Preview
FILED
9/1/2022 3:04 PM
FELICIA PITRE
DISTRICT CLERK
DALLAS CO., TEXAS
Brandon Keys DEPUTY
CAUSE NO. DC-22-00743
CAROL ALLEN and HUNTER ALLEN §
as Co-Trustees of the ALLEN 2018 §
FAMILY TRUST, CAROL ALLEN and §
HUNTER ALLEN as Co-Trustees of the § IN THE DISTRICT COURT
Tim Allen QTIP Trust, and CAROL §
ALLEN; §
§ 68th JUDICIAL DISTRICT
Plaintiffs, §
§
v. § DALLAS COUNTY, TEXAS
§
GREGG ALLEN, ELAND ENERGY, §
INC., and E HOLDING LP, §
§
Defendants.
§
PLAINTIFFS’ THIRD AMENDED PETITION
Plaintiffs Carol Allen, individually, and Carol Allen and Hunter Allen, as Co-Trustees of
the Allen 2018 Family Trust (the “2018 Trust”) and the Tim Allen QTIP Trust (the “QTIP Trust”),
file this Third Amended Petition against Defendants Gregg Allen (“Gregg”), Eland Energy, Inc.
(“Eland Energy”), and E Holding LP (“E Holding” and collectively, “Defendants”), and would
respectfully show the Court as follows:
INTRODUCTION
1. This is a suit for disgorgement, damages, restitution, and constructive trust, arising
from a trusted family member’s blatant disregard of fiduciary duties, mismanagement of corporate
obligations, and improper diversion and misuse of family assets.
2. Eland Energy was formed in the 1980s and was co-owned 50-50 by brothers Tim
and Gregg Allen. Over the next 20 years, the brothers grew the business from a small company
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 1
into a formidable enterprise that owned real estate and hospitality assets, in addition to its core oil
and gas properties.
3. In the mid-2000s, Tim Allen grew ill and eventually passed away, leaving his 50
percent stake in the business to his wife and children. Before Tim died, however, Gregg promised
to assume exclusive authority and control over Eland Energy’s operations and to manage the
company in the best interests of its shareholders, including Tim’s heirs.
4. Unfortunately, as Carol and Hunter have only recently discovered, Gregg failed to
live up to these promises. Gregg began to disregard the interests of Tim’s heirs and began to treat
Eland Energy as if he was the sole shareholder. He appointed the same board of directors to
oversee both Eland Energy and his individually owned companies, and he hired a single slate of
officers to operate both Eland Energy and his individually owned companies. As a fiduciary, Gregg
also failed to distinguish between his own assets and Eland Energy’s assets. Gregg commingled
funds and even used Eland Energy cash (half of which is owned by Tim’s heirs) to finance his
personal investments—all without disclosing the investments to Eland Energy’s other
shareholders.
5. Plaintiff Hunter Allen, Tim’s son, first learned of potential accounting irregularities
at Eland Energy in 2021, and he immediately took action to uncover the problems, identify their
scope, and prevent any further abuse of Eland Energy’s funds. In his capacity as Co-Trustee of
the 2018 Trust—which now owns Tim’s fifty percent stake in the business—Hunter made both
informal and formal requests for E Holding’s and Eland Energy’s books and records. Gregg
responded by selectively producing a handful of documents, and refusing to release the companies’
books and records, despite having a statutory, contractual, and fiduciary obligation to do so.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 2
6. As Hunter gathered more information, his worst fears were largely confirmed. On
January 5, 2022, Eland Energy’s director of accounting abruptly informed Hunter that Eland
Energy had in its current bank accounts nearly $16.5 million in funds owed to Tim’s heirs—and
that this money had been there for some time. The message included no context or information
explaining how this payable accumulated, why Gregg had concealed it, or why the money had not
previously been paid to Tim’s heirs.
7. Hunter also secured various records from the 2018 Trust’s tax accountants
confirming that Gregg had incurred a massive, unexplained receivable to Eland Energy between
2014 and 2016. Meanwhile, Gregg refused to provide audited financial statements and tax returns
for E Holding and Eland Energy prior to 2017. In other words, Gregg tailored the scope of his
selective records production to avoid disclosing both his misuse of Eland Energy’s funds and his
failure to distribute money owed to Plaintiffs.
8. In March 2022, and only after Plaintiffs were forced to file this lawsuit, Gregg
finally disclosed a portion of Eland Energy’s accounting records. It was immediately clear why
Gregg had resisted disclosure. The accounting records confirm that Gregg caused Eland Energy
to improperly lend tens of millions of dollars to himself, withheld distributions due to Plaintiffs,
and used Eland Energy’s staff and facilities to operate his own businesses without providing
adequate compensation to Eland Energy.
9. Carol and Hunter now seek legal and equitable remedies including disgorgement,
constructive trust, restitution, and damages to remedy these significant and sustained breaches of
fiduciary duty.
DISCOVERY CONTROL PLAN
10. Plaintiffs intend to conduct discovery under Level 3 of Texas Rule of Civil
Procedure 190.4.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 3
CLAIM FOR RELIEF
11. Plaintiffs seek monetary relief of over $1,000,000. Tex. R. Civ. P. 47.
PARTIES
12. Plaintiff Carol Allen is an individual residing in Dallas County.
13. Plaintiff Hunter Allen is an individual residing in Tarrant County.
14. Defendant Gregg Allen is the president of Eland Energy Inc. He may be served
with process at 16400 Dallas Pkwy #100, Dallas, TX 75248.
15. Defendant Eland Energy, Inc. is a Texas corporation with its principal place of
business in Dallas County, Texas. It may be served through its registered agent, E Holding, LP,
at 16400 Dallas Parkway #100, Dallas, TX 75248.
16. Defendant E Holding LP is a Texas limited partnership with its principal place of
business in Dallas County, Texas. It may be served through its registered agent, Eland Energy,
Inc., at 16400 Dallas Parkway #100, Dallas, TX 75248.
VENUE AND JURISDICTION
17. Venue is proper in Dallas County pursuant to Section 15.002 of the Texas Civil
Practice and Remedies Code because (1) it is the county in which all or a substantial part of the
events or omissions giving rise to the claim occurred and (2) because all Defendants are residents
of Dallas County, Texas.
18. This Court has jurisdiction over this matter because the individual parties reside in
Texas, the corporate Defendants are headquartered in Texas, and these causes of action arise out
of actions that took place in Texas.
FACTS
A. Tim Allen and Gregg Allen cofounded Eland Energy and grew it into a successful
enterprise.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 4
19. Tim Allen and his brother Gregg Allen cofounded Eland Energy, Inc. in 1984.
Through their 50-50 partnership in the company, they pursued a series of real estate and oil and
gas ventures. The Allens historically focused on Texas-based assets, but they also pursued
investments in Louisiana and New Mexico, including a popular resort property in New Mexico ski
country.
20. By the 1990s and early 2000s, Eland Energy had become a formidable and
successful enterprise. Its holdings grew to include not only direct investments in real estate and
oil and gas assets, but also investments in other partnerships and corporations that had businesses
of their own. Tim and Gregg, in turn, acquired both direct and beneficial interests in a variety of
entities in connection with their business activities. As the Allen brothers grew their business, the
focus remained with Eland Energy, which served as a holding company for their jointly held
investments. Managerial and operational duties were divided between Tim and Gregg.
