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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK --------------------------------------------------------------- X BG OIL AND GAS, LLC, FLT OIL AND GAS, : LLC, and BCK OIL AND GAS, LLC, Index No. 6525781201 1
Plaintiffs,
- against -
ROBERT B. FIELDS, DONAL R. SCHMIDT, JR., THIMOTHY S. WAFFORD, FTP OIL AND GAS LP and SUN RIVER ENERGY, INC., :
Defendants. :
PLAINTIFFS' MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS AND IN FURTHER SUPPORT
OF PLAINTIFFS' MOTION FOR INJUNCTIVE RELIEF
DAVIDOFF MALITO & HUTCHER LLP Attorneys for Phintiffs
605 Third Avenue 3dh Floor
New York, New York 10158 (212) 557-7200
FILED: NEW YORK COUNTY CLERK 02/02/2012 INDEX NO. 652578/2011
NYSCEF DOC. NO. 17-2 RECEIVED NYSCEF: 02/02/2012
TABLE OF CONTENTS
Page
... TABLE OF AUTHORITIES ..................................................................................................... 111
PRELIMINARY STATEMENT .................................................................................................. 1
ARGUMENT .......................................................................................................................... -3
DEFENDANTS ' CROSS-MOTION TO DISMISS SHOULD BE DENIED .................... 3
A . . The Legal Standards ................................................................................................ 3
1 . CPLR 32 1 1 (a)(8) ......................................................................................... 3
2 . CPLR3211(a)(4) ........................................................................................ 4
3 . CPLR3211(a)(7) ......................................................................................... 5
E3 . This Court Has Personal Jurisdiction Over All Defendants .................................... 6
1 . All Defendants Were Properly Served ........................................................ 6
a. Fields .............................................................................................. 6
b . Schmidt and Wafford ....................................................................... 7
c . FTP Oil and Sun River .................................................................... 7
This Court Has Personal Jurisdiction Pursuant to CPLR 3 0 1 and 3 02 ....... 8
................. ........ a . CPLR 302(a)(l) - Schmidt, Wafford and FTP Oil 9
....................... b . CPLR 302(a)(2) - Schmidt, Wafford and FTP Oil 1 1
c . CPLR302(a)(3)(ii).. SunRiver ................................................... 11
............... This Action Should Not Be Dismissed In Favor Of The Texas Action -13
1 . The First-In-Time Rule .............................................................................. 14
2 . The Forum Selection Clause ................................................................... 1 7
............. Plaintiffs Have Adequately Stated A Claim For Fraudulent Inducement 19
1 . The Participation Agreements' Disclaimers .............................................. 20
............................ . 2 Representations Concerning Defendants' Experience 22
3 . Representations Concerning Profit Projections ........................................ -23
....................................................................................................................... POINT IT 25
PLAINTIFFS' MOTION FOR AN ORDER ENJOINING DEFENDANTS FROM FURTHER PROSECUTING THE TEXAS ACTION SHOULD BE GRANTED ....................................................... 25
CONCLUSION .................................................................................................................... -25
TABLE OF AUTHORITIES
Page
CASES
2 1 9 Broadway Corp. v. Alexander's Inc., 46 N.Y.2d 506 (1 979) ..................................................................... ; ........................................... 5
51 1 West 232nd St. Owners Corp. v. Jennifer Realty Co.,
AIG Fin. Prods. Corp. v. Penncara Energy. LLC, 83 A.D.3d 495 (1st Dep't 201 1) ....................................................................................... 1 6
Albilia v. Hillcrest Gen. Hosp., . 124A.D.Zd499(1stDep't 1986) ............................................................................................... 7
Allen v. Devon Energy Holdings. L.L.C., ...................... 201 1 WL 3208234 (Tex. Ct. App. 1st Dist. July 28, 201 1) .......................... .. 21
Amigo Foods Coy. v. Marine Midland Bank-N.Y., ............................................................................................................. 39N.Y.2d 391 (1976) 3-4
Artists Rights Enforcement Corp. v. Haskins, . 2008 WL 5342205 (N.Y. Sup. Ct. N.Y. Co. Dec, 16, 2008) ............................................. 15-16
Battanta v. Bunzl, 239 A.D.2d 167 (1st Dep't 1997) ............................................................................................... 9
Brandt v. Toraby, 273 A.D.2d 429 (2d Dep't 2000) ..................................... ............................................................ 3
Cayuga Partners, LLC v. 1 50 Grand, LLC, 305 A.D.2d 527 (2d Dep't 2003) ................................................................................................ 5
Certain Underwriters at Lloyd's London v. Hartford Accident & Indem. Co., 16 A.D.3d 167 (1st Dep't 2005) ....................................................................................... 4 16
Chamin v. Cogan, 250 A.D.2d 513 (1st Dep't 1998) ............................................................................................ 7
Citibank, N.A. v. Plapinger, 66 N.Y.2d 90 (1985) .............................. .... ............................................................................... 21
Clover M. Barrett, P.C. v. Gordon, 201 1 WL 6825759 (N.Y. App. Div. 2d Dep't Dec. 27, 201 1) ................................................. 6
Coastal Steel Corp, v. Tilghman Weelabrator Ltd., .................................................................................................... 709 F.2d 190 (3d Cir. 1983) 18
Cohen v. Koenig, .................................................................................................. 25 F.3d 1 168 (2d Cir. 1994) ...23
Cohen v. Shure, 153 A.D.2d 35 (2d Dep't 1989) ...................... ... .................................................................... 6
CPC Int'l Inc. v. McKesson Corn., ............................................................................................................... 70 N.Y.2d 268 (1 987) 24
Cron v. Hargro Fabrics, Inc., 91 N.Y.2d 362 (19.98) .............................................................................................................. -6
CT Chem. (USA), Inc. v. Horizons Int'l, Inc., 106 F.R.D. 5 18 (S.D.N.Y. 1985) .............................................................................................. 10
Cyrak v. Lemon, 919 F.2d 320, 325 (5th Cir. 1990) .......................................................................................... 22
Deutsch Bank Nat'l Trust Co. v. Pietranico, 33 Misc. 3d 528 (Sup. Ct. Suff. Co. 201 1) ................................................................................ 6
Deutsche Bank Secs., Inc, v. Montana Bd, of Invs., ............................................. 7 N.Y.3d 65 (2006) .............................................................. - 9, 10
East 32nd St. Assocs. v. Jones Lana Wooton USA, ............................................................................................ 191 A.D.2d 68 (1st Dep't 1993) -..24
EBC I, Inc, v. Goldman Sachs & Co., ................................................................................................................... 5 N.Y.3d 11 (2005) 3
Farkas v. Farkas, 36 A.D.3d 852 (2d Dep't 2007) ..................... ...; ....................................................................... 9
Fazio v. Cypress/GR Houston I, L.P., .................................................... 20 12 WL 159929 (Tex. Ct. App. 1 st Dist. Jan. 19, 201 2) 21
Foster v. Churchill, ............................................................................................................... 87 N.Y.2d 744 (1 996) 1 3
Freeford Ltd. v. Pendelton, 53 A.D.3d 32 (1st Dep't 2008) ................................................................................................. 19
Grimaldi v. Guinn, 72 A.D.3d 37 (2d Dep't 2010) ............................................................................................... 10
Hobart v. Schuler, 55 N.Y.2d 1023 (1982) ............................................................................................................. 20
Hutton v. Klabal, 726 F. Supp. 67 (S.D.N.Y. 1989) ............................................................................................. 24
