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`United States District Court
`EASTERN DISTRICT OF TEXAS
`SHERMAN DIVISION
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`Civil Action No. 4:16-CV-00752
`Judge Mazzant
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`JOSHUA ROPA, BETHANY ROPA
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`v.
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`MATTHEW FOX, WAYNE ENERGY, LLC
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`MEMORANDUM OPINION AND ORDER
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`Pending before the Court is Plaintiffs Joshua Ropa and Bethany Ropa’s (collectively,
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`“Plaintiffs”) Application for Preliminary Injunction (Dkt. #7). After considering the relevant
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`pleadings, testimony, and exhibits from the preliminary injunction hearing, the Court finds that
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`Plaintiffs’ application should be granted.
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`On October 13, 2016, the Court held an evidentiary hearing on Plaintiffs’ Application for
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`Preliminary Injunction. Having found that Plaintiffs satisfied the requirements of Rule 65 of the
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`Federal Rules of Civil Procedure, the Court granted the preliminary injunction. The Court sets
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`forth the following findings of fact and conclusions of law to support its grant of the injunction,
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`which is based on Plaintiffs’ submissions in connection with the preliminary injunction, as well
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`as exhibits and testimony presented at the injunction hearing. Defendants Matthew Fox and
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`Wayne Energy, LLC did not present any evidence at the hearing or make any submission to the
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`Court in opposition of the injunction.
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`BACKGROUND
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`This case arises from a Joint Venture Agreement entered into between Plaintiffs,
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`Matthew Fox (“Fox”), and Wayne Energy, LLC (“Wayne Energy”) (collectively “Defendants”).
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`Plaintiffs are residents New York and were introduced to Fox in April 2015. Fox owned Wayne
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`Case 4:16-cv-00752-ALM Document 16 Filed 10/26/16 Page 2 of 9 PageID #: 220
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`Energy, a company involved in oil and gas investments in Texas. Plaintiffs were interested in
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`investing into a Wayne Energy project. The project was to purchase, rework, and recomplete an
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`oil and gas well in Upshur County, Texas, called the Glover #1B Well (the “Glover Well”). Fox
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`explained that a 1% working interest in the Glover Well could be purchased for $25,000.
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`During initial negotiations, Plaintiffs received a Joint Venture Agreement by which
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`Wayne Energy was the Managing Venturer and Plaintiffs were Venturers. Plaintiffs eventually
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`signed this agreement, and Fox signed on behalf of Wayne Energy. Plaintiffs also received a
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`Confidential Information Memorandum (“CIM”) that provided the capitalization period for the
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`project. According to the CIM, Wayne Energy was partially capitalizing the Glover Well.
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`However, Plaintiffs later learned that Wayne Energy did not put any money into the project but
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`was taking a 25% working interest for itself and raising funds for the other 75% working interest.
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`On April 26, 2015, Fox sent Plaintiffs an email and told them the Glover Well would take
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`no longer than forty-five days to complete, with first revenue checks distributed within sixty
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`days of that. This email exchange revealed that this project was Wayne Energy’s first drilling
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`venture. Fox told Plaintiffs that his prior company, Frisco Exploration, had drilled seventeen
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`wells. Further, the CIM stated that Wayne Energy was a licensed operator with the State of
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`Texas Railroad Commission. But, according to the Texas Railroad Commission, Wayne Energy
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`was not a licensed operator. Fox represented Frisco Exploration’s operator number as Wayne
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`Energy’s.
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`Through oral statements, emails, the Joint Venture Agreement, and the CIM, Plaintiffs
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`believed the project would soon be completed and would start returning profits, so they invested
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`an initial $25,000 for a 1% interest in the Glover Well. In a June 2015 email, Fox said there was
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`a hold-up in funding, and he requested from investors an additional 10% ($250,000) so the
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`2
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`Case 4:16-cv-00752-ALM Document 16 Filed 10/26/16 Page 3 of 9 PageID #: 221
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`Glover Well could be set for production in forty-five days. Plaintiffs invested additional
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`amounts of $25,000 and $37,500 in reliance that these amounts were needed to move the project
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`forward—gaining a 5.5% working interest.
