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Buray Energy International LLC v. Prism Corporation

United States District Court, S.D. Indiana, Evansville Division

February 24, 2014

PRISM CORPORATION Default entered 3/22/2012, set aside 7/25/12 and default entered 9/10/2012, JOSEPH LOFTIS Default entered 4/19/2012, set aside 7/25/12 and default entered 9/10/2012, Defendants.


RICHARD L. YOUNG, Chief District Judge.

Plaintiff, BuRay Energy International LLC ("BuRay"), moves for an entry of default judgment under Federal Rule of Civil Procedure 55(b) and for several equitable and legal remedies. Defendants, Prism Corporation ("Prism") and Joseph Loftis ("Loftis") ("collectively "Defendants"), moved for a hearing on the damages requested. The court granted this request and heard evidence on September 10, 2013. Having reviewed the evidence and filings, the court GRANTS default judgment in part and DENIES it in part.

I. Background

In July of 2010, BuRay entered into an agreement with Burks Oil & Gas Properties, Inc. ("Burks"), in which Burks agreed to evaluate and market BuRay's oil and gas properties in Oklahoma. (Sec. Am. Comp. ¶ 6). Burks acted as a broker for BuRay. (Damages Hearing Transcript ("Transcript") 13:14-23). On December 3, 2010, Burks entered into a Confidentiality Letter Agreement (the "Confidentiality Agreement") with Prism, a corporation owned by Loftis. As part of this agreement, Burks provided confidential information regarding BuRay's properties to Prism in order for Prism to evaluate the acquisition of the properties. (Confidentiality Agreement ¶ 2). Among other things, Prism agreed in the Confidentiality Agreement to not compete with BuRay, including through the acquisition of other leases and interests in the Area of Mutual Interest ("AMI").[1] ( Id. at ¶ 7).

On January 21, 2011, Prism and BuRay executed the Term Sheet - Talihina Field Area setting forth a sale by BuRay to Prism of the oil and gas leases and operations, gas wells, and a gas gathering and pipeline system (collectively known as the "Talihina Prospect"). The parties then entered into several other agreements:

• On February 11, 2011, BuRay and Prism entered into the Purchase and Sale Agreement (the "Wells and Leases PSA"), whereby BuRay agreed to sell oil and gas leaseholds located in LeFlore County, Oklahoma and other assets to Prism;
• On March 22, 2011, BuRay and Prism entered into another Purchase and Sale Agreement, whereby Prism agreed to purchase from BuRay the operating rights and other contractual rights and interests relating to the wells and leases (the "Operating PSA");
• On March 22, 2011, Prism and 4 Square Gas, LLC ("4 Square") entered into another Purchase and Sale Agreement, whereby Prism agreed to purchase 4 Square's fractional interest in the Talihina Gas System ("Pipeline Agreement I");
• On March 22, 2011, Prism and TAG Petroleum, Inc. ("TAG") entered into another Purchase and Sale Agreement, whereby Prism agreed to purchase TAG's interest in the Talihina Gas System ("Pipeline Agreement II"); and
• On May 20, 2011, BuRay, Prism, 4 Square, and TAG entered into an Amendment to Purchase and Sale Agreements - Talihina SE, which amended the Wells and Leases PSA, the Operating PSA, and Pipeline Agreement I. It rescinded Pipeline Agreement II, and amended the closing dates for the prior agreements.

Prism and BuRay closed the Wells and Leases PSA on May 20, 2011. As a result, BuRay delivered to Prism an Assignment of Oil and Gas Leases and Bill of Sale, which conveyed the properties and related assets to Prism ("Wells and Leases Assignment"). The Operating PSA was scheduled to close on June 6, 2011, however this did not occur. As a result, Prism, BuRay, 4 Square and John J. Buthod, Esq., entered into the Escrow Agreement. The Escrow Agreement incorporated all the prior agreements with the exception of the Confidentiality Agreement. Prism failed to make cash payments pursuant to the Escrow Agreement. In fact, BuRay asserts that it has not received anything of value from Prism. (Transcript 81:11-13).

After this failure, BuRay brought suit against Prism and Loftis for breaching the Escrow Agreement, the Wells and Leases PSA, the Operating PSA, and the Confidentiality Agreement. In addition, BuRay alleges fraud and offenses against its property (the proprietary information). BuRay filed its original Complaint in August 2011, its First Amended Complaint in January 2012, and then its Second Amended Complaint in February of 2012. Defendants' counsel then withdrew. (Docket # 50).

The Defendants failed to answer the Second Amended Complaint despite being granted two extensions of time. The clerk entered default against Defendants on March 22, 2012. (Docket # 58). Defendants obtained new counsel and moved to set aside that entry. The court set the entry aside on July 25, 2012. (Docket # 76). Defendants' counsel withdrew after this, and once again, Defendants failed to answer the Second Amended Complaint. The Clerk entered default on September 10, 2012 (Docket # 89). BuRay filed the present Motion for Default Judgment (Docket # 93) on March 8, 2013. Defendants then obtained a third attorney and moved for a hearing on the issue of damages pursuant to Rule 55(b)(2). The court granted the hearing. Evidence was presented to the court by both sides on September 10, 2013. Both parties were given an opportunity to submit their proposed findings of fact and conclusions of law; only BuRay took advantage of this opportunity in a timely manner. (Docket # 121). Defendant submitted their proposed findings over a month late. (Docket # 122).

