramped view of the meaning of the RICO Amendments. Defendants base this argument on their belief that the impetus driving the RICO claims in this case is Plaintiffs' desire for attorney's fees — which Plaintiffs could not obtain if they had pursued their claims under the securities laws. Whether or not this is what is motivating these Plaintiffs is a matter that is in dispute and is of little concern to the Court. The determination of whether the RICO Amendments have retroactive application must be driven by the effect of the law in all cases, not simply by the underlying motivations of one set of litigants. Simply because, in this case, RICO claims may (or may not) have been added to the Complaint solely in order to enable the Plaintiffs to obtain attorney's fees does not mean that the amendment of the statute will always have such an effect.
Given that the RICO Amendments operate retroactively, Landgraf teaches that the Court should apply the general presumption against retroactive application of statutes, absent a clear statement from Congress that it intends retroactive application. As the Court has already explained, Congress did not include such a clear statement in the RICO Amendments. Accordingly, the Court finds that the RICO Amendments should be applied prospectively only and will not act to divest Plaintiffs of their RICO claims in this case. Defendants' motion for summary judgment with respect to this argument is therefore
2. Statute of Limitations.
Even if Plaintiffs' RICO claims were not retroactively vitiated by the RICO Amendments, Defendants argue that Plaintiffs' RICO claims must be dismissed as time-barred. Specifically, Defendants argue that, because the predicate acts of securities
Defendants' position misapprehends the law in this matter. Civil RICO claims are subject to a four year statute of limitations. Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483 U.S. 143, 156, 107 S.Ct. 2759, 2767, 97 L.Ed.2d 121 (1987). A RICO claim "accrues when `the plaintiff knew or should have known of the last injury or the last predicate act which is part of the same pattern of racketeering.'" Gurfein v. Sovereign Group, 826 F.Supp. 890, 909 (E.D.Pa.1993). The fact that one or more of the predicate acts that constitute the pattern of racketeering activity are themselves time-barred — and thus cannot support an independent claim for relief — is of no consequence.
Id., n. 23 (quoting Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 925 (3d Cir.1992)). Here, Plaintiffs allege — and for the purposes of this motion Defendants do not dispute — that they first discovered the alleged fraud underlying their RICO claims in the summer of 1992, less than two years before they commenced this litigation. Accordingly, notwithstanding the fact that their Rule 10b-5 claim is time-barred, Plaintiffs' RICO claims were brought within the limitations period and are therefore timely. Accordingly, Defendants' motion for summary judgment on this ground is
C. THE SIXTEENTH AND SEVENTEENTH CLAIMS FOR RELIEF — THE OHIO CORRUPT ACTIVITIES ACT.
1. Statute of Limitations.
Defendants next argue that the Sixteenth and Seventeenth Claims for Relief, for violations of the Ohio Corrupt Activities Act, are also (in part) time-barred. The Ohio Corrupt Activities Act, R.C. § 2923.31 et seq., prohibits racketeering activity much as the federal RICO Act does. Section 2923.34(K) of the Act provides that
R.C. § 2923.34(K).
Defendants argue that, with respect to the transactions that occurred in 1983 and 1986 (the "1983 and 1986 Wells"), Plaintiffs' claims are time-barred because the allegedly unlawful conduct terminated more than five years before Plaintiffs commenced this litigation. Defendants' position on this point appears to be somewhat disingenuous. As Plaintiffs correctly note, the plain language of § 2923.34(K) permits a plaintiff to commence litigation within either five years of the termination of the wrongful conduct or five years after the cause of action accrued. R.C. § 2923.34(K). Plaintiffs argue that their claims for relief accrued in 1992 when they discovered Defendants' fraud.
No Ohio court has directly addressed when a claim accrues under the Ohio Corrupt Activities Act. In fact, the only case that addresses the statute of limitations provisions of the Ohio Corrupt Activities Act at all, does so in dicta. See Cincinnati Gas & Elec. Co. v. General Elec. Co., 656 F.Supp. 49, 80-81 (S.D.Ohio 1986). In Cincinnati Gas & Elec., Judge Spiegel briefly analyzed the limitations periods in § 2923.34(K) in order to determine when a federal RICO cause of action "accrues." The court held that "the statute begins to run [on a federal RICO claim] from the time the plaintiffs knew or should have known of the fraud because it is
Further, under Ohio law a cause of action for fraud does not accrue — triggering the beginning of the limitations period — "until the fraud is discovered." R.C. § 2305.09; see also Burr v. Stark Cty.Bd. of Commrs., 23 Ohio St.3d 69, 76, 491 N.E.2d 1101 (1986) ("[t]he cause does not accrue until the fraud and wrongdoer are actually discovered"). Given that various forms of fraud — such as mail fraud and wire fraud — serve as the underlying predicate acts for racketeering claims under the Ohio Corrupt Activities Act, it seems likely that the General Assembly intended to include a discovery and accrual rule similar to the one that is applied to general fraud claims.
