Thieret Family, LLC v. Brown
| Decision Date | 03 August 2021 |
| Docket Number | 1:21CV36 SNLJ |
| Parties | THIERET FAMILY, LLC, et al., Plaintiffs, v. JUSTIN A. BROWN, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Missouri |
Plaintiffs the Thieret Family, LLC and Denis A. Thieret, as trustee of the Dennis A. Thieret Revocable Trust dated January 27, 1998 filed this securities fraud action alleging that defendants had fraudulently induced plaintiffs to pay $300, 000 as part of an oil well investment contract. The plaintiffs are located in and citizens of Missouri.
Defendants Justin A. Brown and Adam Horton are citizens of Texas. Defendant Mike Still is a citizen of Missouri. Defendants have filed several motions to dismiss.
Plaintiffs' claims arise from defendants' alleged fraudulent scheme to induce plaintiffs to advance $300, 000 in connection with investments involving working interests in certain oil wells and leases. The first investment, in May 2019, was for working interests in oil wells and leases in Louisiana (the “Louisiana WIs”). The terms for plaintiffs' investment in the Louisiana WIs are described in two finance agreements between Delta Plains Services, LLC (“Delta Plains”) and plaintiffs (the “Louisiana Finance Agreements”).
Plaintiffs made a second investment in September 2019 in oil wells and leases in Texas (the “Texas WIs”). The terms of plaintiffs' investments in the Texas WIs involve oral and written representations (the “Texas Investment Contracts”).
Plaintiffs allege that their first interaction with defendants was when defendant Still contacted Dennis Thieret by phone, apparently on behalf of Delta Plains. Defendant Still subsequently introduced Thieret to defendants Brown and Horton. Delta Plains was owned by defendant Brown. Defendants Still and Horton held themselves out to plaintiffs as agents of Delta Plains working closely with defendant Brown.
Plaintiffs allege that defendants said that Delta Plains would perform the promises memorialized in the Louisiana Finance Agreements, including prompt repayment of the $300, 000 that plaintiffs advanced to Delta Plains, and that plaintiffs would receive monthly income of at least $3, 200 per month for the next 20-30 years as a result of their investments. These representations, however, were allegedly false when made in that Delta Plains had no intention of repaying plaintiffs, conveying any working interests to Plaintiffs, or providing any monthly income to Plaintiffs.
Plaintiffs further allege that defendants have engaged in a pattern and practice of defrauding investors through fraudulent promises of delivering working interests in oil wells and leases, providing income from the working interests, and repaying principal payments with interest in a short period.
Plaintiffs filed their first lawsuit pertaining to this matter in state court in Perry County, Missouri, Case No. 19PR-CC00068, on December 19, 2019 (the “Perry County Action”). Plaintiffs named Horton, Still, Brown, and Delta Plains as defendants (collectively, the “Perry County Defendants”). The Perry County Action included four counts: (I) fraud by Family against the Perry County Defendants; (II) fraud by Trust against the Perry County Defendants; (III) bad check by Family against Delta Plains; and (IV) bad check by Trust against Delta Plains.
The Perry County Defendants moved to dismiss all claims based on a Forum Selection Clause in the Finance Agreements. The state court granted the motion based on the Forum Selection Clause and dismissed the fraud claims (Counts I and II) against the Perry County Defendants on August 14, 2020 (“2020 Order”). The state court ultimately entered judgment against Delta Plains on the “bad check” claims and awarded plaintiffs $172, 568.30 each (the “Perry County Judgment”). That matter is now on appeal with the Missouri Court of Appeals.
Plaintiffs filed this lawsuit on March 5, 2021 and bring eight counts. The first six counts are against each defendant Horton, Still, and Brown for violations of the Securities Exchange Act, the Missouri Securities Act, and the Texas Securities Act. Counts VII and VIII are to pierce the corporate veil[1] of Delta Plains to reach the assets of defendant Brown in order to satisfy the Perry County Judgment that the plaintiffs have already secured against Delta Plains.