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`By September 2015, Fox provided Plaintiffs with a list of work that had been done on the
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`Glover Well, telling them it would be completed in about thirty days. Five months later, Fox
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`said the well was drilled and logged. In March 2016, Fox stated he needed extra money for
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`additional site work to bring the well online. Plaintiffs paid $50,000 for a 2% working interest,
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`with an additional 2% being gifted to them. The next month, Fox convinced Plaintiffs to invest
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`$25,000 for a 4% working interest, with an additional 1.5% being gifted. Fox said the site work
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`was nearly complete, and he was just a few weeks away from commencing production. By this
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`point, Plaintiffs had a total working interest of 16%.
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`Plaintiffs decided to fly down to the Glover Well site in May 2016. Plaintiffs met with
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`Fox, and after particulars were discussed, they felt better about the project. The next month, Fox
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`told Plaintiffs he was selling some of his interest to fund the purchase of adjacent mineral leases.
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`Fox said if he waited until after the Glover Well came online and was reported with the railroad
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`commission, the price of the adjacent lease interests would go up or someone else would outbid
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`him. Plaintiffs wanted the project finished, so they invested an additional $77,000 for a 4%
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`working interest, bringing their total working interest to 20%.
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`By email on July 17, 2016, Fox told Plaintiffs the well was only days from being online.
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`Unknown to Plaintiffs, Wayne Energy had not purchased the Glover Well from Graward
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`Operating of Tyler, Texas (“Graward Operating”), which owned 100% of the well. Also,
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`operation of the Glover Well had not been transferred to Wayne Energy.
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`3
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`Case 4:16-cv-00752-ALM Document 16 Filed 10/26/16 Page 4 of 9 PageID #: 222
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`Plaintiffs visited the Glover Well again on July 23, 2016, with Fox. Once on-site,
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`Plaintiffs noticed little work had been done and were suspicious of Fox’s representations. Fox
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`assured Plaintiffs the well would be online by the end of the month. He said there were a few
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`outstanding action items, but the project was done raising capital and all the work to be done on
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`site had been prepaid. However, based on information from John Graham (“Graham”), President
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`of Graward Operating, virtually nothing had been done to rework or recomplete the Glover Well.
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`In fact, none of the work represented to Plaintiffs in prior communications had been completed.
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`Following Plaintiffs’ visit to Texas, Fox provided Plaintiffs with the investor log for the
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`Glover Well. According to Fox, the “Move over SG2” entries were investments in the South
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`Gilmer 2 Well that were moved over to the Glover Well joint venture, because the South Gilmer
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`2 Well investment did not work out. Also, Fox claimed only $452,500 in capital had been raised
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`for the Glover Well project. Based on Plaintiffs’ actual investment and those whose working
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`interests were moved over from South Gilmer 2, about $740,000 had been raised for the Glover
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`Well. Graham projected the Glover Well could be purchased and the project completed for
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`$600,000.
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`Plaintiffs hired an attorney in Tyler, Texas, Steve Mason (“Mason”). On August 26,
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`2016, Plaintiffs and Mason met with Fox and asked him questions about the Glover Well project.
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`Fox stated the entire amount of funds raised for the project was around $450,000, and all
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`investment funds were paid to Graham for work on the Glover Well, which was paid in full. Fox
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`also stated Wayne Energy did not have its P-5 operator status from the Texas Railroad
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`Commission but was using Graham as its operator. Fox assured Plaintiffs that work would be
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`done the following week.
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`4
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`Case 4:16-cv-00752-ALM Document 16 Filed 10/26/16 Page 5 of 9 PageID #: 223
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`According to Graham, he was not engaged as operator of the Glover Well, the Glover
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`Well had not been paid in full—$81,000 was still owed to him to complete the lease
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`assignment—and none of the investment funds had been paid to him for work done. At the
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`October 13, 2016 preliminary injunction hearing, Graham testified that Defendants had finally
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`paid the full purchase price for the Glover Well.
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`Plaintiffs invested a total of $239,500 to Fox and Wayne Energy and received a 20%
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`working interest in the Glover Well. To learn where their money was spent, Plaintiffs exercised
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`their right to review books and records under the Joint Venture Agreement upon forty-eight
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`hours’ notice. Fox failed to produce the books and records as demanded when Mason arrived at
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`Fox’s office.