In re Topps Co., Inc. S'holder Litig., ....................... ................. 2007 WL 50 1 8882 W.Y. Sup. Ct. N.Y. Co. June 8, 2007) .... 1 5
In re: Arnette, 454 B.R. 663 (Bank. N.D. Tex. 201 1) ................................................................................... .23
Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., ..................................................................................................... 341 S.W.3d 323 (Tex. 201 1) 20
J.A.O. Acquisition Corp. v. Stavitsky, ................................................................................ 192 Misc. 2d 7 (Sup. Ct. N.Y. Co. 2001) .20
Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460 (1988) .................................................................................................... .........9
L.F. Rothschild v. Thompson, ....................... .............*.....*............................................ 78 A.D.2d 795 (1 st Dep't 1980) ... 10
L-3 Commc'ns Corp. v. SafeNet, Inc., ........................................................................... 45 A.D.3d 1 (1 st Dep't 2007) .............. 4, 14, 15
LaMarca v. Pak-Mor Mfg. Co., 95 N.Y.2d 210 (2000) ................................................................................................................ 12
Lauer v. City of N.Y., 171 Misc. 2d 832 (Sup. Ct. Queens Co. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .~..6
Lawrence v. Miller, 1 1 N.Y.3d 588 (2008) ................................................................................................................. 5
Leon v. Martinez, .............................................................................................. 84 N.Y .2d 83 (1 994). ;.. ............. 5 , 6
Liberatore v. Calvino, ............................................................................................. 293 A.D.2d 217 (1st Dep't 2002) 10
Mandel v. Busch Entm't Corp., 215 A.D.2d 455 (2d Dep't 1995) ....................................................................................... ........4
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Barnum, ............................................. ..................... 1 62 Misc. 2d 245 (Sup. Ct . N.Y. Co. 1 994) .... .8
New York Islanders Hockey Club, LLP v. Comerica Bank-Texas,. .................... ..............,....,...,......*..........,....*......... 71 F. Supp. 2d 108 (E.D.N.Y. 1999) .... 24
Parke-Bernet Galleries, Inc. v. Frank1 yn, 26 N.Y.2d 13 (1970) ............................................................................................................. 9, 10
Peterson v. Spartan Indus.. Inc., 33 N.Y.2d 463 (1974) ............................................................................................................. 3, 4
Preferred Elec. & Wire Corp. v. Duracraft Prods., Inc., 1 14 A.D.2d 407 (2d Dep't 1985). .............................................................................................. .-8
Reiser Inc. v. Roberts Real Estate, 292 A.D.2d 726. (3d Dep't 2002) .............................................................................................. 22
Robbins v. Ogden Corp., 490 F. Supp. 801 (S.D.N.Y. 1980) ........................................................................................... 22
Rovello v. Orofino Realty Co., 40 N.Y.2d 633 (1976) ................................................................................................................. 6
San Ysidro Corp. v. Robinow, 1 A.D.3d 185 (1st Dep't 2003) .................. ; ........................................................... . . . . . 4 , 5 , 15
Seaboard Sur. Co. v. Gillette Co., 75 A.D.2d 525 (1st Dep't 1980) ................................................................................................. 5
Sokolow, Dunaud, Mercadier & Carreras LLP v. Lacher, 299 A.D.2d 64 (1 st Dep't 2002) ................... .. ..................................................................... 22
Tahini Investments, Ltd, v. Bobrowsky, 99 A.D.2d 489 (2d Dep't 1984) ................................................................................................ 21
Terra Int'l. Inc, v. Mississippi Chem. Corp., ............................................................................................ 119 F.3d 688 (8th Cir. 1997) 1 8
Townsend v. Hanks, 140 A.D.2d 162 (1st Dep't 1988) ............................................................................................... 7
Travelers Prop. Cas. Co. of Am, v. Centimark, Corp., 2005 WL 1038842 (S.D. Ohio May 3, 2005) .......................................................................... .18
Trenho lrn v. Ratcli ff, 646 S. W.2d 927 (Tex. 1983) ................................. ; .................................................................. 24
Weingrad v. Telepathy Inc., .................................................................... 2005 WL 2990645 (S.D.N.Y. Nuv. 7, 2005) 1 7 18
White Light Prods., Inc. v. On The Scene Prods., Inc., 231 A.D.2d 90 (1st Dep't 1997) ...................................................................... 4, 5 , 16
Whitney v. Whitney, 57 N.Y.2d 731 (1982) ..................................................................................................... .............4
STATUTES
CPLR 301 ............................................................... .,... ,............ ...,..... ....,.. ...................... ..... . . . . . . . . .8
CPLR 302 .................................................................................................... 8, 9, 11, 12
CPLR 308 .................................................................................... . ................ . .... .... ....... ............ ...... 7
CPLR 321 1 .. .. . .. . .. . .. .. . .. .. . .. .. . ... ... . .. . .. . .... .... . . .. . ... . .. . ... ... . .. . . .. . .. . ,. . .. . .. . .. . ... ... . .. . ... .. .. . . .. . . .. . ... . ... . ...p assim
OTHER AUTHORITIES
1-2 1 Weinstein, Korn & Miller CPLR Manual 5 2 1.03 ... . .. . . . ... . .. . . . . .. . .. . ... . . . . .. . ... .. ... ... . ... . .. . .. . .. . . . . ..4
Plaintiffs respectfully submit this memorandum of law: (a) in opposition to Defendants'
cross-motion to dismiss the Complaint pursuant to CPLR 321 1 (a)(4), (a)(7) and/or (a)@); and (b)
in further support of Plaintiffs order to show cause which seeks an order permanently enjoining
Defendants from further prosecuting the Texas ~c t ion . '
Submitted herewith are the affidavit of Fred L. Tepperman, the Managing Member of
Plaintiff FLT Oil, sworn to on February 1 ,20 12 (the "Tepperman Aff."), and the reply affidavit
of Plaintiffs' counsel, Larry Hutcher, Esq., sworn to on February 1,20 1 2 (the "Hutcher Reply
Aff.").
PRELIMINARY STATEMENT
In their initial moving papers, Plaintiffs demonstrated that Defendants commenced an
identical out-of-state lawsuit duplicitously, as a preemptive strike, after Defendants' counsel had
received a draft complaint from Plaintiffs' counsel. In short, Defendants induced Plaintiffs to
delay the filing of this action by affirmatively misleading Plaintiffs' counsel into believing that
Defendants were interested in discussing settlement. On the basis of that misconduct, and
because both actions are at their earliest stages, and because both actions were commenced
reasonably close in time, and because New York has a substantial nexus to the parties and to the
dispute, Plaintiffs seek an injunction permanently prohibiting Defendants from hrther
prosecuting the Texas Action.
After Plaintiffs filed their motion, in a further attempt to avoid the authority of this Court,
Defendants sought a temporary restraining order in the Texas Action which, if granted, would
Capitalized terms not defined herein have the meanings ascribed to them in Plaintiffs' initial moving papers. "(Hutcher Aff.)" refers to the Affidavit of Larry Hutcher, Esq., sworn to on November 1 8,20 1 1. "(PI. Mem.)" refers to Plaintiffs' Memorandum of Law in Support of Order to Show Cause, dated November 1 8,20 1 1. "(Schmidt Aff..)" refers to the Affidavit of Dona1 R. Schmidt, sworn to on December 2,201 1, submitted by Defendants. "(Pennington Aff.Y3 refers to the Affidavit of James Pennington, Esq., sworn to on December 2,20 1 1 , submitted by Defendants. "(Def. Mem.)" refers to Defendants' Opposition to Plaintiffs' Order to Show Cause and Cross-Motion to Dismiss, filed on December 2,20 1 1.
have enjoined Plaintiffs from further prosecuting their application to this Court for injunctive
relief. Not surprisingly, Defendants' application was denied by the court in the Texas Action,
which left it to this Court to decide the motion pending before it. (% Hutcher Reply Aff. at 77
9-1 0 and Ex. A.)
