NEW ORLEANS (CN) – Stephen Baldwin has sued Kevin Costner, claiming Costner and others tricked him into selling his shares in a company whose technology separates oil from water. Baldwin and a co-plaintiff claim that Costner and associates made a lucrative deal with BP after the Deepwater Horizon oil spill, then bought out the plaintiffs’ shares while keeping them in the dark about the $52 million sale to BP.
Baldwin and Spyridon Contogouris sued Westpac Resources, Patrick N. Smith, Kevin M. Costner and Rabobank in Federal Court.
“In the early 1990s, defendant Costner financed and oversaw the development of an oil and water separation technology under the auspices of a corporation owned and managed by him, CINC, an acronym for ‘Costner in Nevada Corporation,'” according to the complaint.
Contogouris and Baldwin claim: “In the early 2000s, Contogouris was approached by persons representing Costner to market the technology and the separation device invented at Costner’s direction to various customers. Contogouris entered into an agreement with CINC under which he would receive a commission on sales of units made to customers located by Contogouris.”
The complaint adds: “Costner’s attempts to market the CINC oil separating system proved unsuccessful, and, upon information and belief, he sold all of his rights to the technology and his ownership in CINC to [nonparty] Bret Shelton, an individual domiciled in Nevada, who continued to operate the business as CINC industries.”
According to the complaint: “Immediately prior to the events described herein, Contogouris and his family had a meal with Costner on April 17, 2010 in Biloxi, Mississippi where Costner was appearing with his band known as ‘Modern West.'”
Three days later, the Deepwater Horizon oil rig caught fire, exploded and sank.
“Although initial media reports indicated no oil was leaking from the well being drilled by the Deepwater Horizon, Contogouris learned within days from industry sources that massive amounts of oil were spewing from the well site,” the complaint states.
At the end of April, Contogouris says, he wanted to speak with Costner about his technology, but Costner was filming a movie in Canada. So Contogouris spoke with a friend of Costner’s instead, “Tim Hochter, who advised Contogouris that Costner had sold his interest in the technology to CINC and that Hochter was reluctant to raise the issue with Costner because of the amounts of money Costner had lost in the venture to perfect and manufacture the oil separation system,” according to the complaint.
Contogouris says he contacted Brett Shelton and CINC Industries to see if he could obtain an exclusive agreement to acquire it for the Gulf of Mexico oil spill. But because Contogouris was not able to get in touch with top BP management, he decided he needed to bring in new partners.
“Stephen Baldwin, an actor, and Contogouris, have been friends for many years. On April 29 or April 30, 2010, Baldwin advised Contogouris that he would be coming to New Orleans to meet with a local attorney, John Houghtaling, who was discussing making a motion picture in which Baldwin would be the star. Baldwin asked Contogouris to attend a luncheon with Houghtaling to discuss the movie project. During the meeting, Contogouris expressed the view that the proposed movie would likely be unprofitable, and those interested in making a film should make a documentary film based on the BP film. Houghtaling immediately expressed interest in this idea. …” according to the complaint.
“Contogouris was at that point, and through June 19, 2010, the first founding member, managing member, and largest shareholder of OTS (Ocean Therapy Solutions),” the complaint states. It adds: “BP agreed to watch the separator operate on May 13, 2010, and agreed to test the unit for possible use in cleaning up the Deepwater Horizon spill.”
But according to Baldwin and Contogouris, “A difference in business philosophy developed between the members of OTS. Contogouris and [nonparty Frank] Levy wanted the company to use a business model that would insure recurring business and a possibility of marketing the device to other major oil companies. They proposed that the units be rented to BP at a fair price in a long-term arrangement. Houghtaling and Smith favored a ‘quick kill’ approach involving a one-time sale of the equipment to BP at a higher price.”
Later, the complaint states, “BP agreed to meet with representatives of OTS on June 8, 2010. Contogouris and Baldwin were purposefully excluded from the BP meeting of this date by Costner, [Patrick] Smith and Houghtaling. Costner, Smith and Houghtaling met with Doug Suttles of BP on June 8, 2010 at Houghtaling’s residence on Common Street in New Orleans. … During that meeting, Suttles committed BP to order units of the separator from OTS, and agreed to make an $18 million deposit against the total purchase price upon issuance of the purchase order. Contogouris and Baldwin had no knowledge of the $18 million deposit at the time.”
