Gunter v. Ridgewood Energy Corp.

32 F.Supp.2d 166

Patricia GUNTER, Hubert Maehr, Anna Bartosh, and all persons similarly situated, Plaintiffs, v. RIDGEWOOD ENERGY CORPORATION, Robert E. Swanson, Gary L. Hall, and Hall-Houston Oil Company, Defendants.

Civ. No. 95-438 (WHW).

United States District Court, D. New Jersey.

December 28, 1998.

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G. Martin Meyers, Meyers & Milewski, P.C., Denville, NJ, for Plaintiffs Patricia Gunter, Hubert Maehr, Anna Bartosh.

Joseph Sternberg, Goodkind Labaton Rudoff & Sucharow LLP, New York, NY, for Plaintiffs Patricia Gunter, Hubert Maehr, Anna Bartosh.

William T. Reilly, McCarter & English, LLP, Newark, NJ, for Defendants Hall-Houston Oil Co. and Gary L. Hall.

Retta A. Miller, Jackson Walker L.L.P., Dallas, TX, for Defendants Hall-Houston Oil Co. and Gary L. Hall.

Daniel Deleuw Caldwell, Edwards Caldwell & Poff, Hawthorne, NJ, for Defendants Ridgewood Energy Corp. and Swanson.

OPINION

WALLS, District Judge.

This matter comes before the Court on the motion of defendants Hall-Houston Oil Co. ("Hall-Houston") and Gary L. Hall ("Hall") for summary judgment to dismiss the complaint and all its claims, the motion of defendants Hall-Houston and Hall to limit the class and to dismiss the claims of the settling plaintiffs, the motion of defendants Robert E. Swanson ("Swanson") and Ridgewood Energy Corp. ("Ridgewood Energy") for summary judgment to dismiss all claims, and the motion of plaintiffs Bartosh, Maehr, and Gunter for partial summary judgment on the RICO claims. The motions of defendants Hall, Hall-Houston, Swanson, and Ridgewood Energy for summary judgment to dismiss the complaint are denied in part and granted in part. The motion of defendants Hall and Hall-Houston to limit the class is granted in part and denied in part. Plaintiffs' motion for partial summary judgment on the RICO claims is denied.

I. Background and Procedural History

The named plaintiffs as well as the putative class members are all investors in a series of oil and gas limited partnerships (the "Ridgewood Partnerships") allegedly formed and promoted by defendants Ridgewood Energy, its President and Chairman, Swanson, Hall-Houston, and its chief executive officer and director, Hall. (Compl.¶¶ 1, 12, 13.) The Ridgewood Partnerships held interests in oil and gas leases, and financed the well-drilling and construction of production facilities and pipelines in the United States waters of the Gulf of Mexico. According to the plaintiffs, the defendants sold approximately $150,000,000 worth of interests in the partnerships between 1986 and 1990. (Id. ¶ 2.)

Defendant Ridgewood Energy is a corporation involved in the drilling and development of natural gas prospects, and served as the general partner for each of the Ridgewood Partnerships. (Compl. ¶ 11.) Defendant Swanson is, and was at all relevant times, the controlling shareholder and chairman of the board of Ridgewood Energy, a managing general partner of many of the Ridgewood Partnerships, and the registered principal and sole shareholder of Ridgewood Securities Corp. ("Ridgewood Securities"). Ridgewood Securities, a registered broker-dealer in New Jersey, offered the limited partnership interests for sale through private placement. Ridgewood Securities is not a party to this case.

Defendant Hall-Houston was, at all relevant times, a Texas corporation engaged primarily in oil and gas exploration in the Gulf of Mexico. Some of the Ridgewood Partnerships participated in such activity through the acquisition of minority working interests in those properties initially operated by Hall-Houston. Defendant Hall is, and was at all relevant times, the chairman, chief executive officer, and a director of Hall-Houston. Hall was a director and shareholder of Ridgewood Energy from 1986 to 1989.

