                                                                     ACCEPTED
                                                                 03-13-00855-CV
                                                                         8058852
                                                      THIRD COURT OF APPEALS
                                                                 AUSTIN, TEXAS
                                                            12/2/2015 4:03:19 PM
                                                               JEFFREY D. KYLE
                                                                          CLERK

           No. 03-13-00855-CV

                                               FILED IN
                                        3rd COURT OF APPEALS
               IN THE                       AUSTIN, TEXAS
      COURT OF APPEALS FOR THE          12/2/2015 4:03:19 PM
           THIRD CIRCUIT                  JEFFREY D. KYLE
                                                Clerk
             AT AUSTIN


           KENNETH LOBELL
              Appellant

                   v.
       CAPITAL TRANSPORT, LLC
               Appellee

ON APPEAL FROM THE 146™ DISTRICT COURT
        OF BELL COUNTY, TEXAS


    MOTION TO SUPPLEMENT RECORD


                 WONDERLY & PEPPER, P.C.
                 Matthew L. Pepper
                 State Bar No. 24066817
                 25211 Grogan's Mill Rd., Suite 450
                 The Woodlands, Texas 77380
                 (281) 367-2266
                 (281) 292-6072 (Fax)

                 ATTORNEYS FOR APPELLANT,
                 KENNETH LOBELL
                              NO. 03-13-00855-CV


                                IN THE
                       COURT OF APPEALS FOR THE
                            THIRD CIRCUIT
                              AT AUSTIN


                              KENNETH LOBELL
                                 Appellant



                            CAPITAL TRANSPORT
                                  Appellee

            ON APPEAL FROM THE 146Tu DISTRICT COURT
                    OF BELL COUNTY. TEXAS


                           BRIEF FOR APPELLANT
                             KENNETH LOBELL



TO THE COURT OF APPEALS:



      The Appellant's Special Appearance for lack of personal jurisdiction was

overruled by the Trial Court without any evidence that Appellant Kenneth Lobell,

submitted himself to the jurisdiction of Texas. Appellees could show no regular or

systematic contacts or purposeful availment that Mr. Lobell or his corporations made

with the state of Texas. All of the corporate defendants were dismissed. The same
should be true of Appellant Mr. Lobell. At all times pertinent to this case he was

acting as a principal for his corporations who have already been dismissed. The was

no evidence submitted by the Appellees that Mr. Lobell was the alter ego of the other.

Accordingly, the Trial Court's ruling on Mr. Lobell's special appearance for lack of

personal jurisdiction overtuned and Appellant be dismissed.



        At oral argument of this matter on October 22, 2015, in Burton, Texas, the

panel expressed interest in seeing the actual transcript of the proceeding in the North

Dakota Federal Court in order to help them understand the facts of the case at bar.

To that end appellant, Kenneth Lobell, desires to supplement the record so that the

panel may have the benefit of the sworn record (Exhibit "A") in that matter at their

disposal.

   Accordingly, Appellant suggests that by supplementing the record by reviewing

the sworn testimony from the North Dakota Federal Court proceedings the

supplementing materials will help the Court recognize that Mr. Lobell's special

appearance for lack of jurisdiction should be maintained and the Trial Court's

decision on his special appearance should be reversed.
                                      PRAYER


      For the reasons stated above, Appellant, Kenneth Lobell respectfully prays that

this Court grant this Motion to Supplement the record and ultimately reverse the

judgment of the Trial Court and sustain his special Exception oflack of jurisdiction;

and, further, that this Court grant to Appellant, Kenneth Lobell, such other and fmiher

relief to which she may be justly entitled.

                                        Respectfully Submitted,




                                        BY:   ~~~~~~--~--~~r---

                                         Matthew L. Pepper
                                         State Bar No. 24066817
                                         25211 Grogan's Mill Rd., Suite 450
                                         The Woodlands, Texas 773 80
                                         (281) 367-2266 -
                                         (281) 292-6072 (Facsimile)
                                         ATTORNEYS FOR APPELLANT,
                                         Kenneth Lobell




                          CERTIFICATE OF SERVICE

      I hereby certify that a true and correct copy of the above and foregoing has
been forwarded to all parties and/or counsel of record by certified mai 1, return rece ·
requested, on this 2th day ofDecember, 2015.
                      CERTIFICATE OF COMPLIANCE

        In accordance with Texas Rule of Appellate Procedure 10.1 (5) I hereby certify
that I conferred with opposing counsel and he opposes the Motion set forth herein and
objects to the introduction of the sworn testimony taken in the Federal            urt
proceeding related to this matter.
                                                         FEB 0 t 2013


[]



                       UNITED STATES DISTRICT COURT
                     FOR THE DISTRICT OF NORTH DAKOTA
                           NORTHWESTERN DIVISION


     Kenneth H. Lobell,               )
     a/k/a/ Kenny Lobell,             )
                                      )
                    Plaintiff,        )
                                      )
          vs.                         )      File No. 4:12-cv-156
                                      )
     capital Transport, LLC,          )
     capital oil Field services,      )
     and chad Denton,                 )
                                      )
                    Defendants.       )




                        TRANSCRIPT OF PROCEEDING




                                    Taken at
                            united States courthouse
                             Bismarck, North Dakota
                                 January 9, 2013




                  BEFORE THE HONORABLE DANIEL L. HOVLAND
                 -- UNITED STATES DISTRICT COURT JUDGE --




                        SANDRA E. EHRMANTRAUT
                        Certified Realtime Reporter
                         Bismarck, North Dakota
                               (701) 530·2337
                    APPEARANCES
MR. MATTHEW L. PEPPER
Attorney at Law
compass Bank Building
25211 Grogan's Mill Road, suite 450
The woodlands, Texas 77380
          AND
MR. JORDON J. EVERT
Furuseth Law Firm, PC
612 Fourth Street East
P. 0. BOX 417
williston, North Dakota 58802-0417
          AND
MR. SCOTT K. PORSBERG
smith, Bakke & oppegard
116 North Second Street
P. 0. Box 460
Bismarck, North Dakota 58502-0460
                                      FOR THE PLAINTIFF




MR. STEPHEN R. COCHELL
The cochell Law Firm, P.C.
7026 old Katy Road, suite 259
Houston, Texas 77096
          AND
MR. CHRISTOPHER J. NYHUS
MR. BENJAMIN WARD KEUP
Pearce & Durick
314 East Thayer Avenue
P. o. Box 400
Bismarck, North Dakota 58502-0400
                                      FOR THE DEFENDANTS




                     2
                    PLAINTIFF'S WITNESSES
                                            Page No.
Kenneth Lobell
  Direct Examination by Mr. Pepper               9
  Cross-Examination by Mr. cochell              36
  Redirect Examination by Mr. Pepper            85
  Recross-Examination by Mr. Cochell            86
Walter Morales
  Direct Examination by Mr. Pepper              88
  Cross-Examination by Mr. Cochell              92
  Redirect Examination by Mr. Pepper           100
Chad Denton
  Direct Examination by Mr. Pepper             101
  Cross-Examination by Mr. cochell             126
  Examination by The Court                     144
  Recross-Examination by Mr. Cochell           146
  Redirect Examination by Mr. Pepper           148
Randy Baker
  Direct Examination by Mr. Pepper             152
  Cross-Examination by Mr. Cochell             158
  Redirect Examination by Mr. Pepper           187
  Recross-Examination by Mr. Cochell           189
Myer stabi nski
  Direct Examination by Mr. Pepper             191
  Cross-Examination by Mr. cochell             196
  Redirect Examination by Mr. Pepper           203
  Recross-Examination by Mr. Cochell           204
  Redirect Examination by Mr. Pepper           205

                        DEFENSE WITNESS
chad Hansen
  Direct Examination by Mr. Cochell            206
  cross-Examination by Mr. Pepper              225
  Redirect Examination by Mr. Cochell          231




                          3
                        PLAINTIFF'S EXHIBITS
No.     Description                              offered   Received

 1      Complaint and Notice of Lis Pendens
        from Williams County, North Dakota,
        dated October 18, 2012 (10 pages)           27         27

 2      warranty Deed dated 9/27/11 (2 pages)       12         12


    3   williston Herald publication, Talkin'
        the Bakken, dated April 2012                10         10


 4      weekly Draws (2 pages)                      13         15

    )   Cory of rhPrk from Willi~m R~kPr TO
        Capital Transport dated 8/2/11 for
        $61,385.62                                  22         22


 6      Plaintiffs' original Pet1t1on and
        Request for Temporary and Injunctive
        Relief filed in Bell county, Texas,
        (35 pages)                                 104        105


    7   Plaintiffs' First Amended original
        Petition and Request for Temporary
        and Iniunctive Relief in Bell County,
        Texas,· filed 10/1/12                     114         114


8       Form 205, Certificate of Formation,
        Limited Liability company for capital
        oil Field services, LLC, state of
        Texas (2 pages)                            117        117


    9   Uniform Offer to Purchase dated May 9,
        2011, from capital Riggers Lodge to
        Mark schmidt                               104        105




                             4
                      DEFENDANTS' EXHIBITS
No.   Description                               offered   Received

51     E-mail dated 7/11/11 attaching Capital
       Lodging Investment Packet (25 pages)        SO         51

52    E-mail dated 7/11/11 attaching capital
      Lodging Proposal (7 pages)                   51         52

53    E-mails dated December 2012 and unsigned
      Affidavit of chad Hansen (12 pages)          72         72


54    Williston Herald article dated 10/17/11     140        140


55    Affidavit of Randy Baker dated 11/14/12     170        170

58    E-mail dated 7/25/11 from Randy Baker
      (2 pages)                                   170        170


59    E-mail dated 10/16/11 from chad Hansen
      to Rick watson with attached letter to
      N.D. Dept. of Health (2 pages)              177        177


60    Responses to original Pet1t1on and
      Request for Temporary & Injunctive
      Relief filed 7/9/12                         188        189
61    Affidavit of Myer Buster Stabinski
      dated 11/14/12 (2 pages)                    206        206

62    capital Transport Statement of Work         206        206

63    E-mails dated December 2012 and unsigned
      Affidavit of Chad Hansen (12 pages)      223           224




                            5
 1                  (The above-entitled matter came before the Court, The
 2    Honorable Daniel L. Hovland, United States District Court
 3    Judge, presiding, commencing at 10:03 a.m., Wednesday, January
 4    9, 2013, in the United States Courthouse, Bismarck, North
 5    Dakota; with counsel appearing on behalf of the respective
 6    parties as hereinbefore indicated. The following proceedings
 7    were had and made of record in open court:)

 8
 9                  THE COURT: Good morning. We will open the record in
10    the case entitled United States -- or, I'm sorry, Kenneth
11    Lobell versus Capital Transport, eta/. I'm used to opening
12    the record in criminal cases. I would ask that counsel who are
13    here, along with those seated with them at counsel table, first
14    identify themselves for the record. We'll start with the
15    plaintiffs.
16                  MR. EVERT: Thank you, Your Honor. Jordon Evert, and
1 7   would you prefer that     \"Je   remain seated so vve --
~'



18                  THE COURT: Whatever you're most comfortable with.
19    It doesn't matter.
20                  MR. EVERT: Okay. Thank you.
21                  MR. PEPPER: Your Honor, Matthew Pepper on behalf of
22    the plaintiff, Kenneth Lobell.
23                  MR. PORSBERG: And Scott Porsberg on behalf of the
24    plaintiff, Mr. Lobell.
25                  THE COURT: And Mr. Lobell, that is --
                                           6
 1                 MR. LOBELL: Kenneth Lobell.
 2             THE COURT: Okay. And then we'll start with the
 3   defendants.
 4                 MR. COCHELL: Yes, sir. Good morning, Your Honor.
 5   Stephen Cochell appearing on behalf of Mr. Denton.
 6                 MR. DENTON: Chad Denton.
 7                 MR. NYHUS: Your Honor, I'm Chris Nyhus from Pearce
 8   and Durick, local counsel for Mr. Denton, and I'd like to
 9   introduce Ben Keup, K-E-U-P. He's an attorney at our firm, and
10   maybe after the proceedings are over, we would move his
11   admission into federal court.
12                 THE COURT: Oh, okay. Very well. Well, welcome to
13   all of you and particularly the out-of-state counsel that are
14   here. This is scheduled as a hearing on a motion for a
15   temporary injunction and cancellation of a lis pendens filed on
16   November 15,2012. I have reviewed all ofthe pleadings and
17   submissions of the parties before today. We had a telephone
18   conversation last week about the scope of this hearing. The
19   plaintiffs certainly have the burden of presenting evidence,
20   first of all, to support their request for injunctive relief
21   and cancellation of lis pendens, so we'll start with the
22   plaintiffs.
23                 MR. PEPPER: Thank you, Your Honor. Your Honor, we
24   begin our case and, first of all, I wanted to ask if Your Honor
25   would like to have a beginning oral argument, or would you like
                                     7
 1   us to just simply--
 2                     THE COURT: I don't really need it, but if you want
 3   to provide a short summary, you're more than welcome to do so.
 4                     MR. PEPPER: Your Honor, at this point I think we'll
 5   just proceed.
 6                     THE COURT: Okay.
 7                     MR. PEPPER: Your Honor, I call to the stand
 8   Mr. Kenneth Lobell.
 9                     MR. COCHELL: Your Honor, we request sequestration of
10   the witnesses who are here for this hearing.
11                     THE COURT: Sequestration in a civil proceeding?
12                     MR. COCHELL: That they be excluded from the
13   courtroom during--
14                     THE COURT: No, I understand. I know what
15   sequestration is, but it's rather unusual in connection with a
16   motion for preliminary injunctive relief at this early stage,
17   h11t      I'll nt"::lnt- tho
                 ~1'-4.11\,.
     lo..JY\,. 1 I I          \,.11'-
                                      tvtn:tinn
                                      IIIV\.IVIIo




18                     MR. COCHELL: Thank you, Your Honor. That means the
19   witnesses who are in the courtroom need to be outside the
20   courtroom until they're called as witnesses in the case. Thank
21   you.
22                                              KENNETH LOBELL,
23   having been first duly sworn, was examined and testified as
24   follows:
25
                                                     8
 1                            DIRECT EXAMINATION
 2   BY MR. PEPPER:
 3   Q.   Mr. Lobell, could you please state your name and address
 4   for the record?
 5   A.   It's Kenneth Lobell, 473 Walnut, New Orleans, 70118.
 6   Q.   Mr. Lobell, can you give the Court a brief idea of what
 7   the man camp up in Tioga is?
 8   A.   It's one of the largest, if not the largest man camp. We
 9   house anywhere from 1, 700 to maybe right under 2,000. We feed
10   them. We house them. It's temporary stays, long stays for oil
11   field workers.
12                MR. PEPPER: Your Honor, may I approach?
13                THE COURT: Certainly, and you don't need to ask
14   permission to do so in this case.
15                MR. PEPPER: Just good manners, Your Honor.
16                THE COURT: Yep, absolutely.
17   Q.   (MR. PEPPER CONTINUING) Mr. Lobell, I'm going to show you
18   a document which we have identified as P-3. It's a magazine
19   that's published by the Williston Herald. Do you recognize
20   this magazine?
21   A.   I do.
22   Q.   Now, does this magazine describe in detail some of the
23   general aspects that you were describing about the man camp?
24   A.   It does. They did an issue on us just because we're a
25   little bit different than most man camps. We provide services

                                     9
 1   as if we wanted to be there. They got individual housing, a
 2   little bit higher grade of food and things of that nature, so
 3   they did a story on us because of the size and the quality.
 4   Q.   And is this a widely published newspaper?
 5   A.   It's pretty-- it's all through this area, North Dakota.
 6             MR. PEPPER: Your Honor, in connection with the
 7   witness's testimony, I'd like to offer and file, introduce into
 8   evidence P-3, which is the magazine article regarding the man
 9   camp that describes it in detail.
10             MR. COCHELL: No objection, Your Honor.
11             THE COURT: Exhibit P-3 will be received.
12             MR. COCHELL: Your Honor, I am having difficulty
13   hearing both the witness and counsel when he's-- when counsel
14   in particular, when he's up at the podium, so if perhaps
15   counsel could speak a little louder, that would help.
16             MR. PEPPER: Sure.
17             MR. COCHELL: Nobody has ever made that complaint
18   about me.
19             THE COURT: All right.
20             THE WITNESS: Can you hear me okay?
21             MR. COCHELL: Or just speak a little closer in the
22   mike.
23             THE COURT: Just pull that microphone as close as you
24   can, please.
25             MR. COCHELL: Thank you.
                                   10
 1   Q.      (MR. PEPPER CONTINUING) Mr. Lobell, when did you sign a
 2   purchase agreement to buy the property on which the man camp
 3   sits?
 4   A.      july 25, 2011.
 5   Q.      And ultimately did you buy the property and receive a
 6   warranty deed?
 7   A.      I did.
 8   Q.      Before you purchased the property, did you have a title
 9   search done on the property?
10   A.      The law firm did that, did the title work.
11   Q.      And did Mr. Denton or any other entity show up in the
12   search as having ownership interest in the property other than
13   the sellers from whom you purchased the property?
14   A.      No.
15                    MR. COCHELL: Objection, calls for hearsay.
16                    THE COURT: Overruled.
17   Q.      (MR. PEPPER CONTINUING) Your answer?
18   A.      No, the gentleman that had it, had it for a hundred -- a
19   hundred years. The same family had it. It was farmland.
20   Q.      I'm going to show you what we have marked as Exhibit P-2.
21   Do you recognize this document?
22   A.      I do. It's a Warranty Deed with my-- my Warranty Deed.
23   Q.      I was going to ask, is that the Warranty Deed that you
24   received from the sellers?
25   A.      Yes, sir.
                                        11
 1               MR. PEPPER: Okay. Your Honor, in connection with
 2   · the witness's testimony, I'd like to offer and file and
 3    introduce into evidence Exhibit P-2, which is the Warranty Deed
 4    for the property on which the man camp sits.
 5               MR. COCHELL: No objection, Your Honor.
 6               THE COURT: Exhibit P-2 is received.
 7               MR. PEPPER: Your Honor, would you like me to start
 8    giving these exhibits to the clerk?
 9               THE COURT: Sure.
10    Q.   (MR. PEPPER CONTINUING) Mr. Lobell, after you bought the
11    property, did you --what was the property-- what did the
12    property look like when you bought it?
13    A.   just barren farmland, no water to it, no sewer to it, no
14    electric to it.
15    Q.   Was there any-- any other access to water, sewer or
16    electric near it?
17    A.   No, it vvas coming, but it vvasn't near.
18    Q.   So after you bought the property, did you make
19    improvements to the property?
20    A.   Absolutely.
21    Q.   What did you have to do to make this site ready?
22    A.   We basically had to build a small city. We had to put
23    sewer, we had to put-- well, we ran off of generators for
24    upwards of six months. We put a well, and then we put a dome,
25    which we fed and did the laundry in the --for all the clients,
                                     12
 1   and then we basically put individual module homes.
 2   Q.   And in connection with your operation of the business, did
 3   you keep records of the money that you spent on the
 4   improvements?
 5   A.   Every day.
 6   Q.   And did you keep a summary of-- an ongoing summary of the
 7   improvements that you made to the property?

 8   A.   Every week we had a weekly draw that we -- it would get
 9   sent down from Tioga to me. The bank in New Orleans would wire
10   the money to Tioga to pay the bills.

11   Q.   Okay. And did you keep a written summary of those --
12   A.   I did.

13   Q.   --bills that were paid?
14   A.   I did.

15   Q.   Mr. Lobell, I'm going to show you an exhibit, which is
16   marked as P-4, which is a copy of the weekly ledger that you

17   had testified about. Now, you testified that you kept these
18   records in the normal course of business, is that correct?
19   A.   Correct. These summaries are taken off of the draw sheets
20   sent to me by Tioga every week.
21   Q.   Okay.

22   A.   Now, this is only until, I think-- it's only until the
23   first week of November of '12. There's still more.

24                 MR. PEPPER: Your Honor, in connection with the
25   witness's testimony, I'd like to offer and file and introduce

                                      13
      1    into evidence P-4, which is a copy of the monthly ledger-- or
      2    the weekly ledger report in summary fashion.
      3              MR. COCHELL: Your Honor, we just want to ask a few
      4    questions on voir dire on this particular document.
      5             THE COURT: You may inquire.
      6              MR. COCHELL: Mr. Lobell, who actually keeps the
      7    records of weekly draws in your organization?
      8             THE WITNESS: Well, the original draws come to me.
      9    keep them, and then we have a balance-- we have -- I have an
10         accountant and Walter Morales has an accounting group, so we
11         have two groups keeping them.
12                   MR. COCHELL: Okay. And who actually generated this
13         document that's marked as Exhibit 4?
14                  THE WITNESS: I did.
15                   MR. COCHELL: You did?
16                  THE WITNESS: I did.
1     '7
..L   I              MR. COCI---IELL: Okay. So you got on the con1puter and

18         you somehow put it together, is that correct, sir?
19                  THE WITNESS: What I did, I took the weekly draw and
20         I took-- at the bottom of the draw every week, that's the
21         exact number I sent to Tioga that we had to pay, whether we
22         bought amenities or for services rendered or we paid employees.
23                   MR. COCHELL: So this is your personal summary of the
24         draws and not something that's generated-- this is not
25         generated on a weekly basis, this summary, is that correct,
                                        14
 1   sir?
 2               THE WITNESS: No. No, on a weekly basis you'll have
 3   a whole sheet of everybody that's paid out of that number.
 4               MR. COCHELL: We object to the admission of four.
 5   It's not a proper summary. It's not kept in the ordinary
 6   course of business. We haven't seen the underlying documents.
 7               THE COURT: The objection is noted, overruled.
 8   Exhibit P-4 will be received.
 9   Q.     (MR. PEPPER CONTINUING) All right. Mr. Lobell, looking
10   at page 1 of Exhibit 4, let's start with the first week,
11   7/22/11, and the second week, 7/29/11. What was going on in
12   that period in july?
13   A.     I think that was-- it was basically monies put into that
14   to pay Mr. Stabinski and Randy Baker and, I think, Mr. Hansen.
15   That was just some money upfront. When they first came to me,
16   they had no money, and so that was the money that we had put in
17   just to support them to start the project.
18   Q.     How far along did you keep putting money into this project
19   before you started to see any income coming from the project?
20   A.     I think it's at least-- I think we had our first tenants
21   move in sometime in late February.
22   Q.     So the entries for july, August, September, October,
23   November and December of 2011 and then probably january and
24   February were monies that were just out-of-pocket, without any
25   money coming in?

                                       15
 1   A.   Absolutely. We had some problems because everything just
 2   up there is a whole different animal. You couldn't get the
 3   subs. I think everybody went into it thinking that, okay,
 4   everybody could do what they said they could do, but at that
 5   point it was just-- the subs would quit. They would basically
 6   charge you too much. Again, we had trouble getting some
 7   equipment. You had to run off of generators.
 8             The housing that was particularly picked in the very
 9   beginning was not suitable for the climate, so we had to go
10   back and revamp. Mr. Baker had to go up to Indiana and some
11   other places to redesign all the houses. It went from like
12   $60,000 a home to 140,000 a home, so it was just-- it was a
13   learning curve for everybody. I've never been in this business
14   and nor have they been in the business, so we thought we would
15   just build it no problem, but it was just-- it got out of
16   hand.
17             THE COURT: So vvho is rv1r. Baker?
18             THE WITNESS: Mr. Baker, Your Honor, is the gentleman
19   who brought me the deal with Mr. Stabinski, Myer --Randy Baker
20   and Myer Stabinski. I think I saw that gentleman on July 15th,
21   actually. Mr. Stabinski, Myer Stabinski, worked with myself
22   with the BP claim in New Orleans. I was friends with him. He
23   called me in sometime late June, asked if I wanted to put up
24   $6 million into the project. And I immediately told him-- I
25   said, "I won't lend you the money, Myer," I said, "because, you
                                   16
 1   know, I won't do that. I just don't do that in my profession."
 2   And he said, "Will you just look at the deal because we're
 3   going to lose the property?" And I said, "Yes, I would." And
 4   he said, "I'm going to send Mr. Baker down to talk to you about
 5   the project."
 6              THE COURT: All right.
 7              MR. PEPPER: And, Your Honor, just as matter of
 8   housekeeping at this point, I think a couple of people have
 9   filed into the courtroom that may be witnesses. So that we
10   don't have a violation of the sequestration rule, I'm going to
11   ask that some of them identify themselves so they can be seated
12   outside.
13              THE COURT: Well, both counsel should know who's
14   going to be called as witnesses and what those people look
15   like, so I would ask that you inform those people that you
16   intend to call as witnesses, that they need to remain outside
17   the courtroom until they're called.
18              MR. PEPPER: Is there a Walter Morales? That would
19   be the only one that I wasn't sure. I had never seen
20   Mr. Morales.
21              THE COURT: All right.
22   Q.   (MR. PEPPER CONTINUING) All right. Mr. Lobell, getting
23   back to those monies that were initially put in to build the
24   camp out of-- out of the vast prairie, did Mr. Denton ever
25   contribute any money to the sums that you've spent here?
                                   17
 1   A.   Absolutely not.
 2   Q.   When did you first talk to Mr. Denton?
 3   A.   I think Mr. Denton --first of all, you've got to
 4   understand I didn't even know who Mr. Denton was, and I got a
 5   call. He was -- introduced himself, I think, on july -- I want
 6   to say 23rd. I think he knows better than I do. He introduced
 7   himself, that he could help with the camp because he had a
 8   transportation company and he does trucking. And he wanted to
 9   run the checking account and everything through his company and
10   he could help do that, and I said no. I said, "I'm opening up
11   new companies because I don't know who you are. I don't know
12   who Mr. Baker is. I know who Mr. Stabinski is." I said, "I've
13   opened up Capital Lodge and Capital Transport in my own name in
14   Louisiana." And I said, 'Thank you, and you know, if I need

15   your services, I would call you."
16   Q.   Prior to that time, were you aware of any relationship
17   vvith rv1r. Denton and rv1i. Baker?
18   A.   I knew of a person that was involved because when Randy
19   Baker came to me, he said there was a gentleman who was
20   supposed to put up the money for the camp and he was going to
21   buy-- he was going to purchase the land, and he didn't. In
22   fact, when I was talking to Mr. Baker, that day their contract
23   expired and that's why they were nervous, that they thought
24   they would lose the land.
25              And they -- Mr. Baker introduced himself as he did

                                      18
 1    the whole thing, he did the budget, he did the project, he did
 2    the layout. He's in construction business. He was the
 3    gentleman that told me that I only had to put up $6 million.
 4    And I said, "I think you're all going to be wrong, but, you
 5    know, let's look at it." I said, "I don't want any partners.
 6    I will pay you all the salaries, and if it works out, we'll
 7    work out something if you're all right." But I said, "You
 8    don't have a job, you don't have a job, so I don't know if you
 9    all know how to do a man camp, if you're all qualified."
10    Q.   Did Mr. Denton tell you that Mr. Baker owed him some
.11   money?
12    A.   Well, in a roundabout way. The first introduction to Mr.
13    Denton was to tell me that I had to watch the guys that came to
14    see me. He said that they work for him and they were not of
15    the -- not very ethical and that they didn't know what they
16    were doing, so I said, "Chad, I don't understand that." I
17    said, "I know Myer. I never met Mr. Baker, but if he is, you
18    know, the proof is going to be in the pudding because I own the
19    company. If he doesn't do what he's supposed to do, then he
20    won't have a job." I then met Mr. Baker-- I mean Mr. Denton
21    again. I think he had went up to --when he found out that I
22    was going to do the deal and I had no partners -- and, Judge,
23    tell me if I'm talking -- I'm just trying to set a scenario, so
24    if you don't want me to say anything, just tell me.
25               MR. COCHELL: I'm still having trouble hearing you.
                                      19
     1    Could you maybe just speak a little closer to the microphone,
     2    sir?
     3                                 THE WITNESS: Sure. I'm from New Orleans, so that
     4    might be my accent.
     5                                  MR. COCHELL: Well --
     6                                 THE WITNESS: I understand.
     7                                  MR. COCHELL: -- I've heard a few Louisiana accents
     8    before.
     9                                 THE WITNESS: I got you. No, what happened was Mr.
10        Denton had then-- after I spoke to him, going up to North
11        Dakota to-- at that point saying to ask Mr. Baker and Mr.
12        Stabinski and Mr. Hansen to sign partnership papers, and he
13        said he was a partner with them. I said, "If you're a partner
14        with them, Chad, I don't know that." I said, "I've never met
15        you, so I'm only dealing with those people." He then went up
16        to North Dakota and insisted they sign partnership papers.
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18        He then got mad. Then he called me, said, "Kenny, I'd like to
19        have lunch with you." I said, "Well, okay. I have no problem
20        with that, Chad. Come see me."
21                                     So he and his girlfriend came down. We had lunch.
22        He proceeded to say again how the guys were no good and that
23        you had to watch them and that they owed him money. I said,
24        "Chad, I can assure you, ifthey owe you money, I'll ask them
25        -- I'll reimburse you money. I'll lend them the money."
                                                                                             20
 1             Well, I called Mr. Baker. He said they did owe him
 2   about $60,000. I said, "Randy, if that's the case, I'm going
 3   to lend you the money because, you know, if this gentleman put
 4   up money for you all and you all owe him money, I want you to
 5   pay him back." Immediately I sent him, Mr. Baker, $61,000. He
 6   wrote a check to Mr. Denton, and then that's the last I really
 7   heard of Mr. Denton until the lawsuit.
 8             THE COURT: So you mentioned a Mr. Hansen for the
 9   first time. Who's he?
10             THE WITNESS: Well, he's another gentleman I never
11   met, but what happened, when Mr. Baker came to me with Mr.
12   Stabinski, they said they had another gentleman that was
13   involved with the camp, and went on paying him $10,000 a month.
14   Well, I thought I was lending him $10,000 a month, but they
15   wanted $1 0,000 a month as salaries. I told Mr. Baker and
16   Stabinski, I said, "I'll pay you all. I'm going to watch this
17   whole thing from an outsider looking in. I don't know who
18   anybody is in here, but if you all are coming to me with a deal
19   and you say this guy is important, then I'll do it." Mr.
20   Hansen worked with Mr. Baker. I've only talked to Mr. Hansen
21   twice in my life. And so Mr. Hansen was part of their little
22   partnership.

23             Whatever Chad Denton and Myer Stabinski and Mr. Baker
24   and Hansen had, they were trying to form some --they were
25   moving oil rigs, and this whole deal came about because

                                     21
 1   Mr. Baker and Mr. Stabinski was going six miles -- I mean,
 2   hours a day, driving three hours there and three hours back,
 3   and they came up with the idea. Mr. Denton was having to move
 4   oil rigs, but they needed somewhere to stay. It was
 5   Mr. Baker's idea to get the man camp, so he went and tried to
 6   find everything. And then Mr. Denton came in, said he was
 7   going to put the money up for the --for those three to form a
 8   partnership.
 9   Q.   (MR. PEPPER CONTINUING) And so in conjunction with your
10   discussion with Mr. Denton, did you forward the money to
11   Capital Lodging and have them -- or have Randy Baker issue a
12   check to him?
13   A.   Absolutely, the same week.
14   Q.   Is this a copy of that check made out to Capital Transport
15   in the amount of $61 ,385.62?
16   A.   Yes, and at the bottom it says "reimbursement."
17             ~JIR. PEPPER: Your Honor, in connection VJith the

18   witness's testimony, I'd like to offer and file, introduce into
19   evidence Exhibit 5, which is a copy of the check for the
20   reimbursement of Chad Denton through his entity, Capital
21   Transport.
22             MR. COCHELL: No objection, Your Honor.
23             THE COURT: Exhibit P-5 is received. So tell me
24   again, this is money paid to Mr. Baker, who owed 60 grand to
25   Mr. Denton.
                                   22
 1             THE WITNESS: Well, Your Honor, what happened --and
 2   again, all this happened so fast. I had --you know, when I
 3   looked at the deal on july 15th, I asked him when I had to make
 4   the decision. He said, "Today." I said, "I have to make a
 5   $6 million decision in ten minutes?'' He said, "Yeah." He
 6   said, "What do you think?" I said, "I'm going to do it." He
 7   said, "What?" I said, ''I'm going to do it." So I've done
 8   things like this, you know, in the past.
 9             But what happened, as far as the money goes, when Mr.
10   Denton, you know, again started saying that these gentlemen
11   owed him money, you know, for housing out there, for moving the
12   rigs and some other stuff, I didn't want any hard feelings with
13   anybody, and so I actually felt sorry for Mr. Denton, if he was
14   trying to do something out there and it didn't work.
15             Mr. Baker and them, if they owed the money for
16   whatever it is, living expenses or whatever they did, had to
17   do, and they confirmed it, I said, "I want to start a clean
18   slate here. I don't want any hard feelings with anybody. I'll
19   lend you all the money, and then I'll take it out of your
20   salaries." Because Mr. Denton seemed like a nice guy when I
21   met him with his girlfriend. So I said, "If you all owe this
22   gentleman money, let's pay him," so I put "reimbursement" on
23   the bottom. I had them put reimbursement for anything that
24   they did owe so there was no discrepancy on anything that--
25   who was who in this deal. You know, and --

                                     23
 1              THE COURT: So you meet a guy one time with his
 2   girlfriend and talk about a project up in North Dakota, and
            '
 3   you're willing to send him 61,000 bucks just on a--
 4              THE WITNESS: No, I asked Mr. Baker-- because I gave
 5   him the money, I asked Randy Baker and Myer Stabinski, was he
 6   --was he owed that money? And they said yes, and I just put
 7   it in as part of the cost of doing business.
 8              THE COURT: All right.
 9   Q.   (MR. PEPPER CONTINUING) And did Mr. Baker and Mr.
10   Stabinski pay you back?
11   A.   In a roundabout way they're doing it now. I just take it
12   out from whatever they're going to get.
13   Q.   So you've been taking it out of their salary from--
14   A.   Not quite at this point because what happened is Mr.
15   Stabinski and Mr. Baker-- Myer still works on a full-time
16   basis. Mr. Baker works as a consultant because he got real bad
17   diabetes, so he's being paid as a consultant, so vve just--
18   we're going to work it out.
19   Q.   Okay. And at that point did you think that you had
20   resolved any business dealings that Mr. Denton had with your
21   now consultants, Baker and Stabinski?
22   A.   Well, personally I didn't think I had any dealings with
23   Mr. Denton at all because there was no partners. When I --
24   when I told Mr. Baker and Mr. Stabinski --there was no
25   partnership. There was no operating agreement. They were not
                                   24
 1   a part of this. If they could do what they said they could do,
 2   we would talk about some sort of bonus, a split at the end of
 3   the project because, again, I didn't know-- neither one of
 4   these guys had a job, no money, and they didn't have any
 5   profession. It was just an idea they had.
 6             I've been in business in real estate for 30 years.
 7   wasn't going to put $6 million, which I knew was probably going
 8   to be more, for somebody just with an idea and a whim. And
 9   they wanted SO percent of the deal. I said, "I'm not giving
10   any partnership any-- you know, any ownership to something and
11   it doesn't work. I'm stuck out in North Dakota. You all have
12   nothing to lose. You live in an apartment and you live in a
13   house that, you know, is-- you might not have." And they all
14   agreed, said, "We just want the opportunity to show you and to
15   work for you," because they had no money. They had no jobs.
16   Q.   And getting into your experience in the real estate
17   business, is it typical when you buy a piece of property, to
18   put it in your name directly, and if so, why do you do that?
19   A.   Well, I did this purposely because if I sold the company,
20   the land would be in my name. It could be a real estate play
21   where I could keep the land and lease the land too if somebody
22   wanted to buy Capital Lodge.
23   Q.   And have you done this in the past with success?
24   A.   Many times.
25   Q.   When did you first find out about the filing of the notice
                                    25
 1   of lis pendens?
 2   A.    Well, I didn't know about the lis pendens, but the
 3   lawsuits showed up about a year, or so, after Randy Baker told
 4   me he was served with a lawsuit. I hadn't heard it from Mr.
 5   Denton or anybody, you know, claiming he owned anything, and
 6   all of a sudden he sues Mr. Baker. And then after that they
 7   were trying to serve me, but I was out of town, and I saw
 8   Mr. Baker's lawsuit.
 9              But then I was trying to merge with my 10 percent
10   partners, with another gentleman out of New York, and they ran
11   an abstract on the property, so before we could get any monies
12   or sell any part of my ownership, the abstract showed that
13   there was a lis pendens, so two things happened. We tried to
14   get a $5 million line of credit that was approved, and they
15   found out about it right after the Moraleses found out about
16   it.
17   Q.    Okay. And did you have an attorney in North Dakota file a
18   state court action to have the notice of lis pendens canceled?
19   A.    I did, Mr. Evert.
20   Q.    I'm going to show you, Mr. Lobell, a document identified
21   as Exhibit Number 1. Is this a copy of the lawsuit that you
22   had Mr. Evert file on your behalf?
23   A.    I believe it is.
24   Q.    In North Dakota state court?
25   A.    I believe it is.
                                   26
 1               MR. PEPPER: Your Honor, in conjunction with the
 2   witness's testimony, I offer and file and introduce into
 3   evidence P-1, which is, I believe, already part of the official
 4   record, but for purposes of this hearing, P-1, a copy of the
 5   original North Dakota lawsuit to cancel the notice of lis
 6   pendens.
 7               MR. COCHELL: We have no objection, Your Honor.
 8               THE COURT: P-1 is received.
 9   Q.   (MR. PEPPER CONTINUING) In this suit, Mr. Lobell, is it
10   true that you seek cancellation of the notice of lis pendens
11   and injunctive relief in the form of a temporary restraining
12   order?
13   A.   Yes.
14   Q.   How has Mr. Denton's filing of this lis pendens harmed
15   your ownership in the property?
16   A.   Well, again, it's -- Mr. Morales just walked in, if you
17   need him to step out. Sorry, Your Honor.
18               Well, it just keeps harming it. We had, first of
19   all, a merger of $45 million that was-- that we have
20   affidavits to that effect that they said they absolutely could
21   not go any further unless the lis pendens was lifted. Then --
22               THE COURT: But what do you mean, merger of
23   $45 million?
24               THE WITNESS: Well, they were going to buy some of my
25   stock and input money. See, we're still building the camp. We
                                     27
 1   still had to put up backup generators for the winter. We had
 2   amenities building that we were building, about a 10,000 square

 3   foot amenities building. We had boot rooms, mud rooms around
 4   the whole thing.
 5                                     THE COURT: What?

