Citations
- 120 F. Supp. 3d 1028
Full opinion text
ORDER GRANTING IN ■ PART AND DENYING IN PART DEFENDANT LEE SONNIER’S MOTION TO DISMISS SECOND AMENDED COMPLAINT [67]
STEPHEN V. WILSON United States District Judge
I. INTRODUCTION
This case arises from Plaintiffs’ investments in oil, gas, and mineral royalty and leasehold interests (“OGM Royalty Interests”) — allegedly made with and through Defendants. Plaintiffs assert that Defendants’ slick talking induced Plaintiffs to pump money into purportedly misrepresented investment opportunities.
■ On May 9, 2013, Plaintiffs filed suit in this Court. On November 26, 2014, the Court dismissed without prejudice Plaintiffs’ federal securities claims because Plaintiffs failed to plead the existence of a security. (Dkt. 61: Order at 8-10.) The Court also stayed Plaintiffs’ state law claims pending resolution of the viability of their federal claims, which were the sole basis for this Court’s jurisdiction. (Id. at 10-11.)
On December 24, 2014, Plaintiffs filed their Second Amended Complaint (“SAC”). (Dkt. 62.) The SAC asserts claims against Sonnier for: (1) selling unregistered securities, ■ 15 U.S.C. § 77e(a), 771(a); (2) federal securities fraud, 15 U.S.C. § 78j and 17 C.F.R. § 240.10b-5 (“Rule 10b-5”); (3) selling unregistered securities in violation of Cal. Corp. Code §§ 25110, 25504.1; (4) California securities fraud, Cal. Corp. Code §§ 25401, 25504.1; (5) fraud; (6) breach of fiduciary duty-joint venturers; (7) breach of fiduciary duty — agent; (8) breach of written contract — purchases of OGM Royalty Interests; (9) breach of verbal contract — agency agreement; (10) violation of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq.; (11) “Accounting”; (12) selling unregistered securities in violation of Louisiana law, La-Rev. Stat §§ 51:714, 51:712(A)(1), 51:705; and (13) Louisiana' securities fraud, La. Rev. Stat. §§ 51:714, 51:712(A)(2), 5!:712(D). ■ - .
Presently before the Court is Sonnier’s motion to dismiss Plaintiffs’ SAC (Dkt. 67.) For the reasons discussed below, the Court GRANTS IN PART and DENIES IN PART Sonnier’s'motion.
II. FACTUAL AND PROCEDURAL BACKGROUND
Because the facts underlying this case are complex, and Sonnier’s motion turns on the sufficiency of thé pleadings, the Court here recounts the complaint’s allegations in detail.
A. The Main Actors
Plaintiff Robert Schaffer (“Schaffer”) was the first plaintiff to invest in the purportedly fraudulent scheme. Schaffer also brought his father, Herbert Schaffer (“Herbert”), into the alleged fraud. (SAC ¶ 25.) Herbert is plaintiff Schaffer Family Investors, LLC’s (“SFI”) representative. (Id.) Herbert invested with the purported fraudsters on SFI’s behalf.
Sonnier is the purported double-agent middleman at the center of the scheme. He allegedly induced Schaffer and SFI to make investments through him. (SAC ¶¶ 15-31.) He orchestrated deals between Sonnier and the other Defendants. Supposedly, in the course of facilitating these transactions, he defrauded both sides of the deals.
Defendant Kris Melancon (“Melan-con”) is allegedly a highly experienced Louisiana landman. (SAC ¶ 15.) Melan-con was the purported brains behind the investments. See, e.g., (SAC ¶ 14-15.) Defendants Pinnacle Oil & Gas, LLC (“Pinnacle”) and Lemel Petroleum, LLC (“Lemel”) (collectively with Melan-con, the “Melancon defendants”) are entities connected to Melancon.
B. The Alleged Fraudulent Scheme
In September 2007, Schaffer met Sonnier through a mutual friend. (SAC ¶ 12.) Shortly thereafter, at another meeting with Schaffer and the mutual friend, Son-nier allegedly stated that:
(a) he was a retired attorney who came from a family of extensive wealth; (b) he was interested and active in various investment and business activities; (c) years earlier he had been a participant in an investment group comprised of engineers, accountants, investors, and other attorneys; and (d) such group had successfully invested in various deals throughout the years:
(Id.) After this meeting, Schaffer, Sonnier, and the mutual friend sporadically looked at potential investments. (SAC ¶ 13.)
Around July 2008, Sonnier contacted Schaffer about an investment opportunity with Melancon. (SAC ¶¶ 14-15.) Sonnier claimed that he had close ties with Melan-con, who he described as a highly experienced Louisiana landman. (SAC ¶ 15.) Son-nier claimed that Melancon was in the business of investing in OGM Royalty Interests with his own funds and with money raised from others. (Id.) Sonnier also said that Melancon had extensive connections in and “special knowledge” of the oil and gas business. (Id.)