Moreover, Defendants' argument would render the second portion of the limitations provision mere surplusage. Section 2923.34(K) provides two possible events that may trigger the running of the limitations period — the termination of the unlawful conduct or the accrual of the cause of action. If, as Defendants seem to argue, the cause of action must begin to accrue when the wrongful conduct terminates, there would be no reason for the General Assembly to have included the second possible triggering event — the accrual of the cause of action.
It appears that an Ohio court would apply a form of the discovery rule applied to fraud cases and hold that a claim for relief under the Ohio Corrupt Activities Act accrues — triggering the running of the limitations period — when the fraud or wrongful conduct has been or should have been discovered. Accordingly, there is at least a dispute of fact as to whether Plaintiffs' claims under the Ohio Corrupt Activities Act were brought within the limitations period.
2. The Merits.
Defendants further argue that summary judgment on these claims is appropriate because Plaintiffs cannot produce any evidence to establish that Defendants committed the alleged predicate acts. Ohio Revised Code § 2923.34(B) provides that a private party seeking to recover under the Ohio Corrupt Activities Act must allege a pattern of corrupt activity that includes at least one predicate act that is not a form of securities fraud, mail or wire fraud, or the interstate transportation of stolen property or securities. R.C. § 2923.34(B).
The Court finds that Plaintiffs have produced sufficient evidence to create a dispute of fact as to their claim of theft by deception. In particular, Plaintiffs point to their allegations and the supporting evidence regarding the alleged fraud in connection with the Stockport Sand & Gravel and the Schott Unit Leases. As the Court explains more fully infra, the evidence is in dispute as to whether the Development Agreement required Defendants to transfer to Plaintiffs an interest in the entire approximately 150 acres of the two leases, or instead in a smaller 80 acre parcel. Accordingly, summary judgment is inappropriate and Defendants' motion is
D. THE FIRST THROUGH TWELFTH CLAIMS FOR RELIEF — BREACH OF CONTRACT, FRAUD AND BREACH OF FIDUCIARY DUTY.
Defendants next argue that the First through Twelfth Claims for Relief are all time-barred. In particular, Defendants
Ohio R.C. § 1707.43. Defendants argue that § 1707.43 applies to Plaintiffs' claims for breach of contract, breach of fiduciary duty and fraud because all of these claims arise from the sale of securities. Plaintiffs, on the other hand, argue that these claims are not barred by § 1707.43 because that section applies only to claims of fraud made by purchasers of securities and not claims by defrauded sellers.
Ohio Revised Code Section 1707.43 applies to claims arising out of sales contracts made in violation of Chapter 1707 of the Revised Code. The parties do not dispute that Chapter 1707 does not address fraud by a purchaser of securities, but instead is limited to fraud by a seller. Further, the plain language of the statute emphasizes its role of protecting purchasers from fraudulent sales. Indeed, § 1707.43 is entitled "Remedies of purchaser in unlawful sale". R.C. § 1707.43 (emphasis added). Likewise, the limitations provisions apply to "action[s] for the recovery of the purchase price as provided for in this section ..." and "action[s] for any recovery based upon or arising out of a sale or contract for sale made in violation of Chapter 1707 ..." R.C. § 1707.43.
In addition, at least one appellate court has refused to apply this section to a claim by a seller of securities that he was defrauded by the purchaser. In Plantation Hous. Partners Ltd. v. Lindsey, 1991 WL 34726 (Cuyahoga Cty 1991), Plantation sued the purchaser of a limited partnership interest for money due on three promissory notes. The defendant raised the statute of limitations set forth in § 1707.43 as a defense. The Court of Appeals affirmed the trial court's holding that this section did not apply to claims by a defrauded seller. The Court explained that
Id. at *4; see also Toledo Trust Co. v. Nye, 392 F.Supp. 484, 491 (N.D.Ohio 1975) ("It is clear after examining the statutory scheme that the Ohio Blue Sky Law has no provision for the action complained of by the plaintiff, which is an action by a seller claiming fraud by a purchaser in the sale of a security").
Defendants rely on Hater v. Gradison Div. of McDonald & Co. Sec., Inc., 101 Ohio App.3d 99, 655 N.E.2d 189 (Hamilton Cty 1995), to support their argument that the Ohio Blue Sky limitations period should be applied to Plaintiffs' claims in this case. In Hater, however, plaintiffs were the purchasers of the securities, as opposed to the sellers. Thus, the only question at issue in Hater was whether the provisions of § 1707.43 applied to a purchaser's common law fraud claims.
This Court agrees with the Plantation Housing Partners Court that the two year statute of limitations found in the Ohio Blue Sky law does not apply to the claims of a defrauded seller. Thus, the limitations periods that would normally apply to claims for common law breach of contract, fraud and breach of fiduciary duty will be applied in this case.
E. THE FOURTH CLAIM FOR RELIEF — FRAUD IN CONNECTION WITH THE UNDERPRODUCTION OF WELLS
Plaintiffs' Fourth Claim for Relief alleges that Defendants deliberately and falsely stated that certain of the wells were no longer economically viable in an attempt to induce Plaintiffs to assign their interests to Mid-Ohio and J & P. Compl. ¶¶ 48-49. In addition, Plaintiffs allege that Defendants in fact "caused Tiger Oil to underproduce the wells prior to Plaintiffs' assignments of their respective interests...." Compl. ¶ 48. Defendants now move for summary judgment on the basis that Plaintiffs have no evidence to support their claims of deliberate underproduction.