Defendants Horton and Still-but not defendant Brown-seek dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that plaintiffs' claims are barred by res judicata based on the Perry County Judgment against Delta Plains arising from its issuance of dishonored checks to plaintiffs. Defendants Horton and Still also claim that plaintiffs have failed to plead their claims with sufficient particularity. Defendants Horton and Brown move to dismiss for lack of personal jurisdiction. And defendants Horton and Still move to dismiss for forum non conveniens.
Res judicata, or claim preclusion, “precludes relitigation of a claim formerly made.” A.H. ex rel. Hubbard v. Midwest Bus Sales, Inc., 823 F.3d 448, 453 (8th Cir. 2016) (citation omitted). It “applies where ‘[(1)] the prior judgment was rendered by a court of competent jurisdiction, (2) the decision was a final judgment on the merits, and (3) the same cause of action and the same parties or their privies were involved in both cases.' ” Bannum, Inc. v. City of St. Louis, 195 S.W.3d 541, 544 (Mo.Ct.App. 2006) (quoting Biermann v. United States, 67 F.Supp.2d 1057, 1060 (E.D.Mo. 1999)). “Claim preclusion also precludes a litigant from bringing, in a subsequent lawsuit, claims that should have been brought in the first suit.” Kesterson v. State Farm Fire & Cas. Co., 242 S.W.3d 712, 715 (Mo. banc 2008).
Defendants Horton and Still argue that res judicata bars the present lawsuit because the Perry County Judgment rendered a judgment on the merits for the same cause 4 of action and involving the same parties as are presented here. This Court disagrees that the same parties were involved in both cases. The Perry County Action fraud claims against Horton and Still were dismissed based on the forum selection clause, and the bad check claim proceeded against, and the judgment was against, only Delta Plains.
Horton and Still insist they are “in privity” with Delta Plains because they are alleged to be agents of Delta Plains in both lawsuits. Horton and Still offer no support for their suggestion that “agency” necessarily gives rise to “privity.” Indeed, privity is not established simply “because the parties are interested in the same question or in proving or disproving the same state of facts.” Clements v. Pittman, 765 S.W.2d 589, 591 (Mo. banc 1989). Defendant Brown is alleged to be the owner of Delta Plains, but Horton and Still are mere employees. “Privity connotes those who are so connected with the party to the judgment as to have an identity of interest that the party to the judgment represented the same legal right.” Id. Delta Plains, defending the claim that it wrote a bad check to plaintiffs, did not “represent the same legal right” as Horton and Still in the Perry County Action. This Court cannot apply res judicata to the Perry County Judgment to protect Horton and Still from suit now.
Next, defendants Horton and Still (but, again, not Brown) argue that the complaint fails to meet the pleading requirements of the PSLRA. Counts I and II of the complaint are against all three defendants for violations of the Securities Exchange Act of 1934. Section 10(b) of the Exchange Act Lorenzo v. SEC, 39 S.Ct. 1094, 1100 (2019). Subsection (a) of Securities and Exchange Commission Rule 10b-5 Id. “[D]issemination of false or misleading statements with intent to defraud can fall within the scope of subsections (a) and (c) of Rule 10b-5, as well as the relevant statutory provisions.” Id. at 1100.
Generally, the elements of a claim under Rule 10b-5 are (1) a material misrepresentation or omission; (2) scienter; (3) a connection with the purchase or sale of a security; (4) reliance; (5) economic loss; and (6) loss causation. See Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341 (2005). Rule 10b-5 also applies heightened pleading requirements. First, “the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). Second, the complaint must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind[.]” Id. § 78u-4(b)(2).
“[F]aced with a Rule 12(b)(6) motion to dismiss a § 10(b) action courts must, as with any motion to dismiss for failure to plead a claim on which relief can be granted, accept all factual allegations in the complaint as true.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). ...
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