21. In 2007, after Tim became ill, Gregg and Tim implemented a succession plan. To
provide for the continuity, stability, and continued management of the brothers’ joint investments
(the “Jointly-Owned Assets”), Tim and Gregg entered into a Joint Ownership and Management
Agreement (the “JMA”) in May 2007. Among other things, the JMA provides:
The Owners agree that the sole and exclusive control and management of the jointly
owned companies shall remain in the Managers [Tim and Gregg] or any one
Manager if the other Manager ceases, for any reason including death or incapacity,
to participate in the control or management of the Jointly Owned Companies. 1
Since Tim passed away in 2008, Gregg has had “full and exclusive authority, control and
management” of the brothers’ investments—including Eland Energy—pursuant to the JMA. 2
1
Exhibit 1, JMA at § 1.
2
See id.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 5
22. After Tim’s death, his interests in the Jointly Owned Assets passed primarily to two
trusts: (1) the Tim Allen QTIP Trust, created under the Allen Family Revocable Trust dated
December 29, 2005 (the “QTIP Trust”); and (2) the 2018 Allen Family Trust, created by the trust
agreement dated October 26, 2018 (the “2018 Trust,” and collectively, the “Trusts”). The ultimate
beneficiaries of these trusts are Tim’s widow, Carol, and their sons Hunter, Bryce, and Sykes.
23. At present, Gregg and the 2018 Trust share ownership of Eland Energy through
E Holding. Gregg and the 2018 Trust are limited partners of E Holding, and they each own fifty
percent of E Holding’s outstanding partnership interest. Eland Energy is E Holding’s general
partner. 3 As general partner, Eland Energy is responsible for operating E Holding’s businesses
consistent with the fiduciary duties of care and loyalty, which it owes to both E Holding itself and
to E Holding’s limited partners.
24. Eland Energy, in turn, is wholly owned by E Holding. Gregg Allen is both an
officer (President) and the Executive Director of Eland Energy. As such, he owes the fiduciary
duties of care and loyalty to Eland Energy; Eland Energy’s sole shareholder, E Holding; and the
2018 Trust. The present relationship of Eland Energy, E Holding, and Gregg Allen is depicted
below:
3
Exhibit 2, December 31, 2021 Agreement of Limited Partnership of E Holding LP.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 6
25. Historically, Eland Energy’s shares were owned directly by Gregg and Tim, and,
subsequently, Tim’s heirs. Upon Tim’s death, half of his fifty percent share in Eland Energy
passed to Carol, and the other half passed to his estate. In 2012, Tim’s estate assigned its twenty-
five percent stake in Eland Energy to the QTIP Trust. Through a series of transactions in December
of 2019, Carol and the QTIP Trust assigned their shares to the 2018 Trust. Finally, in January
2020, the 2018 Trust assigned its shares to what is now E Holding, resulting in Eland Energy’s
current ownership structure.
Date Eland Energy Ownership
Gregg Allen (50%)
2008 to
Estate of Tim Allen (25%)
12/31/2011
Carol Allen (25%)
Gregg Allen (50%)
1/1/2012 to
QTIP Trust (25%)
12/31/2019
Carol Allen (25%)
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 7
E Holding (100%)
1/1/2020 to
[2018 Trust (50%)
present
Gregg Allen (50%)]
26. From 2008 to the present, Carol, and subsequently the QTIP Trust and the 2018
Trust, relied on Gregg to manage their share of the Jointly Owned Assets, as contemplated by the
JMA. Consistent with the JMA, Gregg exercised absolute control over Eland Energy’s operations
through his role as the company’s President and its Executive Director. Carol and Hunter believed
at all times that Gregg, as a fiduciary, was managing the Jointly Owned Assets in the best interest
of his family members and business partners, so they turned their focus to other endeavors after
Tim passed away.
27. Until recently, they felt they had good reason for doing so, in part because Allen
Farris, who was Eland Energy’s Chief Financial Officer until 2021, was also a successor trustee to
both the 2018 Trust and the QTIP Trust.
B. After Tim’s death, Gregg began ignoring the interests of Eland Energy’s other
shareholders, namely, the QTIP Trust.
28. Once Tim died, Gregg began to expand his focus beyond the businesses the brothers
had built together. He pursued his own real estate, restaurant, oil and gas, and agricultural ventures
that did not involve Carol or the Trusts. However, as Gregg pursued these outside investments,
Eland Energy remained his operational base, and he used Eland Energy’s cash, employees, office
space, and other resources to operate his independent businesses—all to Plaintiffs’ detriment.
29. From a governance perspective, Gregg made no distinction between the Jointly
Owned Assets and his solely owned ventures. Gregg appointed the same people to Eland Energy’s
Board of Directors that he appointed to his outside companies’ boards. When Eland Energy’s
Board of Directors met, they met to discuss all of Gregg’s businesses. For example, a copy of the
minutes of Eland Energy’s July 21, 2016 board meeting provided by Gregg reflects that the board
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 8
members did not distinguish between Eland Energy and Gregg’s businesses that had different
owners: 4
Likewise, a November 15, 2019 board resolution reflects that each of the “Eland Entities”—
defined to include not only Eland Energy but also various entities individually owned by Gregg—
also share corporate officers. 5 According to the resolution, the board appointed the same slate of
individuals to preside as officers for all the “Eland Entities.” Other sets of minutes and resolutions
reflect similar decision-making, 6 bearing no indication that Gregg made any distinction, for
governance purposes, between his own investments and the Jointly Owned Assets. This is despite
the fact that Carol and the Trusts at all times owned a fifty percent interest in Eland Energy but
had no share in Gregg’s other businesses.
30. Gregg also did not distinguish between the Jointly Owned Assets and his personal
investments from an accounting perspective. Over time, Gregg would direct the sale or transfer
of many of the Jointly Owned Assets, converting those investments to cash. It was Gregg’s
4
Exhibit 3, Minutes of a Meeting of the Board of Directors of Eland Energy, Inc. dated July 21, 2016. Hunter
obtained Exhibit 3 in response to his December 20, 2021 books and records request. Gregg Allen applied
redactions to this and other relevant documents before disclosing them.
5
Exhibit 4, Resolution of the Board of Directors of Eland Energy, Inc. dated November 15, 2019.
6
See, e.g.,Exhibit 5, Resolution of Board of Directors of Eland Energy, Inc. dated June 6, 2017; Exhibit 6,
Resolution of Board of Directors of Eland Energy, Inc. dated January 9, 2014.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 9
standard practice to deposit this cash, regardless of the specific source, into a bank account
controlled by Eland Energy. Gregg would not, however, distribute the cash to the ultimate owners
of the Jointly Owned Assets (including Carol and the Trusts) on a regular basis. Nor did he
regularly disclose to Carol or the Trusts when Eland Energy received cash payments resulting from
the sale of Jointly Owned Assets. From 2008 until 2021, Carol and Hunter were largely unaware
of the transactions affecting this Eland Energy account.
31. As cash accumulated in Eland Energy’s account, Gregg misappropriated the money
to finance his own business ventures—despite the fact that Carol and the Trusts owned half of
Eland Energy’s assets and, in turn, half the cash generated from those assets. It might have been
proper for Gregg to distribute Eland Energy’s profits to shareholders on a pro-rata basis and to use
his portion for his own investments. But instead of proceeding in this fashion, Gregg transacted
directly from Eland Energy’s bank account for his own purposes without Carol’s or the Trusts’
knowledge.