 6                                     THE WITNESS: Boot rooms, mud ··
 7                                     THE COURT: Boot rooms.

 8                                     THE WITNESS: Boot rooms, mud rooms, we had all this

 9   in the ongoing -·every penny I've made-- I'm not taking a
10   dime out of this thing ··we've put back into the camp. We
11   haven't paid dividends. We haven't paid anything, so we knew
12   that this was an ongoing thing.
13                                      Hess Oil Company came to us and said, "We need more

14   rooms. Could you please do something?" We put Phase 3 in
15   effect. Well, putting Phase 3 in effect, they had a $5 million
16   line of credit, knowing it was taking that income to live
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18   and February with this $5 million line of credit. By taking
19   income and building out for Hess because they had to be in, I
20   want to say, by September or late August, we took every penny,
21   so we didn't have any cash flow. And so what happened, we had
22   the amenities building and all that, but I-- and then all of a
23   sudden the lis pendens came. The $5 million line of credit was
24   pulled because they couldn't take the land as collateral.
25                                      So now what it's done-- we had three blackouts,
                                                                                                             28
 1   complete blackouts for six hours, and we didn't have the backup
 2   generators. We could only put the backup generator into the
 3   dome. And we have a-- Your Honor, it's a dome, and if you
 4   look at the picture, it's 70 feet wide by 20-some feet high by
 5   300 feet long. Everybody has to go in the dome in emergencies
 6   because that's the only thing we could do instead of putting in
 7   a generator for the whole camp, so he's basically took any form
 8   of refinance.
 9             Even the First International Bank and Trust in
10   Watford has given us a line of credit, but they will not go any
11   further. We have 7 million. They were going to do-- we were
12   going to refinance the whole camp, but since this has happened,
13   I had two people that wanted to buy and merge that I've lost.
14   And I had financing, two-- my bank in New Orleans, First NBC,
15   had pulled a $5 million line of credit; and First International
16   Bank and Trust, I can't do anything until I get it lifted.
17   We're trying to do a $1 5 million refinance right now.
18             THE COURT: Fifteen, one-five?
19             THE WITNESS: Fifteen million, mm-hmm. We have
20   seven, and we're going to try to do the whole thing. And I
21   have a gentleman from New York that is trying to purchase it at
22   a reduced price because of the lis pendens, but I may have to
23   do it if we can't resolve some financing.
24             THE COURT: All right.
25   Q.   (MR. PEPPER CONTINUING) And is it true, Mr. Lobell, that
                                    29
 1   all this financing requires your personal guarantee?
 2   A.     Every loan I have, I'm personally guaranteed on.
 3   Q.     And so as it's your personal guarantee, you have to put up
 4   as collateral, property, not just here that's in your name, but
 5   property wherever you have it that's in your name.
 6   A.     Because of the missed budget, the budget not being
 7   correct, I now have my house up, company. I had to sell part
 8   of another company. I had to bring a $1 0 million partner in to
 9   buy some shares, and if I don't get the refinancing, I'm on
10   personally 10 million, 12 million -- I'm on $19 million of
11   personal debt between First International Bank, Fleetwood, and
12   the lines of credit I have in New Orleans.
13   Q.     But you are-- despite all that, you're still committed to
14   the state of North Dakota to make sure that this project is a
15   success, that you're willing to take on another seven, or so,
16   million dollars?
17   A.     Oh, yes, vve're still building. VJe can't stop really
18   because we have projects that are partially unfinished right
19   now.
20   Q.     Has this lis pendens stopped your ability to grow the
21   camp, to fulfill the needs of the drillers seeking to house
22   workers?
23   A.     We have Phase 1, 2, 3 and 5 completed. We have 4 that we
24   put the infrastructure. We paid about $500,000 in
25   infrastructure and electrical, but we can't put the homes in
                                      30
 1   Phase 4, which are another 500 men, 480 men, and the generators
 2   and the amenities building and the mud rooms.

 3   Q.   And in your opinion, does this pose a threat of
 4   irreparable harm if the defendants are not restrained from
 5   further filing any lis pendens on your property?
 6             MR. COCHELL: Objection, calls for legal conclusion.
 7             THE COURT: Overruled.
 8             THE WITNESS: Well, what it's done is that the
 9   amenities building was promised. You got to understand, when
10   we first did this --and you can look in the ads, and even when

11   we did the advertising in the first part of doing this, we have
12   --we have a weight room. We have things. We had to put it
13   all into the dome because these guys are stir crazy. They have

14   nothing to do, so the pool tables, the little games and the
15   physical workout plant is inside where the guys eat because now
16   all we have is the building. I just got the rest of the money

17   to put a slab in the amenities building, but these guys
18   constantly ask, "Where is the amenities building?" And that's

19   all they're worried about.
20             What I'm more worried about is in the winter months,
21   when the power goes down and you have these guys sitting in
22   these-- now, nobody really claimed-- you know, filed

23   anything, but the head of each agency, like the Hess personnel
24   calls and say, "What's going on? You know, what happened with

25   the power?" So it's a little embarrassing that you got someone

                                    31
 1   --you know, it's 12 below zero and they're in there and
 2   they're all going to their cars to start their cars to be warm.
 3   Now, they could go-- it's not life-threatening in a way it
 4   would kill them because they could go in the dome, but it's
 5   actually halted the expansion.
 6              And things were promised to these people that are
 7   paying $11 5 a day for these guys, you know, expecting a workout
 8   facility and, you know, TVs and all this kind of stuff, but
 9   because we have the other services -- you know, we have
10   separate cabins for them and better food and we take care of
11   them. They really want to stay there. They're not going to
12   leave for the amenities building, but when you promise them
13   something, don't think for one minute the head of these Hesses
14   are not asking whether it's coming.
15   Q.    So if a restraining order is not granted, it will affect
16   the goodwill of your business in a negative manner, wouldn't
17   it?
18   A.    Well, it would be a definite negative manner as far as the
19   clients go, but there's a lot more serious problem with the
20   money, to keep the cash flow going because, again, you're in
21   the slow months, and without the money here --we're funding
22   the camp besides still building. Everybody's leases ran up,
23   Your Honor, November 31st. We had like 1 ,200 people in there.
24   When November 31st came, Hess pulled out--
25              THE COURT: November 30th?
                                     32
 1              THE WITNESS: 30th. Okay, 30th. The end of November
 2   came. Everybody stops. Now, they'll keep skeleton crews in
 3   there, but they won't commit to any long-term leases because if
 4   it gets too cold, they still got to pay for that room. So what
 5   they do, they might keep 200 people there, but they'll go week
 6   to week, month to month, so you have no income and no-- you
 7   can't have --you can't project your cash flow. So by stopping
 8   us with all these loans, it's actually-- it's stifled the
 9   camp. It's basically strapping us because we can't-- we had
10   to stop building to a minimal. We've worked out deals with the
11   construction people because they know we pay, so I asked some
12   of the guys to give us a favor.
13              But if this lis pendens is not lifted, it could-- it
14   could actually throw us into a Chapter 11. We would never,
15   ever not pay anybody, and they know this. I've already talked
16   to Sodexo, the big national company that runs our camp. I
17   talked to Fleetwood Homes. I said, "We may have to do it.
18   We're going to protect you all in this, but we just may need a
19   little help." And so if we can make it through maybe the end
20   of March --the summer it starts picking up again --we're
21   going to be fine, but we got that little time frame that's very
22   crucial.
23              THE COURT: So when you say everybody's leases have
24   expired, you're talking about Amerada Hess and who else?
25              THE WITNESS: Well, we have Hess. We have-- Sanjel
                                       33
 1   has -- they move out and they come back. We have Sanjel. We
 2   have-- we had Nabors. We had Superior. We had-- Reliance
 3   has come in. The pipeline company has come in and kind of
 4   saved us a little bit. We have Woods. We have-- well,
 5   Halliburton moved out and they're coming back in March because
 6   they go down --everybody goes down to skeleton crews, so they
 7   go to their own camps, and then they come back into our area.
 8   They'll inconvenience the people just because they don't want
 9   to-- because you figure if somebody puts in a hundred people,
10   it's millions of dollars. I mean, it's -- it might be a
11   million dollars a month for these people and -- or three
12   million, so they don't want to commit to me, and I understand
13   that. So what we made a deal with them is, listen, you can go
14   week to week, you go day-to-day, don't sign anything. And
15   because we did that and some of the competitors like Target
16   didn't work with them like that, they actually moved over to
17   our camp because they--

18             THE COURT: Competitors like?
19             THE WITNESS: Target Logistics.
20             THE COURT: Target Logistics. Okay.
21             THE WITNESS: So we try to treat people like-- not
22   so much like a business, but they're helping us and we're
23   helping them.
24   Q.   (MR. PEPPER CONTINUING) So, Mr. Lobell, it's your
25   testimony that because of the cyclical nature of your business,
                                     34
 1   that a line of credit is essential.
 2   A.   Well, absolutely. Again, this is my first time I've ever
 3   done a man camp, so I don't know how it's supposed to be, but
 4   all I do know is that when I first did it with Mr. Baker, he
 5   alluded that in the winter months you have more people because
 6   they couldn't keep the people out in the snow. And this is one
 7   of the things I was trying to tell Mr. Stabinski and Mr. Baker
 8   when they did this. I said, "Look, you all never built a man
 9   camp. I've never built a man camp, so nobody knows what's
10   going to happen here."
11              So what does happen, instead of them doubling the
12   crews in the winter-- because they said they're going to work
13   less hours, they don't want to shut the well down. That's not
14   true at all. They shut the well down and they work a skeleton
15   crew, and they put minimal people out in the winter.
16   Q.   To this day, to your knowledge, has Chad Denton ever shown
17   you a written document indicating that he has a claim on title
18   to the property that you bought for the man camp?
19   A.   There's no way he could have anything written from me.
20   Q.   Do you think the public and the oil exploration industry
21   would be better served if Mr. Denton or any of his entities
22   would be restrained from interfering with your property?
23   A.   They would be, and I sure would be too.
24              MR. PEPPER: Your Honor, we tender the witness.
25              THE COURT: You may inquire.

                                      35
 1             MR. COCHELL: Yes, Your Honor.
 2                               CROSS-EXAMINATION
 3   BY MR. COCHELL:
 4   Q.   Mr. Lobell, if the lis pendens is lifted, that still
 5   doesn't solve the fact that you've been sued in Texas for
 6   fraud, breach of fiduciary duty, inducing Mr. Stabinski, Hansen
 7   and Mr. Baker for breaching their fiduciary duties to
 8   Mr. Baker, isn't that right, sir?
 9   A.   Well, I say the lawsuits, they have put all the
10   allegations. You all are doing that. I never did fraud.
11   Q.   I'm sorry?
12   A.   I said that's you all's allegations on the fraud. That's
13   the lawsuits you're claiming, but, yes, the lawsuit will still
14   stay in place.
15   Q.   And you expressed surprise that this lis pendens showed
16   up, is that correct, sir?
17   A.   Absolutely.

18   Q.   Okay. And with respect to your surprise, you remember the
19   process servers that tried to serve you with this lawsuit over
20   a year ago? You remember them, don't you, sir?
21   A.   No, I don't know if it was a year ago. I travel and do
22   other things in Biloxi, Mississippi, and I told the processor
23   server to meet me there one day, and I didn't go. That was the
24   only time he was going to meet me, and so if he was supposed to
25   be there-- and he never called back the second time.
                                      36
 1   Q.     So you don't recall the process server calling you back a
 2   second time and arranging to meet you, and you failed to show
 3   that time, sir?
 4               MR. PEPPER: Objection, Your Honor--
 5               THE WITNESS: He may have.
 6               MR. PEPPER: -- relevancy.
 7               THE WITNESS: I don't remember.
 8               THE COURT: Overruled.
 9   Q.     (MR. COCHELL CONTINUING) He may have, but sitting here
10   you just don't recall?
11   A.     Mm-hmm.
12   Q.     Fair enough. And do you remember the e-mail that I sent
13   you asking you to waive service of the citation and lawsuit
14   approximately three or four months ago? Do you remember that,
15   sir?
16   A.     I do remember that.
17   Q.     You do?
18   A.     Mm-hmm.
19   Q.     Okay.
20               THE COURT: What does that-- what does it mean,
21   service of the citation? That's a summons?
22               MR. COCHELL: It's equivalent of a summons under
23   Texas -- and it's accompanied with the lawsuit.
24   Q.     (MR. COCHELL CONTINUING) So you didn't execute that
25   waiver of summons, is that correct-- waiver of citation?
                                     37
 1   A.   No, actually, I didn't.
 2   Q.   You did not?
 3   A.   I did not.
 4   Q.   Okay. And you had been told after either Mr. Baker or
 5   Mr. Hansen were served, that there was a lawsuit pending in
 6   Texas, is that correct?
 7   A.   Well, I knew there was. Mr. Baker called me.
 8   Q.   And you got a copy of that lawsuit, didn't you, sir?
 9   A.   No, I had parts of it.
10   Q.   What's that?
11   A.   I had a page or two of it.
12   Q.   A page or two. Okay. And you've been represented by
13   Mr. Pepper for some time, isn't that correct? He's represented
14   you in other matters before this one?
15   A.   I did. I do.
16   Q.   And Mr. Pepper was aware of the lawsuit because Mr. Pepper
17   represents Randy Baker, isn't that correct, sir?
18   A.   He does.
19   Q.   Okay. And so you got a copy of the lawsuit when
20   Mr. Pepper undertook representation of Mr. Baker, isn't that
21   correct, sir?
22   A.   No, I didn't. I asked Mr. Pepper what it was about, and
23   he told about what Mr. Denton was alluding to, so I knew what
24   was coming.
25              MR. PEPPER: Your Honor, I object. He's starting to
                                       38
 1   get into lawyer-client privilege. This is a hearing on a
 2   cancellation for a notice of lis pendens. This has absolutely
 3   nothing to do with what we're seeking here in terms of trying
 4   to overcome our proof that they had no interest in the
 5   property. What the Texas lawsuit or service of process of
 6   Mr. Lobell or my conversations with Mr. Lobell has to do with
 7   trying to overcome our proof, I do not see a shred of
 8   relevance, Your Honor.
 9              THE COURT: Well, the relevance is somewhat suspect,
10   but the witness already answered the question after the
11   objection was made, so the objection is overruled.
12              MR. COCHELL: Thank you, Your Honor.
13   Q.   (MR. COCHELL CONTINUING) With respect to-- and so, in
14   fact, we had to get alternative service of process and post
15   that process-- that citation and lawsuit on your door, isn't
16   that correct?
17   A.   I don't remember that. I remember the girl coming up the
18   back steps dressed in short pants and a halter top come to my
19   house.
20   Q.   Okay. And so-- and she served you with the lawsuit then?
21   A.   Mm-hmm.
22   Q.   And did you read the lawsuit?
23   A.   No.
24   Q.   And when did that happen, about four months ago?
25   A.   Yeah, about four months ago.
                                   39
 1   Q.   So you got served with the lawsuit, but you didn't read
 2   it, sir, is that correct?
 3   A.   I read parts of it.
 4   Q.   Did you send it on to anybody?
 5   A.   I sent it to Mr. Pepper.
 6   Q.   Fair enough. Okay. So with respect to this lawsuit,
 7   you're saying this is the first time that you ever heard that
 8   Mr. Denton was partners with Mr. Baker, Hansen and Stabinski?
 9   A.   I didn't say that. I always knew that they had a
10   relationship. Not with me. He does have a partnership or
11   something with Hansen and Baker. I don't know if he had it
12   with Stabinski, but that doesn't pertain to me. just as I told
13   Chad Denton at lunch, "It's not my deal if Mr. Baker and them
14   owe you money. This is my company. If they do, I can ask them
15   to give it to you, but I can't make them." I did not make a
16   deal with this gentleman.
17   Q.   All right. And so you're suggesting --you're conceding
18   that there-- that there probably was a partnership between
19   Mr. Baker, Denton, Stabinski and Hansen, is that correct, sir?
20   A.   No, I'm not saying there's a partnership. There's
21   something going on over there because when you ask them,
22   there's no document signed with that gentleman. They think
23   they have partnerships, but there's no paperwork. Mr.
24   Stabinski is livid that every time he says a partnership,
25   there's no paperwork. And if there was paperwork, he wouldn't
                                     40
 1   have run over there after I talked to him to get him to try to
 2   sign something when I was going to do the deal, so I don't know
 3   if there's a partnership. That's not for me to say.
 4   Q.   And there's --and it's your testimony, sir, that you
 5   didn't enter into a partnership with Mr. Baker, Hansen and
 6   Stabinski, is that correct?
 7   A.   No.
 8   Q.   Okay. And you didn't enter into an agreement whereby you
 9   would pay them 68 -- you would -- you would pay them 20 percent
10   -- or 32 percent profit while your debt was being repaid, and
11   you would have 65 percent for a period of time?
12   A.   No.
13   Q.   You never entered into any such deal?
14   A.   No.
15   Q.   You never discussed any such deal with them, is that
16   correct?
17   A.   I discussed the deal, but you have it all wrong.
18   Q.   I'm sorry?
19   A.   I discussed the deal, but you have it all wrong.
20   Q.   Okay. Tell us what the deal was.
21   A.   Okay. The deal was, they came to me on july--
22              THE COURT: When you say "they," now--
23              THE WITNESS: Mr. Baker.
24              THE COURT: Mr. Baker.
25              THE WITNESS: I'm going to calm down here, okay?
                                    41
 1   They came to me on july 15th. Mr. Baker asked me to go into
 2   business. He said there was a gentleman that was supposed to
 3   put up the money. I said, "Okay, so what happens now?" He
 4   said, "He can't do it. The money man is gone." They brought
 5   Mr. Baker to three or four people with Mr. Denton, and I didn't
 6   know his name at that point, but the gentleman with the money,
 7   and he couldn't put the money together, so he said they would
 8   like to work and do a deal. They would like 50 percent of the
 9   deal, and I said --first of all, they came to me and said they
10   wanted $6 million.
11                           Let me back up. Myer called at the end of june and
12   said, "Listen, we have a proposal for you. Would you put up
13   $6 million, get interest rate and get 20 percent of the deal?"
14   I said, "Don't even come, Myer. I won't do it. I'm not a
15   bank. I'm not going to lend somebody money that doesn't know
16   what they're doing and never been in this business." He said,
17   11
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18   "Well, if you want to do it, but if you're coming for
19   $6 million, I won't do it." He said, "No, no, we'll do
20   something different. just look at it. Help us out. You might
21   know somewhere to raise the money."
22                           Mr. Baker came on july 15th. Like I said, he came to
23   me, says, "Kenny, this is the deal. You know, we'll pay you
24   the money. After it's paid, we'll all get 20 percent." I
25   said, "Randy, save your oxygen. I won't lend the money." He
                                                                   42
 1   said, "What would you do?" I said I'd open my own company.
 2   I'd put up $6 million. He said, 'We would like 50 percent of
 3   the deal." I said, "I know you would, and I would like -- I
 4   would like a hundred percent of the deal. I would not put up
 5   money if you all don't even have the wherewithal to do this.
 6   tell you what I'll do. I'll give you a job. I'll pay you each
 7   $1 0,000 a month, and let's see who everybody is and what they
 8   can do, and if $6 million is all I got to pay up, we'll do some
 9   sort of split if we make some money." I said, "But if I got to
10   put up more money, I'm going to fire you," just kidding with
11   him. I said, "So let's see what happens."
12              Well, as you see, February I got over $15 million
13   with no income coming in. The houses went doubled-- doubled
14   up, so the deal that they projected never was anywhere. And I
15   said, "Listen, you don't have ownership. You'll never have
16   ownership. We may do some share in profits." And you'll see
17   Mr. Baker and Mr. Stabinski, the only two people I talked to
18   about the deal, are going to confirm that, and they confirmed
19   that in the affidavits. I never, ever talked to Mr. Denton
20   about any type of partnership, proposals, 20 percent. That
21   must have been in their book, and it was in their book. That's
22   the deal they wanted to do, but that would never fly. I would
23   not put $6 million for people that don't even have jobs and I
24   got to put 20 million, $30 million in a project. I just don't
25   do that.
                                     43
 1   Q.       (MR. COCHELL CONTINUING) So you knew that there was some

 2   relationship between Mr. Baker, Mr. Stabinski and Mr. Denton,

 3   correct?
 4   A.       Yeah.

 5   Q.       And you decided that whatever their relationship was, it

 6   didn't matter to you. You were going to ignore that
 7   relationship in going forward with them.

 8   A.       It had nothing to do with me.

 9   Q.       Okay. So you knew of the relationship, but you decided to
10   ignore it because you didn't think it had anything to do with

11   you.

12   A.       I didn't ignore it. I didn't-- I didn't-- when I tell
13   them I would go open up a camp of my own, do they want to work

14   for me, they said yes. They had no relationship with anybody.
15   Q.       Now--

16   A.       They became employees, so I had no obligation to worry
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18   opening up a man camp. They couldn't do the man camp.

19   Q.       Understood. Now let me ask you, sir, with respect to

20   information, did you get any information from them before you
21   met them on July 1 5?

22   A.       Yeah, they gave me a book that's all wrong.

23                      THE COURT: They gave you a what?

24                      THE WITNESS: A book, a budget book, project book, a
25   nice pretty book with pictures.

                                                                     44
 1   Q.     (MR. COCHELL CONTINUING) I'd like to show you, sir,

 2   what's been marked as Defense Exhibit 1 for identification.

 3   I'd ask you, sir, if you recognize that document.

 4                MR. COCHELL: One moment, Your Honor.
 5                MR. NYHUS: Your Honor, would you like a copy of

 6   these exhibits as well?

 7                THE COURT: Yes, it would be nice.

 8   Q.     (MR. COCHELL CONTINUING) Do you recognize that document,

 9   sir?

10   A.     I recognize some of this, but I also see a purchase

11   agreement here made out to Capital Riggers Lodge, and it has

12   $40,000. I never saw that. That has nothing to do with me.
13   Q.     You never saw that?

14   A.     No.

15   Q.     You never heard of Capital Riggers Lodge?

16   A.     Capital Riggers Lodge was the name that they put on the

17   application when they needed a name. Mr. Baker said they had

18   to have names. Ms. jill, or whatever, at the commission office

19   said they had to have a name of something, but it was just a
20   name they came up with. It's never been incorporated. It's

21   nothing.

22   Q.     Okay. Do you -- do you understand that that was the

23   predecessor name of Capital Lodging?

24   A.     That's the name they were using. My license in Capital

25   Lodge. You can have a -- you can have names, but if you don't

                                      45
 1   have a company or have --where did that go to? That doesn't
 2   go to anything.
 3   Q.   I wasn't asking to argue the point, sir.
 4   A.   Okay.
 5   Q.   I was just asking you if you understood that to be the
 6   name that the-- a predecessor name to what ultimately became
 7   Capital Lodging.
 8   A.   Mm-hmm.
 9   Q.   Okay. And on this particular document--
10   A.   It didn't become a-- it didn't ultimately become Capital
11   Lodging. My company was Capital Lodging. Capital Riggers did
12   not become Capital Lodging. My company is out of Louisiana.
13   don't know where this company is.
14   Q.   One moment.
15   A.   And let me just tell you about these documents.
16   Q.   Let me just --let me just ask the questions if you--
17   A.   Okay.
18   Q.   --would, sir.
19   A.   You asked me about the documents.
20   Q.   This is a-- this is a document that's dated july 11th,
21   2011, is that correct, sir?
22   A.   Wait. Wait. I'm sorry, what? This document here?
23   Q.   Yeah, Defense 1.
24   A.   Well, you know, I don't know what this is, I mean,
25   because --
                                   46
 1   Q.   Do you remember getting the e-mail that's sent to you,
 2   khlobell@cox.net? That's your e-mail address, isn't it, sir?
 3   A.   Yeah, it's my-- it came, but I don't remember seeing this

 4   because this is the same thing they brought me in a-- in a
 5   book.

 6   Q.   Okay. So but do you believe it's probable that you
 7   received this document, D-1 -- marked D-17

 8   A.   Yeah. Myer Stabinski, I see, sent it to me. Chad Denton

 9   didn't send it to me. Myer Stabinski sent me this evidently.
10   Q.   Right, but Chad Denton's e-mail address is on this
11   particular document, Defense 1, isn't that correct, sir?
12   A.   Sure.
13   Q.   Okay. And so you did know who he was when you first met
14   with him on july 1 5.

15   A.   No, I didn't pay-- I mean, they may have said his name,
16   but it was no -- they never-- they never brought anybody's

17   name up. They were more-- Chad Denton's name did not come up.
18   Randy Baker came to me, said that this was their idea, he and
19   Myer Stabinski. I don't know what happened to anybody in the
20   past. They pitched this thing as that they had the opportunity
21   to open a man camp. I don't even know these people. I know

22   Mr. Stabinski, so I got to believe what they're saying is true.
23   Now, they could have had Chad Denton. They had Chad Hansen.
24   didn't even know Chad Hansen's name until I got to the bank and
25   they said I had to write him a $1 0,000 check.

                                     47
 1   Q.     Well, let me just invite your attention to the last page
 2   of Defense Exhibit 1, where it says "List of Assets."
 3                  MR. PEPPER: Your Honor, for clarity's sake, I would
 4   ask that the defense mark each page alphabetically maybe at the
 5   bottom so there's no confusion as to which page he's talking
 6   about.
 7                  MR. COCHELL: I think the last-- referring to the
 8   last page of the document is pretty clear, Your Honor. We're
 9   not --
10                  THE COURT: As long as it remains the last page.
11                  MR. COCHELL: Yes, sir. That's --that's about all
12   that I plan to ask the witness about.
13                  THE COURT: All right.
14   Q.     (MR. COCHELL CONTINUING) Do you see that list of assets,
15   sir?
16   A.     You're talking about 80 acres of land on Highway 2?
17   Q.     Eighty acres of land on Highway 2, VVillian1s County, North
18   Dakota?
19   A.     Sure.
20   Q.     Okay. And so that was listed as one of the assets of the
21   investment package being proposed by Mr. Stabinski and, to your
22   knowledge, Mr. Baker, is that correct?
23   A.     Well, I didn't look at this, but I'm looking at it now.
24   It says assets. Assets are usually something that's owned.
25   mean, that was something they were trying to buy or put
                                       48
 1   together as assets. It wasn't their assets, is what you're
 2   saying?
 3   Q.      My question was, this was listed as one of the assets in
 4   the investment package. Can you answer that yes or no, sir?
 5   A.      I see it here, but I didn't see it when I looked -- I
 6   didn't see this before. This is the first time I'm seeing
 7   this.
 8   Q.      With respect to the-- and this is very similar to the
 9   document that they gave you, is that correct, when they visited
10   you on--
11   A.      You know, it might be in the book. Even to this day I
12   didn't even go through the whole book because it would just
13   tell me what they needed. And they said they had to buy a
14   dome. They had to buy 80 acres of property, so, yeah, these
15   are things that you have to buy if you're going to do a camp.
16   Q.      I'd like to show you a copy of what's been marked as
17   Exhibit 2 for identification. I'm going to ask you, sir, if
18   you can recognize that document.
19                MR. COCHELL: There's a copy of the document for Your
20   Honor. Actually, I believe this is the wrong copy. Sorry.
21   No, it is the wrong copy. I'm sorry.
22                THE COURT: How many exhibits do you have, sir?
23                MR. COCHELL: I have about-- probably about 1 5 or 16
24   exhibits for this witness, Your Honor.
25                THE COURT: All right. Well, why don't we start
                                        49
 1   renumbering early in the game and start defendants at SO.
 2             MR. COCHELL: At 50?
 3             THE COURT: Fifty, and you can just scribble it on
 4   the document if you're going to offer those exhibits.
 5             MR. COCHELL: What we refer to as Exhibit 1 is now
 6   Exhibit 50, and this exhibit is 51. All right.
 7             THE COURT: Well, it's probably easier if we start
 8   with D-51.
 9             MR. COCHELL: Oh, D-51, yes, Your Honor.
10             THE COURT: Then you can at least maintain one of the
11   numbers for each of the exhibits that will be the same.
12             MR. COCHELL: Okay. So I show you what's been
13   previously marked as-- by the way, Your Honor, we'd move the
14   admission of 51.
15             MR. PEPPER: Your Honor, I didn't hear anything from
16   the witness clearly identifying the conglomeration of exhibits
17   as something he iecognized as the book, only parts of it, so

18   again, we come to the problem of clear identification of which
19   parts of the exhibit that could be admitted based upon the
20   witness's testimony.
21             MR. COCHELL: The witness did say that he probably
22   got it by e-mail, and he's also ignored a couple -- he's also
23   indicated that he seems to ignore documents when they come in.
24   We believe it was received by the witness.
25             THE COURT: Well, is Exhibit D-51 the same project
                                    50
 1   book that you're contending Mr. Lobell received, or is this
 2   something else?
 3              MR. COCHELL: It is.
 4              THE COURT: It's the project book? The objection is
 5   noted and overruled. I'll receive Exhibit D-51 for whatever
 6   purposes   i~s   intended.
 7   Q.   (MR. COCHELL CONTINUING) Mr. Lobell -- Mr. Lobell, if you
 8   could, please tell us if you recognize this document.
 9   A.   Which one?
10   Q.   Fifty-two.
11   A.   Well, as it starts off-- well, you got to understand, at
12   this point it just confirms what's going on. My relationship
13   is with Myer Stabinski.
14   Q.   Tha~s   a yes or no question.
15   A.   Okay.
16   Q.   Can you identify this document?
17   A.   I saw the first page from Myer Stabinski. Myer Stabinski
18   sent this one, correct?
19   Q.   Do you -- do you recall getting this e-mail from Myer
20   Stabinski on or about July 11, 2011?
21   A.   From Myer Stabinski, yeah, absolutely do.
22              MR. COCHELL: Okay. And so we move the admission of
23   52, Your Honor.
24              MR. PEPPER: Your Honor, we object inasmuch as I
25   think the witness has only testified as to receiving the first
                                      51
 1   page. I don't believe there's any testimony being elicited on
 2   any other parts of the document that's been listed as 0-52,
 3   which looks like a conglomeration of--
 4             THE COURT: Well, I don't have the Exhibit 52 in
 5   front of me, so I don't even know what it is.
 6             MR. COCHELL: Oh, I'm sorry, Your Honor. I thought I
 7   gave you a copy. I apologize.
 8             THE COURT: You gave me a copy of Exhibit 51.
 9             MR. COCHELL: That's 52. I have it remarked, Your
10   Honor.
11             THE COURT: So, Mr. Lobell, did you see all seven
12   pages of Exhibit--
13             THE WITNESS: Well, Your Honor--
14             THE COURT: -- 51 -- or 52 I should say?
15             THE WITNESS: And again, this-- I'm not saying this
16   isn't it. It looks like it is, but this is dated July 11th.
17   This is when they were trying to get me interested in a deal,
18   so, yes, they could have sent this. This is parts of their
19   pitch book that I didn't agree to because I see it right here
20   on the first page, so I'm assuming it's all the same because I
21   didn't even go through all --a budget is only as good as you
22   want to make it to be, so, yeah, this is probably it.
23             THE COURT: Objection is overruled. Exhibit 0-52
24   will be received.
25   Q.   (MR. COCHELL CONTINUING) And, of course, on page-- on
                                     52
 1   the third page of that document, 52, that refers to startup
 2   financials; land cost, $816,000, is that correct, sir?
 3   A.   Yeah, it is. It says it.
 4   Q.   Okay. And, Mr. Lobell, you did not ask any questions on
 5   july 15th about whether they had a partnership that included
 6   Mr. Denton. That was just something that you decided that
 7   wasn't your problem, is that correct?
 8   A.   No, I didn't ask the question, but they told me there was
 9   --you know, there was no partnership.
10   Q.   They told you they didn't have a partnership with Mr.
11   Denton?
12   A.   No, they said -- no, they didn't tell me they had a
13   partnership. There was no partnership that was coming to me.
14   I'm sorry. I misunderstood your question. I don't know what
15   they had with Mr. Denton. They were just looking for somebody
16   to do this opportunity with them.
17   Q.   I see. And so did you ask them -- did you have an
18   understanding of how long they spent up in North Dakota
19   developing or getting the groundwork laid for this project?
20   A.   No.
21   Q.   You didn't realize that they had spent two-and-a-half or
22   three months getting-- identifying the land, getting the water
23   permit, getting a conditional use permit, pulling together
24   marketing information such as the information you got here?
25   You have no understanding of that one way or another?
                                     53
 1   A.   I don't know if they spent two months or two years. They
 2   came to me with an opportunity and they needed money, and they
 3   were going to lose their opportunity, so I don't know how long
 4   it took them.
 5   Q.   All right. And so with respect to all of that, you
 6   entered into this deal with them where you had no obligation to
 7   them, but you got all the benefit of all the work that they had
 8   done prior to approaching you, is that correct, sir?
 9             MR. PEPPER: Objection to the form of the question.
10   The predicate assumes facts not in evidence or testified to,
11   Your Honor.
12             THE COURT: Overruled.
13             THE WITNESS: If I had to do over again, I wouldn't
14   do it because what they brought me-- you're saying I had all
15   the upside? I had $34 million in here. They said I needed 6,
16   so what opportunity-- I wish Mr. Denton were to come in and
17   participated. I vvas looking for investors, so there's no

18   upside in here. I don't get money for two-and-a-half years.
19   Q.   (MR. COCHELL CONTINUING) All right. But my question,
20   sir, is that these-- you're telling the Court that these
21   gentlemen did substantial work as far --you don't know one way
22   or the other--
23   A.   No, I didn't say that.
24   Q.   -- if they did substantial work.
25   A.   I don't know what they did.
                                    54
 1   Q.   Okay. But if the evidence showed they did substantial
 2   work and they came to you and said, "Please give us a job,"
 3   that's --that's how you viewed the situation, that they
 4   weren't--
 5   A.   No, I viewed the situation that if I'm going to put
 6   $6 million into something with somebody I don't know, I'm not
 7   giving them a partnership. They have --they have to prove
 8   themselves. At the very end of everything, neither one of them
 9   proved themselves, nor did Mr. Hansen. They went millions over
10   budget. Mr. Baker had to quit. I had to bring in other
11   people. Every sub they had, I had to redo two and three times.
12   We're probably $5 million over budget because these guys knew
13   what they were doing? No, they didn't, and I knew because I've
14   been in business long enough that this stuff happens, just
15   because somebody has a good idea.
16               So if Mr. Denton would've wanted to come in and if
17   they would've said, "I'll hold this and I'll pay you, Kenny,
18   anything over," in hindsight-- like I said, being in New
19   Orleans and putting $34 million into a city, you know, this
20   whole budget-- that's why I didn't look at this, because I
21   knew it-- I put my own budget together. I do subdivisions
22   now. I knew they were wrong, but they had a good idea.
23               But I don't know what they did because let me tell
24   you, we had to get our own permit. The water bill is in our
25   name. The electric bill is in my name. just because Mr.
                                    55
 1   Denton did all this and couldn't do it, that doesn't mean --
 2   that's the price of doing business. I do this every day of my
 3   life. I put hundreds of thousands and it doesn't work, so you
 4   can't be rewarded if you can't do it. Now, Mr. Baker still,
 5   just so you know-- when he comes, you can ask him. He was the
 6   guy who brought the deal. It wasn't Mr. Denton. Mr. Denton
 7   was supposedly a money man. Mr. Baker alludes he was the
 8   project. I don't have any reason not to believe this
 9   gentleman.
10   Q.      Let me ask you something, sir. Don't you use people to
11   negotiate deals for you or to, you know, break the ice in
12   trying to discuss deals with other partners?
13   A.      No.
14   Q.      Okay. But your lawyers negotiate the details of deals for
15   you, right?
16   A.      Ask my lawyer if he negotiates. No.
17   .....
     n       Okay. And so you never use agents acting for and on your

