DISTRICT COURT, DENVER COUNTY, COLORADO

DATE FILED: February 26, 2020 1:13 PM

520 West Colfax Avenue FILING ID: 88AAE94E5C3B2
Denver, Colorado 80204 CASE NUMBER: 2020CV30751

Plaintiff: GT Resources, LLC

v.

Defendants: Black Hills Corporation, Black Hills Exploration

and Production, Inc., and Black Hills Gas
Resources, Inc. COURT USE ONLY
______________________

Christopher J. Cormier (CO Bar #47326) Case No.:

BURNS CHAREST LLP
5290 DTC Parkway, Suite 150
Greenwood Village, Colorado 80111 Division:
Telephone: (720) 630-2092
E-mail: ccormier@burnscharest.com
Courtroom:
Daniel H. Charest (to be admitted pro hac vice)
Russell G. Herman (to be admitted pro hac vice)
BURNS CHAREST LLP
900 Jackson Street, Suite 500
Dallas, Texas 75202
Telephone: (469) 904-4550
E-mail: dcharest@burnscharest.com
E-mail: rherman@burnscharest.com

Lance Astrella (CO Bar #5183)

ASTRELLA LAW, P.C.
1801 Broadway, Suite 1600
Denver, Colorado 80202
Telephone: (303) 292-9021
E-mail: lance@astrellalaw.com

Attorneys for Plaintiff GT Resources, LLC

COMPLAINT

1
 I. NATURE OF ACTION

1. In connection with his years of service as founder of Mallon Resources Corporation

(“MRC”), George Mallon, Jr. (“Mallon”) obtained valuable rights relating to onshore hydrocarbon
concessions in Costa Rica (the “CR Concession”), which included 2.33 million acres of potential oil
and gas reserves. In addition, Mallon held other important rights associated with MRC. After MRC
was acquired by Defendant Black Hills Corporation (“BHC”), BHC failed to honor its obligations to
Mallon. And, when Mallon asserted his express contractual rights under an unrelated transaction, BHC
manipulated its subsidiaries (also defendants here) to deny Mallon’s rights (now held through Plaintiff
GT Resources, LLC) to the valuable CR Concession. Mallon refused to be coerced and continued to
demand his rights. But BHC—and its subsidiaries—refused to honor those rights and, ultimately,
destroyed Mallon’s ability to secure the rights that he had obtained through years of work and secured
by letter agreement before BHC had acquired his company. GT Resources, as the holder of those
rights, seeks the protection of the Court to recover the lost value of the CR Concession, denied the
rightful owner through the misdeeds of BHC and its subsidiaries, Black Hills Exploration and
Production, Inc. (“BHE&P”) and Black Hills Gas Resources, Inc. (“BHGR”).

II. PARTIES

2. Plaintiff GT Resources, LLC (“GT Resources”) is a Florida-registered limited liability

company with its principal place of business located at 8702 East 34th Avenue, Denver, Colorado
80238. It is authorized to do business in Colorado and is in good standing with Colorado’s Office of
the Secretary of State.

3. Defendant Black Hills Gas Resources, Inc. (“BHGR”) is a Colorado-registered

corporation with its principal place of business located at 7001 Mt. Rushmore Road, Rapid City, South
Dakota 57702. BHGR may be served through its agent for service of process, Corporation Service
Company, at 1900 West Littleton Boulevard, Littleton, Colorado 80120.

4. Defendant Black Hills Exploration and Production, Inc. (“BHE&P”) is a Wyoming-

registered corporation with its principal place of business located at 7001 Mt. Rushmore Road, Rapid
City, South Dakota 57702. BHE&P may be served through its agent for service of process,
Corporation Service Company, at 1900 West Littleton Boulevard, Littleton, Colorado 80120.

5. Defendant Black Hills Corporation (“BHC”) is a South Dakota-registered corporation

with its principal place of business located at 7001 Mt. Rushmore Road, Rapid City, South Dakota
57702. BHC may be served through its agent for service of process, Corporation Service Company,
at 1900 West Littleton Boulevard, Littleton, Colorado 80120.