32. Gregg did all this even though the JMA 7 expressly forbids him from favoring his
own interests above those of Carol and the Trusts:
33. In addition to the inherent problems arising from Gregg’s personal use of jointly
owned Eland Energy funds, Eland Energy lacked sufficient controls to track Gregg’s borrowing
activity or to determine how his withdrawals implicated Carol’s or the Trusts’ share of Eland
Energy’s assets.
C. Gregg has continually looted Eland Energy’s reserves for his own benefit.
7
Exhibit 1, JMA at § 2.3.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 10
34. In May 2022, well after the 2018 Trust first filed this lawsuit, Gregg disclosed a
January 1, 2006 Revolving Loan Agreement and Promissory Note between himself and Eland
Energy, ostensibly to justify the loans to himself. 8 But the Revolving Loan Agreement, a per se
act of self-dealing, only underscores Gregg’s failure to consider the interests of Eland Energy’s
other shareholders. The Revolving Loan Agreement’s signature page captures the dubiousness
and inherently conflicted nature of this lending arrangement:
35. To the extent the Revolving Loan Agreement is valid, it does not absolve Gregg
from liability for his conflicted borrowing. The Promissory Note requires quarterly interest
payments at the greater of 4 percent or the effective Prime Rate. But Gregg never paid interest.
And his failure to pay interest amounts to an “Event of Default” under the Revolving Loan
Agreement. Upon a default, the Revolving Loan Agreement 9 entitles Eland to call the Promissory
Note and require Gregg to pay all outstanding interest and principal:
8
Exhibit 7, January 1, 2006 Revolving Loan Agreement; Exhibit 8, January 1, 2006 Promissory Note.
9
Exhibit 7, Revolving Loan Agreement, § 4.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 11
36. But Eland Energy, which has been under Gregg’s exclusive control as of 2008, did
not call the Promissory Note. Even worse, Eland Energy has continued to lend money to Gregg
or entities he controls for no consideration.
37. According to the redacted minutes and resolutions that Gregg produced in response
to Hunter’s information requests, Eland Energy’s Board of Directors never approved the
Revolving Loan Agreement or the Promissory Note. Nor did the board approve Gregg’s decision
not to enforce those agreements on behalf of Eland Energy.
38. At the accounting level, Eland Energy’s bookkeepers did not track the amounts he
borrowed against the terms of the Revolving Loan Agreement and Promissory Note, and Gregg’s
withdrawals were allowed to exceed the amount allowed under the Revolving Loan Agreement
and to continue despite Gregg’s failure to pay the required interest. As a result, Eland Energy
accumulated a substantial receivable from Gregg—a receivable far out of balance with his
ownership share. Gregg’s position of authority, combined with his disregard for the terms of the
Revolving Loan Agreement, left Eland Energy with no legal protection if Gregg failed to repay
the funds. Simply put, Plaintiffs were forced—unbeknownst to them—to carry the burden when
Gregg failed to satisfy his contractual obligations.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 12
39. More broadly, and by Gregg’s design, Eland Energy lacked objective, independent
fiduciaries that could have prevented Gregg from using Eland Energy’s assets in this manner. As
explained above, Eland Energy shares its Board of Directors with Gregg’s independently owned
businesses, with all directors appointed by Gregg. The board, in turn, appointed Eland Energy’s
officers, which are also shared with Gregg’s other businesses. In other words, Carol and the Trusts
have had no means or methods to gain insight into Eland Energy’s operations and accounting
practices that would allow them to identify Gregg’s misconduct. And none of this was known by
Carol or the Trusts at the time.
40. This changed when Hunter was approached by a former Eland Energy employee
who left the company, in part, due to Gregg’s refusal to appropriately address the receivable that
had accumulated from Gregg to Eland Energy. Hunter was told that his side of the family was
owed approximately $20 million because of Gregg’s misuse of Eland Energy funds—a figure that
did not include any compensation that might be owed because Gregg took an improper interest-
free loan from Eland Energy to fund his personal investments.
41. Shortly after discovering the imbalance, Hunter also learned that Gregg was aware
of the problem, failed to disclose it to Carol or the Trusts, and was actively taking steps to modify
Eland Energy’s historical accounting records in an attempt to “fix” the books without telling Eland
Energy’s other shareholders.
42. Upon uncovering these facts, Carol and Hunter resolved to take a more active role
in managing the Trusts’ share of the Jointly Owned Assets. Carol agreed to the appointment of
Hunter as a Co-Trustee of the Trusts in December 2021, and shortly thereafter, Hunter began to
request records related to the Trusts’ investments in the Jointly-Owned Assets—including the
books and records of E Holding and Eland Energy.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 13
43. The E Holding Limited Partnership Agreement entitles all limited partners,
including the 2018 Trust, “to audit, examine, and make copies of or extracts from the books of
account of the Partnership” “at all reasonable times during usual business hours.” 10
44. Despite this clear language and his position as a fiduciary, Gregg refused each of
Hunter’s initial requests for pertinent records. On December 9, 2021, after meeting with Gregg,
Hunter requested a basic set of corporate and accounting records to help him satisfy his new duties
as Co-Trustee of the Trusts: 11
10
Exhibit 2, E Holding Limited Partnership Agreement at § 4.05(d).
11
Exhibit 9, December 9, 2021 email chain from Hunter to Doug Smith and Gregg Allen.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 14
45. On the same day, Hunter sent a similar set of requests related to a resort property
in New Mexico that is jointly owned by Gregg and the Trusts. 12 Instead of providing the records,
the resort’s CEO told Hunter that the records could be accessed only on site, writing to Hunter on
December 10: “Please let me know if you will be in [town], we always have our files available for
you.” 13 So Hunter flew to New Mexico to review the records in person. But when he showed up
on-site, the CEO inexplicably refused to provide these records—despite his earlier email
committing to do just that. Hunter later found out that the records are kept in a cloud-based
database and can be easily accessed electronically from any location.
46. As of December 20, Hunter’s requests for information concerning the Jointly
Owned Assets remained unanswered. Frustrated by Gregg’s failure to comply with his simple
request, Hunter issued a formal books and records request with respect to all of the Jointly-Owned
Assets that he was able to identify. 14 As it relates to Eland Energy and E Holding, the request
expressly included, among other things, all documents identified in Texas Business Organizations
Code (the “Code”) Sections 3.151, 101.501, and 153.551; 15 an electronic copy of all accounting
data associated with the entities; and the entities’ bank statements.
47. In response, Gregg flatly denied the existence of any accounting irregularities and
made a limited and highly selective production of documents that included Eland Energy’s Articles
of Incorporation and various governance materials, the E Holding Limited Partnership Agreement,
and consolidated financial statements and tax returns for the two entities going back to 2017. 16
These records include only high-level summaries of Eland Energy’s and E Holding’s financial
12
Exhibit 10, December 9, 2021 email chain from Hunter to John Kitts.
13
Id.
14
See Exhibit 11, December 20, 2021 letter from Jeremy Fielding to Gregg Allen.
15
These Code sections guarantee the 2018 Trust access to the following records, among others, concerning E
Holding: books and records of accounts, minutes of all governance proceedings, and “other information regarding
the . . . financial condition” of E Holdings.
