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Prime Energy and Chemical, LLC v. Tucker Arensberg, P.C.

United States District Court, W.D. Pennsylvania

August 12, 2019

TUCKER ARENSBERG, P.C., et al., Defendants


          Kane Judge

         Presently before the Court is Defendants Tucker Arensberg, P.C., Michael A. Shiner, and Kenneth L. Carroll, III's motion to dismiss (Doc. No. 51) Plaintiff Prime Energy and Chemical, LLC (“Plaintiff”)'s second amended complaint (Doc. No. 50) in part.[1] For the reasons explained below, the Court will deny the motion.

         I. BACKGROUND

         A. Factual Background[2]

         Plaintiff is a Florida-based oil and gas company that previously entered into a contractual agreement with certain clients of Defendants “for the $3 million purchase of assets at the oil and gas property known as the ‘Swamp Angel' property in McKean County, Pennsylvania” and, in connection with this agreement, underwent a series of transactions in 2015 and 2016 that have given rise to the instant case. (Id. ¶ 1.)[3] Defendants include Tucker Arensberg, P.C. (“Defendant Tucker Arensberg”), a Pittsburgh-based law firm, and two attorneys: Michael A. Shiner (“Defendant Shiner”), a shareholder with Defendant Tucker Arensberg, and Kenneth L. Carroll, III (“Defendant Carroll”), an attorney formerly employed by Defendant Tucker Arensberg at all times relevant to the instant case. (Id.) MarcellX, LLC (“MarcellX”) is a Pennsylvania LLC “that owned and controlled the oil and gas rights on a certain tract of land . . . in Lafayette, McKean County, ” pursuant to “an oil and gas lease dated May 25, 2011” (the “Swamp Angel Lease”), which “generally consists of acreage for development and 164 existing oil and gas wells.” (Id. ¶ 13.) According to Plaintiff, Defendants, among other things, acting “independently and sometimes in association with their clients, Mark. A Thompson (‘Thompson'), and his company, Mid-East Oil Company (‘Mid-East Oil')[, ] falsely and fraudulently misrepresented Thompson's alleged ownership of the Swamp Angel Property through MarcellX (a Pennsylvania company that was not owned by Thompson)” (id. ¶ 2), and also made fraudulent misrepresentations as to who would receive payments from Plaintiff as part of the overall transaction, as explained infra.

         On October 9, 2015, Plaintiff signed a letter of intent to purchase the Swamp Angel Property, and on November 25, 2015, entered into a Purchase and Sale Agreement (“PSA”) “to purchase the Swamp Angel Property, including (i) the Swamp Angel Lease, (ii) the existing wells on the Property, (iii) rights for the drilling of future wells on the Property, (iv) the shallow mineral rights . . . on the Property, and (v) drilling and other specified operating equipment on the Property.” (Id. ¶ 14.) Under the PSA, Plaintiff was required to make a deposit of $600, 000 toward the purchase price, and “Defendants furnished wire instructions for the deposit money to be paid to ‘Recipient and Beneficiary - Mike Shiner Attorney for Mid-East Oil.'” (Id. ¶ 15.) In addition, “[t]he PSA similarly provided that the account was the ‘Sellers [sic] attorney's [Tucker Arensberg] account.'” (Id.) (second and third alterations in original). On October 16, 2015, Parker Reed Corporation, acting on behalf of Plaintiff, “wired $50, 000, per instructions from Defendants and as per the Letter of Intent and PSA, to an account named ‘Recipient/Beneficiary - Mike Shiner Attorney[, ]' which Defendants represented was a Tucker Arensberg/Shiner escrow account.” (Id. ¶ 16.) Parker Reed Corporation, also acting on Plaintiff's behalf, then wired an additional payment in the amount of $50, 000 to this account on October 21, 2015. (Id.) Shortly thereafter, on October 23, 2015, a private investor wired $65, 000 to this account on Plaintiff's behalf, and on December 31, 2015, a private investor also wired $435, 000 to this account, which resulted in a total deposit payment of $600, 000. (Id.)