18   behalf when you do business?
19   A.      You know, I might use an agent, but I don't know if
20   Mr. Baker-- he never alluded that he was agent of Mr. Denton.
21   Mr. Baker said he was the deal, and Mr. Stabinski said he was
22   the deal. I don't have-- I don't know these people. I don't
23   have any-- like if I want to buy a house -- I don't know if
24   Mr. Denton tried to buy the house before I did. The house is
25   for sale right now.
                                     56
 1   Q.    All right. And so let me ask you this. You met with
 2   these fellows on july 15th, and then would you say that you
 3    reached an agreement with them about a week later? Is that
 4   correct?
 5   A.    I would say so.
 6   Q.    Okay. And so at that point, on or about july 23rd, a deal
 7   -- a firm deal, you know, going forward where you would be the
 8    owner of everything and you would give them money if you felt
 9    at the end of the day that they deserved some money --
10    A.   No, they had to prove themselves because, again, you have
11    two guys that are unemployed, talking about a $34 million
12    operation that haven't made $100,000 a year. I mean, so-- I
13    mean, I know what I'm dealing with, but I'm the kind-- look, I
14    went into BP and spent $22 million and didn't know what I was
15    doing, but it ended up being okay. I don't-- I don't mind
16    taking chances, but I also know what I'm dealing with, so the
17    opportunity was good. I had some free time. The way I was
18   . going to invest in it seemed like a good idea, but I knew I'd
19    have to go in here and it was a lot of risk, and there still is
20    a lot of risk.
21    Q.   With respect to this relationship with Mr. Baker and Mr.
22    Stabinski, before you jumped into this deal, you didn't conduct
23    your own due diligence to see who Mr. Baker was or to really
24    figure out whether that deal was real, other than just talking
25    to them, isn't that correct?
                                     57
      1      A.       No, that's not true. I looked at Mr. Baker. I Googled
      2      him, and I-- and Mr. Stabinski vouched for him, that he was a
      3      fair guy. I met him. He seemed like he was honest. He was in
     4       the construction business. I knew I could do the -- I knew I
      5      could take it over. I mean, I didn't give them full rein. I'm
      6      in the-- I'm in the real estate business. He just had an
      7      idea, knowing -- I knew he couldn't do it probably and I knew
      8      I'd have to come probably do it. And I brought Mr. Boudreaux
      9      in to run the whole company when I had to-- when Mr. Stabinski
10           got sick-- I mean Mr. Baker.
11           Q.       With respect to Mr. Baker, you did not have him enter into
12           an agreement with you for employment or consultation with you,
13           did you, at that time in july of 2011?
14           A.       Yeah, they both got ten-- before they walked out of New
15           Orleans, I gave $30,000 because they had no money. They each
16           wanted $10,000, so I think that was an agreement. They worked
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18           Q.       So it's not a written agreement where they say--
19           A.       No.
20           Q.       -- Kenny Lobell is taking over this project and we waive
21           any right, title or interest in the project. You didn't do
22           that, isn't --
23           A.       They didn't ask me that--
24           Q.       --thatcorrect,sir?
25           A.       -- because I owned the company. I bought the land. I
                                              58
 1   opened my company. I gave them a job, so why should I have to
 2   ask them. They have rights to what? They don't-- they didn't
 3   give me anything. They gave me an idea. That's what they gave
 4   me. Everything they gave me was not right anyway. They almost
 5   jeopardized us with the permit and everything else, so you
 6   think this is a finished package. Here, go get $6 million.
 7   You still --they say we make 43 million a year.
 8   Q.   I'm not trying to argue with you, sir. I'm just--
 9   A.   Well, you --
10   Q.   -- asking you a question.
11   A.   Okay.
12   Q.   You know, I just asked, you did not clarify in writing
13   what your relationship was with them for bringing you an idea
14   that had multimillion-dollar potential, isn't that right?
15   Isn't that right?
16   A.   No.
17   Q.   Okay. You did not have anything put in writing in july of
18   2012 or August of 2012 or September of 2012, indicating to
19   Mr. Baker and Mr. Stabinski or Mr. Hansen, I am taking over
20   this project in its entirety. I appreciate you bringing the
21   deal to me, but you don't share in any profits. You'll be my
22   employees, or words to that effect?
23   A.   No, I didn't.
24   Q.   Nothing like that.
25   A.   No, because --
                                      59
      1                                          MR. PEPPER: Objection, Your Honor. Objection to the
      2     form of the question in terms of relevancy. Again, we're
      3     talking about a cancellation of a notice of lis pendens. What
      4     Mr. Lobell decided to do when he paid Mr. Baker, Mr. Hansen and
      5     Mr. Stabinski has nothing to do with Mr. Denton or for that
      6     matter any one of the entities that he is claiming have an
      7     interest in that property.
      8                                          MR. COCHELL: If one takes a one-sided view and just
      9     prejudges that everything they say is true, then that might be
10          a relevant objection, Your Honor. The issue of relevance is
11          broader, however, because we allege and have alleged for some
12          time that there was a partnership by Baker, Stabinski, Denton
13          and Hansen, that this partnership came to him with an
14          investment package listing this property as an asset, and he
15          accepted that deal going forward. He agreed.
16                                               And we haven't gotten to a couple things, but he
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18          be listed as the owner. However, they would have an operating
19          agreement, and we contend that he reneged on that agreement and
20          that he cut out Mr. Hansen -- Mr. Denton as soon as he got all
21          the permits and licenses and all of the benefit of the work
22          that he had funded and so on, so while I understand counsel
23          would like to continue this objection, we'd like to continue
24          asking the witness questions which go to our case.
25                                               THE WITNESS: I'm okay answering that.
                                                                                                                60
 1            THE COURT: Objection overruled.
 2   Q.   (MR. COCHELL CONTINUING) All right. Now, Mr. Lobell --
 3            THE COURT: Are any of these so-called partnership
4    agreements in writing anywhere, or are we just talking about
 5   e-mails and thoughts and plans and ideas?
 6            MR. COCHELL: E-mails, budgets, plans, verbal
 7   agreements between people and people performing on those
 8   agreements, which is quite important, as I'm sure Your Honor
 9   understands that. And I think the evidence will show that
10   there was reliance on the promises made and the conduct that
11   was consistent. This is a de facto partnership, Your Honor,
12   which is recognized in Texas, and I also believe in North
13   Dakota as well.
14            THE COURT: De facto partnerships?
15             MR. COCHELL: De facto partnerships.
16            THE COURT: Continue with your questions.
17             MR. COCHELL: Thank you, Your Honor.
18   Q.   (MR. COCHELL CONTINUING) Now, Mr. Lobell, you currently
19   have an agreement with Mr. Baker, is that correct?
20   A.   I have an agreement with Mr. Baker. He got sick, and I
21   got an agreement with Mr. Baker that would still pay him his
22   consulting fee. I do have that agreement. That was the only
23   agreement, but I'll go back to your other question. I had 2 50
24   people working for me. Not one has an agreement when I pay
25   them as an employee or a consultant. There's no contract. I
                                  61
 1   have Mike Boudreaux I paid $1 50,000 a year. He doesn't have a
 2   contract with me. He works for me.
 3   Q.          Okay. Thank you. With respect to Mr. Baker, have you
 4   entered into a written agreement with him as a consultant?
 5   A.          Yes, I do have that. No, that's --
 6   Q.          So he's the first one out of 2 50 employees to get a
 7   written agreement. Is that what you're saying, sir?
 8   A.           No, he wanted an agreement because he was sick, and so
 9   what I told him, that he doesn't have right to come back and
10   sue me or do anything. This is -- he got sick. He wanted
11   something in writing to protect him, so I did, so I'm paying
12   him his $1 0,000 a month for a year-and-a-half. I forgot
13   exactly, and he gets his truck, because when they came to me,
14   Mr. Stabinski and Mr. Baker, I told them that they could have
15   their trucks. The company would pay for their trucks if they
16   worked, and when they got paid off, I would give them their
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18   Q.           I see. Have you had occasion to-- but you do have this
19   in writing, is that correct?
20   A.           Mr. Baker?
21   Q.           Right.
22   A.           Not the first one, the second one. Not his employment
23   when he came to work.
24   Q.           I understand.
25   A.           Okay.
                                          62
 1   Q.   Okay. The second agreement is in writing and it provides

 2   for release of all claims against you, to come back against him

 3   for any reason.
 4   A.   No, I don't know if that's what it says. I don't know if
 5   that -- I got to see what it says. I want to see that.
 6   Q.   Why were you concerned with Mr. Baker suing you?
 7   A.   I'm not -- I'm not concerned about him suing me.
 8   Q.   Okay. With respect to Mr. Baker, have you ever threatened

 9   Mr. Baker --
10   A.   No.
11   Q.   -- if he didn't-- if he didn't come here to testify
12   today?
13   A.   No. You ask Mr. Baker that. I don't threaten anybody.

14   Q.   Okay. And have you promised anyone money in exchange for

15   their testimony here today?
16   A.   Absolutely not.
17   Q.   Okay. And did you make any offer of compensation, either
18   directly or indirectly through Mr. Baker or through Mr. Pepper,
19   offering to pay $20,000 to Chad Hansen --
20   A.   No.
21   Q.   -- if he signed one of your affidavits that you filed with
22   the Court?
23   A.    No. May I explain?

24   Q.   Well, I asked--

25   A.    Okay.
                                      63
 1   Q.   --the question.
 2   A.   Well, Mr. Morales, the gentleman that's going to be here
 3   with the gentlemen that are in here right now, their lawyer
 4   prepared an affidavit for Mr. Hansen because they are trying to
 5   work a deal with you and that gentleman right there. You know
 6   they've been trying to do it for the last month. They had
 7   Mr. Hansen -- I fired Mr. Hansen because there was something
 8   going on with the landscape and things like this. I didn't
 9   feel comfortable with it. I found out something, so I
10   terminated him because I was paying money to everybody that I
11   didn't know I was paying, and it was up to hundreds of
12   thousands of dollars a month. Mr. Hansen was fired, okay? And
13   so-- terminated, but I still paid him after he was terminated,
14   just so you know too.
15   Q.   How long?
16   A.   I don't know. Maybe four months, five months.
17   Q.   c,... \yuu
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18   A.   No. No, I only paid him 2,000. I paid him $1 0,000 for
19   months and months, and then I started finding out-- when I
20   finally could see who could do what, I was asking Randy what's
21   -- he was basically Randy's secretary. I mean, there was no
22   value to these people, and you can see that I'm writing, you
23   know, a million-three a week-- a week.
24                 So what happened was Mr. Morales' lawyer prepared an
25   affidavit to give to Mr. Hansen because they didn't want
                                                           64
 1   Mr. Hansen --just like they're trying to get Mr. Denton not to
 2   sue them if I sell them the company. You can come sue me. So
 3   they were saying they didn't want Mr. Hansen --that affidavit
 4   was prepared by them, and Mr. Morales will attest to that, and
 5   I sent it to Randy. I wasn't paying -- I didn't care if Mr.
 6   Hansen testified or didn't because he's got to tell the truth.
 7   I never talked to Mr. Hansen about this deal, by the way. It
 8   was only Myer and Mr. Baker.
 9   Q.   All right. Now, so you paid --you terminated Mr. Hansen
10   for what you thought might be -- might be theft or might be--
11   A.   I just wasn't comfortable with everything.
12   Q.   Huh?
13   A.   I just terminated him because I wasn't comfortable with
14   what was going on. There was too much money going back and
15   forth. And the last thing was I called the landscape company.
16   As soon as I questioned Mr. Hansen that it was too expensive,
17   the bill went down by $5,000. I felt uncomfortable, so I don't
18   know if he did something, but I told Randy-- Randy will attest
19   to this. He was going 300 miles an hour. Randy could not run
20   the project. People were overcharging us. There were
21   kickbacks. I took charge of my own project and I said, "Randy,
22   it's got to stop." He had a maintenance man making a $1 50,000
23   a year. I said, "It's got to stop."
24   Q.   Did anyone send him a letter saying, "You're terminated
25   for cause"?
                                     65
 1   A.   No.
 2   Q.   Okay. Did Randy-- was Randy instructed to tell him that
 3   he was terminated for cause?
 4   A.   I told Randy, I said, "We don't need Mr. Hansen anymore.
 5   We can't keep spending $10,000 a month."
 6   Q.   So a guy who did a terrible job for you and may have even
 7   been stealing from you, you continued to pay him $2,000 a month
 8   for several months after he was terminated, is that correct?
 9   A.   That's exactly how I paid him the $61,000. Yes, I did.
10   Q.   All right. And he has been gone from the project since
11   about November or December of 2011, is that correct, sir?
12   A.   I believe. I don't know.
13   Q.   Okay. It sounds about right to you?
14   A.   It does.
15   Q.   All right. Then all of a sudden out of the blue, Walter
16   Morales is concerned about whether he was terminated for cause
17   over landscaping? Is that vvhat you're telling the Court, sir?

18   A.   No, I'm not saying that at all. Walter Morales is worried
19   about everybody suing him if-- it's okay for Chad to sue me,
20   okay? I don't care, but if I sell the company, they're worried
21   about everybody in -- Chad and Mr. Hansen, the hostile guy
22   that's going to be against me because I let him go, and Mr.
23   Denton, who I don't even know, suing these gentlemen, coming
24   back and suing them and me. That's what they're worried about,
25   so they want an affidavit signed.

                                     66
 1   Q.    Okay. So you're laying this off on Mr. Morales, but isn't
 2   it true, sir, that Mr. Pepper drafted that affidavit and
 3   forwarded it to you?
 4   A.    Mr. Pepper took their-- their draft and forwarded it to
 5   us.
 6   Q.    I see.
 7              THE COURT: Somebody needs to tell me who Mr. Walter
 8   Morales is because that name just surfaced.
 9              THE WITNESS: He's --Your Honor, he's my 10 percent
10   partner that they're recovering --they're 10 percent partners.
11   They're trying to buy me out right now and make the camp bigger
12   because they have a hedge fund or some investors that are
13   coming in.
14                  THE COURT: When you say "they," who are you
15   referring to?
16                  THE WITNESS: Well, they had BlackRock, a big hedge
17   fund out of New York. They had White Oak. They have--
18                  THE COURT: They have these entities in line. Who is
19   "they"?
20                  THE WITNESS: They, Moraleses. The Moraleses have
21   these funding agencies in place.
22                  THE COURT: All right.
23   Q.    (MR. COCHELL CONTINUING) Now, when he forwarded it to
24   you, did you ignore the e-mail or did you read through it?
25   A.    I'm sorry. What are you talking about, the affidavit?
                                       67
 1   Q.   When Mr. Pepper sent you the e-mail -- let me mark the
 2   document, if I may. For the record, this is an e-mail chain
 3   that starts with Mr. Pepper to Mr. Lobell and then on to
 4   Mr. Baker and then to Mr. Hansen, and then he forwards it to
 5   Mr. Denton. I show you this document, sir, and ask you if you
 6   recognize that document.
 7              THE COURT: What document is it?
 8              MR. COCHELL: This is Number 53, Your Honor, Defense
 9   Exhibit 53, which purports to be an affidavit that looks very
10   similar to some other affidavits filed with the Court, as well
11   as a release and settlement agreement.
12              THE WITNESS: This was a document drafted by Jose
13   Canseco that was sent to Mr. Pepper, and it was not my idea
14   about $20,000 because I knew Mr. Hansen was not going to be
15   friendly to me. They wanted to help Mr. Hansen to try to get
16   him not to sue them.
17   Q.   (rv1R. COCI--·IELL CONTINUING) So vvhy -- vvhy vvould they think
18   that Mr. Hansen is going to sue them?
19   A.   Why would they think Mr. Denton would sue them? Because
20   he does sue.
21   Q.   But does Mr. -- has Mr. Hansen filed a claim against you
22   or against them?
23   A.   No.
24   Q.   In fact, he's a defendant in the Texas case, isn't that
25   correct, sir?
                                    68
 1   A.   And he's a witness for you all.
 2   Q.   Yep. Okay. So-- and this doesn't say anything about any
 3   problems with the landscape. It's just very general, this
 4   settlement agreement, that there's a disagreement for payment
 5   of services and issues surrounding his services that have never
 6   been resolved.
 7   A.   That was one thing. There was a lot of other things.
 8   There was no-- there was no value to Mr. Hansen.
 9   Q.   Oh, I see.
10   A.   I was paying a million people that-- I finally caught on
11   to like nobody was doing anything, and Mr. Baker-- these were
12   friends of Mr. Baker, and I don't think he wanted to tell me.
13   Q.   I see. Now, with respect to this --a couple issues with
14   respect to your testimony, you mentioned earlier that you had
15   paid Mr. Denton after you met with him in New Orleans, is that
16   correct?
17   A.   I believe -- I didn't pay Mr. Denton. Mr. Baker paid Mr.
18   Denton.
19   Q.   Okay. I see. But you authorized the payment. You wanted
20   him to be paid, correct?
21   A.   Yeah, because the gentleman said he was out the money and
22   he felt like he was --you know, it wasn't fair that he
23   supported them and he-- but again, that's their partnership,
24   but I did do it because I didn't want any hard feelings with
25   any one of these guys.
                                    69
 1   Q.   During-- you met with him on August 31st of 2011, is that
 2   correct, sir?
 3   A.   I don't know the date.
 4   Q.   Okay. But it's around that time frame?
 5   A.   I would say so.
 6              THE COURT: Met with who?
 7              MR. COCHELL: Met with Mr. Denton. I'm sorry, Your
 8   Honor.
 9              THE WITNESS: He insisted a meeting.
10   Q.   (MR. COCHELL CONTINUING) All right. And so you met with
11   him and his girlfriend, Tammy. Do you recall that?
12   A.   They were very nice.
13   Q.   And you admitted to him-- do you recall admitting to him

14   that you had agreed to a 68 percent, 32 percent deal with Mr.
15   Stabinski and with Mr. Baker, and that the 65 percent would go
16   to you while your debt was repaid, and after repayment, each of
17   the five partners vvould get 20 percent of the net profit? Do
18   you remember admitting that to him, sir?
19   A.   No, I didn't say-- that was never the deal. You got part
20   of it right. If they could do what they said they could do, we
21   would do a 68/32 split. It was me -- I actually participated
22   in the 32 also. It was Chad Hansen. It was Myer. It was
23   Randy, and it was myself. It was never Mr. Denton, and I --
24   and Mr. Denton was mad because he said, 'They owe me. I should
25   be partners." And I told him, and he will say this today, "If
                                    70
 1   they owe you money, all I can do is ask them to pay you money.
 2   You're not in their partnership because they don't have a
 3   partnership with me. I own the company."
 4             So to go back to your question, it was never once it
 5   was paid they're going to get 20 percent. I never said that.
 6   What they would do is that when the bills were paid, if there
 7   was profit and they did what they said they could do, we would
 8   do some sort of split. There was nothing signed. That's why I
 9   didn't sign anything, and I did tell him it would be sort of
10   like that. And his question to me says-- he said, well-- I
11   told him, I said, 'These guys are not businessmen and they
12   don't know-- they can't run a company. They don't know what
13   they're doing, but if they-- if they happen to do it and they
14   come close, I'll give them some money."
15             Well, what happened was they all quit-- or, I mean,
16   it was somebody's idea, and he said -- and then he used that
17   against-- they weren't in business and I took advantage of
18   them. That wasn't what I was saying. It was that I knew they
19   couldn't-- once it started-- by the time August came, I was
20   already 500,000, 600,000. The next month I was $4 million, the
21   next month, and so right off the bat what they told me I had to
22   do out of this supposed budget book was already blown by the
23   first two months, and that's what I told him.
24             And he-- and he met me to tell me how bad they were,
25   not how good they were and how they were partners, how they
                                   71
 1   were-- they were no good, they were unethical, they would
 2   steal, they would cheat, they robbed him of money, and that's
 3   when the money came up. I said, "Look, if you have this hard
 4   feelings, let me know what it is. I'll make them pay you," and
 5   I did.
 6   Q.   So you're testifying here today that Mr. Denton told you
 7   that these are -- he used the words that they cheat and they
 8   steal?
 9   A.   In so many words he said -- he said that they-- they
10   basically were not treating him fairly and that you had to
11   watch them. He did say that.
12   Q.   Okay. Well, I'm just asking, what specific words are you
13   saying--
14   A.   I don't know what specific words. He alluded that they
15   were no good and why am I going to hire them, and I acted like,
16   well, why did you hire them.
17               ~v1R.   COCHELL: I see. And vvith respect to Exhibit 53,
18   we offer Exhibit 53 into evidence, Your Honor.
19               MR. PEPPER: Your Honor, again, it's a multipage
20   document. I think there's been no testimony as to the first
21   page of the document as being received by Mr. Lobell, actually,
22   and as to the affidavit, actually, that he saw these or had
23   these documents, so, you know--
24               THE COURT: The objection is overruled. D-53 will be
25   received.
                                       72
 1   Q.   (MR. COCHELL CONTINUING) With respect to-- with respect
 2   to Mr. Hansen, to your knowledge -- strike that. The terms of
 3   Mr. Baker's agreement with you, you said he got sick. How is
 4   he sick, do you recall?
 5   A.   Well, what happened, the stress got to him because I think
 6   he realized he was way in over his head when --when I was
 7   writing $4 million a month and it kept going on and on and on.
 8   And I think part of that, his nerves got-- he has Number 2
 9   diabetes and he couldn't fulfill the job, so part of it was
10   nerves, part of it was he was over his head, and part of it, he
11   had to get the hell out of there.
12   Q.   Let me ask you this. Do you know if the offer to
13   Mr. Hansen for $20,000 went up to 30,000 like a day later?
14   A.   I never made the 20,000, so I don't know.
15   Q.   You never participated in authorizing the 20 or the 30
16   thousand dollars?
17   A.   I never offered him anything. Mr. Morales just-- Randy
18   Baker alluded that Mr. Hansen needed some money. He told me
19   that. I told Mr. Morales that. He says, "Well, maybe we'll
20   compensate him because if he needs money, we don't want him to
21   come back to sue us."
22   Q.   So 14 months after he left the job, there was a discussion
23   about Hansen needs some money, so let's --just as you're
24   coming up on this hearing, there's a discussion, let's-- let's
25   get this affidavit and let's get a release from him. Is
                                     73
 1   that --
 2   A.   Yeah, 14 months later--
 3   Q.   -- what happened?
 4   A.   Fourteen months later I talked to Mr. Baker, and
 5   Mr. Morales asked me if he would sign an affidavit because he
 6   was tired of just people putting arbitrary lawsuits against
 7   everything, and this was another one that could be lingering
 8   out there, so he asked me-- and he said we'll compensate him.
 9   And the 20,000 is not for the affidavit, as you see. The
10   20,000, if you should have any such future claims, they didn't
11   want him to sue.
12   Q.   But they sent him the affidavit along with the offer, so
13   that they knew-- he knew that he had to sign an affidavit to
14   get the release and settlement, isn't that correct, sir?
15   A.   He didn't have to sign anything. He doesn't have-- he
16   didn't sign it, as you can see. I didn't make him.
17   Mr. Morales didn't make him. He doesn't have to sign it.
18   Q.   Fair enough. So he didn't get the money because he didn't
19   sign the affidavit, is that correct?
20   A.   Well, I don't know. I mean, he never got back to us. He
21   just didn't do anything.
22   Q.   Isn't it true that he communicated with Mr. Baker that he
23   wasn't going to perjure himself or give false testimony in a
24   courtroom proceeding?
25   A.   Well, I don't know if he did that, but we don't want him
                                    74
 1   to perjure himself. If that affidavit wasn't right, he
 2   shouldn't sign it.
 3   Q.     Isn't it true you told Mr. Baker to make that offer of
 4   $20,000 to get the affidavit from him?
 5   A.     They had, I think-- I don't even know what it says.
 6   think it says it in there, that he has $20,000 for any-- any
 7   future claims. That's what they're buying. They're not buying
 8   for the affidavit. I think it says it. Hold on.
 9   Q.     And when he didn't immediately accept the $20,000, you
10   authorized Mr. Baker to offer him $30,000, isn't that correct,
11   sir?
12   A.     I don't know if I did, but if Mr. Morales wanted to give
13   him more-- Mr. Morales is tired of being sued. He's involved
14   with this lawsuit at ten-- he doesn't even know about Mr.
15   Denton. I asked this man for $10 million. A year later Mr.
16   Denton comes and sues us.
17   Q.     Let me ask you something, sir. You've made it sound like
18   you're getting nothing out of this refinancing and that you all
19   have been trying, through Mr. Morales, to come to some
20   arrangement with us, but have been unsuccessful. Let me just
21   kindof--
22               MR. PEPPER: Objection to the form of the question.
23               MR. COCHELL: Let me rephrase the question. Let me
24   just withdraw that, rephrase the question.
25   Q.     (MR. COCHELL CONTINUING) In fact, there is a major buyout
                                      75
 1   of your interest in this property and --which is going to--
 2   the property and the land is going to be transferred to another
 3   group called, I believe, MC (sic) Credit or something like
 4   that? What's the name of the group?
 5   A.      Well, they're trying to do that. I'm not-- they're
 6   trying to do it. I'm not saying I'm accepting this.
 7   Q.      I understand that, sir. What's the name of the group?
 8   A.      M6 Partners.
 9   Q.      Okay. And so they're going to take over the ownership and
10   the operation of the man camp under this agreement, isn't that
11   correct?
12   A.      Well, they want to because I may have to sell it.
13   Q.      My question, sir, is, they are taking over the operation
14   and the ownership of this group, which includes the land and
15   the man camp.
16   A.      If I sell it.
17   "
     '->(.   1 e::..
             \.I--




18   A.      If I sell it.
19   Q.      Okay. And you want to sell it, correct?
20   A.      No, I don't want to sell it. I'm not saying that. I may
21   have to sell it.
22   Q.      All right, so -- and the major reason that we're here
23   today is that there's a lis pendens, and you weren't able to
24   consummate the sale with M6 Partners, isn't that correct?
25   A.      No. One of the main reasons is I lost the $5 million and
                                      76
 1   I can't refinance. I had to go to them to see if they wanted
 2   to buy it because I'm going to be negative cash flowing because
 3   of the lis pendens, so I offered it to them, and we had a
 4   $45 million opportunity. They're down to 25, which at the 25 I
 5   walk away with like $6 million, and I'm making 3 million -- I
 6   don't want to sell it, but if I have to sell it so they-- you
 7   all are making me sell it at a loss. The value is way more,
 8   but nobody wants to touch it with this lis pendens, the bank or
 9   anybody. These are the cheapest guys on the block.
10   Q.   So at the time of closing you get $12.5 million directly
11   transferred to you, isn't that correct, under this deal with M6
12   Partners?
13   A.   Absolutely, and how much do you get out of $12.5 million?
14   Would you like to know?
15   Q.   And my next question, sir, is, you get paid another $12.5
16   million over a period of five years from M6 Partners, is that
17   correct?
18   A.   Absolutely.
19   Q.   And you have claimed --
20               MR. PEPPER: Objection to the line of questioning,
21   Your Honor. For the most part it's all speculative because the
22   deal has never been done.
23               THE COURT: I understand that. The objection is
24   overruled.
25   Q.   (MR. COCHELL CONTINUING) Okay. And one of the-- one of
                                     77
 1   the requests was that you come forward with documents to show
 2   -- because what-- what loans you have, that personal
 3   indebtedness to which you have to devote the $12.6 million
 4   that's transferred to you --
 5   A.   Yes.
 6   Q.   -- isn't that correct?
 7   A.   Absolutely.
 8   Q.   You've been asked for those documents, but you haven't
 9   given them to us, correct?
10   A.   No, I didn't.
11   Q.   And that's why a deal hasn't been done, isn't that
12   correct?
13   A.   No, absolutely not.
14   Q.   I see.
15   A.   Let me tell you what happened. You have the documents.
16   You have audited statements. I spent $30,000. It says I have
17   8,000 -- $8 million in there. The other 3 mi!!ion, 3-and-a-
18   half million I got to pay taxes. Out of the 12-and-a-half
19   million dollars, if I sell it, I get zero. I get money over
20   five years. Do you know if I keep it, I make millions of
21   dollars? But your lis pendens is either making me go into
22   Chapter 11, sell it, or I've got to get it refinanced.
23   Q.   Sir, apparently you're not aware that we requested copies
24   of the underlying loan documents.
25   A.   You didn't request-- I gave them everything. Let me tell
                                    78
 1   you what happened here, and you --
 2   Q.   You don't know one way or the other whether those loan
 3   documents have been provided to us, isn't that correct?
 4   A.   Because I --you didn't ask me for them.
 5             MR. PEPPER: Your Honor, as far as I know--
 6            THE WITNESS: You asked if the gentleman is trying to
 7   buy the camp.
 8            THE COURT: You know what, this court reporter can't
 9   take down --
10            THE WITNESS: I'm sorry. I'm sorry.
11            THE COURT: -- speaking and talking from three
12   different people at the same time, unless she's superhuman, and
13   she's super, but she's not that good, so let's slow down.
14   Let's ask questions. Let's wait to answer the questions until
15   the questions have been completed. If there's an objection,
16   let's hold off on talking while the objection is made so that I
17   can rule on the objection, please.
18             MR. PEPPER: Your Honor, in this proceeding we object
19   as to this line of questioning as to relevance because there
20   has been no request for production of documents in this
21   proceeding. And as far as discovery in the Texas case, the
22   case is in limbo because there's a question of whether they
23   have jurisdiction in Texas at all, so there's been no discovery
24   transferred.
25             THE COURT: Well, the objection is overruled, but I'm
                                   79
 1   wondering how much time we're going to spend on a hopeful
 2   $25 million project with M6 Partners and what that has to do
 3   with the issues in this case.
 4               MR. COCHELL: Your Honor, I got into it because
 5   Mr. Lobell was portraying himself as someone who is a victim,
 6   that we're holding up the project and that the lis pendens
 7   couldn't have been removed. It could have been, and that's --
 8   that's the point I'm making, that I made those requests, and
 9   he's suggesting that I should have made those requests to him,
10   and so we're going --
11               THE COURT: Are you representing M6 Partners as well?
12               MR. COCHELL: No, Your Honor, I'm not, but I'm --
13               THE COURT: So why would you be requesting financial
14   documents from Mr. Lobell in connection with a deal with M6
15   Partners?
16               MR. COCHELL: Because they were making
17
18   weren't listed in the company books that they had no copies of,
19   and therefore, they couldn't verify the amount of the debt that
20   he claims he has to pay off in the wake of a closing, and we're
21   not filing a lis pendens to tie everything up. We're not
22   trying to be unfair to Mr. Lobell. What we're trying to do, if
23   we were able to reach an agreement, is to reserve an amount
24   that will cover our damages. And if he's got huge debt, let's
25   see proof of it rather than somebody making representations,
                                     80
 1   which obviously we have concerns about. And so we're here in
 2   court, and for the first time we get a lot of information from
 3   Mr. Lobell. That's fine, but for him to come in and portray
 4   himself as a victim -- he's been in constant touch with his
 5   partner, Walter Morales, about this. Mr. Morales has been
 6   representing Mr. Lobell.
 7                THE WITNESS: No.
 8                MR. COCHELL: Not representing him formally, but
 9   through Mr. Canseco.
10                THE COURT: Mr. Morales is an attorney?
11                MR. COCHELL: Mr. Morales, I think-- I don't know if
12   he is or not, but Mr. Canseco is an attorney and I have talked
13   to --
14                THE COURT: Jose Canseco, is that who we're talking
15   about?
16                MR. COCHELL: Exactly. Exactly.
17                THE COURT: Well, let's get back to this case in
18   North Dakota.
19                MR. COCHELL: Yes, Your Honor, we'll move on.
20   Q.      (MR. COCHELL CONTINUING) With respect to the check that
21   was paid to Mr. Hansen -- Mr. Denton, I'm sorry, that was paid
22   on August 2nd of 2011, isn't that correct, sir?
23   A.      I think it was.
24   Q.      That's the date of the check, right?
25   A.      Then it was.
                                      81
 1   Q.   And then you subsequently claim that you learned for the
 2   first time that he had money that should be reimbursed, is that
 3   correct?
 4   A.   Yes, sir.
 5   Q.   Now, you've taken reimbursements from the company, haven't
 6   you? You've taken draws?
 7   A.   The only thing I took was a hundred thousand dollars, and
 8   the reason I took that is the Moraleses were going to put in
 9   $10 million. They put in seven, and I had two-and-a-half
10   million dollars coming to me. It was my own money. I didn't
11   take draws. There's not disbursements. I took money owed to
12   me. The only thing I took was the $100,000 when they owed me
13   two-and-a-half million. There's no money to take.
14   Q.   And with respect to your deal with the-- with M6
15   Partners, you are going to be reimbursed all of your capital
16   expenses, isn't that correct?
17   A.   \'Vhat do you mean,   ~~capital   expenses'?

18   Q.   Reimbursement of capital expense, the loans to the
19   company, what you invested in the company moneywise.
20   A.   Correct. Correct.
21   Q.   You get that back. In fact, that's what Mr. Baker and
22   Stabinski were proposing to you, that you get 65 percent of net
23   proceeds to pay you back, and then after that there would be
24   20 percent net profit distributed --
25   A.   There's a little difference. These guys are writing me a
                                      82
 1   check. I'm paying this on my deal, so there is a big

 2   difference. And just so you know, the propose, what they're

 3   making, is 25 million. I have 34 million, so add that number

 4   up. Why would I sell something for 24 when I got 34 in it?
 5   Q.   So there's a difference between them and you in terms of

 6   how much money you have and how much money they have. There's

 7   a difference between you and Mr. Denton in terms of how much

 8   money he has .and you have, correct?
 9   A.   I don't know what you mean.

10   Q.   As far as you know?

11   A.   I don't know what you mean by that.

12   Q.   Okay. Well, it's perfectly appropriate for Mr. Denton to

13   be reimbursed what's a relatively minor expense to this overall

14   project, $61,000, isn't that right? You've been reimbursed

15   funds. You're going to be reimbursed funds?

16   A.   I haven't gotten reimbursed.

17              MR. PEPPER: Objection, he's --

18             THE WITNESS: This deal is not even close to being

19   done.

20              MR. PEPPER: Objection.

21             THE COURT: Well, here we go again. There's three

22   people talking and a court reporter that's got to take it all
23   down. The objection is?

24              MR. PEPPER: The objection is he's assuming facts not

25   in evidence, Your Honor, and it's irrelevant because there's

                                     83
      1   been no testimony as what Mr. Denton has put in other than that
      2   61,000.
      3                              MR. COCHELL: That's all the questions we have, Your
      4   Honor.
      5                             THE COURT: All right. Do you have any follow-up, or
      6   --we're at a time where my court reporter has been sitting for
      7   a long time, and we're close to the noon hour and --
      8                             MR. PEPPER: Very short redirect, Your Honor.
      9                             THE COURT: Short would be?
10                                  MR. PEPPER: Short would be 5,10 minutes, ifthat.
11                                  THE COURT: Well, we're going to take a recess
12        because I think five minutes from a lawyer, no matter who the
13        lawyer is, it usually turns out to be 15 or 20 minutes, so--
14                                  MR. PEPPER: Fair enough.
15                                  THE COURT: So we are going to recess until
16        1 o'clock, and please tell me how many more witnesses that we
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18        next day to deal with this case. I've got criminal cases that
19        are stacked on top of criminal cases here.
20                                  MR. COCHELL: Yes, Your Honor. We have testimony
21        from Mr. Denton and from Mr. Hansen, who have both traveled
22        here today to give testimony.
23                                  THE COURT: And what does the plaintiff have?
24                                  MR. PEPPER: Your Honor, we have Mr. Denton, Mr.
25        Baker, and Mr. Stabinski and Mr. Morales.
                                                                                            84
 1              THE COURT: Okay.
 2              MR. PEPPER: But they'll be significantly shorter
 3   than this witness.
 4              THE COURT: They'll have to be or we'll never get
 5   done. All right. We'll see you back at 1:00.
 6              (A lunch recess was taken from 11 :49 a.m. to
 7   1 :04 p.m., the same day.)
 8              THE COURT: Good afternoon. We will continue with
 9   the testimony. We had Mr. Lobell on the stand. I don't know
10   if there were any further questions that--
11              MR. PEPPER: Yes, Your Honor, just one question on
12   redirect. And in light of Your Honor's concerns as far as time
13   constraints, we're going to try to truncate our case just to
14   the simple issues. And if your Honor would maybe give me a
15   heads up if we see that the thing is coming toward an end or
16   when you see an end date -- or an end time towards the end of
17   the day.
18              THE COURT: All right. Mr. Lobell, if you could
19   resume your seat on the witness stand.
20              THE WITNESS: Yes, sir.
21                         REDIRECT EXAMINATION
22   BY MR. PEPPER:
23   Q.   Mr. Lobell, earlier during the day opposing counsel showed
24   you Exhibit D-51, in which he showed you a list of assets that
25   were part of the pretty booklet that you had referred to, and
                                   85
 1   one of the assets that he has listed as an asset is 80 acres of
 2   land, and this is on the last page of the document. Do you see
 3   that here? Can you identify that?
 4   A.   Yes, sir. Yes, sir.
 5   Q.   When you began to do your due diligence and you
 6   investigated this proposal, did Mr. Denton or any entity that
 7   bore his name actually own this asset at the time that they
 8   sent this to you?
 9   A.   On that page there's not one of those assets. It's a
10   dome. It's housing. That's just a list of items needed to be
11   bought. No, there's no ownership in --there's nothing,
12   nothing at all. This was a concept. There was no assets.
13   Q.   At the time that you were shown this document, who owned
14   the property at the time?
15   A.   A gentleman, Mark-- the farmer that had it for a hundred
16   years, or so.
17   Q.   Is that ultimately the person vvho you bought it from?

