Longview Amended Petition
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Transcript of Longview Amended Petition
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TFIE.HUFF ENERGY FUND,WRI{ ENERGY FARfi{ERS,
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cAusE NO. I l -09-12483 -ZCV NA
L ONGVIE1V ENEROV COMP.{NY,
Plaíntiff,
IN TI{E DISTRICT COURT
L.P,,OF ZAVALA COTJNTY' TEXAS
W.R.LLA,,RTCK D,BRY0RouP:, Ltc,
Def,endaüts. 3 6åth JTIDICIAT DISTRICT
flRSÎÂNTENDED FETTÎION
plaihtiff l,onryicw Energy C.om,pan¡r bdngs úis,anion againvt defendarrts The ÍI'uff
Ënergy Firnd, L'P., \ArRH Enetgy P4rtrrer.s, L.L'c', \u,R l{uff A.sset Managemerit Co., LLC,
William R, .igill, Huff, Rick D'Angeto, Ed Dartley, Brfån Blootn, RilÉy-Huff Enr¡gy Group,
LLC,,and BobbY RileY.
Discovcty Conüfol Phn
l. Pursuant to Toxas. Rule of Civíl Procedwç 190'3, 'tongviow interids that
discovery be conducted undor Level 2'
lntnoductior
Z, This Èååe a¡os€ b,e-cau$e two faithlebs corporatie directors hijacked çpr,prate
opportunities worth hund¡eds of m.illions of dollars,for their own gain. rn execrrting'this scherne,
these two djreptors brcached their fiducíary duties to Longview, stote snd misus€d L-o¡lgyrew's
conñdentiel and proprietary informatìorç and,defrauded tl¡ vtr-y oom'p'atry they
.t
to protect and defend. The other defendants conspired with and/or aided and abetted the faithless
directors.
JurÍsdiction and Venue
3. This Court has jurisdiction over the parties who are Texas citizens or who
maintain a principal residence or place of business in Texas. Further, this Court has jurisdiction
over the parties as each has done business in Texas and/or because each of the parties has had
sufficient minimum or continuing contacts with Texas and is amenable to service by a Texas
court,
4. This Court has subject-matter jurisdiotion over this case because the amount in
controversy exceeds the Court's minimum jurisdictional limits.
5. Venue is mandatory and proper in this district pursuant to Tex. Clv. Pnec. &
Rnv. CooB $ 15.01 1 because this is an action to recover an interest in real property, all or part of
which is located in Zavala County. See also In re Kerr, 293 S.W'3d 353, 356 (Tex.App. -
Beaumont 2009, orig. proceeding). Specifically, the defendants stole Longview's opportunity to
purchase tens of thousands of acres of oil and gas leases located in the Eagle Ford trend.
Longview, the true and equitable owner of these properties, f,rled this lawsuit to recovet title to
the pilfered Eagle Ford leases. Further, given the common allegations of fact against these
defendants, venue is proper over all claims in this lawsuit pursuant to Tnx, Ctv. Pnnc. & RBtr¿.
" Coo¡ $ 15.004.
L The Parties
6. Plaintiff Longview Energy Company is a corporation organized and existing
under the laws of the State of Delaware, with its principal place of business in Dallas County,
Texas.
1
7, Defendant The Huff Energy Fund, L.P. ("Huff Energy") is a Delaware limited
partnership. Huff Energy has several limited partners who are Texas citizens. As a consequence
and by operation of law, Huff Energy is a Texas citizen and a local defendant. Huff Energy has
previously appeared in this lawsuit and may be served through its counsel of record.
8. Defendant WRH Energy Partners, L.L.C. ("WRH Energy") is a Delaware limited
liability company. WRH Energy has previously appeared in this lawsuit and may be served
through its counsel ofrecord.
g, Defendant W.R, Huff Asset Management Co., LLC ("Huff Asset Management")
is a Delaware limited liability company. Huff Asset Management has previously appeared in
this lawsuit and may be served through its counsel of record.
10. Defendant William R. "Bill" Huff is a citizen of the State of New Jersey. Huff
has previously appeared in this lawsuit and may be served through his counsel of record.
11, Defendant Rick D'Angelo is acitizen of the State of New Jersey, D'Angelo has
previously appeared in this lawsuit and may be served through his counsel of record.
12. Defendant Ed Danley is a citizen of the State of New Jersey, Dartley has
previously appeared in this lawsuit and may be served through his counsel of record.
13, Defendant Bryan Bloom is a citizen of the State of New Jersey. Bloom has
previously appeared in this lawsuit and may be served through his counsel of record.
14, Defendant Riley-Huff Energy Group LLC ("Riley-Huff') is a Texas limited
liabitity company and has its principal place of business in the State of Texas' BC&D Co',
which has an ownership interest in Riley-Huff is a Delaware corporation. Therefore, Riley-Huff
is a citizen of Delaware and not diverse from Longview, Riley-Huff has previously appeared in
this lawsuit and may be served through its counsel of record.
