Canonie Energy, Inc. and WGI, Inc. v. Rodney King, Mark Holbrook, American Resources Management, Inc., American Gas Technologies, Inc., American Energy Exploration, Inc., Berrod, Inc. Rick Castor and McCrome LTD., Inc.

Court of Appeals of Tennessee

Canonie Energy, Inc. and WGI, Inc. v. Rodney King, Mark Holbrook, American Resources Management, Inc., American Gas Technologies, Inc., American Energy Exploration, Inc., Berrod, Inc. Rick Castor and McCrome LTD., Inc.

Court of Appeals of Tennessee·Decided March 10, 1996·No. 03A01-9506-CH-00200·Published

Opinion

I N THE COURT OF APPEALS OF TENNESSEE

EASTERN SECTI ON FILED March 1, 1996

Cecil Crowson, Jr. Appellate C ourt Clerk CANONI E ENERGY, I NC. , a nd ) ANDERSON COUNTY W , I NC. GI ) 03A01- 9506- CH- 00200 ) Pl a i nt i f f s - Appe l l e e s ) ) ) v. ) HON. W LLI AM E. LANTRI P, I ) CHANCELLOR ) RODNEY KI NG, M ARK HOLBROOK, ) AM ERI CAN RESOURCES M ANAGEM ENT, ) I NC. , AM ERI CAN GAS ) TECHNOLOGI ES, I NC. , ) AM ERI CAN ENERGY EXPLORATI ON, ) I NC. , BERROD, I NC. , RI CK ) CASTOR, a nd M CROM c E, LTD. , I NC. ) AFFI RMED I N PART; VACATED ) I N PART; M ODI FI ED I N PART; De f e nda nt s - Appe l l a nt s ) a nd REMANDED

W LLI AM P. SNYDER a nd ADRI ENNE L. ANDERSON OF KNOXVI LLE FOR I APPELLANTS M ARK HOLBROOK, M CROM c E, LTD. , I NC. , AMERI CAN RESOURCE MANAGEM ENT, I NC. , AMERI CAN ENERGY EXPLORATI ON, I NC. , a nd AMERI CAN GAS TECHNOLOGI ES, I NC.

H. BRUCE GUYTON OF KNOXVI LLE FOR APPELLEES

O P I N I O N

Godda r d, P. J . The De f e nda nt s a ppe a l a s umma r y j udgme nt e nt e r e d i n

f a vo r o f t he Pl a i nt i f f s f or t he e nf or c e me nt of a s e t t l e me nt

a gr e e me nt .

The f a c t s o f t hi s c a s e a r e s ome wha t c ompl e x. Ca noni e

En e r g y , I nc . ( CEI ) a nd W , I nc . ( W ) , whi c h s ha l l be GI GI

c o l l e c t i ve l y r e f e r r e d t o a s Pl a i nt i f f s , e nt e r e d i nt o a ve nt ur e

wi t h Ame r i c a n Re s our c e M na ge me nt , I nc . ( ARM , Ame r i c a n Ene r gy a )

Ex p l o r a t i on, I nc . , ( AEX) a nd Coa l Cr e e k M nuf a c t ur i ng Compa ny a

( Co a l Cr e e k) . The ve nt ur e , c a l l e d " t he Bl ue Ge m Pr oj e c t , " wa s

f o r t h e e xpl or a t i on of oi l a nd na t ur a l ga s i n Ande r s on a nd M g a n or

c ount i e s . The ve nt ur e a l s o i nc l ude d t he dr i l l i ng a nd

c o n s t r u c t i on of oi l a nd na t ur a l ga s we l l s a nd t he s a l e of oi l a n d

n a t u r a l ga s pr oduc e d by t hos e we l l s .

Unde r t he a gr e e me nt , t he Pl a i nt i f f s we r e t o c ont r i but e

n i n e mi l l i on dol l a r s ove r a s e ve n- ye a r pe r i od. ARM a nd AEX

a g r e e d t o c ont r i but e i nt e r e s t s i n c e r t a i n e xi s t i ng oi l a nd

n a t ur a l ga s we l l s a nd i nt e r e s t s i n mi ne r a l r i ght s l e a s e s , a nd

Co a l Cr e e k a gr e e d t o c ont r i but e a n opt i on t o dr i l l oi l a nd

n a t u r a l ga s we l l s on a ppr oxi ma t e l y s e ve nt y t hous a nd a c r e s of

l a nd. The a gr e e me nt pr ovi de d t ha t ARM wa s t o a c t a s t he

o p e r a t i ng ma na ge r of t he pr oj e c t a nd wa s t o pr ovi de a l l ope r a t i o n

s e r vi c e s . I n c onne c t i on wi t h s uc h dut i e s , ARM hi r e d AGT t o

p e r f o r m t he a c t ua l c ons t r u c t i on a nd ope r a t i on of t he pr oj e c t ' s

we l l s .