III. JURISDICTION AND VENUE

6. This Court has subject matter jurisdiction over this lawsuit under Article 6, Section 9
of the Colorado Constitution.

7. This Court has personal jurisdiction over defendants because each defendant transacts
business in Colorado. Further, each defendant has purposefully availed itself of the privilege of
engaging in activities in Colorado, and plaintiff’s claims arise out of the defendant’s contacts with
Colorado. Personal jurisdiction is also proper over BHGR because it is incorporated in Colorado.

2
 8. Venue is proper in Denver County, Colorado because Denver County is the county
designated in the complaint. See C.R.C.P. 98(c). Further, BHGR’s principal residence in Colorado was
in the City of Denver, specifically 1515 Wynkoop Street, Suite 500, 80202. Id.

9. GT Resources, by virtue of the citizenship of at least one member within its respective
structure, qualifies as a citizen of Colorado for the purposes of determining federal diversity
jurisdiction pursuant to 28 U.S.C. § 1332. And BHGR, by virtue of its state of incorporation, qualifies
as a citizen of Colorado for the purposes of determining federal diversity jurisdiction pursuant to 28
U.S.C. § 1332. As such, the parties to this action lack complete diversity for the purposes of
determining federal diversity jurisdiction pursuant to 28 U.S.C. § 1332.

IV. FACTS

A. Costa Rica Concession

10. In early 2000, the Costa Rican government awarded Mallon Oil Company Sucursal
Costa Rica (“Mallon-CR”), a branch of Mallon Resources Corporation (“MRC”), oil and gas
concessions through a public bidding process (the “CR Concession”). The award required Mallon-CR
to submit an appropriate environmental impact statement (“EIS”) to Costa Rica’s national
environmental agency before exploration and production could begin. The CR Concession, depicted
in the illustration below, covered over 2.33 million acres of potential oil and gas reserves across six
blocks in Costa Rica.

11. By letter agreement, dated February 2, 2000, MRC agreed to convey to its founder and
CEO, George Mallon, Jr. (“Mallon”), certain rights associated with the CR Concession including a 3%
overriding royalty interest (“ORRI”) in oil and gas production from the lands covered by the CR

3
Concession (the “Letter Agreement”). The Letter Agreement between Mallon and MRC included
terms for the ORRI and other important provisions.

12. The Letter Agreement provided that MRC had to provide Mallon with 45 days prior
written notice “if MRC at any time elects to abandon or relinquish” oil and gas rights to the CR
Concession. In the event of such abandonment, the Letter Agreement gave Mallon the option to
receive an assignment of the CR Concession “free and clear of all costs, expenses and obligations
arising prior to the date of the assignment to” him.

13. By its express terms, the Letter Agreement binds MRC’s successors and assigns.
Likewise, the ORRI rights bind MRC’s successors, assigns, and affiliates.

14. In April 2013, Mallon assigned his rights in the Letter Agreement (which covered the
ORRI and notice and abandonment terms) to GT Resources, a family-held entity. Mallon serves as
GT Resources’ majority owner and co-manager.

B. Jicarilla Lease

15. In the late 1980s, MRC acquired an oil and gas lease from the Jicarilla Apache tribe
(“Jicarilla Tribe”) to all depths, which covered approximately 15,000 acres in New Mexico’s San Juan
Basin (the “Jicarilla Lease”).

16. Between the time of lease acquisition and 2003, MRC drilled over 50 vertical wells to
certain shallow formations on the Jicarilla Lease. These vertical wells held the Jicarilla Lease by
production and yielded a considerable amount of natural gas to MRC.

17. Apart from existing production in the shallow formations, significant natural gas
reserves exist in the deeper formation underlying MRC’s leased acreage. Prior to 2000, MRC had
assigned 48% of the deep rights in the Jicarilla Lease to Deep Gas LLC (“Deep Gas”), an entity
majority-owned and controlled by Mallon.

C. Black Hills Corporation & Mallon Resources Corporation

18. In 2003, BHC acquired the publicly traded stock of MRC for $120 million. BHC, as
owner of MRC, later changed the entity name from Mallon Resources Corporation to Black Hills Gas
Resources, Inc. (“BHGR”). At the time of acquisition by BHC, MRC (later called BHGR) owned
other oil and gas assets. But the most valuable assets MRC owned were the CR Concession and the
Jicarilla Lease (less 48% of the deep rights previously conveyed to Deep Gas).