Plaintiffs Bartosh, Maehr, and Gunter invested in nine different Ridgewood Partnerships. Their complaint alleges that the defendants disseminated private placement memoranda and program summaries (the "Offering Materials") for each partnership which included false and fraudulent statements concerning the profitability of the partnerships. (Compl.¶ 25.) Specifically, plaintiffs contend that defendants misrepresented certain projects to contain "proven" oil and gas reserves to be "low risk," and that the results of wells in operation were exaggerated. (Id.) In addition, defendants allegedly failed to disclose material information about the ventures at the time the partnerships were formed, such as independent third party appraisals of an engineering firm which reflected reserves substantially less than those represented by the defendants. (Id. at ¶ 26.) It is also claimed that during the life of the partnerships, defendants fraudulently concealed from the plaintiffs the actual financial health of the drilling ventures and consequently, of the partnerships themselves. (Id. at ¶ 30.) The last significant act of fraud, the plaintiffs charge, occurred when the defendants wrote plaintiffs by letter, dated June 9, 1994, and advised them to approve the sale of the assets of most of the partnerships to the Apache Corporation ("Apache"). (Id. at ¶ 33.) According to the plaintiffs, that letter falsely represented the worth of the partnerships, the benefits of the sale to the plaintiffs, and failed to disclose that certain of the defendants stood to reap considerable gains from that sale. (Id.)

The complaint demands relief of damages, costs, attorney's fees and the imposition of a constructive trust, for violations of: 1) 18 U.S.C. §§ 1961-1968 (the Racketeer Influenced and Corrupt Organizations Act ["RICO"]); 2) 15 U.S.C. §§ 78j(b) and 78t (the Securities and Exchange Act of 1934, Sections 10(b) and 20(a)) and 17 C.F.R. § 240.10b-5 (Rule 10b-5 promulgated under the Act); 3) state law concerning fraud and deceit; 4) state law concerning breach of fiduciary duties; and 5) state law concerning negligent misrepresentation.

The named plaintiffs sought and were granted certification of the class of all investors of the following 23 partnerships:

DRILLING AND COMPLETION LEASEBANK
1986-I                    LEASEBANK II
1986-II                   LEASEBANK III
1986-III                  LEASEBANK IV
1986-IV                   LEASEBANK V
1986-V
1987-I
1987-II
1987-III                  PIPELINE
1987-IV
1987-V                    PIPELINE II
1988-I
1988-II
1988-III                  EQUITY INCOME
1988-IV
1989-I                    EQUITY INCOME, L.P
1989-II
1989-III

Plaintiff Anna Bartosh invested in the following funds: 1988-I, 1988-II, 1989-I, Leasebank II, Leasebank III, Leasebank V, and Equity Income, L.P. Plaintiff Hubert Maehr invested in: 1987-IV, Leasebank IV, and Leasebank V. Plaintiff Patricia Gunter invested in: 1987-IV, Leasebank III, Leasebank IV, and Leasebank V. Gunter v. Ridgewood Energy Corp., 164 F.R.D. 391 (D.N.J. 1996).

Now, defendants Hall and Hall-Houston seek to limit the class and move for summary judgment to dismiss the complaint and all its claims. Defendants Swanson and Ridgewood Energy also move for summary judgment to dismiss the complaint. And, plaintiffs move for summary judgment in their favor on the RICO count.

II. Discussion

A. Summary Judgment Standard

Summary judgment is appropriate where the moving party establishes that "there is no genuine issue of fact and that [it] is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A factual dispute between the parties will not defeat a motion for summary judgment unless it is both genuine and material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for the non-movant and it is material if, under the substantive law, it would affect the outcome of the suit. See Anderson, 477 U.S. at 248, 106 S.Ct. 2505. The moving party must show that if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the non-moving party to carry its burden of proof. See Celotex v. Catrett, 477 U.S. 317, 318, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts in question." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The opposing party must set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings. See Sound Ship Building Corp. v. Bethlehem Steel Co., 533 F.2d 96, 99 (3d Cir.1976), cert. denied, 429 U.S. 860, 97 S.Ct. 161, 50 L.Ed.2d 137 (1976). At the summary judgment stage the court's function is not to weigh the evidence and determine the truth of the matter, but rather to determine whether there is a genuine issue for trial. See Anderson, 477 U.S. at 249, 106 S.Ct. 2505. In doing so, the court must construe the facts and inferences in the light most favorable to the non-moving party. See Wahl v. Rexnord, Inc. 624 F.2d 1169, 1181 (3d Cir.1980).

B. Plaintiff's RICO Claim

In the first count of their complaint, plaintiffs alleged that defendants Hall, Hall-Houston, Swanson, and Ridgewood Energy engaged in a pattern of racketeering activity, over a period of approximately eight years, through the sale of limited partnership interests in the Ridgewood Partnerships based on material misrepresentations and misleading financial analysis. Plaintiffs charge that defendants formed an "enterprise" within the meaning of RICO. They claim that the racketeering activity in which defendants participated included mail fraud, wire fraud, securities fraud, and "transporting in interstate commerce goods, wares, merchandise, securities or money of the value of $5,000 or more, converted or taken by fraud or causing persons to travel...