16
Exhibit 12, December 22, 2021 letter from Matt Stammel to Jeremy Fielding.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 15
activities. Simply stated, Gregg refused to turn over any accounting records or bank statements
that would include sufficient details for Hunter to identify improper transactions, despite Hunter’s
reasonable and explicit request that Eland Energy and E Holding prioritize disclosure of the
accounting data.
48. Upon receiving Gregg’s response, Hunter again requested the full scope of
accounting records for Eland Energy and E Holding, among other entities, and demanded that
Gregg make the records available for inspection at Eland Energy’s offices, as allowed by the E
Holding Limited Partnership Agreement. Over and over, Gregg refused to provide Hunter with
full access to the books and records of Eland Energy and E Holding or to allow Hunter on the
premises to inspect the records.
49. And it is now clear why. In order to avoid the appointment of an independent
auditor over the companies in this lawsuit, Gregg finally capitulated and agreed to turn over some
of the accounting records relating to Eland Energy and E Holding that Hunter had requested. But
to Carol’s and Hunter’s dismay, the accounting records fully confirmed the tip they received from
Eland Energy’s former employee concerning Gregg’s misappropriation of Eland assets.
D. Gregg causes Eland Energy to withhold distributions from Plaintiffs.
50. Specifically, it became clear that Gregg or entities he controls borrowed extensively
from Eland Energy on an ongoing basis, without consideration to the company’s other
shareholders. From 2014 to present, the maximum accounts receivable balance of accounts
associated with Gregg was:
Year Max A/R Balance
2014 $22,807,598
2015 $18,999,771
2016 $15,778,861
2017 $9,854,572
2018 $13,840,881
2019 $9,657,252
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 16
2020 $2,276,050
2021 $11,302,984
51. But Carol and Hunter learned the extent of Gregg’s borrowing only after he
produced Eland Energy’s accounting records in this lawsuit.
52. Making matters worse, on January 5, 2022, Carol and Hunter each received a
troubling email from Derek Smith, Eland Energy’s director of accounting, acknowledging to Carol
and Hunter for the first time that Eland Energy held funds belonging to their side of the family.17
Smith stated that Eland Energy had accumulated a payable to the Tim Allen QTIP Trust totaling
$10,750,000. Likewise, according to Smith, Eland Energy had accumulated a payable to Carol
Allen totaling $5,700,000. In other words, Eland Energy owed nearly $16.5 million to Tim’s side
of the family, but never disclosed this fact prior to January 5, 2022. It was no coincidence that
Smith sent this email one day after Hunter had reiterated his intent to inspect E Holding’s and
Eland Energy’s books and records in person.
53. In addition to the problematic timing of Smith’s email, the email also included
several troubling admissions concerning Eland Energy’s lack of appropriate accounting and
governance controls. According to Smith, “it [had] been the historical practice of the owners of
Eland . . .to use Eland’s bank account as a clearinghouse of sorts for personal investments, to
make tax payments to various jurisdictions, and for other personal matters.” 18 He went on to admit
that Gregg improperly comingled funds by “park[ing] non-Eland money in Eland’s bank account
and draw[ing] on those funds as needed for non-Eland business,” asserting that doing so was “for
the convenience of the owners.” 19 Carol and the Trusts have never had access to Eland Energy’s
17
Exhibit 13, January 5, 2022 email from Derek Smith to Hunter Allen; Exhibit 14, January 5, 2022 email from
Derek Smith to Carol Allen.
18
Exhibit 13, email from Smith at 1.
19
Id.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 17
accounting information or its bank accounts. Thus, when Smith characterized this as a practice
that “the owners of Eland” engaged in, it is misleading at best. More accurately, Gregg alone used
Eland Energy accounts for his personal business. And he did so in secret. Prior to Derek Smith’s
January 5 email, Gregg never disclosed the frequency or magnitude of these transactions to Carol
or the Trusts. Added to that, Gregg’s practice of commingling funds was not done for the
“convenience of the owners.” The Trusts did not benefit from this practice. In fact, they faced
increased risk. More accurately, it was done solely for Gregg’s benefit and convenience.
54. Smith’s disclosure is also notable in what it lacks. He did not identify the date,
amount, or description of any transactions leading to the massive payable Eland Energy
accumulated to Carol and the QTIP Trust. Nor did he explain how Eland Energy planned to invest
Carol’s or the QTIP Trust’s funds if left within the Eland Energy account.
55. Carol and Hunter finally determined how the payables came about, but only after
receiving a portion of Eland Energy’s accounting records in March of 2022. Through their
investigation of those records, they discovered the extent to which Gregg, as their fiduciary,
improperly withheld distributions for Carol and the QTIP Trust since Tim’s passing. Between
2009 and 2021, Eland Energy accumulated massive “negative receivables”—i.e., payables—to
entities controlled by Tim’s heirs. The average payable to Tim-related entities each year during
this period was:
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 18
Year Avg Payable
Balance
2009 $1,644,752
2010 $8,607,806
2011 $6,859,861
2012 $12,363,029
2013 $9,963,762
2014 $21,371,614
2015 $17,826,091
2016 $17,888,330
2017 $17,715,696
2018 $18,750,474
2019 $18,944,422
2020 $18,934,210
2021 $18,901,653
56. These payables generally accumulated when Eland Energy received funds from
other Jointly Owned Assets that were specifically designated for the QTIP Trust or for Carol but
which Eland Energy did not distribute. For example, on September 29, 2014, Eland Energy
received payments totaling $6.05 million from BAMMF (2) LLC; BAMMF (3) LLC; BAMMF
(4) LLC; and BAMMF (8) LLC. The payments from these entities, which are unrelated to Eland
Energy, were allocated 50 percent to the shareholder receivable accounts associated with Gregg
and 50 percent to the shareholder receivable accounts associated with Carol and the QTIP Trust.
Gregg’s $3.025 million offset balances he owed to Eland. But Eland Energy already owed Carol
and the QTIP Trust more than $20 million as of the date of the BAMMF payments. Instead of
distributing the funds to Carol and the QTIP Trust, Eland recorded them as additional “negative
receivables” to reflect that Eland Energy owed them even more money.
57. In the 13 years that Gregg was supposed to be managing the Jointly Owned Assets
as a fiduciary, he never disclosed to Carol or the QTIP Trust that they were entitled to a
distribution. Instead, Eland Energy improperly held the funds, along with funds belonging to Carol
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 19
and the QTIP Trust that accumulated from other similar transactions, until Eland Energy made the
$16.5 million payment to Carol and the QTIP Trust in January 2022.
58. Eland Energy’s accounting records belie its claim that it was the company’s
standard practice for shareholders to “park” money in their shareholder receivable accounts.
Instead, the records show that Gregg abused his authority over Eland Energy for his own financial
gain. Before 2009, shareholder receivable accounts associated with Tim Allen were generally
positive. But when Gregg took control of Eland Energy after Tim’s death, the shareholder
receivable accounts associated with Tim (and now his heirs) immediately began to reflect
significant “negative receivables.” In other words, as soon as Tim died, Gregg began
systematically to withhold distributions from Carol, the QTIP Trust, and the 2018 Trust so that he
could use those funds for his personal benefit. And he did so in his fiduciary capacity without
disclosing his conduct to Carol or Hunter.