18   A.   Yes, sir.
19   Q.   So they didn't-- the document misrepresented this as
20   being an asset of Capital Investment according to the e-mail?
21   A.   I would say so.
22             MR. PEPPER: No further questions.
23                              RECROSS-EXAMINATION
24   BY MR. COCHELL:
25   Q.   Mr. Lobell, you understood at the time you got this
                                     86
 1   document and talked to these gentlemen, Mr. Baker and Mr.
 2   Stabinski, that ownership of many of these assets were not
 3   established by purchases, that these were planned assets of the
 4   partnership that they were proposing to you? You understood
 5   that, didn't you?
 6   A.   Well, yeah, there was not assets. Yeah, there was the
 7   concept that they had to go purchase these things to make a man
 8   camp.
 9   Q.   That's why they were coming to you for money, right?
10   A.   Correct.
11              MR. COCHELL: Thank you.
12              MR. PEPPER: Your Honor, as our next witness we'd
13   call Walter Morales.
14              THE COURT: You may step down, sir.
15              THE WITNESS: Thank you.
16              THE CLERK: Please raise your right hand.
17                           WALTER MORALES,
18   having been first duly sworn, was examined and testified as
19   follows:
20              MR. COCHELL: just for the record, Your Honor, we
21   were unaware-- Mr. Morales was not identified as a possible
22   witness at the pretrial. I don't know how strict the Court
23   wants to be on that sort of thing. In most circumstances, if
24   we're in a pretrial and witnesses are identified, I would move
25   to exclude a witness, but I leave that to the Court's
                                   87
 1   discretion.
 2             THE COURT: There was no real clear consensus as to
 3   who was going to be called as witnesses, and this isn't a
 4   trial. It's just a hearing on preliminary motions, so--
 5             MR. COCHELL: Yes, Your Honor, I agree.
 6                          DIRECT EXAMINATION
 7   BY MR. PEPPER:
 8   Q.   Mr. Morales, could you please state your full name and
 9   address for the record?
10   A.   Walter A. Morales, 11 95 South Cloverdale Avenue, Baton
11   Rouge, Louisiana 70808.
12   Q.   Mr. Morales, what is your primary occupation?
13   A.   I'm an instructor at Louisiana State University. I'm the
14   managing member of M6 Partners, a family partnership, and I'm a
15   president and CEO of Commonwealth Advisors, an investment
16   management firm.
17   Q.   Hovv did you get involved vvith the Capital Lodge man camp

18   in North Dakota?
19   A.   My family office, M6 Partners, was negotiating with Kenny
20   Lobell to buy a part of-- property he owns in New Orleans
21   called Jack's Brewery, and in the course of that conversation
22   he approached us about making the investment in or partnering
23   with him in North Dakota. He had already sunk a lot of money
24   in the property up there and he was -- he was running out of
25   money to complete it and approached us about partnering with
                                   88
 1   him.
 2   Q.     When you investigated the ownership of the actual property
 3   on which the man camp sits, did you do a full due diligence
 4   search?
 5   A.     We did a title search on the property. We got all the
 6   corporate documents that we could. There was -- there was not
 7   an operating agreement in place. There was land and a title.
 8   We did on site visit of the property. We did --we canvassed
 9   the area. We did due diligence on foot and via plane. We went
10   into-- we did a lot of research on the crew housing situation
11   in North Dakota, so we did --we did what we would normally do
12   when we make an investment, as much due diligence as we can do,
13   as we can put our hands on.
14   Q.     And did you do all of this prior to the filing of the
15   notice of the lis pendens?
16   A.     Yes.
17   Q.     In fact, you guys had been looking at purchasing the man
18   camp long before the issue of the lis pendens came up, hadn't
19   you?
20   A.     That's correct.
21   Q.     Okay. And prior to that time, did you find any ownership
22   interest by Mr. Denton or any of his entities?
23   A.     No.
24   Q.     As to the-- as to the real property.
25   A.     Correct.

                                       89
 1   Q.    What effect do you think that the lis pendens has on the
 2   price of the property of the man camp?
 3   A.    Well, it lowers it from our perspective. I mean, first of
 4   all, it makes it very hard to finance a property. You know,
 5   any lender who comes in right now is not sure what the title is
 6   to that property if they were to have to repossess, so most
 7   lenders aren't-- even nontraditional lenders are not going to
 8   put a loan and take that-- you know, with the lis pendens
 9   outstanding. And we can't move forward in our plan to
10   recapitalize capital with the lis pendens. We -- without some
11   type of a settlement that would let us move forward without
12   being dragged into litigation, you know, we-- even though
13   we've kind of lowered the-- the price has been lowered to us,
14   we legally are struggling to close it.
15   Q.    Did you suggest and in order to do the deal -- you're
16   still interested in doing the deal, correct?
     A     v ..... .-
17   -"•    I C;>.



18   Q.    Did you suggest that Mr. Lobell send to Mr. Chad Hansen an
19   affidavit and settlement agreement?
20   A.    That document that you're referring to, I don't believe
21   I've seen, but what I understand that we've sent to -- Chad
22   Hansen you're referring to? It's a settlement offer, but not
23   on behalf of Mr. Lobell. It's on behalf of us.
24   Q.    Did your lawyer-- is your lawyer Jose Canseco?
25   A.    Yes.
                                    90
 1   Q.    Is he the one --
 2   A.    Who is not the baseball player.
 3   Q.    Right. Did he prepare that document and then send it to
 4   me?
 5   A.    Yeah, he did.
 6   Q.    And was it you that were going to fund --you and your
 7   group that was going to fund the settlement?
 8   A.    Yes.
 9   Q.    And was it the purpose of that to essentially free you
10   from being sued by Chad Hansen?
11   A.    Yes.
12   Q.    And was -- in your mind, was that one more piece of the
13   puzzle that was resolved that would allow the deal to go
14   through despite the lis pendens?
15   A.    Well, we wouldn't settle with Chad Hansen alone. We need
16   a settlement with all the people that are --that are involved
17   or named in that suit, so we need Randy Baker, Myer Stabinski,
18   Hansen, and Mr. Denton, have to come to some kind of a
19   settlement with us for us to be able to move forward, so Chad
20   alone would not-- we would not settle or be able to give
21   consideration for a release from Chad alone. It wouldn't help
22   us.
23   Q.    So it's your intention to get all parties agreed to before
24   you would allow the loan to--
25   A.    I haven't talked to Randy Baker about a settlement, but
                                    91
 1   Kenny told me that he believes that whatever deal we could have
 2   reached with Hansen, that Baker would agree to it as well.
 3   We've talked to Myer and told him whatever we offered Chad,
 4   we'd offer to him. And we've had discussions with the
 5   Denton -- Denton's lawyer about trying to reach some kind of a
 6   settlement with them that would allow us to close the
 7   transaction.
 8             MR. PEPPER: Okay. No further questions, Your Honor.
 9             THE COURT: Any cross?
10             MR. COCHELL: Yes, Your Honor. I wanted to make sure
11   you had no questions before I started. It looked like you were
12   about to say something.
13             THE COURT: I was, but--
14                           CROSS-EXAMINATION
15   BY MR. COCHELL:
16   Q.   Okay. Mr. Morales, my name is Steve Cochell. I represent
17   Chad Denton. Do you remember talking to me once before?

18   A.   I do, yes.
19   Q.   Good to put a face with a name?
20   A.   Yes, sir.
21   Q.   Isn't it true, sir, that you never even heard of the
22   lawsuit in Texas until you became aware of it a couple of
23   months ago?
24   A.   That's correct.
25   Q.   Okay. Mr. Lobell, your partner, never told you that
                                    92
 1   Capital Lodging had been sued, is that correct, sir?
 2   A.   That's correct. I thought he had been, that Mr. Lobell
 3   had been sued.
 4   Q.   Oh, he just said, "I've been sued," but not Capital
 5   Lodging, not his other companies, is that correct?
 6   A.   That was my understanding, yes.
 7   Q.   All right. And so when you saw the lawsuit, what was your
 8   reaction, when you learned that he hadn't shared that with you?
 9   A.   Well --
10   Q.   Were you a little disappointed or angry?
11   A.   I was certainly-- well, I was disappointed I didn't get
12   it, but more-- but my reaction really was more to do with the
13   transaction that was being contemplated and how we could
14   proceed. And the issue on the-- for the lawsuit is--
15   removing the lis pendens helps secure a lender, but it doesn't
16   help us move forward with the transaction alone. You know, the
17   lis pendens being removed doesn't make the suit go away, so the
18   suit would still be out there. And so, you know, my reaction
19   is that I need some resolution, at least with regard to me and
20   my partner, the Fine bergs (ph), and Capital, to move forward
21   with or without the-- you know, the lis pendens alone, removal
22   doesn't help.
23   Q.   And so your partner, Mr. Lobell, knew of the lawsuit and
24   was negotiating a $25 million sale of his interest in the
25   property to you at the same time. Is that a fair statement,
                                   93
 1   sir?
 2   A.     That's right, but the --just to be fair, to make sure
 3   that I'm correct on the record with the answer, I don't know
 4   when Mr. Lobell got notice of the lawsuit. And I got notice of
 5   the lawsuit roughly-- well, roughly around the time of the lis
 6   pendens is when we first saw the lawsuit, so I don't know how
 7   -- if that's a day or a month or-- you know, just so you
 8   understand, I got it when --when I got the lis pendens is when
 9   I knew about it.
10   Q.     Let me represent to you that Mr. Baker was served with the
11   lawsuit almost a year ago and that Mr. Lobell was put on notice
12   of the lawsuit on that occasion and some other subsequent
13   occasions. Would that surprise you, sir?
14               MR. PEPPER: Objection to the form of the question,
15   Your Honor, actually, the relevancy of it. When Mr. Baker got
16   sued had nothing to do with Mr. Lobell being sued or any
17   .notice.
18              THE COURT: Objection is overruled, but in Texas, do
19   you have to file the action when the --when it's been served?
20               MR. COCHELL: Yes, the --we file the action and then
21   service is made, just like in the federal system, and --
22              THE COURT: The pleadings I've seen indicate that the
23   Texas action was commenced in June of--
24               MR. COCHELL: Of 2011, Your Honor.
25              THECOURT: --2011.
                                     94
 1               MR. COCHELL: Yes, sir. Maybe 2012, I believe, off
 2   by a year, Your Honor.
 3               THE COURT: So then nobody could have been served a
 4   year ago.
 5               MR. COCHELL: I'm sorry. I stand corrected. It
 6   would have been served about six or seven months ago.
 7               THE WITNESS: I didn't know Randy had been served six
 8   or seven months ago. I actually don't have any contact with
 9   Randy Baker.
10   Q.   (MR. COCHELL CONTINUING) And the only reason you've
11   learned of the Texas lawsuit is because of the lis pendens, is
12   that correct?
13   A.   That's correct.
14   Q.   And as you understand it, that's one of the purposes of
15   the lis pendens law, if you know.
16   A.   Well, I'm not a lawyer, but if that is a purpose, it
17   worked in my case.
18   Q.   And it saved you, you know, some heartache down the road
19   if you bought the property without knowing of the existence of
20   the lawsuit. Isn't that a fair statement?
21   A.   Yes.
22   Q.   As far as you know sitting here today, you could have done
23   that deal, transferred the money, and then learned of the
24   lawsuit, is that right?
25               MR. PEPPER: Objection, hypothetical, Your Honor.
                                    95
 1   It's not --
 2                 THE COURT: It is, but I'll overrule.
 3                 THE WITNESS: The document, the purchase agreement,
 4   would have required that disclosure prior to closing, so Kenny
 5   would have had to make that disclosure prior to closing.
 6   Q.    (MR. COCHELL CONTINUING) That's assuming that he would
 7   have made it at some point prior to closing on the sale,
 8   correct?
 9   A.    Yeah.
10   Q.    Okay. So you are -- I understand that you had a
11   discussion with Mr. Lobell about doing some sort of settlement
12   with Mr. Hansen, is that correct?
13   A.    Yes.
14   Q.    Okay. And you never saw the documents that were prepared
15   for the settlement?
16   A.    No, I -- I don't -- I don't know if we marked up an
17   affidavit that Kenny vvas using or if vve prepared son1ething, but
18   it's been referred to as an affidavit. I didn't know it's an
19   affidavit. I thought it was just a release document.
20   Q.    Okay. And so you're not aware that an affidavit was
21   prepared?
22   A.    By my -- by my lawyer?
23   Q.    Right.
24   A.    No, I'm not.
25   Q.    And you're not aware one way or the other whether your

                                       96
 1   lawyer prepared a settlement and release agreement for
 2   Mr. Hansen to sign, is that right?
 3   A.   I am aware of that. We did prepare that.
 4   Q.   Okay. And do you know if M6 Partners is listed as a party
 5   on that settlement?
 6   A.   I don't know who would be. I mean, it should have listed
 7   the recovery fund. It should have listed the entity buying it,
 8   but I haven't seen it, so I don't know who's listed on it.
 9   Q.   So it should have listed M6, but sitting here you don't
10   know.
11   A.   I don't think it actually should have listed M6 because M6
12   itself is not the buyer, so it should not have listed M6.
13   Q.   Was that release supposed to buy out Mr. Hansen's-- any
14   of Mr. Hansen's interest in any alleged partnership?
15   A.   Yeah. My understanding is that-- first of all, that
16   document would have been used with the --with Stabinski and
17   with Randy Baker as well, and my understanding is, what the
18   document is supposed to say is that in the event you-- you own
19   something of this, whatever it is, you're conveying it to us
20   and releasing us from claims going forward.
21   Q.   Okay. So sitting here today, you don't know if it said
22   that or not, is that correct?
23   A.   Yeah. No, my testimony is I have not seen that document.
24   Q.   Okay, and-- but it was supposed to talk about releasing
25   any right, title or interest in any part of the man camp or the
                                     97
 1   property, is that correct?
 2   A.   That's right because, you know, I understand -- I
 3   understand there's a dispute about whether or not there's
 4   ownership. From our perspective, we don't have a dog in that
 5   fight. You know, in other words, we didn't-- this isn't
 6   designed to settle the litigation. It's only supposed to keep
 7   us out of it and allow us to close the transaction --
 8   Q.   Right.
 9   A.   -- recapitalize the camp and move forward.
10   Q.   So the only reason you suggested that there be an approach
11   to Mr. Hansen was to make sure there was a release of any
12   interest-- right, title or interest in the man camp, correct?
13   A.   To make sure that, yeah, that we don't have a jury down
14   the road come to some conclusion that he has an ownership and
15   then we discover that what we thought we bought we now have
16   other people who claim ownership.
17   Q.   And you don't remember the particulars of whatever your
18   lawyer may have sent over there, is that correct?
19   A.   I didn't see it.
20   Q.   And you have no idea whether-- of what was actually sent
21   to Mr. Hansen.
22   A.   No, I've testified that I have not seen the document.
23   Q.   Okay. Did any of you look at the Answer filed by
24   Mr. Hansen in the Texas case?
25   A.   I have not seen the Answer.
                                   98
 1   Q.      Do you know it was a matter of public record as of the
 2   time he filed it, which was July 9th, that he believed that
 3   there was a partnership between the partners, Mr. Stabinski,
 4   Hansen, Denton and Mr. Lobell? Would that surprise you?
 5   A.      Again, you know, I wouldn't say it surprises me, but I
 6   tell you that I really don't-- I didn't read the Answer to it.
 7   I wish Mr. Denton and Mr. Lobell good luck, you know. I mean,
 8   they can fight this thing out. I would just like to keep this
 9   camp out of bankruptcy and buy it and recapitalize it, and
10   that's what I'm trying to do.
11   Q.      I understand.
12   A.      I don't-- I don't really have an opinion one way or
13   another on the suit, the merits of it, and -- and I didn't read
14   the Answer to it.
15   Q.      Now, your deal with Mr.-- your proposed deal with
16   Mr. Lobell is that you would be purchasing the real estate to
17   go with the man camp, what's located on the real property,
18   fair?
19   A.      That's correct, yeah.
20   Q.      Okay. That's because the man camp is not worth much if
21   you don't have the property. Isn't that a fair statement?
22   A.      To me it's not, yeah.
23   Q.      Now, did Mr. Lobell indicate to you that he had tried to
24   get a $5 million line of credit prior to coming to you?
25   A.      Yes, there were some discussions. I don't remember the
                                     99
 1   amount, but there were some discussions about him trying to--
 2   about borrowing on the facility, yeah.
 3                MR. COCHELL: That's all the questions we have for
 4   this witness, Your Honor.
 5                MR. PEPPER: just one question on redirect, Your
 6   Honor.
 7                            REDIRECT EXAMINATION
 8   BY MR. PEPPER:
 9   Q.      Mr. Morales, isn't it true that jose Canseco, your lawyer,
10   had asked Mr. Lobell prior to the notice of lis pendens being
11   filed for a hold harmless agreement because he was aware of the
12   suit?
13                MR. COCHELL: Objection, hearsay.
14               THE COURT: Overruled. It's hearsay, but I can sort
15   itout.
16                THE WITNESS: No, I am aware of that. The question
17   that vvas directed to me vvas vvhether or not I knevv Capital vvas

18   named in the suit, and my answer to that was, I didn't know
19   Capital was named in a suit, but I was aware of the suit, that
20   Kenny was in it. And we did ask to be released and have a hold
21   harmless in our purchase agreement related to that suit so that
22   we wouldn't be brought in. That's correct, what you're saying.
23   Q.      (MR. PEPPER CONTINUING) And it was five months ago, at
24   least, wasn't it?
25   A.      That was in --that was in --well, we first started
                                     100
 1   negotiations to buy this in April, and the first pass of
 2   documents would have been around June or july.
 3              MR. PEPPER: Okay. No further questions, Your Honor.
 4              MR. COCHELL: Nothing further, Your Honor.
 5              THE COURT: Thank you, sir. You may step down.
 6              MR. PEPPER: Your Honor, we call Chad Denton to the
 7   stand.
 8              THE CLERK: Mr. Denton, could you please raise your
 9   right hand?
10              MR. DENTON: Sure.
11                       CHAD CHRISTOPHER DENTON,
12   having been first duly sworn, was examined and testified as
13   follows:
14                           DIRECT EXAMINATION
15   BY MR. PEPPER:
16   Q.   Mr. Denton, please state your name and address for the
17   record.
18   A.   Chad Christopher Denton, 3904 Palmer Drive, Round Rock,
19   Texas 78664.
20   Q.   Mr. Denton, in your original Texas action, you filed a
21   suit for-- a claim for damages against Mr. Lobell, Mr. Baker,
22   Mr. Hansen and Mr. Stabinski, for damages for failing to honor
23   a partnership, correct?
24   A.   Yes, sir.
25   Q.   I'm going to show you a document that we've marked as P-6.
                                   101
 1   Do you recognize this document as the original petition that
 2   you filed in Bell County?
 3   A.   Yes.
 4   Q.   Sir, I'm going to ask you to look through that document
 5   and to see if you can see where anywhere your lawyer made a
 6   claim for a-- to clear title to the property, which is --
 7   which the man camp is situated on.
 8               MR. COCHELL: Your Honor, we respectfully object to
 9   this line of questioning because an amended petition, as I'm
10   sure under North Dakota law, under Texas law amends it as of
11   the date of the original filing, and Texas allows liberal
12   .amendments during the course of investigative or deposition
13   discovery, so this is irrelevant.
14               THE COURT: So what are you saying, there's been an
15   amended petition filed?
16               MR. COCHELL: There has been an amended petition
17   filed. VJelve been asking    vvell, vve have a copy of it vve can
18   show to the Court.
19               MR. NYHUS: Your Honor, if I may, it's also included
20   --this is Chris Nyhus. It's included with our response brief.
21   I believe an exhibit of the amended petition was included as
22   Exhibit-- I believe it was A there.
23               MR. PEPPER: Your Honor, we offer the document for
24   purposes of comparison so that the Court can see what the
25   original petition included as pertains to what the amended
                                  102
 1   petition included--
 2                THE COURT: Overruled.
 3                MR. PEPPER: -- and the small differences thereto.
 4                THE COURT: Overruled. You can answer the question
 5   if you're able to, if you can remember what the question is.
 6                THE WITNESS: I don't-- since I'm not an attorney, I
 7   don't really know what you're asking me, but--
 8   Q.   (MR. PEPPER CONTINUING) Did you make a claim for
 9   ownership of the property that the man camp is situated on in
10   your original Complaint?
11   A.   I don't think so.
12   Q.   Okay.
13   A.   I don't-- like I said, I don't understand exactly when it
14   comes to the wording of everything, but--
15   Q.   Did you read your Complaint before it was filed?
16   A.   Yes, quite a few-- quite a bit.
17   Q.   In fact, you signed a verifying affidavit that everything
18   in there was true and correct.
19   A.   ltis.
20   Q.   Okay. And yet you still don't know whether you made a
21   claim for a title or an interest in title to that property?
22                MR. PEPPER: Objection, misleading questions, Your
23   Honor. He didn't verify this particular petition. He --
24                THE COURT: I don't know whether he did or he didn't.
25   I don't know what Texas Civil Procedure requires in that
                                     103
 1   regard, but the objection is overruled. You can answer the
 2   question as a layperson, who had a 35-page Complaint drafted by
 3   your attorney. Go ahead and answer.
 4                   THE WITNESS: I don't think so.
 5   Q.      (MR. PEPPER CONTINUING) Did you have an opportunity to
 6   buy the property yourself prior to Mr. Lobell purchasing the
 7   property which the man camp sits on?
 8   A.      Yes.
 9   Q.      Did you sign a Uniform Offer to Purchase Property dated
10   May 9, 2011, on behalf of Capital Riggers Lodge?
11   A.      Yes. I don't know if it was May 9. I know there was
12   another one, but to-- also, but it could have been May 9, but,
13   yes, I did sign one, definitely.
14   Q.      I'm going to show you a document which has been marked as
15   P-9, and I'm going to ask you to identify-- is this your
16   signature at the bottom of the document?
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17   I""\.   1110.\. I;) ll.    IIIO.l.:;) lii'C Ullt: I .:>IYII'CU.



18                   MR. PEPPER: In conjunction with the witness's
19   testimony, I'd like to offer and file and introduce both
20   Exhibits P-6, which is the original petition, and P-9, which is
21   the Uniform Offer to Purchase.
22                   MR. COCHELL: Your Honor, we have no objection to
23   that, although we would request that the Court also admit and
24   consider the amended petition.
25                   THE COURT: Well, if it's offered and received, I'll
                                                                       104
 1   do that.
 2               MR. COCHELL: Yes, your Honor.
 3               THE COURT: But nothing has been offered yet, but
 4   I'll receive Exhibits P-6 and P-9.
 5   Q.   (MR. PEPPER CONTINUING) Then, Mr. Denton, let's take a
 6   look at Exhibit P-9. It says that you're supposed to give an
 7   initial deposit on this document, doesn't it?
 8   A.   Yes.
 9   Q.   And the initial deposit is $40,000, correct?
10   A.   That's correct.
11   Q.   Did you ever give the real estate agent the deposit?
12   A.   Didn't need to because the real estate agent knew what we
13   were doing, and we didn't-- they needed to get the water
14   secured and the conditional-use permit. And Mark Schmidt, the
15   owner of the property, was working with us, and Craig, and was
16   fine with us doing that because there was no need for me to put
17   $40,000 down if we can't build a man camp, can't get water to
18   it, and lose $40,000. That's why it took all the way through
19   June and all the months that we did working with Williams
20   County getting a conditional-use permit, going in front of the
21   board, flying back and forth, doing everything it took to make
22   sure this property would work and would be approved. And
23   luckily I bought the water rights, put a thousand dollars down
24   and secured the last bit of water that they had, and if I
25   wouldn't have done that that week, this opportunity would have
                                    105
 1   never happened.
 2   Q.    Do you know that with a conditional-use permit, you're
 3   required to own the land for which you get the permit?
 4   A.    No, sir.
 5   Q.    Is that your position, that you don't-- you're not
 6   required to own any land for which you have a conditional-use
 7   permit?
 8   A.    No, I'm saying I didn't-- I don't know personally if you
 9   have to own the land to get the conditional-use permit.
10   Q.    Is this the first time that you've ever developed any
11   property?
12   A.    No.
13   Q.    You've never run across this before in all your dealings?
14   A.    Usually my situation is the land is already owned by
15   someone else and then we're developing it together, so, no.
16   But to answer your question, Randy Baker, on my behalf, went
17   and got the conditional-use permit, vvent to the meetings, and
18   so on and so on, and got it. As far as did I have to have
19   title to the land, did I know that personally, the answer is
20   no.
21   Q.    Okay. Did you ultimately pay the purchase price of
22   $800,000 for the purchase of this land?
23   A.    No, it was never intended for me to ever go out and
24   purchase the land for 800,000, and Craig, the realtor, knew
25   this. Everybody knew this. That's why we had marketing and
                                  106
 1   investor packs made up by May 9 and going to investor meetings,
 2   showing them the list of our assets, the property, everything
 3   to make this opportunity happen. I didn't have the $20 million
 4   to build this thing up, but we had it shovel ready to that
 5   point for the investor of three months of work with everything
 6   ready to go, which Mr. Lobell agrees, and he -- it only took
 7   him a day or two to make the decision, and three days later we
 8   were having a ground breaking with equipment.
 9   Q.   Do you understand, sir, that your agreement here was going
10   to terminate on-- or did terminate July 15, 2011, if you
11   didn't put up your deposit?
12   A.   Sure, and we talked to Craig about that and told him we're
13   working with Mr. Lobell and it was going to take a couple of
14   weeks because he was working with his bank to get his line of
15   credit when I sent Randy up to see Mr. Lobell twice, and we
16   told Craig about it. He goes, "Chad, the land is not going
17   anywhere. It's 1 00 -- 80 acres of farmland out in the middle
18   of nowhere." We're the only person that-- they were hoping we
19   could make a deal happen. Craig was going to make a big
20   commission off of it.
21             THE COURT: Who's Craig?
22             THE WITNESS: I'm sorry. The realtor who was working
23   with us for the property who knew Mr. Mark Schmidt.
24             THE COURT: Okay.
25             THE WITNESS: I mean, this --
                                   107
 1   Q.             (MR. PEPPER CONTINUING) Do you know the difference
 2   between a solid -- an offer to purchase property versus an
 3   option to purchase property?
 4                             MR. NYHUS: Your Honor, I'm going to object to the
 5   extent it calls for a legal conclusion from the witness.
 6                             THE COURT: He can respond as a layperson who's been
 7   involved in real estate transactions.
 8                             THE WITNESS: Again, Craig was working with us, knew
 9   what we were doing, helped us get some of these permits, and he
10   never pushed and said -- he knew exactly what we were doing,
11   and he was representing us, my group, me, Randy Baker, Buster,
12   Chad Hansen. Me, Buster and Randy went in his office many
13   times. We went out the same day, found the property that he
14   directed us to, which was this, and there was never any
15   pressure to-- and when he told me to sign this, I signed it.
16   He's representing me and telling me what to do, and everything
                          T(.......,....,l,.. -.11 I ................ .-..-.. .-.+.t: ...,..{: ..,.....,.,J I ............ ,..1.- .... ..-1 ........ -1 ........
17   i.- .,:;.....,,...
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18   see -- I'm sorry.
19   Q.             (MR. PEPPER CONTINUING) And that was a lot of
20   :nformation, but it was unresponsive to the question that I
21   asked you --
22   A.             Okay.
23   Q.             --which is, do you know the difference between an option
24   to purchase property versus an offer to purchase?
25   A.             I couldn't explain it to you.
                                                                                       108
 1   Q.       Do you realize that before you have an interest in
 2   property, that you have to purchase it or purchase an option?
 3   A.       Again, we were working with the realtor to get an investor
 4   on board. That was our whole position from the beginning of
 5   working with the man camp.
 6   Q.       So you knew back then, when this was put together, and it
 7   was never your intent to own any of this property, correct?
 8   A.       Not to pay $800,000 and build a man camp, no. We were
 9   all --
10   Q.       No, this is not $800,000 for a man camp. This is $800,000
11   for a piece of property.
12   A.       The 80 acres, yes, sir.
13   Q.       It was never your intention to buy that property.
14                 MR. COCHELL: Objection, Your Honor. We're going to
15   object to the lawyer standing over the witness. To the extent
16   that he needed to approach the witness, we think that time has
17   ended. I think it's rather intimidating. He's standing there
18   lecturing the witness at this point and arguing with him.
19                 MR. PEPPER: I'll stand over here closer to the
20   microphone.
21                 THE COURT: Well, he wasn't arguing. He got three
22   words out of his mouth to --with respect to his next question
23   before there was an objection raised. You can back off a
24   little bit, speak loudly so the court reporter can hear.
25                 MR. PEPPER: Yes, Your Honor.
                                        109
 1   Q.   (MR. PEPPER CONTINUING) Do you realize --
 2               THE COURT: We're in a court proceeding rather than a
 3   jury trial, so I don't-- I'm not so concerned about a lawyer
 4   intimidating a witness as I might be if there was a jury there.
 5               MR. COCHELL: Yes, Your Honor.
 6   Q.   (MR. PEPPER CONTINUING) So do you understand that the
 7   $800,000 was for the purchase of this property, not the man
 8   camp?
 9   A.   Yes.
10   Q.   And is it your testimony that you never intended to pay
11   that or to own that piece of property?
12   A.   Correct. We were going to find an investor and be
13   partners on the whole housing facility, Capital Lodge, on the
14   80 acres.
15   Q.   Okay. Were you ever informed by the broker that you
16   needed to put down a deposit in order to have your contract be
17   valid?
18   A.   I know we talked about the deposit, and we told him that
19   we were a couple of weeks away with getting a deal together,
20   and he was fine with that and he didn't push it after that.
21   And I think we even told him we would have Mr. --we told him
22   that he was working with his bank to get the line of credit,
23   and I believe Mr. Lobell even contacted him around the end of
24   July and worked the details out. Mr. Baker even told me that
25   Mr. Lobell was talking to Craig and getting it lined out with
                                  110
 1    Chase Bank, I believe, out of New Orleans.
 2    Q.    On the purchaser on the contract, you have Capital
 3    Riggers, is that correct?
 4    A.    Yes.
 5    Q.    Capital Riggers was never formed as a corporation
 6    anywhere, was it?
 7    A.    No.
 8    Q.    So you submitted through your agent an offer to purchase
 9    real property from the seller for a corporation that didn't
10    exist.
11                 THE COURT: Well, it says Capital Riggers Lodge. I
12    don't know if that's a corporation or partnership or what it
13    is.
14    Q.    (MR. PEPPER CONTINUING) Capital Riggers Lodge, was it
.15   ever formally incorporated?
16    A.    That was the name we were going to call the lodge, and
17    then we changed it to Capital Lodging. When we met Craig the
18    first-- maybe the third day I was there, we were going under
19    the name of Capital Riggers Lodge.
20    Q.    But is it true that you submitted this contract to
21    purchase, knowing that you never intended to purchase it?
22                 MR. COCHELL: Objection, Your Honor, asked and
23    answered.
24                 THE COURT: Overruled.
25    Q.    (MR. PEPPER CONTINUING) Knowing that you or Capital
                                     111
 1   Riggers Lodge never intended to purchase it, is that correct?
 2   A.    We knew we were going to need an investor to come in with
 3   us to complete the whole project, purchase the land and
 4   complete the partnership.
 5   Q.    How did you think that you were going to get an interest
 6   in this property if you didn't put up any money for it?
 7   A.    Craig, the realtor, knew what we were doing. The
 8   landowner knew. Mr. Mark Schmidt knew that we had to make sure
 9   we could get water, a conditional-use permit, the property
10   would work. That's why we went off and got architectural
11   plans, housing plans, and put this whole deal together to hand
12   over to an investor with us, to be the money side of it and
13   make it successful, which ultimately it did.
14   Q.    But you never did end up owning any interest in that
15   property, did you?
16   A.    I was told we were five partners in the interest of
17   Capital Lodge, which is the 80 acres, which is a partnership
18   asset and an asset that we listed to every investor to purchase
19   it.
20   Q.    Do you realize that when you list it as an asset, you're
21   representing that you own it?
22   A.    No, because if the investor is going to buy it, it's going
23   to be an asset in our partnership together.
24   Q.    So you represented an asset that you -- that you had
25   something as an asset that you never purchased, is that
                                     112
 1   correct?
 2   A.     Every investor, when we're talking to him with the list of
 3   assets, knows, just like Mr. Lobell said earlier, we got to pay
 4   for it, so that's what we were doing.
 5   Q.     But you never intended to pay for it, did you?
 6   A.     No, we were looking for an investor to partner with and do
 7   the whole project together.
 8   Q.     So you never acquired any interest in that property, did
 9   you?
10   A.     I was told I had interest in it. We went off of the faith
11   that we had interest in it. We worked like we had interest in
12   it.
13   Q.     Who told you you had an interest in that property?
14   A.     My agents, Buster Stabinski and Randy Baker. I flew them
15   to see Mr. Lobell twice and we've had telephone conversations.
16   I called Kenny on july 23. He was waiting for my call. We
17   talked about setting up the Chase Bank-- the checking account,
18   running the trucking, all the MSAs I had, everything.
19   Q.     Did they ever provide you a document showing where either
20   Buster Stabinski, Chad Hansen, or Randy Baker had bought an
21   interest in that property?
22   A.     No.
23   Q.     As a matter of fact, didn't they tell you they were not
24   interested in doing a deal with you?
25   A.     No.
                                     113
 1   Q.   Didn't you, in fact, come up to North Dakota and ask them
 2   to sign a partnership agreement with you?
 3   A.   Yes.
 4   Q.   And did they refuse?
 5   A.   Yes.
 6   Q.   Okay. Did you and your attorney file an amended petition
 7   for damages in the state of Texas?
 8   A.   Yes.
 9   Q.   I'm going to show you a document that's marked as
10   Plaintiff's Exhibit 7. Does this appear to be a copy of that
11   petition?
12   A.   It does, yes.
13               MR. PEPPER: Your Honor, and in conjunction with the
14   witness's testimony, I offer and file and introduce into
15   evidence P-7, which is a copy of the first amended petition
16   filed in the state of Texas.
17               ~v1R.   COCHELL: No objection, Your Honor.

18               THE COURT: Exhibit P-7 is received.
19   Q.   (MR. PEPPER CONTINUING) I want you to look at that for a
20   minute. Would you please turn to paragraph 34 of your amended
21   complaint?
22   A.   Yes.
23   Q.   Can you read that to the Court, please?
24   A.   "On july 23, 2011, Capital Oil Field Services, LLC, was
25   formed by Chad Denton on behalf of the partners."
                                      114
 1   Q.   Okay.

 2               THE COURT: What paragraph is that?
 3               MR. PEPPER: Paragraph 34, Your Honor.
 4   Q.   (MR. PEPPER CONTINUING) And then please turn to paragraph
 5   64 of the amended petition.