19. At the time of the acquisition, BHC was most interested in the Jicarilla Lease because
it planned to use that asset, i.e., gas from the Jicarilla Lease, to power an electrical generation project
near Las Vegas, Nevada. BHC’s business model was to acquire producing gas fields to power such
facilities within its portfolio rather than acquire gas on the open market from third-party producers.

20. After BHC acquired the Jicarilla Lease, BHGR drilled a horizontal well through the
deeper formation, which produced high volumes of natural gas and confirmed the value of producing
gas from that formation through horizontal drilling and modern fracking technologies.

4
D. Jicarilla Lease Deep Rights & Consent to Assignment

21. In 2010, through a purchase and sale agreement (the “PSA”), BHGR acquired Deep
Gas’ undivided 48% leasehold interest in the deep rights under the Jicarilla Lease for cash and a
contingent bonus payment (the “Lookback Payment”), which would increase based on the amount of
reserves ultimately proven and produced from the Jicarilla Lease deep rights.

22. As amended, the Lookback Payment could reach $4 million in value. But the amount
of the Lookback Payment depended on proving reserves and production from the Jicarilla Lease deep
rights by 2021. As such, the value of Deep Gas’ rights under the PSA depended on having an operator,
like BHGR, whose business interests were to develop the Jicarilla Lease deep rights.

23. While the PSA, as amended, expressly disclaimed any obligation to drill the Jicarilla
Lease deep rights, the PSA contained a provision that forbade any assignment “without the prior
written consent of Deep Gas LLC, which consent may be withheld for any reason.” Mallon, through
Deep Gas, required this restriction on assignment to protect the Look Back Payment in the PSA.

24. The PSA gave Deep Gas the ability to restrict BHGR’s ability to transfer the Jicarilla
Lease deep rights to any other operator. As such, Deep Gas could ensure that any assignee would drill
the Jicarilla Lease deep rights to establish the threshold reserves by the 2021 deadline. If Mallon
doubted any new operator’s desire to drill the Jicarilla Lease deep rights, Mallon, through Deep Gas,
had the right to refuse consent to the transfer from BHGR to the assignee.

E. CR Concession & Black Hills

25. The CR Concession, while valuable, did not align with BHC’s primary business as a
domestic utility holding company. After the 2003 acquisition of MRC, BHC recognized that the
CR Concession’s vast oil and gas potential reserves might allow it to supply natural gas to replace
expensive and dirty crude oil as a power source for electrical generation in Costa Rica. To that end,
BHC initially took steps to develop the CR Concession.

26. BHC—primarily through Randy Harris, the Director of Corporate Development for
BHC and the now-former Manager of Business Development for BHE&P—was intimately involved
in all material aspects of the CR Concession process from beginning to end on behalf of itself as well
as BHGR and BHE&P. Moreover, Harris served as the point person for BHC and these subsidiaries
with respect to the CR Concession process and unequivocally held himself out to Mallon and others
as such.

27. Despite encountering some administrative and legal hurdles, BHC ultimately obtained
a 2015 decision from the Costa Rican Supreme Court re-affirming its right to explore for and produce
oil and gas under the CR Concession subject to the submission of a proper EIS to Costa Rican
authorities.

28. Instead of acting on this opportunity to submit a proper EIS in a timely manner, BHC
and BHGR slow-rolled the process and refused to take the necessary action that its own consultants
demanded and that the government expected.

29. Unbeknownst at the time to Mallon, BHC had no intention of submitting a valid EIS
because doing so would have secured drilling rights and obligated BHC (or its subsidiaries) to make a

5
substantial investment in the CR Concession, which it knew it would not do because it had decided
internally around this time that it would exit the oil and gas business.

30. Despite this decision, BHC informed Mallon and others involved with the project, in
February 2016, that it would proceed with the EIS and agreed on a written plan, through email, with
its consultants and Mallon on how BHC would go about implementing the submission.

