Mack Energy Co. v. Red Stick Energy, LLC

MACK ENERGY COMPANY, Plaintiff v. RED STICK ENERGY, LLC, ET AL., Defendants

CIVIL ACTION NO. 16-1696 SECTION "E" (1)

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF LOUISIANA

September 13, 2019

ORDER AND REASONS

Before the Court is a Motion for Certification Under 28 U.S.C. § 1292(b) and Motion for Stay filed by Defendants, Natrona Resources, L.L.C., Dixie Management Services, L.L.C., Albert W. Gunther, Jr., as trustee of The R E Trust, Martha Gunther, as trustee of The R E Trust, Old South Mechanical, L.L.C., Old South Ventures, L.L.C., Albert W. Gunther, Jr., and Albert W. Gunther, III (collectively, "Movants").¹ Mack Energy Company ("Mack") opposes this motion.² Movants filed a reply.³ For the following reasons, Movants' motion is DENIED.

BACKGROUND

This case arises out of the drilling of an oil and gas well in the Main Pass 21 Prospect.⁴ Mack seeks to recover the costs of drilling, testing, plugging, and abandoning a dry hole.⁵ Mack alleges Red Stick Energy, LLC ("Red Stick") purchased a 26.5% interest in the Main Pass 21 Prospect and entered into a participation agreement and a joint operating agreement with Mack.⁶ Red Stick and Gunther, Jr. allegedly agreed to form an entity, Main Pass 21, LLC ("Main Pass"), to which Red Stick would transfer its 26.5%interest in the Main Pass 21 Prospect.⁷ Gunther, Jr. and Red Stick agreed Main Pass would be funded 90% by Natrona Resources, L.L.C ("Natrona"), of which Gunther, Jr. is a member, and 10% by Red Stick.⁸ In its Fifth Amended and Superseding Complaint, Mack (1) brings a breach of contract claim against Red Stick, (2) brings a detrimental reliance claim against Gunther, Jr., and (3) alleges Main Pass assumed the obligations of Red Stick under the PA and JOA.⁹ In response, Gunther, Jr. filed a Motion to Dismiss for Failure to State a Claim, or Alternatively Motion for Summary Judgement.¹⁰

Red Stick has filed crossclaims and third party complaints against Movants.¹¹ Red Stick alleges: "Subsequent to the determination that the well was a dry hole, Defendant Albert W. Gunther, Jr. individually and/or as manager of Natrona and Dixie Management Services, L.L.C. [("Dixie")], and in turn, Defendant Main Pass, declined to pay any of the remaining drilling costs for the Main Pass 21 Prospect."¹² Red Stick brings breach of contract and detrimental reliance claims against Movants, and seeks to hold Movants liable through piercing the corporate veil and/or an alter ego theory of liability.¹³ In response, Movants filed a Motion to Dismiss for Failure to State a Claim, or Alternatively, Motion for Summary Judgment, as to Red Stick's amended crossclaim and second amended third party complaint.¹⁴

On June 3, 2019, Mack filed a motion to compel discovery, requesting Gunther, Jr., Gunther, III, Main Pass, Natrona, Dixie, Old South Mechanical, LLC ("Old SouthMechanical"), Old South Ventures, LLC ("Old South Ventures"), and Gunther, Jr. and Martha Gunther as trustees of RE Trust be ordered to supplement their responses to written discovery propounded by Mack.¹⁵ Movants opposed this motion.¹⁶ Mack filed a reply.¹⁷ On July 24, 2019, the Magistrate Judge heard oral argument regarding this motion.¹⁸ Several objections were resolved during oral argument, and the Magistrate Judge took under submission the remaining issues concerning whether discovery into the alter ego and corporate veil piercing issues would be allowed.¹⁹ As the Magistrate Judge stated, with respect to these remaining issues, Mack sought the following information:

1) Identification of the owners of each of the Gunther Parties, their proportionate share of ownership, the consideration paid, and the date each interest was acquired, as well as all documents related to the ownership interest or financial or business relationship with such party;

2) As to each of the Gunther Parties except Main Pass, whether the party directly or indirectly funded Main Pass or Barber's Hill, LLC;

3) Identification of all assets, liabilities, sources of income, and net worth of Main Pass;

4) Whether any of the Gunther Entities directly or indirectly funded Main Pass and if so, all documents pertaining thereto;

5) Bank statements of Main Pass from date of opening through end of March 2019 (only December 2015 and January 2016 have been produced) and bank statements of Natrona, Dixie, and Gunther, Jr. from June 2015 through the end of March 2019;

6) 2015 through 2018 federal tax returns for Gunther, Jr., and the Gunther Entities;