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`Plaintiffs filed their complaint against Defendants Fox and Wayne Energy on September
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`29, 2016 (Dkt. #1). Plaintiffs allege claims against Defendants for: (1) common law fraud; (2)
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`statutory fraud; (3) breach of contract; (4) breach of fiduciary duties; (5) imposition of an
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`express, resulting, and/or constructive trust; (6) conversion; (7) statutory theft; (8) violation of
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`Texas securities laws; (9) violation of the Texas Deceptive Trade Practices Act; and (10) unjust
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`enrichment.
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`ANALYSIS
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`Under Rule 65 of the Federal Rules of Civil Procedure, “[e]very order granting an
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`injunction and every restraining order must: (A) state the reasons why it issued; (B) state its
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`terms specifically; and (C) describe in reasonable detail . . . the act or acts sought to be
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`restrained.” FED. R. CIV. P. 65(d). Plaintiffs seeking injunctive relief must show: (1) a
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`substantial likelihood of success on the merits; (2) a substantial threat that plaintiffs will suffer
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`irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any
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`5
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`Case 4:16-cv-00752-ALM Document 16 Filed 10/26/16 Page 6 of 9 PageID #: 224
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`damage that the injunction might cause the defendant; and (4) that the injunction will not
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`disserve the public interest. Nichols v. Alcatel USA, Inc., 532 F.3d 364, 372 (5th Cir. 2008).
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`“A preliminary injunction is an extraordinary remedy and should only be granted if the
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`plaintiffs have clearly carried the burden of persuasion on all four requirements.” Id. The denial
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`of a preliminary injunction will be upheld where the movant has failed sufficiently to establish
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`any one of the four criteria. Black Fire Fighters Ass’n v . City of Dall., 905 F.2d 63, 65 (5th Cir.
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`1990). Injunctive relief requires the movant to unequivocally show the need for its issuance. See
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`Valley v. Rapides Par. Sch. Bd., 118 F.3d 1047, 1050 (5th Cir. 2005). The movant has the
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`burden of introducing sufficient evidence to prove each of the four elements enumerated before a
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`temporary restraining order or preliminary injunction can be granted. See PCI Transp., Inc. v.
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`Fort Worth & W. R.R. Co., 418 F.3d 535, 545 (5th Cir. 2005); Miss. Power and Light Co. v.
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`United Gas Pipe Line Co., 760 F.2d 618, 621 (5th Cir. 1985).
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`Plaintiffs seek to enjoin Defendants from disposing of any funds or assets related to the
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`Glover Well or the South Gilmer 2 Well joint ventures. Plaintiffs also seek a comprehensive list
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`of each investor into the Glover Well, regardless of whether the investor was moved over from
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`the South Gilmer 2 Well project. Finally, Plaintiffs want Defendants to produce all books and
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`records associated with the Glover Well and the South Gilmer 2 joint ventures.
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`Substantial Likelihood of Success on the Merits
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`To prevail on their application for a preliminary injunction, Plaintiffs must first
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`demonstrate a substantial likelihood of success on the merits. A likelihood of success on the
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`merits requires a movant to present a prima facie case. Daniels Health Scis., LLC v. Vascular
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`Health Scis., 710 F.3d 579, 582 (5th Cir. 2013) (citing Janvey v. Alguire, 647 F.3d 585, 595–96
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`(5th Cir. 2011)).
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`6
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`Case 4:16-cv-00752-ALM Document 16 Filed 10/26/16 Page 7 of 9 PageID #: 225
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`In their application and at the injunction hearing, Plaintiffs focused primarily on two
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`causes of action—fraud and breach of fiduciary duty. In Texas, to recover for fraud, a plaintiff
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`must show: (1) that a material misrepresentation was made; (2) that it was false; (3) that when
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`the speaker made it he knew it was false or made it recklessly without knowledge of the truth; (4)
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`that he made it with the intention that it should be acted on the party; (5) that the party acted in
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`reliance on it; and (6) resultant damages. Stone v. Lawyers Title Ins. Corp., 554 S.W.2d 183, 185
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`(Tex. 1977). Plaintiffs presented evidence that Fox made multiple misrepresentations regarding
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`the progress of work on the Glover Well and Wayne Energy’s status as an operator. Plaintiffs
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`also presented evidence that Fox mispresented the amount of money actually invested into the
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`Glover Well project. Plaintiffs invested $239,500, relying on the representations and promises of
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`Fox and Wayne Energy, which were made orally, in emails and texts from Fox, and in
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`documents.1 Because Fox invoked his Fifth Amendment rights when questioned about the
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`Glover Well, the Court may draw an adverse inference against him. “[I]t is well-settled that the
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`Fifth Amendment does not forbid adverse inferences against parties to civil actions when they
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`refuse to testify in response to probative evidence offered against them.” Hinojosa v. Butler, 547
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`F.3d 285, 291 (5th Cir. 2008). The Court determines that there is a substantial likelihood of
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`success on the merits of Plaintiffs’ fraud claim, based on the evidence admitted at the injunction
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`hearing, the testimony of Mrs. Ropa and Graham, and adverse inferences drawn against Fox.