J
15, Defendant Bobby Riley is a citizen of the State of New Jersey. Riley has
previously appeared in this lawsuit and may be served through his counsel of record.
il. X'actual Background
A. Relationship of the Parties.
16. Longview is a private Dallas-based independent oil and gas exploration,
development, and production company, It was incorporated in 1999 in Delaware and operates
oil and gas wells in Fresno County, California, LeFlore County, Oklahoma and Sebastian
County, Arkansas, and has invested significant time and resources exploring the Eagle Ford play,
including Zavala Courty, Texas. Longview has eight employees in Dallas and four in Fresno
Corurty, Califomia.
17, Despite its modest number of employees, Longview has assembled an
experienced and talented senior management team with average oil and gas experience in excess
of 30 years each. Bob Gershen, Longview's Chairman, President, and CEO, has been actively
involved in the oil and gas investment business for 32 years (since Jimmy Carter was President)
and has advised and sat on the boards of many energy companies, including publicly traded
cornpanies. Longview's technical team includes Rick Pearce, Longview's Chief Operating
Ofhcer, who is a registered petroleum engineer in the State of Texas with more than 38 years
(since Richard Nixon was President) of hands-on operating and management experience in oil
and gas drilling and operations, field evaluation and redevelopment, and exploration program
management, including the identification, evaluation, and acquisition of trend acreage, Greg
Anderson, also a petroleum engineer, has 26 years of experience (since Mark liVhite was
Governor of Texas) in drilling and operations management and reseryoir evaluations. David
Fuller, Longview's Vice President of Land and Legal, has been an oil and gas attorney and
4
landman active in leasing and land management for both development and exploration programs
for more than 36 years (since Dolph Briscoe was Governor of Texas). Mark Lober, a geological
and geophysical consultant to Longview for more than eight yerirs, has developed and evaluated
exploration prospects and projects in multiple oil and gas basins across the United States fot 34
years (since John Hill was the Attorney General of the State of Texas). Dana Spratt, Longview's
consulting Chief Financial Officer, is an MBA/CPA with more than 25 years of experience
(since phil Gramm was a freshman United States Senator) in financial modeling and accounting,
including several years as the CFO of a publicly-traded, oil and gas syndication company, But
Longview,s depth of expertise does not end with its internal team and carefully selected
consultants: Board member Harold Carter, the former president of a Dallas-based oil and gas
company traded on the New York Stock Exchange and a past-President of the American
Association of professional Landmen, has nearly fifty years of direct oil and gas experience
(since John Kennedy was President); Board member Thomas Vessels, who also has decades of
industry experience, is the former president of a vertically integrated oil and gas company, the
current president of a gas production company, and a present or former director of or advisor to
numerous energy companies and industry associations.
18, Longview has more than 100 shareholders. Most own less than one percent of
Longview,s shares. In 2006, Huff Energy, a New Jersey-based $500 million investment fund,
invested in Longview and ultimately became Longview's largest shareholder, holding
approximately 39yo of Longview's outstanding stock. Huff Energy's strategy was to invest in
companies that could balance traditional exploration and resource type plays, and it saw an ideal
investment candidate in Longview. In connection with its original investment in Longview-
which was Huff Energy's first investment in any company-the parties executed a Shareholders
5
Agreement, which, among other things, entitled Huff Energy to appoint two members of
Longview's Board of Directors, to have a representative on every Board committee, and to
prevent unilaterally any future issuance of Longview equity securities. Huff Energy appointed
Bill Huff and Rick D'Angelo as its members of the Longview Board.
19. At the time of Huff Energy's investment, WRH Energy was Huff Energy's
general partner and therefore liable for all of Huff Energy's debts and other liabilities, Huff
Asset Management, on information and belief, is the asset manager of Huff Energy and the
controlling manager of WRH Energy.
20. While serving as a Longview Director, Bill Huff has sat at the head of a nest of
investment funds bearing his name or initials. Huff founded and controls W.R. Huff Asset
Management, as well as all other Huff entities. His positions include Chief Investment Officer
of Huff Asset Management and WRH Energy, These funds invest billions of dollars on behalf of
their investors and have generated a personal fortune for Huff estimated in the hundreds of
millions.
21,. In the financial industry, Huff is known for a "my way or the highway" business
style and as "a rough-and-tumble guy, not well polished, not a great communicator," According
to a former colleague, "[h]e's like a great white shark. He doesn't kill out of anger, he just can't
stop himself. He's prograrnmed to do it." Not surprisingly, then, Hufls business record is
littered with claims of inadequate disclosure and self-dealing, and a number of state and city
pension funds have replaced him as their investment manager as a result of this conduct. In
keeping with this pattern of malfeasance and neglect of his duties, Huff never visited Longview's
offices, never attended a Longview Board meeting in Dallas, and rarely bothered to participate
6
by telephone in Longview Board meetings, relying instead on his underlings to carry out his
schemes.
ZZ, Although Huff is known for his self-described "abrasive" style and willingness to
.,tak[e] off the gloves and put[] on the brass knuckles," it has been said that "he is charming
compared with the people beneath him," which in this case includes D'Angelo, Dartley, and
Bloom.