1. Inception of the Purported Fraudulent Scheme
Sonnier offered Schaffer an opportunity to co-invest in “the same OGM Royalty Interests and in the same amount in which Sonnier, and/or his immediate family, would be investing!.]” (SAC ¶ 17.) He told Schaffer that “Melancon would be investing in the same OGM Royalty Interests in an amount equal to what both Schaffer and Sonnier were investing!.]” (Id.) Thus, Son-nier and Schaffer would each acquire one fourth of the OGM Royalty Interests and Melancon would acquire the remaining one-half interest. (Id.) Based on these representations, Schaffer “entered into a verbal agency agreement for Sonnier to serve as Schaffer’s agent to evaluate, recommend, acquire, verify, and administer on Schaffer’s behalf the same OGM Royalty Interests being purchased by Melancon and Sonnier as offered by the Melancon parties.” (SAC ¶ 18.)
2. The Flow of Assets and the Kickback Scheme
Plaintiffs allege that the transactions “generally followed the same path.” (SAC ¶ 45.) First, the Melancon defendants would identify a property where oil, gas, or mineral production had commenced or was believed to be imminent (because of nearby producing wells or other circumstances). (Id.) The Melancon defendants would then offer to purchase a fractional interest in the OGM royalty interests from those interests’ owners. (Id.) At that point, the Melancon defendants would tell Sonnier that they had OGM Royalty Interests available for purchase by one or both Plaintiffs. (Id.) Sonnier, allegedly representing that he was Plaintiffs’ agent while actually acting as the Melancon defendants’ agent, would then ' represent to Plaintiffs that he and the Melancon defendants were purchasing fractional undivided interests in the OGM Royalty Interests. (Id.) He would then “offer Plaintiffs the opportunity to purchase from the Melan-con Parties fractional undivided interests in the OGM Royalty Interests.” (Id.) "
Sonnier also allegedly represented that: (1) Plaintiffs’ purchase price would be either the Melancon defendants’ actual purchase cost (for Schaffer’s purchases before SFI became involved) or the actual purchase cost plus a 3 percent markup (for purchases with SFI); (2) Sonnier and the Melancon defendants (or their related entities or family members) would each invest at least an equal amount and acquire at least an equal interest in the OGM Royalty Interests; and (3) other than the 3 percent mark-up, there would be “no other financial benefit- to Schaffer, Melancon, or Son-nier, except for the benefit, shared jointly, of acquiring OGM Royalty Interests on more favorable terms as a result of making combined purchases.” (SAC ¶¶ 20, 28, 45.) Plaintiffs assert that while they were free to decide whether to purchase the OGM Royalty Interests, they were entirely de-pendant on the Melancon defendants’ and Sonnier’s' recommendations of which interests to acquire. (SAC ¶ 46.)'
Each transaction was allegedly documented in “substantially the same way.” (SAC ¶ 47.) First, one of the Melancon defendants purchased from the OGM Royalty Interest owner (often a landowner) a fractional undivided interest in the OGM Royalty Interest. (Id.) This purchase was made by a royalty deed signed by the purchaser and the seller. (Id.) The deed expressed the purchaser’s interest as a fraction or percentage of “%ths of the whole of any oil, gas or mineral, except sulphur, on and under to be produced from said lands[.]” (Id.)
The Melancon defendants then “typically sent e-mails to Sonnier identifying by location, royalty acres, price per royalty acre, and status of development the OGM Royalty Interests that they had available for sale.” (SAC ¶ 48.) Sonnier allegedly sent to Plaintiffs what he represented to be forwarded emails from the Melancon defendants, “adding his own comments and recommendations!].]” (Id.) However, Sonnier purportedly “often” altered the “forwarded” e-mails from the Melahcon defendants by “for example; revising the e-mails to inflate the price per royalty acre or to make it appear that Sonnier would also be purchasing fractional undivided interests in the OGM Royalty Interests.” (Id.) If a Plaintiff agreed to purchase an Interest, Sonnier would send .that Plaintiff an invoice, which Plaintiffs would then pay to one. of the Melancon defendants. (Id.) One the invoice was paid, the Melancon defendants would prepare -an Assignment of Royalty Interests. (SAC ¶ 49.) Pursuant to these assignments, Plaintiffs. received a fractional undivided interest in the underlying fractional undivided interest that the Melancon defendants had acquired from the OGM Royalty Interest owner — i.e. a fraction of a fractional interest. (SAC ¶ 50.) - :
Each Plaintiff purchased the OGM Royalty Interests with its own separate funds and took title to the Interest in its own name. (SAC ¶ 52.) Some of the real properties to which these interests pertained had operational wells. (Id.) Neither Plaintiffs nor Defendants operated wells or had rights to make decisions regarding wells or mining operations on those properties. (Id.) Instead, these rights were held by the working interest owners. (Id.) Royalties were .paid by the oil dialling and production companies either to Plaintiffs directly or to-the Melancon defendants, who were then to pay to Plaintiffs their share. (Id.) While Plaintiffs retained the right to transfer or sell the OGM Royalty Interests they “had no right to ‘otherwise- control’ such interests.” (Id.)
