Texas Jury Awards $60 Million Verdict in Oil & Gas Fraud Case

ROBY, Texas, Aug. 21, 2015 /PRNewswire/ -- A Texas jury has awarded more than $60 million to two groups of oil and gas investors who were defrauded of significant profits from oil and gas production leases covering thousands of acres in West Texas. The Aug. 19 verdict includes more than $28 million awarded to Lowry Hunt of Mansfield's L.W. Hunt Resources and Richard Raughton of Fort Worth, and is believed to be the largest ever in Fisher County and the surrounding counties.

The 3½-week trial heard in Judge Glen Harrison's 32nd District Court included evidence that attorney Kerwin Stephens of Stephens & Myers in Graham and Abilene oilman Chester Carroll of Alpine Petroleum concocted a fraudulent scheme to cut existing partners out of an oil and gas partnership and take the profits for themselves.

Beginning in 2011, Hunt and Raughton acquired mineral and property rights to more than 25,000 acres in the Three Finger/Black Shale region of the Cline Shale in West Texas. Hunt and Raughton invited Stephens – who was Raughton's attorney – and Carroll – who was Raughton's best friend – to join them, forming the Alpine Group partnership. When the partnership needed outside funding, they entered into an agreement with Paradigm Petroleum Corporation, owned by Tom Taylor of Abilene. Stephens, acting as the Alpine Group's attorney, drafted the Alpine agreement and subsequently arranged for the leases provided by Hunt and Raughton to be transferred and controlled by Stephens and Carroll. Together with Taylor, the two conspired to eliminate the other partners from the agreement and to split the profits between themselves, the jury found. 

Jurors heard evidence that Stephens and Carroll tricked Hunt and Raughton to reduce their ownership percentages in the partnership based on fraudulent representations that there was no buyer for additional leased acreage, when in fact Stephens and Carroll had lined up a buyer and concealed the project's potential. Hunt and Raughton presented evidence showing that as part of the fraud, Stephens and Carroll pretended that Carroll's ownership percentage was being reduced in order to convince Hunt and Raughton to reduce their ownership percentages, while secretly increasing Carroll's ownership by nearly 30 percent. Stephens, Carroll, and Taylor then proceeded to sell an additional 17,000 acres of leases, splitting the profits nearly one-third each and obtaining millions of dollars.          

This scheme concealed Stephens' side business interests and relationship with Carroll and Taylor and increased the resulting proceeds for him and also Carroll. Jurors also heard evidence that Stephens and Carroll misrepresented and inflated the project costs in communications with Hunt and Raughton, in addition to misapplying the resulting profits to the accounts of other defendants.

"This trial exposed the tragic and shocking breaches of the law, in particular by a lawyer who was sworn to uphold it," says Michael K. Hurst of Dallas' Gruber Hurst Elrod Johansen Hail Shank, who led Hunt and Raughton's trial team. "Our clients are pleased that the jury carefully considered and followed the evidence through a complex set of facts and multiple parties."

The verdict on behalf of Hunt and Raughton includes $3 million in actual damages plus more than $7 million in returned profits and $18 million in punitive damages.

Also representing Hunt and Raughton were Gruber Hurst attorneys Jonathan R. Childers and Christina M. Mullen; Jordyn J. Christian-Gingras of Beckmen Law in Grapevine; and Michael Hall of the Hall Law Firm in Sweetwater.

Two additional plaintiffs in the trial, Tiburon Land and Cattle and Trek Resources, both of Dallas, were represented by Frank L. Branson and Eric T. Stahl of The Law Offices of Frank L. Branson in Dallas. These plaintiffs were awarded $33.1 million, including $24 million in actual damages and $9 million in exemplary damages.

The case is L.W. Hunt Resources and Richard Raughton v. Kerwin Stephens, et al., No. 2013-0016.

Gruber Hurst Elrod Johansen Hail Shank LLP represents clients in complex commercial litigation in Texas and across the nation. The firm's experience includes litigation involving energy, contract disputes, pipeline construction, partnership dissolutions, fiduciary matters, labor and employment, securities and shareholder disputes, intellectual property, bankruptcy and other business and commercial cases. Clients include leading companies and individuals as both defendants and plaintiffs across a broad range of industries.

For more information, contact Mark Annick at 800-559-4534 or [email protected].

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SOURCE Gruber Hurst Elrod Johansen Hail Shank LLP