23. While serving as a Longview Director, D'Angelo also served as a Principal of
WRH Energy and as a Manager of at least three Huff Energy portfolio companies that are (or
were during the relevant time) direct competitors of Longview: Riley-Huff, Marshfield Oil &
Gas, LLC (,,Marshfield"), and Krescent Energy co., LLC ("Krescent").
24. While attending Longview board meetings as a Huff factotum, Dartley also
served as Counsel and Chief Compliance officer for Huff Asset Management and as a Manager
of at least two Huff Energy portfolio companies that are (or were during the relevant time) direct
competitors of Longview: Riley-Huff and Marshfield'
25, While serving as counsel to WRH Energy, Bloom also served as a Manager of at
least two Huff Energy portfolio companies that are (or were during the relevant time) direct
competitors of Longview: Riley-Huff and Marshfield'
26. Riley-Huff is a direct competitor of Longview; on information and belief, one or
more of the Huff Energy companies is directly or indirectly the majority and controlling investor
of Riley-Huff.
27. Bobby Ritey is the President and a Manager of Riley-Huff.
7
Zg, Wyldfire Energy, Inc. ("Wyldfire") is engaged in obtaining oil, gas, and mineral
interests for oil and gas exploration, development and production companies. Tamara Ford is the
President of Wyldfire.
B. The Scheme and Its Roots.
29. Longview diligently educated its Directors conceming their duties of loyalty to
the company. These duties demand absolute frdelity to Longview's interests and require an extra
n.easure of diligence when a director may have divided interests by, for instance, simultaneously
serving as a director, officer, partner, investor or manager of entities in competition with
Longview. Accordingly, in 2007, Longview distributed a guidance letter prepared by its
corporate counsel, the nationally-acclaimed WilmerHale law firm (www.wilmerhale.com). It
cautioned that ,,[i]f an investor opposes or favors, out of its own economic self-interest and not
necessarily that of the corporation, an action being considered by the corporation, it should
express that position in its capacity as a stockholder of the corporation , . . and not as a director."
It also warned that ,,[a] director of a corporation has a fiduciary duty to the corporation and all of
its stockholders, regardless of other interests or duties that director may have to other parties
(including aperrty that appointed him or her)." In an ironic foreshadowing, D'Angelo responded
to wilmerHale,s letter and its inclusion as a Board-meeting agenda item by saying, "[d]on't we
have much more important operational and financial issues to discuss with our time that impact
shareholders much more critically?" The answer turned out to be "No"'
30. Beginning around August 2009, Huff, D'Angelo, and Dartley charged Longview
management with the task of finding growth opportunities on Longview's properties and the
then-emerging ,,resource plays" (i,e., emerging geographical a¡eas that were prospective for
unconventional oil and gas reserves made economically viable through recent advances in
I
technology and, therefore, iikely to attract significant oil and gas exploration and development).
Accordingly, throughout late August and early September, Longview gathered publically
available information on resource plays to allow it to assess the economic viability of the
Bakken, the Marcellus, and the newly emergent Eagle Ford plays.
31. Resource plays were one of the key subjects of a meeting held in Huffs New
Jersey offices in September 2009. At that meeting and in the witten materials prepared for it,
Longview identihed the Bakken, Marcellus, and Eagle Ford resource plays as having what
appeared to be good economics at the then-current oil and gas prices. D'Angelo stated that he
had done a preliminary investigation of the Eagle Ford play, and was interested in it. Huff and
D'Angelo then specifically directed Longview management to investigate the Eagle Ford, and
Huff offered that Huff Energy would fund any attractive resource play investment Longview
could identify. This squared with Huff Energy's publicly-stated position that "[w]e have to be
ready to back up the original investment with further capital'"
32. The Eagle Ford trend occupies an area cutting a large swath across numerous
south Texas counties, and stretches from Zavala County near the Mexican border northeastward
for several hundred miles. It is one of the newest trends to be developed and is perhaps the
largest of the "shale" oil and gas formations in the United States. For decades, these formations
were thought to be virtually valueless because-although they were known to contain large
quantities of oil and gas-no technology was available to unlock their oil and gas economically.
This changed with technological advances in horizontal drilling and hydraulic fracturing
(,,fracking"), which were successfully deployed and perfected first in the Barnett shale play near
Fort Worth and later in the Bakken shale play in North Dakota, among others. Using these
techniques, the first successful horizontal well was drilled in the Eagle Ford late in 2008.
9
33. The Eagle Ford play rapidly attracted attention during 2009-2010: drilling
permits on record jumped ftom26 in 2008 to more than a thousand in 2010. Lease prices made a
corresponding upward move in late 2009 and2010, from mere hundreds of dollars per acre to
many thousands of dollars per acre. The magnitude of the Eagle Ford is hard to overestimate:
according to Texas Railroad Commissioner David Porter, "[t]he Eagle Ford shale has the
potential to be the single most significant economic development in our state's history." Today,
the Eagle Ford is renowned in oil and gas circles, both in Texas and beyond. During most of
2¡¡g,however, it was just beginning to develop-in the parlance of oil and gas investors, it was
"early in the play)'
34, Not long after Huff, D'Angelo and their associates directed Longview to pursue
the Eagle Ford, Riley-Huff was formed (on October 28, 2009). Huff operatives Dartley,
D,Angelo, and Bloom were listed as Riley-Huffls Managers. Bobby Riley was listed as its
President as well as a Manager.
