Coral Capital Partners Victorious in Sun River Energy Litigation
Coral Capital Partners is pleased to announce that on October 23rd, 2013 after nearly a 3 year legal battle (Civil Action No. 11-CV-00198-MSK-MEH) with Sun River Energy, Inc. Judge Marcia Krieger, Chief Justice of the Federal Court for the Colorado District ruled in favor of Coral Capital Partners, Inc, Erik Nelson, and Steve Stephens in its litigation with Sun River Energy, Inc. (OTC: ‘SNRV’).
This is one blog article we would really have preferred not to have written for a variety of reasons. However, due to the way that Sun River Energy pursued this litigation, including the wildly outrageous and unsubstantiated claims made against us by Sun River Energy, we are left feeling compelled to set the record straight. Additionally there are numerous web sites that claim to provide information regarding lawsuits that are not up to date, and have not kept current with respects to this litigation. They are basically misrepresenting the facts and the status of the case by continuously referencing a hearing very early on in the litigation and do not reflect the final outcome of the litigation. A copy of the judgment against Sun River Energy, Inc. can be found here (Sun_River_Energy_Judgment)
The judgement is pretty clear, the Court ruled in our favor, and against Sun River Energy. All of Sun River Energy’s claims against us were dismissed, as is confirmed by the Court Minutes, a copy of which can be found here (Sun_River_Trial_Minutes).
For the Record:
In the Federal Court, District of Colorado, Case # , Sun River Energy, Inc. v. Coral Capital Partners, Inc. et al, on October 23rd, 2013 Judge Marcia Kreiger entered a judgement in favor of Coral Capital Partners, Inc., Erik S. Nelson, and Steve Stephens in the amount of $217,596 and ruled that the restrictive legend on the shares of Sun River Energy, Inc. common stock held by Nelson and Stephens shall be removed and the shares shall be issued without restrictive legend. A copy of that ruling and judgment is available at the link found above. Prior to the trial, Sun River Energy announced that it had decided not to pursue any and all of its claims against us. At trial, all of Sun River Energy’s claims against Coral Capital Partners, Inc., Erik S. Nelson, and Steve Stephens were Dismissed with Prejudice. Additionally it should be noted that the Court sanctioned Sun River Energy’s attorney’s James Pennington and Steven Csajaghy for failure to to turn over to us the D&O Insurance Policy as required by the Federal Rule of Civil Procedure. More on this below.
A Little History on How We Got Here:
In 2007, Sun River Energy was small publicly traded company whose shares traded on the Bulletin Board portion of the Over-the-Counter (OTC) Market. In late 2007, Coral Capital Partners was engaged by Sun River Energy to develop a business plan and financial model for the company, which we did. We even located an investment bank that submitted a Letter of Intent (LOI) to Sun River Energy to raise additional capital for drilling purposes. At that point in time Sun River Energy owned mineral rights on approximately 155,000 acres of land in Colfax County, New Mexico; and had just drilled three (3) test wells into a coal bed methane formation located on part of the property. Sun River Energy was unable to execute the LOI due to a lack of capital. Sun River was also unable to pay us for our work due not having sufficient capital. In the summer of 2008, we reluctantly agreed to accept shares of Sun River Energy’s common stock instead of the agreed upon cash fee. I would like to emphasize that the issuance of us stock instead of the previously agreed upon cash fee was an offer that Sun River Energy approached us with, and requested that we accept. Shortly we accepted the shares, a new consultant began to exert a strong influence over Sun River Energy.
We waited the appropriate time required by Rule 144 of the Securities Act of 1933 before we requested the removal of the restrictive legend on the shares we had been issued. We instantly received a request that we only remove the restrictive legend on a portion of the shares we received; feeling that we were still on good terms with the Sun River we agreed to the request. Starting with our very first sale of shares, we began receiving threatening telephone calls from the new consultant demanding we stop selling shares of Sun River Energy’s common stock, and that we only sell after we had received permission from him. We considered these requests an attempt at market manipulation and a violation of our rights as shareholders of the company. Throughout 2009 and 2010, we sold the balance of our unrestricted common stock position in a series of trades in small quantities, believing that the long term prospects of the company were good we avoided any large scale liquidation of our position.
