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Millenium Drilling Co., Inc. v. Beverly House-Meyers Recovable Trust

United States District Court, D. Nevada

September 26, 2014

MILLENIUM DRILLING CO., INC., Plaintiff,
v.
BEVERLY HOUSE-MEYERS RECOVABLE TRUST, et al., Defendants.

ORDER

MIRANDA M. DU, District Judge.

I. SUMMARY

Before the Court is Plaintiff Millennium Drilling, Inc.'s ("Millennium") Motion for Partial Summary Judgment. (Dkt. no. 136.) Defendants filed an opposition and Plaintiff filed a reply. (Dkt. nos. 149 & 153.) Defendants also moved for leave to file supplemental authorities, to which Plaintiff responded. (Dkt. nos. 155 & 159.) For the reasons discussed below, Plaintiff's Motion is denied and Defendants' motion to file supplemental authorities is also denied.

II. BACKGROUND

This action arises from Defendants' investments in certain partnerships that were engaging in oil and gas exploration. Defendants Beverly House-Meyers Revocable Trust ("BHMT") and Hamrick Trust ("HT") acquired general partnership units in Falcon Drilling Partners ("Falcon"), Colt Drilling Partners ("Colt"), and Lion Drilling Partners ("Lion") (collectively, the "Partnerships"). (Dkt. no. 136 at 3.) Through their managing partner, Montcalm, LLC, the Partnerships acquired interests in portions of portfolios of oil and gas leases and lands from Third-Party Defendant Patriot Exploration Company, LLC ("Patriot"). (Dkt. no. 30 at 3.)

As part of their investment in the Partnerships, Defendants made varying amounts of cash contributions and executed the following substantially similar agreements: (1) subscription agreements ("Subscription Agreements"); (2) partnership agreements ("Partnership Agreements"); (3) subscription notes and security and pledge agreements ("Subscription Notes"); and (4) assumption agreements ("Assumption Agreements"). (Dkt. no. 136 at 3-7.) Additionally, for each Partnership, Defendants received similar private placement memoranda ("PPM"). ( Id. at 4.) The PPMs stated that the Partnerships would enter into drilling contracts with Plaintiff to drill specified oil and gas wells. ( Id. )

As compensation, the Partnerships agreed to make cash payments and to pledge all of their partners' Subscription Notes to Plaintiff as security for the Partnerships' future payment obligations under a turnkey note. ( Id. at 7; dkt. no. 30 at 4.) The Subscription Notes included language allowing the Partnerships to assign the Subscription Notes to Millennium. (Dkt. no. 136 at 7.) For example, BHMT entered into a Subscription Agreement dated June 15, 2004, to acquire partnership interest in Colt by paying $1, 000, 000.00 in cash and by signing a Subscription Note in the principal amount of $1, 200, 000.00. ( Id. at 5; dkt. no. 136-1 & 136-18.) BHMT signed an Assumption Agreement agreeing to assume its pro rata share of Colt's debt to Plaintiff. (Dkt. no. 136 at 7; dkt. no. 136-18.) Colt assigned the Subscription Note to Plaintiff. (Dkt. no. 136 at 7.)

Plaintiff's First Amended Complaint ("FAC") alleges ten causes of action. The first, fifth, and eighth claims are for breach of contract in connection with Falcon, Colt, and Lion, respectively.[1] (Dkt. no. 30.) As their third affirmative defense, Defendants assert that Plaintiff committed fraud with respect to the contracts at issue. (Dkt. no. 97 at 18.) Defendants also assert claims against certain Third-Party Defendants, including Patriot and Jonathon Feldman ("Feldman"), for fraud/fraud in the inducement and fraudulent nondisclosure, among other claims.[2] (2:13-cv-78-MMD-CWH, dkt. no. 1-1.) Defendants allege that Patriot, Feldman, and other Third-Party Defendants are promoters of the oil and gas investments at issue and that they created and operated Millennium to perpetuate their fraud against Plaintiff. ( Id. )

Plaintiff contends that Defendants have defaulted by disavowing their unconditional promise to pay Plaintiff under the Subscription Notes and Assumption Agreements. ( Id. at 10.) Plaintiff seeks summary judgment on its three breach of contract claims (counts I, V, and VIII).

III. LEGAL STANDARD

The purpose of summary judgment is to avoid unnecessary trials when there is no dispute as to the facts before the court. Nw. Motorcycle Ass'n v. U.S. Dep't of Agric., 18 F.3d 1468, 1471 (9th Cir. 1994). Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). An issue is "genuine" if there is a sufficient evidentiary basis on which a reasonable fact-finder could find for the nonmoving party and a dispute is "material" if it could affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). Where reasonable minds could differ on the material facts at issue, however, summary judgment is not appropriate. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995). "The amount of evidence necessary to raise a genuine issue of material fact is enough to require a jury or judge to resolve the parties' differing versions of the truth at trial.'" Aydin Corp. v. Loral Corp., 718 F.2d 897, 902 (9th Cir. 1983) ( quoting First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288-89 (1968)). In evaluating a summary judgment motion, a court views all facts and draws all inferences in the light most favorable to the nonmoving party. Kaiser Cement Corp. v. Fishbach & Moore, Inc., 793 F.2d 1100, 1103 (9th Cir. 1986).

The moving party bears the burden of showing that there are no genuine issues of material fact. Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir. 1982). "In order to carry its burden of production, the moving party must either produce evidence negating an essential element of the nonmoving party's claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000). Once the moving party satisfies Rule 56's requirements, the burden shifts to the party resisting the motion to "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256. The nonmoving party "may not rely on denials in the pleadings but must produce specific evidence, through affidavits or admissible discovery material, to show that the dispute exists, " Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991), and "must do more than simply show that there is some metaphysical doubt as to the material facts." Orr v. Bank of Am., 285 F.3d 764, 783 (9th Cir. 2002) (internal quotation marks omitted). "The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient." Anderson, 477 U.S. at 252.

IV. DISCUSSION

Plaintiff makes the straightforward argument that Defendants entered into the Subscription Notes and Assumption Agreements and then subsequently breached these agreements. In response, however, Defendants challenge the enforceability of these agreements based on their affirmative defense of fraud and affirmative claim of fraud in the inducement.[3] Accordingly, the threshold issue is whether Defendants have demonstrated material ...


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