35. Acting on Huff and D'Angelo's exhortations to pursue Eagle Ford opportunities,
Longview's management evaluated publicly available reports, and, in early November 2009,
engaged its consultant, Mark Lober, to study the Eagle Ford play. Lober was already familiar
with the Eagle Ford and, throughout November, he further analyzed it for Longview. He also
knew oil and gas lease brokers with acreage available for leasing within the Eagle Ford and
introduced Longview to two of them, Pat Gooden and Tamara Ford (and her land company,
Wyldfrre). As Longview later learned, much of the acreage Ford and Wyldfire presented to
Longview was obtained through assignments from Bubba Riggs and Riggs Energy, Inc.
36. Ford was a critical element in converting an idea into an investment. She had
previous expelience in shale plays, having worked in the Barnett play, and recognized that the
10
Eagle Ford might be as significant as or even eclipse the Barnett play, Ford was especially
important because she was an early mover in the Eagle Ford trend æea, and had by late 2009
already established a network of local, personal connections (including Bubba Riggs and Riggs
Energy, Inc.) needed to secure large tracts of acreage in prime areas on short notice.
37, On December 2, 2009, Ford, Gooden, Lober, and members of Longview's
management team met at Longview's offices to discuss a potential acquisition of trend acreage in
the Eagle Ford. In this meeting, Ford presented Longview with acreage available through
Wyldfire-via Riggs and others -in the Eag\e Ford trend, some of which was contiguous with
the much touted ,,Hoff' well recently drilled by EOG. Ford explained that Eagle Ford acreage
would move fast, although it was still early in the play's development. This squared with
Longview management's recognition that the Eagle Ford play was moving rapidly and that,
consequently, the opportunities for investment at reasonable prices would enjoy only a narrow
window. Longview's management also recognized immediately the immense value of
associating with Ford, who told Longview that Wyldfire and its team of landmen had been "on
the ground,'developing contacts and building relationships with landowners and their advisors in
the Eagle Ford prospective counties since the spring of 2009'
3g. Shortly after the December 2 meeting, Ford requested additional information from
Lober, including Eagle Ford maps, which Lober had prepared at Longview's request and which
she acknowledged as confidential and proprietary,
39. Around the first of December, Dartley summoned Longview's CEO, Gershen, to
a December 4 meeting with Bloom, D'Angelo, and Dartley in Huffls office in New Jersey.
D'Angelo began the meeting by expressing dissatisfaction that Longview had not yet sent Huff
Energy any deals as a result of the September meeting. He then asked why Longview had not
11
responded to him on several deals that he had brought to Longview management's attention. In
a characteristic display of hubris and disregard of his fiduciary responsibilities to act in the best
interest of all Longview shareholders, D'Angelo asked Gershen, "[a]fter all, who's working for
who here?" Gershen informed the assembled Huff Energy group that Longview had in fact
already hired consultants to analyze the Bakken and Eagle Ford trends, and that Longview
should have their reports shortly. D'Angelo asked for and received Lober's report on the Eagle
Ford. And because D'Angelo was also serving as a Manager of Riley-Huff at that time (afact
that he failed to disclose to Longview), Riley-Huff also received Lober's report.
40, After being advised that Wyldfire had significant acreage available in the Eagle
Ford trend, D'Angelo's interest in the Eagle Ford grew, ffid he encouraged Longview's
management to work quickly on this opportunity, He was particularly interested in the area
around EOG's Hoff well, aî area in which Ford told Longview that Wyldhre could deliver
substantial leaseholds, He also requested proprietary information developed by Longview
concerning the Eagle Ford, including Mark Lober's work and maps prepared by Ford showing
acreage being brokered or offered for lease by Wyldfire. Longview employees spent most of
December further analyzingthe Eagle Ford and related economics. This work included technical
analysis performed by Longview's two petroleum engineers, Rick Pearce and Greg Anderson.
Pearce was especially well suited for work of this nature based in part on his previous experience
in regularly buying trend acreage for a previous employer. During this timeframe, Longview's
management continually warned D'Angelo that the play was on a short fuse, a fact that
D'Angelo, a geophysicist, well understood.
41. On December 16, 2009,D'Angelo and Dartley flew over several counties in south
Texas with Bobby Riley to review the state of Eagle Ford drilling. Later that day, they told
l2
Longview management that they had witnessed multiple locations being prepared for drilling.
They expressed particular interest in EOG's exploration in the area, which adjoined some of the
acreage that Ford had identified at Longview's December 2 meeting. Without question, this
activity had whetted their collective appetite for investing in the Eagle Ford.