31. This period of time in 2015 and 2016 was critical to successfully completing the EIS,
as BHC well knew. Instead, however, BHC drastically cut its budget and limited its resources and
personnel for the Costa Rican operations. These limitations critically harmed the project (and Mallon’s
interests in the CR Concession), while BHC was simultaneously giving the false impression to others,
including Mallon, that BHC was still willing and able to pursue the EIS. The EIS process consequently
languished for many months after BHC’s purported commitment to see it through.

32. Indeed, by September 2016, Dr. Henry Castillo, an esteemed Costa Rican engineer and
environmental consultant who had been hired by BHC to assist it with the EIS process, pleaded with
BHC to change course because its inaction was severely jeopardizing the CR Concession.

33. Castillo warned BHC and BHGR that (a) the Costa Rican government might perceive
BHC’s inaction as tantamount to abandoning the CR Concession and, (b) without a coordinated effort
to reengage the national environmental agency (SETENA), BHC might not receive final EIS approval.

34. As of December 2016, BHC had yet to make progress on the EIS due to its own
inaction. Nevertheless, BHC represented to Mallon that it had not given up and was still considering
how to proceed.

35. But BHC had no intention of moving forward with the EIS in good faith at that time.
Had BHC and BHGR intended to do so, they could have completed the EIS process in a timely
fashion. If they had done so, the EIS would have been approved by the Costa Rican government.

36. Around this time, BHC’s management internally had decided to divest all of its oil and
gas assets—including the CR Concession. BHC confirmed its internal decision by an announcement
of BHC’s Board of Directors in November 2017.

37. BHC did not inform Mallon of its decision at the time. Indeed, BHC withheld the
decision from Mallon so that he would not demand reassignment of the CR Concession.

38. BHC only informed Mallon of its intent to abandon the CR Concession rights on or
about March 1, 2018, when Harris sent Mallon and others working on the project a letter claiming
that BHC had reached this decision in light of low oil prices and the company’s choice not to deploy
adequate resources to the project.

39. In the same letter, BHC’s Harris left the door open to working out a deal to assign the
CR Concession rights to Mallon. But, as discussed below, BHC’s “open door” contemplated (and later
attempted to exert) improper economic coercion against Mallon in connection with his rights to the
CR Concession and his rights, through Deep Gas, to the Lookback Payment and ability to refuse to
consent to assignments of the Jicarilla Lease deep rights.

6
F. Economic Coercion & Contract Rights

40. In June 2017 (around the time of BHC’s internal, undisclosed decision to divest of its
oil and gas assets), Harris told Mallon that BHC was negotiating to sell the Jicarilla Lease (including
the deep rights BHC had acquired from Deep Gas) to the Jicarilla Tribe.

41. Recognizing that the Jicarilla Tribe would not produce the deep rights in the near term
(which would have harmed Deep Gas’ interests in the Lookback Payment), Mallon objected to the
sale, as was his right under the PSA.

42. Despite the objection, in late 2017 BHC sold the Jicarilla Lease to the Jicarilla Tribe
without Mallon’s consent. BHC did not inform Mallon of the sale when it occurred.

43. In June 2018, BHC’s Harris informed Mallon of the completed sale and requested
consent by Deep Gas after the fact. Deep Gas, through Mallon, refused consent.

44. During several subsequent meetings between BHC and Mallon in the summer of 2018,
BHC attempted to coerce Mallon to give consent on behalf of Deep Gas by refusing to assign the
CR Concession (or to provide him with the corresponding geological and geophysical data) as
provided in the Letter Agreement unless Mallon acceded to BHC’s inappropriate demand with respect
to the sale of the Jicarilla Lease to the Jicarilla Tribe. Specifically, BHC sought to trade Mallon’s rights
to assignment of the CR Concession (held by GT Resources), which BHC had no right to refuse, in
exchange for Deep Gas’ consent to the already-affected assignment of the Jicarilla Lease by BHC to
the Jicarilla Tribe.

45. By mid-2018, it was clear that Mallon would not bend to Harris’ improper pressure
tactics. BHC’s intent to abandon or relinquish the CR Concession also became clear and, with such
an intent to abandon, GT Resources’ rights to an unconditional assignment matured.