         Plaintiff avers that beginning in late 2015 and through late spring of 2016, “Defendants engaged in a course of fraudulent misrepresentation and concealment” as to: the ownership of the Property; “Defendants' commitment to ensure the fulfillment of [Plaintiff's] purchase of the property by its deposit of $600, 000 . . . into a designated attorney escrow account[, ]” which, ultimately, “was never in fact applied as a deposit on the purchase of the Property”; and “the purported absence of litigation to which the Property was subject.” (Id. ¶ 18.) Plaintiff's second amended complaint sets forth factual assertions in support of the aforementioned allegations by characterizing them as follows: (1) the “Deposit Money Fraud”; (2) the “Fraudulent Misrepresentation of the Ownership of the Property”; (3) the “Fraudulent Concealment of Other Pending Litigation and Administrative Environmental Actions”; and (4) the “Fraudulent Cover-Up.” (Id. at 7-16.)[4]


         “The Deposit Money Fraud”

         According to Plaintiff, while the PSA stated that the funds deposited by Plaintiff “were to be deposited into the ‘Seller's attorney's account' . . . [Defendant] Shiner, purporting to act on behalf of MarcellX, Mid-East [Oil], [Defendant] Tucker Arensberg[, ] and himself, represented to and assured John Acunto[, ]” (“Acunto”), a representative of Plaintiff, “that the use of the attorney's escrow account would act as a ‘check' to ensure that [Plaintiff's] deposit money was held and used in conformity with the PSA and promptly reported to [Plaintiff].” (Id. ¶ 19.) Defendants subsequently provided Plaintiff with wiring instructions pertaining to the $600, 000 deposit to be made to this account. (Id. ¶ 20.) Plaintiff avers that Defendants made these representations to induce Plaintiff into making this deposit payment and that such representations “were material and of vital importance to [Plaintiff's] decision to enter into the PSA and to pay $600, 000 into the designated account.” (Id. ¶ 21.)

         In addition, Plaintiff alleges that Defendants fraudulently procured an additional payment of $78, 800 from Plaintiff by “misrepresenting in mid-February 2016 that the additional money was in furtherance of the Property.” (Id. ¶ 22.) Specifically, a private investor wired money in this amount on February 24, 2016, with Defendant Shiner “again as the recipient/beneficiary, to be used to bring current the monthly payment on a mortgage held by CNB Bank secured by the assets listed in the PSA[, ]” and despite being aware of the mortgage, Defendants neither “disclosed the mortgage to Prime Energy[, ]” nor disclosed, “as Plaintiff ultimately learned in mid-2016, that there were actually two loans against the Property.” (Id.) According to Plaintiff, Defendants, rather, “prepared the PSA and other transaction documents with the misrepresentation that Thompson and ‘his' companies, Mid-East Oil and MarcellX, owned the assets free and clear with no liens or encumbrances.” (Id.) Plaintiff states that to further this fraudulent payment, Defendants Tucker Arensberg and Shiner surreptitiously communicated with Thompson on March 2, 2016 to advise him “how to evade full, truthful disclosure and accounting to [Plaintiff] for the $78, 800 payment[, ]” and, in the meantime, “Defendants knew, but did not disclose to [Plaintiff], that a large part of the $78, 000 had not in fact been expended as originally represented.” (Id. ¶ 23.)

         Following these transactions and other events, on June 10, 2016, Defendant Shiner “admitted in writing that no funds were, or ever had been, in a Tucker Arensberg/Shiner attorney escrow account” and in October of 2016, Plaintiff “learned for the first time that [Defendant] Shiner had caused the transfer of $50, 000 of [Plaintiff's] money to himself.” (Id. ¶ 24.) Acunto relied on Defendants' representations when he arranged the transfer “to what he misunderstood to be an attorney's escrow account, ” and Plaintiff would not have transferred the subject funds were it not for Defendants' purported fraudulent misrepresentations. (Id. ¶ 25.) Plaintiff further avers that in the course of these events, “Defendants had complete knowledge of their own and their clients' deception” in that “they were fully aware from the outset that they had created a fraudulent arrangement for [Plaintiff's] funds to be misdirected not to Defendants' escrow account but to an account controlled by Thompson.” (Id. ¶ 26.)