7) Formation documents for Old South Ventures, Old South Mechanical, RE Trust, Natrona, and Dixie (those of Main Pass had already been produced); and8) Identification and description of any transfers or loans between any of the Gunther Parties and any guarantees or cosigns of any obligations of the Gunther Parties along with any documents evidencing such loans.²⁰

On July 26, 2019 the Magistrate Judge granted Mack's motion to compel.²¹ Specifically, the Magistrate Judge ordered: "The Gunther Parties shall supplement their discovery responses as requested by Mack, except as to the category 1, which requests are narrowed to documents reflecting (a) the owner's investments and (b) any funds transferred between the owner and the entity. The Gunther Parties may produce their responses pursuant to a protective order limiting their use and disclosure." The Magistrate Judge explained: "The court finds that each of these categories seeks information that is relevant to the alter ego claims. Only one is overbroad—the request for "all documents" related to ownership interests or financial or business relationships in category 1."²²

On August 9, 2019, Movants appealed the Magistrate Judge's decision.²³ Mack argued the Magistrate Judge's ruling was correct.²⁴ During a telephone status conference held on August 28, 2019, this Court affirmed in part the Magistrate Judge's Order and Reasons granting the Motion to Compel filed by Mack.²⁵ The Court reversed in part the Magistrate Judge's Order and Reasons as follows:

1) Albert Gunther, Jr. will not be required to produce his personal income tax returns for the years 2015 through 2018. Instead, he will produce his Forms 1040, with Schedule C, for those years.

2) Albert Gunther, Jr. will produce his personal bank statements for in-camera review by the Court by providing a hard copy of an unredacted version of the bank statements and a redacted version of the bank statements, together with a list ofbank account numbers for Albert Gunther, Jr. and all entities named in this action.²⁶

With respect to the first category of documents, the Court held irrelevant portions may be redacted.²⁷ The Court ordered both categories of documents be produced by no later than Wednesday, September 18, 2019 at 5:00 p.m.²⁸ The Court further ordered the parties to file a joint motion for the entry of a protective order by no later than Friday, August 30, 2019 at 5:00 p.m.²⁹

On September 7, 2019, Movants filed the instant motion for certificate of appealability and motion to stay.³⁰ Movants ask the Court to certify its August 28, 2019 discovery order, regarding Movants' appeal of the Magistrate Judge's decision granting Mack's motion to compel, to allow an interlocutory appeal.³¹ Movants argue they should not be required to produce "confidential tax returns and bank statements" that are "based upon conclusory allegations challenged by pending Rule 12(b)(6) motions."³² Movants additionally seek a stay of the Court's ruling while the instant motion and the interlocutory appeal are pending.³³

LAW AND ANALYSIS

I. Motion for Certificate of Appealability

There are three criteria set forth in 28 U.S.C. § 1292(b) that must be met before the Court can properly certify an interlocutory order for appeal: (1) there must be a controlling question of law; (2) there must be a substantial ground for difference ofopinion; and (3) an immediate appeal from the order may materially advance the ultimate termination of the litigation.³⁴ The moving party bears the burden of establishing that interlocutory appeal is appropriate.³⁵ It is within the Court's discretion to certify an order for interlocutory appeal under Section 1292(b).³⁶ The "'general congressional policy against piecemeal review' should preclude interlocutory review" in most instances.³⁷ To that end, interlocutory appeals are "exceptional" and should not be granted "'simply to determine the correctness' of a ruling."³⁸

"Each application [of Section 1292(b)] is to be looked at . . . in the light of the underlying purpose reflected in the statute."³⁹ "'The manifest purpose of § 1292(b) is to support appeal from orders that cannot otherwise be reviewed by final judgment appeal or interlocutory appeal under some other provision of § 1292(b).'"⁴⁰ "It is self-evident that the purpose of § 1292(b) is not to undermine 28 U.S.C. § 1291's requirement of final judgment on the merits of a case before it may be appealed of right."⁴¹

As a preliminary matter, Movants overstate the breadth of the documents ordered to be produced. This Court did not order Movants to produce all tax returns and bankstatements. Instead, with respect to Gunther, Jr., the Court ordered the production of only his Forms 1040, with Schedule C, for years 2015 through 2018, with irrelevant information to be redacted.⁴² Further, Gunther, Jr.'s personal bank statements are to be produced to the Court for in-camera review.⁴³

Turning to the application of Section 1292(b), the Court finds Movants have failed to meet their burden of establishing that interlocutory appeal is appropriate under Section 1292(b). Movants argue the "controlling question of law" is:

Should a defendant be required to produce confidential tax returns and bank statements based upon conclusory allegations in a compliant of piercing the corporate veil, for which a motion to dismiss is pending and which the trial court has not ruled upon?⁴⁴

Movants' argument "amounts to a fact-specific dispute over the application of the discovery rules to this case."⁴⁵ "As...