Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Bates Energy Oil & Gas, LLC v. Complete Oil Field Services, LLC

United States District Court, W.D. Texas, San Antonio Division

September 13, 2017




         On this date, the Court considered Complete Oil Field Services' motion for temporary restraining order and for preliminary injunction (docket no. 13).

         Plaintiff Bates Energy Oil & Gas, LLC filed this action in state court against Defendants Complete Oil Field Services, LLC (“COFS”) and Sam Taylor. Bates sues COFS for breach of contract and sues Taylor for tortious interference with contract. Bates alleges that it and COFS entered into a Memorandum of Understanding (“MOU”) on or around April 13, 2017, under which Bates agreed to provide and transport 50, 000 tons of 40/70 mesh Proppant and 30, 000 tons of 100 mesh Proppant frac sand to COFS. Bates alleges that COFS was obligated to accept delivery of the sand under the terms of the MOU, but COFS rejected attempted deliveries of over 40, 000 tons of frac sand.

         As part of the agreement, $4, 000, 000 was placed in escrow accounts with Equity Liaison Company, LLC (“ELC”) and Amegy Bank. $1 million was placed into the account managed by ELC and $3 million into the Amegy Bank account. Under the MOU, this deposit was to fund “the payment for initial orders as agreed”; “[d]isbursements from this account shall be made upon the authorized conditions”; and “[a]ny monies placed into the escrow account must have Bates Energy's written approval prior to withdrawal, to ensure that no material invoice is tied to such funds.” Bates was to receive 50% of the invoice total upon delivery of the bill of lading and receive the outstanding balance within three business days after delivery.

         COFS and Bates also entered into an Escrow and Disbursement Agreement dated April 14, 2017, which provided for the deposit of funds into the ELC escrow account. Bates alleges that COFS regularly sought withdrawals from the escrow account without the required authorization from Bates and that COFS has refused to provide requested approval for disbursement of funds for costs incurred by Bates pursuant to the Agreement. Bates alleges that it incurred expenses and lost profits as a result of COFS's breach of the agreement. Bates further alleges that Taylor has approached one or more of Bates's suppliers and offered to enter into independent agreements with the suppliers to cut Bates out. Bates sought a temporary restraining order enjoining COFS from making withdrawals from the escrow accounts and enjoining COFS and Taylor from contacting Bates's suppliers. On July 20, the state district court granted the temporary restraining order ex parte.

         COFS was served on July 24. COFS filed a motion to dissolve or vacate the ex parte TRO and sought an expedited setting for a hearing. COFS asserted that the TRO froze the $4 million in escrow funds owned by its client ProPetro, on whose behalf COFS was purchasing the frac sand, [1]and that Bates had failed to provide the frac sand, forcing COFS to buy substitute product from a different vendor, whom it was then unable to pay because of the TRO. COFS also asserted that the TRO was procedurally and substantively defective. The district court dissolved the TRO and issued an amended TRO on July 26, but the TRO still enjoined COFS from withdrawals and requests of withdrawals from the escrow accounts. The Court set a temporary injunction hearing for August 3.

         On August 2, COFS and Taylor filed their Answer, asserting a general denial and various affirmative defenses. COFS also filed a Counterclaim against Bates for declaratory judgment, rescission, fraud, breach of contract, equitable accounting, and theft, and sought a writ of attachment to protect the escrow account. The Counterclaim asserted that Bates was obligated under the MOU to deliver 10, 000 tons of frac sand by May 10 and a total of 80, 000 tons by July 12, and the sand was required to be either 40/70 or 100 mesh, “had to be in grades ‘API compliant, '” and had to be delivered to one of the seven designated West Texas rail terminals. COFS asserted that, once Bates could confirm through bills of lading, rail car receipts, and other proof that it had delivered the correct type of sand to the correct location, that documentation would be sent to the escrow account managers for audit, and if the audit showed proper delivery, then the escrow account manager was authorized to release payment funds to Bates. COFS alleged that ELC was an escrow agency chosen by Bates, and that ELC's principal Dewayne Naumann has a close relationship with Bates. COFS alleges that Bates made false representations about having acquired sand for delivery, but no sand was delivered and Bates was unable to produce bills of lading or other supporting documents showing it ever loaded a railcar with sand.