II. Standard

Once the Clerk enters default under Rule 55(a), the court has the power and discretion to enter a default judgment under Rule 55(b). Stillwater of Crown Point Homeowner's Ass'n, Inc. v. Kovich, No. 2:09-cv-147-PPS-PRC, 2010 WL 1541188, * 1 (N.D. Ind. Apr. 15, 2010) (citing O'Brien v. R.J. O'Brien & Assocs., Inc., 988 F.2d 1394, 1398 (7th Cir. 1993)). Default judgment is not entered as a matter of right. See Witzlib v. Cohen, No. 08c0342, 2009 WL 4030485, *1 (E.D. Wis. Nov. 20, 2009).

In determining if default judgment is appropriate, the court should consider such factors as "the amount of money potentially involved, whether material issues of fact or issues of substantial public importance are at issue, whether the default is largely technical, whether plaintiff has been substantially prejudiced by the delay involved and whether the grounds for default are clearly established or are in doubt." Id. (citing Federal Practice and Procedure § 2685 (3d ed. 1998).

III. Discussion

A. Default Judgment

The court finds that default judgment is appropriate here for Counts I - III and V - VIII. The court finds that these breaches were clearly established by the record. For example, Prism breached the escrow agreement by failing to submit the cash payment as it required. Prism breached the Wells and Leases PSA by failing to improve the BuRay leases as it required. Prism breached the Operating PSA by failing to make the payments and damaging one of the wells located on the leased property.

The court will not grant default judgment for Count IV - Breach of the Confidentiality Agreement. According to BuRay, Prism and Loftis breached the Confidentiality Agreement by acquiring interests in the AMI. (Transcript 49:15-17). However, as Prism and Loftis argue, they were expected and contractually required to obtain new leases in the AMI. For example, Wells and Leases PSA states under the heading "Obligations of [Prism]" that:

Prism agrees to undertake the actions described in Exhibit I' [acquisition of new leases in the AMI covering up to 7000 gross acres]... and the acquisition of additional leases and acreage in the AMI, subject to [Prism's] sole discretion as to the number of acres or ultimate final gross acreage acquired.

(Wells and Leases PSA ¶1.7) In addition, under the Operating PSA,

[BuRay agrees to continue to assist [Prism] in its efforts to acquire new leasehold acreage in the AMI up to the Closing Date and agrees not to impede or interfere with [Prism's] efforts to acquire such additional leasehold acreage.

(Operating PSA ¶ 1.4). The evidence further suggests that BuRay was complying with its obligation under the Operating PSA. Mr. Schofield, the part-owner of BuRay, testified that he introduced Loftis to landowners in order to assist Loftis in acquiring those leases. (Transcript 84:2-15). He stated that this was done in order for Mr. Loftis to "buy our deal and perform." ( Id. 84:12-15).

Because Prism was obligated to acquire these leases, the court finds that the grounds for default on Count IV are in doubt. The court therefore, DENIES default judgment for Count IV of the Second Amended Complaint.

B. Remedies Sought

An entry of default judgment "establishes, as a matter of law, that defendants are liable to plaintiff on each cause of action alleged in the complaint." Wehrs v. Wells, 688 F.3d 886, 892 (7th Cir. 2012) (citing United States v. Di Mucci, 879 F.2d 1488, 1497 (7th Cir. 1989). "Upon default, the well-pled allegations of the complaint relating to liability are taken as true, but those relating to the amount of damages suffered ordinarily are not." Wehrs, 688 F.3d at 892. The plaintiff must prove damages. Id. As such, the defaulting party "may raise the issue of causation as it relates to the calculation of damages." Id.

BuRay asserts that pure monetary damages are not enough, and therefore seeks the following to make it whole: (1) termination of all agreements between the parties, except the Confidentiality Agreement, (2) the return of all materials and documentation relating to the Information, (3) the transfer back of the BuRay Leases, (4) the cost to drill a well comparable to the Curtis McCoy Well ("McCoy Well"), (5) the transfer of the Prism Leases, (6) a permanent injunction, (7) liquidated damages, and (8) attorneys' fees. The court will deal with each requested form of relief in turn.

Before determining which remedies BuRay is entitled to, the court must determine which state law to apply. The Escrow Agreement states that it "shall be construed, enforced, and administered in accordance with the laws of the State of Indiana." (Escrow Agreement ¶ 9). In addition, it amends all of the Purchase and Sale Agreements to the extent that they are inconsistent with it. ( Id. at ¶ 12). Therefore, the Wells and Leases PSA, the Operating PSA, the Pipeline Agreement I, the Pipeline Agreement II, Amendment I, Amendment II, and the Escrow Agreement are all governed by Indiana law. On the other hand, the Confidentiality Agreement was not amended by the Escrow Agreement, nor could it have been. The court has been presented with no evidence that ...

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