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`The elements of a breach of fiduciary duty claim are: (1) a fiduciary relationship existed
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`between plaintiff and defendant; (2) a breach by defendant of his fiduciary duty to the plaintiff;
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`and (3) an injury to plaintiff or benefit to the defendant as a result of the defendant's breach.
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`1 During the course of the Glover Well investment, Fox and Wayne Energy provided Plaintiffs with a 2015 K-1 for
`tax purposes. Fox and Wayne Energy produced false K-1s based upon expenses and deductions that were never
`incurred. The only expenses known to Plaintiffs were the partial payment to Graward Operating of $169,000 and
`$600 for dirt work.
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`7
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`Case 4:16-cv-00752-ALM Document 16 Filed 10/26/16 Page 8 of 9 PageID #: 226
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`Fred Loya Ins. Agency, Inc. v. Cohen, 446 S.W.3d 913, 919 (Tex. App.—El Paso 2014, pet.
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`denied). The underlying facts of the fiduciary duty claim are essentially identical to the fraud
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`claim. Under the Joint Venture Agreement, Wayne Energy was the Managing Venturer of the
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`Glover Well project. Wayne Energy was tasked with managing “Joint Venture affairs in a
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`prudent and businesslike manner” and “act[ing] in the best interests of the Joint Venture.” (Dkt.
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`#1, Exhibit A at p. 12). As Wayne Energy’s principal executive officer, Fox had a duty to ensure
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`Wayne Energy complied with the Joint Venture Agreement. Based on the evidence and exhibits
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`provided by Plaintiffs, the Court determines that Plaintiffs have shown a substantial likelihood of
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`success on the merits regarding their breach of fiduciary duty claim.
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`Substantial Threat of Irreparable Harm
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`A movant must show that “irreparable injury is likely in the absence of an injunction.”
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`Winter v. Nat. Res. Ref. Council, Inc., 555 U.S. 7, 22 (2008). Unless Defendants are enjoined
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`from disposing of investment funds, then Plaintiffs will be deprived of the whereabouts of their
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`investment, as well as any assets bought with or resulting from investment funds. Therefore, the
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`Court finds that Plaintiffs will suffer irreparable harm.
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`Balance of Harms and Public Interest
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`When deciding whether to grant an injunction, “courts must balance the competing
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`claims of injury and must consider the effect on each party of the granting or withholding of the
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`requested relief . . . pay[ing] particular regard for the public consequences in employing the
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`extraordinary remedy of injunction.” Winter, 555 U.S. at 9. The Court finds the final two
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`prongs of the preliminary injunction analysis weigh in favor of Plaintiffs. Plaintiffs have shown
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`a likelihood of success on the merits and irreparable harm. The harm to Defendants is minimal
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`because the injunction requires only that Defendants hold, collect, and account for all assets
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`8
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`Case 4:16-cv-00752-ALM Document 16 Filed 10/26/16 Page 9 of 9 PageID #: 227
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`traceable to the Glover Well and the South Gilmer 2 Well joint ventures. A preliminary
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`injunction based on the facts of this case will not disserve the public interest. In fact, it is in the
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`public’s interest to protect against fraud and to make victims from fraud whole, while also
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`preventing wrongdoers from benefitting from their actions.
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`CONCLUSION
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`For the reasons set forth herein, Plaintiffs’ Application for Preliminary Injunction (Dkt.
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`#7) is GRANTED. An Order of Preliminary Injunction was separately issued following the
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`October 13, 2016 injunction hearing.
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`IT IS SO ORDERED.
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`9
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