Judge Tosses Oil Investors’ $13 Million Claim

HOUSTON (CN) - A federal judge threw out claims against Layton Energy company and its owners, whom investors accused of taking $13.5 million for oil and gas investments, then hiding the money through a "game of fund money hot potato."

Fifteen investors in December 2011 filed a class action against Layton Energy Texas, Platinum Energy Solutions, Layton Corp., and company owners Daniel Layton and J. Clark Legler, in Harris County Court.

U.S. District Judge Sim Lake dismissed the amended, now federal, complaint on May 18.

The investors claimed they bought partnership units in Layton Energy Wharton Funds, from which the defendants collected $13.5 million to buy oil and gas wells. The investors sued to rescind their purchases of partnership units and recover the investment money, which they claim the defendants mismanaged.

The case was removed to Federal Court in January, and 24 people joined as plaintiffs in the amended complaint filed that month. They made additional claims and also sued on behalf of the funds derivatively.

Judge Lake dismissed defendant Platinum Energy Solutions in March, and dismissed the entire case last week.

"Plaintiffs allege that the funds overpaid for services, lost property rights, failed to acquire property and services, had principal diverted outside the funds, had property rights encumbered, and were defrauded," Lake wrote.

But it was the funds, not the investors, which would have suffered the alleged damages, Lake found.

"Accordingly, the court concludes that claims arising from loss of the value of plaintiffs' investment in the funds belong not to the plaintiffs individually, but to the funds, and that under Texas law the plaintiffs must assert such claims derivatively on behalf of the limited partnerships, not individually on their own behalf or as representatives of a class."

Lake refused to give the investors a chance to file a second amended complaint.

"Plaintiffs have already filed an original petition and an amended complaint," Lake wrote. "Plaintiffs' ACAC [amended class action complaint] purports to assert derivative claims, but plaintiffs do not dispute that their ACAC fails to satisfy the federal and state law requirements for pleading derivative claims. Instead, in the event that the claims asserted in their ACAC are subject to dismissal, plaintiffs request leave to amend. Plaintiffs have not provided the court a proposed second amended class action complaint, have not explained what, if any, additional facts plaintiffs would allege in such an amended complaint, and have not explained why such facts are not alleged in the ACAC. Under these circumstances the court is not persuaded that plaintiffs should receive a second opportunity to replead their claims."

Because the investors lacked standing and failed to meet the requirements for pursuing derivative actions, Sims tossed the claims for conversion, violation of the Texas Theft Liability Act, money had and received, breach of fiduciary duty, negligence and common law fraud regarding misrepresentations made once the plaintiffs had invested their money.

Lake found that the investors failed to plead fraud with particularity, so he dismissed the claims for violation of the Texas Securities Act and common law fraud for any misrepresentations made before the investors bought their partnership units.

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