 6   A.   Okay.
 7   Q.   Can you read that to the Court?
 8   A.   "Mr. Denton drafted an agreement and provided it to his

 9   partners: Randy Baker, Buster Stabinski, and Chad Hansen."
10   Q.   Okay. And those were your partners, correct, or your
11   alleged partners?
12   A.   They were my partners.
13   Q.   Okay. And Mr. Lobell was not one of those partners, was

14   he? In paragraph 64, you do not list Mr. Lobell as a partner,
15   do you?
16   A.   That date is within days of us making a deal, so I can't
17   tell you exactly if we were partners at that time and a deal

18   was agreed to. No, I'm sorry. I'm sorry. We were not. That
19   was July. I'm sorry. No, we were not partners on june 23rd.
20   Q.   Okay. And ostensibly, when you filed for Capital Oil

21   Field Services, LLC, you filed that with the state of Texas,
22   correct?

23   A.   Yes.
24   Q.   I'm going to show you a document that I'm going to call

25   P-8. Is this a copy of the filing that you made with the state

                                    115
    1    of Texas with regards to the formation of Capital Oil Field
    2    Services, LLC?
    3    A.   Yes, sir.
    4    Q.   I'd like you to read for the Court-- it says in paragraph
    5    B, "The limited liability company will not have managers." It
    6    says "Governing Persons." Who is listed?
    7    A.   I am listed.
    8    Q.   Did you list any of your partners in that?
    9    A.   We talked about this, and I didn't list them because there
10       was credit issues and some tax liens issues with some of the
11       partners, and for us to be able to get credit with my good
12       credit rating and personal income statement, it would have
13       stopped Capital Oil Field Services from moving forward, so they
14       agreed at that point not to be on the LLC.
15       Q.   Didn't you just testify that it was never your purpose or
16       never your intent to use your money or your credit for this
1   '7
-'- I    deal?
18       A.   We were doing other services in North Dakota. We were
19       doing rig moves. We were going after trucking. We were doing
20       all sorts of services in the investment pack that Mr. Lobell
21       has, so we were doing other business. So that would have
22       stopped us from going forward with credit and other issues and
23       financing and lending with other applicants that might not be
24       up to par.
25       Q.   Isn't it-- isn't there space on the application or ample
                                      116
 1   space to put your other partners, yet you chose not to do it?
 2   A.   Again, when you go out to get lending, like Mr. Lobell
 3   knows, they look at every partner in the corporation. We've
 4   run into that in the past, where I've had people on LLCs and
 5   I've had to take them off just to get myself approved, and then
 6   we've been fine. And again, we had some credit issues and some
 7   tax issues with some of the partners.
 8   Q.   This was done back in June 23, 2011.
 9   A.   Yes, sir.
10   Q.   Have you ever gone back and listed those guys as your
11   partners?
12   A.   All the documents and e-mails and everything back and
13   forth we're partners.
14   Q.   The truth is that you've never done it, isn't it?
15   A.   No. We've got plenty of documentation back and forth as
16   partners.
17   Q.   You've never listed these other gentlemen as your partners
18   with the Secretary of State, have you?
19   A.   No.
20               MR. PEPPER: Your Honor, in connection with the
21   witness's testimony, I'd like to offer and file, introduce into
22   evidence P-8, the Certificate of Formation of Limited Liability
23   from the state of Texas.
24               MR. COCHELL: No objection, Your Honor.
25               THE COURT: P-8 is received. Just out of curiosity,
                                    117
    1    the plaintiffs' amended petition filed on October 12, 2011, in
    2    Texas-- or 2012, I should say, Chad Hansen, Buster Stabinski
    3    are no longer listed. Did they-- were they dismissed from the
    4    case voluntarily, or what happened?
    5              MR. COCHELL: Mr. Hansen has been served. Mr. Baker
    6    has been served. Mr. Stabinski has --we've not been able to
    7    serve Mr. Stabinski at his home or at the man camp. And
    8    Mr. Lobell we recently served after getting alternative service
    9    approved by the Texas judge.
10                 THE COURT: But Hansen and Stabinski were served with
11       the original petition?
12                 MR. COCHELL: I think they were served with the
13       amended. Well, I think--
14                 THE COURT: Well, they're named in the original
15       petition. They are not named in the amended petition. I'm
16       just curious, were they dismissed or did they settle, or--
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18       Honor, because their causes of action are clearly against them.
19       It was an oversight in drafting the document.
20                 THE COURT: I would assume you don't have to serve
21       the amended petition, as represented by counsel.
22                 MR. COCHELL: No.
23                 THE COURT: Okay.
24       Q.   (MR. PEPPER CONTINUING) Mr. Denton, please turn to page
25       --or paragraphs 84 and 85 of your amended petition for breach
                                                      118
1    of partnership.
2    A.   I don't-- I don't have it anymore.

 3   Q.   I can get you a copy.
4                 THE COURT: And you're talking about Plaintiff's

 5   Exhibit 7, correct?
 6                MR. PEPPER: Paragraphs 84 and 85 of the--

 7                THE COURT: Plaintiff's Exhibit 7.
 8                MR. PEPPER: Yes, I think it's 7.
 9                THE WITNESS: Okay. I got it.
10   Q.   (MR. PEPPER CONTINUING) Now, look at paragraphs 84 and 85

11   of your amended petition, please. Do you have those?

12   A.   I do.
13   Q.   In those paragraphs you refer to breach of partnership for

14   purchasing the option to purchase the real property. Do you

15   see that?
16   A.   Yes.
17   Q.   The fact is that you-- the only document you have that
18   even purported to give you an interest in property was our

19   exhibit. It was your Uniform Offer to Purchase, correct?
20   A.   Yes.
21   Q.   Okay. Do you understand now that that document does not

22   give you any interest in that property?
23                MR. COCHELL: Objection to the extent it calls for a
24   legal conclusion.

25                THE COURT: So noted. Overruled.

                                       119
 1               THE WITNESS: The property owner and realtor knew we
 2   were getting an investor to purchase the property, and they
 3   were fine with that. No one else was on the table to even
 4   think about buying it. They were hoping we were going to make
 5   this deal happen and they were working hard with us to make it
 6   happen.
 7   Q.    (MR. PEPPER CONTINUING) But the truth is that you never
 8   purchased an option to purchase that property, did you?
 9   A.    As far as putting money down, no.
10   Q.    Did you ever purchase the property?
11   A.    No.
12   Q.    Yet you've made a claim for breach of partnership. Did
13   you have any written partnership agreement regarding the
14   purchase of that property with anybody?
15   A.    No.
16   Q.    Turn to paragraph 91 of your first amended petition.
17   A
     ,..   vr>IK~"
               o.y.

18   Q.    There you've made a claim for breach of fiduciary duty to
19   :JUrchasing the option to purchase real property and obtaining
20   the contract for purchase of real property.
21   A.    Okay.
22   Q.    That Uniform Offer to Purchase Property was never even
23   signed by the seller, was it?
24   A.    I don't think so.
25   Q.    Would you like to look at it again?
                                     120
 1   A.   Oh, the one I signed, no. Yeah, it wasn't signed by the
 2   owner, that one.
 3   Q,   Where do you think that you have an interest in this

 4   property? Where is your basis for believing that you have a
 5   bona fide or you had a bona fide interest of ownership in this
 6   property?
 7   A.   Because we made a partnership deal with Mr. Lobell, turned
 8   him on to the realtor, made sure he bought the property and
 9   established the man camp.
10   Q.   You have yet to show the Court any written document

11   showing a partnership either with your alleged partners or
12   Mr. Lobell, so I ask you again, where do you think that you get
13   an interest in this property, Mr. Denton?
14               MR. NYHUS: Your Honor, I object. That's been asked
15   and answered.

16               THE COURT: Well, I'm going to overrule, but are both
17   -- I mean, I generally don't have two attorneys on the same
18   side making objections. I mean, I deal with one. If you
19   change attorneys with respect to which witnesses they're
20   handling, then that's fine, but--

21               MR. COCHELL: Yes, Your Honor.

22               THE COURT: But the objection is noted and overruled.
23   I would ask that whatever attorney is handling this witness

24   make the objections or any other commentary, and the same holds
25   true for the plaintiffs' side of the case.

                                     121
 1                MR. COCHELL: Yes, Your Honor. Objection, it's been
 2   asked and answered several times in several different ways.
 3                THE COURT: Overruled. I'll let you answer it if you
 4   can.
 5                THE WITNESS: I am not on the title of the property.
 6   Q.     (MR. PEPPER CONTINUING) And even though you're not on the
 7   title of the property, you made a claim in paragraph 127 of
 8   your amended complaint for conversion, where you claim that you
 9   had owned the right to purchase real property and that you had
10   obtained the contract for purchase of real property.
11   A.     Yes, we gave the contract to Mr. Lobell to purchase.
12   Q.     Do you understand what conversion is?
13   A.     I would need to hear your definition.
14   Q.     I'm asking you, do you understand?

15   A.     No.
16   Q.     Do you understand to ask or claim conversion, that you
17   have to own something that you --that you claim that somebody
18   took from you? Do you understand that, in very simplistic
19   terms?
20   A.     And it was took and it was purchased and the deal was
21   consummated.
22   Q.     But you never did own it. You just admitted that you
23   didn't have title to it.
24   A.     I didn't own it on paper.

25   Q.     You didn't even have a signed purchase agreement, yet you
                                        122
 1   made this claim in Texas state court. Do you understand that?
 2   A.   The purchase agreement with my signature on it?
 3   Q.   Yes.
 4   A.   Okay.
 5   Q.   Do you realize that that agreement was not valid because
 6   it wasn't signed by the seller and you never put any money down
 7   on that?
 8   A.   I can't be a hundred percent sure that the seller didn't
 9   sign it because once I signed it, Craig took care of dealing
10   with the seller.
11               THE COURT: And Craig was the real estate agent.
12               THE WITNESS: Yes, sir.
13               MR. COCHELL: Craig Mcivor, Your Honor.
14               THE WITNESS: Craig Mcivor, yes.
15   Q.   (MR. PEPPER CONTINUING) But you also stated earlier too
16   that it was never your intent to purchase it. It was for
17   somebody else to do, right?
18   A.   We needed a partner.
19   Q.   Okay. So nobody really converted anything of yours, did
20   they, because you didn't own anything to begin with, did you?
21   A.   I guess you're right. I mean --
22   Q.   And then in paragraph 135 of your amended petition, you
23   claimed theft, theft. Do you understand what theft is?
24   A.   I don't have the same petition, but--
25               THE COURT: Well, it's the Texas Theft Liability Act.
                                    123
 1   I have no idea what-- how they-- what they define falls

 2   within the terms of that particular act, but I assume theft

 3   means theft as most people understand it to be.

 4              MR. PEPPER: Correct, Your Honor.

 5   Q.   (MR. PEPPER CONTINUING) And for acquiring the real

 6   property, you didn't have anything for Mr. Lobell or your

 7   partners to steal or take from you, did you, in that property?

 8   You didn't have any title to it.

 9              MR. COCHELL: Objection, mischaracterizes the

10   allegations in the Texas Theft Liability Act, Your Honor.

11              THE COURT: Overruled.

12              MR. COCHELL: There's other--

13              THE COURT: You can answer. Overruled. You can

14   answer it if you feel that you can.

15              THE WITNESS: I'm sorry. Can you say it again?

16   Q.   (MR. PEPPER CONTINUING) You didn't have anything for your

17   partners or ivir. Lobeii to steai, did you? You didn't have any

18   interest in that property for them to steal, did you?

19   A.   Yes, we had the whole project ready to go, all permits in

20   place, a management company, Morgan Chase Management, who ran

21   the operation totally for Mr. Lobell. Everything was in place,

22   ready to go. Like I said, three days later the ground breaking

23   with equipment started. There was nothing for Mr. Lobell to do

24   to get the thing started, and we all made that happen.

25   Q.   With regards to the real property?

                                        124
 1   A.   That is the real property with all the manufactured homes
 2   on top of it.
 3   Q.   The real estate. You testified earlier you had no title
 4   to it, correct?
 5   A.   We passed it on to Mr. Lobell, to purchase the property to
 6   make the man camp, which is Capital Lodging, which the land is
 7   an asset of Capital Lodge, which was in the list of our assets
 8   in our marketing and investment plan to every investor. That
 9   never changed.
10   Q.   Mr. Denton, do you own a home?
11   A.   Yes.
12   Q.   Do you understand what it means to own the real property
13   that the home is on?
14   A.   Yes.
15   Q.   And that home is your asset, isn't it?
16   A.   Yes.
17   Q.   But you owned it and you paid for it, didn't you?
18   A.   Yes.
19   Q.   You didn't pay for this property, did you?
20   A.    No, Mr. Lobell did.
21   Q.    But you can't claim theft if you never owned it, isn't
22   that correct?
23   A.   Yes.
24               MR. PEPPER: Okay. No further questions of this
25   witness, Your Honor.
                                   125
 1                           CROSS-EXAMINATION
 2   BY MR. COCHELL:
 3   Q.     Mr. Denton, when you talked to potential investors -- and
 4   you did talk to a number of potential investors yourself, is
 5   that correct?
 6   A.     Oh, yeah, we went on meetings with them, flew around
 7   different-- flew around Texas, different oil company guys I
 8   knew.
 9   Q.     Okay. And you were continuing to do that in july, is that
10   correct, when Mr. Lobell came up as a potential investor? Is
11   that correct, sir?
12   A.     Oh, yes, sir. We were doing it all the way into early
13   May.
14   Q.     And with respect to investors, when you talked to them,
15   did you tell them that their money was needed to purchase the
16   list of assets in the investment package?


18   looked at that had it in it.
19   Q.     And so, in essence, you were selling them an opportunity
20   to participate in an idea that had been developed over a
21   three-month period.
22   A.     Correct.
23   Q.     Now, with respect to the property, at the time that you
24   filed the original lawsuit, did you know that the property had
25   been purchased individually by Mr. Lobell?
                                    126
 1   A.   No.
 2   Q.   Is that why it wasn't mentioned in the original petition?
 3   A.   Correct.
 4   Q.   And after you learned of the purchase by Mr. Lobell,
 5   that's when the amended petition was filed and --
 6   A.   Yes.
 7   Q.   -- the lis pendens was filed?
 8   A.   Yes.
 9   Q.   With respect to your testimony about Mr. Lobell, you
10   had -- how many trips did you go on with --to talk to
11   potential investors using the investment package?
12   A.   For the man camp only, two.
13   Q.   And you-- you have a number of businesses, is that
14   correct?
15   A.   Yes, sir.
16   Q.   Have you previously --
17               MR. COCHELL: I'm going to go into what our direct
18   examination would be, Your Honor.
19   Q.   (MR. COCHELL CONTINUING) Have you previously had
20   partnership ventures with Mr. Baker, Hansen or Stabinski?
21   A.   Yes.
22   Q.   Without going into detail, how were those partnerships
23   pursued by you and these other gentlemen?
24   A.   Some of them were on LLC documents, and most of them we
25   just went out and did them and split the profits three or four
                                   127
 1   ways, depending on how many of us were together.
 2   Q.    If you funded a project, how-- and you invested 50, a
 3   hundred thousand dollars or something into a project, how was
 4   the -- how were the profits or the proceeds of the partnership
 5   to be divided as among the three or four of you?
 6   A.    Always equally.
 7   Q.    And that's after you would recoup and be reimbursed your
 8   expenses?
 9   A.    Yes, sir.
10   Q.    And were there occasions where -- and did it matter

11   whether there was an agreement signed or not between you guys?
12   .A.   Did not.
13   Q.    And did you trust Mr. Baker?
14   A.    Absolutely.
15   Q.    How long have you known him?

16   A.    Since '09, 2009.
17   Q.    Did you ever have a dispute, like a real angry dispute

18   with him over the running of a partnership?
19   A.    No.
20   Q.    Now, when you learned of Mr. Lobell, was there a
21   discussion about whether you should go to see Mr. Lobell or one
22   or more of the other partners?

23   A.    Yes. Me, Chad Hansen and Randy Baker got on a conference
24   call two nights before we were supposed to go see Mr. Lobell,
25   including myself. I bought him Southwest-- I bought Randy a
                                   128
 1   Southwest airline ticket, and I was going to get one too, and
 2   the night before we had a conference call and decided let's
 3   just send Randy so there's not a distraction with a second
 4   person being there, since Randy had all the construction
 5   quotes, had all the bids put together, and let them deal with
 6   that one on one, and I agreed. Mr. Hansen agreed. Baker said,
 7   "Great. I can handle it." And I sent him on to see Mr. Lobell
 8   in New Orleans.
 9   Q.   And then there was a subsequent trip, is that correct?
10   A.   Yes, a second meeting on the -- about a week later, and on
11   that meeting I sent Buster Stabinski and William Baker together
12   on airplane flights.
13   Q.   And why did you send the two of them?
14   A.   Because Mr. Stabinski knew Mr. Lobell from his hometown
15   and just figured, you know, it's more of the-- they knew each
16   other and it was going to be a more comfortable setting.
17   Q.   Now, did you-- how long have you known Mr. Stabinski?
18   A.   Oh, Buster, I met him, I believe, 2010, a couple years.
19   Q.   And you had done projects with him before?
20   A.   Yes.
21   Q.   And did things go smoothly in those projects?
22   A.   There was -- it was a loss as far as the project we did
23   together, one of them. Yes, it was a loss.
24   Q.   And -- but when there's losses in these projects, you
25   would absorb the risk of the loss, is that correct?
                                  129
    1     A.      All of them, yes.
    2     Q.      And you would be supporting them and giving them a draw or
   3      living expenses?
   4      A.      Yes.
   5      Q.      Is that what happened in this particular project?
    6     A.      Yes.
    7     Q.      How did you ensure that they had living money while they
   8      were up in North Dakota?
    9     A.      Well, each of them -- I mean, each of them had one of my
10        debit cards for Capital Transport and they were living in rent
11        trailers. I had rent vehicles for them, living and paying lot

12        rent, and they bought fuel, all their food, everything. I
13        mean, I just-- they had free rein to live and make this
14        project happen for three months.
15        Q.      And so you paid for the mobile homes that they lived in?
16        A.      The -- yeah. Yes, like 1 5 -- I forget. It was over
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18        Q.      Oh, I see.
19        A.      --per person, including rent vehicles and--
20        Q.      You used a term earlier call an MSA. Can you tell the
21        Court what that means?
22        A.      That's master service agreement. We went out and
23        collected master service agreements with the oil companies
24        where Capital Oil Field Services could work for these companies
25        and be in the system. Example is moving rigs, trucking,

                                                                           130
 1   building pads, housing them, everything that had to do with oil
 2   field services, which we marketed to them.
 3   Q.   And did you, in fact, get some business as a result?
 4   A.   Yes, sir.
 5   Q.   Okay. And was that profitable business?
 6   A.   Yes.
 7   Q.   And in approaching this project, it was always your intent
 8   to contribute funds through activities with Capital Transport?
 9   A.   Yes.
10   Q.   Now, with respect to the time that Mr. Stabinski and
11   Mr. Baker went to-- the second time that they went on-- on or
12   about july 23rd of 2011, did you have a discussion with them
13   after the fact?
14   A.   Yes. Yes, they said--
15   Q.   What did they tell you?
16   A.   To go ahead and call Mr. Lobell. It was in the evening
17   time, and they said he was expecting your call.
18   Q.   And did you do that?
19   A.   I did, yes. He answered the phone, and Mr. Baker, when he
20   told me to call Kenny, he said to call him about all the
21   operational, setting up the bank account, get the LLC
22   established, all that stuff that I do anyway.
23   Q.   So what did they tell you about the arrangement that--
24   the deal that had been reached with him? What did they-- how
25   did they describe that?
                                    131
 1   A.   They described it as it was going to be a 65/3 5 split,
 2   meaning 65 percent of the revenues go to Mr. Lobell until his
 3   capital is recuperated. The other 35 percent was going to be
 4   split between the other remaining partners, and once that was
 5   done, we were all going to be 20 percent partners, once he had
 6   every bit of his capital back in his pocket.
 7   Q.   And then -- and so when you called him, did he -- did he
 8   say-- what did he tell you? Did he express surprise that you
 9   were calling him?
10   A.   No, we talked about a lot of stuff.
11   Q.   And what was your assumption at that point, when you
12   called Mr. Lobell?
13   A.   Excited after the phone call. Called Randy right back.
14   Mr. Lobell was going to call me back tomorrow and tell-- like
15   he said on the telephone conversation, where he wanted to file
16   the LLC because I told him we should probably try to file it in
17   North Dakota because I already tried to file it in Texas with
18   all the partners on that one and there was another company in
19   Texas that already had that name. And Mr. Lobell said, "Let me
20   think about it and I'll call you back tomorrow."
21             We talked about opening up the bank account at Chase
22   Bank because that's where my businesses are out of, Chase Bank.
23   He agreed. He has his business -- or does business with Chase
24   Bank. I said the advantage to that is we can monitor the funds
25   online together just by putting in your password.
                                   132
 1                We also talked about the trucking, Capital Transport,
 2   because he had told Randy and Buster that he was willing to
 3   invest in Capital Oil Field Services to move rigs, to build
 4   pads, which they did, and supply trucking for these MSAs that I
 5   have. Well, I actually told him about the MSAs. We talked
 6   about each oil company that had them. He told me he had
 7   trucks, he could get trucks. And I said, "Well, let's do this.
 8   You understand the MSAs are all in Capital Transport already."
 9   I said, "Since I have that existing business going, we will
10   open up a separate bank account in a separate P and Ljust for
11   our business together." Mr. Lobell didn't have any problem
12   with that.
13                We also talked-- he wanted to know my history, what
14   I've done in the past. I told him about the mobile home
15   dealerships. I told him about the commercial construction
16   company. He wanted to know what I had done, other deals in the
17   past with Randy and Mr. Hansen. I said we did some of the
18   Pensacola oil spill cleanups, on and so on. Then he talked
19   about his BP Oil experience, how he made millions of dollars in
20   that. And he asked me-- he goes, "Do you really think there
21   is a lot of-- you've been there. Is there that much business
22   when it comes to all these other-- the trucking and the rig
23   moves and the pad building?" And I said, "Yes." I said, "We
24   drove three-and-a-half hours every night to a hotel room." And
25   there was over 5,000 people doing that a day supposedly back in
                                     133
 1   May of-- early May. And he was feeling me out on the
 2   investment, and I understood that. He-- you know, he wanted
 3   to have some assurance there from another person too.
 4             And as far as that, that was pretty much -- it was
 5   about a 1 5-minute conversation, and then I went back to filing
 6   the LLC paperwork. And he said, "I'll call you tomorrow on
 7   that," and that's where the conversation ended. I called my
 8   partners back and said, "Yeah, you're right. He's good to go."
 9   And we started-- I think the ground breaking was July 27,
10   which equipment was purchased on my card for that, and so that
11   was three days later from the phone call with Mr. Lobell. We
12   were breaking ground and making things happen.
13   Q.   Now, but for Mr. Lobell's agreement with Mr. Stabinski and
14   Mr. Baker and their conveying that agreement to you, would you
15   have shared any of that information about your MSAs and
16   business with Mr. Lobell unless they had told you that there
17   vvas a deal?
18   A.   I'm sorry. I didn't understand.
19   Q.   If you had thought that Mr. Lobell was not your partner,
20   would you have been calling him that night and sharing specific
21   information about your business?
22   A.   No. Randy had called me and said the deal was done. All
23   I was doing was calling Mr. Lobell to set up the banking
24   information, the LLC paperwork, all the documents that I did
25   after the fact and sent in to the State on our behalf, paid for
                                  134
1    some of those documents, sent him faxes for some of those

2    documents that he sent back to Chad Hansen, acquired the

 3   insurance, everything. We were all going full speed.

 4   Everything was wonderful.

 5   Q.   Are you aware of Mr. Hansen or Mr. Baker representing

 6   themselves to be partners of Capital Lodging after July 27,

 7   201 2 -- 2011?
 8   A.   Absolutely.

 9               MR. PEPPER: Objection, Your Honor, it calls for

10   speculation.

11               THE COURT: Overruled. The question was, "Are you

12   aware?"

13               THE WITNESS: Yes.

14   Q.   (MR. COCHELL CONTINUING) Have you seen documents relating

15   to such communications?

16   A.   Yes.

17               THE COURT: Before we move on to those documents, I

18   have a question for you. You dealt with Baker, Hansen,

19   Stabinski before, right?

20               THE WITNESS: Yes, sir.

21               THE COURT: But you didn't list them on your LLC in

22   Texas because you said there were some credit problems?

23               THE WITNESS: Yes.

24               THE COURT: What are -- do you know what their

25   so-called credit worthiness was, those three gentlemen?

                                     135
 1             THE WITNESS: I was more familiar with Randy's credit
 2   situation. Buster I just assumed because he told me the
 3   problems he had had in the past and, you know, I had to fund
 4   him on a few things, and he didn't have income. And Mr. Hansen
 5   said he had had some issues in the past with some other
 6   businesses too. And so me and Randy, when we made that
 7   decision that him and the other guys shouldn't be on it because
 8   that would stop-- I mean, some of these projects get into some
 9   pretty decent money that was going to be over my ability, so if
10   we had a commitment and I needed to get lending, which I can
11   because of my credit rating, I was going to be okay. We had
12   ran into a situation on another partnership with Randy where I
13   had to take him off the LLC to get funding, and he said, "Let's
14   not run into that problem again."
15             THE COURT: So what risk do these three guys have in
16   --I mean, I'll sign up for a hundred projects where I don't
17   have to put any money upfront and i'm going to spiit 65/3 5 with
18   the money man and thereafter a 20 percent cut of the profits.
19   I mean, that's the greatest deal in the world. What risk do
20   these other three gentlemen have in entering into such a
21   project like that?
22             THE WITNESS: Like I said, they were there for three
23   months living in campers and working 14-hour days and making
24   this whole project from start to finish happen, and --
25             THE COURT: But they were being paid by you,
                                  136
 1   apparently, during that time frame or at least using your debit
 2   card.
 3            THE WITNESS: Yes.
 4            THE COURT: Okay. So what risk do they have? I
 5   mean, what a great deal. Do they have any risk other than
 6   expending three months of their time to try to get a dream
 7   going? Do they?
 8            THE WITNESS: Not really.
 9            THE COURT: Okay. And what was -- according to the
10   discussions that you had with Baker, Hansen and Stabinski and
11   then Mr.-- who was the fourth? I'm sorry-- Mr. Lobell, what
12   was-- what was your risk involved in the project in obtaining
13   this-- a portion of this 65/35 split and thereafter a
14   20 percent ownership interest in the profits to be realized?
15            THE WITNESS: When we went to an investor to try to
16   get financing with them, we always told them that I needed to
17   get my initial cost back, reimbursement, and that was what was
18   told to Mr. Lobell, and he paid that reimbursement on
19   August 2nd to me.
20            THE COURT: That was how much?
21             THE WITNESS: 61,000.
22             THE COURT: Okay. So you were made whole at that
23   point.
24             THE WITNESS: Well, I've got $11 ,000 out that I
25   haven't been reimbursed.
                                  137
 1                  THE COURT: But at least at the time that you got the
 2   check for 61 ,000 you had been made whole for what monies that
 3   you had expended on this project.

 4                  THE WITNESS: Yes. That was the agreement, yes, with
 5   Mr. Lobell or any investor. I was going to get made whole.
 6                  THE COURT: So thereafter what risk did you have
 7   associated with undertaking a multimillion dollar project?
 8                  THE WITNESS: I didn't have a risk.
 9                  THE COURT: Okay. Where do I sign up for those
10   deals?
11   Q.     (MR. COCHELL CONTINUING) With respect to risk, Mr.
12   Denton, part of what you were also providing would be
13   continuing services in the management and financial bookkeeping
14   of the company?
15   A.     Sure.
16   Q.     So there would be sweat equity, correct?
17   .A..   Of course.
18   Q.     In addition to sweat equity that you previously invested
19   in the company.
20   A.     Yes, every day.
21   Q.     And, you know, so with respect to Mr. Lobell, he would be
22   investing money and getting reimbursed his money without having
23   to manage everything if he chose not to, is that correct?
24   A.     That's correct.

25   Q.     And then after he was repaid his equity, then he would get
                                       138
 1   20 percent net profit on the man camp.
 2   A.   Correct.
 3   Q.   I'd like to show you what's been previously marked as
 4   Exhibit 56 (sic) for identification and ask you, sir, if you
 5   recognize that document.
 6   A.   Yes. Yes, sir.
 7   Q.   And what is this document?
 8   A.   That is a newspaper article out of the Williston Herald
 9   dated October 17, 2011.
10   Q.   And do you know if-- with respect to this document, my
11   question had been, did you know if Mr. Baker or Mr. Hansen
12   believed themselves to be partners in Capital Oil Field
13   Services and the new Capital Lodge?
14   A.   Yes.
15   Q.   Now, what was the intended relationship between Capital
16   Oil Field Services and Capital Lodge?
17   A.   They were always working as partners in this whole project
18   and believed they were.
19   Q.   Okay. And with respect to the newspaper articles, prior
20   to this newspaper article, do you know if you and Mr. Baker and
21   Mr. Stabinski worked with any public relations people about
22   providing information about Capital Lodge?
23   A.   Oh, yeah, there was a lot of articles in all those local
24   newspapers about us.
25   Q.   And in those articles --you know, let's talk about--
                                   139
    1       were there articles after july 27th of 2011, where the articles
    2       referred to these gentlemen as managing partners of Capital
    3       Lodge?
    4       A.      Yes, it shows them in their interviews here, yes, that
    5       they're managing partners, quite a few articles after that
    6       time.
    7       Q.      And prior to that time were there articles that
    8       represented them to be managing partners?
    9       A.      Yes, lots of them.
10          Q.      And do you know where the newspaper reporters would have
11          gotten that impression?
12          A.      From the partners.
13          Q.      Okay. Were you ever present or did you participate in
14          e-mails with the public relations lady that handled that
15          project?
16          A.      No. No, I was not involved in the articles of the
1   ....,
-'- ,       nevvspaper.

