Applied Capital, Inc. v. Gibson

• Citation: 558 F.Supp.2d 1189
• Decision Date: 31 August 2007
• Docket Number: No. CV 05-00098 JB/ACT.,CV 05-00098 JB/ACT.
• Parties: APPLIED CAPITAL, INC., Plaintiff, v. Francis GIBSON; Gary Bellinger; Brian Ambrose; Kirk Voyles; Heritage Commercial Services, Inc.; Gerald Lee Scogin, Jr; Grizzly Drilling, Inc.; Justin Herman, New Energy Co., L.L.C., and Edward L. Presley, Defendants.
• Court: U.S. District Court — District of New Mexico

Page 1189

558 F.Supp.2d 1189

APPLIED CAPITAL, INC., Plaintiff, v. Francis GIBSON; Gary Bellinger; Brian Ambrose; Kirk Voyles; Heritage Commercial Services, Inc.; Gerald Lee Scogin, Jr; Grizzly Drilling, Inc.; Justin Herman, New Energy Co., L.L.C., and Edward L. Presley, Defendants.

No. CV 05-00098 JB/ACT.

United States District Court, D. New Mexico.

August 31, 2007.

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Henry M. Bohnhoff, Bryan J. Davis, Rodey, Dickason, Sloan, Akin & Robb, PA., Albuquerque, NM, for the Plaintiff.

Francis Gibson, Hailey, ID, Defendant pro se.

Michael Alarid, Jr., The Alarid Law Firm, P.C., Albuquerque, NM, for Defendant Gary Bellinger.

Gerald Lee Scogin, Jr., Lawrenceville, IL, Defendant pro se.

Justin Herman, Pittsburgh, PA, Defendant pro se.

Robert A. Johnson, Johnson & Nelson, P.C., Albuquerque, NM, for Defendants Kirk Voyles and Heritage Commercial Services, Inc.

Brian Ambrose, Laguna Beach, CA, Defendant pro se.

New Energy Co. LLC, Sheridan, WY, Defendant pro se.

Edward Presley, New Energy Co. LLC, Sheridan, WY, Defendant pro se.

MEMORANDUM OPINION AND ORDER

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on Plaintiff Applied Capital, Inc.'s Motion for Partial Summary Judgement Against Defendant Gerald Lee Scogin, Jr. and Grizzly Drilling, Inc. on Applied Capital's Civil Conspiracy, Fraud, Breach of Contract and Unjust Enrichment Claims, filed February 2, 2007 (Doc. 174)("Motion"). The Court held a hearing on the motion on July 31, 2007. The primary issues are: (i) whether the Court should enter summary judgment in favor of Plaintiff Applied Capital, Inc. ("Applied Capital") and against Defendant Grizzly Drilling, Inc. on four of Applied Capital's claims; and (ii) whether, if the Court grants summary judgment in favor of Applied Capital, the Court should award Applied Capital compensatory damages, punitive damages, and attorneys' fees. Because the Court believes that Applied Capital is entitled to summary judgment with respect to liability, the Court will grant Applied Capital's motion in part. Because the Court also believes, however, that Applied Capital is not yet entitled to all the damages it seeks, the Court will deny Applied Capital's motion in part.

FACTUAL BACKGROUND

Defendant Edward L. Presley has operated Defendant New Energy Company, L.L.C. ("New Energy") since 2001. See Memorandum in Support of Plaintiff Applied Capital, Inc's Motion for Partial Summary Judgment Against Defendants Edward Presley and New Energy Co., LLC on Applied Capital's Civil Conspiracy, Fraud, Breach of Contract and Unjust Enrichment Claims, filed February 2, 2007 (Doc. 182)("Presley Memo"), Exhibit 1, Deposition of Edward L. Presley at 6:12-13; 7:3-4 (taken October 18, 2006)("Presley Depo."); Verified Fourth Amended Complaint for Fraud, Negligent Misrepresentation, Unjust Enrichment, Breach of Contract, Violation of the New Mexico Unfair Trade Practices Act, and Civil Conspiracy ¶ 10, at 2-3, filed June 30, 2006 (Doc. 120)("Fourth Complaint"). New Energy holds leases for coal bed methane ("CBM") gas lying underneath tracts of land in Wyoming. See Memorandum in Support of Plaintiff Applied Capital, Inc.'s Motion for Partial Summary Judgment Against Defendant Francis Gibson on Applied Capital's Civil Conspiracy, Fraud, Breach of Contract and Unjust Enrichment Claims, filed February 2, 2007 (Doc. 180)("Gibson Memo"), Exhibit 1, Deposition of Francis Gibson at 47:10-21 (taken December 10, 2004)("Gibson Depo."). Presley had been attempting to obtain financing to drill in, and extract the gas from, these tracts before 2004. See id.

At or about the end of 2003/beginning of 2004, Presley, Defendant Francis Gibson, Defendant Justin Herman, and Defendant Gerald Lee Scogin, Jr. met each other. See Presley Memo, Exhibit 2, Deposition of Justin Wallace Herman at 14:1-2 (taken October 16, 2006)("Herman Depo."); Memorandum in Support of Plaintiff Applied Capital, Inc.'s Motion for Partial Summary Judgment Against Defendants Gerald Lee Scogin, Jr. and Grizzly Drilling, Inc. on Applied Capital's Civil Conspiracy, Fraud, Breach of Contract and Unjust Enrichment Claims, filed February 2, 2007 (Doc. 175)("Scogin Memo"), Exhibit 1, Deposition of Gerald L. Scogin, Jr. at 19:8-10; 21:10-15 (taken December 30, 2004)("Scogin Depo."). Herman was referred to as New Energy's "financial director." Herman Depo. at 15:4-12; Presley Memo, Exhibit 4, Affidavit of Mark Burkhard ¶ 3, at 1 (executed February 1, 2007)("Burkhard Aff."). Gibson was a director of Legato Staffing and Integration Services, LLC ("Legato Staffing"). See Burkhard Aff. ¶ 3, at 1; Gibson Depo. at 22:13-18; 22:25-23:2. Scogin operated Defendant Grizzly Drilling, Inc. ("Grizzly Drilling"). See Fourth Complaint ¶ 7, at 2.

