directors knew marion was insolvent june 2010

Lodged with the Utah Courts...


INTRODUCTION
ITL seeks leave to file a Second Amended Complaint (“SAC”) to add factual allegations
outlining additional fraudulent transfers from defendants Marion Energy, Inc. (“Marion”) and
OEL Operating (USA), Inc. (“OEL) to various insiders, transfers that have been discovered since
the filing of the First Amended Complaint on January 5, 2012. ITL also seeks to add new factual
allegations in support of its existing claim against OEL for alter ego liability and to add a claim
against Marion Energy Limited (“MEL”) for alter ego liability. To that end, ITL’s proposed
amendment adds additional allegations, claims and parties based primarily on these newly
discovered facts. ITL’s proposed amendment is timely and will not prejudice Marion and OEL
in any way. For these reasons, and the reasons stated below, ITL’s Motion should be granted.
A copy of ITL’s proposed Second Amended Complaint (without exhibits) is attached
hereto as Exhibit “A”.1 Attached hereto as Exhibit “B” is a redline copy of ITL’s proposed
Second Amended Complaint (without exhibits) identifying the proposed changes.
FACTUAL STATEMENT
General Background.
1. On or about January 5, 2011, a Stipulated Judgment (“Judgment”) was entered in
favor of ITL and against Marion in the amount of $900,000.00. A copy of the Judgment is
attached as Exhibit “A” to ITL’s Amend. Compl, Dkt. # 3. Approximately $575,000.00 plus
interest, costs and attorneys’ fees remains outstanding.
1 The proposed Second Amended Complaint attaches the same exhibits that are currently attached to the
First Amended Complaint, Dkt. # 3. No new exhibits will be attached to the Second Amended Complaint. For
purposes of judicial economy, the clean and redline copies of the proposed Second Amended Complaint, attached
hereto as Exhibits A and B respectively, are without the referenced exhibits.
Case 2:12-cv-00006-DS Document 59 Filed 11/15/12 Page 2 of 8
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4838-9114-4721.1
2. ITL filed its Complaint in this matter on January 4, 2012, and filed its Amended
Complaint on January 5, 2012, asserting claims against Marion and OEL for fraudulent transfer
and against OEL for alter ego liability on the Judgment. (Dkt. ## 2-3.)
3. ITL thereafter actively engaged in written discovery by propounding two sets of
Interrogatories and Requests for Production of Documents to Marion and OEL, and also by
serving numerous subpoenas duces tecum on third-parties. (Dkt. ## 27, 39-53.)
4. During the months of June through August 2012, the parties engaged in
settlement discussions while Marion and OEL attempted to structure a settlement. (See Dkt. #
56.) The litigation was placed on hold while these discussions took place; however, as soon as it
became clear that a settlement would not be reached, the parties resumed the litigation and
scheduled OEL’s 30(b)(6) deposition, which deposition was taken on November 9, 2012.
5. The deadline to amend pleadings, add parties and conduct fact discovery is set for
November 15, 2012. (Scheduling Order, Dkt. # 57.)
GOVERNING LAW
Leave to amend a pleading is “freely given when justice so requires.” FED R. CIV. P.
15(a)(2), Foman v. Davis, 371 U.S. 178 (1962) (“If the underlying facts or circumstances relied
upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to
test his claim on the merits.”); Ezno Life Sciences, Inc. v. Digene Corp., 270 F. Supp. 23 484,
487 (D. Del. 2003) (“[L]eave should be freely granted unless there is an apparent reason for
denying a request.”). The circumstances that would justify denial of leave were discussed by the
United States Supreme Court as follows:
In the absence of any apparent or declared reason – such as undue delay, bad faith
or dilatory motive on the part of the movant, repeated failure to cure deficiencies
by amendments previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, futility of amendment, etc. – the leave
sought should, as the rules require, be freely given.
Foman, 371 U.S. at 182. None of the circumstances that would justify a denial of a motion for
leave to amend are present here.
ARGUMENT
ITL’s amendment is based primarily on newly discovered evidence of additional
fraudulent transfers made by Marion and OEL to various insiders. The Motion is brought prior
to the agreed upon, and court ordered, deadline to file motions for leave to amend pleadings and
add parties. The Motion is therefore timely, will not cause any prejudice to Marion or OEL, and
in the interest of justice should be granted.
I. ITL’s Proposed Additional Claims for Fraudulent Transfers.
ITL took OEL’s 30(b)(6) deposition on November 9, 2012 in Dallas, Texas. A copy of
relevant excepts from the rough draft deposition transcrip is attached hereto as Exhibit “C”.2
During the deposition, ITL discovered that both Marion and OEL made cash transfers to three of
its officers and/or directors – Jeffrey Clarke, Karel Louman and Keri Clarke (collectively,
“Insiders”) - in violation of UTAH CODE ANN. §§ 25-6-6(2) (2011). (OEL Dep. Tr. at 49:14-
51:18, 52:1-16, 53:1-5, 74:11-75:1, 93:20-95:4, 96:2-24, 97:13-99:3, 100:21-102:7).3 Jeffrey
Clarke is Marion’s President and is a director of both Marion and OEL. (Id. at 9:19-10:1, 10:24-
11:1-5.) Karel Louman is Marion’s former Chief Financial Officer, is OEL’s corporate secretary
and is also a director of both Marion and OEL. (Id. at 16:4-6, 17:9-11, 21:17-21, 23:24-25:1.)
