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Moore v. Payson Petroleum Grayson LLC

United States District Court, N.D. Texas, Dallas Division

January 23, 2018

TIM MOORE, et al., Plaintiffs,



         By Special Order No. 3-251, this pro se case has been automatically referred for full case management, including the determination of non-dispositive motions and the issuance of findings, conclusions, and recommendations on dispositive motions. Before the Court for determination is Plaintiffs' Motion to Transfer Venue, filed July 26, 2017 (doc. 32). Based on the relevant filings, evidence, and applicable law, the motion is DENIED.

         I. BACKGROUND

         This lawsuit arises from a two-phase offering to invest in two Texas limited partnerships to fund the drilling, completion, and operation of two vertical wells and one horizontal well (3 Well Program) owned by Payson Petroleum, Inc.[1] (Payson), in Grayson County, Texas. (doc. 1-3 at 175-76.)[2] The first phase offered 1, 000 units at a cost of $27, 000.00 per unit for the Payson Petroleum 3 Well, L.P. (3 Well), commencing on October 23, 2013, through December 31, 2013. (Id. at 175, 200.) Because only 277.65 units were sold, a second offering phase for the remaining 722.35 units of Payson Petroleum 3 Well 2014, L.P. (3 Well 2014), commenced on January 12, 2014, through June 30, 2014. (Id.) The two offerings in the 3 Well Program raised $23 million in total. (Id. at 200.) A private placement memorandum (PPM) was issued for each offering, which included statements on how Payson would be funding 20% of the 3 Well Program:

(1) Payson agreed to purchase 200 units in the 3 Well Program for $5.4 million; (2) in no event will Payson not purchase at least 100 units in the 3 Well Program; (3) Payson's $5.4 million capital infusion would fund 20% of the cost of the 3 Well Program; and (4) the “estimated” cost to drill and complete the wells by Payson was approximately $24 million.

(Id. at 175-77.)

         The two offerings in the 3 Well Program successfully raised $23 million in total from approximately 150 investors. (Id. at 200.) Payson, however, failed to purchase 200 units or fund 20% of the 3 Well Program; as it was later discovered, it never had the financial capacity to do so. (Id. at 196.) The 3 Well Program was abandoned, and none of the investors received back any portion of the $23 million that was raised in the offerings. (Id. at 178.)

         A. SEC Civil Action

         On November 23, 2016, the Securities and Exchange Commission (SEC) filed a civil action in the Sherman Division of the Eastern District of Texas against Payson's owner, Matthew Carl Griffin (Griffin), [3] for violations of antifraud provisions in the Securities Act of 1933 and the Securities Exchange Act of 1934 (collectively Federal Securities Acts) for false statements and omissions made in the PPMs during the solicitation of investors in the 3 Well Program. (Id. at 215); see SEC v. Griffin et al., No. 4:16-CV-00902 (E.D. Tex. Nov 23, 2016). The SEC complaint states that Griffin “had ultimate authority over the [misrepresentations made in] the PPMs and whether and how to communicate those contents” and that “[t]he brokers selling the 3 Well Program were also misled [by Griffin because he] . . . wrote checks on Payson's bank account, totaling $4.36 million, to the limited partnerships, but funded those checks almost entirely with the investors' own money” making it appear “to the chief compliance officer of the managing seller of the 3 Well Program . . . that Payson had made its financial contribution to the 3 Well Program with its own funds.”[4] (doc. 1-3 at 220-21, 224.)

         The SEC complaint was filed contemporaneously with an “Unopposed Motion to Enter Interlocutory Judgments” that explained how Griffin had already executed a consent agreement with the SEC before the civil action was filed, in which he consented to an injunction against future violations and to pay disgorgement and penalties as determined by the court at a later time upon the SEC's motion.[5] (doc. 46-1.) On December 30, 2016, Court entered a four-page “Interlocutory Judgment as to Defendant Matthew Carl Griffin” that enjoined him from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. (doc. 1-3 at 238-41.) It noted that Griffin “consented to entry of this Interlocutory Judgment . . . [and] waived findings of facts and conclusions of law.” (Id. at 1.) The only remaining issue in the SEC case is the amount of penalty and disgorgement.