18                       MR. COCHELL: We move the admission of Number 54,
19          Your Honor.
20                       MR. PEPPER: Your Honor, no objection for the fact
21          that it was published by the paper, but as per the truth of the
22          information, the substantive truth, we do object.
23                       THE COURT: Fully understood. Is it D-56 or D-54?
24                       MR. COCHELL: Fifty-four, Your Honor.
25                       THE COURT: Okay. D-54 is received.
                                            140
 1             THE WITNESS: Can I make a comment again, just-- I
 2   wanted to make it clear that my intention was not to work for
 3   three months, fund all this and my partners to do all this just
 4   to get a reimbursement back and be sent-- and not get any
 5   reward, including --
 6   Q.   (MR. COCHELL CONTINUING) Right, and so you're talking
 7   about the concept of return on investment?
 8   A.   Yes, sir.
 9   Q.   You don't generally just go around like Robin Hood funding
10   things without some expectation of return?
11   A.   Yes, sir.
12   Q.   And when you met with potential partners, that was
13   explained to them?
14   A.   Yes, sir.
15   Q.   All right. And so have you gotten any return on your--
16   the time and money that you invested in this project?
17   A.   No, sir. I'm negative on both of those.
18             THE COURT: Well, he was reimbursed $61,000, so--
19             MR. COCHELL: I guess, you know, it's a legal axiom.
20   You know, if people enter into a deal, the deal still is still
21   the deal even if it's a bad deal.
22             THE COURT: Oh, I'm not-- I'm not squabbling about
23   that, but the question was, have you received any return on
24   your investment--
25              MR. COCHELL: Oh, I see.
                                    141
 1            THE COURT: --time or otherwise, and he said no.
 2   And five minutes before that he told me that he had been made
 3   whole by receiving 61 ,000-plus dollars for the money that he
 4   expended over three months to get this project going.
 5            MR. COCHELL: Well, that's the equity. That's not
 6   the return on the equity.
 7            THE COURT: Oh, I see. Okay. We're at 2:30. We're
 8   going to take a mid-afternoon break here for about 20 minutes.
 9   Tell me, both counsel, how much more we have in terms of
10   witnesses and length of time that witnesses will be testifying.
11   We're not going beyond 4 o'clock today.
12            MR. PEPPER: Your Honor, I have two witnesses, Randy
13   Baker and Myer Stabinski, and I don't plan to ask them a whole
14   lot of questions, Your Honor.
15            MR. COCHELL: And I have Chad Hansen and about
16   another ten, or so, minutes with Mr. Denton.
17            THE COURT: All right. See you in 20 minutes.
18            (A recess was taken from 2:30p.m. to 2:50p.m., the
19   same day.)
20            MR. COCHELL: Mr. Denton was on the stand.
21            THE COURT: All right. Sir, if you could resume your
22   seat and we'll continue with the questioning.
23   Q.   (MR. COCHELL CONTINUING) I'm going to make this brief,
24   Mr. Denton. On or about-- I believe it was August 31st of
25   2011, I believe, you had a meeting with Mr.-- with Mr. Lobell
                                 142
 1   in New Orleans?
 2   A.   Yes, I met with Mr. Lobell.
 3   Q.   And did you -- did you have a discussion with him about
 4   the partnership problems?
 5   A.   Yes.
 6   Q.   And what did he tell you? Did he deny that he had entered
 7   into a partnership with Mr. --with you and the other partners
 8   that you sent down to talk to him?
 9   A.   No, he agreed he did.
10   Q.   What did he tell you?
11   A.   He told me that-- sorry, I'm just-- originally it-- the
12   original deal was 68/32, and after he got his capital
13   investment back, it did go to 20 percent. I asked him about
14   that, and he said, "That was the original deal, but then I
15   didn't like that deal and I changed it and made it a 68/32,
16   where 32 percent is for all of you all." And he said, "If the
17   guys don't perform, I don't know if I'm going to pay them
18   anything."
19   Q.   And did-- did you have any further discussion with him
20   after that? Let me ask you this. I mean, did you tell him
21   that you thought he had been badly treated throughout all of
22   this situation?
23   A.   Absolutely.
24   Q.   And until this lis pendens was filed, there's never been
25   any contact by Mr. Lobell to try and resolve things with you.
                                   143
 1   A.      No, sir. He stopped taking my phone call, text messages.
 2   Absolutely. We were talking all the way through September.
 3   Q.      And were you --what else were you doing in September for
 4   the-- for Capital Lodging?
 5   A.      I wasn't doing anything after September.
 6   Q.      Okay. In August were you continuing -- after that
 7   meeting, you figured that there was nothing else that you could
 8   do and you would have to come to terms with him legally?
 9   A.      Yes.
10                  MR. COCHELL: That's all the questions we have at
11   this time, Your Honor.
12                  THE COURT: This meeting in New Orleans, when was
13   that?
14                  MR.COCHELL: August3lstof2011.
15                                 EXAMINATION
16   BY THE COURT:
17   Q.      And you started out and you said the agreement was 68/32,
18   and then you said he changed that to 68/32. I assume you meant
19   65/35?
20   A.      No, he said the agreement was 68/32, was the original
21   deal, and we did each get 20 percent after he got his capital
22   back. But then he said he changed -- he didn't like that deal
23   and he changed it to a 68 percent for him all the time and
24   32 percent for the rest of the partners, and then he said, "If
25   they don't perform, I might not pay them anything."
                                      144
 1   Q.   So in other words, he apparently was not happy with what
 2   the other three gentlemen were doing in North Dakota.
 3   A.   He said if they didn't perform, then they wouldn't get
 4   anything.
 5   Q.   Well, how did you interpret that?
 6   A.   Exactly. If he doesn't like what they're doing, then he
 7   won't pay them.
 8   Q.   But nothing in writing.
 9   A.   No. He kept saying we were going to get an operating
10   agreement.
11   Q.   Okay.
12   A.   I've got e-mails back and forth, and everybody is saying
13   that Mr. Lobell needed another two weeks with his attorney, and
14   that's why we were all working like everything was great.
15   Q.   So what did you tell Mr. Lobell about Mr. Baker and Mr.
16   Stabinski and -- I mean, did you express some criticisms of
17   those gentlemen and the kind of work they do and how
18   trustworthy they are?
19   A.   Yeah, I was a little perturbed at everybody and the whole
20   thing and not feeling really good because when they wouldn't
21   sign my partnership agreement, they said that Mr. Lobell told
22   them not to sign it, when they told me they would sign it, go
23   ahead and draft it up, and I stayed in North Dakota and made
24   the partnership agreement up. And then they sent it to Kenny,
25   and Kenny's response was, "You all better-- you better not
                                    145
 1   sign it or you're not getting anything," is what I'm being
 2   told, so they were forced not to sign it.
 3                          RECROSS-EXAMINATION
 4   BY MR. COCHELL:
 5   Q.    All right. Why did-- why did you draft the agreement to
 6   just have the three of them? Did you believe that time that
 7   Mr. Lobell was a partner with you?
 8   A.    Absolutely.
 9   Q.    So--
10   A.    He told me he was.
11   Q.    Okay. And he was not at-- he was not in North Dakota at
12   that time, is that correct?
13   A.    No, not at that time.
14   Q.    So what was your purpose in trying to get that agreement
15   and asking them to sign it?
16   A.    Making sure that we were all in the deal together.
17   Q.    Okay. And with respect to --did they ever tell you that
18   they had signed it?
19   .A.   Yes. We had a meeting and I-- and they said, "Yes, you
20   go ahead and draft something up. You get it together and we'll
21   look at it." And then they sent it to Mr. Lobell and they
22   said, "Mr. Lobell said don't sign it or you're not getting
23   anything." And he said, "How do you-- how do you sign a deal
24   that you don't own the property to?"
25   Q.    Okay.
                                   146
1    A.   Is what his response was to those guys.
2    Q.   Okay. And with respect to Mr. Lobell, did he tell you
 3   that he would make them make good on their promises?
 4   A.   He did.
 5   Q.   Did he -- did he try to suggest to you that he didn't know
 6   of all the partnership issues?
 7   A.   Yes.
 8   Q.   And did he say anything to you that-- what made you
 9   reject his credibility in terms of, you know, the companies?
10   Did something happen with Capital Transport?
11   A.   Yes. After me and Mr. Lobell had that conversation that
12   --the evening of the 23rd of July and talked about trucking,
13   getting that running together since I already had the MSAs and
14   the Capital Transport, LLC, already established, I went to the
15   Secretary of State website in Louisiana and Googled Capital
16   Lodging, and Capital Transport Services, LLC, came up. And
17   when I saw that, my heart kind of dropped. I was like wow.
18               Five days later he is establishing a trucking company
19   with my company marketing materials, company name, changed it
20   to "Services," took my MSAs, started trucking with "Capital"
21   all over the trucks right out of the man camp, when we had
22   talked about that was part of our marketing materials to him
23   and he had agreed he was going to invest in the trucking
24   company.
25   Q.   And do you know if he was doing business with some of the
                                      147
 1   same companies in which you had master service agreements?
 2   A.   I don't know that.
 3   Q.   Okay.
 4   A.   I don't know that.
 5   Q.   But he's using exactly the Capital brand -- the Capital
 6   Transport brand. He's just adding "Services" and calling it
 7   his own.
 8   A.   My exact documents, everything.
 9   Q.   So what did you conclude about his honesty?
10   A.   I knew that I was dealing with someone who was not honest,
11   period.
12              MR. COCHELL: That's all the questions we have. Your
13   Honor, also, just for the record, there is in evidence the
14   amended petition, and we're cutting short our examination of a
15   lot of the detail because it's in evidence.
16              THE COURT: All right.
17              rv1R. PEPPER: Your Honor, I do have sorne redirect.
18                          REDIRECT EXAMINATION
19   BY MR. PEPPER:
20   Q.   Mr. Denton, earlier-- you testified this afternoon that
21   --you indicated that on business ventures that go bad, you
22   absorb all the losses. Isn't that what you testified to?
23   A.   Yes, sir.
24   Q.   You didn't absorb any of the losses in this one. You were
25   paid back by Randy Baker, weren't you?
                                   148
 1   A.   I was paid up to 61,000, with 11,000 still out, but, you
 2   know, we're not -- that's not the big topic here, $11 ,000.
 3   Q.   Okay. And so even after you were paid back, you still at
 4   that point never turned around and -- let's go back to the date
 5   that your offer to purchase the property was set to expire on
 6   July 15th. Did you ever ask for an extension?
 7   A.   Didn't need to. Craig said, "Chad, the land is not going
 8   anywhere." We told him Mr. Lobell was working with his bank to
 9   get his line of credit, and he said fine. And we said it would
10   take about two weeks and Mr. Lobell would be contacting him,
11   and that is exactly how it happened.
12   Q.   But you had the opportunity and you didn't, correct?
13   A.   Didn't need to.
14   Q.   Okay.
15             THE COURT: Was this property on Multiple Listing?
16             THE WITNESS: No. No, Craig knew Mr. Schmidt. It
17   was the one piece of property he knew of. We went and looked
18   at it, and it was the right one.
19   Q.   (MR. PEPPER CONTINUING) And other than that offer to
20   purchase, do you ever have -- or did you ever obtain any
21   written document giving you title of any kind in that property?
22             MR. COCHELL: Objection, asked and answered. It's
23   beyond the scope of my cross.
24             THE COURT: Overruled.
25             THE WITNESS: No, I'm not on it.
                                   149
 1   Q.   (MR. PEPPER CONTINUING) Okay. Did you ever make any
 2   capital improvements to the property? Did you ever go on the
 3   property and make any kind of construction on the property?
 4   A.   After Mr. Lobell made the deal with us, Randy went and
 5   leased property off of my account and we started breaking
 6   ground with that--
 7   Q.   I'm talking about you, sir, not Randy, you.
 8   A.   It is me if it's my money being spent.
 9   Q.   What money of yours was being spent?
10   A.   We rented equipment to start breaking ground, the heavy
11   equipment from Hertz Rental Equipment.
12   Q.   Wasn'tthat$61,000--
13   A.   No.
14   Q.   --that you paid?
15   A.   No, there's still $11 ,000 in cost out. And again, I don't
16   want to harp on $11 ,000. I didn't do this deal three months,
17   set it up, all my guys, spend all this money to get reimbursed.
18   That's not what we're here for. That's not what I did it for.
19   Q.   You were the money man in the partnership?
20   A.   We all put this whole thing together on top of the money,
21   every day working this thing, but, yes, I was the total money
22   man in this whole deal, yes, sir.
23   Q.   And you testified that you didn't want them on the
24   partnership agreement earlier because of their credit problems,
25   right?
                                  150
 1   A.   We agreed not to go on Capital Oil Field Services together
 2   because of their credit issues. Capital Lodging, I submitted
 3   it with every partner on it, every-- all of us.
 4   Q.   But Capital Oil Field Services was the company that was,
 5   according to your own petition --that was the blanket company
 6   that was supposed to own everything, correct?
 7   A.   Capital Oil Field Services, yes.
 8   Q.   And is that the partnership agreement that you approached
 9   your partners in terms of--
10   A.   I think all -- I think it was just Capital -- it could
11   have been Capital Lodge and Capital Oil Field Services.
12   Q.   But to this day you have nothing in writing, correct?
13   A.   No, they were told not to sign it by Mr. Lobell.
14   Q.   And you've never listed them with the Secretary of State,
15   have you?
16   A.   I couldn't in Texas because that name was already done,
17   and Mr. Lobell told me he was going to call me back the next
18   day and tell me where we were going to submit it to, where we
19   were going to file it.
20   Q.   Capital Oil Field Services, to this day you've never
21   listed them as your partners, have you?
22   A.   No. This is Capital Lodge. I'm sorry.
23               MR. PEPPER: Nothing else, Your Honor.
24               THE COURT: All right. Thank you, sir. You may step
25   down. You may call your next witness.
                                     151
 1               MR. PEPPER: Your Honor, we call Randy Baker.
 2               THE CLERK: Please raise your right hand.
 3                               RANDY BAKER,
 4   having been first duly sworn, was examined and testified as
 5   follows:
 6                          DIRECT EXAMINATION
 7   BY MR. PEPPER:
 8   Q.   Mr. Baker, can you please state your name and address for
 9   the record?
10   A.   William R. Baker, 1 514 Cedar Oaks Lane, Harker Heights,
11   Texas.
12   Q.   Okay. And, Mr. Baker, did you-- were you first brought
13   to North Dakota by an opportunity presented by the oil field
14   boom up here?
15   A.   Yes.
16   Q.   And how did you get to come up here?
17   A.   I received a phone call from Chad Denton to come up and
18   pursue some opportunities.
19   Q.   Were those opportunities in trucking?
20   A.   Yes.
21   Q.   Were they also for moving oil rigs?
22   A.   Yes.
23   Q.   Did you have working agreements with Mr. Denton?
24   A.   No, not at the time.
25   Q.   Okay. Have you ever had a partnership agreement with
                                   152
 1   Mr. Baker as to your involvement with trucking?
 2   A.      You just said Mr. Baker. You mean --
 3   Q.      I'm sorry. Mr. Denton.

 4   A.      Yes. Yes. At one time, yes.
 5   Q.      Okay. And what became of that opportunity?
 6   A.      It never produced any money. It never materialized into
 7   anything.
 8   Q.      Did he show you any papers where he had made you a partner

 9   in that?
10   A.      No.

11   Q.      Did you sign any papers where you were ever made a part in
12   that?
13   A.      Yes, I signed an operating agreement, but never got a
14   copy.
15   Q.      Let's talk about the man camp. Where did that idea come

16   from?
17   A.      That was my idea.
18   Q.      How did you come up with that idea?

19   A.      When we arrived in North Dakota, we were traveling from
20   Bismarck up into the oil play, traveling three, four hours one

21   way in the morning and evening, and realized that we needed to
22   be focused on -- more on housing, and so I started drawing

23   plans and putting plans together for a man camp.
24   Q.      In fact, did you come up with the idea and write it down
25   on a napkin?

                                      153
 1   A.    Yeah, I sure did. I still have that napkin.
 2   Q.    Once you had this idea, how did you start to bring it to
 3   fruition?
 4   A.    Started researching the permitting process, starting
 5   searching for properties, looking into different types of
 6   housing that would need to be, you know, used for the project,
 7   just did a bunch of research.
 8   Q.    And you did this primarily on your own?
 9   A.    Yes.
10   Q.    What role did Mr. Denton play in any of that?
11   A.    At first he was working on finding financing.
12   Q.    Okay. And was that always his role in any dealings that
13   you had with him? Was he the money man?
14   A.    Yes.
15   Q.    Okay. Was he supposed to be the money man in the idea,
16   your idea for the man camp?
17   .A.   Vac
             ''--'•


18   Q.    And did you guys ultimately locate a parcel of land on
19   which you thought would be good for a man camp?
20   A.    Yes.
21   Q.    Did Mr. Denton come up with the money to purchase the
22   land?
23   A.    No, he did not.
24   Q.    Did he ever tell you that he could and that he was going
25   to?
                                   154
 1   A.   Yes.
 2   Q.   Did he ultimately come up with the money to purchase the
 3   land?
 4   A.   No.
 5   Q.   How did you proceed after that, once you found out that he
 6   was not going to come up with the money?
 7   A.   Started searching for other investments. To be honest
 8   with you, I was more involved in the construction permitting
 9   and planning, and so I really didn't do anything other than
10   those items. I really didn't do much. I did search for some
11   financing on my own, but wasn't able to.
12   Q.   Okay. And who was paying for your living expenses while
13   you were up there?
14   A.   Chad Denton.
15   Q.   And what exactly did he pay for?
16   A.      Paid for a camper, groceries, a rental vehicle.
17   Q.      Did he pay you any kind of salary?
18   A.   Very limited, you know, on occasion, when it was needed.
19   Q.      And when did you or how did you come to know Mr. Lobell?
20   A.   Through Myer Stabinski.
21   Q.      Okay. And how did you and Myer meet?
22   A.      Myer and I had met on a project in Louisiana, and I
23   honestly couldn't remember the exact project. I couldn't tell
24   you that.
25   Q.      And at that time were you working with Mr. Denton on
                                     155
 1   another project down there?
 2   A.   Yes.
 3   Q.   Okay. Whatever became of that project?
 4   A.   Basically got dissolved, never produced any positive
 5   results, lost money, and basically the whole thing dissolved.
 6   Q.   Did you ever receive any partnership papers on that deal
 7   from Mr. Denton?
 8   A.   No.
 9   Q.   Are you currently an independent contractor for

10   Mr. Lobell?
11   A.   Yes.
12   Q.   How did that come about?
13   A.   My health had gotten very poor and I needed to return back
14   home for some medical attention, and so it was decided that I
15   would be able to work from home as a consultant and return to
16   North Dakota as needed.
17   Q.   Did Mr. Denton ever propose to you a partnership agreement
18   with regards to the man camp?
19   A.   Yes.
20   Q.   When did he do that?
21   A.   Once we had started -- I don't know. It would have been,
22   I believe, around September of 2011, yeah.
23   Q.   And it was well after you had already-- you and Buster
24   Stabinski had found Mr. Lobell to put together the financing

25   for the camp, is that correct?
                                      156
 1   A.     Yes.
 2   Q.     Did you ever-- or to your knowledge, did Mr. Lobell have
 3   any knowledge of who Chad Denton was when you had talked to
 4   him?
 5   A.     Chad Denton himself specifically, no, I don't believe so
 6   in the first conversation.
 7                 MR. COCHELL: I'm sorry. I didn't hear that answer.
 8   Could you speak in that microphone?
 9                 THE WITNESS: In the first considerations with Kenny
10   Lobell, Kenny didn't know specifically who Chad Denton was.
11   Q.     (MR. PEPPER CONTINUING) And did you ultimately pay back
12   Mr. Denton for the money that he allegedly claimed was owed to
13   him for your living expenses?
14   A.     Yes.
15   Q.     And did you tell him that you were not going to be his
16   partner in the man camp?
17   A.     Yes.
18   Q.     In fact, was Chad Hansen with you when you told him that?
19   A.     Yes.
20   Q.     Did Chad Hansen agree with you?
21   A.     Yes.
22   Q.     Did Chad Hansen refuse to sign that partnership agreement
23   as well?
24   A.     Yes.
25   Q.     To your knowledge, did Mr. Denton and Mr. Lobell ever have
                                     157
 1   any operating agreement together for the operation of the camp?
 2   A.     No.
 3   Q.     To your knowledge, did Mr. Denton ever show you a written
 4   document showing that he had an interest or title to the
 5   property on which the man camp stood?
 6   A.     No.
 7   Q.     In the very beginning, when you spoke with Mr. Lobell and
 8   you had asked him -- and you showed him the -- I guess it's a
 9   prospective looking for $6 million, is that what you brought
10   him?
11   A.     Yeah, it was. I don't remember the exact number, but it
12   was around 6 million, yes.
13   Q.     Did Mr. Lobell say that he would loan you the money?
14   A.     No.
15   Q.     Did he indicate that if he did the deal, that he would be
16   the sole managing partner in such a deal?
     A      '\/_-
17   '"'·   r e::..

18                    MR. PEPPER: No further questions, Your Honor.
19                    THE COURT: Any questions of this witness?
20                    MR. COCHELL: Yes, Your Honor.
21                                CROSS-EXAMINATION
22   BY MR. COCHELL:
23   Q.     Mr. Baker, with respect to your current situation, you
24   have not been working at the Capital Lodge for about four or
25   five months, as I understand it, is that correct?
                                       158
 1   A.   On location, no.
 2   Q.   Okay. And so any work that you do is conducted at home,
 3   is that correct?
 4   A.   Correct.
 5   Q.   And with respect to that, you have a written agreement
 6   with Mr. Lobell?
 7   A.   Yes.
 8   Q.   Okay. And how much were you to be paid pursuant to this
 9   consulting agreement?
10   A.   8,700 a month.
11   Q.   8,700 a month?
12   A.   Mm-hmm.
13   Q.   And you have to answer yes or no, sir.
14   A.   Yes. I'm sorry.
15   Q.   Okay. And how long does that agreement continue, sir?
16   A.   It continues until there's a termination date at the end
17   of-- it's coming up here in the next few months.
18   Q.   Okay. And I understand that you've acquired new
19   employment, is that correct?
20   A.   Yes, I'm actually an independent consultant. I have a
21   consulting firm.
22   Q.   All right. Now, this is the first time with Mr. Lobell
23   that you've had employment that's paid you on a regular basis
24   $10,000 a month. Is that a fair statement?
25   A.   I guess I don't quite understand the question.
                                   159
 1   Q.   Well, you were paid $1 0,000, plus he bought you a truck,
 2   is that correct, after you started working for Mr. Lobell?
 3   A.   Yes, I had a $1 0,000 a month salary.
 4   Q.   Okay. And that's really the first time that you've had a
 5   regular salary, you know, for $1 0,000 a month for an extended
 6   period of time.
 7               MR. PEPPER: Objection, Your Honor, relevance.
 8               THE COURT: It's of some suspect relevance, but I'll
 9   let you answer.
10               THE WITNESS: Earlier in my life, yes, I've had
11   positions that paid that much.
12   Q.   (MR. COCHELL CONTINUING) But it's been some years since
13   then, correct?
14   A.   Correct.
15   Q.   And so you have a wife, do you?
16   A.   Yes.
17   Q.   Do you have any children?
18   A.   No. Expecting one today.
19   Q.   Okay. You're adopting a child, is that correct?
20   A.   Correct.
21   Q.   I see. With respect to your agreement with Mr. Lobell,
22   did he threaten to terminate your agreement and sue you for
23   obstruction if you didn't come to today's hearing?
24   A.   No.
25   Q.   He didn't make any threats to you?
                                    160
 1   A.   No.
 2   Q.   Did you tell anybody that he made threats to you?

 3   A.   No.
 4   Q.   With respect to Mr. Lobell, when you went down there, you
 5   went down there on behalf of Mr. Denton and Capital Transport
 6   and this idea and concept that you and Mr. Denton and Hansen

 7   and Stabinski had worked on for a couple of months, is that
 8   right?
 9   A.   More myself, but, yes, I was primarily the lead on it.
10   The other gentlemen and the parties did help on the project.
11   Q.   I see. And so you walked in and you did propose that
12   there be a partnership where you would get some net profit,

13   isn't that correct?
14   A.   Correct.

15   Q.   And there was an investment package that was sent to
16   Mr. Lobell, isn't that correct?
17   A.   Yes.

18   Q.   And the investment packet, there's an e-mail that has your
19   name and Mr. Denton's name on it, is that correct?
20   A.   I honestly can't recall that specifically.

21   Q.   Fair enough. It's a detail, but let me tell you, sir,
22   with respect to the investment package, everybody understood
23   that these were assets that had not yet been purchased in their

24   entirety, but that there was an interest in purchasing them.
25   And the purpose was to get money to get the man camp, you know,

                                       161
 1   assets, you know, the land, the other trailers and other
 2   equipment. Is that a fair statement?
 3   A.     Yes.
 4   Q.     Okay. And so basically you were promoting a plan and a
 5   concept of a man camp in --and offering that investment to
 6   people in exchange for a return for your developing that
 7   concept. Is that a correct statement?
 8   A.     Correct.
 9   Q.     Okay. And so when you talked to Mr. Lobell, he basically
10   told you that he wasn't interested in giving you any interest
11   in the man camp?
12   A.     No, that's not what I stated earlier.
13   Q.     What did he agree to do?
14   A.     He agreed that he would put the-- because it was an
15   unknown situation. Man camps were new, that he would put all
16   the assets in his name and at which time the -- if the project


18   be a partnership agreement and a split of profits.
19   Q.     Okay. And was there to be an operating agreement?
20   A.     Yes, there would be at some date.
21   Q.     All right. And so did you ask for an operating agreement?
22   A.     Yes, I had.
23   Q.     You asked for it a number of times, isn't that correct,
24   sir?
25   A.     Yeah, discussed it several times.
                                     162
 1   Q.   And during those times, what did Kenny tell you?
 2   A.   That it wasn't time yet. We were still -- a lot of unsure
 3   things, and the budget had changed several times, and we still
 4   didn't know exactly how the project was going to work out.
 5   Q.   When you described --when you described the result of
 6   that meeting with Mr. Denton, did you -- did you tell him that
 7   it's kind of a-- he's going to invest, but it's going to be a
 8   wait and see on whether we get any profits? Is that how you
 9   described to him?
10   A.   No.
11   Q.   What did you tell him?
12   A.   I told him if things worked out the way we had all
13   planned, that we would see profits.
14   Q.   Did you tell him that there was an agreement with
15   Mr. Lobell?
16   A.   Yes, we had a verbal agreement.
17   Q.   Okay. And did you tell him that there would be an
18   operating agreement in very short order to memorialize?
19   A.   At some point it would eventually move into an operating
20   agreement.
21   Q.   Okay. And on the night-- on the day that you entered
22   into this oral agreement with Mr. Lobell, did you-- did you
23   tell him-- or did you tell Mr. Denton that-- that there was
24   an agreement, or did you say it was an agreement subject to
25   Mr. Lobell being satisfied with the way things went?
                                   163
 1   A.     I don't know that I specified either way, to be honest
 2   with you.
 3   Q.     All right. And you sent an e-mail to everybody, including
 4   Mr. Denton, isn't that correct?
 5   A.     I'm sure I did.
 6   Q.     All right. Let me mark this. I'm going to mark it out of
 7   order as Number 58 because I think it makes some sense to talk
 8   about it now. I'll show you what's been marked as Exhibit 58
 9   for identification, sir, and ask you if you can identify that
10   document.
11   A.     Yes, this is from me.
12   Q.     All right. And at that point Mr. Lobell had authorized
13   you to get the camp up and running, is that correct?
14   A.     Correct.
15   Q.     And so basically you wrote back to Chad Hansen and some
16   other people, including Mr. Denton and Myer Stabinski, that,
17   ll'vVell, guys, vve did it.   ·vve   have full financial backing for the
18   largest crew lodge in North Dakota. Now all we have to do is
19   build it," is that correct, sir?
20   A.     Yes.
21   Q.     Okay. It doesn't say, "Well, guys, we did it, but subject
22   to whether Kenny is satisfied with their performance in two
23   months or six months or whenever." You didn't say that, did
24   vou?
25   A.     No, but I also didn't give any kind of specifics on
                                           164
 1   financials.
 2   Q.   I see. At that point you don't recall exactly what you
 3   told Chad Denton when you called him on July 23rd, is that
 4   correct?
 5   A.   It's a long time ago, sir. I do remember having the
 6   discussion that, yes, we have financial backing and that Kenny
 7   will invest in the camp and that the camp would be put into
 8   Kenny's name until such time that we could figure out exactly
 9   how the project was going to go.
10   Q.   And there was supposed to be an operating agreement,
11   correct?
12   A.   At a future time, yes.
13   Q.   Right. And the operating agreement was to specify
14   68 percent and 20 percent for each of the five partners, isn't
15   that correct, sir?
16   A.   It was supposed to be-- the original discussion that we
17   had was to be split up 68 percent to be returned to the
18   investment, 32 percent to be split five ways.
19   Q.   Okay. And that's the way you walked into the transaction,
20   thinking that it was going to be 68/32 percent?
21   A.   Well, yes, but then as we were discussing that, Kenny
22   stated if everything goes the way it's stated in this original
23   estimate, that's how we can do this. First we need to see how
24   this is going to go.
25   Q.   So there was never an agreement for 68/32 percent while he
                                   165
 1   was being repaid the cost of his investment, but then 20
 2   percent for each of the five partners?
 3   A.   That was the original discussion, yes.
 4   Q.   But he agreed to that initially, didn't he?
 5   A.   Yes, as long as everything ran okay.
 6   Q.   Okay. And then he changed that at some later point to
 7   68 percent, 32 percent, isn't that right?
 8   A.   That question totally confuses me.
 9   Q.   In your meetings with Kenny in New Orleans in July of
10   2011, he agreed to 68/3 2 percent, 20 percent to the partners
11   after the initial investment was recaptured by him, correct?
12   A.   The question is still confusing. I don't know what you're
13   getting at.
14   Q.   He agreed in your discussions that he would-- he would
15   get paid 68 percent of the proceeds and the other partners
16   would get 32 percent, and then the 68 percent would then change


18   investment, all the money he put into the company was
19   recaptured?
20   A.   Yes, that was originally what we discussed.
21   Q.   Okay. And he agreed to that.
22   A.   If everything ran according to plan.
23   Q.   Okay. And did he ever tell you that he changed his mind
24   and he was just going to make it 68/32 and no net profits?
25   A.   At a later date when we were discussing it, it never
                                    166
 1   really became evident exactly how that was going to work out.
 2   Basically there were issues.
 3   Q.   And so you thought it was a good idea to hand this project
 4   over to someone who was going to like let everything kind of
 5   percolate over a period of time?
 6   A.   Well, at the point at that time we had no other option.
 7   He was a financial backer. He was willing to at some point pay
 8   us a percentage of profits, and that was the best option we had
 9   at the time.
10   Q.   And you didn't think that there were other investors out
11   there?
12   A.   They had been sought many times for many months, and we
13   were at a point where we were going to lose the entire project
14   if we didn't take an investment.
15   Q.   When you say "many months," we're talking about a month
16   after you put together the investment package, isn't that
17   right?
18   A.   No, that's not true.
19   Q.   How many months did you look for investors?
20   A.   Around two.
21   Q.   Okay. So it's not many months. It's two months, a couple
22   of months, right?
23   A.   Two.
24   Q.   All right. So you felt that that was the only option, is
25   that correct?
                                    167
         1   A.   Yes, at that time.
         2   Q.   All right. You didn't discuss that with Chad Denton,
         3   about whether it was okay to walk into a deal with Kenny being
         4   3.ble to change it at any time, is that correct?
         5   A.   Yes, we did, actually. We all discussed it multiple
         6   times, of different investors, of whatever we could do to make
         7   things happen.
         8   Q.   I see. So-- but you didn't discuss it with him that
         9   night, is that correct?
10           A.   No, I was the only one there.
11           Q.   All right. With respect to your affidavit, you signed an
12           affidavit. I assume it was at the request of Mr. Lobell's
13           counsel. I show you what's been marked as 55 for
14           identification. Do you recognize that? Is that your
15           signature, sir?
16           A.   Yep. Yes.
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18           A.   Mr. Pepper.
19           Q.   Okay. And so you're saying that neither yourself, Buster,
20           Chad were ever partners or owners with Mr. Lobell in any of the
21           ventures such as Capital Transport, Lodging and so on, correct?
22           A.   Correct, nothing on paper.
23           Q.   But you just testified, sir, that he agreed to a 68/32
24           percent deal, subject to satisfaction, is that correct?
25           A.   Correct. At some point, yes.
                                                                      168
 1   Q.   All right. So you did have a deal. It just wasn't the
 2   deal that Mr. Denton sent you down to get, isn't that correct?
 3   A.   There wasn't anything in writing, sir.
 4   Q.   Okay. So you're thinking that it had to be in writing in
 5   order to be a binding deal?
 6   A.   In my understanding in the past, yes, we were looking at a
 7   future of having everything on paper, you know, that's what we
 8   were working towards.
 9   Q.   So with respect to -- so you were -- okay. With respect
10   to if-- and so when you say you've never been in the past nor
11   currently or will be in the future a partner of these various
12   companies, that's based on your understanding that you can't
13   have an oral agreement, right?
14   A.   Correct. It's based on the fact that I don't have a
15   written agreement.
16   Q.   And one of the reasons you went down and you offered to do
17   -- or you agreed to do this 68/32 percent deal is you expected
18   some return on your investment for the concept, for the
19   marketing materials, for all the groundwork that you had worked
20   on over the last two-and-a-half or three months, right?
21   A.   Correct.
22   Q.   Okay. And so that was a considerable amount of work, as I
23   understand it, is that correct?
24   A.   Yes, it sure was.
25   Q.   Everybody lined up. In fact, there were master service
                                    169
 1   agreements for Mr. Denton's company, the Capital Transport,
 2   LLC, is that correct?
 3                        MR. PEPPER: Objection, Your Honor, relevance. He's
 4   starting to talk about the transportation companies. I think
 5   the essence of the affidavit has to do with the man camp.
 6                        THE COURT: Overruled.
 7   Q.       (MR. COCHELL CONTINUING) There were MSAs in place?
 8   A.       Yes. I don't know a whole lot about those. I didn't
 9   really handle those, but I do know that there were some in
10   place.
11   Q.       All right. And was it your understanding that Mr. Lobell
12   was going to participate in the transport business? Do you
13   have an understanding one way or the other?
14   A.       Very limited. I didn't deal with that. I dealt with the
15   construction of the man camp, but my understanding was that
16   there was going to be something to do with trucking involved in
17   +hie rlo.-:al
     I.IIIJ   U'-..U.Io




18                        MR. COCHELL: By the way, Your Honor, if I didn't
19   previously move for it, I'd like the admission of-- I believe
20   it's 58.
21                        THE COURT: Fifty-five and fifty-eight?
22                        MR. COCHELL: Yes, Your Honor.
23                        MR. PEPPER: And 58 was?
24                        MR. COCHELL: Was the, "Well, guys we did it" letter.
25                        MR. PEPPER: No objection, Your Honor.
                                            170
 1                  THE COURT: Exhibits 55 and 58 are received.
 2   Q.      (MR. COCHELL CONTINUING) Now, sir, I believe the next one
 3   in order is going to be 59. I'd like to show you what's been
 4   previously marked as Exhibit 58 for identification and ask you,
 5   sir--
 6                  THE COURT: Fifty-nine.
 7   Q.      (MR. COCHELL CONTINUING) Fifty-nine. I'm sorry. I
 8   misspoke, 59, and whether you can identify that document.
 9   believe you're a recipient or copied on it. Do you recognize
10   that document, sir?
11   A.      I've looked at a lot of documents. I don't remember it
12   specifically, no.
13   Q.      Do you have any reason to believe that you didn't receive
14   a copy of this document?
15   A.      I have no reason to believe I received it or didn't
16   receive it.
17   Q.      Okay. It says here at the bottom of the second page--
18   this is like a lot of documents you got from Chad Hansen,
19   right?
20   A.      There's several, yeah. I used to get hundreds of e-mails
21   aday.
22   Q.      Okay. And the second page of this talks about having an
23   NJUN system to be installed at the man camp?
24   A.      Yes.
25   Q.      And Mr. Hansen lists himself as a managing member?
                                      171
 1   A.     Yes, I see that.
 2   Q.     Okay. And so obviously Mr. Hansen thought he was a
 3   partner, right?
 4   A.     Yes.
 5   Q.     And this is as of-- oh, date on the letter is-- well,
 6   the e-mail is October 16th of 2011, correct?
 7   A.     Yes.
 8   Q.     Okay. Did you or Mr. Hansen hold yourselves out as
 9   partners in the Capital Lodge?
10   A.     Yes, we fully expected at some point to be a partner in
11   the company.
12   Q.     I see. And so you didn't think that was deceptive or
13   dishonest in any way, did you?
14   A.     Explain that a little more, please.
15   Q.     You fully expected to be partners and treated like
16   partners, correct?
17   A.     Yes. On the profit side, yes.

18   Q.     Right. And so you didn't-- you didn't think twice about
19   it, is that correct?
20   A.     I don't know. I didn't write this letter, so I can't tell
21   you.
22   Q.     Okay. But you don't deny that you, yourself, have signed
23   as a member, as a partner of Capital Lodge after Mr. Lobell and
24   you entered intothis deal, right?
25   A.     Yes. Correct.
                                     172
 1   Q.   Okay. And you didn't tell him about Mr. Denton in July.
 2   When did you tell him about Mr. Denton?
 3   A.   We discussed Mr. --well, we discussed that there was
 4   another -- there were two other partners. There were two
 5   different meetings with Mr. Lobell. In the second meeting --
 6   the first meeting it was brought up that there was basically
 7   myself and three other partners. And then in the second
 8   meeting with Mr. Lobell, at that point they were named,
 9   Mr. Hansen, Mr. Denton. Myer Stabinski was there with me, but
10   we never really spoke about them in any kind of length or depth
11   -- in any kind of depth.
12   Q.   Okay. And so in concept, Mr. Lobell didn't have a problem
13   with going into partnership with all of you, isn't that right?
14   A.   Yeah, he-- Mr. Lobell looked at it more like himself and
15   then us as an entity.
16   Q.   I see. Okay. And you don't deny that you considered
17   yourself Chad Denton's partner along with Mr. Stabinski,
18   Hansen, right?
19   A.   No, I've never denied for one moment that the four of us
20   were all together on this from the start.
21   Q.   All right. With respect to your agreement with Kenny
22   Lobell, you insisted on that being in writing, didn't you?
23   A.   Yes.
24   Q.   And that was to protect yourself in case Mr. Lobell
25   changed his mind?
                                   173
 1   A.   Well, several reasons as well. My health was very poor.
 2   I very well could have -- may not have been here, and I wanted
 3   to have something to secure my wife.
 4   Q.   Fair enough. And with respect to the -- is there a
 5   provision in that agreement that you have to testify on behalf
 6   of the company if you're asked to?
 7   A.   No, it's that I'm required to come to North Dakota as
 8   needed.
 9   Q.   Okay. And so they anticipated litigation at the time that
10   you entered into this contract.
11   A.   That, I'm not sure of.
12   Q.   Now, you gave Mr. Lobell a copy of the petition that you
13   were served with in Bell County, is that correct, sir?
14   A.   Yes.
15   Q.   You sent him an e-mail and attached a copy of it?
16   A.   Yes.
17   Q.   All right. And so did you have a discussion vvith him
18   about the lawsuit and the allegations in the lawsuit?
19   A.   Yes, I was questioned about it.
20   Q.   And he was fully aware that there was an allegation that
21   Mr. Denton had been cut out of this partnership, isn't that
22   correct?
23   A.   Yes.
24   Q.   And that occurred shortly after you were served, which was
25   -- do you recall when?
                                   174
 1   A.   Not exactly. I do not.
 2   Q.   It was in the summer of 2012?
 3   A.   I think it was closer to the fall. I'm not sure. I
 4   honestly don't remember.
 5   Q.   Fair enough. Summer or fall, and so he read it, and was
 6   he upset with you about it?
 7   A.   Yeah, he seemed to be frustrated about it.
 8   Q.   And did he tell you that he had lost money on this deal,
 9   that he was losing money on the deal?
10   A.   He had stated that the deal wasn't what we had originally
11   planned and that we were way over budget.
12   Q.   Okay. And so even though you were supposed to get some
13   profit from this deal if it-- if it went well, has he told you
14   what the circumstances of his current deal is to--
15   A.   No.
16   Q.   --sell the-- you didn't know that he was going to make
17   25 million profit from this deal?
18   A.   No, those numbers--
19              MR. PEPPER: Objection, Your Honor. It's
20   speculative. There's no deal on the table. There's no
21   evidence of any signed contract for any sale.
22              THE COURT: I'm not-- yeah. Well, if you know
23   anything about that, you can respond to the question.
24              THE WITNESS: I mean, I'd heard rumors that it was
25   going to be sold. I don't know what the numbers were. You
                                    175
 1   know, I mean, I'd heard numbers thrown around from several
 2   different people, but not from Mr. Lobell himself.
 3   Q.   (MR. COCHELL CONTINUING) So whether it's 12.5 million or
 4   25 million, that's making a profit, don't you think?
 5             THE COURT: Depends on how much money has been
 6   expended.
 7              MR. COCHELL: After you recoup your return on
 8   investment, 25 million is pretty rich.
 9             THE COURT: If all your costs have been covered,
10   that's a good profit.
11             MR. COCHELL: Yep.
12   Q.   (MR. COCHELL CONTINUING) You would agree with that?
13   That's a-- 12 million is pretty good profit, don't you think?
14   A.   Yeah, I would agree that 12 million is a great profit.
15   Q.   Net of expenses, right?
16   A.   Yeah.
17
18   A.   Yeah.
19   Q.   Fair enough. So he didn't lose so bad, did he?
20   A.   I don't know for sure. I don't know the numbers.
21   Q.   All right. Fair enough. And so what you get is 8,700 a
22   month for five or six months, and you get nothing for all the
23   effort you put in the man camp before and after Mr. Lobell,
24   isn't that right?
25   A.   As far as share of profits, no, I don't get anything.
                                    176
 1   Q.     Okay. You think that's fair?
 2   A.     No, honestly I don't, but deals sometimes turn bad.
 3   Q.     Sometimes you make a bad deal, but a deal is a deal, isn't
 4   it?
 5   A.     Usually, yes.
 6   Q.     And you have to --you have to perform on your deal even
 7   if you regret the terms of your contract, isn't that correct,
 8   sir?
 9   A.     Yes.
10   Q.     With respect to a couple of other things, you -- pardon me
11   just for a minute. With respect to testimony--
12                 MR. COCHELL: I forget the number of the-- it's 59,
13   Your Honor. We offer 59.
14                 THE COURT: Any objections to P-59?
15                 MR. PEPPER: Oh, P-59, that was the--
16                 THE COURT: Oh, Defendants Exhibit 59.
17                 MR. PEPPER: That was the e-mail?
18                 THE COURT: Correct, e-mail from Rick Watson.
19                 MR. PEPPER: Oh, yes, we do have an objection to
20   that, Your Honor, as to relevance, and it's hearsay.
21                 MR. COCHELL: Goes to the state of mind, Your Honor,
22   and state of facts as they then existed.
23                 THE COURT: Well, that doesn't overcome the hearsay
24   objection, but I'm going to receive it. It's a Court
25   proceeding and I can sort out what I consider to be relevant
                                     177
 1   and what I consider to be hearsay.
 2                 MR. COCHELL: Yes, Your Honor. It's also a business
 3   record. It's something that he sent in the ordinary course of
 4   business.
 5                 THE COURT: Business record of Mr. Watson.
 6                 MR. COCHELL: I'm sorry?
 7                 THE COURT: A business record of Mr. Watson or
 8   Mr. Hansen?
 9                 MR. COCHELL: It would be business record of that
10   organization, of what it-- what it was at the time and what it
11   was to become because as the successor he took over Capital
12   Lodge under Mr. Denton and Mr. Baker and so it-- it still
13   continues.
14                 THE COURT: I've received the exhibit.
15                 MR. COCHELL: Thank you.
16   Q.       (MR. COCHELL CONTINUING) I don't know if this exhibit is
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18   another copy to the witness. Let me show you what's been
19   previously marked as Defense Exhibit 53. Do you recognize that
20   document, sir?
21   A.       Yes, this is the document I forwarded to Chad Hansen.
22   I've never actually read the entire document, to be honest with
23   you.
24   Q.       Okay.
25   A.       The attachments -- I didn't read the attachments.
                                                  178
 1   Q.   Right. Right. And did you have a discussion with
 2   Mr. Hansen before you sent it to him?
 3   A.   Yes, that Mr. Pepper was looking for the affidavit for
 4   Mr. Hansen and that we were going to send over-- I believe it
 5   was an affidavit and then basically a type of settlement of
 6   some sort that was basically saying that, you know, would
 7   lessen any possibility of further lawsuit.
 8   Q.   I see. And with respect to that, what did --what did you
 9   tell Mr. Hansen when you talked to him about what you were
10   sending him?
11   A.   That as far as for the agreement, not to -- to basically
12   not continue with any type of lawsuit, that there would
13   possibly be some payment there.
14   Q.   Okay. So that if he -- if he didn't participate in the
15   lawsuit by Chad Denton, that he would get the 20 percent?
16   A.   I don't think it was a lawsuit with Chad Denton.
17   Basically stating that Mr. Hansen was not to file a lawsuit
18   against Mr. Lobell.
19   Q.   I see. So he was basically being told, we'll pay you
20   20,000 if you don't sue Mr. Lobell.
21   A.   Yes, I basically agree that that's --that I didn't read
22   the documents, so I can't really tell you what exactly it says.
23   I just basically forwarded it on.
24   Q.   And you offered him $20,000 at the time you talked to him,
25   is that correct?
                                   179
 1   A.     Yes.
 2   Q.     Okay. And the purpose of that was for a settlement of any
 3   claims against Mr. Lobell?
 4   A.     Yes.
 5   Q.     Okay. And with respect to that agreement, did -- he had
 6   to sign an affidavit. You remember sending that to him, don't
 7   you?
 8   A.     Yes, I believe it was in the same e-mail. I think that's
 9   this one here.
10   Q.     Yeah, and so that was to help Mr. Lobell in this
11   particular hearing that we're having today on the lis pendens?
12   A.     Well, I don't know about the lis pendens, but in the
13   lawsuit hearing, basically any proceedings between Mr. Denton
14   and Mr. Lobell.
15   Q.     And nobody had expressed any interest in getting a
16   settlement from Mr. Hansen before this hearing was scheduled,
17   as far as you knov11.

