Case 1:13-cv-01036-ML Document 247 Filed 06/11/15 Page 1 of 8 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION SECURITIES AND EXCHANGE COMMISSION Plaintiff, v. CIVIL ACTION NO. 1:13-cv-01036-ML ROBERT A. HELMS, ET AL., Defendants, WILLIAM L. BARLOW AND GLOBAL CAPITAL VENTURES, LLC Relief Defendants. JAL INTEREST S SUR-REPLY IN SUPPORT OF ITS OPPOSITION TO RECEIVER S MOTION FOR ENTRY OF AN ORDER ENFORCING SALE OF RECEIVERSHIP ASSETS AND MOTION FOR ORDER REQUIRING RETURN OF EARNEST MONEY JAL Interests, LLC ( JAL ), files this its Sur-Reply in Support of its Opposition to Receiver s Motion for Entry of an Order Enforcing Sale of Receivership Assets to it and Moves this Court for any Order Requiring the Return of the Remaining Earnest Money on Deposit related to the auction of the Ozona Interests. I. JAL S EARNEST MONEY MUST BE RETURNED AND THE AUCTION DECLARED VOID A. THE RECEIVER DID NOT COMPLY WITH THIS COURT S SALES ORDER In his Reply, the Receiver fails to address the deficiencies in the sale process. The sale should also fail because the Receiver failed to follow this Court s Sales Order. (Doc. 77) The Sales Order calls for a sealed bid auction conducted by EnergyNet. (emphasis added) (Doc. 77, 5) The Ozona Interests sale was conducted as an open, live auction. There are specific, material differences in the two auction methods and EnergyNet is able to perform either method 1
Case 1:13-cv-01036-ML Document 247 Filed 06/11/15 Page 2 of 8 depending on the strategies and objectives of its Seller clients. The Court may ascertain an idea of such differences by browsing EnergyNet.com, and presumably was already aware of the differences when it ordered that sales be conducted by sealed bid auction. Although EnergyNet can conduct both sealed bid auctions and open, live auctions, with the Ozona Interests sale, the Receiver and EnergyNet conducted an open, live auction, and, therefore, did not comply with this Court s Sales Order. Furthermore, this Court s Sales Order authorized and directed [the Receiver] to complete all actions necessary for performance under the Marketing Agreement. (Doc 77, 5) The Marketing Agreement, which is attached to this Court s Sales Order (Doc. 77, Ex. 1), required the Receiver to disclose to EnergyNet, Inc., for review by all potential BUYERS, all mortgages, liens, encumbrances and contractual obligations that burden the Properties. (emphasis added) (Doc. 77, Ex. 1, 1, 2) The Amegy and Clovis intervention pleadings and the underlying documents that purport to create the interests asserted by Amegy and Clovis were never disclosed or placed in EnergyNet s online data room for the Ozona Interests, as required by the Marketing Agreement between the Receiver and EnergyNet and as approved and required by the Sale Order. (Castleman Decl. 3) B. THE RECIEVER FAILED TO GIVE POTENTIAL BIDDERS NOTICE OF THE AMEGY AND CLOVIS ALLEGED SECURITY INTERESTS VIA THE DATA ROOM The Receiver was even apprised by EnergyNet that it may need to add additional disclosures and documents regarding informing potential bidders that there are a couple of liens that the Seller will be responsible for removing affect the properties in the Auction. (Doc. 240, Ex. C) Such liens would have included the security interests asserted by Amegy and Clovis. The Receiver himself was copied on that correspondence by Scott Marshall, 2
Case 1:13-cv-01036-ML Document 247 Filed 06/11/15 Page 3 of 8 an oil and gas consultant for the Receiver who was approved by the Court, but, evidently, the Receiver chose not to respond. (Id.) Instead, the Receiver allowed his agent, Chris Atherton, of EnergyNet to make the decision that inclusion of such a disclosure (and underlying information and documentation) would be boilerplate, and to determine that the data room could be activated without including that language, thereby foreclosing notice of the couple of liens through the Marshall-proposed language to potential bidders, including JAL. (Id.) JAL did not have actual notice of the security interests asserted by Amegy and Clovis at the time it bid on the