Plaintiffs allege that the Melancon defendants secretly retained a portion of Plaintiffs’ funds sufficient to cover the Me-lancon defendants’ acquisition costs plus a profit. (SAC ¶¶ 23, 31.) Plaintiffs further allege that the Melancon defendants also paid to Sonnier a substantial “finder’s fee,” which was generally paid out of the Melan-con defendants’ share of Plaintiffs’ payments. (SAC ¶¶ 23, 31.)
Plaintiffs also allege that the Melancon defendants “paid a larger proportion of the monies received from [Plaintiffs] (generally paid from the monies paid by Schaffer as a ’ result of Sonnier’s mark-up of - the price that the Melancon Parties said they would charge for the OGM' Royalty Interests) to an inactive Louisiana corporation named Media/Right Properties, Ltd. (“Media/Right”) ... of which Sonnier is the sole officer[.]” (SAC ¶ 23; see also SAC ¶ 31.) The Melancon defendants purportedly claimed that they made this payment to Media/Right because Sonnier represented to them that Schaffer was receiving these payments.- (SAC ¶¶ 23,31.) While these allegations are not abundantly clear,, it appears that Plaintiffs allege that the Melan-con defendants believed they were participating in a money laundering scheme of sorts, whereby the Melancon defendants would accept an inflated purchase price from Schaffer and SFI and.transfer the overage to a different entity that they believed Schaffer owned (but which was actually owped by Sonnier).
. 3. SFI’s Involvement
Schaffer purportedly introduced Sonnier to SFFs representative — Schaffer’s father, Herbert Schaffer. (SAC ¶ 25.) Plaintiffs allege that between February 2012 and August 13, 2012, SFI paid to the Melancon defendants approximately $2,101,4000 to purchase 13 OGM Royalty Interests (listed in Exhibit B to the SAC). (SAC ¶ 24.) SFI allegedly purchased each OGM Royalty Interest by accepting written offers “presented to it by Sonnier.” (Id.)
Sonnier allegedly made the same representations to SFI that he made to Schaf-fer. (SAC ¶ 28.) As with Schaffer, Sonnier sent purportedly forwarded e-máils from Melancon to SFI. (SAC ¶ 29.) However, Sonnier allegedly altered these e-mails to inflate the purchase price and to falsely indicate that Sonnier was purchasing an equal share of the OGM Royalty Interests to that being offered to Plaintiffs. (Id.)
A The Flip Properties
In addition to the above investments, Schaffer purchased OGM Royalty Interest in three sets of properties, referred to as the “Flip Properties.” (SAC ¶ 54.) Sonnier allegedly represented to Schaffer that they would make a quick profit by flipping these properties in two to four months. (Id.) Schaffer asserts that he believed the interests in ,the Flip Properties would be purchased with his money at the Melancon defendants’ actual purchase cost and that they would be titled in his name. (Id.) The parties allegedly agreed that the “first two Flip Properties would be purchased 25% by-Schaffer, 25% by Sonnier, and 50% by the Melancon Parties, and that the Melan-con Parties would receive 50% of any profits made by Schaffer or Sonnier.” (Id.) The parties purportedly agreed that Schaffer, the Melancon defendants, and Sonnier would each purchase 33.33% of the third set of Flip Properties, and that any profit made upon resale by Schaffer and Sonnier on their respective purchases would be split 60% to the purchaser (Schaffer or Sonnier) and 40% to the Melancon defendants. (Id.)
Schaffer purchased his interests in the Flip Properties between August and October of 2009. (SAC ¶¶ 56-59.) Sonnier and the Melancon defendants, told Schaffer his payments would be used to purchase OGM Royalty Interests located in particular parishes in Louisiana, but did not specify the acreage or provide a legal description at the time of purchase. (SAC ¶ 56.) On October 23, 2009, Sonnier allegedly sent to Schaffer an e-mail soliciting his purchase of a $ share in leasehold interests in four specifically identified tracts with a combined area of 556.74 acres. (SAC ¶ 58.) Sonnier allegedly told Schaffer that the four tracts belonged to one landowner who had been contacted by “Petrohawk, Chesapeake, and Comstock to lease these tracts[.]” (Id.) Sonnier allegedly further told Schaffer that the landowner had told the Melancon defendants that “ ‘if we show up with $4,500.00/acre in the form of a cashier’s check that she would lease to us’ and that ‘we should be able to flip this lease for $l,500.