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Striker Entities, LLC v. Callander

United States District Court, W.D. Oklahoma

July 11, 2019




         Before the court is Plaintiff's Motion for Summary Judgment, filed May 1, 2019 (doc. no. 41). Defendant has responded to the motion and plaintiff has replied. Upon due consideration of the parties' submissions, the court makes its determination.


         Plaintiff, Striker Entities, LLC (“Striker”), brings this breach of contract action seeking to collect on two promissory notes executed by defendant, Bruce Callander (“Callander”), in 2002 and 2003. According to Striker, the notes were used to purchase ownership units in two phases of an oil and gas drilling partnership called Program 2001.[1] Program 2001 was managed by Striker and organized to conduct oil and gas operations in Oklahoma and elsewhere. The subject notes provided that “[t]he interest of [Callander] in the production from the Program Wells shall be used by [Striker] to prepay [Callander's] obligations under [the note] with such payments to first be used to pay interest and then to pay the principal amount of [the note].” Ex. 1 and ex. 4 to Striker's motion, ¶ 4. Striker claims that due to a severe downtown in the price of oil and gas, it was forced to shut down Program 2001 and sell off its assets in the 2012-2014 timeframe. Because “no further production from the Program's wells [would be available] to reduce either the nonrecourse interest or the recourse principal amount of the [note], ” Striker, by letter dated April 20, 2015, declared the notes in default and demanded payment of the outstanding principal balance of the notes.[2] Ex. 5 to Striker's motion. Striker claims Callander refused to make payment as demanded and after having credited all oil and gas production revenues from the Program Wells to the notes, Callander still owes it $116, 856.00 on the notes and $17, 528.40 in attorney's fees for collection of the notes. Striker now seeks summary judgment under Rule 56(a), Fed. R. Civ. P., on its breach of contract claim and requests the court to enter judgment in its favor and against Callander in the total amount of $134.384.40. Striker contends that Callander cannot establish any defense to its right to payment of the notes.[3]

         Callander opposes summary judgment, arguing that genuine issues of material fact exist as to whether the notes are enforceable due to lack of consideration and fraudulent inducement. With respect to lack of consideration, Callander asserts that his core interest and expectation in investing in the oil and gas drilling partnership was to obtain valid, ongoing tax deductions. Because of an Internal Revenue Service audit conducted on a similar Striker drilling program (which found that the program could not support the claimed tax deductions), together with Striker's inability to produce supporting records for Program 2001, Callander contends that his claimed tax deductions based upon the notes were, at best, unsupported and potentially invalid. Callander thus asserts that any benefit allegedly conferred pursuant to the notes is illusory. Consequently, Callander argues that both notes fail for lack of consideration.

         As to the defense of fraudulent inducement, Callander asserts that Richard Romine, Striker's sole member and manager, made material, false representations which induced Callander to execute the notes. Specifically, Callander asserts that Romine told him the notes would be fully repaid from revenues from the drilling program, and that in any event, Striker would not pursue Callander for repayment of any note balance.[4] Callander contends that these representations were false because the revenues generated by Program 2001's wells did not fully repay the alleged balances on the notes and Striker is now pursuing collection of the notes with this action. In addition, Callander asserts that Romine promoted the drilling program, including the use of the notes, for the purpose of securing ongoing tax-deductible investments. However, Callander contends that although requested, Striker has not produced any supporting accounting to support the tax deductions and the IRS has found that a substantially similar investment program could not support the claimed deductions.

         Even if the notes were enforceable, Callander argues that summary judgment is not appropriate because there are genuine issues of material fact as to amount due on the notes. Callander maintains that Striker has not produced any contemporaneous accounting that would support its damages claim. According to Callander, the summary Schedule K-1's prepared annually by Striker and provided to Callander are not sufficient evidence to establish its damages.

         In reply, Striker argues that the IRS audit of the other Striker drilling program, Program 2007-A, is completely irrelevant to the enforceability of Callander's notes. Striker points out that Program 2001 has never been audited and that the IRS made no findings in the referenced audit about Program 2001, the notes at issue or the validity of the tax deductions for the notes. According to Striker, Callander has presented no evidence that the specific features of Program 2007-A that the IRS found objectionable are also features of Program 2001. In addition, Striker contends that the notes are supported by consideration because Callander accepted and kept all the tax benefits. Moreover, it asserts that the notes recite numerous mutual promises of future performance. These promises, Striker argues, are sufficient consideration for the notes. Striker further points out that the notes do not require it to produce any documentation before the notes can be enforced against Callander. Further, Striker asserts that Callander's fraud arguments fail because he accepted all the benefits of the notes, and under 12A O.S. 3-305(a)(1), fraud can be a defense to a promissory note only where it induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms. Striker contends that Callander had reasonable opportunity to learn of the essential terms of the notes by reading them before their execution. Lastly, Striker argues that Callander's complaints about a lack of documents to prove the notes' balances are meritless because he never challenged the accuracy of the Schedule K-1s, he knowingly refused to give time to Striker to produce the supporting documents, and Striker's summary judgment motion is timely under the court's scheduling order.


         Federal Rule of Civil Procedure 56(a) provides that “[a] party may move for summary judgment, identifying each claim or defense-or part of each claim or defense-on which summary judgment is sought.” Rule 56(a), Fed.R.Civ.P. Summary judgment is appropriate if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Id. In deciding whether summary judgment is appropriate, the court does not weigh the evidence and determine the truth of the matter asserted, but only determines whether there is a genuine issue of material fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). A dispute is “genuine” “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. at 248. A fact is “material” if under the substantive law it is essential to the proper disposition of the claim. Id. In adjudicating a motion for summary judgment, the court views the evidence and draws all reasonable inferences therefrom in the light most favorable to the nonmoving party. McGehee v. Forest Oil Corporation, 908 F.3d 619, 624 (10th Cir. 2018).


         Upon review, the court finds that Callander has failed to raise a genuine issue of material fact with respect to a lack of consideration for the notes.

         Although Callander has presented evidence of an IRS audit of another Striker drilling program, Program 2007-A, which disallowed the tax deductions of certain investors, Callander has not presented evidence to raise a genuine issue of material fact that his tax deductions for investing in Program 2001 are illusory. The IRS audit did not involve Program 2001, the notes or the tax deductions at issue. There is no evidence in the record that the IRS has audited or intends to audit Program 2001. The court is not satisfied that Callander's “concern[] that the IRS might audit the [Program 2001] in which [he] invested and that the IRS might reach similar ...

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