A class action has been filed in federal court in Midland, Texas against Ridge Natural Resources, L.L.C., Agave Natural Resources, L.L.C. and their affiliates and founders by a large group of royalty interest owners alleging that they were the victims of a “royalty-lease” scam. In the lawsuit, the plaintiffs allege that several individual defendants (Calvin Smajstrla; Matt Morgan; Christopher Hawa; and Wilson Hawa) set up shell companies disguised as legitimate drilling companies and fraudulently convinced a large group of royalty interest owners to purportedly convey a significant percentage of their royalty interests to these shell companies, under the guise of leasing their mineral interests. Plaintiffs allege that Defendants did so through the use of deceptive trade names, by using form contracts that did not contain language required by Texas law for royalty deeds, by making false promises and ambiguous language that was designed to create a false impression regarding the nature of the documents to be signed by the victims of their scam, and even by changing their names to conceal their true identities. The class of similarly situated individuals sought to be certified as a class action under Rule 23 of the Federal Rules of Civil Procedure is defined as:
All individuals, trusts or entities that signed a document entitled “oil and gas royalty lease” at any time during the four years immediately preceding the filing of this lawsuit with Ridge Natural Resources, LLC; Espuela Land and Minerals, LLC; Plains Natural Resources, LLC; Pueblo Resources, L.L.C. f/k/a Apache Resources, L.L.C.; Agave Natural Resources, L.L.C.; and/or Range Royalty, LLC.
Defendants set up a web of related shell companies formed and operated for the sole purpose of perpetrating the fraudulent scheme that gave rise to this lawsuit. Many of these companies are given names confusingly similar to large, reputable oil and gas companies to confuse the victims of the fraudulent scheme by creating a sense of legitimacy that would otherwise be lacking.
In 2015, Defendants began sending out letters through the United States Mail with a proposed “Oil and Gas Royalty Lease” attached to landowners they had selected for their scam. Defendants targeted individuals who owned mineral interests that were subject to pending drilling permits by oil and gas exploration companies. They did so in order to steal the royalties that would be generated by this new exploration. Plaintiffs and the Class Members were led to believe, based on the offer letters, the structure and ambiguous verbiage of the proposed leases, and other communications with Defendants, that they were being asked to sign an oil and gas lease, and that Defendants would be drilling for oil and gas on the landowners’ properties, despite the fact that neither the individual defendants nor their shell companies had any experience, expertise, ability or intention to drill for oil and gas. In addition, the offer letter to the “Oil and Gas Royalty Lease” explicitly states that it will not interfere with the existing lease covering the property, yet it directly interferes with the landowners’ rights under the lease – payment of royalty. This is yet further fraudulent and deceptive language included by Defendants for the sole purpose of inducing the landowners to sign over their royalty rights under false pretenses. Defendants’ fraudulent efforts were successful – Plaintiffs’ counsel has located through the land records in various counties in Texas more than 200 individuals who signed the “Oil and Gas Royalty Lease” proposed by Defendants.
The “Oil and Gas Royalty Lease” contains highly unusual language not found in typical oil and gas leases or royalty leases, such as a provision which purports to disclaim reliance on any verbal representations (which, particularly given the circumstances here, is unenforceable under Texas law), a contradictory arbitration provision which states that both JAMS and the AAA will exclusively administer the arbitration, a prevailing party attorney’s fee provision, and a punitive damages waiver. All of these provisions are unenforceable under Texas law because, inter alia, they are void for public policy or they were procured by fraud, or both. These provisions provide further evidence that Defendants knew they were perpetuating a fraudulent scheme on a large number of victims and were attempting to insulate themselves from as much liability and from as many remedies as possible through the documents that they drew up themselves.
Plaintiffs assert numerous claims, including fraudulent inducement and a declaratory judgment action, seeking monetary damages and punitive damages, as well as a request for the Court to rescind or invalidate the agreements with Defendants. Plaintiffs also assert a claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.A. § 1964(c) (“RICO”), seeking recovery of monetary damages and treble damages, among other remedies. Plaintiffs also seek their attorney’s fees and case expenses.
Numerous lawsuits asserting fraud and other claims have been filed against Ridge, Agave and their affiliates and owners, but this is the first such lawsuit that has been filed as a class action. However, the Court has not yet been asked to certify this case as a class action, and thus you should not assume that your rights are protected merely by the filing of this suit. If you signed an Oil and Gas Royalty Lease with Ridge Natural Resources, LLC; Espuela Land and Minerals, LLC; Plains Natural Resources, LLC; Pueblo Resources, L.L.C. f/k/a Apache Resources, L.L.C.; Agave Natural Resources, L.L.C.; and/or Range Royalty, LLC, contact Josh Borsellino at Borsellino, P.C. to learn more about this lawsuit and your legal rights. Mr. Borsellino can be reached at 817.908.9861 or through this online contact form. Josh Borsellino is a Texas attorney with offices in Fort Worth that routinely handles class and collective actions in Texas and other states, with many of these suits being filed against some of the largest oil and gas companies in Texas.
A copy of the complaint can be found here: