Estate fight threatens to divide San Juan Basin oil company

Steve Garrison The Daily Times
The Daily Times

AZTEC — At least $50 million in assets is in dispute in a San Juan County probate case involving oil company Dugan Production Corp.

The assets belonged to Sherman Edward Dugan, co-owner of Dugan Production and son of the company's founder, Tom Dugan.

Sherman Dugan died on Dec. 21, 2013, from complications related to diabetes, according to court records. He was 59.

In May, Sherman Dugan's wife of 12 years, Sally Dugan, filed a petition against her husband's estate, claiming she was denied her fair share of his wealth by Sherman Dugan's son from a previous marriage, Sean Dugan.

Sally Dugan claimed in the petition that she was entitled to a community property interest in the estate, which includes part-ownership of Dugan Production Corp.

Sally Dugan estimates the estate is worth at least $50 million and potentially hundreds of millions of dollars more than that.

In court documents, Sean Dugan denied that Sally Dugan was entitled to a portion of the estate. He argued in documents that it violated his father's will, which directed that Sally Dugan receive $1 million.

According to the will, Sherman Dugan's interest in the family oil company was to be allocated to his children: 75 percent to Sean Dugan and 25 percent to his daughter, Megan Dugan.

In response, Sally Dugan amended her petition in October and accused Sean Dugan of conspiring with his grandfather, Tom Dugan, to hide assets through an "estate scheme."

She claims Tom and Sean Dugan convinced a heavily medicated and hospitalized Sherman Dugan to sign documents that transferred ownership of his assets to various shell entities owned by the Dugan family.

She claimed in the petition that Sherman Dugan was "dominated" by his father throughout his life, and both his son and father were mostly absent before his death.

Sally Dugan also argued that various documents signed by her husband throughout their marriage, including an amendment to their prenuptial agreement, indicated he believed they jointly owned his assets.

Albuquerque attorney Karl Roepke is representing Sally Dugan in the case. He said Sally and Sherman Dugan were high school sweethearts who reunited later in life and decided to marry in May 2001.

"The Dugan family is attempting to reverse Sherman's true wishes and the choices he made in his life with Sally," Roepke said. "In our view, in the last couple years of Sherman's life, they took advantage of Sherman's mental and physical impairment."

Sean and Tom Dugan have denied the allegations in court filings and countersued Sally Dugan, claiming her petition is brought in "bad faith" and meant solely to disparage the Dugan family.

They further alleged that Sally Dugan provided prescription drugs to her husband while he was hospitalized that were against his doctor's wishes.

They have requested that district court Judge Daylene Marsh deny Sally Dugan any part of her husband's estate.

Tom Dugan referred questions to Albuquerque attorney Bill Chappell.

Chappell declined to comment on the case, but said he is prepared for trial, scheduled to begin Nov. 2.

Attorney James Boone is representing Dugan Production Corp. in the court case. He did not respond to a request for comment.

The conflict over how to equitably divide the late Dugan's estate is complicated by the family's deep ties in the community.

According to court records, three district judges recused themselves from the case because of conflicts of interest, and a fourth judge was excused before Marsh was assigned the case.

Roepke said he believes Marsh is doing a good job, but "whether we stay in San Juan, that is a question down the road."

According to Daily Times archives, Dugan Production Corp., which employs 150 people and controls about 1,000 wells in the area, is one of the San Juan Basin's largest independent natural gas producers.

Sherman Dugan inherited part-ownership of the company from his 89-year-old father, who founded Dugan Production Corp. in 1959.

Sherman Dugan was actively involved in managing the company until his health deteriorated as a result of his illness, according to court records.

Steve Garrison covers crime and courts for The Daily Times. He can be reached at 505-564-4644 and Follow him on Twitter @SteveGarrisonDT on Twitter.