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EnerJex Resources, Inc. v. Haughey

Court of Appeals of Missouri, Western District, Second Division

November 25, 2014



Before Division Two: Joseph M. Ellis, Presiding, Judge, Victor C. Howard, Judge and Mark D. Pfeiffer, Judge. All concur.


Joseph M. Ellis, Judge.

Page 831

Appellant EnerJex Resources, Inc. appeals from a judgment entered by the Circuit Court of Jackson County granting summary judgment in favor of Respondents Jeffrey Haughey, Robert Green, and Husch Blackwell, L.L.P. Appellant contends that the trial court erred in granting summary judgment because its damages theory is supported by Missouri law and is not otherwise inherently speculative. For the following reasons, the judgment is affirmed.

Formed in 2006, Appellant is an oil development and production corporation that operates primarily in Kansas and Missouri. In 2007, Appellant decided to attempt its first public stock offering on the American Stock Exchange. Appellant intended to

Page 832

offer five million new shares of common stock at $5 per share. Thus, Appellant hoped to raise $25 million in equity from the public offering.

A California investment banking firm (" the banking firm" ) agreed to underwrite the $25 million public offering. The banking firm further provided Appellant with a projected timeline for the public offering that showed the " road show" presentation for potential investors and the public offering occurring in June 2008.

Appellant originally engaged a Nevada firm to prepare the necessary filings for the Securities and Exchange Commission (" SEC" ). The banking firm, however, requested that Appellant engage a large law firm to handle the offering. Appellant then sought counsel from Respondent Husch Blackwell. Appellant's CEO Stephen Cochennet met with Respondent Haughey and discussed the timeline projecting the public stock offering to occur in June. Following the meeting, Respondents agreed to provide legal services to Appellant in relation to the public offering, but their agreement made no mention of the timeline. Respondents did provide the services, but Appellant's public offering did not occur until September 2008. By that time, the oil market had crashed, and Appellant's offering failed.

In 2012, Appellant filed suit against Respondents alleging legal malpractice, breach of contract, breach of fiduciary duty, and fraud. During discovery, Appellant disclosed the damages calculations of its expert, Charles Brettell. Brettell calculated consequential damages based on a " market cap" theory, which Appellant describes as " the lost market value . . . of the company flowing from the failed securities offering." Brettell's calculation ultimately valued Appellant's " market cap" or " enterprise value" between $202,339,588 and $358,421,781.

In 2013, Respondents filed a motion for partial summary judgment on Appellant's consequential damages theory. In their motion, Respondents asserted that Appellant could not recover any consequential damages because Appellant's expert calculated the damages as to Appellant's shareholders, not to Appellant as a corporation. Respondents further averred that Appellant's damages calculation is inherently speculative in that it assumes lost profits when Appellant, as a company, has no history of prior profitability.

Appellant opposed the motion. In doing so, Appellant contended that its expert calculated the market loss sustained by Appellant as a corporation as a result of the failed offering, not any damages suffered by its shareholders. Appellant further asserted that, despite its history of " negative cash flow," it was " an established business" that was " increasing in value." Thus, Appellant contended that Brettell's damages calculations were not inherently speculative.

On October 3, 2013, the trial court entered partial summary judgment in favor of Respondents. In its judgment, the trial court determined that " it is undisputed that [Appellant] was never profitable prior to the 2008 proposed stock offering and therefore cannot recover lost profits because the projection is inherently speculative." The trial court further determined that Brettell " quantified the alleged damages of [Appellant] based on the projected value of shares of stock held by EnerJex stockholders who are not parties to this case." ...

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