264 F. Supp. 3d 826
W.D. Ky.2017Background
- Plaintiffs (Peterson and Sierra Enterprise) invested ~$955,225 in oil-and-gas joint ventures organized by Graybar, SWO & ISM, and related entities after receiving Private Placement Memoranda (PPMs) that touted production and omitted significant industry risks.
- Plaintiffs allege misrepresentations, omissions, and improper distributions; most defendants settled with Plaintiffs, leaving Lewis Oil as the remaining defendant on several claims including aiding-and-abetting, fraudulent conveyance, contract interference, veil-piercing, and enforcement related claims.
- Expert Harry D. Callicotte (petroleum engineer) opined that industry standards were violated: PPMs omitted material production/operational risks, the advertised "48-hour daily test" and 30 bbl/day estimate were unreliable, selling 100% working interest was improper, and formation/purchase of Lewis Oil insulated records to conceal lack of production.
- Bank records show transfers totaling $1,826,930.41 from SWO & ISM to Lewis Oil in 2012–13; documentary gaps exist about the purpose and consideration for those transfers. Key principals (Wallace, Ticer, Lewis) overlap among the entities.
- Lewis Oil moved to exclude Callicotte and for summary judgment on remaining claims; court denied exclusion, granted summary judgment in part, and denied in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of Callicotte (expert) | Callicotte is qualified and his industry-based opinions about customs, recordkeeping, and concealment are relevant to aiding-and-abetting and concealment theories. | Lewis Oil argued opinions were irrelevant to it, lacked factual basis as to Lewis Oil, and employed unreliable methodology. | Denied. Court found Callicotte qualified, his experience-based methodology permissible under Daubert/Kumho, and relevance to aiding-and-abetting and concealment. |
| Aiding & abetting breaches of fiduciary duty | Lewis Oil substantially assisted and knew of breaches by controlling transportation/records, enabling concealment. | Lewis Oil lacked duty, knowledge, and substantial assistance. | Denied summary judgment. Court found triable issues of substantial assistance and circumstantial evidence of knowledge. |
| Aiding & abetting fraud / negligent misrepresentation | Lewis Oil materially assisted post-sale concealment and was created to perpetuate fraud; can be liable even if formed after initial sales. | Lewis Oil argues it did not exist at time of sales and did not solicit or sell securities; no direct involvement. | Denied summary judgment on fraud/negligent misrep aiding-and-abetting claims; factual disputes for jury. |
| Liability under KRS 292.480(4) (state securities aiding/abetting) | Plaintiffs argue Lewis Oil aided violations by materially assisting and covering up fraud. | Lewis Oil contends it did not sell or solicit the securities and was not an "agent" under statute; it was not born at time of sales. | Granted. Court found statute requires being an agent who materially aided the sale and Lewis Oil could not have materially aided sales that occurred before its formation. |
| Fraudulent conveyances (KRS 378.010/378.020) | Transfers from SWO & ISM to Lewis Oil evidence badges of fraud (related parties, inadequate consideration, timing re: indictment). | Lewis Oil denies wrongful transfers or says transfers were settlement-related. | Denied summary judgment. Court found sufficient badges of fraud and timing to create triable issues. |
| Piercing the corporate veil | Plaintiffs seek to pierce Lewis Oil’s veil to reach principals/settled entities. | Lewis Oil argues veil-piercing elements are absent; settlement with other defendants moots piercing. | Granted. Court refused to pierce because the other defendants (the entities behind the veil) have settled and been dismissed, leaving no targets for equitable imposition. |
| Tortious interference with contract | Plaintiffs: Lewis Oil intended and acted to cause breaches by concealing production/distributions. | Lewis Oil: lacked knowledge, intent, and was not a party to contracts. | Denied summary judgment. Court found sufficient circumstantial evidence and expert opinion to create triable issues on intent and substantial interference. |
Key Cases Cited
- Daubert v. Merrell Dow Pharm., 509 U.S. 579 (U.S. 1993) (trial court gatekeeping for expert relevance and reliability)
- Kumho Tire Co. v. Carmichael, 526 U.S. 137 (U.S. 1999) (Daubert standard applies to non-scientific expert testimony; experience-based methodology permissible)
- Miles Farm Supply, LLC v. Helena Chem. Co., 595 F.3d 663 (6th Cir. 2010) (Kentucky law recognizes aiding-and-abetting fiduciary-breach claims and elements required)
- Aetna Cas. & Sur. Co. v. Leahey Const. Co., 219 F.3d 519 (6th Cir. 2000) (definition of "substantial assistance" and Restatement §876 factors)
- Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476 (Ky. 1991) (Kentucky recognizes civil conspiracy / aiding and abetting breaches of fiduciary duty)