46. At no time, however, did BHC (or any of its affiliates) provide GT Resources (whether
through Mallon or otherwise) the contractually obligated notice of its decision to abandon or
relinquish the CR Concession. Nor did BHC (or any of its affiliates) tender to GT Resources (whether
through Mallon or otherwise) an unconditional assignment of the CR Concession.

47. Indeed, while BHC offered to assign the CR Concession to Mallon (or GT Resources),
the offer included various significant conditions.

48. Upon information and belief, in January 2020, the performance bond required to hold
the concession expired, thereby terminating the CR Concession. As a result, BHC (and its affiliates)
have abandoned or relinquished the CR Concession without assigning it to GT Resources as required
under the Letter Agreement and as recognized throughout the communications between the parties
during which BHC attempted to coerce Mallon, GT Resources, and Deep Gas. Rather than providing
the unconditional assignment required by the Letter Agreement at all (let alone on a timely basis),
Respondents destroyed the CR Concession’s considerable value.

7
 V. CLAIMS

Claim 1—Breach of Contract (against BHGR)

49. GT Resources incorporates by reference all preceding paragraphs.

50. BGHR, through its predecessor-in-interest MRC, entered into the Letter Agreement
with GT Resources’ predecessor-in-interest, George Mallon, Jr.

51. Mallon and GT Resources substantially performed under the Letter Agreement.

52. The Letter Agreement contained an implied duty for BGHR to act in good faith and
to deal fairly with GT Resources.

53. BHGR failed to act in good faith or deal fairly with GT Resources. Among other
things, BHGR failed to pursue the EIS in good faith and sought to prevent GT Resources from
obtaining the economic benefits granted to it under the Letter Agreement.

54. BHGR breached the Letter Agreement, resulting in damages to GT Resources.

Claim 2—Breach of Contract (against BHGR)

55. GT Resources incorporates by reference all preceding paragraphs.

56. BGHR, through its predecessor-in-interest MRC, entered into the Letter Agreement
with GT Resources’ predecessor-in-interest, George Mallon, Jr.

57. Mallon and GT Resources substantially performed under the Letter Agreement.

58. The Letter Agreement required BHGR to provide 45 days prior written notice to GT
Resources if BHGR decided to abandon or relinquish the CR Concession.

59. The Letter Agreement also granted GT Resources an option to obtain an

unconditional assignment of the CR Concession if BHGR decided to abandon or relinquish it.

60. Additionally, the Letter Agreement contained an implied duty for BGHR to act in
good faith and to deal fairly with GT Resources with respect to abandonment or relinquishment of
the CR Concession.

61. BHGR failed to (1) provide the requisite notice, (2) allow GT Resources to exercise
its option for an unconditional assignment, or (3) act in good faith and deal fairly with GT Resources.

62. BHGR breached the Letter Agreement, resulting in damages to GT Resources.

Claim 3—Intentional Interference with Contractual Obligations (against BHC and BHE&P)

63. GT Resources incorporates by reference all preceding paragraphs.

64. The award of the CR Concession provided Mallon (and, later, GT Resources)
contractual rights under the Letter Agreement.

8
 65. By contract, BHGR agreed to assign the CR Concession to GT Resources if BHGR
decided to abandon or relinquish the CR Concession.

66. BHC and BHE&P, each a nonparty to the contract, knew of this contract.

67. BHC and BHE&P, by words or conduct or both, intentionally caused BHGR not to
perform its contract with GT Resources by directing it not to pursue an EIS to complete the
CR Concession process. In the alternative, BHC and BHE&P intentionally interfered with BHGR’s
performance of the contract by cutting off the means for BHGR to pursue the EIS, thereby causing
BHGR not to perform the contract with GT Resources. Further, BHC and BHE&P interfered with
the contract by withholding performance, improperly, in an effort to coerce Mallon, through Deep
Gas, to consent retroactively to the assignment of the Jicarilla Lease from BHGR to the Jicarilla Tribe.