2 Only the rough draft transcript is available because the deposition was taken less than a week prior to the
filing of the Motion and the final transcript has not been finalized.
3 A corporation’s officers and directors are considered insiders. UTAH CODE ANN. § 25-6-2(7)(b) (2011).
Keri Clarke was Marion’s Vice-President of Land. (Id. at 22:24-23:9.) Bank statements
attached to the January 23, 2012 Declaration of Karel Louman (Dkt. # 25), together with copies
of cancelled checks produced by Chase bank, show that Marion and OEL transferred at least
$131,758.70 to these Insiders from January 1, 2011 through January 1, 2012. (Dkt. # 25 at Ex. A
thereto; copies of cancelled checks attached hereto collectively as Exhibit “D”; OEL Dep. Tr. at
74:19-75:1, 93:20-95:4, 96:2-24, 97:13:-99:3, 100:21-102:7.)
OEL designated Jeffrey Clarke to testify on its behalf at the deposition. (OEL Dep. Tr. at
2:20-22.) Mr. Clarke testified that Marion was insolvent from June 30, 2010 through the present,
that the Insiders knew that Marion was insolvent during this time period, and that the transfers
made to the Insiders from Marion and OEL were made to satisfy an antecedent debt owed to
them by Marion. (Id. at 49:14-51:18, 52:1-16, 53:1-5, 74:11-75:1, 93:20-95:4, 96:2-24, 97:13:-
99:3, 100:21-102:7.) These transfers, therefore, are all fraudulent as to ITL pursuant to UTAH
CODE ANN. § 25-6-6(2) (2011). ITL seeks to add these new factual allegations in its proposed
amendment, together with a claim against the Insiders for fraudulent transfer. (Exs. A and B.)
As these new facts properly identify ITL’s entitlement to additional relief, justice requires that
leave to amend be granted.
II. Added Claim for Alter Ego Liability Against MEL.
During the OEL 30(b)(6) deposition, Jeffrey Clarke provided testimony establishing, or
giving rise to the reasonable belief, that MEL is the alter ego of both Marion and OEL. Mr.
Clarke testified that he does not see a functional difference between MEL and its wholly owned
subsidiaries, OEL and Marion. (OEL Dep. Tr. at 68:4-6, 15-17.) Mr. Clarke further testified
that because MEL is the parent company, OEL (and Marion) will do whatever MEL tells them to
do. (Id. at 71:15-21.) Mr. Clarke views MEL, OEL and Marion as indistinguishable. (Id.)
Further, MEL wholly owns Marion and OEL, and Marion and OEL are MEL’s only
assets. (Id. at 105:6-13.) MEL is Marion’s and OEL’s only shareholder and all three companies
share common directors and officers. (Id. at 16:4-25:3, 31:3-8.) In addition, all of the funds at
issue in this lawsuit originated from MEL, and it was MEL who instructed Marion to transfer the
funds to OEL. (Id. at 68:25-69:1-16; 71:15-72:17.) Finally, it was MEL who instructed OEL to
use the transferred funds to pay Marion’s and OEL’s creditors. (Id.) MEL is clearly the entity
make all the decisions for Marion and OEL. Based on the foregoing, ITL has a claim against
MEL for alter ego liability, and justice requires that ITL be allowed to litigate that claim here.
III. ITL’s Motion is Timely, Proper, and Will Not Prejudice Marion or OEL.
ITL’s Motion comes within the timeframe agreed to by the parties, and ordered by the
Court, to file motions to amend pleadings and add parties. The Motion also comes less than a
week after ITL’s discovery of the facts giving rise to the amendment. Moreover, although ITL
was in possession of the bank records prior to OEL’s deposition, ITL was not aware that it had a
legitimate claim against the Insiders until after Mr. Clarke’s deposition testimony elicited on
November 9, 2012, as described above. ITL’s motion is therefore timely.
ITL’s Motion will not prejudice Marion or OEL in any significant manner. The proposed
amendment does not substantively alter the existing claims against Marion and OEL; rather, the
proposed amendment adds additional factual allegations and claims based on the evidence
discovered to date. (See Exs. A and B.) Neither Marion nor OEL has propounded any written
discovery or taken any depositions in this matter. This amendment will allow Marion and OEL
to fully and fairly conduct discovery without having to re-do any prior discovery. The Motion is
not the result of any delay or bad faith, and is brought less than a week after ITL discovered the
additional fraudulent transfers. There being no reason justifying a denial, ITL’s Motion should
be granted.
IV. Extension to Scheduling Order.
In the event ITL is granted leave to file a Second Amended Complaint, ITL requests that
all deadlines in the Scheduling Order be extended at least 90 days. This extension is necessary to
allow ITL sufficient time to serve process on the added parties, to conduct any discovery on the
added parties, and to allow the added parties to conduct their own discovery.
CONCLUSION
Based on the foregoing, ITL requests that its Motion be granted.
DATED this 15th day of November, 2012.
KIRTON | McCONKIE
By /s Shawn T. Richards
R. Willis Orton
Shawn T. Richards
Attorneys for Plaintiff
CERTIFICATE OF SERVICE
I hereby certify that on the 15th day of November, 2012, I caused to be delivered by the
method indicated below a true and correct copy of the foregoing MEMORANDUM IN
SUPPORT OF MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT
AND TO AMEND SCHEDULING ORDER to the following:
Shane D. Hillman
Nicole G. Farell
PARSONS BEHLE & LATIMER
One Utah Center
201 South Main Street, Suite 1800
Salt Lake City, Utah 84111