A state district judge in Harris County has ordered two former executives of a Superior Energy subsidiary to pay $72 million, after a jury ruled in December that they committed fraud, breached their fiduciary duties and misappropriated trade secrets against their former company.
The order, issued last Tuesday by Judge Caroline Baker of the 295th Civil District, requires former Stabil Drill Specialties Chief Operating Officer Christopher Russo to pay the company roughly $60 million in disgorgement, actual damages and prejudgment interest. She ordered former Stabil Chief Financial Officer Martin LeBlanc to pay $12 million for the same liability categories.
The lawsuit alleged that Russo and LeBlanc abused their power as corporate officers to set up a network of shell companies to conceal kickbacks from steel and component-part vendors. Essentially, Stabil Drill argued, they would purchase equipment and tools on the company’s behalf, but instead of the money going to legitimate vendors, it would go to the officers by way of their shell companies, which allowed Russo and LeBlanc to profit from both sides of the transactions.
Stabil Drill filed suit in April 2016 after some suspect corporate disclosures by the officers caused the company to launch an internal investigation to look into potential conflicts-of-interest. After hiring an outside auditor, Stabil Drill learned that a number of the entities involved in various corporate transactions were owned and controlled by LeBlanc and Russo.
But it took two more years until – scant months before trial – Stabil Drill acquired the “smoking gun” documents for their case that outlined the full scope of the scheme, Stabil Drill’s lawyers said. In a fierce discovery battle, Russo refused to turn over documents after asserting his Fifth Amendment protection against self-incrimination. Last April, the trial court finally ordered Russo to turn over the documents. That ruling survived an interlocutory appeal and within several months the Stabil Drill team was able to hit the ground running with bank records, emails and other documents.
One wire transfer, for instance, siphoned money from a vendor in Hong Kong to bank accounts that Russo had created, the lawyers said.
During the six-week trial last fall, Stabil Drill’s trial team – which included lawyers from Baker McKenzie and BakerHostetler – was able to show that the scheme was broad, even global and that it had been in operation since 2008.
Baker McKenzie partner C. Thomas Kruse, Stabil Drill’s lead trial lawyer, said the company originally named close to 60 defendants in the lawsuit. But most of those defendants, which included many vendors, settled before trial.
To his knowledge, Kruse said, no government investigations of Stabil Drill have been launched as a result of Russo and LeBlanc’s conduct.
On Dec. 5, the jury ruled unanimously against LeBlanc, Russo and the entities they controlled. In addition to breach of fiduciary duty, fraud and civil conspiracy, the jury found the officers also misappropriated trade secrets pertaining to the company’s design of a drill string vibrator and awarded $5.57 million on that claim.
“I told the jury in my closing argument that I felt these officers were wolves in sheep’s’ clothing, and the jury seemed to like that theme,” Kruse told The Texas Lawbook.
He said other Stabil Drill officers testified during trial about the kind of harm the roughly $65 million in lost profits posed on Stabil Drill and Superior, particularly during the oil downturn.
“The jury basically told us [after trial] that they wanted to make sure Superior was made whole,” he said. “This conduct is not just about money; it’s about impacting people’s lives.”
While the officers were busy stealing money from the company in the midst of the oil downturn, Kruse said, Superior was making sure it was doing “the right thing for customers and employees.”
“The jury agreed with that human element… about the impact on the lives of people living and working in the energy business in Texas,” he said.
Russo’s lawyers declined to comment. LeBlanc’s lawyers did not respond to a request seeking comment.
The final judgment orders another defendant, Perry McGraw, a Stabil Drill employee who participated in the scheme, to pay $50,000 in damages based on a prior confession of judgment. Kruse declined to go into detail about how McGraw’s admission of liability came about.
The 295thdistrict is currently occupied by Democratic Judge Donna Roth, who won the general election in November after Judge Baker decided not to seek reelection. But Judge Baker remained the presiding judge on this case since it was fully tried while she was still in office, Kruse said.
The rest of Stabil Drill’s Houston-based trial team included Larry Finder, Alexander Burch, Katie Zinecker and Rick Taylor of Baker McKenzie and Matthew Caligur, Tom Donaho, Sushant Mohan and George Boos of BakerHostetler.
Russo’s attorneys were Shaun Clarke, David Isaak, Karima Maloney and Eugene Zilberman of the Houston litigation boutique Smyser Kaplan & Veselka. LeBlanc’s attorneys were Michael Wynne, John Kinchen, Luis Fabrega and Robert Lemus of Houston-based Hughes Arrell Kinchen.