PLAINTIFFS’ THIRD AMENDED PETITION PAGE 20
59. In fact, as shown below, after Tim’s passing in 2008, the distributions owed
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FILED 9/1/2022 3:04 PM FELICIA PITRE DISTRICT CLERK DALLAS CO., TEXAS Brandon Keys DEPUTY CAUSE NO. DC-22-00743 CAROL ALLEN and HUNTER ALLEN § as Co-Trustees of the ALLEN 2018 § FAMILY TRUST, CAROL ALLEN and § HUNTER ALLEN as Co-Trustees of the § IN THE DISTRICT COURT Tim Allen QTIP Trust, and CAROL § ALLEN; § § 68th JUDICIAL DISTRICT Plaintiffs, § § v. § DALLAS COUNTY, TEXAS § GREGG ALLEN, ELAND ENERGY, § INC., and E HOLDING LP, § § Defendants. § PLAINTIFFS’ THIRD AMENDED PETITION Plaintiffs Carol Allen, individually, and Carol Allen and Hunter Allen, as Co-Trustees of the Allen 2018 Family Trust (the “2018 Trust”) and the Tim Allen QTIP Trust (the “QTIP Trust”), file this Third Amended Petition against Defendants Gregg Allen (“Gregg”), Eland Energy, Inc. (“Eland Energy”), and E Holding LP (“E Holding” and collectively, “Defendants”), and would respectfully show the Court as follows: INTRODUCTION 1. This is a suit for disgorgement, damages, restitution, and constructive trust, arising from a trusted family member’s blatant disregard of fiduciary duties, mismanagement of corporate obligations, and improper diversion and misuse of family assets. 2. Eland Energy was formed in the 1980s and was co-owned 50-50 by brothers Tim and Gregg Allen. Over the next 20 years, the brothers grew the business from a small company PLAINTIFFS’ THIRD AMENDED PETITION PAGE 1 into a formidable enterprise that owned real estate and hospitality assets, in addition to its core oil and gas properties. 3. In the mid-2000s, Tim Allen grew ill and eventually passed away, leaving his 50 percent stake in the business to his wife and children. Before Tim died, however, Gregg promised to assume exclusive authority and control over Eland Energy’s operations and to manage the company in the best interests of its shareholders, including Tim’s heirs. 4. Unfortunately, as Carol and Hunter have only recently discovered, Gregg failed to live up to these promises. Gregg began to disregard the interests of Tim’s heirs and began to treat Eland Energy as if he was the sole shareholder. He appointed the same board of directors to oversee both Eland Energy and his individually owned companies, and he hired a single slate of officers to operate both Eland Energy and his individually owned companies. As a fiduciary, Gregg also failed to distinguish between his own assets and Eland Energy’s assets. Gregg commingled funds and even used Eland Energy cash (half of which is owned by Tim’s heirs) to finance his personal investments—all without disclosing the investments to Eland Energy’s other shareholders. 5. Plaintiff Hunter Allen, Tim’s son, first learned of potential accounting irregularities at Eland Energy in 2021, and he immediately took action to uncover the problems, identify their scope, and prevent any further abuse of Eland Energy’s funds. In his capacity as Co-Trustee of the 2018 Trust—which now owns Tim’s fifty percent stake in the business—Hunter made both informal and formal requests for E Holding’s and Eland Energy’s books and records. Gregg responded by selectively producing a handful of documents, and refusing to release the companies’ books and records, despite having a statutory, contractual, and fiduciary obligation to do so. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 2 6. As Hunter gathered more information, his worst fears were largely confirmed. On January 5, 2022, Eland Energy’s director of accounting abruptly informed Hunter that Eland Energy had in its current bank accounts nearly $16.5 million in funds owed to Tim’s heirs—and that this money had been there for some time. The message included no context or information explaining how this payable accumulated, why Gregg had concealed it, or why the money had not previously been paid to Tim’s heirs. 7. Hunter also secured various records from the 2018 Trust’s tax accountants confirming that Gregg had incurred a massive, unexplained receivable to Eland Energy between 2014 and 2016. Meanwhile, Gregg refused to provide audited financial statements and tax returns for E Holding and Eland Energy prior to 2017. In other words, Gregg tailored the scope of his selective records production to avoid disclosing both his misuse of Eland Energy’s funds and his failure to distribute money owed to Plaintiffs. 8. In March 2022, and only after Plaintiffs were forced to file this lawsuit, Gregg finally disclosed a portion of Eland Energy’s accounting records. It was immediately clear why Gregg had resisted disclosure. The accounting records confirm that Gregg caused Eland Energy to improperly lend tens of millions of dollars to himself, withheld distributions due to Plaintiffs, and used Eland Energy’s staff and facilities to operate his own businesses without providing adequate compensation to Eland Energy. 9. Carol and Hunter now seek legal and equitable remedies including disgorgement, constructive trust, restitution, and damages to remedy these significant and sustained breaches of fiduciary duty. DISCOVERY CONTROL PLAN 10. Plaintiffs intend to conduct discovery under Level 3 of Texas Rule of Civil Procedure 190.4. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 3 CLAIM FOR RELIEF 11. Plaintiffs seek monetary relief of over $1,000,000. Tex. R. Civ. P. 47. PARTIES 12. Plaintiff Carol Allen is an individual residing in Dallas County. 13. Plaintiff Hunter Allen is an individual residing in Tarrant County. 14. Defendant Gregg Allen is the president of Eland Energy Inc. He may be served with process at 16400 Dallas Pkwy #100, Dallas, TX 75248. 15. Defendant Eland Energy, Inc. is a Texas corporation with its principal place of business in Dallas County, Texas. It may be served through its registered agent, E Holding, LP, at 16400 Dallas Parkway #100, Dallas, TX 75248. 16. Defendant E Holding LP is a Texas limited partnership with its principal place of business in Dallas County, Texas. It may be served through its registered agent, Eland Energy, Inc., at 16400 Dallas Parkway #100, Dallas, TX 75248. VENUE AND JURISDICTION 17. Venue is proper in Dallas County pursuant to Section 15.002 of the Texas Civil Practice and Remedies Code because (1) it is the county in which all or a substantial part of the events or omissions giving rise to the claim occurred and (2) because all Defendants are residents of Dallas County, Texas. 18. This Court has jurisdiction over this matter because the individual parties reside in Texas, the corporate Defendants are headquartered in Texas, and these causes of action arise out of actions that took place in Texas. FACTS A. Tim Allen and Gregg Allen cofounded Eland Energy and grew it into a successful enterprise. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 4 19. Tim Allen and his brother Gregg Allen cofounded Eland Energy, Inc. in 1984. Through their 50-50 partnership in the company, they pursued a series of real estate and oil and gas ventures. The Allens historically focused on Texas-based assets, but they also pursued investments in Louisiana and New Mexico, including a popular resort property in New Mexico ski country. 20. By the 1990s and early 2000s, Eland Energy had become a formidable and successful enterprise. Its holdings grew to include not only direct investments in real estate and oil and gas assets, but also investments in other partnerships and corporations that had businesses of their own. Tim and Gregg, in turn, acquired both direct and beneficial interests in a variety of entities in connection with their business activities. As the Allen brothers grew their business, the focus remained with Eland Energy, which served as a holding company for their jointly held investments. Managerial and operational duties were divided between Tim and Gregg. 