42. The next day, D'Angelo and Dartley attended a meeting in Longview's Dallas
office to discuss the Eagle Ford with Longview management and Mark Lober. Their enthusiasm
for the Eagle Ford was matched only by their desire to accumulate as much information as
possible regarding it. At that meeting, Longview provided D'Angelo with the results of its
review of information on activity in the Eagle Ford and its proprietary reserve and economic
evaluations of the new wells being drilled by others, Lober provided maps showing "fairways"
(i,e., the most potentially fruitful prospects) and described proprietary log research he was
performing, which indicated that some areas outside those pubtished fairways might be
prospective. These maps also reflected acreage proposed by Ford as available through Wyldfire,
D'Angelo,s interest in Lober's maps was palpable, and they were later sent to him at his request.
And because D,Angelo and Dartley were Managers of Riley-Huff (a fact neither of them
disclosed to Longview), Riley-Huff also received this proprietary information.
43. D'Angelo also represented that he wanted to move the process forward quickly
and that he intended to pitch the project to Huff the next day. In response to D'Angelo's
encouragement and direction, Longview's managoment moved quickly with the Eagle Ford
project and impressed upon Ford and Gooden that they would also need to move quickly and to
deliver as promised.
44. On December 2I,2009, Longview hosted another meeting with Ford and Gooden
to assess the inventory of acreage that Wyldhre could deliver. D'Angelo participated by phone.
l3
At this meeting, Ford showed availabl e aoreage next to the recently-drilled and much-discussed
EOG wells. She also identified trend acreage located in multiple locations across the Eagle Ford,
including areas identified by Lober in his work for Longview as prime prospects for drilling.
Ford made it clear, however, that this opportunity would not be available for long and
encouraged Longview to act quickly and decisively.
45. The next day, Longview provided its updated proprietary internal economic
analyses for the Eagle Ford play to D'Angelo and Dartley. Dartley then requested and received
from Longview the updated Wyldfire maps that Ford had presented at the December 2l meeting.
While D,Angelo and Dartley were plainly interested, they again requested further analysis by
Longview,
46. On Christmas Eve, Longview had a follow-up meeting with D'Angelo to discuss
play economics and their preparations for a meeting with Huff. At that meeting, D'Angelo
stated that Huff would require well logs in and around any acreage that Longview proposed to
buy and any supporting2-D seismic information.
47. On January !2,2070, after Longview reported that Lober would be in its offices
to review his most recent proprietary subsurface work, including logs and cross sections through
the Eagle Ford fairway, D'Angelo responded that he wanted to listen in to Lober's presentation
because he might have his own information about certain Eagle Ford property. Lober's
presentation included a review of the proprietary temperature survey of existing wells that
Longview had commissioned him to prepare; this survey resulted in new maps showing revised
fairways indicating that Frio and Atascosa Counties were likely good drilling prospects. At this
time, D,Angelo offered that "a colløborøtive effort would be more beneftcia'l to all Longview
shareholdels , . .."
t4
48. Throughout early-to-mid January 2010, Longview worked towæds pulling
together all the materials necessary to present this opportunity to Huff and, latet, to Longview's
Board. Working with D'Angelo and Dartley, Longview repeatedly attempted to set up a meeting
with Huff to gain his confidence in an Eagle Ford investment prior to the Board meeting
scheduled for January 28,2010. D'Angelo continued to express enthusiasm for the project and
suggested that plenty of time be reserved for a discussion of the Eagle Ford at the Longview
Board meeting. But despite this continued expression of interest, the Huff operatives continued
to delay the proposed pre-Board meeting with Huff.
49. Unable to meet with Huff, Longview went forward and on January 25,2010
circulated Director Pre-Reading Materials, which included a recommendation to invest
approximately $40 million in the Eagle Ford. But on this same day-and unbeknownst to
Longview-Riley-Huff signed a contract with Ford's company, Wyldfire, to purchase Eagle
Ford leases.
50. On the eve of the January 28,2010 Board meeting, Dartley sent a letter on behalf
of WRH Energy to Longview expressing its displeasure with Longview's management,
especially with regard to asset acquisitions. The letter also stated that, as an example of good
management, "the Eagle Ford play doesn't count, as \rr'e told you months ago that Longview
should be looking in that ateal The letter did not disclose that the Huff parties had decided to
pu,.sue Eagle Ford opportunities through Riley-Huff and its other portfolio companies rather than
Longview, nor that it already had negotiated a contract with Ford's company, Wyldfire.
Accordingly, the letter is plainly a pretext designed to obscure the decision to hijack Longview's
valuaSle Eagle Ford opportunity. Moreover, the inherent conflict ignored by Huff and his
minions was that-although their control of multiple portfolio companies in the energy sector
15
allowed them the luxury of covering losses in many of these companies with a bonanza in one
company-Longview rises and falls according to its individual perforrnance. In other words,
Longview had duties to all its shareholders, not just to Huff Energy; it made a gteat difference to
those Longview shareholders whether an Eagle Ford payday wound up in Longview rather than
inside another Huff ponfolio company.