Ozona Interests. (Castleman Decl. 2) In fact, Clovis did not file a motion to intervene in the Receivership until several months after the data room opened and at least one day after the actual auction began. (Doc. 99) Because those pleadings and the supporting documentation were not in the data room, JAL did not gain knowledge of those claims until September 16, 2014 when it first accessed PACER to retrieve a copy of the Receiver s proposed order confirming sale, a document which JAL had requested several times from EnergyNet to no avail. (Castleman Decl. 4) As a result, JAL was unaware that a first mortgage lender and a hard-money-lender alleged security interests until after submitting its winning bid. (Castleman Decl. 2 and 4) Had JAL been given notice of Amegy and Clovis s interests, it would not have bid. (Castleman Decl. 2) C. JAL DETRIMENTALLY RELIED ON THE RECEIVER S AGENTS MATERIAL MISSTATEMENTS JAL was disabused of its notion that confirmation might take 30-45 day[s] by the Receiver s Agent s assertion, upon which JAL directly relied, that the Receiver expects it will take the judge less than a week to approve the sale, but needed to pad the official documents for unforeseen circumstances. (Castleman Decl. 5, Ex. A) 3
Case 1:13-cv-01036-ML Document 247 Filed 06/11/15 Page 4 of 8 It is not surprising that the Receiver s Agent now says that he misunderstood the confirmation process or, rather, that he misstated his understanding of it, given his other misstatements, such as his December 15, 2014 email statement to JAL that the Receiver has been approved by the court/judge to close the sale and JAL needed to fund the remaining balance of the purchase price. (Castleman Decl. 7, Ex. C) Chris Atherton attempted to clarify the December 15 misstatement when he emailed JAL on January 9 forwarding the Receiver s demand for apology and stated (this is when the Receiver had told me that the Clovis party had removed their claim and the Receiver was asking the judge to approve the sale). (Castleman Decl. 7, Ex. D) Perhaps, the Receiver s largest misstatement came on October 21, 2014 when he told JAL that the sale should be approved no problem. (Castleman Decl. 6, Ex. B). Had the Receiver s Agent indicated that the sale might take as long as six months to clear title, instead of the much shorter time frames misstated by the Receiver s Agent, JAL would not have bid. (Castleman Decl. 5) Regardless, the alleged security interests of Clovis were not cleared and the sale was not confirmed within the 60-day window prescribed by Section 8 of the Buyers Agreement. Therefore, the Receiver did not perform its condition precedent to the sale within the time frame prescribed by the Buyers Agreement, so there is no contract. (Doc. 77, Ex. E. to Ex. 1, 8; See Cedyco Corp. v. Petroquest Energy, 497 F.3d 485, 488-490 (5 th Cir. 2007)(overturning the district court s summary judgment finding a binding contract for an auction winner when the sale of working interests in two oil and gas wells was subject to the seller obtaining the consent to that sale by the properties lessor because obtaining such consent is a condition precedent and that auction winner was not able to rely on the fall of the [auction] hammer to create an irrevocable contract just as this sale was subject to the Receiver clearing Clovis s interest 4
Case 1:13-cv-01036-ML Document 247 Filed 06/11/15 Page 5 of 8 and obtaining Court confirmation (a condition precedent ) which the Receiver failed to achieve within the 60-day period). D. THE RECEIVER CHOSE NOT TO CLOSE THE SALE WHEN OFFERED BY THIS COURT The Receiver attempts to make light of its lack of interest in closing the sale of the Ozona Interests with JAL and putting the funds in escrow to be accessed by the victor in their dispute surrounding Clovis s asserted security interest. Just as JAL wrote in its Opposition, the Receiver objected to the Court s suggestion because of his fear that it would frustrate the Amegy settlement. (Doc. 222, I.B; Doc. 240, C, n. 10; Doc 183 at 14:4-16) JAL had no interest in the Amegy settlement