As explained below, Defendants' response includes a short affidavit from the General
Counsel of Sun River, James Pennington, Esq., whose feeble attempt to deny his duplicity fails
miserably. As further explained below, Defendants' reliance on the "first-in-time" rule and the
Texas forum selection clause of the Participation Agreements as grounds to deny the injunction
requested by Plaintiffs is misplaced.
In addition to opposing Plaintiffs' application, Defendants have cross-moved to dismiss
the Complaint on the grounds that: (a) this Court lacks personal jurisdiction over Defendants;
(b) this action is duplicative of the first-filed Texas Action; and (c) Plaintiffs' cause of action
alleging fraudulent inducement to enter into the Participation Agreements fails to state a claim.
However, none of these assertions have any merit.
As set forth in detail below:
this Court has personal jurisdiction over all Defendants because each was properly served (E Point I.B. I); Fields is a New Y ork domiciliary and the non- domiciliary Defendants are subject to long-arm jurisdiction (g Point I.B .2);
this action should not be dismissed as duplicative of the Texas Action because the first-in-time rule does not apply where temporal priority has been gained through duplicity. Additionally, both actions are at their earliest stages, the actions were commenced reasonably close in time and New York has a substantial nexus to the parties and to the dispute. Moreover, the forum selection clause is inapplicable to PIaintiff s fraudulent inducement claim and is unavailable to Sun River, a non- party to the Participation Agreements (g Point 1I.C);
the Complaint states a claim for fraudulent inducement because: (a) it cannot be determined as a matter of law that the alleged specific disclaimers of reliance in the Participation Agreements are binding (G Point I.D. 1 ); (b) the alleged misrepresentation concerning Defendants' experience relating to the development
of oil wells in the West Texas area is an actionable misstatement of fact, not the type of unverifiable and subjective puffery that fails to state a claim (E Point I.D.2); and (c) the alleged misrepresentations concerning the economics of the investments are actionable because Defendants did not believe their projections to be true when they presented those projections to Plaintiffs and because those projections are based upon misrepresentations of past and/or existing facts (see Point II.D.3); and
Defendants should be enjoined from further prosecuting the Texas Action for all of the same reasons that this Court should not dismiss this action as duplicative of that one (see Point 11).
In short, Defendants' cross-motion should easily be seen for what it is - k., nothing
more than a transparent continuation of Defendants' aggressive and non-meritorious posturing.
Their application should be denied in its entirety and the injunctive relief sought by Plaintiffs
should be granted so that Defendants' day of reckoning is delayed no longer.
ARGUMENT
POINT I
DEFENDANTS' CROSS-MOTION TO DISM.ISS SHOULD BE DENIED
A. The Legal Standards
1 . CPLR 321 1 (a)($)
On a CPLR 321 1 (a)(8) motion, the court must afford the pleadings a liberal construction.
EBC I, Inc. v. Goldman Sachs & Co., 5 N.Y.3d 11, 19 (2005). The pleadings and affidavits must
be construed in the light most favorable to the plaintiff, and all doubts resolved in the plaintiffs
favor. Id.; Brandt v. Toraby, 273 A.D.2d 429,430 (2d Dep't 2000).
Moreover, aprima facie showing of jurisdiction is required, particularly, where as .
here, a plaintiff is seeking to confer jurisdiction under the long-arm statute. Peterson v. Spartan
Indus., Inc., 33 N.Y.2d 463,467 (1 974). Rather, to defeat the motion, a plaintiff needs only to
make a "sufficient start" on proving jurisdiction. Arnigo Foods Corp. v. Marine Midland Bank-
N.Y ., 39 N.Y.2d 39 1,395 (1 976); Peterson, 33 N.Y .2d at 467. Such a "start" requires very little.
Mandel v. Busch Entrn't Corp., 215 A.D.2d 455,455 (2d Dep't 1995) (a "sufficient start"
requires only that the claim of jurisdiction "is not frivolous").
So long as facts supporting jurisdiction "may exist," once a start is made a plaintiff is
entitled to jurisdictional discovery. Peterson, 33 N.Y.2d at 467. See also CPLR 32 1 1 (d).
2. CPLR 321 1 (a)(4)
A party may move for dismissal on the grounds that:
there is another action pending between the same parties for the same cause of action in a court of any state or the United States; the court need not dismiss upon this ground but may make such order as justice requires.
See CPLR 32 1 1 (a)(4) (emphasis added). Thus, a court has broad discretion in whether to -
dismiss an action on the ground that another action is pending. Whitnev v. Whitne~, 57 N.Y.2d
73 1,732 (1 982).
Courts generally follow the first-in-time rule when there is a substantial lapse in time
between the filings. 1-2 1 Weinstein, Korn & Miller CPLR Manual 5 2 1.03. However,
where both actions are at the early stages of litigation, where the actions were commenced
reasonably close in time together andfor where temporal priority is gained through duplicity,
timing is not dispositive. L-3 Commc'ns Corp. v. SafeNet, Inc., 45 A.D.3d 1, 7-9 (1st Dep't
2007); Certain Underwriters at Lloyd's London v. Hartford Accident & Indem. Co., 1 6 A.D.3d
167, 168 (1st Dep't 2005); San Ysidro Corp. v. Robinow, 1 A.D.3d 185, 186 (1st Dep't 2003);
White Light Prods., Inc. v. On The Scene Prods., Inc., 23 1 A.D.2d 90, 97 (1st Dep't 1997).
Indeed, determining priorities between pending actions should never not be done
"mechanically" or "regardless of other considerations." White Light Prods, 23 1 A.D.2d at 97.
Accord, Seaboard Sur. Co. v. Gillette Co., 75 A.D.2d 525, 525 (1st Dep't 1980) (temporal
priority "is not necessarily the controlling factor").
In addition to considering temporal priority, courts analyze the factors bearing on judicial
efficiency and the interests of j ustice, similar to the analysis undertaken to apply the forum nun
conveniens doctrine. White Light Prods., 23 1 A.D.2d at 95. Thus, where the balance of factors
favors New York as the appropriate forum, courts will decline to dismiss an action even if it was
not filed first. San Ysidro Corp., 1 A.D.3d at 187.
3. CPLR 321 l(a)(7)
In considering a motion to dismiss for failure to state a claim pursuant to CPLR
32 1 1 (a)(7) the court must accept as true all of the facts alleged in the Complaint, 5 1 1 West
232nd St. Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 151-52 (2002). The standard is
not whether plaintiff has stated a cause of action, but whether the plaintiff a cause of action.
Cavuga Partners. LLC v. 150 Grand, LLC, 305 A.D.2d 527,527 (2d Dep't 2003). Courts should
afford the pleading a liberal construction and "accept the facts as alleged in the complaint as true,
accord plaintiffs the benefit of every possible favorable inference, and determine only whether
the facts alleged fit within a cognizable legal theory.'' Leon v. Martinez, 84 N.Y .2d 83, 87-88
(1 994). The issue is not whether the plaintiff might ultimately prevail but whether that party is
entitled to offer evidence in support of the allegations plead. 2 1 9 Broadway Corp. v.
Alexander's Inc., 46 N.Y.2d 506,509 (1979).
Affidavits submitted by the movant will almost never warrant dismissal unless they
establish conclusively that no claim or cause of action has been alleged. Lawrence v. Miller, 1 1
N.Y .3d 588, 593 (2008). However, in opposition, "a plaintiff may submit affidavits 'to remedy
defects in the complaint' and 'preserve inartfully pleaded, but potentially meritorious claims'."