In roughly mid 2010 we began the process of having the restrictive legend removed from the rest of our position. By then, new management had assumed control of Sun River Energy; they refused our request to have the restrictive legend removed from our shares, claiming the company did not have securities counsel, yet they were and remained current in their filings with the Securities Exchange Commission (SEC). For those who are unaware, it is customary to have an attorney issue a legal opinion stating that the removal of the restrictive legend is permissible under Rule 144. Since, Sun River Energy was claiming that it did not have securities counsel capable of rendering a legal opinion on the removal of the restrictive legend on our shares, we obtained our own. We then had the shares deposited into our brokerage accounts. As customary, the clearing firms reached out to the transfer agent to inquire about the eligibility to have the restrictive legend removed. Sun River informed the transfer agent, that it would not honor the request to have the restrictive legend removed from our shares. We succeeded in having the clearing firms deliver our certificates to the transfer agent for Sun River. This started the clock on the 30 day time limit to remove the restrictive legend under the Uniform Commercial Code (UCC).
Section 8-403 of the Uniform Commercial Code (UCC) requires a company or its agent to process a transfer request within 30 days of receipt of notice of file suit to halt the transfer. At the end of the 30 day time period, rather remove the restrictive legend from our shares, Sun River chose to file a suit in Colorado State Court against us than allow us to sell our shares. We did not have a sense of humor, we removed the lawsuit to Federal Court and filed our own counter-claims. A copy of our answer to their amended complaint and our amended counter-claims can be found here (Coral_Capital’s_Counter-Claims_Against_Sun_River_Energy)
The Litigation:
This lawsuit should have been a simple suit concerning section 8-403 of the Uniform Commercial Code (UCC). However, Sun River Energy chose to strike first and make it as nasty as possible. They basically threw every wild allegation they could into their complaint, even claiming that the financial information contained in their SEC filings was material non-public information. (The very fact that it is in their SEC filings makes it public information – More on this later). In depositions, Sun River’s designated witness admitted that most of its claims had no merit or there was no evidence to back them up. Yet, they continued to litigate in the nastiest of manners. Then right before trial, Sun River announced that it would not pursue its remaining claims against us. As a result, all of Sun River’s claims against us were Dismissed With Prejudice by Judge Krieger.
The Trial:
We proceeded to trial based upon our claims under section 8-403 of the Uniform Commercial Code (UCC). The trial was held on October 23rd, 2013. We dutifully proved the required elements of qualification for having the restrictive legend removed as required by 8-403. It should be noted that information on UCC 8-403 is surprisingly hard to find. We think that this is because UCC 8-403 is very clear, and seldom litigated. When we get a chance, we will post our brief on UCC 8-403, our courtroom notes, and the Judge Kreiger’s opinion. I will update this post with a link to that posting. Hopefully this will help provide some additional information with respects to UCC 8-403.
The Ruling and Judgment:
Judge Krieger very clearly ruled in our favor. She dismissed all of Sun River’s claims against us with prejudice. She ruled in our favor and awarded us damages in the amount of $217,596 We have ordered a copy of the transcript of her ruling and will post it upon our receipt.
Stipulation to Legal Fees:
The sate of Colorado has not yet enacted tort reform, and as a result it follows the American Rule, under which parties to litigation generally must pay their own attorney’s fees and costs. However, due to what we considered the frivolous nature of Sun River Energy’s complaint and the manner in which they conducted themselves during the period prior to the trial, we threatened to file a motion under Rule 11 for recover of legal fees due to frivolous litigation. Sun River obviously must have felt there was validity to our claims, as they agreed to a stipulation of $100,000 in legal fees to be paid to us. A copy of the order on the stipulation to attorney’s fees can be found here (Judgment_Stipulating_to_Attorney_Fees).
Sun River’s Attorneys Sanctioned by the Court:
Interestingly enough, Sun River Energy had a D&O insurance policy that would have covered their legal expenses and the judgment against the company. However, they failed to notify their D&O insurance carrier. Somewhat of a strange thing to do, something that is somewhat tough to understand. That is, until you realize that if Sun River Energy would have notified their insurance company, then it would have been the insurance company’s decision to continue the lawsuit or to settle it. It is reasonable to think that a prudent or rational group of individuals would have notified their insurance company and reduced their risk to a lawsuit. But Sun River did not do this. It might also be reasonable to think that the reason that the reason Sun River Energy failed to notify their insurance carrier is that they did not want to risk the insurance company settling a lawsuit it new the company could not win. Worse yet, Sun River Energy provided its attorneys with a copy of the insurance policy and they failed to provide us with a copy of it. AS a result of this activity we were forced to file motions to compel its production, after which we finally received a copy.
