How An Oil And Gas Scammer Avoided Justice

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Scoundrels often get away with their crimes by scamming lots of victims for small amounts, so that no one investor can afford to prosecute his claim. Big Rock Investors Association v. Big Rock Petroleum, Inc. was an unsuccessful effort by investors to overcome this hurdle.

Big Rock Investors Association (BRIA) was created to prosecute claims by 226 investors of $26.8 million in Big Rock Petroleum drilling projects. The allegation was that it was a Ponzi scheme. Of 100+ projects, a substantial majority never existed or Big Rock never had an interests in them.

On behalf of its members BRIA sued Big Rock for violations of the Texas Securities Act, breach of fiduciary duty, and constructive trust. Big Rock responded that BRIA had no standing to pursue the individual claims of its members. 

No Association Standing.

BRIA did not have standing to sue because each member would have to present individual evidence to obtain the relief sought. An association has power to bring suit on behalf of its members when 

  • its members would otherwise have standing to sue in their own right, 
  • the interests it seeks to protect are germane to the organization’s purpose, and 
  • neither the claim asserted nor the relief requests requires the participation in the lawsuit of each of the individual members.

BRIA’s problem was the third prong, which focuses on administrative convenience and efficiency. Claims by an association are allowed when they will advance administrative convenience, efficiency and economy.  When each member would have to present evidence to prove their damages, the goals behind allowing suits by associations are undermined.

Generally, an association has no standing to sue on behalf of its members when the relief sought is monetary damages to individual members and when the damages are not common to the entire membership, nor shared by all to an equal degree.

The individuals didn’t share a common investment portfolio. Each investor would have to present their gains and losses—requiring a fact intensive participation by each member.

Is There Ever Association Standing?

If the association is seeking a declaration, injunction, or another form of prospective equitable relief, then it can be reasonably supposed that the all members would benefit and the concerns regarding efficiency would be advanced. However, the courts will still look at whether individualized evidence must be presented or if the evidence will be redundant. They will also examine whether concerns of judicial economy will truly benefit.

No problem; I’ll be Their Agent.

BRIA claimed that power of attorney status was granted to it by each member via a claims management agreement. But BRIA could not present authority that a power of attorney from each member exempted it from the third prong of the test.

Takeaways

Don’t give your money to strangers with big, unvetted promises.

Use Google, or an investigator, before investing. Too ofen we’ve represented jilted investors who could have learned to avoid their scammers with even minimal investigation.

Here’s what Big Momma Thornton thought about scammers.

Topics:  Breach of Duty, Fiduciary Duty, Oil & Gas, Scams

Published In: Business Torts Updates, Civil Procedure Updates, Constitutional Law Updates, Energy & Utilities Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Gray Reed & McGraw, P.C. | Attorney Advertising

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