51. The January 28,2010 Board meeting was contentious, and Dartley and D'Angelo
rejected the proposed $40 million Eagle-Ford investment recommended by Longview's
management. They made it clear that Huff Energy had no interest in acquiring "trend acteage in
the Eagle Ford,,, and would neither finance such a venture nor permit Longview to otherwise
finance one, The Longview management team and the other Longview Board members were
stunned. What they didn,t rcalize, however, was why the Huff operatives had decided to "bare
their knuckles;,, they needed to conceal that they already had stolen the Eagle Ford opportunity
and given it to Riley-Huff. This perfidious conduct aside, they also knew that the best defense is
a good offense, and so they spared no criticism of Longview's management and its analysis of
the Eagle Ford.
52. In December 2009 and January 2010, Longview was poised to capitalize on the
competitive advantage that it had forged from its intemal analysis of the Eagle Ford, Lober's
technical work and foresight concerning the trend, and its relationship with Ford and Wyldfire'
Longview,s plan was to invest approximately $40 million in the Eagle Ford' At that time, it had
at least $1 million per month in free cash flow, a line of credit (with availability under its
borrowing base), substanti¿il assets that could be quickly sold (including properties in Oklahoma
worth $i6-20 million or more), and the potential to sell or issue stock to raise capital.
Collectively, these sources of capital were sufficient to permit Longview to exercise fully the
t6
Eagle Ford opportunity. Furthermore, Longview had the industry connections and experience
needed to engage in joint ventures and other affangements required to develop an investment in
the Eagle Ford,
53, Soon after execution of its January 25, 2070 agreement with Wyldfire, Huff
Energy's majority-owned portfolio companies embarked on an ambitious investment program in
the Eagle Ford acres previously presented to Longview, ultimately pouring millions of dollars
into lease acquisitions and drilling wells on these very properties. Riley-Huff ultimately
acquired through Wyldfire thousands of acres first identified and targeted by Longview and it
obtained tens of thousands of acres from other sources. Contrary to their fiduciary duties to
Longview, neither Huff nor D'Angelo ever presented these opportunities to Longview or its
Board.
54. By as early as April 2010, Huff Energy had dumped almost $40 million into
Riley-Huffs Eagle Ford play, which-by no coincidence--was exactly what Longview had
proposed to do only weeks earlier to its Board (and to Huff and D'Angelo as Directors). Huff
Energy took this investment tack for its own benefit because it would reap nearly 100% of the
value from investments made tluough its majority owned and controlled companies, whereas it
would gain only a fraction of any profits from an investment made through independently owned
and managed Longview. This, of course, flatly contravened Huff and D'Angelo's strict duty of
loyalty to Longview, which prohibited them from exploiting business opportunities that fairly
belonged to Longview and required them to present such opportunities to Longview before
exploiting them for their own self-interests, Their usurpation is all the more egregious because
Huff and D'Angelo (aided by their cohorts) acted under the cloak of their directorships and acted
not only surreptitiously but implemented their scheme through the misuse of confidential,
t7
proprietary corporate information supplied by Longview. The duty of loyaþ, described well by
WilmerHale in 2007, required more, even if D'Angelo thought other matters deserved more
attention. In fact, the WilmerHale letter proved uncannily prescient when it wamed Huff and
D'Angelo that
A director of a corporation has a fiduciary duty to the corporation and all of itsstockholders, regardless of other interests or duties that directot rnay have to other
parties (including aparty that appointed him or her);
The use of confidential corporate information by a director to his own advantage
would be a breach of the duty of loyalty;
There may be an inherent conflict of interest engendered by a shareholder-
appointed director's fiduciary duties to two entities; and
When an investor becomes or designates its representative as a director, that
director assumes a primary duty to the corporation and all of its stockholders.
Huff and D'Angelo heeded none of this and thereby failed their duties at every turn.
III. Claims
A. Breach of Fiduciary Duty/Usurpation of corporate opportunity(Against Huff and D'Angelo)
55. D'Angelo and Huff owe Longview a duty of loyalty.
56. Longview was frnancially able to exploit the Eagle Ford opportunity.
57. The Eagle Ford opportunity was within Longview's line of business.
58. Longview had an interest or expectancy in the Eagle Ford opportunity.
59. By diverting the Eagle Ford opportunity to themselves, D'Angelo and Huff placed
themselves in a position of conflict or competition with Longview.
60. D'Angelo and Huff breached their fiduciary duties to Longview by usurping the
Eagle Ford opportunity and misusing proprietary information supplied by Longview in regard to
the Eagle Ford.
t
a
a
a
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61, D'Angelo and Huff acted with malice'
62. D'Angelo and Huff s breaches of duty and usurpation of Longview's opportunity
proximately caused Longview injury and damages'
B. Fraud - (Against all Defendants)
63. D,Angelo and Huff concealed from Longview their intentions to appropriate the
Eagle Ford opportunity for themselves and affirmatively misrepresented that Huff intended to
fund an Eagle Ford investment through Longview'
64. As Longview directors, D'Angelo and Huff had a fiduciary duty to fully and
unequivocally disclose such information to Longview and to refrain from making aff,rrmative
misrepresentations to Longview,
65, D,Angelo and Huffs secret intention to divert the Eagle Ford opportunity for
themselves was material information.