         COFS alleges that it became concerned about Bates's ability to meet its obligations under the MOU and began investigating Bates's purported mines and other sources of frac sand. COFS traveled to Wisconsin and was given a “winding tour around Wisconsin, stopping at two mines along the way, ” but COFS alleges neither mine had the capacity to delivery any appreciable amount of frac sand, and neither allowed them to access its premises. COFS alleges that Bates later asserted that the price in Wisconsin had become too high and suggested that COFS would have to pay a higher price than under the MOU, which COFS rejected.

         COFS alleges that “Bates Energy wholly failed to meet the MOU's May 10, 2017 delivery deadline.” COFS alleges that in June Bates emailed and texted COFS that it could deliver noncomplying frac sand, but COFS had no obligation to accept this sand, and it did not. COFS alleges that Bates admitted in early June 2017 that it had never scheduled any sand for delivery to COFS, revealing a two-month pattern of lying, fraud, and blatant misrepresentations, and “demonstrat[ing] multiple attempts by Bates Energy and Bates to steal money from the escrowed funds, by demanding payment when it knew no sand would be delivered.” COFS alleges that Bates did make a real attempt to deliver compliant frac sand around June 9, but the amount of sand differed from the purchase order, Bates failed to deliver any bills of lading to prove it was the owner, the railcar documentation indicated the consignee was “High Crush” rather than Bates, and Taylor could never confirm the sand was there.

         COFS alleges that it began a search for alternative suppliers so it could meet its obligation to ProPetro, and identified CSI Sands, one of Bates's potential suppliers in Wisconsin, and CSI began providing the sand to COFS. Bates executed a disbursement letter on June 15 permitting payment up to $1 million to CSI from the escrow account. COFS alleges that Bates admitted in open court that the invoiced funds are properly payable from escrowed monies, but Bates has been insisting that payment be made from the Amegy account and not the ELC account managed by ELC and Naumann.

         COFS alleges that in July 2017, Bates “succeed[ed] in absconding with approximately $40, 000 of escrowed funds without delivering any sand to COFS” after it sent what appeared to be documentation showing it had placed six railcars for delivery to Seagraves, Texas, with delivery due July 23. COFS alleges that it authorized payment to Bates under the ELC escrow account, but the sand was never delivered. COFS alleges that Bates likely forged one or more of the documents and ELC's “audit” failed to discover the forged or deficient documentation.

         COFS further alleges that it has learned that Bates is under federal indictment related to his prior business activity as CEO of Four Winds, and that the third-party escrow company for Four Winds was ELC. COFS alleges that Bates was arrested on May 17, 2017 and released on bail. COFS further alleges that the bankruptcy judge in Bates's 2015 bankruptcy proceeding made “numerous findings that do not bode well for the preservation of the funds in the ELC account” and that Naumann and his wife were recently sued for failing to pay a home mortgage debt since January 2013, and a default judgment was entered, to be satisfied through foreclosure. COFS alleges that Naumann has no longer been responsive to inquiries by COFS about the escrow account and has not provided a requested simple account balance, and that Bates has moved out of its office building.

         The state district judge heard Bates's application for a temporary injunction on August 3, and issued a written order denying the injunction on August 8. Defendants COFS and Taylor then removed this case on August 23, alleging diversity jurisdiction. On September 8, Defendant COFS filed an Amended Counterclaim, asserting claims against ELC and its principal/agent Dewayne D. Naumann for breach of the Escrow Agreement, breach of fiduciary duty, “restitution and money had and received, ” and equitable accounting. The Amended Counterclaim also seeks a writ of attachment on the escrowed funds. The Amended Counterclaim alleges that, upon COFS's termination of the MOU (on August 15), “ELC and Naumann were obligated to disburse escrowed funds of up to $1 million to COFS, ” but they have not, in contravention of the express terms of the parties' escrow agreement.” It further alleges that ELC and Naumann refuse to provide information about the account balance.

         COFS requests an ex parte temporary restraining order restraining ELC and Naumann and anyone else acting in active concert or participation with them, including Bates Energy and Stan Bates, from directly or indirectly withdrawing, transferring, removing, dissipating, assigning, encumbering, or disposing of funds caused to be deposited by COFS in any ELC escrow account and an immediate equitable accounting by ELC and Naumann of all funds entrusted to its or his care, including a statement of activity on the account since its inception in April 2017, the current balance in the account, all bank account statements pertinent to such funds, all records showing receipts and disbursements from such accounts, and the identification of any bank or escrow accounts containing proceeds frm the original deposit. COFS then seeks a preliminary injunction following notice and a hearing with similar restraints.

         Applicable ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.