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Tequila Tycoon Faces $123M Judgment In Moroccan Oil Deal Gone Wrong

This article is more than 8 years old.

John Paul DeJoria built his $3 billion fortune on the famous John Paul Mitchell hair care line as well as the premium tequila brand Patron Spirits. Less known: his investments in oil.

Maybe a better term would be malinvestments. That's because the 71-year-old DeJoria continues to be plagued by an ill fated Moroccan oil deal he entered into back in 2000. Ever since then he's been fighting with his co-investors -- including Prince Moulay Abdallah Aloaoui (first cousin to King Mohammed VI) and Saudi billionaire Saleh Abdullah Kamel.

In early October DeJoria got a particularly bad piece of news when the U.S. Court of Appeals for the Fifth Circuit made a ruling that helps pave the way for those antagonists to force DeJoria to pony up $123 million. That's the amount that a Moroccan court in 2009 ordered DeJoria to pay investors led by Maghreb Petroleum Exploration. Their claim: that DeJoria and American oilman Michael Gustin fraudulently misrepresented the likelihood of finding great gobs of oil at the Talsinnt prospect in the Atlas Mountains of Morocco.

"My clients were delighted with the 5th circuit's ruling," says Geoffrey Harrison, an attorney at Susman Godfrey who represented Maghreb.

They would have been more delighted with a giant oil field. In 2000, DeJoria's Lone Star Energy sold a roughly 50% stake in its Moroccan prospects to Moroccan royals and Kamel's Armadillo Holdings. It all looked rosy in August 2000 when King Muhammed, in a nationally televised speech, declared that "copious and high-quality oil" had been discovered at Talsinnt. Morocco's energy minister held a press conference with Gustin and DeJoria and said the find could hold 10 billion barrels, enough to satisfy Morocco for decades. The Moroccan stock market soared 10% on the news.

It's not clear where those big numbers came from, but they weren't real. Talsinnt turned out to have more like 65 million barrels -- little more than a dry hole.

In the fraud trial, DeJoria did not appear to defend himself. According to court documents he believed his life would be in danger if he returned to Morocco.

Fighting back against the Moroccan antagonists, DeJoria's former business partner Gustin in 2003 filed suit against them in U.S. court for $3 billion in damages claiming breach of contract, fraud, RICO violations and more. A U.S. district judge found the complaint so completely without merit that he sanctioned Gustin's companies and attorney $530,000 for bringing it at all.

In 2009 a Moroccan court found against DeJoria et al and entered a judgment for $123 million. DeJoria has been fighting it ever since. Most notably, his attorneys argued in U.S. District Court for the Western District of Texas last year that the judgment against him could not be enforced in Texas because it was "rendered under a system which does not provide ... procedures compatible with the requirements of due process of law."

That District court was convinced that the Moroccan legal system was not sufficiently fair and impartial, in part because of the king's hand in appointing and disciplining judges. It found that any judge presiding over the DeJoria case "would have had to ignore either an explicit or implicit threat to his career -- if not to his safety and well-being -- in order to find against" to Moroccan investors.

The appeals court saw it very differently. The panel of three appellate judges ruled unanimously that "Morocco's judicial system is 'fundamentally fair' and inoffensive to basic notions of fairness."

In their ruling they criticized DeJoria's arguments to the contrary. They were nonplussed that DeJoria didn't even try to defend himself in the Moroccan court despite the fact that his law firm (like many others) has offices in Casablanca: "Moroccan courts do not require that the defendant appear personally, and DeJoria could have litigated entirely through counsel without returning to Morocco."

Harrison questions DeJoria's legal strategy. "He did not avail himself of due process," he says. The appeals court found that the Moroccan judicial system was sufficiently fair that its judgment should be considered "conclusive" and "enforcable in the same manner as a judgment of a sister state that is entitled to full faith and credit."

It's an important ruling for Morocco, says Harrison. "This is a recognition that Morocco in the 21st century with a free trade agreement with the U.S. and one of the longest standing allies and with an active and progressive economy is very, very different from the few nations like Iran and Liberia from where judgement have not been recognized."

DeJoria, through a spokesperson, declined comment. DeJoria's lead attorney Brian Hurst, did not respond to multiple requests for comment.

So what happens next?

According to Harrison, DeJoria could request a new hearing before the judges of the appeals court. If he declines to do that the case would simply be remanded to the district court, which could then issue its judgement. An appeal to the U.S. Supreme Court would be unlikely considering that this is a question of how to interpret a Texas statute rather than the U.S. Constitution.

And who would get DeJoria's money? Harrison declined to say who are the majority owners of the companies he's representing. It's a good bet however that Saleh Kamel (net worth: $2.2 billion) would receive the lion's share. And how about Prince Alaoui of Morocco? He owns just .00026% of Maghreb Petroleum, according to Harrison. Out of a $123 million judgment, that prince could expect to get just $159.

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