66. Longview did not know and had no way of knowing that D'Angelo and Huff-
with the participation of Dartley and Bloom, who acted for Huff and the Huff companies-
would appropriate the very business opportunity they had encouraged and induced Longview to
pursue. Rather, Longview reasonably relied on the defendants' affirmative representations that
Huff intended to fund an Eagle Ford investment through Longview'
67. D,Angelo and Huff were deliberately silent when they had a duty to speak and
they made affirmative representations that they knew to be untrue. Indeed, they went to great
lengths to fraudulently conceal their ultimate design to appropriate the Eagle Ford opportunity
for themselves.
6g, By concealing and facilitating the scheme to appropriate the Eagle Ford
opportunity, D'Angelo, Dartley, Bloom, Huff, Huff Energy, Huff Asset Management, WRH
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Energy, Riley, and Riley-Huff intended to cause Longview to: (a) use its own resources to
develop the information necessary to make an investment in the Eagle Ford; and (b) refrain from
pursuing alternative means for exploiting the Eagle Ford opportunity.
69, Longview reasonably relied on D'Angelo and Huff s good-faith and reasonably
believed that: (a) D'Angelo and Huff did not intend to appropriate the Eagle Ford opportunity for
themselves; and (b) Huff intended to fund an Eagle Ford investment through Longview.
70, In carrying out their fraudulent scheme, the defendants acted with malice.
TL Longview suffered injury as a result of the defendants' omission of material
information, false pretenses, and affirmative misrepresentations, including but not limited to, lost
profits.
C. Tortious Interference with Prospective Business Relationships -(Against all Defendants)
72, There is a reasonable probability that Longview would have entered into a
business relationship with Ford, Gooden, and/or Wyldfire to acquire acreage in the Eagle Ford.
73. The defendants intentionally interfered with this prospective relationship by
appropriating the Eagle Ford opportunity for themselves.
74, This intentional interference \ryas malicious and independently tortious,
constituting fraud, misappropriation of Longview's trade seorets, and a breach of their f,rduciary
duties to Longview,
15. Longview suffered damages as a result of the defendants' intentional interference,
including, but not limited to, lost profits.
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D. Misappropriation of Trade Secrets - (Against all Defendants)
76. Longview owned multiple trade secrets, including but not limited to: (a) Lober's
analysis of seismic and geological data and well logs; (b) commissioned maps; and (c) economic
analyses and projections regarding the Eagle Ford opportunity.
77, D'Angelo ærd Huff used Longview's trade secrets without Longview's
permission in order to further their own-self interests, Such use constituted a breach of the
fiduciary duties owed by D'Angelo and Huff to Longview.
78. D'Angelo, Huff, Dartley, Bloom, Riley, Riley-Huff, Huff Energy, WRH Energy,
and Huff Asset Management all used Longview's trade secrets without Longview's permission
and for their own commercial gain, after acquiring such trade secrets through improper means
committed with malice.
79. Longview suffered damages as a result of the defendants' use of its trade secrets,
including, but not limited to, lost profits and the value of a reasonable royalty.
E. Aiding and Abetting - (Against all Defendants)
80. D'Angelo and Huff breached their duties of loyalty to Longview, rnisappropriated
Longview's trade secrets, and defrauded Longview.
81. All of the defendants knew that Huff and/or D'Angelo's conduct was tortious.
82, All of the defendants intended to assist Huff and/or D'Angelo in committing these
torts.
83. All of the defendantb provided assistance to Huff and/or D'Angelo in the
commission of these torts and all acted with malice.
84, All of the defendants' assistance was a substantial factor in causing these torts.
2l
85. Longview suffered damages as a result of the defendants' wrongful conduct.
F. Conspiracy - (Against all Defendants)
86. All of the defendants combined for the purpose of: (a) misappropriating
Longview's trade secrets; (b) defrauding Longview; and (c) breaching (or aiding and abetting the
breach) of Huff and D'Angelo's fiduciary duty to Longview'
87. All of the defendants had knowledge of and agreed to participate in a scheme to
misappropriate Longview's trade secrets, defraud Longview, and steal Longview's corporate
opportunity and each of them acted with malice.
88. D,Angelo and Huff misappropriated Longview's trade secrets and defrauded
Longview.
89. Bloom, Riley, Riley-Huff, Huff Energy, wRH Energy, and Huff Asset
Management also misappropriated Longview's trade secrets'
90. Longview suffered substantial damages as a result of the defendants' tortious acts.
G. ConstructÍve Trust
gl. The defendants wongfrrlly usurped the Eagle Ford opportunity, and they were
unjustly enriched by their wrongful conduct. Specifrcally, the defendants unjustly obtained
thousands of acres of leases in the Eagle Ford that fairly belong to Longview. Accordingly,
Longview is entitled to a constructive trust over all of the subject leases in the defendants'
possession or on any assets that the defendants obtained by virtue of the usurpation.
H. Punitive Damages (Against all Defendants)
91. In committing each of the wrongs identified above, the individual defendants
acted with gross negligence and malice, as defined in Section 41 of the Texas Civil Practice and
22
Remedies Code, and for the purpose of increasing their own pecuniary gain. As such, the
individual defendants are liable for punitive damages, for which recovery is hereby sought.