18   A.     Not that I'm --
19                 MR. PEPPER: Objection, Your Honor, again, relevance.
20   This is a hearing to cancel a notice of lis pendens.
21                 THE COURT: Overruled.
22   Q.     (MR. COCHELL CONTINUING) Is that right?
23   A.     As far as my knowledge, no.
24   Q.     Now, Mr. Hansen was told that there was no longer any need
25   for him to remain at the man camp, is that correct, sir?
                                     180
 1   A.   Yes.
 2   Q.   He was not told that he was terminated for cause, is that
 3   correct?
 4   A.   He was at that time fired, is what I was told to tell him.
 5   Q.   Okay. Did you terminate Mr. Hansen?
 6   A.   Yes, I did.
 7   Q.   Okay. Well, did you tell him that he was terminated for
 8   cause?
 9   A.   I just told him that he was not to come back and that he
10   was basically fired.
11   Q.   Okay. And did he ask why?
12   A.   Yeah, of course he did.
13   Q.   Okay. And what did you tell him?
14   A.   I just told him that, you know, Mr. Lobell told me we
15   don't need him anymore, that we're getting too fat on the
16   payroll, and that there was some questions about a couple
17   transactions that had conspired over the landscaping.
18   Q.   I see. But did Mr. Lobell have any hard evidence of that,
19   or is that just his-- is that just his speculation?
20               MR. PEPPER: Objection, Your Honor. The question
21   calls for speculation on the part of the witness.
22               THE COURT: Sustained.
23   Q.   (MR. COCHELL CONTINUING) Based on your understanding,
24   what did you think of those allegations?
25   A.   I didn't believe them to be true, but then again, at that
                                    181
 1   point it didn't matter. Mr. Lobell was my boss.
 2   Q.   I see. So you did what your boss told you to do.
 3   A.   Exactly.
 4   Q.   Okay. And your income has been pretty much dictated by
 5   the consulting agreement and basically doing what Mr. Lobell
 6   has asked you to do, correct?
 7   A.   Correct. He is my boss currently.
 8   Q.   And he's asked you to testify today, is that correct?
 9   A.   Of course he did.
10   Q.   And with respect to your testimony, if you didn't get paid
11   for the last five or six months, you wouldn't have had the
12   ability to support yourself and your family, isn't that
13   correct?
14   A.   That is incorrect.
15   Q.   You would have had independent means to support yourself,
16   is that correct?
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18   consultant.
19   Q.   I see.
20   A.   And have so for several months.
21   Q.   And have you told anybody that you've been hurting
22   financially?
23   A.   Well, yeah, I'm going through an adoption right now.
24   Everybody hurts when they go through that. It's very expensive
25   in a very short time frame.
                                                                           182
 1   Q.   And without Mr. Lobell's financial support the last couple
 2   of months, that would have been even more difficult, isn't that
 3   correct?
 4   A.   Yes.
 5   Q.   And so you offered this $20,000 and sent Chad an affidavit
 6   and said if you don't sign this, you don't get any money, is
 7   that correct?
 8   A.   Basically, yes.
 9   Q.   Okay. And --
10   A.   And it wasn't just the affidavit. It was the affidavit
11   and the--
12   Q.   Understood.
13   A.   --the other agreement. I never read either one of them,
14   to be honest with you.
15   Q.   And then after-- did Mr. Hansen say, "I'm not going to do
16   that"? Did he say that?
17   A.   Yeah, he said --well, first off he said he would think
18   about it. And then he got back to me the following day, I
19   think, or two days later, said he wanted to discuss it with an
20   attorney and that he would get back to me. He got back to me,
21   said he didn't want to do it.
22   Q.   Did you ever get back to him and offer to pay $30,000?
23   A.   Yes, I think we had a discussion. Chad had mentioned to
24   me that if he was going to do it, he would have required more
25   money than that. And I had told him I would ask, and so I had
                                     183
 1   asked and came back with $30,000.
 2   Q.              Oh, I see. And was it your understanding that in order to
 3   get the money, he had to sign the affidavit, whatever it
 4   contained, right?
 5   A.              No, he was able to change it. He was told he could change
 6   it to whatever he needed.
 7   Q.             Okay. And what is it-- do you know that he had already
 8   filed an Answer in the district court?
 9   A.             Yes.
10   Q.             And did you know that-- in fact, he had shown you a copy
11   of the district court Answer, isn't that correct?
12   A.             Yes, at one time.
13   Q.             And you know that he contends that he had a claim against
14   Mr. Lobell, isn't that correct?
15   A.             Yeah, that's been his intention (sic).
16   Q.             Okay. So even though he had already filed an official
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18   that you didn't really read the affidavit?
19   A.              Not his, no.
20   Q.              Okay. The one that was proposed to him.
21   A.              Correct. I didn't read his.
22   Q.             Okay. The 20,000 or 30,000 dollar affidavit.
23   A.             Correct.
24   Q.             All right. And so if that asked him to change his
25   position in the courtroom, that would have basically been
                                                                                                184
 1   asking him to perjure himself, isn't that right?
 2   A.      I guess it would if--
 3                MR. PEPPER: Objection, Your Honor, again,
 4   speculation. It calls for speculation on the part of the
 5   witness.
 6                THE COURT: Does filing of an answer by an attorney
 7   on behalf of a client equate with a sworn statement under oath
 8   underTexas law?
 9                MR. COCHELL: He filed-- he filed a very extensive
10   answer. In fact, why don't I mark that as the next exhibit in
11   order.
12                THE COURT: It might be an answer, but in North
13   Dakota and in federal court, nobody has to certify or attest to
14   an amended answer that's filed. I don't know what the law is
15   in Texas, but--
16                MR. COCHELL: You don't have to-- you don't have to
17   certify it, but it is a record that we've heard people
18   cross-examining each other on today. An answer or a complaint,
19   it's an official document and it certainly does state a
20   position.
21                THE COURT: But is it a sworn statement by somebody
22   to --
23                MR. COCHELL: It's not a--
24                THE COURT: So then it wouldn't equate with perjury
25   under any circumstances.
                                     185
 1               MR. COCHELL: That's correct, and I stand corrected,
 2   Your Honor.

 3   Q.   (MR. COCHELL CONTINUING) I show you what's been marked as

 4   Exhibit 60. Do you recognize that document, sir?
 5   A.   I can't be sure this is the same one, but it looks very

 6   similar to the one that I saw.

 7   Q.   And this is Mr. Hansen's Answer in the Texas case?
 8   A.   Yes.

 9   Q.   All right. And so at the very least, if that affidavit

10   stated that he had never been a partner, never would be a

11   partner, and so on, that would be basically asking him to
12   change his position in the Texas lawsuit, right?

13               MR. PEPPER: Objection, Your Honor, speculation.

14   He's asking this witness to testify as to--

15               MR. COCHELL: We'll withdraw the question, Your

16   Honor.

17   Q.   (~v1R. COCHELL CONTINUING) You can ansvver the question.

18               THE COURT: Well, you withdrew the question.
19               MR. COCHELL: I'm sorry. I couldn't hear you, Your
20   Honor.

21               THE COURT: You withdrew the question.

22               MR. COCHELL: I did. I withdraw it. That's all the
23   questions we have for this witness.

24               THE COURT: All right. Anything else of this
25   witness?

                                      186
 1               MR. PEPPER: just a few questions, Your Honor.
 2                          REDIRECT EXAMINATION
 3   BY MR. PEPPER:
 4   Q.   Mr. Baker, have you found Mr. Lobell to be mostly credible
 5   and fair with you?
 6   A.   Yes.
 7   Q.   Did the project go as planned and end up only costing
 8   $6 million?
 9   A.   No.
10   Q.   How far has he gone over budget, to your knowledge?
11   A.   Well, depending on how you look at the project, the
12   original project was for one phase for around 6 million. That
13   was over budget. Of course, then we've run into several other
14   phases of construction to complete the entire project.
15   Originally with Mr. Lobell, we were only presented one phase,
16   so-- but, yes, that one phase is over budget or was over
17   budget.
18   Q.   And at any time did you have a written agreement with Chad
19   Denton for any kind of a partnership with regards to the
20   operation of the camp?
21   A.   Of Capital Lodge, no.
22   Q.   And did you ever end up having a written agreement with
23   Mr. Lobell since things didn't go as they were supposed to with
24   regards to any kind of partnership in the camp?
25   A.   No.
                                   187
 1   a.         As a matter of fact, he had offered -- if everything went
 2   well, that he would offer you perhaps a certain percentage of
 3   profits, not an ownership percentage, correct?
 4   .A.        Correct, toward --yes.
 5   a.         But that was only if the project went as planned, correct?
 6   A.         Correct.
 7   a.         Now, did you end up being able to finish the project?
 8   A.         No, I did not.
 9   a.         And did Mr. Lobell keep you on as an independent
10   contractor?
11   A.         Yes.
12   a.         And was there any question in your mind that you're either
13   an independent contractor and not a partner?
14   A.         At this time, no.
15   a.         And at the time you were asked to terminate Mr. Hansen,
16   when you told Mr. Hansen he was terminated, did he ever tell
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18   A.         Yeah, he did try that, yes.
19   a.         Okay. But eventually he realized that he was, in fact, an
20   employee, correct?
21   A.         Yes.
22                         MR. PEPPER: No further questions, Your Honor.
23                         MR. COCHELL: Your Honor, we offer Number 60.
24                         THE COURT: Sixty is what?
25                         MR. COCHELL: That's the Answer by Mr. Hansen.
                                                                           188
 1             MR. PEPPER: I have no objection, Your Honor.
 2             THE COURT: All right. Exhibit 60 is received.
 3                         RECROSS-EXAMINATION
 4    BY MR. COCHELL:
 5    Q.   Now, with respect to this discussion that you had with
 6    Mr. Hansen, you --well, he told you that he couldn't be
 7    terminated because he had a partnership interest, is that
 8    right?
 9    A.   That's what he had told me, yes.
10    Q.   Okay. And what did you tell him?
11    A.   I told him, you know, as far as the monthly payroll that
12    he was receiving, that was as an-- basically as an employee of
13    Capital, and so that--
14    Q.   In fact, what he got was draws. He didn't get paid as a
15    salary or an hourly rate.
16    A.   It's been called several different things from draws to
17    income to payment.
18    Q.   And what you got were draws, isn't that correct, draws
.19   against profits?
20    A.   Not that I was aware of, draws against profits, no.
21    Q.   But draws against operating income.
22    A.   No, they were to be a salary based on what I -- my
23    performance as a project -- or a project manager.
24    Q.   Were you issued a W-2 in 2011?
25    A.   No, I was a 1099 employee, always have been.
                                  189
 1   Q.   Okay. You've always been a 1099 employee for Kenny
 2   Lobell, correct?
 3   A.   Correct.
 4   Q.   So you weren't an employee.
 5   A.   Yes, I'm a subcontractor, a 1099 employee.
 6   Q.   Okay.
 7   A.   Subcontractor.
 8   Q.   All right. And with respect to budget overruns, in fact,
 9   Mr. Lobell insisted that various construction occur on his time
10   frame, which resulted in an increase in expenses, isn't that
11   correct?
12   A.   Yes.
13   Q.   He started various phases of the project before you would
14   have recommended that he do that. Is that a fair statement?
15   A.   Yes, that's fair.
16   Q.   Okay. And so the cost overruns in large measure were a
17
18   your part or incompetence on other people's parts.
19   A.   I think it was an incompetence on a large number of items
20   and people, a lot of unknown factors.
21   Q.   I'm sorry?
22   A.   And a lot of unknown factors.
23   Q.   I see. All right. And that-- that happens in every
24   project, right?
25   A.   Correct, especially in North Dakota.
                                 190
 1              MR. COCHELL: That's all the questions we have, Your
 2   Honor.
 3              MR. PEPPER: Your Honor, at this point it's 4 o'clock
 4   as we notice, and we noticed -- and we took notice of Your
 5   Honor wanting to conclude the day at 4 o'clock. If your Honor
 6   has heard enough --
 7              THE COURT: Well, are there how many more witnesses?
 8              MR. PEPPER: We have one more witness, Your Honor.
 9              THE COURT: Who's that?
10              MR. PEPPER: Buster Stabinski.
11              MR. COCHELL: Then we have Chad Hansen, Your Honor,
12   and his testimony is important.
13              THE COURT: Bring them on.
14              MR. NYHUS: Your Honor, can I go make a phone call?
15              THE COURT: You can make a phone call, sure, but
16   we're going to continue with the witnesses.
17              THE WITNESS: Am I dismissed?
18              THE COURT: Yeah, you may step down. Thank you.
19              MR. PEPPER: We would call Myer Stabinski.
20                            MYER STABINSKI,
21   having been first duly sworn, was examined and testified as
22   follows:
23                           DIRECT EXAMINATION
24   BY MR. PEPPER:
25   Q.   Mr. Stabinski, please state your name and address for the
                                   191
 1   record.
 2   A.   Myer Stabinski, my address right now is Capital Lodge,
 3   108552, Highway 2, Tioga, North Dakota.
 4   Q.   Okay. Mr. Stabinski, how did you get involved with
 5   Mr. Lobell and the man camp in Tioga?
 6   A.   Well, I called him when we couldn't get some investors to
 7   do the deal for us, so the contract was already expired and we
 8   had been up here for months, so I called Mr. Lobell to see if
 9   he would be interested in doing it or looking at the deal.
10   Q.   And do you recall what Mr. Denton's involvement in your
11   activities in North Dakota was?
12   A.   Well, when we first got up here, we were meeting with
13   Denbury Oil to do trucking, and we wound up doing a rig move
14   with it.
15   Q.   Okay. Was that Randy Baker's idea?
16   A.   No, that was-- actually, I had the contact for Denbury


18   man camp, Randy came up with that one.
19   Q.   So the-- to do the trucking was actually your connection,
20   not Mr. Denton's connection?
21   A.   It was somebody that I met that said to come up here and
22   he would give us a contract to go to work.
23   Q.   Okay. Did you help him in attempting to get the rig
24   moving business?
25   A.   Well, I mean, I knew the guy and I'd been talking to him
                                 192
 1   on the phone, and we were up here together because the guy that
 2   came up here tried to go around us and take it from us. And
 3   the guy that I was talking to said for you --for me to come
 4   meet him, and we did.
 5   Q.   Okay. And was your involvement-- and was ultimately the
 6   trucking business and the rig moving business successful?
 7   A.   Yes, we did --we just did one.
 8   Q.   You did one?
 9   A.   Yeah.
10   Q.   Okay. And did you ever get paid? How did the money flow
11   in that deal?
12   A.   Through Capital Oil Field Services.
13   Q.   Okay. Did you ever get paid by him for your work in that
14   endeavor?
15   A.   No, the only thing he did was lend me 2,000 or-- it was
16   like 2,000 or 2,500 bucks.
17   Q.   Okay. You ultimately had to pay that back, right?
18   A.   Well, I didn't, no. I mean, realistically it should be I
19   shouldn't have to pay it back because I paid my own expenses up
20   here and paid for my hotel rooms for about 45 days.
21   Q.   Did you get any money from the rig move?
22   A.   No, sir.
23   Q.   Did you ever sign a partnership agreement with him for any
24   of your activities in North Dakota?
25   A.   No, sir.
                                    193
       1   Q.   And that includes the trucking business or the rig
       2   business as well?
       3   A.   Correct.
       4   Q.   Or the man camp?
       5   A.   No, sir.
       6   Q.   Are you currently an independent contractor for
       7   Mr. Lobell?
       8   A.   Yes, sir.
       9   Q.   Okay. To your knowledge, did Mr. Denton ever buy or
10         execute any documents on behalf of himself or any corporation
11         of his that you know of to buy any real property in North
12         Dakota, specifically the property which the man camp is on?
13         A.   I know because I went with them all to the real estate
14         agent, and he did sign some form saying that he was interested
15         in buying --that he was going to buy it.
16         Q.   Do you know if he ever bought it?
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18         Q.   Who bought the property?
19         A.   Mr. Lobell.
20         Q.   Did Mr. Denton ever come to you at some later date, after
21         Mr. Lobell bought the property, and propose a partnership
22         agreement to you?
23         A.   Yes, he did.
24         Q.   And what agreement was that?
25         A.   It was something saying that we were all partners.
                                                             194
 1   Q.   And did you refuse to sign it?
 2   A.   Yes, sir.
 3   Q.   Why did you refuse to sign it?
 4   A.   Because I didn't own part of Capital Lodge to sign an
 5   agreement saying that I would give a percentage-- a
 6   partnership or something that I did not own.
 7   Q.   Were you there when Randy Baker told Mr. Denton that he
 8   would not sign the partnership agreement?
 9   A.   No, I wasn't.
10   Q.   Were you aware that Randy Baker refused to sign the
11   partnership agreement?
12   A.   Yes, he told me.
13   Q.   How about Chad Hansen? Did he tell you that?
14   A.   Yep.
15   Q.   And what were their reasons for not signing?
16   A.   Because we didn't own anything to give a percentage away.
17   Q.   And have you been a 1099 employee consultant for
18   Mr. Lobell since that time?
19   A.   Yes, sir.
20   Q.   Have you always been a 1099 employee with Mr. Lobell?
21   A.   Yes, sir.
22   Q.   Did he ever give you the impression that you were anything
23   other than a 1099 employee for the lodge?
24   A.   No. I mean, we tried to, but it didn't--
25   Q.   Did the project go as planned, according to the $6 million
                                   195
 1   initial offering that you brought to him?
 2   A.   No.
 3   Q.   Were the cost overruns bad?
 4   A.   It was way over.
 5   Q.   Did you realize at that point that pretty much everybody,
 6   including yourself, Mr. Baker and Mr. Hansen, were pretty lucky
 7   that Mr. Lobell decided to give all of you all a job?
 8   A.   Yes, we are.
 9   Q.   To your knowledge, did Mr. Denton and Mr. Lobell ever have
10   any operating agreement together for the operation of the man
11   camp?
12   A.   No.
13   Q.   Did Mr. Denton ever have an active part, to your
14   knowledge, in the operation of the man camp?
15   A.   Did he have a part of it?
16   Q.   An active part. Was he up there with you guys doing
17   anything?

18   A.   No.
19   Q.   Did he show up for the grand opening?
20   A.   No, he did not.
21               MR. PEPPER: No further questions, Your Honor.
22                           CROSS-EXAMINATION
23   BY MR. COCHELL:
24   Q.   Mr. Stabinski, I'm going to show you what's been marked as
25   Exhibit 61 for identification, ask you, sir, if you can
                                      196
 1   identify that document, which purports to be an affidavit of
 2   Myer Buster Stabinski?
 3   A.   Mm-hmm.
 4   Q.   That's your signature?
 5   A.   Yep.
 6   Q.   And you signed that. That was prepared by Mr. Pepper, to
 7   your knowledge?
 8   A.   Yes.
 9   Q.   Okay. And how far did you get in school, Mr. Stabinski?
10   A.   Freshman in college.
11   Q.   What's that?
12   A.   A freshman in college.
13   Q.   Okay. Did you serve in the military?
14   A.   No, sir.
15   Q.   Do you have any special expertise that you hold out to the
16   public about what kinds of things you can do?
17   A.   No, sir.
18   Q.   Okay. So you don't-- you don't consider yourself a
19   construction expert?
20   A.   No, sir.
21   Q.   You're not a marketing expert?
22   A.   No, sir.
23   Q.   You're not a salesperson per se?
24   A.   Well, I do sell now.
25   Q.   You sell now?
                                   197
 1   A.   Rooms, yeah.
 2   Q.   This is the first time that you've been involved in
 3   selling, is that correct?
 4   A.   No, sir.
 5   Q.   Oh, okay. So prior to this job, one of-- one of the good
 6   benefits of working for Mr. Lobell is that he gave you a pickup
 7   truck?
 8   A.   We pay for it.
 9   Q.   I'm sorry?
10   A.   I make payments on it.
11   Q.   Okay. And your salary was about 8,700?
12   A.   Yes, sir, after the truck note.
13   Q.   After the truck. So, now, prior to Mr. Lobell coming
14   around, you had had financial problems, is that correct?
15   A.   Did I have financial problems?
16   Q.   Yes, sir.
17   A.   No, ! had trucks running.
18   Q.   You had trucks running. Okay. Did you ever borrow any
19   money from Chad Hansen?
20   A.   Up here, yeah, because we didn't get paid. I mean, we
21   were working. We had been up here since the first of May and
22   never got a dollar. I mean, I used all my money for my
23   trucking to pay my way up here and my expenses at the hotels.
24   Q.   Did you ever borrow any money from Chad Denton?
25   A.   Yeah, like 2,000, 2,500 bucks.
                                   198
 1   Q.   Okay. And with respect to -- isn't this really the first
 2   job where you've regularly gotten paid 8, 700 or $1 0,000 a
 3   month?
 4   A.   That's the only job I got paid that kind of money, yeah,
 5   but I had stuff that we joint ventured in that I got paid, that
 6   we both got paid.
 7   Q.   Right, so this has been a great thing for you personally,
 8   to be able to regularly make that kind of money. Is that a.
 9   fair statement?
10   A.   Yeah.
11   Q.   And, of course, you want to continue making that kind of
12   money, is that correct?
13   A.   Correct.
14   Q.   You don't have a written contract with Mr. Lobell?
15   A.   No, sir.
16   Q.   And if you didn't sign this affidavit, he may well have
17   fired you, isn't that correct?
18             MR. PEPPER: Objection, Your Honor, calls for
19   speculation on the part of the witness.
20             THE COURT: Overruled. You can answer it.
21             THE WITNESS: I mean, I don't think he would fire me.
22   Q.   (MR. COCHELL CONTINUING) You don't think he would fire
23   you if you told him that you thought you were going to be a
24   partner in the enterprise?
25   A.   Well, I knew I wasn't a partner from day one when he said
                                      199
 1   that we weren't going to be a partner because he wouldn't do us
 2   on his paperwork of being a partner.
 3   Q.    Okay.
 4   .A.   So it was either take a job, or--
 5   Q.    And he never promised you any profit, is that correct?
 6   A.    It depended on if we were in the budget, then we would get
 7   something.
 8   Q.    And isn't it true that one of the primary reasons you
 9   never were within budget is that Mr. Lobell was changing the
10   stages of construction so that a lot of construction happened
11   sooner rather than later, isn't that correct?
12   A.    I wouldn't say it happened sooner than later. I'd say we
13   added some more things to the project.
14   Q.    I see. And isn't it true that the cost overruns are due
15   primarily to those additions?
16   A.    Not -- no, that's not true because we've had contractors
17   that vve had to do over, v·Jork over that they did.
18   Q.    Okay. And, well, isn't it true that you all spent at
19   least $50,000 on something called the Arnegard project for
20   Mr. Lobell?
21   A.    I don't know the dollar amount on that, but we did do work
22   over there.
23   Q.    So you spent a lot of time over at the Arnegard project
24   and then discontinued that project, isn't that correct?
25   A.    I wasn't there. I was at Capital Lodge.
                                    200
 1   Q.   All right. But you knew about that.
 2   A.   I knew we did some work over there.
 3   Q.   Okay. That turned out to be a waste of money, right?
 4             MR. PEPPER: Objection, Your Honor, it calls for
 5   speculation.
 6             THE COURT: Sustained.
 7   Q.   (MR. COCHELL CONTINUING) Now, you considered yourself a
 8   partner in this enterprise, didn't you, after Mr. Lobell -- I'm
 9   sorry. Maybe I'm misstating your testimony. Didn't you say
10   that you knew that you weren't a partner in the enterprise
11   after-- from day one with Mr. Lobell?
12   A.   Well, we were going to be a-- we would get a profit share
13   if we were in that budget. He would not give us a partnership
14   because we wasn't-- not knowing if we were able to be in that
15   budget of that high of a big project.
16   Q.   So he would give you-- he would give you partnership some
17   day if it was profitable, is that correct?
18   A.   He didn't say partner. He said profit share.
19   Q.   Profit share. So from day number one you knew that you
20   weren't Mr. Lobell's partner, is that correct?
21   A.   Correct.
22   Q.   And so from that point forward you were a consultant, but
23   you didn't-- you didn't tell people that you were a partner,
24   right?
25   A.   Well, before he actually-- we did say we were partners
                                     201
 1   there, yes, we did.
 2   Q.   You signed documents as one of the managing partners for
 3   Capital Lodge and Capital Transport--
 4   A.   Right.
 5   Q.   -- isn't that right?
 6   A.   Yes, we probably did. Yes, sir.
 7   Q.   All right. And so you know that-- so you're signing
 8   documents. You're not partners, but you thought you may some
 9   day be partners?
10   A.   Because we were going to -- if we were in that budget, we
11   were going to be a profit share, which, you know--
12   Q.   Okay. You knew that Mr. Lobell promised that there was
13   going to be an operating agreement, is that correct?
14   A.   I know we kept-- we asked for it, but we never did get
15   one and that's because of the fact it wasn't-- we didn't get
16   yet to that part to say that we are within that budget.
17   Q.   Well, he could have just given you an operating agreement
18   that really specifically spelled out some detail to this
19   arrangement, isn't that right?
20   A.   Yeah, I guess so, but mostly Randy Baker dealt with him on
21   that part.
22   Q.   But, Mr. Stabinski, isn't it kind of tough to work for
23   Mr. Lobell? Isn't he kind of an emotional guy at times?
24   A.   Sometimes, but everybody is emotional at times.
25   Q.   Right.
                                   202
 1   A.   Kind of the day that you're having.
 2   Q.   When he's upset, everybody in the room knows that he's
 3   upset. Isn't that a fair statement?
 4   A.   Yeah.
 5   Q.   And he's the boss, and so when the boss gets a little
 6   irritated, you pay attention, right?
 7   A.   Mm-hmm.
 8   Q.   Okay. So with respect to Mr. Lobell, you didn't-- you
 9   were not the kind of guy who was going to challenge your boss.
10   Is that a fair statement?
11   A.   Fair.
12                MR. PEPPER: Objection, Your Honor, again, relevance.
13                THE COURT: Overruled.
14   Q.   (MR. COCHELL CONTINUING) That's right?
15   A.   Correct, I mean, to a point.
16                THE COURT: Anything else of this witness?
17                MR. COCHELL: That's it.
18                MR. PEPPER: just two things.
19                           REDIRECT EXAMINATION
20   BY MR. PEPPER:
21   Q.   Mr. Stabinski, is Mr. Lobell pleased with your public
22   relations and your sales work?
23   A.   Yes, sir, as far as I know.
24   Q.   Okay. And you're doing a good job there, right?
25   A.   Yes, sir.
                                    203
     Q.        Okay. So it was a form, right?
     A.        Right.
     Q.        Okay. No further--




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18   correct?
19   A.        Right.
20                      MR. PEPPER: Okay.
21                      MR. COCHELL: just one more thing, Your Honor, just
22   because they raised it.
23                                                RECROSS-EXAMINATION
24   BY MR. COCHELL:
25   Q.        I'll show you what's been marked as Exhibit 62. There's a
                                                               204
 1   lot of documents in this case, but if you would take a look at
 2   62 for identification, that's a statement of work for Capital
 3   Transport Services. That's not a form with your-- that's your
 4   signature, right?
 5   A.   Yes, sir.
 6   Q.   And you put in the term "managing partner," isn't that
 7   correct?
 8   A.   Yes, sir.
 9   Q.   It's because you thought you were a managing partner,
10   isn't that correct, sir?
11   A.   Yep.
12               MR. COCHELL: That's all the questions we have.
13               THE COURT: All right. Thank you, sir.
14               MR. PEPPER: One last question.
15               THE COURT: One more question per side and no more
16   questions after that.
17                              REDIRECT EXAMINATION
18   BY MR. PEPPER:
19   Q.   Mr. Stabinski, do you really understand what a managing
20   partner is?
21   A.   It's a partner of an LLC, like a member.
22   Q.   And you weren't, were you?
23   A.   No, we was not.
24               MR. PEPPER: Okay.
25               THE COURT: Any more questions?
                                      205
 1              MR. COCHELL: I'm sorry?
 2              THE COURT: Any more questions?
 3              MR. COCHELL: No, not for this witness.
 4              THE COURT: Thank you, sir. You may step down.
 5              MR. COCHELL: Oh, we offer 62 for identification,
 6   Your Honor, as Exhibit 62.
 7              THE COURT: Sixty-one and sixty-two?
 8              MR. COCHELL: Sixty-two and sixty-one, Your Honor.
 9              THE COURT: Any objections to 61 and 62?
10              MR. PEPPER: No, Your Honor.
11              THE COURT: All right, 61 and 62 are received then.
12   The plaintiff have any more witnesses?
13              MR. PEPPER: Your Honor, we have no more witnesses,
14   and all we ask it that we allow Mr. Porsberg at the end of his
15   evidence or however you would like, to summarize the law in
16   regards to the testimony and the evidence presented, Your
17   Honor.
18              THE CLERK: Please raise your right hand.
19                            CHAD HANSEN,
20   having been first duly sworn, was examined and testified as
21   follows:
22                          DIRECT EXAMINATION
23   BY MR. COCHELL:
24   Q.   Mr. Hansen, if you would, can you tell the Court where you
25   currently live?
                                  206
 1   A.   Memphis, Tennessee.
 2   Q.   I'm sorry?
 3   A.   South Haven, Mississippi, which is Memphis, Tennessee,
 4   area for a landmark, I guess.
 5   Q.   Right. Okay. And you know Kenny Lobell, correct?
 6   A.   Yes.
 7   Q.   You see him in the courtroom here today?
 8   A.   I do.
 9   Q.   And you see Chad Denton, and you see him in the courtroom
10   today?
11   A.   I do.
12   Q.   And how did you-- how long have you known Mr. Denton?
13   A.   I'd say since approximately 2008 --
14   Q.   Okay.
15   A.   -- give or take.
16   Q.   And have you worked projects with him before?
17   A.   Yeah, multiple, many projects.
18   Q.   And with respect to those projects, Mr. Denton would
19   typically fund the projects, and then if there was a profit,
20   the profits would be shared equally among everybody?
21   A.   Correct. Yes.
22   Q.   And that would be after repayment of his initial costs?
23   A.   Sure. Any investment or debt service associated with the
24   project that we were doing would, you know, go to that first.
25   Any monies generated or revenue would go to satisfy any debt or
                                     207
     1   outlay of finances to make the project go forth, and then any
     2   profits after that would be dispersed amongst the partnership
     3   that we would have established based on that project.
     4   Q.           Now, with respect to this particular project, the man camp
     5   and Capital Transport Services, I understand that you were
     6   approached sometime in May of 2011 to participate, along with
     7   Mr. Stabinski, Hansen and Mr. Denton and Mr. Baker in putting
     8   together a man camp?
     9   A.           Yes.
10       Q.           Okay.
11       A.           That's correct.
12       Q.           And with respect to construction projects-- had you
13       previously worked on construction projects before?
14       A.           Not to this magnitude. Various projects, but not to--
15       not something of this size.
16       Q.           And with respect to Mr. Denton, had you enjoyed working
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18       A.           Oh, yeah. Absolutely.
19       Q.           Did you find him to be honest and fair?
20       A.           Always.
21       Q.           With respect to Mr. Baker, I understand you know Mr. Baker
22       pretty well?
23       A.           Very well, yes.
24       Q.           How frequently do you talk to Mr. Baker?
25       A.           Maybe four or five times a day.
                                                                    208
 1   Q.   Even now you do?
 2   A.   Every day, yeah.
 3   Q.   Okay. And with respect to Mr. Baker, obviously you like
 4   Mr. Baker, right?
 5   A.   Sure. We have a personal relationship as friends.
 6   Q.   Do you consider him to be an honest man?
 7   A.   Yes, I do.
 8   Q.   Okay. Now, with respect to this project, what-- what was
 9   it that attracted you to this project?
10   A.   Well, actually, the project started out as we were coming
11   up here to do trucking and various heavy construction for
12   building rig pads and roads and so forth. And initially Mr.
13   Denton, Baker and Stabinski came up here a week or about ten
14   days prior to my arrival, and within about 48 hours we realized
15   the need or lack of housing that was available and quickly
16   realized that's in our wheelhouse of expertise, with Baker
17   being in construction, home building and development for
18   20 years, Denton having a mobile home retail sales location.
19   You know, it was something that we could relate to pretty
20   easily.
21             And then we actually have a-- Mr. Denton has a
22   friend, an associate by the name of Gates Walcott who was
23   operating a man camp down in Louisiana and then eventually in
24   Texas and was quite successful, so we got some consultation
25   from him and saw the validity of such a project, so then we
                                   209
 1   started outlining it and putting numbers together, resourcing
 2   what it would take.
 3   Q.   And you put together a budget and a plan, is that correct?
 4   A.   Yeah, at first Mr. Denton and Mr. Baker sourced some
 5   property through a realtor out of Williston, I believe, and
 6   they were shown a few properties and landed on one specifically
 7   and secured the property, but the realtor told us that the main
 8   goal would be to obtain a water permit. That was going to be
 9   the whole trick, so that was first and foremost, and that was
10   acquired, I think, within the first week of securing the
11   property, so that once we got over that hurdle, we just moved
12   forward from there.
13   Q.   Now, with respect to the camp, did you participate in
14   developing the investment package?
15   A.   I personally created the investment package.
16   Q.   Okay. You're pretty good with computers, I understand?
17   A.
18   Q.   Okay. And Mr. Denton was involved in creating the
19   investment package?
20   A.   He was to some extent and so was Mr. Baker and Stabinski.
21   It was a collective effort. Richard Brown from Morgan Chase
22   Management, he also contributed. It was -- it was something we
23   worked on day and night as we acquired information. We went
24   through several different types of buildings, structure ofthe
25   camp, and we all collaborated. And, you know, we had to get a
                                  210
 1   lot of information from Mr. Brown based on what services he was
 2   going to provide and what they were going to cost, so they
 3   would all-- we would all resource all that information
 4   collectively to all hours of the night, and I would put them
 5   into the package and make it into a presentation.
 6   Q.   Now, with respect to the man camp, did you -- did you
 7   participate in any of the investor meetings?
 8   A.   There was --the only investor meetings were the initial
 9   meetings that took place in Louisiana, New Orleans, and I
10   wasn't present for those. I was still in North Dakota.
11   Q.   And so you weren't involved in meetings with other
12   potential investors, is that correct?
13   A.   No, I communicated with them, and we sourced about, I'd
14   say, four to six investors prior to reaching Mr. Lobell.
15   Several of them were out of Texas, and they were presented the
16   information and we were, you know, presenting multiple
17   investors simultaneously because it was a time-sensitive
18   situation, so we were trying to --
19   Q.   So it was about four to six groups of investors?
20   A.   Yeah, I would say.
21   Q.   Okay. So there were probably other investors out there if
22   Mr. Lobell didn't--
23   A.   We would not have stopped there.
24   Q.   Right.
25   A.   Yeah, we had others to keep going.
                                   211
 1   Q.   Did you have an understanding of what the plan was in
 2   terms of getting an investor to agree to a plan, how-- how you
 3   all were going to get a return on your investment of time and
 4   resources and Mr. Denton's money?
 5   A.   Well, initially we were looking at what we call an ROI,
 6   which is just a return on investment, which would be a loan
 7   towards the project, that we would pay an agreed amount of
 8   interest over a certain or specified term, and -- but we were
 9   open to a mixture of equity share, partnership, as well as an
10   ROI. We were open to various structures, and that was what was
11   prepared originally. And then Mr. Lobell wanted to be more of
12   a part of it and in-- an actual fixed partner, so we came to
13   an agreement on that.
14   Q.   And what was that agreement?
15   A.   The agreement was that there was five of us, and that's
16   how it was presented to him initially. There was-- well,
17   ~here   '.:vere four of us, ! should say. The investor vvould be the
18   fifth partner, and there would be an initial investment to get
19   the camp going.
20               And the agreement that we had was the -- any revenues
21   generated would, of course, go to paying operations and
22   overhead and services provided to the clients. Any profits
23   that were generated would be a 60/40 split, which was then --
24   that 40 percent would go as a profit share to the remaining
25   partners, of which there would be five. You take that
                                     212
 1   40 percent, divide that equally over five partners, you got
 2   8 percent left over to each individual partner, so when it
 3   settled out, 68 percent in total would go back to debt service
 4   and Kenny Lobell, and the remaining 32 percent would be
 5   dispersed eventually amongst the remaining four partners.
 6   Q.   So that's what your understanding of the agreement was
 7   with Mr. Lobell?
 8   A.   Yep.
 9   Q.   And where did you get that understanding?
10   A.   From Randy Baker and Myer Stabinski, and Chad Denton
11   understood it that way as well.
12   Q.   And so with respect to Mr. Lobell, did you ever have a
13   discussion with Mr. Lobell about that?
14   A.   I personally did not.
15   Q.   You understood that as an accommodation to Mr. Lobell,
16   there would be an operating agreement to memorialize that as
17   opposed to a partnership agreement?
18   A.   Well, the--
19               MR. PEPPER: Objection, Your Honor. It's hearsay.
20   He said he never spoke to Mr. Lobell, so for him to talk about
21   any deal that was worked out with Mr. Lobell would be hearsay
22   of the first order.
23               THE COURT: Sustained.
24   Q.   (MR. COCHELL CONTINUING) Did you get an understanding of
25   whether--

