ROANOKE, Va. – An Oklahoma oil and gas company has filed a $16 million lawsuit against a Charleston law firm and two of its attorneys for legal malpractice and for breach of contract.
Bowles Rice McDavid Graff & Love LLP and attorneys Charles B. Dollison and Julia A. Chincheck are the defendants in the case filed by Hinkle Oil & Gas Inc., which is based in Oklahoma City. The case originally was filed in U.S. District Court for the Western District of Oklahoma, but was removed to the Western District of Virginia in October.
Hinkle claims the firm and its attorneys are responsible for them losing millions of dollars because of a collapsed deal to buy some oil and gas wells.
A representative for Bowles Rice, which primarily does defense work, dismissed Hinkle's claims.
"The firm thinks the lawsuit is without merit, entirely without merit," partner Gerry Stowers told The West Virginia Record.
According to its complaint, Hinkle buys and develops oil and gas wells across the country.
"Hinkle is a small operator that seeks out, purchases and develops small wells and properties, many of which are quite old and nearly 'played out,'" the complaint states. "Because of the history of these wells, Hinkle occupies a special niche in the market: it purchases wells that are generally smaller than those that would attract so-called 'major players,' and because of the relatively small size of the wells, the owners-sellers, and producers, Hinkle can normally obtain these properties at highly favorable rates, then redevelop these properties, and earn substantial profits in so doing."
The lawsuit stems from Hinkle and a subsidiary – Minerals Management Group Inc. – dealing with a company called Buffalo Properties LLC. Hinkle and MMG were involved in "substantial legal disputes" with Buffalo Properties. In 2004, Buffalo filed for bankruptcy in U.S. Bankruptcy Court for the Southern District of West Virginia.
In 2005, Hinkle and Buffalo began negotiations to settle their differences. In November, they reached an agreement that Hinkle would buy 17 oil and/or gas wells and 900 acres from Buffalo for $400,000.
Hinkle was being represented by Louisa, Ky., attorney Raymond Dodson. But the company needed an attorney licensed in West Virginia because Buffalo's bankruptcy was pending here.
In April 2006, Hinkle retained Bowles Rice to complete the paperwork on the Buffalo contract. Chincheck was assigned to Hinkle. Chincheck was group leader of Bowles Rice's commercial and financial services group.
"Since the underlying terms of the resolution agreement [with Buffalo] had already been agreed-to, Hinkle justifiably expected that the settlement agreement would be consummated and effected within two weeks at the most," the complaint states.
After a month, Hinkle says it contacted Chincheck, who said Buffalo's bankruptcy trustee was "difficult to get hold of" or "was not returning telephone calls."
Hinkle then states that Chincheck met with Buffalo's bankruptcy trustee on May 25, 2006. The trustee told Chincheck that Buffalo "had entered into another contract concerning the exact same subject matter as that involved in the Hinkle-Buffalo Properties resolution agreement, with an entity named Elk River Energy LLC."
The complaint says Hinkle was "flabbergasted at this development."
Between May 25 and June 2, Hinkle says it learned that Elk River Energy was formed only two weeks before the May 25 meeting and that Dollison, a partner at Bowles Rice, "was not only the organizing attorney," but "he also had a financial stake in Elk River Energy."
Had Hinkle known of what it called this "absolutely inexcusable conflict of interest," it never would have retained Bowles Rice nor would it have disclosed confidential and proprietary information consisting of the terms of the agreement with Buffalo.
On June 2, 2006, Chincheck informed Hinkle – "in a transparent attempt to excuse her culpability," according to the complaint – that she would no longer being representing the company.
Three days later -- through current counsel Hugo N. Gerstl of Monterey, Calif. – spoke with Buffalo's bankruptcy trustee, who said Elk River was trying to back out of its contract with Buffalo and trying to dissolve. Meanwhile, the trustee also moved to sell the subject property in bankruptcy court. The "Objection or Upset Bid" date was set for June 14, 2006.
Hinkle states that the contract it had with Buffalo "would have gone through promptly and with no difficulties." But because of the defendants' actions, Hinkle said it had to lodge its "upset bid" at a much higher price than it would have had to pay under the agreement. It also had to bid on all of Buffalo's properties instead of just the ones it wanted in the original deal.
Meanwhile, a new Nevada-based company called Heritage Financial Group Inc. made a bid for all of Buffalo's assets for $7 million. On Sept. 18, 2006, the bankruptcy court issued an order granting the sale to Heritage.
Hinkle claims wrongful acts by Bowles Rice, Chincheck and Dollison are responsible for the collapse of its contract with Buffalo Properties and that, as a result, it has suffered and sustained damages because of the breach of fiduciary obligations. Those damages include loss of opportunity, loss of credibility in the oil and gas industry and natural incremental increase in its asset and profit base.
It also says it has lost profits from the wells it would have purchased. Studies show that amount, Hinkle says, exceeds $16 million. Hinkle says it also lost $6.6 million in consideration. That represents the $7 million Heritage purchase price for properties Hinkle would have bought for $400,000.
Hinkle also seeks compensation for resolving litigation involving two wells in Boyd County, Ky. The company says the actions of the defendants resulted in it having to settle on terms that would have been different had its purchase gone through.
Hinkle also seeks attorney fees and court costs for trying to salvage its contract with Buffalo Properties and the fess and costs paid to Bowles Rice.
It also seeks punitive damages.
"The acts of the defendants, and each of them, constituted constructive fraud, oppression and malicem [sic] and was, at least in part, motivated by defendants' desire for profit," the complaint states. "Said acts were made with conscious disregard for plaintiff's rights.
Hinkle claims Bowles Rice, Dollison and Chincheck breached their written contract with the company and breached their implied covenant of good faith and fair dealing.
Hinkle also says the defendants are guilty of legal malpractice.
Hinkle says the defendants "assumed a duty of care to represent plaintiff's interests competently, completely and without any conflict of interest."
Stowers said Bowles Rice did nothing wrong.
"Hinkle Oil & Gas claim they had a done deal with the bankruptcy trustee for the purchase of these wells," Stowers said. "All bids are subject to court approval and upset bids. When they went through the process, there was indeed an upset bid. The suit claims we are responsible for not completing the deal with the bankruptcy trustee. We deny that unequivocally because everything is subject to court approval.
"The law firm developed a conflict, and we couldn't go forward. Hinkle engaged new counsel, and their bid didn't go through."
Bowles Rice is being represented by Gerald P. Green and Mark E. Hardin of the Oklahoma firm of Pierce Couch Hendrickson Baysinger & Green as well as Richmond, Va., attorney William D. Bayliss of the firm Williams Mullen Clark & Dobbins.
The jury trial originally was scheduled for April 22 in Roanoke before Judge Samuel G. Wilson, but has since been rescheduled for May 19-21.
U.S. District Court, Western District of Virginia, case number 7:2007cv00487