In support of their claim, Plaintiffs offer production records for two wells, the No. 5 Chickwak well and the Chickwak-Saling No. 3 well. Pl.Exhs. E1 and E2. These records show that the production levels from the wells steadily decreased prior to Plaintiffs' transfer of their interests. After Plaintiffs had transferred their interests, however, the production figures for these wells appear to have increased. Plaintiffs argue that, based on these figures, a rational jury could determine that Defendants intentionally depressed the production levels for these wells until after Plaintiffs had parted with their interests in the wells. Defendants counter that Plaintiffs are reading too much into these figures. Defendants explain that in fact, the apparent rise in production is basically an accounting matter, due to a change in the way that the production from these wells was metered after Plaintiffs parted with their interests in the wells.
This difference of opinion regarding the meaning of the production figures demonstrates that summary judgment is not appropriate at this juncture. Clearly there is a dispute of fact as to whether the increase in production after Plaintiffs had parted with their interests was the result of fraud or a different manner for metering the wells. Accordingly, Defendants' motion for summary judgment on this claim is
F. THE SECOND AND ELEVENTH CLAIMS FOR RELIEF — BREACH OF CONTRACT AND FRAUD.
Plaintiffs' Second and Eleventh Claims for Relief allege breach of contract and fraud (respectively) in connection with Defendants' alleged failure to make royalty payments. Defendants move for summary judgment on the basis that Plaintiffs have no evidence to support their contention that Defendants failed to make any payments owed to Plaintiffs. Plaintiffs' response to this argument demonstrates the fundamental error of believing that less is more when opposing a motion for summary judgment. That is, Plaintiffs contend that "there will be evidence from Tiger's own production records of months of production which Plaintiffs were entitled to and for which they were never paid." Opp. to Tiger Mtn. at 23 (emphasis added). Plaintiffs, however, did not produce any of this evidence in opposition to the motion. Accordingly the Court will
G. THE SIXTH, SEVENTH AND EIGHTH CLAIMS FOR RELIEF — BREACH OF CONTRACT, FRAUD AND BREACH OF FIDUCIARY DUTY IN CONNECTION WITH THE STOCKPORT-SCHOTT DEVELOPMENT AGREEMENT.
Defendants next move for summary judgment on Plaintiffs' Sixth, Seventh and
The Sixth, Seventh and Eighth claims for relief relate to Plaintiffs' investment in two natural gas leases in Washington County: the Stockport Sand & Gravel Lease and the Schott Unit Lease. According to Plaintiffs, in 1977 Baker entered into a Development Agreement with Tiger for the drilling and completion of a natural gas well on the Stockport Sand & Gravel Lease and/or the Schott Unit Lease. Together these two leaseholds encompass approximately 150 acres. Plaintiffs argue that under the terms of the Development Agreement, Tiger was to transfer to Baker a 75% interest in the combined 150 acre leases. Instead, however, Tiger assigned to Baker a 75% interest in a smaller 80 acre parcel. Further, Tiger later drilled a second well on land that would have been covered by the 150 acre combined leasehold. Tiger did not share the revenues from this second well with Plaintiffs, as Plaintiffs argue that it should have under the Development Agreement.
The Court finds that a genuine dispute of fact exists as to the size of the leasehold in which Plaintiff had an interest under the Development Agreement. In support of their claims, for example, Plaintiffs point to the language of the drilling agreement which refers to the "Stockport Sand & Schott Unit located in Lot 8, Waterford Township, Washington County, Ohio, consisting of 150 acres more or less." Tiger Mtn., Exh. B-5. Defendants, on the other hand, point to a plat map which describes the Stockport Sand & Schott Unit as an 80 acre unit. Tiger Mtn. Exh. B-3. Defendants downplay the language in the drilling agreement, arguing that the difference in acreage is of no consequence. Nevertheless, a reasonable jury could find, based on the language in the Drilling Agreement, that Defendants were supposed to assign to Baker a 75% interest in the combined 150 acre leasehold. Accordingly, the Court will DENY summary judgment as to these claims.
H. PROPER PARTIES
Defendants Mid-Ohio, Henrietta Pfeifer, J & P and Gerald Pfeifer additionally argue that summary judgment is appropriate on all claims that attempt to charge them with personal liability.
A defendant may be held liable for fraud notwithstanding the fact that the defendant did not himself make the fraudulent statement or omission.
Likewise, the Court finds that there are disputed issues of fact regarding Mid-Ohio's and J & P's participation in and potential liability for frauds committed by Tiger. For example, both Mid-Ohio and J & P were the beneficiaries of the alleged frauds and misconduct. Further, Mid-Ohio and J & P were operated by Henrietta and Gerald Pfeifer (respectively) who were also officers and directors of Tiger Oil. Under these circumstances, a reasonable jury could find that Mid-Ohio and J & P were aware of — and participants in — any misconduct committed by Tiger Oil or Herbert Pfeifer. Accordingly, the Court also will
For the foregoing reasons, the Court hereby
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