21. In 2007, after Tim became ill, Gregg and Tim implemented a succession plan. To provide for the continuity, stability, and continued management of the brothers’ joint investments (the “Jointly-Owned Assets”), Tim and Gregg entered into a Joint Ownership and Management Agreement (the “JMA”) in May 2007. Among other things, the JMA provides: The Owners agree that the sole and exclusive control and management of the jointly owned companies shall remain in the Managers [Tim and Gregg] or any one Manager if the other Manager ceases, for any reason including death or incapacity, to participate in the control or management of the Jointly Owned Companies. 1 Since Tim passed away in 2008, Gregg has had “full and exclusive authority, control and management” of the brothers’ investments—including Eland Energy—pursuant to the JMA. 2 1 Exhibit 1, JMA at § 1. 2 See id. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 5 22. After Tim’s death, his interests in the Jointly Owned Assets passed primarily to two trusts: (1) the Tim Allen QTIP Trust, created under the Allen Family Revocable Trust dated December 29, 2005 (the “QTIP Trust”); and (2) the 2018 Allen Family Trust, created by the trust agreement dated October 26, 2018 (the “2018 Trust,” and collectively, the “Trusts”). The ultimate beneficiaries of these trusts are Tim’s widow, Carol, and their sons Hunter, Bryce, and Sykes. 23. At present, Gregg and the 2018 Trust share ownership of Eland Energy through E Holding. Gregg and the 2018 Trust are limited partners of E Holding, and they each own fifty percent of E Holding’s outstanding partnership interest. Eland Energy is E Holding’s general partner. 3 As general partner, Eland Energy is responsible for operating E Holding’s businesses consistent with the fiduciary duties of care and loyalty, which it owes to both E Holding itself and to E Holding’s limited partners. 24. Eland Energy, in turn, is wholly owned by E Holding. Gregg Allen is both an officer (President) and the Executive Director of Eland Energy. As such, he owes the fiduciary duties of care and loyalty to Eland Energy; Eland Energy’s sole shareholder, E Holding; and the 2018 Trust. The present relationship of Eland Energy, E Holding, and Gregg Allen is depicted below: 3 Exhibit 2, December 31, 2021 Agreement of Limited Partnership of E Holding LP. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 6 25. Historically, Eland Energy’s shares were owned directly by Gregg and Tim, and, subsequently, Tim’s heirs. Upon Tim’s death, half of his fifty percent share in Eland Energy passed to Carol, and the other half passed to his estate. In 2012, Tim’s estate assigned its twenty- five percent stake in Eland Energy to the QTIP Trust. Through a series of transactions in December of 2019, Carol and the QTIP Trust assigned their shares to the 2018 Trust. Finally, in January 2020, the 2018 Trust assigned its shares to what is now E Holding, resulting in Eland Energy’s current ownership structure. Date Eland Energy Ownership Gregg Allen (50%) 2008 to Estate of Tim Allen (25%) 12/31/2011 Carol Allen (25%) Gregg Allen (50%) 1/1/2012 to QTIP Trust (25%) 12/31/2019 Carol Allen (25%) PLAINTIFFS’ THIRD AMENDED PETITION PAGE 7 E Holding (100%) 1/1/2020 to [2018 Trust (50%) present Gregg Allen (50%)] 26. From 2008 to the present, Carol, and subsequently the QTIP Trust and the 2018 Trust, relied on Gregg to manage their share of the Jointly Owned Assets, as contemplated by the JMA. Consistent with the JMA, Gregg exercised absolute control over Eland Energy’s operations through his role as the company’s President and its Executive Director. Carol and Hunter believed at all times that Gregg, as a fiduciary, was managing the Jointly Owned Assets in the best interest of his family members and business partners, so they turned their focus to other endeavors after Tim passed away. 27. Until recently, they felt they had good reason for doing so, in part because Allen Farris, who was Eland Energy’s Chief Financial Officer until 2021, was also a successor trustee to both the 2018 Trust and the QTIP Trust. B. After Tim’s death, Gregg began ignoring the interests of Eland Energy’s other shareholders, namely, the QTIP Trust. 28. Once Tim died, Gregg began to expand his focus beyond the businesses the brothers had built together. He pursued his own real estate, restaurant, oil and gas, and agricultural ventures that did not involve Carol or the Trusts. However, as Gregg pursued these outside investments, Eland Energy remained his operational base, and he used Eland Energy’s cash, employees, office space, and other resources to operate his independent businesses—all to Plaintiffs’ detriment. 29. From a governance perspective, Gregg made no distinction between the Jointly Owned Assets and his solely owned ventures. Gregg appointed the same people to Eland Energy’s Board of Directors that he appointed to his outside companies’ boards. When Eland Energy’s Board of Directors met, they met to discuss all of Gregg’s businesses. For example, a copy of the minutes of Eland Energy’s July 21, 2016 board meeting provided by Gregg reflects that the board PLAINTIFFS’ THIRD AMENDED PETITION PAGE 8 members did not distinguish between Eland Energy and Gregg’s businesses that had different owners: 4 Likewise, a November 15, 2019 board resolution reflects that each of the “Eland Entities”— defined to include not only Eland Energy but also various entities individually owned by Gregg— also share corporate officers. 5 According to the resolution, the board appointed the same slate of individuals to preside as officers for all the “Eland Entities.” Other sets of minutes and resolutions reflect similar decision-making, 6 bearing no indication that Gregg made any distinction, for governance purposes, between his own investments and the Jointly Owned Assets. This is despite the fact that Carol and the Trusts at all times owned a fifty percent interest in Eland Energy but had no share in Gregg’s other businesses. 30. Gregg also did not distinguish between the Jointly Owned Assets and his personal investments from an accounting perspective. Over time, Gregg would direct the sale or transfer of many of the Jointly Owned Assets, converting those investments to cash. It was Gregg’s 4 Exhibit 3, Minutes of a Meeting of the Board of Directors of Eland Energy, Inc. dated July 21, 2016. Hunter obtained Exhibit 3 in response to his December 20, 2021 books and records request. Gregg Allen applied redactions to this and other relevant documents before disclosing them. 5 Exhibit 4, Resolution of the Board of Directors of Eland Energy, Inc. dated November 15, 2019. 6 See, e.g.,Exhibit 5, Resolution of Board of Directors of Eland Energy, Inc. dated June 6, 2017; Exhibit 6, Resolution of Board of Directors of Eland Energy, Inc. dated January 9, 2014. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 9 standard practice to deposit this cash, regardless of the specific source, into a bank account controlled by Eland Energy. Gregg would not, however, distribute the cash to the ultimate owners of the Jointly Owned Assets (including Carol and the Trusts) on a regular basis. Nor did he regularly disclose to Carol or the Trusts when Eland Energy received cash payments resulting from the sale of Jointly Owned Assets. From 2008 until 2021, Carol and Hunter were largely unaware of the transactions affecting this Eland Energy account. 31. As cash accumulated in Eland Energy’s account, Gregg misappropriated the money to finance his own business ventures—despite the fact that Carol and the Trusts owned half of Eland Energy’s assets and, in turn, half the cash generated from those assets. It might have been proper for Gregg to distribute Eland Energy’s profits to shareholders on a pro-rata basis and to use his portion for his own investments. But instead of proceeding in this fashion, Gregg transacted directly from Eland Energy’s bank account for his own purposes without Carol’s or the Trusts’ knowledge. 