         B. Dallas Suit

         On February 22, 2017, a group of seven investors[6] in the 3 Well Program (Plaintiffs) filed this class action suit in the 162nd District Court of Dallas County, Texas, alleging violations of the Texas Securities Act against Griffin and twelve other defendants, including Payson Petroleum Grayson, LLC (Payson Grayson), PTX Securities, LLC (PTX), Dan Nichter (Nichter), EDI Financial, Inc. (EDI), Financial West Group (Financial West), MidAmerica Financial Services, Inc. (MidAmerica), Shaun Darnell Young (Young), S&M, Ltd. (S&M), Terry Dewayne Harvey (Harvey), Plano Capital Group, LLC (Plano Capital), Martin William Prinz (Prinz), and Gene Charles Valentine (Valentine) (collectively Defendants). (See doc. 1-3 at 23-57, 174-210.) Plaintiffs divide the defendants into two groups: (1) the Broker-Dealer Defendants, defined as PTX, EDI, Financial West, and MidAmerica, are the entities who brokered the sales of the units in the 3 Well Program to the investors; and (2) the Control Person Defendants, defined as Griffin, Harvey, Plano Capital, S&M, and Young, are the entities and individuals who control the Broker-Dealer Defendants. (Id. at 183.) Payson Grayson is identified as the Managing General Partner of the 3 Well Program, and Nichter is identified as the Director of Client Relations at Payson. (Id. at 179-80.) On May 31, 2017, Financial West and Valentine removed this action to federal court asserting that this Court has original jurisdiction under the Class Action Fairness Act provisions of 28 U.S.C. § 1332(d)(2).[7] (doc. 1 at 3.)

         Plaintiffs allege that Defendants “disseminated” the PPMs containing the “fraudulent” statements as to Payson's 20% contribution to the 3 Well Program to Plaintiffs and other investors, and they “reiterated to Plaintiffs the same, in meetings and communications, at investor events, dinners, and sales presentations, and by other marketing and promoting mechanisms, in order to solicit Plaintiffs' purchases of units in the 3 Well Program.” (doc. 1-3 at 178.) They further allege that Defendants also solicited Plaintiffs' purchases of units in the 3 Well Program by e-mails, mailings, webinar slides, and unsolicited telephone calls to Plaintiffs. (Id. at 194.) Defendants collectively made “an estimated $4, 260, 276.00 in sales commissions from selling units to Plaintiffs and Class Members.” (Id. at 202.)

         Specifically, Plaintiffs allege that the statements made in the two PPM offering documents are fraudulent and misleading because:

(1) Payson never purchased a single unit and thereby contributed no money to the 3 Well Program; (2) consequently, Payson paid nothing towards its 20% share of the cost of the 3 Well Program; (3) Payson lacked the financial means to make the $5.4 million payment; (4) the true cost of drilling and completing the wells was $16-$18 million; (5) the “estimated” $24 million cost to drill and complete the wells was Payson's undisclosed fixed fee for drilling the wells, regardless of the actual drilling cost; and (6) Payson pocketed the difference between the $23 million raised in the two integrated offerings and the actual drilling cost-$16-$18 million. (Id. at 177.)

         Plaintiffs further allege that they were never informed that “Payson had a secret ‘turn-key' agreement with the limited partnerships whereby Payson would retain as its putative drilling fee, $24 million net of actual well costs of the projected $27 million raised in the offering.” (Id. at 178.) They contend that these misrepresentations and omissions were made so that Payson could “fleece investors by unlawfully pocketing the difference between the false $24 million estimate and the wells actual cost.” (doc. 30 at 8.)