Cron v. Hargro Fabrics, Inc., 91 N.Y.2d 362, 366 (1 998) (citation omitted). Such affidavits are,
like the complaint, to be accepted as true and accorded every possible favorable inference. Id.;
Leon, 84 N.Y.2d at 87-88; Rovello v. Orofino Realtl, Co., 40 N.Y.2d 633,634 (1 976).
B. This Court Has Personal Jurisdiction Over All Defendants
1. All Defendants Were Properly Served
a. Fields
Without providing any affidavit from Fields, Defendants assert that he "never received"
the Summons and Complaint which was served on the doorman at his residence with follow-up
mailing as required by statute. /See Def. Mem, at 1 0.)
A process server's sworn affidavit of service constitutes primafacie evidence of proper
service. A defendant can rebut the presumption by a sworn denial of service containing specific
and detailed contradictions of the allegations in the process server's affidavit. But, bare
conclusory and unsubstantiated denials of receipt of process are "insufficient to rebut the
presumption of proper service created by the affidavit of the plaintiffs process server and to
require a traverse hearing." Deutsch Bank Nat'l Trust Co. v. Pietranico, 33 Misc. 3d 528, 533
(Sup. Ct. Suff. Co. 201 1). Accord, Clover M. Barren, P.C. v. Gordon, 201 1 WL 6825759, at * 1
W.Y. App. Div. 2d Dep't Dec. 27,201 1). Moreover, actual receipt of the mailing is not required
to obtain personal jurisdiction. Lauer v. City of N.Y ., 17 1 Misc. 2d 832,834 (Sup. Ct. Queens
Co. 1997) (motion to dismiss for lack of jurisdiction denied, despite claim of non-receipt, where
service was made on doorman of apartment building with follow-up mailing). Accord, Cohen v.
Shure, 153 A.D.2d 35,37-38 (2d Dep't 1989) (same).
Plaintiffs initial moving papers included the process server's affidavit of service upon
Fields. (B Hutcher Aff. Ex. H.) Defendants have done nothing to rebut the presumption of
proper service. Therefore, the Court must conclude that Fields was properly served.
b. Schmidt and Wafford
Schmidt and Wafford were served by delivery of process to the receptionist at Sun River,
their place of employment, with the required follow-up mailing. (See Hutcher Aff. Ex. H.)
Defendants contend that the receptionist was not "authorized to accept service" on behalf of
Schmidt and Wafford. (B Def. Mem. at 1 0.) However, since the issue is service upon
individuals, authorization is irrelevant.
Service upon a receptionist at a defendant's place of employment constitutes proper
service upon a person of suitable age and discretion pursuant to CPLR 308(2). Charnin v.
Cogan, 250 A.D.2d 513, 517-18 (1st Dep't 1998); Townsend v. Hanks, 140 A.D.2d 162, 162 (1st
Dep't 1988); Albilia v. Hillcrest Gen. Hosp., 124 A.D.2d 499,499 (1st Dep't 1986). The
authority (or lack thereof) of the receptionist "is not the criterion with respect to . . . individuals."
Chamin, 250 A.D.2d at 5 17-1 8.
Thus, Schmidt and Wafford were properly served.
C. FTP Oil and Sun River
Defendants also claim that the Sun River receptionist was not authorized to accept
service on behalf of FTP Oil and Sun River. (& Def. Mem. at 10.) This is an outrageously
disingenuous statement, as service on the receptionist is utterly beside the point. Plaintiffs do not
rely on that attempted service.
To the contrary. Plaintiffs' initial moving papers demonstrated that that the General
Counsel of Sun River, Mr. Pennington, was authorized to accept service, and agreed to accept
service, on behalf of the two entities, Sun River and FTP Oil. (See Hutcher Aff. Ex. I.)
Obviously, "service of process upon attorneys for a corporation [or limited liability company]
may, by express agreement . . . constitute valid service upon the corporation [or limited liability
company] ." Preferred Elec. & Wire Corp. v. Duracraft Prods., Inc., 1 14 A.D.2d 407,407 (2d
Dep't 1 985). Thus, FTP Oil and Sun River were properly served.
2. This Court Has Personal Jurisdiction Pursuant to CPLR 301 and 302
Defendants' assertion that this Court does not have personal jurisdiction is limited to
"Schmidt, Wafford, FTP and Sun River." (See Def. Mem, at 1 1 .) Thus, Defendants admit that
Fields is subject to the jurisdiction of this Court. That is because Fields is a New York
domiciliary (see Hutcher Aff. Ex. H) who is subject to jurisdiction pursuant to CPLR 301.
Menill Lynch, Pierce, Fenner & Smith, Inc. v. Barnum, 162 Misc. 2d 245,250 (Sup. Ct. N.Y.
Co. 1994).
The non-domiciliary Defendants assert that they are not subject to New York's long-arm
statute (CPLR 302) because: (a) they have not transacted any business within the state giving
rise to the claims asserted in this action; and (b) they have not committed any tortious act within
the state. (& Def. Mem. at 8-1 1 .) Defendants are wrong on both counts.
CPLR 302(a) provides in relevant part that "a court may exercise personal jurisdiction
over any non-domiciliary . . . who in person or through an agent:
1. transacts any business within the state . . .; or
2. commits a tortious act within the state . . .; or
3. commits a tortious act without the state causing injury to person or property within the state . . . if he . . . (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce . . .
see CPLR 302(a)(l), (2) and (3) (emphasis added).
a. CPLR 302(a)(l) - Schmidt, Wwfford and FTP Oil
These Defendants are subject to personal jurisdiction pursuant to CPLR 3 02(a)(l)
because they have transacted business within New York giving rise to the claims asserted herein
both: (a) in person; andlor (b) through their agent, Fields.
CPLR 302(a)(l) is a "single act" statute, i.e,, "proof of one transaction in New York is
sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as
the defendant's activities here were purposeful and there is a substantial relationship between the
transaction and the claim asserted." Kreutter v. McFadden Oil Corp., 7 1 N.Y .2d 460,467 (1 988)
(emphasis added). Accord, Deutsche Bank Secs., Inc. v. Montana Bd. of Invs., 7 N.Y.3d 65,71
(2006) (a defendant need not enter New York to have transacted business here); Parke-Bernet
Galleries. Inc. v. Franklyn, 26 N.Y .2d 1 3, 17 (1 970) (same).
When long-arm jurisdiction rests upon the acts of agents, a "[pllainiff need not establish a
formal agency relationship . . . . He need only convince the court that [the agent] engaged in
purposehl activities in this State in relation to his transaction for the benefit of and with the
knowledge and consent of the [non-domiciliary] defendants and that they exercised some control
over [the agent] in the matter." Kreutter, 7 1 N.Y.2d at 467. Moreover, co-conspirators may be
deemed agents of one another, yielding jurisdiction over a non-domiciliary due to the New York
acts of a co-conspirator. Battanta v. Bunzl, 239 A.D.2d 167, 168-69 (1 st Dep't 1997).
Whether a party has transacted business in New York in person or through an agent from
which a claim arises must be evaluated under the "totality of the circumstances." Farkas v.
Farkas, 36 A.D.3d 852, 852-53 (2d Dep't 2007).
Here, Schmidt, Wafford and FTP Oil transacted business in New York in person.
Defendants do not deny that Schmidt and Wafford had telephone conversations with Kossar in
which they solicited investments in FTP Oil while Kossar was present in New York. (See
Hutcher Aff. Ex. A at 7 19 and Def. Mem. at 9.) Those telephone solicitations give rise to the
fraud claim asserted in this action. (& Hutcher Aff. Ex. A at 77 43-53 .)