92, The corporate, limited-partnership, and timited-liability-company defendants are
also liable for punitive damages because: (1) the individual defendants were employed as vice-
principals of these entities and acted within the scope of their employment; and (2) the individual
defendants' grossly negligent and malicious acts were previously authorized or subsequently
ratified by these entities.
93. The defendants are liable for punitive damages in excess of the limitations
prescribed by Section 41.00S(b) of the Texas Civil Practice and Remedies Code because they
knowingly and intentionally misused Longview's proprietary information in violation of section
32.45 of the Texas Penal Code. SeeTYx.CIv. Pn¡.c. &RBrr¡. Coor $ 41.008(cX10).
Demand for Jury Trial
Longview hereby demands trial by jury upon all issues raised herein,
PRAYER
Longview PraYs that:
(a) the Court impose a constructive trust over the proceeds, including all leaseholds
and the enhanced value oi past production revenues, obtained by defendants through their
misappropriation and utilization oi Longview's confidential and proprietary information, their
b."aóúes ãf fiduciary duty, their tortious interferences ot any other tortious conduct;
(b) an injunction be entered against the corporate, limited partnership, and limited
liability company däfendants prohibiting further transfer of the subject properties in the Eagle
Ford;
(c) an order be entered directing the corporate, limited partnership, and limited
liability company defendants to transfer title to the subject properties in the Eagle Ford to
Longview;
(d) defendants be required to make an accounting to Longview for all money received
in connection with investmerrts in the Eagle Ford or otherwise resulting from their
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misappropriation and utilization of Longview's confidential and proprietary information, their
breaches of fiduciary duty, their tortious interference or any other tortious conduct;
(e) Longview have judgment against defendants, jointly and severally, for its actual,
consequential, and special damages, including lost profits;
(Ð the defendants be ordered to disgorge all property, interests, proceeds, and profits
realizedin connection with their investments in the Eagle Ford;
(g) Longview have judgment for punitive damages against all defendants for allclaims;
(h) Longview be awarded its attorneys' fees and costs; and
Longview recovers such additional relief, at law or in equity, to which it may be(Ðjustly entitled.
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Respectfully submitted,
Mikal C. Watts
Texas State Bar No. 10981820
WATTS GUERRA CRAX'T, LLPFour Dominion Drive, Bldg.Three, Suite 100
San Antonio, Texas 78257
Phone: 210-447-0500Fax:210-447-0501Email : mcwatts @wgclawfirm. com
Brian P. BerrymanTexas State Bar No. 02254300
300 Convent, Suite 100
San Antonio, Texas 78205
Phone: 210-527-0500Fax: 210-527-0501Email : bberryman @w gclawftrm. com
Rolando Jasso
Texas State Bar No. 10591500Claudio HerediaTexas State Bar No. 09505300KNICKERBOCKER, HEREDIA, JASSO& srEwART, P.C.468 Main StreetEagle Pass, Texas 78852Phone: 830-773-9228
B. FlorenceState Bar No. 0
Randy D. GordonTexas State Bar No. 00797838Lucas C, WohlfordTexas State Bar No, 24070871
GARDERE WYNNE SEWELL LLP1601 Elm Street, Suite 3000Dallas, Texas 75201-4761(21 4) 999-3 000 (telePhone)(21 4) 999 -4667 (facsimile)cfl orence(E eardere. comrsordonlAsardere.com
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CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of foregoing was seryed on the following
counsel by the method indicated, on this the2nd day of March,2Ùl2t
Dean V. FlemingMichael V/. O'DonnellJeffrey A. WebbFuLsRrcHr & Jnwonsrl, L.L.P.300 Convent Street, Suite 2100
San Antonio, Texas 78205Facsimile: 210,270.7205
Via Electronic and Certi/ìed Mail RRR
Alfredo Z,PadillaLnw Or'¡'lce Or ALnRBDoZ, PRolLt-R
104 North 5th StreetP.O. Drawer 355Canizo Springs, TX 78834Facsimile: 830.876,9531
Via Certified Mail RRR
Louis M. SolomonHal S. ShaftelSolomon B. ShinerockCeowRLnoER'WIcKERSHAM & Tnrr LLPOne World Financial CenterNew York, NY 10281Facsimile: 212,504.6666
Via Electronic and Certified Mail RRR
Attorneys For Defendants Huff Energy Fund, L.P.,
WRH Energy Partners, L.L.C., W.R. Huff Asset
Management Co., LLC, William R. Huff,Rick D'Angelo, Ed Dartley, Esq., Bryan Bloom, Esq,,
and Riley-Huff Energy GrouP, LLC
Craig A. Duewall Via Electronic and Certifi'ed Mal,RRR
C. Mark StrattonSgelwoN,GRACEY, R¡rlI¡'n & Mtllrn, LLP301 Congress Ave., Suite 1500
Austin, TX 78701Facsimile: 512.499.8559
Attorneys for Bobby Riley
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C. Wohlford