2 I n Nove mbe r of 1993, t he Pl a i nt i f f s f i l e d s ui t a l l e g i n g

t h a t t h e y we r e f r a udul e nt l y i nduc e d t o pa r t i c i pa t e i n t he Bl ue

Ge m Pr o j e c t a nd a l l e gi ng t ha t AGT, a s t he a l t e r e go of ARM,

wr o n g f u l l y c ha r ge d a ma r kup on ma t e r i a l s s uppl i e d f or t he pr oj e c t

a n d wr o ngf ul l y c ha r ge d f or t he e qui pme nt a nd s e r vi c e s pur s ua nt t o

t h e pr i c e l i s t i n t he e xpl or a t i on a gr e e me nt . Na me d a s de f e nda nt s

i n t h e s ui t we r e ARM AGT, AEX, Coa l Cr e e k, M r k Hol br ook, Rod n e y , a

Ki n g , Be r r od, I nc . , a nd Ri c ha r d Ca s t or . Hol br ook wa s t he

p r e s i d e nt of ARM a nd AEX. Ki ng wa s a f or me r pr e s i de nt of AGT a n d

t h e c u r r e nt pr e s i de nt of Be r r od, I nc . , t he s ol e s ha r e hol de r of

AEX. Ca s t or wa s t he pr e s i de nt of AGT.

I n M y 1994, Ca s t or a nd Hol br ook be c a me i nt e r e s t e d i n a

t he p o s s i bi l i t y o f s e t t l i ng t hi s l a ws ui t . Ca s t or c ont a c t e d t he

Pl a i nt i f f s ' r e pr e s e nt a t i ve s t o di s c us s t hi s pos s i bi l i t y. The

Pl a i n t i f f s a nd Hol br ook a gr e e d t ha t t he di s c us s i ons woul d t a ke

p l a c e i n Pl a i nt i f f s ' of f i c e s i n Sout h Ha ve n, M c hi ga n. i Pr e s e n t

a t t h e me e t i ng we r e : Hol br ook, Ca s t or , Tony Ca noni e , Sr . , a n

i n v e s t o r i n t he Bl ue Ge m Pr oj e c t , J e r r y Ca noni e , pr e s i de nt of

CEI , To ny Ca noni e , J r . , c h a i r ma n of t he boa r d of di r e c t or s of

CEI , a n d Cl a ude Woods , pr e s i de nt of W . GI Ki ng di d not a t t e nd t h e

me e t i n g , n or wa s h e ma de a wa r e t ha t i t wa s t a ki ng pl a c e .

Hol br ook a l l e ge s t ha t dur i ng t he s e t t l e me nt

d i s c u s s i ons , t h e Pl a i nt i f f s ma de r e f e r e nc e t o t he pos s i bi l i t y

t h a t c r i mi na l c ha r ge s mi ght be br ought a ga i ns t Hol br ook a nd hi s

f a mi l y , who we r e s ha r e hol de r s a nd di r e c t or s of M Cr ome , I nc . , c

3 Ho l b r o o k ' s f a mi l y c or por a t i on. M Cr ome wa s not a n or i gi na l pa r t y c

t o t he l a ws ui t , b ut i t di d own a n i nt e r e s t i n t he Bl ue Ge m

Pr o j e c t a s of M y 1994, a nd t he Pl a i nt i f f s l a t e r a me nde d t he i r a

c o mp l a i nt t o a dd a c l a i m a ga i ns t M Cr ome . c Hol br ook f ur t he r

a l l e ge s t ha t t he r e wa s a l s o di s c us s i on t ha t s i mi l a r c ha r ge s c ou l d

b e b r o u ght a ga i ns t Ki ng a nd hi s f a mi l y me mbe r s . The r e we r e a l s o

a l l e ga t i ons t ha t Ki ng h a d e nga ge d i n e xt r a ma r i t a l a f f a i r s a nd

t h a t t h e s e a f f a i r s woul d b e e xpos e d i f t he l i t i ga t i on c ont i nue d .

Ho l b r o o k f ur t he r a l l e ge s t ha t t he Pl a i nt i f f s t hr e a t e ne d t o f or c e

b o t h t h e Ki ng a nd Hol br ook f a mi l i e s i nt o ba nkr upt c y.

The s e t t l e me nt me e t i ng wa s he l d i n t he of f i c e s of CEI

a nd a t t he e nd o f d a y o ne , a dr a f t of t he a gr e e me nt wa s r e a c he d.

Th a t n i ght , t he Pl a i nt i f f s , Hol br ook a nd Ca s t or s oc i a l i z e d

t oge t he r . Hol br ook a nd Ca s t or r e t ur ne d t o t he i r hot e l r oom l a t e r

t h a t e v e ni ng. Hol br ook c a l l e d hi s wi f e , but he di d not di s c us s

t h e s e t t l e me nt ne got i a t i on s wi t h he r . Ne i t he r Hol br ook nor

Ca s t o r c ont a c t e d t he i r a t t or ne ys .

The ne xt da y ne got i a t i ons r e s ume d. Hol br ook r e que s t e d

t h a t s o me c ha nge s b e ma de i n t he dr a f t s e t t l e me nt a gr e e me nt a nd

t h e c h a nge s we r e ma de . Hol br ook a s s e r t s t ha t t he Pl a i nt i f f s t h e n

a g r e e d t ha t Hol br ook a nd Ca s t or ' s s e t t l e me nt of f e r wa s s uf f i c i e n t

t o c o v e r Ki ng a s we l l a nd t ha t t he Pl a i nt i f f s woul d r e l e a s e Ki ng

a n d Be r r od, I nc . , Ki ng' s f a mi l y c or por a t i on, f r om a l l c l a i ms i f

Ki n g wo ul d a gr e e t o be bound by t he t e r ms of t he s e t t l e me nt

a gr e e me nt . Howe ve r , t he s e t t l e me nt a gr e e me nt i t s e l f pr ovi de s

4 t ha t t h e Pl a i nt i f f s woul d di s mi s s t he s ui t onl y a s t o ARM AGT, ,

Ho l b r o o k, AEX, Ca s t or a nd M Cr ome .

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