         2. The “Fraudulent Misrepresentation of the Ownership of the Property”

         Plaintiff further maintains that “Defendants caused the PSA to be executed exclusively by Thompson, having represented to [Plaintiff] in October 2015 and thereafter that the sole principal for the seller-parties to the PSA - MarcellX and Mid-East Oil - was Thompson[, ]” and that “Defendants asserted falsely that they represented both Mid-East Oil and MarcellX[] in order to further Thompson and Defendants' scheme to have Thompson effectuate the transaction by and for himself (and for Defendants), without the participation of the true owners of MarcellX, and to take [Plaintiff's] money.” (Id. ¶ 30.) In March of 2016, Plaintiff became aware both “that Defendants' client Thompson did not own or legally control the Property” that Plaintiff entered into the PSA to purchase, and “that the true owners of MarcellX were David M. Prushnok, G. Daniel Prushnok[, ] and John P. Prushnok (the ‘Prushnoks'), from Punxatawney, Pennsylvania.” (Id. ¶ 33.) According to Plaintiff, Acunto “had never previously had contact with the Prushnoks, because Defendants concealed the truth - including the true ownership and owners of the Property - from [Plaintiff], and fraudulently pretended that their client Thompson was the sole owner of the Property.” (Id.) Plaintiff states, though, that “[e]ven as of that time, as they were seeking to digest and deal with the solely emerging truth, [Plaintiff] did not fully understand that the concealment of the Prushnoks was simply a component of Defendants' swindle.” (Id.) Plaintiff subsequently entered into a “revised and supplemental [PSA] with the Prushnoks” for $3, 000, 000, which closed in July of 2016. (Id. ¶ 34.) In connection with the revised PSA, the Prushnoks were represented not by Defendants Tucker Arensberg and Shiner, but, rather, other legal counsel. (Id.) Further, Plaintiff purportedly “had to pay MarcellX an additional $400, 000 deposit and did not receive any credit toward the purchase with the $678, 800 fraudulently misappropriated by Defendants and Thompson.” (Id.) According to Plaintiff, on May 6, 2016, “having been caught in the misrepresentation of [Defendant] Tucker Arensberg's representation, ” Defendant Shiner “sent a letter to Plaintiff and its counsel acknowledging that Defendants did not represent MarcellX, but only Thompson and his company Mid-East Oil[, ]” effectively acknowledging that Defendant Shiner “had known all along that Thompson and MidEast Oil were not the owners of the Property and that the true owners had been excluded by Defendants from the transaction and had not received [Plaintiff's] deposit money.” (Id. ¶ 35.)

         3. The “Fraudulent Concealment of Other Pending Litigation and Administrative Environmental Actions”

         Plaintiff further alleges that, through the PSA, Defendants represented that the Property was neither the subject of “any outstanding injunction, judgment, order, decree, ruling, or charge” nor “any pending or threatened claim, demand, filing, cause of action, administrative proceeding, governmental action[, ] or other litigation.” (Id. ¶ 37.) Plaintiff describes this representation as a “false misrepresentation of fact[, ]” on the basis that Defendants knew it was false and made the statement to conceal vital information regarding pending litigation from Plaintiff, specifically as to “major investment fraud litigation pending at the time in this Court against Thompson and his company[] involving the Swamp Angel Property” and “a second major investment fraud litigation pending at that time in the United States District Court for the District of Kansas against Thompson and his company” that also involved the Swamp Angel Property, as well as “a series of serious regulatory administrative proceedings before the Pennsylvania DEP regarding serious environmental violations, including a large oil spill.” (Id. ¶ 38.) To that end, the second amended complaint refers to the action captioned as Donald D. Sbarra Revocable Trust UAD 11/23/1998 v. Horizontal Exploration, LLC, No. 2:14-cv-00866 (W.D. Pa. 2014), and assigned to the Honorable Maureen P. Kelly, and states that this case, where Judge Kelly issued an opinion “upholding the legal sufficiency of the fraud counts against Thompson and his company[, ]” would have been “highly material to Plaintiff's entry into the PSA and its dealings with Thompson and Defendants” were it ...

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