                                    213
 1   A.             Yeah, the understanding that I gathered from the return of
 2   the meeting from Randy Baker was that we --the assets --when
 3   Mr. Lobell agreed to do the project and invest in our project,
 4   that the company, Capital Lodge, that was to be formed, all
 5   investment would go through that company as far as assets
 6   acquired and so forth, and the remaining-- the partnership
 7   would be memorialized through a partnership/operating
 8   agreement. You can call it whatever you want to call it, and
 9   that would define the partnership itself.
10   Q.             Okay.
11   A.              But that was never provided to this day.
12   Q.             And so-- and so after the debt was completely serviced,
13   after all of his debt was repaid, then what would be the
14   profit-- the residual profit be-- how would that be
15   distributed to the partners?
16   A.             Well, the profits and assets would go back as a
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18   partners.
19   Q.             Okay. And so that would be a 20 percent of--
20   A.             Sure. Amongst the five, yeah.
21   Q.             All right. So did you have an understanding, you know,
22   from discussions with Mr. Baker or anyone as to whether the
23   property was supposed to be --whether the property that was
24   purchased was supposed to be a partnership asset?
25   A. The property was one of the assets of the investment from
                                                                                               214
 1   the beginning.
 2   Q.   And why do you say that?
 3   A.   Well, that's how it was presented in the presentation.
 4   mean, it was there from the start. I don't know why it would
 5   have changed.
 6   Q.   Now, with respect to your employment-- well, I guess you
 7   were a 1099 employee with Mr. Lobell, is that correct?
 8   A.   I was not supposed to be 1099. I wasn't supposed to be an
 9   employee of any sort.
10   Q.   Okay. And did you get draws from Mr. Lobell?
11   A.   Well, we got compensation, which was basically to
12   supplement our income while we were continuing to build the
13   project, to take care of personal expenditures and so forth
14   back at home, which is what Denton did prior to Mr. Lobell
15   coming in.
16   Q.   Okay. And with respect to Mr. Lobell, did there come a
17   time when you were asked to-- when your employment was
18   terminated?
19   A.   What was the question now?
20   Q.   Was there a time when your relationship with Capital was
21   terminated?
22   A.   I don't know of a relationship being formally terminated.
23   There was no formal termination of any capacity. I went home
24   to visit my family, and before returning, Mr. Baker contacted
25   me and said that Mr. Lobell didn't want to pay my monthly--
                                  215
 1   monthly supplementation, I guess you can call it, or-- and
 2   didn't feel the need that-- to pay me and not to return, but
 3   that we would be-- we would be dispersing profits in the very
 4   near future, and that's how I understood it, that I was not to
 5   -- not to worry.
 6   Q.      Okay. And did you continue to get some money after
 7   your --

 8   A.      Yeah, just a small amount. It was about $2,000 a month.
 9   Q.      And how long did that continue?
10   A.       Four or five months, I would say. I'd have to look.
11   Q.      And then did you ever threaten to sue Mr. Lobell?
12   A.       No, because at that time I was still under the impression
13   that, you know, profits were coming, my partnership wasn't in
14   jeopardy. I didn't feel that threat or that need to pursue
15   that avenue.
16   Q.      When is -- when is the first time that you learned that
17   ~v1i.   Denton had filed a lavvsuit?

18   A.       I would say it was june of this past year, 2012.
19   Q.      And you were served with that lawsuit, is that correct?
20   A.      Yep.
21   Q.      And you filed an Answer, is that correct?
22   A.      Yeah. Well, I filed admissions and turned over whatever
23   documentation that was subpoenaed, that was required of me, but
24   I had no contact with him, though, at that point.
25   Q.      And after that time were -- prior to that time did you

                                       216
 1   have any discussions with Mr. Denton, before you filed your
 2   Answer?

 3   A.   The last time I spoke with Denton was 2011, in August, and
 4   we went just over a year, and I think I spoke with him for the
 5   first time October of this-- of 2012, so it was maybe a year
 6   and two months without having any conversation.
 7   Q.   Now, at that point do you know -- had you been contacted
 8   by Mr. --one of Mr. Lobell's lawyers at about that same time?
 9   A.   Not in October, no. I haven't been contacted by them, not
10   in October.

11   Q.   All right. And do you recall when you were first
12   contacted by Mr. Lobell's lawyers?
13   A.   I wasn't contacted.
14   Q.   Or by Mr. Baker on behalf of a lawyer.
15   A.   Oh, well, Mr. Baker, yeah. I was contacted by him in
16   November, mid-November, I would have to say, somewhere around
17   the 16th or 1 5th.

18   Q.   And now I'd like to show you what's been marked as
19   Exhibit 63 for identification. Do you recognize that document?
20   A.   Yes.
21   Q.   And can you describe for the Court what that document is?

22   A.   The top page or the entire document?
23   Q.   The entire document.

24   A.   The entire document is an affidavit for me to sign stating
25   that I was never a partner in Capital Lodge or any of these

                                   217
 1   other entities, and there's some kind of settlement --
 2   settlement agreement. He was trying to pay me $20,000 to sign,
 3   stating that I was never a partner in the company, basically an
 4   affidavit, and he wanted to pay me to sign it.
 5   Q.   All right. Now, with respect to Mr. Baker, he contacted
 6   you about this document--
 7   A.   He did.
 8   Q.   -- before he sent it?
 9   A.   Yes, he did.
10   Q.   Okay.
11   A.   It was verbalized.
12   Q.   If you would, tell the Judge what Mr. Baker said.
13   A.   I was told that-- well, first it was initially by text
14   message. I have big news. Give me a call. So I called him
15   and he said, "Kenny is willing to pay you $20,000 today if you
16   sign an affidavit. You could probably have the money by this
17   afternoon." And i was kind of taken back by it and angered to
18   some extent, and so I said, "Send it over. Let me have a look
19   at it." And it didn't come at that time, and then I told him,
20   "You know what? I'm not interested. I wouldn't do it for that
21   much money, and, you know, that's just being dishonest because
22   I am a partner in this company."
23             And then later that afternoon Randy called and said,
24   "You need to make a decision on what you're going to do. It's
25   getting the end of the day, and if they're going to attach the
                                    218
 1   money to the wire, the draw that goes out, it needs to be done
 2   today, and Kenny is willing to come up and make it 30,000."
 3   And if I don't sign it that they'll --what was the term used?
 4   They would sue me for obstruction. That's what it was. It was
 5   obstruction. I'd be sued for obstruction for not signing
 6   because they were trying to obtain financing to continue on
 7   with operations for the camp. It was some financial struggle
 8   that I was not aware of, but that wasn't really relevant at the
 9   time.
10   Q.      Did you--
11   A.      I was holding up financing, and basically by me --the
12   financing company was aware of the lawsuit and what was going
13   on, and I was a loose end, basically.
14   Q.      Okay. Did you know at that point whether there was a
15   hearing on a lis pendens?
16   A.      I don't believe so.
17   Q.      Okay. You didn't know one way or the other?
18   A.      Not about the lis pendens, no.
19   Q.      Nobody talked to you about the need for your testimony at
20   this hearing?
21   A.      No.
22   Q.      You didn't know that they filed almost identical
23   affidavits for Mr. Stabinski and for Mr. Baker, almost
24   identical to your affidavit, is that correct?
25   A.      That's correct.
                                     219
 1   Q.       You didn't know that?
 2   A.       No, I knew about Baker's affidavit.
 3   Q.       Oh, I see. That's because you talked to him on a regular
 4   basis.
 5   A.       Correct. He told me he was getting pushed into a corner,
 6   didn't know what to do, called me all stressed out about what
 7   he was going to do.
 8   Q.      What was he stressed out about?
 9   A.      Well, he's -- he's got an income from Capital. He --
10                     MR. PEPPER: Objection, Your Honor, it's hearsay at
11   this point.
12                    THE COURT: Overruled.
13                     THE WITNESS: That's direct-- I heard this directly
14   from the man's mouth. He -- he was stressed out. He needed
15   employment verification because he's going through an adoption
16   process, and if he was to go against the grain and go against
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18   adoption. I've had extensive conversations with him about
19   this.
20   Q.       (MR. COCHELL CONTINUING) And so when you say he felt
21   pushed in a corner, do you --
22   A.       He felt pushed into a-- Randy Baker felt pushed into a
23   corner, and he -- and he spoke with some of his own legal
24   representation that is close to him where he lives, and they
25   stated that if they revised it somewhat, he could kind of play
                                                              220
 1   the middle on this thing and he wasn't admitting that he was,
 2   and he wasn't admitting that he wasn't, so that was the path of

 3   least resistance that he took to not upset Mr. Lobell and also
 4   not jeopardize himself.
 5   Q.   Recognizing that he's a close friend of yours, I mean, do
 6   you think maybe he might have fudged a little on the truth?

 7             MR. PEPPER: Objection, Your Honor, calls for
 8   speculation.
 9             THE COURT: Yeah, it certainly does. Sustained.
10             MR. COCHELL: Fair enough. I'll withdraw the

11   question, Your Honor.
12   Q.   (MR. COCHELL CONTINUING) You had a number of discussions
13   with Mr. Lobell during the course of your work at the man camp?

14   A.   Sure, we had-- we had some, yeah.
15   Q.   And did you see him as an excitable individual?
16   A.   Depending on what day you spoke with him, he was either

17   excited in one capacity or another.
18   Q.   Can you describe it a bit more in detail, about what his
19   temperament was?
20   A.   Well, we were all going to get fired and sent home one
21   day, and then the next day we were doing a great job. It was
22   --just depend on when you caught him.
23   Q.   There's been talk about cost overruns?
24   A.   Correct.

25   Q.   And were you ever told that you were responsible or

                                    221
 1   everybody was responsible for cost overruns?
 2   .A.   Yeah, blame was shared amongst Baker, Stabinski and
 3   myself, that there was cost overruns, but, you know, the cost
 4   overruns are associated and -- and self-inflicted in many
 5   cases. You know, the project was supposed to be a one phase --
 6   we were initially supposed to put one phase in. Well, that
 7   phase turned into two phases, and then it turned into
 8   installing the utilities for a third phase. And initially we
 9   changed the buildings from -- completely and added a
10   significant cost to the buildings.
11               And then on top of that we decided that we were going
12   to go work on a project in Arnegard and spent an enormous
13   amount of money over there. And every day we didn't know if we
14   were going to actually go through with the project or not, but
15   we continued to spend money. In the end, never did the
16   project.
17   Q.    So no one ever told vou that you were terminated for
18   possible--
19   A.    No.
20   Q.    -- fraud?
21   A.    Fraud?
22   Q.    For misconduct?
23   A.    No, but I did hear recently that just-- which infuriated
24   me, but several months ago I was actually informed that a
25   landscaping decision that was confirmed by Randy Baker before
                                    222
 1   we made any decision to even have the installation done, that I
 2   spent too much money on landscaping. And then it came out a
 3   couple of months ago that supposedly I took a kickback from it,
 4   which I barely had my hands on that. I met with the guy. He
 5   showed me where he was going to put the trees. He initially
 6   wanted to charge us 35,000. I consulted with Randy. I said,
 7   "Here's the package. What do you want to do?" He said it had
 8   to be-- it's got to be under 30,000, so I think I came in,
 9   went back to the guy, negotiated, said, "Listen, you need to
10   take some trees out or whatever we're going to do. We need to
11   get it under 30,000." And I think it ended up somewhere around
12   29, 30 thousand, so we went forth with it, and I handed the
13   invoice over to our administrator and she took care of the
14   rest.
15              MR. COCHELL: Your Honor, I'll offer Exhibit 63 into
16   evidence, if it hasn't already been accepted.
17              THE COURT: What is it? What is it?
18              MR. COCHELL: I believe that's the-- that's the
19   e-mail with the release, the affidavit and the release.
20   thought I had offered it earlier in the case.
21              THE COURT: You might have offered it, but I haven't
22   seen it.
23              MR. COCHELL: Oh, I'm sorry.
24              THE COURT: Any objection?
25              MR. PEPPER: I think he offered that through
                                   223
        1   Mr. Baker. I don't-- if it's the e-mail where it shows the
        2   two attachments and then it's the two attachments that are
        3   printed out, we have no objection.
        4                 MR. COCHELL: I have an extra copy here for Your
        5   Honor. Sorry.
        6                 THE COURT: It looks like it's the same thing as
        7   Exhibit 53.
        8                 MR. COCHELL: That's what I thought, Your Honor. I
        9   just wanted to make sure that it was in evidence. There was
10          some uncertainty on my part.
11                        MR. PEPPER: Your Honor, to the extent that it was
12          the affidavit and settlement agreement that was prepared by
13          Morales' attorneys and forwarded to Mr. Hansen by Mr. Baker, it
14          !ooks like, we have no objection.
15                        THE COURT: Exhibit 63 will be received. It's the
16          same as Exhibit 53, but we'll have them both.
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18          clarification. This statement on 63 and probably 53 says, "Do
19          you believe this guy? He wants me to lie and he's willing to
20          pay me to do it." Is that your statement, sir?
21          A.   Yes, it is.
22                        MR. COCHELL: That's all the questions I have for
23          this witness.
24                        THE COURT: Cross?
25                        MR. PEPPER: Yes, Your Honor.
                                                             224
 1                          CROSS-EXAMINATION
 2   BY MR. PEPPER:
 3   Q.   Mr. Hansen?
 4   A.   Yes.
 5   Q.   How much were you paid to show up here today?
 6   A.   I'm sorry?
 7   Q.   How much were you paid to show up here today?
 8   A.   I was not paid anything to show up here today.
 9   Q.   Were you reimbursed for your travel expenses?
10   A.   For my travel expenses only and hotel.
11   Q.   Did you pay for them personally and then got a check from
12   Mr. Denton, or how was it done?
13   A.   No, in advance we-- we agreed that he would pay for them
14   upfront before I would leave.
15   Q.   Okay. So you're here on his ticket, right?
16   A.   I don't think it's any different than anybody else's
17   ticket that's getting paid on --to attend.
18   Q.   Well, he did pay for your ticket. Let's just talk about
19   your ticket.
20   A.   Correct. Yes.
21   Q.   Okay. Did you ever get any money from the rig moving
22   experience that you --that you worked with Mr. Denton on?
23   A.   Yeah, not a-- a couple thousand dollars just to take care
24   of expenses at home.
25   Q.   Did you ever sign a partnership agreement with Mr. Denton,
                                   225
 1   a written partnership agreement?
 2   A.     No, did not.
 3   Q.     When you prepared the package for the investment in the
 4   man camp, you referred and you testified that you listed the
 5   80-acre property that the man camp is now located on as an
 6   asset, correct?
 7   A.     I believe so, yes.
 8   Q.     Do you own a house?
 9   .A.    At this time I do not.
10   Q.     Okay. Have you ever owned real property?
11   A. Yes, years ago I had a condo.
12   Q.     In order to have an asset, you have to pay for it, don't
13   you?
14   A.     Correct.
15   Q.     Okay.
16   A.     And we were looking to have the investor actually pay for


18   Q.     Okay. But in your package it listed it as an asset,
19   correct?
20   A.     I believe so.
21   Q.     But at the time you listed it as an asset, Mr. Denton had
22   never bought it, did he?
23   A.     No, it wasn't paid with real cash, no. It was secured for
24   the project investment.
25   Q.     How is it secured? Who secured it?
                                     226
 1    A.   Mr. Denton.
 2    Q.   How did he secure it?
 3    A.   Put an offer in to take it off of the market so that we
 4    had time to get permits for it and make it a viable piece of
 5    land for the project.
 6    Q.   Do you know if he ever put a deposit on that?
 7    A.   I couldn't answer that. I'm not exactly sure.
 8    Q.   Let me ask you this. If he didn't put a deposit on it,
 9    would he have an asset or-- in terms of at least a contract?
10    A.   I don't know. I don't know if there was a contract for it
11    made with that offer. I didn't see the paperwork.
12    Q.   All right. Will you agree that if you don't pay for an
13    interest in property via some kind of written document, that
14    you don't have it?
15    A. You have first right of refusal to it until that-- until
16    you forfeit it.
17    Q.   Don't you have to pay for a first right of refusal?
18    A. That depends. That depends. That could mean a lot of
.19   things. It could be structured-- depends on the agreement
20    made with the landowner.
21    Q.   In this specific case did you ever see a document that
22    purported to be an option on that property?
23    A.   I personally did not.
24    Q.   Okay. Yet you still listed it as an asset.
25    A. Correct. It was intended to be an asset.
                                   227
 1   Q.     Okay. And you also testified that it was never the
 2   intention of Mr. Denton to pay for it, correct?
 3   A.     I didn't testify to that.
 4   Q.     All right. Well, didn't you say it was for the --whoever
 5   you got as an investor to pay for it?
 6   A. That is right.
 7   Q.     So--
 8   A.     So what's the question?
 9   Q.     So Mr. Denton never intended to buy that property,
10   correct?
11   A.     Personally, no, that-- that piece of land was to be one
12   of the assets of the -- of the project in and of itself. We
13   intended on having an investor come in, pay for the property
14   and the entire project as it stands, which all buildings and
15   everything else would have been assets as well if they were
16   paid for. If there's no debt on those, they are assets,
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18   the land. It was to be paid in full. At that time, when we
19   secured investment and it would have been paid in full, it
20   would have been an asset.
21   Q.     Okay. But that never happened, did it?
22   A.     At what point?
23   Q.     Mr. Denton never--
24   A.     Mr. Denton was not the investor. He was the seed funding
25   partner of the group. He wasn't the investor. That's why we
                                                           228
 1   seek Mr. Lobell and others.
 2   Q.   And you sought six others, and neither one of them -- not

 3   a one of them would do the property with you in a partnership
 4   agreement, correct?
 5   A.   No, that's not the case. We had guys that-- who's way

 6   outside of anything they've ever done and it was far away from
 7   what they like to do, where they like to do business. The
 8   Texas groups that we-- we spoke to two Texas groups, and both
 9   of them only cared to invest in Texas investments. They had--

10   that's where they focus their attention, so that was their
11   objection.

12                To be honest with you, those two and then I think we
13   spoke to Gates about doing it at some point, and they were--
14   Gates Walcott, which is the company that had the other man camp
15   down in Louisiana, they were too busy with what they were
16   doing.

17                And then another gentlemen that worked with us, he
18   had a friend of his who had a mobile home manufacturing company
19   out of-- I want to say Tallahassee, and he reviewed it, but he
20   was looking at acquiring a couple other manufacturing plants
21   and wasn't able to give it this attention.
22                So Myer Stabinski had two investors in Louisiana, one
23   being Mr. Lobell. The other gentleman looked at it, liked it,

24   but wasn't able to move as fast as we needed the project to
25   move. And those were the objections of the people that we

                                     229
          1   presented it to.

          2   Q.    So you never saw while you were working there, a document
          3   such as a warranty deed giving Mr. Denton any interest in the
          4   property.
          5   A.    I personally was not handling the relations with the
          6   realtor, so I wasn't privy to those documents.
          7   Q.    What did you do up there?
          8   A.    I'm sorry?
          9   Q.    What did you do? What was your job?
10            A.    What was my job? I pretty much procured, resourced
11            subcontractor agreements, compliance, state-- state documents,
12            contractors' licenses, Workers Comp., anything that mixed
13            between out in the field and administrative responsibilities,
14            scheduling --
15            Q.    And when it came time--
16            A.    -- materials.
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18            and Buster Stabinski a partnership agreement, you refused to
19            sign it, didn't you?
20            A.    We were instructed by Mr. Lobell not to sign it.
21            Q.    Did you speak to Mr. Lobell?
22            A.    No, I didn't personally. Myer and Randy spoke to them,
23            and I was standing right there when they were speaking to them.
24            Q.    So you could have signed it on your own, but you chose not
25            to.
                                                                                     230
 1   A.   At that time I did, yes.
 2   Q.   Okay.
 3   A.   But that's not the operating agreement that we were
 4   waiting on. We were waiting for a partnership and operating
 5   agreement from Mr. Lobell. That's how this thing was supposed
 6   to go.
 7   Q.   But you never got one, did you?
 8   A.   That's the point of why we're here.
 9   Q.   Okay. And you never signed a partnership agreement with
10   Mr. Denton either, did you?
11   A.   I've never had to. We've had successful relations for
12   many years. We actually had another previous --one of our
13   projects we had an operating agreement and we all executed it.
14   Q.   Did you personally put any money into the project?
15   A.   No, no investment on my behalf--
16   Q.   Do you know--
17   A.   --financially.
18             MR. PEPPER: Okay. Your Honor, no-- no further
19   questions of this witness.
20             MR. COCHELL: A few follow-ups, Your Honor.
21                          REDIRECT EXAMINATION
22   BY MR. COCHELL:
23   Q.   You mentioned that you were there when Mr. Baker and
24   Stabinski talked to Mr. Lobell?
25   A.   That's correct.
                                     231
      1   Q.        And did you hear Mr. Lobell on the phone?
      2   A.        No, he wasn't on speakerphone, but Myer Stabinski was
      3   getting an earful, and then the next conversation Randy was as
      4   well.
      5   Q.        And then -- and then what happened?
      6   A.        We just dismissed it. We actually had a conversation. We
      7   had a meeting with Chad after the fact, after we were
      8   instructed not to sign it. And Mr. Baker and myself had a
      9   face-to-face meeting with Denton, told him that there's nothing
10        to worry about, you know, Mr. Lobell has our best interests at
11        hand and that when we get an operating agreement, you know,
12        we're all going to sign it and we're going to look out for his
13        best interest as a partner. You know, he felt his position was
14        jeopardized based on the feedback he was getting from Lobell,
15        and we told him there would be nothing to worry about and that
16        we were instructed that profit disbursements were going to be
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18        right.
19        Q.        Now, is it your understanding that Mr. Lobell is selling
20        the property?
21        A.        I believe so. That's what I've heard.
22        Q.        Have you heard that the purchase price is $2 5 million?
23        A.        I believe I've heard that.
24        Q.        That's $25 million net of his expenses?
25                                 MR. PEPPER: Objection, Your Honor--
                                                                                    232
 1            THE WITNESS: I don't know about that.
 2             MR. PEPPER: --speculation at this point.
 3            THE COURT: What was the question?
 4             MR. COCHELL: just had he heard that Mr. Lobell was
 5   making a net profit of $25 million.
 6            THE WITNESS: I don't know what the exact profit is.
 7             THE COURT: Well, the objection is sustained. I
 8   mean, he's --
 9             MR. COCHELL: That's fine.
10             THE COURT: -- hearing the same thing that I might be
11   hearing out in the rumor mill, so--
12             MR. COCHELL: Yes, Your Honor. That's all the
13   questions we have. Thank you.
14             MR. PEPPER: Your Honor, at this point Mr. Porsberg
15   would like to summarize the legal issues in light of the facts
16   that have been elicited here today.
17             THE COURT: We're done with this witness?
18             MR. COCHELL: Yes, Your Honor.
19             THE COURT: Thank you, sir. You may step down.
20             THE WITNESS: You're welcome.
21             THE COURT: Anything further from the defense? Well,
22   we're getting pretty late in the day.
23             MR. PORSBERG: Your Honor, we're prepared to give
24   oral argument, but if the Court doesn't need it--
25             THE COURT: Yeah, I'd rather give both sides an
                                   233
        1     opportunity to submit something in writing to me if they wish.
        2     I'm not going to sit on this and cerebrate on this for weeks
        3     and months on end. I'm going to get a decision out quickly,
        4     but I want to give both sides an opportunity to summarize what
        5     they feel the evidence has shown and summarize how their legal
        6     arguments -- I mean, I essentially know what both sides are
        7     going to argue, but how much paper do you think that you need
        8     to summarize what has transpired here today?
        9              MR. PORSBERG: Our concern is, Your Honor, just that
10            it be done quickly, a really short briefing schedule. I would
11            anticipate an extremely short brief from us.
12                     THE COURT: Well, I'm going to set a short briefing
13            schedule, and I generally like to put limitations on the length
14            of briefs, but you tell me how much paper that you're going to
15            need.
16                      MR. COCHELL: Fifteen pages, Your Honor. Is that--
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18            As far as the law is concerned in North Dakota, I need about
19            three pages, three to five. I'm not going to summarize what's
20            been presented to the Court here.
21                     THE COURT: Okay.
22                      MR. NYHUS: But if the Court would like a summary of
23            ::>Ur position on the testimony, we would need more.
24                      MR. PEPPER: We can do it in five pages, Your Honor.
25                     THE COURT: Okay. Well, we'll set a limit of 1 5
                                                        234
 1   pages, and you throw into the 1 5 pages what you want to throw
 2   into it, and I'll read it all very carefully and probably more
 3   than once.
 4             Now, in terms of deadlines, I know that everybody has
 5   got busy schedules, and I'll try to accommodate those conflicts
 6   as much as possible. Tell me, both sides, when you think you
 7   could get something in.
 8             MR. PORSBERG: Would they be simultaneous, Your
 9   Honor?
10             THE COURT: Yeah, they'll be simultaneous.
11             MR. PEPPER: Friday, Your Honor.
12             MR. COCHELL: You're talking this week?
13             MR. PEPPER: Yes.
14             MR. COCHELL: I was thinking perhaps Monday. I mean,
15   today is Wednesday. Monday would really be the earliest, Your
16   Honor.
17             THE COURT: I'll give you both a week.
18             MR. COCHELL: I have to travel.
19             THE COURT: I'll give you both a week. How's that?
20              MR. COCHELL: Yes, sir.
21              MR. PORSBERG: That works for me.
22             THE COURT: Have something filed on or before
23   Wednesday, january 16th, by the end of the normal working day.
24   Fair enough?
25              MR. COCHELL: Yes, Your Honor.
                                    235
 1            MR. PEPPER: Yes, Your Honor.
 2            THE COURT: All right. Everybody feels that they've
 3   had an opportunity to present what testimony and what
 4   documentary evidence that they want to submit in connection
 5   with this dispute?
 6            MR. PEPPER: Yes, Your Honor, we do.
 7            MR. COCHELL: Yes, Your Honor.
 8            THE COURT: All right. Anything else then for the
 9   good of the order?
10            MR. PEPPER: I think I'll stay after with the clerk
11   to make sure she's got all the documents that we had on our
12   part to make sure that there's no omissions.
13            MR. COCHELL: Nothing at this time, Your Honor.
14            THE COURT: Tell me what's --what the status of the
15   Texas litigation is in terms of trial dates, dispositive motion
16   deadlines, depositions, what discovery has gone on.
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18   they call a docket calendaring order, a DCO, when all the
19   parties are served. We've asked for cooperation from the man
20   camp to assist. I didn't want to serve Mr. Stabinski at a
21   courthouse. I thought that was improper, but if he'll
22   cooperate in getting served, he can file whatever motions he's
23   got. Then typically this is a Level 2 case, and so from the
24   date of the DCO, it would be typically one year to trial
25   under a --
                                                    236
 1              THE COURT: From the date of filing?
 2              MR. COCHELL: Sir?
 3              THE COURT: From the date it's filed?
 4              MR. COCHELL: No, I think it would be from the date
 5    the last party is served, or that's --
 6              MR. PEPPER: There's some outstanding -- I guess it
 7    would be motions, Your Honor, jurisdictional motions that
 8    haven't been resolved yet because they sued -- the only person
 9    that's actually-- or entity that's actually in Texas is
10    Mr. Baker, so -- other than Mr. Denton, so we have to resolve
11    those issues before we can move forward.
12              THE COURT: And has there been any discovery
13    undertaken in the case other than a flurry of interrogatories
14    between parties?
15              MR. PEPPER: There has been a request for production
16    of documents by the other side. I've had them available at my
17    office for him to review. He had asked that I send it to some
18    copy service, but I have one right by the office that was --
19    that is going to comply, and he can pick up the copies there.
20              THE COURT: So do the Texas state courts mandate
.21   mediation before cases go to trial?
22              MR. COCHELL: Yes, Your Honor.
23              THE COURT: They set dates early in the process or
24    later in the process?
25              MR. COCHELL: This could be set early if the parties
                                     237
 1   agree. I think this proceeding has cleared some of the
 2   strengths and weaknesses of the parties' respective cases, so I
 3   would not be opposed to an early mediation. I just
 4   successfully mediated a case last week.
 5               MR. PEPPER: Your Honor, in a lot of Texas courts,
 6   mediation is mandatory before you can proceed almost with any
 7   rule. It just depends on the division and the judge.
 8               THE COURT: Before you can proceed with any what?
 9               MR. PEPPER: Even on a rule sometimes you have to
10   mediate before you can go to have a hearing.
11               THE COURT: So are either party before me today
12   opposed to my scheduling an early settlement conference with
13   Magistrate judge Charles Miller or Magistrate Judge Karen Klein
14   in Fargo?
15               MR. PEPPER: I'd have to check with my client, but
16   generally--
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18               MR. PEPPER: Generally we don't have an objection.
19   We don't-- we don't have a problem with a mediation.
20               THE COURT: It doesn't cost you anything. Probably
21   two of the finest mediators that you're going to find in this
22   part of the country.
23               MR. PEPPER: I would have to defer to Scott and
24   Jordon on that because I don't know any of the mediators around
25   here, Your Honor, but I trust if the Court would appoint one--
                                                         238
 1             MR. LOBELL: I don't want to go to mediation.
 2             THE COURT: Pardon?
 3             MR. LOBELL: I would not like to go to mediation.
 4             THE COURT: You would or would not?
 5             MR. LOBELL: I would not. I don't want to go to
 6   mediation at this point.
 7             THE COURT: Okay. Why is that?
 8             MR. LOBELL: Well, because they're going to go
 9   through this whole thing of mediation and it's not binding.
10   And what I have done was -- any businessman that would ever put
11   up $30 million with the people that you see as witnesses and
12   plaintiffs and defendants and all this-- this was a situation
13   that I put everything up that I have. As all of them told you
14   right there, that, you know, the houses was wrong. As
15   Mr. Hansen just said, the houses were wrong because they
16   recommended the house. The sewer was wrong because they got
17   the sewer guy. The time it went to happen was wrong, not
18   because of me. I took their lead. They all said they could do
19   this.
20             Not one of them had a job when they saw me. Not one
21   of them had made $1 0,000 --they all attest to that-- in their
22   life. Mr. Hansen lost his house. Mr. Baker had tax problems.
23   Mr. Stabinski had no job. They all made $120,000 a year, and
24   I'm still paying them when I should have fired them. So to go
25   to mediation to try to award somebody for a bogus lawsuit, that
                                   239
 1   I had nothing to do with this gentleman, that I never spoke to
 2   -- both Myer and Mr. Stabinski (sic), they all told him he was
 3   not a partner. He got mad.
 4                 There's a lot on the line, that I put up my house, my
 5   businesses. I've been to the hospital twice because I
 6   flat-lined at 46. I was up at 3:00, 4:00, 5:00 in the morning,
 7   when you have to pay a million dollars a week and you have
 8   $300,000 in the checking account, and you have no money and you
 9   have to wait. They said they have all these MSAs and people
10   coming? Ask them how many people they had for contracts for
11   the first six months.

12                 THE COURT: Well, my question was simply, are the
13   parties agreeable to mediation. You're telling me they're not.
14                 MR. LOBELL: No, I would not.
15                 THE COURT: Well, the only reason I suggest it is
16   .that I'll issue a ruling on this quickly. I don't sit around
17   and \tvait for six months or a   vear like some n--.ay do on a case of
18   this nature. I'll get a ruling out quickly, but regardless of
19   how I rule on the case, it doesn't put an end to the
20   litigation.
21                 MR. LOBELL: No, but what it would do is if you ruled
22   on the case, I could go finance. At that point I may go to
23   mediation, if I can keep the camp going. I don't want to go to
24   mediation desperate.
25                 THE COURT: And regardless of how I rule, there's

                                       240
 1    going to be, as I told you all on the phone last week, a
 2    minimum of two to three years of fighting and squabbling and
 3    spending money and sleepless nights and depositions and
 4    discovery disputes, great cases that go on forever. But like I
 5    said, it's not my money, so --
 6              MR. LOBELL: I'm not saying I won't. I may.
 7             THE COURT: To me the case cries out for mediation,
 8    but that's just my opinion, and usually 50 percent of the
 9    people that hear my opinions disagree with them, so-- but we
10    do have, without question, two very fine mediators that would
11    cost neither party anything. And judge Miller and Judge Klein
12    will go wherever you want them to go to mediate it, and they're
13    going to be as good, if not better, than any retained mediator
14    that you hire to pay 500 to 800 dollars an hour to mediate this
15    case, but that's my two cents for the day.
16              But I'll await the receipt of your briefs by next
17    Wednesday. I'm trying to think. I will do my best to get a
18    decision out within two to three weeks thereafter. It won't be
19    any longer than that.
20              MR. PEPPER: Appreciate that, Your Honor.
,21             THE COURT: All right. Thank you. We'll stand
22    adjourned.
23              (Concluded at 5:03 p.m., the same day.)
24
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                                   241
 1                    CERTIFICATE OF COURT REPORTER
 2           I, Sandra E. Ehrmantraut, a Certified Realtime
 3   Reporter,
 4           DO HEREBY CERTIFY that I recorded in shorthand the
 5   foregoing proceedings had and made of record at the time and
 6   place hereinbefore indicated.
 7           I DO HEREBY FURTHER CERTIFY that the foregoing
 8   typewritten pages contain an accurate transcript of my
 9   shorthand notes then and there taken.
10           Dated this 4th day of February, 2013.
11

12
                                 Sandra E. Ehrmantraut
13                               Certified Realtime Reporter
14

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