Costner testified before Congress on June 9 this year. “In his testimony, Costner indicated that BP had placed an order for a number of units. He also testified that he was a main principal in OTS, while the company records indicate that he held no ownership interest in his name. Houghtaling also made public statements, including one on WWL Radio, indicating that BP had agreed during the June 8, 2010 meeting to purchase an initial order of 32 units,” according to the complaint.
The complaint continues: “Contrary to these public statements, Smith told Contogouris that BP had in fact not placed an order, and these statements were being made by Costner and Houghtaling to pressure BP into making an order. Contogouris relayed this information to Baldwin and expressed that this strategy of Costner, Smith and Houghtaling was deceptive and inappropriate when dealing with an important customer such as BP. Both Contogouris and Baldwin were operating under the impression that BP had not made a binding purchase commitment for any separator units from OTS. Defendants, despite having a fiduciary obligation to do so, did not disclose to plaintiffs that BP agreed to an $18 million advance deposit, and did not disclose that as of that time, defendants had already agreed to make selective dividends or distributions from OTS only to themselves consisting of most of the deposit to be made by BP. This selective distribution was in violation of the Operating Agreement of OTS. Defendant Smith affirmatively misrepresented the true state of affairs to plaintiffs, and by omission of material facts, failed to inform plaintiffs of the agreement reached with BP. Baldwin and Contogouris relied on these statements and omissions to their detriment.”
In the next few days, Contogouris and Baldwin began selling their interest in OTS.
“Unbeknownst to both Baldwin and Contogouris at that time, BP issued a purchase order to OTS on June 12, 2010 for 32 units for a gross price in excess of $52 million. At this time, Baldwin and Contogouris were still shareholders of OTS and they had not been paid in full for their share and were therefore entitled to their pro-rata share of any distribution to be made out of the BP advance deposit,” the complaint states.
It adds: “On June 14, 2010, Costner, Smith and WestPac clandestinely, secretly and wrongfully caused an unauthorized bank account in the name of OTS to be opened at Rabobank NA in California. Bryan Bates, who was represented by Smith to Contogouris to be the Chief Financial Officer and bookkeeper of WestPac and Patrick Smith, participated in the opening and managing of this account. The opening of this account by OTS was not authorized by its members, which at that time included both Baldwin and Contogouris. Patrick Smith was not an authorized officer of OTS and had no authority to open such as bank account, which ultimately, upon information and belief, was used by Costner and Smith as their own personal piggy bank.”
On June 16, after BP wired an $18 million deposit to the new account at Rabobank, with Contogouris and Baldwin still in the dark about the transaction, Smith contacted Contogouris and said he had the money to buy out Contogouris’ shares in OTS, according to the complaint.
Contogouris and Baldwin say they didn’t hear that BP had bought units until mid-July.
“In effect, Costner, Smith and/or WestPac had acquired Contogouris and Baldwin’s interest in OTS using funds that belonged to OTS that were surreptitiously and improperly transferred from the unauthorized OTS Rabobank account to WestPac. … Contogouris and Baldwin were paid for their shares with monies that should have been paid to them as dividends and/or distributions from OTS,” the complaint states.
“The sale of the separator units to BP generated an estimated profit to OTS of $38 million. As a 28 percent owner of OTS, Contogouris’ share of the profit from the sale would have been approximately $10.4 million, and he only received $1.4 million for his interest due to the deception perpetrated by the defendants,” Contogouris says.
“As a 10 percent owner of OTS, Baldwin’s share of the profit from the sale would have been approximately $3.8 million, and he only received $500,000 for his interest in the company.”
Baldwin and Contogouris seek damages for breach of the Securities Exchange Act, fraud and misrepresentation. Their lead attorney is Randolph Waits with Waits, Emmett & Popp of New Orleans.