Roil Energy, LLC v. Edington
| Decision Date | 02 August 2016 |
| Docket Number | No. 32577-6-III,32577-6-III |
| Court | Washington Court of Appeals |
| Parties | ROIL ENERGY, LLC, a Nevada Limited Liability Company, by and through the derivative claim of ALLAN HOLMS, a married man and a Washington Resident, Appellants, v. JOSEPH ("JAY") EDINGTON and JANE DOE EDINGTON, husband and wife and residents of Spokane County, Washington; TOLL RESERVE CONSORTIUM INC., a Nevada Corporation recently renamed as HOLMS ENERGY DEVELOPMENT CORPORATION, a Nevada Corporation; VAL AND MARI HOLMS, husband and wife, and the marital community comprised thereof, residents of the State of Montana; HOLMS ENERGY, LLC, a Nevada Limited Liability Company, and BAKKEN RESOURCES, INC., a Nevada Corporation. Respondents. |
FEARING, C.J. — This appeal pits two half-brothers, Allan Holms and Val Holms, against one another. The dispute arises from discussions between the two brothers concerning development of mineral rights owned by Val. The trial court held that the two never formed an enforceable agreement, but found that Val committed fraud, breach of fiduciary duty, conspiracy, and oppression of Allan. The trial court denied Allan an award of damages because of lack of proof of damages. We affirm the dismissal of the contract claim, but reverse the tort judgments because an element of each tort cause of action is proof of damages.
The business dispute on appeal lies between Allan Holms and Val Holms, half-brothers who share the same father. Allan resides in Spokane, and Val lives in Montana. When Allan and Val's father died, each inherited mineral interests located in McKenzie County, North Dakota. The interests of each brother lie on separate parcels, and Allan's mineral interests are not involved in this appeal.
Val Holms' mineral interests are the subject of this appeal. Val's interests lie within the North Dakota Bakken Oil Fields, scene of recent oil production. Val shared his mineral interests with his sister Evenette Greenfield and a cousin, with each holding a one-third interest. The interest came through Val's mother, who was not the mother of Allan. Presumably the interests are undivided, but the record does not show such. In 2009, Val Holms transferred his mineral interests to Toll Reserve Consortium, Inc., a Nevada corporation solely owned by Val. Sometime in late 2009, Allan Holms met Jay Edington at a social event. Edington is a Spokane financial consultant involved in mergers and acquisitions of public companies. Edington suggested to Allan that the two work together on an investment scheme involving public "shell" companies. Contemporaneous to Edington's proposal to Allan Holms, Val Holms asked brother Allan for an $80,000 loan to open an auto body shop. During a 2009 Christmas visit in Spokane, Allan declined the loan request and suggested to Val that the two develop Val's North Dakota mineral interests instead.
Allan Holms introduced Val to Jay Edington during the Christmas holiday. During the initial meeting and in other meetings in January and February 2010, Edington proposed the utilization of a reverse merger to raise capital for development of Val's mineral interests. This court remains uneducated as to what capital the three needed to raise to exploit the mineral interests held by Val Holms, why Val would not reap more income by leasing his mineral rights to an oil company, and how Val's one-third interest could be developed without participation of the owners of the remaining two-thirds interest.
The reverse merger sought by Jay Edington entailed placing Val Holms' North Dakota mineral interests in a private entity owned by Edington and the Holms, the three acquiring a controlling interest in the shares and management of a public shell company, and then transferring the mineral interests of the private entity to the public company in exchange for the public company's shares. Edington explained that the three could moreeasily raise capital by selling the shares of an established, but nonoperating, publicly-traded company. When the private company acquired a majority interest in the public company's stock during the asset transfer, the private company would become the controlling entity and merge into the public company.
According to Jay Edington, the reverse merger, as compared to forming a new public company, lessened the expense and decreased the time needed to raise capital. Creating a new public corporation requires filing with the Securities and Exchange Commission and completing extensive paperwork before the selling of shares commences. Edington assured Allan and Val Holms that a reverse merger would also permit transfer of the mineral rights for shares of a company free of taxation.