Defendants erroneously argue that telephone calls are never sufficient to constitute the
transaction of business in New York so as to confer long-arm jurisdiction. (Def. Mem, at 10.)
However, that is not the law. Telephone calls (and other forms of long distance communication
such as faxes and emails) directed into New York are sufficient to establish jurisdiction where
the non-domiciliary uses such communications to purposefully avail himherself of the privilege
of conducting activities within New York. Parke-Bemet Galleries. Inc., 26 N.Y.2d at 18.
Accord, Deutsche Bank Secs., 7 N.Y.3d at 69; Grimaldi v. Guinn, 72 A.D.3d 37, 5 1 (2d Dep't
201 0); Liberatore v. Calvino, 293 A.D.2d 21 7,220 (1 st Dep't 2002); L.F. Rothschild v.
Thompson, 78 A.D.2d 795,795 (1 st Dep't 1980); CT Chem. (USA), Inc. v. Horizons Int'l, Inc.,
106 F.R.D. 5 18,520-21 (S.D.N.Y. 1985). Thus, Schmidt, Wafford and FTP Oil have personally
transacted business in New York by using their telephone conversations to purposefully conduct
fund-raising activities for the Pecan Station Project within New York.
Moreover, these telephone contacts are not the sole basis for the imposition of long-arm
jurisdiction over these Defendants. Even if Schmidt, Wafford and FTP Oil did not personally
conduct business within New York, they nonetheless are subject to long-arm jurisdiction because
they conducted business here through their agent, Fields. Nowhere in Defendants' motion
papers is it disputed that in-person solicitations took place in New York between Fields and
Kossar, nor do Defendants address the impact of that fact on the jurisdictional question as it
relates to the nun-domiciliary Defendants.
The relevant allegations of the Complaint, which must be accepted as true, are that: (a)
Fields, Schmidt and Wafford are all partners of FTP Oil (see Hutcher Aff. Ex. A at 77 9-1 1); (b)
Fields, Schmidt and Wafford acted together to solicit Plaintiffs' investment in the Pecan Station
Project (d. at 7 18); and (c) Fields had in-person solicitations with Kossar in New York (kJ. at 7
19). Giving Plaintiffs the benefit of every favorable inference, Plaintiffs have sufficiently
alleged that: (1) Fields acted as an agent of FTP Oil, Schmidt and Wafford in soliciting
Plaintiffs' investments; andor (b) Defendants all conspired to fraudulently induce Plaintiffs into
making the investments. Either way, this Court has long-arm jurisdiction over Schmidt, Wafford
and FTP Oil based upon the acts of Fields committed in New York.
b. CPLR 302(a)(2) - Schmidt, Wafford and FTP Oil
These Defendants are also subject to personal jurisdiction pursuant to CPLR 302(a)(2)
because they have committed a tortious act within the state.
Defendants correctly point out (Def. Mem. at 9) that CPLR 302(a)(2) requires that the
actionable conduct take place within New York. However, this requirement is satisfied for all of
the same reasons set forth above in connection with the discussion of CPLR 302(a)(l). The
actionable conduct alleged herein is the fiaudulent inducement of Plaintiffs' investments in the
Pecan Station Project. Those acts are alleged to have been committed by these Defendants
personally within the State of New York via their telephone contacts with Kossar. Moreover,
those acts are also alleged to have been committed by these Defendants within the State of New
York through their agent/co-conspirator, Fields.
c. CPLR 302(a)(3)(ii) -- Sun River
Plaintiffs' claim against Sun River is based on the allegation that Sun River committed a
tort outside of the state by knowingly receiving an assignment of FTP Oil's interests in the
Participation Agreements with Plaintiffs in violation of those agreements. (& Hutcher Aff. at
77 54-63 .) Sun River is not a party to the fraudulent inducement claim. (Id. at 77 43-53 .) Thus,
Defendants' assertion that "Sun River was not a party to the conversations leading up to the
Plaintiffs' decisions to invest in the project" (Def. Mem, at 9-10) is beside the point. This Court
has jurisdiction over Sun River with respect to Plaintiffs' claims to set aside the assignment and
for an accounting of the assets transferred to Sun River and the income generated therefrom.
To establish long-arm jurisdiction pursuant to CPLR 3 02(a)(3)(ii), five elements must be
established: (1) that defendant committed a tortious act outside New York; (2) that the cause of
action arises from the tortious act; (3) that the tortious act caused injury within New York; (4)
that the defendant should expect or reasonably have expected the act to have consequences in
New York; and (5) that the defendant derived substantial revenue from interstate commerce.
LaMarca v. Pak-Mor Mfg. Co., 95 N.Y .2d 2 10,2 14 (2000).
The relevant allegations of the Complaint, which must be accepted as true, are that: (a)
FTP Oil assigned its interests in the Participation Agreements to Sun River; (b) Sun River is not
an "affiliate" of FTP Oil; (c) such an assignment was subject to obtaining Plaintiffs' approval;
(d) Plaintiff had a right of first refusal to purchase the assigned interests; (e) FTP Oil and Sun
River knowingly participated in the assignment without obtaining Plaintiffs' approval or
permitting Plaintiffs the opportunity to exercise their right of first refusal; and (f) Plaintiffs
would have reasonably denied their consent to the assignment and/or exercised their rights of
first refusal. (See Hutcher Aff. Ex. A at 77 33-37.)
Giving Plaintiffs the benefit of every favorable inference, Plaintiffs have satisfied each of
the five elements necessary for jurisdiction pursuant to CPLR 302(a)(3)(ii). First, Sun River's
acceptance of the assignment in knowing violation of Plaintiffs' rights under the Participation
Agreements constitutes the tort of tortious interference with contractsm2 Second, the claims
herein (to set aside the assignment and for an accounting) arise from that tortious act. Third,
Plaintiffs BG Oil and FLT Oil have been injured in New York because they have been deprived
of contract rights pursuant to a contract that was negotiated in New York. Fourth, Sun River
should reasonably have expected that its tortious conduct would have the consequence in New
York set forth in the preceding sentence.
As to the final element, that Sun River derives substantial revenue from interstate
commerce, Sun River is a public corporation, formed in Colorado and headquartered in Texas,
which, according to its Internet website, www. sunriverenergy .corn, is involved in the energy
exploration and production business in New Mexico as well as Texas. Clearly, this is an entity
that is involved in interstate commerce. If more specific proof is required concerning the amount
of revenue Sun River derives from interstate commerce, then jurisdictional discovery should be
allowed. Plaintiffs have at the very least made the required "sufficient start."
C. This Action Should Not Be Dismissed In Favor Of The Texas Action
Plaintiffs demonstrated in their initial moving papers that Defendants should be enjoined
from further prosecuting the Texas Action against Plaintiffs because Defendants obtained
temporal priority through duplicity, because the two actions were commenced reasonably close
in time together, because both actions are in their earliest stages and because New York. has a
significant nexus to the parties and to the dispute. (See P1. Mem. at 1 1 - 17.) Defendants argue
conversely that this action should be dismissed pursuant to CPLR 321 1(a)(4) as duplicative of
the Texas Action, (See Def. Mern. at 1 1 - 1 8 .)
The elements of a claim of tortious interference with contract are: (a) the existence of a valid contract between plaintiff and a third party; (b) the defendant's knowledge of that contract; (c) the defendant's intentional procuring of the breach; and (4) damages. Foster v. Churchill, 87 N.Y.2d 744. 749-50 (1996).
Defendants' position is based entirely on: (a) the first-in-time rule; and (b) the forum
selection clause in the Participation Agreements. However, neither of these militate in favor of
this Court's exercise of its broad discretion under CPLR 32 1 1 (a)(4) to dismiss this action.