and no knowledge that Amegy was even asserting a priority security interest in the Ozona properties again, documents notifying potential bidders of Amegy and Clovis s alleged security interests were not in the data room. (Castleman Decl. 3) The Amegy settlement is the Receiver s concern alone and should not have affected the sale to JAL, especially when faced with the Court s desire to close the sale to JAL and put the proceeds in escrow. (Doc. 183 at 7:24-8:4) Furthermore, the Receiver, not JAL, brings up the issue of the current market conditions. (Doc. 240, C, p. 4, 2) Had the Receiver agreed with the Court and pushed for the closing of the sale of the Ozona properties to JAL with the Clovis-fight to be decided with the sales proceeds in escrow, then JAL could have dealt with the risks the market presents. It could have sold the properties at any point after it received title presumably the minute after the funds hit the escrow account, which JAL stood ready to fund on September 13, 2013 (two days following the sale as required by the Buyer s Agreement). As it stands, the Receiver objected to the Court s suggestion to close and today, over nine months after the auction close, seeks to bind JAL to a contract the Receiver could not perform in a timely manner. Doing so will result in 5
Case 1:13-cv-01036-ML Document 247 Filed 06/11/15 Page 6 of 8 inequity to JAL as it will be forced to swallow market losses that were incurred during a time JAL was powerless to take any protective or preventative action. E. EQUITY DEMANDS THAT JAL BE ALLOWED TO WITHDRAW FROM THE SALE AND HAVE ITS ESCROW MONEY RETURNED Finally, it is important to consider the identity of the parties here. The Receiver is appointed to recover the assets of a fraudster to benefit his victims. In some respects, the Receiver stands in the shoes of the government, like a prosecutor, to go after those who unlawfully or improperly profited as a result of the fraudulent scheme. Amegy was, presumably, a bona fide secured, commercial lender and Clovis was a hard-money lender who lent into a fraudulent scheme, albeit presumably unknowingly. JAL is an innocent third party that had no connection whatsoever to the fraud and fraudster that underlies these proceedings. JAL should not be punished by being forced to bear the market losses created by performance delays while others argued about their roles in the fraud. II. PRAYER JAL respectfully prays that this Court: (1) Deny the Receiver s Motion to Confirm the Sale of Certain Receivership Assets to JAL; (2) Enter an Order requiring the Receiver to consent to the return of JAL s remaining interest money by EnergyNet; and (3) Grant JAL any other and further relief to which JAL has shown itself to be justly entitled. 6
Case 1:13-cv-01036-ML Document 247 Filed 06/11/15 Page 7 of 8 Dated: June 11, 2015 Respectfully submitted, Christopher Groves Texas State Bar No. 00793862 MILLER, EGAN, MOLTER & NELSON LLP 2911 Turtle Creek Blvd., Suite 1100 Dallas, Texas 75219 214.628.9526 Direct 214.628.9505 Fax chris.groves@milleregan.com Attorneys for JAL Interests, LLC CERTIFICATE OF CONFERENCE I certify that on May 21, 2015, I met and conferred by teleconference with Thomas L. Taylor and Andrew Goforth in compliance with the requirements of Local Rule CV-7(i). The Receiver is opposed to this relief sought in this and other pleadings opposing his motion to enforce. Christopher Groves 7
Case 1:13-cv-01036-ML Document 247 Filed 06/11/15 Page 8 of 8 CERTIFICATE OF SERVICE I certify that on June 11, 2015, I electronically submitted the foregoing document with the clerk of the U.S. District Court, Western District of Texas, using the CM/ECF electronic filing system. All counsel of record and pro se parties have been served electronically via CM/ECF notice, or by other means as listed below consistent with the Federal Rules of Civil Procedure. Via email, with permission: Deven Sellers devensellers@gmail.com Roland Barrera barrera.roland@gmail.com William Barlow; Global Capital Ventures, LLC Relief Defendants sgtgiwillie@aol.com Christopher Groves 8