As a result of this activity Federal Magistrate Judge Hegerty sanctioned Sun River Energy by awarding us a judgment in the case. Sun River appealed, and Judge Kreiger ruled on their appeal at trial. In ruling she delivered her opinion that the fault was with Sun River’s attorneys for failing to turn over the insurance policy to us. She sanctioned them with a judgment for damages, and reversed the ruling against Sun River. The Court Minutes available above document the sanctions against Mr. Pennington and Csajaghy. Since this was a rather lengthy and drawn out process, I will go into this in greater detail in another post. Following the publication of that post, I will update this posting with a link that discussion.
Other Sun River Energy Litigation:
Our litigation was not litigation that Sun River Energy has been involved in. Our research has indicated that Sun River Energy has been involved in over a dozen lawsuits since 2008. Many of these lawsuits have been initiated against shareholders after they attempted to have the restrictive legend removed from their shares or sell shares they purchased in the public markets. In addition to the lawsuit involving us, we are aware of the following lawsuits involving Sun River Energy and shareholders of its common stock.
- LPC Investments v. Sun River Energy, Inc. (Jefferson County, Colorado No. 2008CV5328)
- LPC Investments LLC. v. Sun River Energy, Inc. (Jefferson County, Colorado No. 2009CV4859)
- Sun River Energy, Inc. v. Nova Leasing, LLC. et al (District Court of Dallas County, Texas No. DC-11-02692)
- Nova Leasing, LLC. v. Sun River Energy, Inc. et al. (US District Court, Colorado No. 11-CV-00689-CMA-BNB)
- Sun River Energy, Inc. v. Mirador Consulting, Inc, et al (US District Court, Texas No. 11-CV-01132-K)
- Shareholder Derivative Action on Behalf of Sun River Energy v. Sun River Energy (Nominal Defendant) v. et al. (District Court of Dallas County, Texas No. DC-12-06318)
These are just the shareholder lawsuits we are aware of. There has also been numerous lawsuits involving Sun River Energy resulting from its other business activities and the way management has conducted itself. In all, we believe there has been close to 15 or more lawsuits that we have been able to find. It is quite a list. We will provide the full list in a separate post. Once we have done so, we will update this post with a link to our updated list.
Our Legal Counsel:
We would very much like to thank our legal counsel whose representation served us very well in this litigation. We greatly appreciate the representation by Gerald Kline of Cohen Pollock Merlin & Small, PC. and Gabe McFarland of Evans & McFarland, LLC., as well as Mr. McFarland’s staff. We highly recommend both of these attorney’s to anyone who is in need of representation on these issues. Mr. Kline is based here in Atlanta, Georgia. His office telephone # is (770)-858-1288. Mr. McFarland is based in Golden, Colorado. His office telephone # is (303)-279-8300.
If you have any questions about the above blog post, please feel free to visit our web site, www.coralcapital.com and check out we have to offer. Feel free to contact us if you have any questions. We can be reached at 404-816-9220 and are always willing to speak with you.
About Coral Capital Partners
Coral Capital Partners is an independent consulting and advisory firm focused on companies and participants in the lower and middle markets. We partner with our clients to provide cost effective solutions to real world issues and situations. Our experienced team brings a diverse set of skills that allows us to service a wide variety of needs. Our area of services and expertise focuses on bringing services and solutions to our clients that are normally only available to much larger firms. Coral Capital Partners, Inc. provides services to Investment Banks, Private Equity Funds, investors, and both privately held and publicly traded companies, as well as various stakeholders in those organizations. This has included international public companies with operations on three (3) continents to smaller privately held domestic companies. Our experience in the areas of corporate advisory, due diligence reviews, and regulatory compliance allows for a cost effective and efficient solution to the issues at hand. Please feel free to contact our offices to see how we may be of assistance,