1. The First-In-Time Rule
As set forth in Plaintiffs' initial motion papers (Pl. Mem, at 1 1-1 7), New York courts will
not follow the first-in-time rule where "one party files the first action preemptively, after
learning of the opposing party's intent to commence litigation." L-3 Cornmc'ns Corp., 45
A.D.3d at 7-8. Defendants attempt to make four distinctions between L-3 Cornrnc'ns and this
action. None have merit.
First, Defendants argue that L-3 Commc'ns does not support enjoining the Texas Action
because the issue in that case was whether a New York action would be dismissed pursuant to
CPLR 32 1 1 (a)(4). (Def. Mem. at 12.) Putting aside that such a distinction is meaningless, it is
certainly irrelevant in this context - i.e., the present discussion identically involves Defendants'
motion to dismiss this action pursuant to CPLR 32 1 1 (a)(4).
Second, Defendants note that, unlike here, the sister-state action was no longer pending in
L-3 Comrnc'ns. (u.) However, that court went on to explicitly state that even if the sister-state
action had been pending, the court still would have disregarded the first-in-time rule because of
the duplicity (actions identical to those which took place here) through which temporal priority
of the sister-state action was achieved. L-3 Cornrnc'ns, 45 A.D.3d at 8.
Third, Defendants assert that the fact that they have asserted a "breach of contract" claim
in the Texas Action, in addition to a request for a declaratory judgment, renders the instant
circumstances different from L-3 Comrnc'ns. (Def. Mem, at 13 .) However, Defendants'
"breach of contract" claim is not substantive - it is a mere request for litigation expenses
pursuant to the Participation Agreements. There are no additional substantive issues concerning
the parties' rights and obligations raised in the Texas Action that are not at issue here.
Fourth, Defendants point out that in L-3 Commc'ns, the fomm selection clause in the
contract designated New York as the appropriate forum and the dispute had a significant nexus
to New Y ork. (Def. Mem. at 1 3 - 14.) Of course, the fact that the forum selection clause
designated New York bolstered the court's conclusion in L-3 Commc'ns. However, the decision
is clear that, even had such clause not existed, the CPLR 32 1 1 (a)(4) motion would have been
denied purely on the basis of the duplicity by which the sister-state action obtained temporal
priority. Moreover, the court did say that the existence of a forum selection clause which
designated some other jurisdiction would necessarily require the motion to be granted,
notwithstanding such duplicity. Additionally, as in L-3 Commc'ns, New York has a significant
nexus to the parties and to this dispute. Two of the Plaintiffs, BG Oil and FLT Oil are located in
New York. (& Hutcher Aff. Ex. A at fl6-7.) One of the individual Defendants, Fields, is a
New York resident. (Id. at 7 9.) The fraudulent misrepresentations were made in New York, and
the damages have been suffered here. (See Point II.B.2.a, above.)
Defendants attempt to distinguish four of Plaintiffs' other authorities in less than one
page. (Def. Mem. at 14.) However, the salient point is that in each, the earlier action was either
dismissed in favor of the later one, or, where the later action was dismissed, that was because of
the weighing of the nexus of the competing jurisdictions to the dispute and not because of
temporal priority. San Ysidro Corp., 1 A.D.3d 185; In re Topps Co., Inc. S'holder Litia.,
2007 WL 501 8882 (N.Y. Sup. Ct. N.Y. Co. June 8,2007); Artists Rights Enforcement C o p . v.
Haskins, 2008 WL 5342205 (N.Y. Sup. Ct. N.Y. Co. Dec, 16,2008); and White Light Prods.,
23 1 A.D.2d at 9 0 . ~
Lastly, Defendants make a feeble attempt, in an affidavit submitted by the General
Counsel of Sun River, Mr. Pennington, to create a factual dispute about whether Defendants
acted duplicitously. Therein, Pennington states that "at no time during the [telephone
conversation with Mr. Hutcher held on September 7,20 1 1 ] did I ask counsel for Plaintiff to
withhold filing of the Complaint for any reason." (See Pennington Aff. at 7 4, emphasis added.)
That may be technically true, but it is also misleading and beside the point.
As set forth in Hutcher's accompanying reply affidavit, during the referenced
conversation, Hutcher offered to withhold filing of the Complaint if Pennington would get back
to him reasonably promptly to let Hutcher know if Pennington's clients had any interest in
commencing settlement discussions. Penninaon acce ed Hutcher 's proposal to withhold filing
the Complaint and asked Hutcher to give him a week or two to discuss the matter with his clients
and get back to Hutcher. (& Hutcher Reply Aff. at 1 4.)
There is no doubt that Pennington and Hutcher had an agreement at the end of this
telephone call that Hutcher would not file the Complaint until he heard back from Pennington in
the contemplated "week or two." If it had been otherwise, Hutcher would have filed the
Complaint the same day. Hutcher never did hear back from Pennington. (IcJ. at 1 5.)
During their conversation, Pennington never told Hutcher, as he now claims in his
affidavit, that he had already prepared the petition in the Texas Action or that the Texas Action
was going to be filed that same day. Nor did Pennington send Hutcher a copy of that petition
Moreover, Plaintiffs cited authorities in their initial moving papers which Defendants made no attempt to address. See P1. Mem. at 12- 13, citing AIG Fin. Prods. Cop. v. Penncstra Energy, LLC, 83 A.D.3d 495 ( I st Dep't 20 1 2 ) ; - Certain Underwriters at Llovds. London, 1 6 A.D.3d 1 67.
after he filed it. Hutcher did not learn about the Texas Action until he was informed that one of
the Plaintiffs had been served with the petition, approximately ten days later. (a. at 7 6.)
Thus, Pennington's bad faith (and the bad faith of Defendants) is, despite his
protestations, evidenced from his undisputed conduct and should not be countenanced.
2. The Forum Selection Clause
Plaintiffs demonstrated in their initial moving papers that: (a) their fraudulent
inducement claim falls outside of the scope of the forum selection clause, which, by its terms,
applies only to claims "under" the Participation Agreements, rather than to claims "arising out of
or relating in any way to" those agreements; and (b) Sun River is not a party to the agreements
and its relationship to FTP Oil is not sufficiently close so that the attempted enforcement of the
fonun selection clause by Sun River was foreseeable. (B P1. Mem. at 14-1 7.)
Defendants assert that forum selection clauses are generally primafacie valid and
enforceable, absent an allegation that the forum selection clause itself was procured by fraud.
(Def. Mem, at 15-16.) This is beside the point. Plaintiffs do not contend that the forum
selection clause is invalid or unenforceable in appropriate circumstances. Rather, the clause
simply does not apply to the fraudulent inducement claim and is not enforceable by Sun River.
Next, Defendants rely on Weingrad v. Telepathy Inc., 2005 WL 2990645, at *4
(S.D.N.Y. Nov. 7,2005) for the proposition that a plaintiff "may not defeat a forum selection
clause 'by artfbl pleading of claims not based on the contract containing the clause of those
claims arise out of the contractual relationship or a breach of that relationship."' (Def. Mem. at
16.) Nothing like that has not occurred here.
In Weinprad, an website owner alleged trademark infringement and related claims based
upon actions taken by a domain name registrar, but did not allege a breach of the parties'
registration agreement, which contained a Virginia forum selection clause. The court held that
the website owner could not avoid the clause by failing to plead breach of contract because all of
the allegedly wrongful conduct took place after the execution of the registration agreement and
arose out of it or related to an alleged breach of it. a. Here, by contrast, the fraudulent conduct alleged by Plaintiffs pre-dates the execution of
the Participation Agreements, and therefore the claim that Plaintiffs were fraudulently induced to
execute those agreements could not have arisen "out of the contractual relationship or a breach of
that relationship." Unlike Weingrad, the Complaint is not an instance of "artful pleading."