Gibson, Herman, Presley, and Scogin developed a program to obtain the funds necessary to finance the CBM drilling project: Legato Staffing would "rent" ten million dollars from an individual named Ray Benton/Ray Benson; the ten million dollars would be invested in a "high yield investment program" ("HYIP") in Europe; the HYIP would generate profits on the order of five to ten percent, or two to four million dollars, per month, and those profits would be used to finance the drilling project. Presley Depo. at 16:25-18:9; 62:18-64:8; Fourth Complaint ¶¶ 7, 9, 12, at 2-3. To undertake this program, however, Gibson, Herman, Presley, and Scogin needed to raise funds to start the HYIP. They agreed to obtain that money from Applied Capital by factoring New Energy's purported purchase from Grizzly Drilling, and Legato Staffmg's immediate repurchase from New Energy, of a drilling rig for $550,000.00. See Fourth Complaint ¶ 15, at 2-3; Presley Depo. at 18:5-9; Gibson Depo. at 36:6-38:2.

Herman and Presley contacted Applied Capital, representing that they wanted to obtain funding for New Energy to purchase a drilling rig from Grizzly Drilling and that, after acquiring the rig from Grizzly Drilling, New Energy would immediately resell the rig to Legato Staffing, which would then use the rig on New Energy's property to drill for natural gas. See Burkhard Aff. ¶ 3, at 1-2. Applied Capital tentatively agreed to finance the transaction by means of purchase order financing and factoring: in exchange for Legato Staffmg's execution of an estoppel agreement and its agreement to pay New Energy's invoice — in the amount of $625,000.00 — directly to Applied Capital within 60 days, and New Energy's assignment of its receivables to Applied Capital, Applied Capital would wire $550,000.00 to Grizzly Drilling upon its agreement to deliver the rig. See id.; Fourth Complaint ¶ 15, at 3-4.

On May 10 and 11, 2004, Herman and Presley submitted to Applied Capital documentation, which Gibson provided, concerning Legato Staffmg's financial resources. See id. ¶ 17, at 4. The documentation represented that Legato Staffing had over ten million dollars in unrestricted funds and otherwise was in a financially strong position. See id.; Gibson Depo. at 100:5-20. The representations were false: Legato Staffing was not financially strong, had zero unrestricted funds, and had a negative net worth. See Gibson Depo. at 100:21-101:17.

Gibson, Presley, and Scogin executed and submitted to Applied Capital documentation to memorialize the sale of the rig from Grizzly Drilling to New Energy, and from New Energy to Legato Staffing. See Burkhard Aff. ¶ 8, at 4. In this documentation these Defendants represented: (i) that they personally had inspected the rig; and (ii) that within two business days following the wiring of the $550,000.00 from Applied Capital to Grizzly Drilling, Grizzly Drilling would deliver the rig to Legato Staffing at New Energy's lease property in Wyoming. See id. Implicit, if not explicit, in these representations was the fundamental representation that the rig existed. See id. ¶ 8, at 4-5. The Defendants knew that these representations were false; they had not inspected the rig and they did not deliver it to New Energy's lease property. See Presley Depo. at 29:20-22; 41:4-15; Scogin Depo. at 37:17-38:9; Gibson Depo. at 43:15-16; 44:16-21; 83:15-84:24.

Grizzly Drilling did not own a drilling rig. See Scogin Memo, Exhibit 2, Deposition of Charles Newton at 19:1-21:5; 28:12-31:16; 34:6-39:25 (taken November 30, 2006)("Newton Depo."). Scogin's uncle owned the "EMSCO" drilling rig that the documentation submitted to Applied Capital identified. See id. at 19:1-21:5; 28:12-31:16; 34:6-39:25. Scogin contacted his uncle about buying the rig in 2003. See id. at 36:11-13. At that time, Scogin obtained pictures and a list of the rig's specifications, which in turn were provided first to Presley and then to Applied Capital. See id. at 37:12-25: Presley Depo. at 35:2-13: 101:5-103:1. Scogin, however, did not purchase or possess the rig. See Newton Depo. at 19:1-21:5; 28:12-31:16; 34:6-39:25. Scogin's uncle sold the rig to a third party in June 2004. See id. at 20:8-10.

The Defendants intentionally deceived Applied Capital, misrepresenting Legato Staffing's financial resources and credit-worthiness, the existence of the rig, and the bona fides of the transaction generally. See Fourth Complaint ¶¶ 30, 34-56, at 7-11. Applied Capital reasonably relied on the Defendants' misrepresentations to its detriment in agreeing to finance the purchase of the non-existent rig. See Burkhard Aff. ¶¶ 7, 9-10 at 3-5. Applied Capital wired $550,000.00 to Grizzly Drilling on May 19, 2004. See id. ¶ 10, at 5.

On May 27, 2004, Presley sent an e-mail to Applied Capital, representing that the rig had been delivered to the lease property on May 26, 2004. See Presley Memo, Exhibit 6, E-mail Exchange between Ed Presley and Mark Burkhard (dated May 27, 2004)("May 27, 2004 E-mail"). Presley knew that this representation was false. See Presley Depo. at 39:4-10; 41:4-15. Applied Capital relied on this misrepresentation to its detriment....