32. Gregg did all this even though the JMA 7 expressly forbids him from favoring his own interests above those of Carol and the Trusts: 33. In addition to the inherent problems arising from Gregg’s personal use of jointly owned Eland Energy funds, Eland Energy lacked sufficient controls to track Gregg’s borrowing activity or to determine how his withdrawals implicated Carol’s or the Trusts’ share of Eland Energy’s assets. C. Gregg has continually looted Eland Energy’s reserves for his own benefit. 7 Exhibit 1, JMA at § 2.3. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 10 34. In May 2022, well after the 2018 Trust first filed this lawsuit, Gregg disclosed a January 1, 2006 Revolving Loan Agreement and Promissory Note between himself and Eland Energy, ostensibly to justify the loans to himself. 8 But the Revolving Loan Agreement, a per se act of self-dealing, only underscores Gregg’s failure to consider the interests of Eland Energy’s other shareholders. The Revolving Loan Agreement’s signature page captures the dubiousness and inherently conflicted nature of this lending arrangement: 35. To the extent the Revolving Loan Agreement is valid, it does not absolve Gregg from liability for his conflicted borrowing. The Promissory Note requires quarterly interest payments at the greater of 4 percent or the effective Prime Rate. But Gregg never paid interest. And his failure to pay interest amounts to an “Event of Default” under the Revolving Loan Agreement. Upon a default, the Revolving Loan Agreement 9 entitles Eland to call the Promissory Note and require Gregg to pay all outstanding interest and principal: 8 Exhibit 7, January 1, 2006 Revolving Loan Agreement; Exhibit 8, January 1, 2006 Promissory Note. 9 Exhibit 7, Revolving Loan Agreement, § 4. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 11 36. But Eland Energy, which has been under Gregg’s exclusive control as of 2008, did not call the Promissory Note. Even worse, Eland Energy has continued to lend money to Gregg or entities he controls for no consideration. 37. According to the redacted minutes and resolutions that Gregg produced in response to Hunter’s information requests, Eland Energy’s Board of Directors never approved the Revolving Loan Agreement or the Promissory Note. Nor did the board approve Gregg’s decision not to enforce those agreements on behalf of Eland Energy. 38. At the accounting level, Eland Energy’s bookkeepers did not track the amounts he borrowed against the terms of the Revolving Loan Agreement and Promissory Note, and Gregg’s withdrawals were allowed to exceed the amount allowed under the Revolving Loan Agreement and to continue despite Gregg’s failure to pay the required interest. As a result, Eland Energy accumulated a substantial receivable from Gregg—a receivable far out of balance with his ownership share. Gregg’s position of authority, combined with his disregard for the terms of the Revolving Loan Agreement, left Eland Energy with no legal protection if Gregg failed to repay the funds. Simply put, Plaintiffs were forced—unbeknownst to them—to carry the burden when Gregg failed to satisfy his contractual obligations. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 12 39. More broadly, and by Gregg’s design, Eland Energy lacked objective, independent fiduciaries that could have prevented Gregg from using Eland Energy’s assets in this manner. As explained above, Eland Energy shares its Board of Directors with Gregg’s independently owned businesses, with all directors appointed by Gregg. The board, in turn, appointed Eland Energy’s officers, which are also shared with Gregg’s other businesses. In other words, Carol and the Trusts have had no means or methods to gain insight into Eland Energy’s operations and accounting practices that would allow them to identify Gregg’s misconduct. And none of this was known by Carol or the Trusts at the time. 40. This changed when Hunter was approached by a former Eland Energy employee who left the company, in part, due to Gregg’s refusal to appropriately address the receivable that had accumulated from Gregg to Eland Energy. Hunter was told that his side of the family was owed approximately $20 million because of Gregg’s misuse of Eland Energy funds—a figure that did not include any compensation that might be owed because Gregg took an improper interest- free loan from Eland Energy to fund his personal investments. 41. Shortly after discovering the imbalance, Hunter also learned that Gregg was aware of the problem, failed to disclose it to Carol or the Trusts, and was actively taking steps to modify Eland Energy’s historical accounting records in an attempt to “fix” the books without telling Eland Energy’s other shareholders. 42. Upon uncovering these facts, Carol and Hunter resolved to take a more active role in managing the Trusts’ share of the Jointly Owned Assets. Carol agreed to the appointment of Hunter as a Co-Trustee of the Trusts in December 2021, and shortly thereafter, Hunter began to request records related to the Trusts’ investments in the Jointly-Owned Assets—including the books and records of E Holding and Eland Energy. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 13 43. The E Holding Limited Partnership Agreement entitles all limited partners, including the 2018 Trust, “to audit, examine, and make copies of or extracts from the books of account of the Partnership” “at all reasonable times during usual business hours.” 10 44. Despite this clear language and his position as a fiduciary, Gregg refused each of Hunter’s initial requests for pertinent records. On December 9, 2021, after meeting with Gregg, Hunter requested a basic set of corporate and accounting records to help him satisfy his new duties as Co-Trustee of the Trusts: 11 10 Exhibit 2, E Holding Limited Partnership Agreement at § 4.05(d). 11 Exhibit 9, December 9, 2021 email chain from Hunter to Doug Smith and Gregg Allen. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 14 45. On the same day, Hunter sent a similar set of requests related to a resort property in New Mexico that is jointly owned by Gregg and the Trusts. 12 Instead of providing the records, the resort’s CEO told Hunter that the records could be accessed only on site, writing to Hunter on December 10: “Please let me know if you will be in [town], we always have our files available for you.” 13 So Hunter flew to New Mexico to review the records in person. But when he showed up on-site, the CEO inexplicably refused to provide these records—despite his earlier email committing to do just that. Hunter later found out that the records are kept in a cloud-based database and can be easily accessed electronically from any location. 46. As of December 20, Hunter’s requests for information concerning the Jointly Owned Assets remained unanswered. Frustrated by Gregg’s failure to comply with his simple request, Hunter issued a formal books and records request with respect to all of the Jointly-Owned Assets that he was able to identify. 14 As it relates to Eland Energy and E Holding, the request expressly included, among other things, all documents identified in Texas Business Organizations Code (the “Code”) Sections 3.151, 101.501, and 153.551; 15 an electronic copy of all accounting data associated with the entities; and the entities’ bank statements. 47. In response, Gregg flatly denied the existence of any accounting irregularities and made a limited and highly selective production of documents that included Eland Energy’s Articles of Incorporation and various governance materials, the E Holding Limited Partnership Agreement, and consolidated financial statements and tax returns for the two entities going back to 2017. 16 These records include only high-level summaries of Eland Energy’s and E Holding’s financial 12 Exhibit 10, December 9, 2021 email chain from Hunter to John Kitts. 13 Id. 14 See Exhibit 11, December 20, 2021 letter from Jeremy Fielding to Gregg Allen. 15 These Code sections guarantee the 2018 Trust access to the following records, among others, concerning E Holding: books and records of accounts, minutes of all governance proceedings, and “other information regarding the . . . financial condition” of E Holdings. 16 Exhibit 12, December 22, 2021 letter from Matt Stammel to Jeremy Fielding. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 15 activities. Simply stated, Gregg refused to turn over any accounting records or bank statements that would include sufficient details for Hunter to identify improper transactions, despite Hunter’s reasonable and explicit request that Eland Energy and E Holding prioritize disclosure of the accounting data. 48. Upon receiving Gregg’s response, Hunter again requested the full scope of accounting records for Eland Energy and E Holding, among other entities, and demanded that Gregg make the records available for inspection at Eland Energy’s offices, as allowed by the E Holding Limited Partnership Agreement. Over and over, Gregg refused to provide Hunter with full access to the books and records of Eland Energy and E Holding or to allow Hunter on the premises to inspect the records. 49. And it is now clear why. In order to avoid the appointment of an independent auditor over the companies in this lawsuit, Gregg finally capitulated and agreed to turn over some of the accounting records relating to Eland Energy and E Holding that Hunter had requested. But to Carol’s and Hunter’s dismay, the accounting records fully confirmed the tip they received from Eland Energy’s former employee concerning Gregg’s misappropriation of Eland assets. D. Gregg causes Eland Energy to withhold distributions from Plaintiffs. 50. Specifically, it became clear that Gregg or entities he controls borrowed extensively from Eland Energy on an ongoing basis, without consideration to the company’s other shareholders. From 2014 to present, the maximum accounts receivable balance of accounts associated with Gregg was: Year Max A/R Balance 2014 $22,807,598 2015 $18,999,771 2016 $15,778,861 2017 $9,854,572 2018 $13,840,881 2019 $9,657,252 PLAINTIFFS’ THIRD AMENDED PETITION PAGE 16 2020 $2,276,050 2021 $11,302,984 51. But Carol and Hunter learned the extent of Gregg’s borrowing only after he produced Eland Energy’s accounting records in this lawsuit. 52. Making matters worse, on January 5, 2022, Carol and Hunter each received a troubling email from Derek Smith, Eland Energy’s director of accounting, acknowledging to Carol and Hunter for the first time that Eland Energy held funds belonging to their side of the family.17 Smith stated that Eland Energy had accumulated a payable to the Tim Allen QTIP Trust totaling $10,750,000. Likewise, according to Smith, Eland Energy had accumulated a payable to Carol Allen totaling $5,700,000. In other words, Eland Energy owed nearly $16.5 million to Tim’s side of the family, but never disclosed this fact prior to January 5, 2022. It was no coincidence that Smith sent this email one day after Hunter had reiterated his intent to inspect E Holding’s and Eland Energy’s books and records in person. 53. In addition to the problematic timing of Smith’s email, the email also included several troubling admissions concerning Eland Energy’s lack of appropriate accounting and governance controls. According to Smith, “it [had] been the historical practice of the owners of Eland . . .to use Eland’s bank account as a clearinghouse of sorts for personal investments, to make tax payments to various jurisdictions, and for other personal matters.” 18 He went on to admit that Gregg improperly comingled funds by “park[ing] non-Eland money in Eland’s bank account and draw[ing] on those funds as needed for non-Eland business,” asserting that doing so was “for the convenience of the owners.” 19 Carol and the Trusts have never had access to Eland Energy’s 17 Exhibit 13, January 5, 2022 email from Derek Smith to Hunter Allen; Exhibit 14, January 5, 2022 email from Derek Smith to Carol Allen. 18 Exhibit 13, email from Smith at 1. 19 Id. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 17 accounting information or its bank accounts. Thus, when Smith characterized this as a practice that “the owners of Eland” engaged in, it is misleading at best. More accurately, Gregg alone used Eland Energy accounts for his personal business. And he did so in secret. Prior to Derek Smith’s January 5 email, Gregg never disclosed the frequency or magnitude of these transactions to Carol or the Trusts. Added to that, Gregg’s practice of commingling funds was not done for the “convenience of the owners.” The Trusts did not benefit from this practice. In fact, they faced increased risk. More accurately, it was done solely for Gregg’s benefit and convenience. 54. Smith’s disclosure is also notable in what it lacks. He did not identify the date, amount, or description of any transactions leading to the massive payable Eland Energy accumulated to Carol and the QTIP Trust. Nor did he explain how Eland Energy planned to invest Carol’s or the QTIP Trust’s funds if left within the Eland Energy account. 55. Carol and Hunter finally determined how the payables came about, but only after receiving a portion of Eland Energy’s accounting records in March of 2022. Through their investigation of those records, they discovered the extent to which Gregg, as their fiduciary, improperly withheld distributions for Carol and the QTIP Trust since Tim’s passing. Between 2009 and 2021, Eland Energy accumulated massive “negative receivables”—i.e., payables—to entities controlled by Tim’s heirs. The average payable to Tim-related entities each year during this period was: PLAINTIFFS’ THIRD AMENDED PETITION PAGE 18 Year Avg Payable Balance 2009 $1,644,752 2010 $8,607,806 2011 $6,859,861 2012 $12,363,029 2013 $9,963,762 2014 $21,371,614 2015 $17,826,091 2016 $17,888,330 2017 $17,715,696 2018 $18,750,474 2019 $18,944,422 2020 $18,934,210 2021 $18,901,653 56. These payables generally accumulated when Eland Energy received funds from other Jointly Owned Assets that were specifically designated for the QTIP Trust or for Carol but which Eland Energy did not distribute. For example, on September 29, 2014, Eland Energy received payments totaling $6.05 million from BAMMF (2) LLC; BAMMF (3) LLC; BAMMF (4) LLC; and BAMMF (8) LLC. The payments from these entities, which are unrelated to Eland Energy, were allocated 50 percent to the shareholder receivable accounts associated with Gregg and 50 percent to the shareholder receivable accounts associated with Carol and the QTIP Trust. Gregg’s $3.025 million offset balances he owed to Eland. But Eland Energy already owed Carol and the QTIP Trust more than $20 million as of the date of the BAMMF payments. Instead of distributing the funds to Carol and the QTIP Trust, Eland recorded them as additional “negative receivables” to reflect that Eland Energy owed them even more money. 57. In the 13 years that Gregg was supposed to be managing the Jointly Owned Assets as a fiduciary, he never disclosed to Carol or the QTIP Trust that they were entitled to a distribution. Instead, Eland Energy improperly held the funds, along with funds belonging to Carol PLAINTIFFS’ THIRD AMENDED PETITION PAGE 19 and the QTIP Trust that accumulated from other similar transactions, until Eland Energy made the $16.5 million payment to Carol and the QTIP Trust in January 2022. 58. Eland Energy’s accounting records belie its claim that it was the company’s standard practice for shareholders to “park” money in their shareholder receivable accounts. Instead, the records show that Gregg abused his authority over Eland Energy for his own financial gain. Before 2009, shareholder receivable accounts associated with Tim Allen were generally positive. But when Gregg took control of Eland Energy after Tim’s death, the shareholder receivable accounts associated with Tim (and now his heirs) immediately began to reflect significant “negative receivables.” In other words, as soon as Tim died, Gregg began systematically to withhold distributions from Carol, the QTIP Trust, and the 2018 Trust so that he could use those funds for his personal benefit. And he did so in his fiduciary capacity without disclosing his conduct to Carol or Hunter. PLAINTIFFS’ THIRD AMENDED PETITION PAGE 20 59. In fact, as shown below, after Tim’s passing in 2008, the distributions owed