Next, without addressing any of the authorities cited in Plaintiffs' initial moving papers
(see P1. Mem. at 14- 1 5), Defendants dispute the proposition that a forum selection clause which
only applies to claims "under" an agreement, as opposed to a broader clause which applies to
disputes "arising out of or relating in any way to" an agreement, does not apply to fraudulent
inducement claims. Rather than deal with the authorities which are directly on point, Defendants
again cite to Weingrad, which, as just discussed, concerns alleged torts committed during the
course of the contractual relationship, not a fraudulent inducement claim which asserts conduct
that pre-dates the contract. Id. The same is true of the other authorities cited by Defendants,
which were not even decided under New York law!
Finally, Defendants argue that Sun River may enforce the forum selection clause because
the relationship of Sun River to FTP Oil is "sufficiently close" such that it was foreseeable that
Sun River would seek to enforce the clause. That argument is based solely on the fact that
Plaintiffs have sued Sun River and that Plaintiffs in fact predicted in their initial moving papers
See Terra Int'l. Inc. v. Mississippi Chern. Corp., 119 F.3d 688 (8th Cir. 1997) (licensee action against licensor alleging products liability claims arising 14 years after the execution of the license agreement); Coastal Steel Corp. v. Tilnhman Wheelabrator Ltd., 709 F.2d 190 (3d Cir, 1983) (same); Travelers Prop, Cas. Co. of Am. v. Centimark, Corn., 2005 WL 1038842 (S.D. Ohio May 3,2005) (negligent performance of contract to provide roofing services).
that Defendants (including Sun River) would assert the forum selection clause. (Def. Mem. at
17-18.) However, these facts have no bearing on the issue.
By suing Sun River, Plaintiffs did not "contemplate[] that Sun River could be liable to
them under the Agreement . . . ." (Def. Mem. at 17.) Rather, Sun River is included as a
Defendant because Sun River is in possession of property which rightfully belongs to Plaintiffs
(h, the contractual rights assigned and assets sold 'by FTP Oil to Sun River). Moreover, that
Plaintiffs adequately predicted Sun River's reliance on the forum selection clause is meaningless
because, in determining whether a non-party is sufficiently close to a signatory to enforce a
forum selection clause, the test is whether it was foreseeable that the non-party would rely on the
clause at the time that the contract was executed, not when a dispute later arises. Freeford Ltd. v.
Pendelton, 53. A.D.3d 32,40-4 1 (1 st Dep't 2008) (on their face, contracts gave plaintiffs "every
reason to foresee that [defendant] would seek to enforce the forum selection clause;" the test is
whether the non-signatory is an intended beneficiary of the agreement).
Here, Sun River's reliance on the forum selection clause was not foreseeable when the
Participation Agreements were executed. Sun River is not mentioned in those agreements.
Moreover, since the Participation Agreements require Plaintiffs' consent to an assignment by
FTP Oil, consent which Plaintiffs did not give, it was not foreseeable that there could be any
assignee (including Sun River) that could seek to enforce the forum selection clause.
D. Plaintiffs Have Adequately Stated A Claim For Fraudulent Inducement
Lastly, Defendants assert that Plaintiffs fail to state a claim for fraudulent inducement to
enter into the Participation Agreements because: (a) those agreements contain specific
disclaimers of reliance on Defendants' representations; (b) statements about Defendants'
experience is "mere opinion or puffery" that cannot forrn the basis of a fraud claim; and (c) a
fiaud claim similarly cannot be based on "projections about future expectations." (Def. Mem. at
1 8-2 1 .) Defendants are wrong on all counts.
1 The Participation Agreements' Disclaimers
Defendants' cite to paragraphs 7, 8, 1 O(c)-(h) and 1 5 of the Participation Agreements to
support the proposition that Plaintiffs' fraudulent inducement claim is barred by specific
contractual disclaimers of reliance. (Def. Mem. at 4-5 and 1 9-20.) However, this argument fails
for a number of reasons.
First, all but one of the cited provisions do not pertain to this issue:
in paragraph 7, Plaintiffs disclaimed reliance on data provided to them from Defendants which Defendants obtained "from third-parties." There is nothing in the record on this motion to suggest that the data which formed the basis for Defendants' projections was obtained "from third parties;"
paragraph 8 addresses FTP Oil's representation that it has good title to the awellbore interests identified in the agreements, a representation which is not challenged herein;
paragraphs lO(c)-(f) and (h) are mere acknowledgments by Plaintiffs of the risks associated with the investment. They contain no language specifically disclaiming reliance on Defendants' representations; and
paragraph 15 is a general merger clause which does not preclude a claim of fraudulent inducement. Hobart v. Schuler, 5 5 N.Y .2d 1 023 (1 982); Italian Cowboy Partners, Ltd. v. Prudential Ins. Co., 341 S.W.3d 323 (Tex. 201 1).
Thus, the only relevant provision is paragraph 1 O(g), in which Plaintiffs disclaim reliance on
data, information and material furnished to them by Defendants. However, this provision is not
Defendants' assert that Texas law concerning fraudulent inducement claims applies pursuant to the choice of law provisions of the Participation Agreements. (Def. Mem. at 11.32.) Plaintiffs disagree because a contractual choice of law provision which governs claims that arise "under" a contract do not apply to fraudulent inducement claims. See, e.~., J.A.O. Acquisition Corp. v. Stavitsky, 192 Misc. 2d 7, I 1 (Sup. Ct. N.Y. Co. 2001), In any event, that issue need not be determined now because the relevant law discussed herein is the same in New York and Texas.
binding (or may later on fwther development of the facts be found to be not binding) for at least
the following reasons.
First, in paragraph 7, FTP Oil represented that "it has acted in good faith with respect to
its compilation of geological, engineering and economic data and the presentation to the
purchaser . . . " (emphasis added). Based upon this representation that FTP Oil was acting in good
faith, Plaintiffs disclaimed reliance in paragraph 10(g). However, the Complaint alleges that
FTP Oil's representation was false - FTP Oil did not act in good faith. (& Hutcher Aff. at 7
4 1 .) In effect, Plaintiffs were fraudulently induced to waive fraudulent inducement claims!
Because the reliance disclaimer in paragraph 10(g) was itself specifically the product of
fraudulent inducement via the false representation in paragraph 7, paragraph 10(g) is
unenforceable and Plaintiffs may assert the instant general fraudulent inducement claim.
Second, under both Texas and New Y ork law, even a specific disclaimer of reliance is
not binding if: (a) the terms of the contract were boilerplate, rather than the product of active
negotiation; and/or (b) the complaining party was not represented by counsel. Allen v. Devon
Energy Holdings, L.L.C., 20 1 1 WL 3208234, at * 12- 13 (Tex. Ct. App. 1 st Dist. July 28,20 1 1);
Citibank, N.A. v. Plapinaer, 66 N.Y.2d 90,95 (1985). Here: (i) Plaintiffs were not represented
by counsel in connection with the execution of the Participation Agreements; (g Tepperman
Aff, at 7 7); and (ii) the Participation Agreements, including the reliance disclaimer relied upon
by Defendants, were not actively negotiated (3. at 7 8).
Finally, New York and Texas law also hold that even a specific disclaimer of reliance is
not binding if the party making the representation possesses superior knowledge of the facts.