68. BHC’s and BHE&P’s interference with the contract was improper.

69. BHC’s and BHE&P’s interference with the contract caused GT Resources damages.

Claim 4—Intentional Interference with Prospective Business Advantage (against BHC and
BHE&P)

70. GT Resources incorporates by reference all preceding paragraphs.

71. GT Resources had a sufficiently definite contractual expectation, specifically the

expectation of an ORRI contract with BHGR in which BHGR agreed to unconditionally assign the
CR Concession to Mallon if BHGR decided to abandon or relinquish it.

72. BHC and BHE&P, each a nonparty to the contract, knew of this contractual
expectation.

73. BHC and BHE&P intentionally interfered with this contractual expectation.

74. BHC’s and BHE&P’s interference with this contractual expectation was improper.

75. BHC’s and BHE&P’s interference with GT Resources’ contractual expectation caused
GT Resources damages.

Claim 5—Breach of Contract (against BHC and BHE&P)

76. GT Resources incorporates by reference all preceding paragraphs.

77. In the alternative, the Letter Agreement binds current and future affiliates, including
BHE&P and BHC, and thus BHE&P and BHC are parties to the Letter Agreement.

78. Mallon and GT Resources substantially performed under the Letter Agreement.

79. The Letter Agreement required BHE&P and BHC, as BHGR’s affiliates, to provide
45 days prior written notice to Claimant if BHGR decided to abandon or relinquish the
CR Concession.

9
 80. The Letter Agreement also granted GT Resources an option to obtain an
unconditional assignment of the CR Concession if BHGR, BHE&P, or BHC decided to abandon or
relinquish it.

81. Additionally, the Letter Agreement contained an implied duty for BHE&P and BHC,
as BHGR’s affiliates, to act in good faith and to deal fairly with Mallon and GT Resources with respect
to abandonment or relinquishment of the CR Concession.

82. BHE&P and BHC failed to (1) provide the requisite notice, (2) allow GT Resources
to exercise its option for an unconditional assignment, or (3) act in good faith and deal fairly with
GT Resources.

83. BHE&P and BHC breached the Letter Agreement, resulting in damages to
GT Resources.

Claim 6—Civil Theft under Colo. Rev. Stat. § 18-4-405 (against BHGR, BHE&P, and BHC)

84. GT Resources incorporates by reference all preceding paragraphs.

85. GT Resources had a proprietary interest in an unconditional assignment of the CR

Concession.

86. Defendants knowingly and without authorization retained or exercised control over
GT Resources’ interest in the CR Concession.

87. Defendants did so with the intent to permanently deprive GT Resources of the use or
benefit of its interest in the CR Concession.

88. Alternatively, Defendants knowingly used, concealed, or abandoned GT Resources’

interest in the CR Concession in such a manner as to permanently deprive GT Resources of its use or
benefit.

89. Defendants’ misconduct resulted in damages to GT Resources.

VI. JURY DEMAND

90. GT Resources demands a trial by jury on all claims and defenses that may be tried to
a jury.

VII. PRAYER

GT Resources prays the Court enter judgment in favor of GT Resources and against
Defendants for all damages recoverable plus all interest, fees, and costs the Court sees fit to award.

10
Dated: February 26, 2020 Respectfully submitted,

/s/ Christopher J. Cormier________

Christopher J. Cormier (CO Bar #47326)
BURNS CHAREST LLP
5290 DTC Parkway, Suite 150
Greenwood Village, Colorado 80111
Telephone: (720) 630-2092
Facsimile: 469.444.5002
E-mail: ccormier@burnscharest.com

Daniel Charest (to be admitted pro hac vice)

Russell Herman (to be admitted pro hac vice)
BURNS CHAREST LLP
900 Jackson Street, Suite 500
Dallas, Texas 75202
Telephone: 469.904.4550
Facsimile: 469.444.5002
E-mail: dcharest@burnscharest.com
E-mail: rherman@burnscharest.com

Lance Astrella (CO Bar #5183)

ASTRELLA LAW, P.C.
1801 Broadway, Suite 1600
Denver, Colorado 80202
Telephone: (303) 292-9021
E-mail: lance@astrellalaw.com
Attorneys for Plaintiff GT Resources, LLC

Plaintiff’s Address
GT Resources, LLC
8702 E. 34th Avenue
Denver, CO 80238

11