         In Count I of their petition, Plaintiffs claim that “All Defendants” are liable pursuant to Article 581-33A(2) of the Texas Securities Act “by offering, soliciting, and/or selling units the 3 Well Program to Plaintiffs and Class Members by means of untrue statement of material facts and/or omissions to state material facts necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.” (doc. 1-3 at 206-07.) In Count II, Plaintiffs further allege that the Control Person Defendants are jointly and severally liable under Article 581-33F(1) of the Texas Securities Act as the “senior officers, directors, significant shareholders, or have indirect control over” the Broker-Dealer Defendants. (Id.) Plaintiffs seek monetary relief in an amount over $1, 000, 000.00, exemplary damages, and attorney fees. (Id. at 208.)

         Shortly after this case was removed to federal court, Plaintiffs moved to transfer all proceedings to the Sherman Division of the Eastern District of Texas under 28 U.S.C. § 1404(a). (doc. 32.) With a timely filed response and reply, this motion is ripe for determination. (docs. 42, 43, 44, 59, 60, 61.)

         II. § 1404(a)

         Plaintiffs argue that all of the applicable factors weigh in favor of transfer to the Sherman Division because the district judge there is “best positioned to handle this action because he is already familiar with the central facts and issues underlying Plaintiffs' allegations.” (doc. 33 at 7-8.)

         A district court may transfer any civil case “[f]or the convenience of parties and witnesses, in the interest of justice . . . to any other district or division where it may have been brought or to any district or division to which all parties have consented.” 28 U.S.C. § 1404(a). As a threshold matter, § 1404(a) requires a determination of whether the proposed transferee district is one in which the suit might have been brought. In re Horsehoe Entm't, 337 F.3d 429, 433 (5th Cir. 2003) (per curiam). Once this threshold has been met, § 1404(a) requires consideration of “the convenience of the parties and witnesses” and “the interests of justice.” In re Volkswagen AG, 371 F.3d 201, 203 (5th Cir. 2004) (Volkswagen I); In re Volkswagen of Am., Inc., 545 F.3d 304, 315 (5th Cir. 2008) (Volkswagen II). The movant must show that considering both the convenience of the parties and witnesses and the interest of justice under § 1404(a), the transferee venue is “clearly more convenient.” Volkswagen II, 545 F.3d at 315. The determination of venue transfer pursuant to § 1404(a) is within the trial court's sound discretion, exercised “in light of the particular circumstances of the case.” Hanby v. Shell Oil Co., 144 F.Supp.2d 673, 676 (E.D. Tex. 2001) (citing Jarvis Christian College v. Exxon Corp., 845 F.2d 523, 528 (5th Cir. 1988)).

         When, as here, the plaintiff is the movant seeking a § 1404(a) transfer, courts have explained that “the burden should be at least as heavy on a plaintiff who seeks to change the forum that he or she had selected as it is when the defendant is the moving party, ” although, “[a]t the same time, as with all Section 1404(a) determinations, the particular circumstances surrounding the transfer motion must be considered.” Ross Neely Sys., Inc. v. Navistar, Inc., No. 3:13-CV-1587-M-BN, 2015 WL 1822837, at *5 (N.D. Tex. Apr. 22, 2015) (citing United Galvanizing, Inc. v. Imperial Zinc Corp., No. H-08-0551, 2010 WL 4393990, at *3 (S.D. Tex. Oct. 29, 2010)).

         A. Proposed Transferee District

         Plaintiffs argue that this action could have been filed in the Sherman Division of the Eastern District of Texas because a substantial part of the events or omissions giving rise to their claims occurred there. (doc. 33 at 13.) Financial West and Valentine respond that Plaintiffs have failed to show a “substantial connection” with the Sherman Division.[8] (doc. 44 at 12.)

         For all civil actions brought in a United States district court, venue is proper in:

(1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located; (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or (3) if there is no district in which an action may otherwise be brought as provided in this section, any judicial ...

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