Fazio v. Cypress/GR Houston I, L.P., 20 12 WL 1 59929, at * 12 (Tex. Ct. App. 1 st Dist. Jan. 19,
2012); Tahini Investments, Ltd. v. Bobrowsky, 99 A.D.2d 489,490 (2d Dep't 1984). Here,
Plaintiffs allege that Defendants had superior knowledge about: (i) the past and existing facts
upon which their economic projections were purportedly based; and (ii) Defendants' own
experience (or lack thereof) in the development of oil wells in the East Texas area. (f&
Tepperman Aff. at 7 9.)
In short, the allegations made by Plaintiffs, which must be accepted as true, prevent the
Court from determining as a matter of law on a motion to dismiss that Plaintiffs' claims are
barred by the reliance disclaimer. At the very least, the determination of whether the reliance
disclaimers are binding requires further development of the facts.
2. Representations Concerning Defendants' Experience
It is generally true that subjective and unverifiable opinions concerning a party's own
knowledge, experience and expertise, such as "my qualifications are second to none" or "I can
produce superior results" are not statements of fact that can give rise to a fraud claim. However,
statements about one' s knowledge, experience and expertise that are sufficiently factual and
objectively verifiable are statements of fact and may form the basis for a fraud claim under New
York law. See, e.g., Robbins v. Ogden Corp., 490 F. Supp. 80 1 ,8 12 (S.D.N.Y. 1980)
(defendant's statement concerning his experience in the oil drilling industry were actionable
statements of fact); Reiser Inc. v. Roberts Real Estate, 292 A.D.2d 726 (3d Dep't 2002) (claim
that real estate brokerage firm made specific misrepresentations concerning the experience of the
particular agent in charge of marketing plaintiffs property stated a fraudulent inducement
claim); Sokolow. Dunaud, Mercadier & Carreras LLP v. Lacher, 299 A.D.2d 64 (1st Dep't 2002)
(law firm's statements concerning the experience of its partners were actionable).
Texas law is the same. Cyrak v. Lemon, 91 9 F.2d 320,325 (5th Cir. 1990) (affirming
jury verdict based on Texas common law fraud and federal securities fraud where defendant
"misrepresented himself as experienced, capable, knowledgeable . . . and as having operating
expertise in the oil and gas business); In re: Amette, 454 B.R. 663,685 (Bankr. N.D. Tex. 201 1)
(applying Texas law, court held that specific overstatements concerning experience and expertise
in residential real estate business were false and actionable).
Here, Plaintiffs allege no vague, subjective or unverifiable puffing by Defendants.
Rather, Plaintiffs allege that Defendants made false representations of past and/or existing fact
concerning the nature of their experience. In particular, Defendants are alleged to. have
communicated to Plaintiffs that they had significant experience concerning the development of
oil wells in the West Texas area. This was knowingly false. Prior to the Pecan Station Project,
Defendants' experience in development of oil wells was limited to the East Texas area. This is a
material misstatement because of differences between the two areas, both from a geological
perspective and otherwise. Plaintiffs relied upon Defendants' statement concerning their
expertise in the development of oil wells in the' west Texas area and were damaged because they
were induced thereby to make the investments at issue through which they have sustained
substantial losses. (See Hutcher Aff. Ex. A at 77 38,41 and 43-53.) Thus, Plaintiffs have
adequately stated a fraudulent inducement claim as to Defendants' misrepresentations
concerning their experience.
3. Representations Concerning Profit Proiections
Although it is generally true that "statements will not form the basis of a fraud claim
when they are mere "'puffery' or are opinions as to future events," it is also true that under New
York law "a relatively concrete representation as to a company's future performance, if made at
a time when the speaker knows that the represented level of performance cannot be achieved,
may ground a claim of fraud." Cohen v. Koenig, 25 F.3d 1 1 68, 1 1 72 (2d Cir. 1 994) (applying
New York law). Accord, New York Islanders Hockey Club, LLP v. Cornerica Bank-Texas, 7 1
F. Supp. 2d 108, 1 18 (E.D.N.Y. 1999) (same). "An opinion given with respect to anticipated
profits . . . constitutes a representation that the opinion is honestly held, and the declaration of an
opinion not honestly held may be found by a jury to be fraudulent." Hutton v. Klabal, 726 F.
Supp. 67,71 (S.D.N.Y. 1989). Accord; CPC Int'l Inc. v. McKesson Corp., 70 N.Y.2d 268,286
(1 987) (complaint sufficiently alleged that financial projections were knowingly false and
unreasonable and based upon a misrepresentation of existing facts); East 32nd St. Assocs. v.
Jones Lang Wooton USA, 191 A.D.2d 68,71 ( I st Dep't 1993) ("financial projections made with
the knowledge that they were false and unreasonable may be the basis for an allegation of
common law fraud").
Texas law is the same. Trenholm v. Ratcliff, 646 S. W.2d 927,930 (Tex. 1 983) (an
opinion may constitute fraud if the speaker has knowledge of its falsity or if the opinion is based
on a misrepresentation of past or existing facts).
Here, Plaintiffs allege that Defendants prepared the Summary, which projected the costs
associated with the Pecan Station Project, the expected rates of return on the investment and the
amount of time necessary to realize said profits, all of which projections were based upon
misrepresentations of past or existing facts. Moreover, the Complaint alleges that Defendants
did not believe the pro-iections to be true at the time that Defendants provided them to Plaintiffs.
Plaintiffs relied upon Defendants' projections and were damaged because they were induced
thereby to make the investments at issue through which they have sustained substantial losses.
(See Hutcher Aff. Ex. A at 20 and 39-53 .) Thus, Plaintiffs have adequately stated a fraudulent
inducement claim as to Defendants' misrepresentations concerning the expected economics of
the investment.
POINT I1
PLAINTIFFS' MOTION FOR AN ORDER ENJOINING DEFENDANTS FROM FURTHER PROSECUTING THE TEXAS ACTION SHOULD BE GRANTED
For all of the same reasons set forth in Point I.C. above concerning the reasons why this
action should not be dismissed pursuant to CPLR 321 1 (a)(4), Plaintiffs' motion for a permanent
injunction prohibiting Defendants from further prosecuting the Texas Action should conversely
be granted in its entirety.
CONCLUSION
For all of the foregoing reasons and those set forth in the Tepperman Affidavit and in the
Hutcher Reply Affidavit, and also for the reasons set forth in plaintiffs' initial moving papers,
Plaintiffs respectfully request that the Court: (a) deny Defendants' cross-motion to dismiss in its
entirety; and (b) grant Plaintiffs' order to show cause and permanently enjoin Defendants from
further prosecuting the Texas Action.
Dated: New York, New York February 2,20 12
DAVIDOFF MALITO & HUTCHER LLP
BY: /Jw 4 Larry Hutcher Gary I. Lerner
605 Third Avenue New York, New York 10 158 (212) 557-7200
Attorneys for Plaint@ BG Oil and Gas, LLC, FLT Oil and Gas, LLC and BCK Oil and Gas, LLC
STATEOFNEWYORK ) ) ss.:
COUNTY OF NEW YORK )
NARCISSUS F. THOMAS, being duly sworn, deposes and says; deponent is not a party to the action, is over 1 8 years of age and reside at Kings County, New York State.
On February 2, 2012, deponent caused to be served the within PLAINTIFFS' MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS AND IN FURTHER SUPPORT OF PLAINTIFFS' MOTION FOR INJUNCTIVE RELIEF, by depositing a true copy of same enclosed in a post-paid properly addressed wrapper in a post office under the exclusive care and custody of the United States Postal Service within the State of New York, addressed to the following person(s) at their last known address set forth after each name:
Aaron R. Easley, Esq. Sessions, Fishrnan, Nathan & Israel, L.L.C.
200 Route 3 1 North, Suite 203 Flemington, New Jersey 08822
Attorneys for Defendants
Sworn to before me this znd day of February, 20 1 2