Allan and Val Holms respectively claim that each did not understand the reverse merger process recommended by Jay Edington. Allan and Val's imperfect understanding extended to knowing the three would form a limited liability company with Allan contributing initial funding, Val providing his mineral interests, and Edington providing the labor and expertise to procure a public shell company for the reverse merger and marketing the shell company's shares. Allan agreed to supply seed capital of from $200,000 to $250,000 and to raise two million dollars in private equity from investors who would buy shares in the public corporation.
On February 1, 2010, Jay Edington chose APD Antiquities, Inc. (APD) as the target public shell corporation for the reverse merger. Edington was the founder of and aconsultant to APD. He advised Allan Holms to purchase 2.5 million shares of APD common stock for $0.02 per share. On February 1, Edington also sent a template to Allan and Val for reverse mergers and asset purchase agreements.
The trio did not execute any written agreement, but Jay Edington outlined each party's responsibilities in a timeline chart that he presented to Allan and Val Holms on February 13, 2010. The timeline listed that Allan would submit $200,000 to the limited liability company by March 1, 2010, and Val would assign his North Dakota mineral interests to the company and record the transfer by March 8, 2010.
According to Val Holms, Allan, Edington, and he discussed numerous ownership percentages for the business venture. Val Holms consistently told others that he intended to hold the controlling interest in both the limited liability company and APD Antiquities because the value of his mineral interests exceeded the value of Allan's and Jay Edington's contributions. According to Edington, the division of ownership shares was never finalized. Allan claims the parties agreed to a 40/40/20 split in ownership.
By early February 2010, Jay Edington commenced surreptitiously e-mailing Val Holms and expressing unhappiness in Allan's participation in the venture. Val's sister, Evenette Greenfield, gained copies of these secretive e-mails and later supplied copies to Allan. In a February 3, 2010 e-mail to Val, Edington expressed irritation at Allan's greed and his desire to act as "'Big Daddy'" while Val and Edington performed the work. Ex. 82 at 1. Edington expressed worry that Allan intended to keep the equity from the APDAntiquities shares he would purchase for the three or share the shares with Val without providing any shares to Edington. Edington rhetorically asked why he would invest his time, energy, and expertise to reap Allan a fortune. Edington desired a three-way split of the APD Antiquities shares.
Jay Edington recommended to Val and Allan Holms that the three men form their limited liability company, as the private entity for the reverse merger, in Nevada. On February 19, 2010, the threesome formed Roil Energy, LLC, a Nevada limited liability company that designated Edington's daughter, a Nevada resident, as the registered agent. The formation document listed Allan, Val, and Edington as managing members of Roil Energy.
Jay Edington's reverse merger plan contemplated that he, Val Holms, and Allan Holms would not be the only members of Roil Energy, LLC. Instead an additional member or members would participate to the extent of an undetermined percentage ownership interest in the limited liability company. Neither Val nor Allan Holms knew the identity of the additional member or members, and no percentage membership interest was ever assigned to those unidentified members.
On February 19, 2010, the same day as the formation of Roil Energy, Allan and Val Holms rendezvoused in Butte, Montana. Val brought copies of the two mineral deeds and told Allan the originals had been mailed to North Dakota for filing. The deeds had not been mailed or recorded and were never recorded. The mineral deeds purportedto transfer Val's mineral rights, through his company, Toll Reserve Consortium, Inc., to Roil Energy for $10 in consideration. Val Holms did not intend to record the deeds until Allan Holms contributed the $200,000 and performed other commitments. According to Jay Edington, the reverse merger plan anticipated the transfer of the mineral interests after the closing of an agreement, raising of needed capital, and a private stock placement. At the Butte meeting, Val handed copies of each deed to Allan.
Tom Greenfield, son of Evenette Greenfield and nephew of both Allan Holms and Val Holms, attended the meeting between Allan and Val Holms on February 19, 2010. Based on the discussion, Tom Greenfield concluded that Val would hold a majority interest in the venture.
During the brothers' Butte meeting, Allan delivered a check for $10,000 to Val to open a Roil Energy company bank account. Val later opened the account, deposited the check, and used the deposited funds to pay company bills, including his monthly salary of $6,000.
APD Antiquities, the shell target corporation, needed funds from investors to purchase the mineral interests from the limited liability company formed by Allan and Val Holms and Jay Edington. As a prelude to seeking investors for APD Antiquities, APD needed to acquire the...
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