K. Petroleum, Inc. v. Shepherd et al
Filing
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MEMORANDUM OPINION & ORDER: 1. Plaintiff KPI's Motion for Summary Judgment [R. 18 ] as to its claim for breach of contract/breach of warranty will remain pending for seven days following the date of entry of this order in order to allow KPI to supplement its motion with sufficient legal and factual support. If KPI does not file supplementary materials in that time, KPI's motion on this claim will be denied; 2. KPI's Motion for Summary Judgment as to its claim for fraud against Maudie Shepherd is DENIED; and 3. The dates for the Final Pretrial Conference and Jury Trial remain as scheduled [R. 10 ]. Signed by Gregory F. Van Tatenhove on 12/14/2012.(RBB)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
LONDON
K. PETROLEUM, INC.,
Plaintiff,
V.
MAUDIE SHEPHERD,
Defendant.
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Civil No. 11-108-GFVT
MEMORANDUM OPINION
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ORDER
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When Maudie Shepherd sold her natural gas rights almost ten years ago, K. Petroleum,
Inc. (KPI) thought it was purchasing a fee simple interest in those rights. Instead, KPI received a
life estate from Ms. Shepherd, then eighty-seven years old. That circumstance prompted this law
suit and KPI’s Motion for Summary Judgment. For the reasons set out below, that motion will
be DENIED IN PART.
I.
The facts of this case are largely matters of public record. Maudie Shepherd purchased
sixty-eight acres of real property in Clay County, Kentucky in 1971. [R. 19-1 at 1.] Maudie
leased the oil and gas production rights from that property during the mid-1980s, [R. 19-3 at 12]
and sold 2.78 acres of that tract of land to her son, Jimmy Shepherd, at some point before 1991.
[Id. at 13.] In 1991, Maudie conveyed the rest of the property at issue to Jimmy except that she
severed and reserved natural gas rights from the conveyance: “all of the right, title, and interest
in and to all natural gas in or under said property and any royalties therefrom for [Maudie’s] life,
with the remainder to vest in [Jimmy] immediately upon her death.” [Id. at 13.] Jimmy
predeceased Maudie, dying intestate in 1994 and passing the acreage and his future interest to
Jimmy Todd Shepherd, Raleigh P. Shepherd, and Whitney Shepherd Griffin. [R. 19-1 at 2.]
Maudie, meanwhile, retained her life estate in the property’s natural gas rights until 2003.
[R. 19-1 at 2.] At that time, Maudie contracted with KPI to sell rights to the natural gas in
exchange for a one-time payment of $17,000. Of no apparent import to KPI, Whitney Griffin
obtained title to the entire sixty-eight acres in 2006. [R. 19-1 at 2.] Whitney also acquired the
future interest in the property’s natural gas, though she was unaware at the time of purchase that
those rights had been severed.
Whitney’s lack of awareness of the severance led to a dispute with KPI, which resulted in
this action. After Whitney’s purchase, her attorney and KPI’s counsel began communicating
about a dispute involving a natural gas well on Whitney’s property. [R. 18-2 at 37; see also id. at
38-45.] Whitney believed she was owed royalties from KPI, [Id. at 43] and KPI contended it
owned all of the property’s mineral rights [Id. at 38.] In working to resolve that matter, close
examination of the relevant deeds took place and in 2010 Maudie’s clearly recorded reservation
was unearthed. [R. 18-2 at 37; R. 19-3 at 20-23.]
KPI’s two claims against Maudie arise from the deed conveyed by her to KPI and her
lack of disclosure that she could only convey a life estate. KPI alleges that Maudie violated the
deed conveying natural gas rights by granting interests she did not own. [R. 1 at 2.] For the
reasons outlined below, the Court will refrain from ruling on this claim and order KPI to engage
in additional briefing if it desires to pursue summary judgment. KPI also charges that Maudie
perpetrated a fraud on KPI. As to this claim, the Court will deny KPI’s motion.
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II.
A.
This action is in federal court on the basis of diversity jurisdiction, 28 U.S.C. § 1332.
Because Kentucky is the forum state, its substantive law will be used. Rawe v. Liberty Mut. Fire
Ins. Co., 462 F.3d 521, 526 (6th Cir. 2006) (citations omitted). However, federal procedural law
will be utilized, including in establishing the appropriate summary judgment standard. Weaver v.
Caldwell Tanks, Inc., 190 F. App’x 404, 408 (6th Cir. 2006).
Summary judgment is appropriate where “the pleadings, discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2); Celotex
Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). “A genuine dispute exists on a material fact, and
thus summary judgment is improper, if the evidence shows ‘that a reasonable jury could return a
verdict for the nonmoving party.’” Olinger v. Corp. of the President of the Church, 521 F. Supp.
2d 577, 582 (E.D. Ky. 2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986)). Stated otherwise, “[t]he mere existence of a scintilla of evidence in support of the
plaintiff’s position will be insufficient; there must be evidence on which the jury could
reasonably find for the plaintiff.” Anderson, 477 U.S. at 252.
The moving party has the initial burden of demonstrating the basis for its motion and
identifying those parts of the record that establish the absence of a genuine issue of material fact.
Chao v. Hall Holding Co., Inc., 285 F.3d 415, 424 (6th Cir. 2002). The movant may satisfy its
burden by showing “that there is an absence of evidence to support the non-moving party’s
case.” Celotex Corp., 477 U.S. at 325. Once the movant has satisfied this burden, the non3
moving party must go beyond the pleadings and come forward with specific facts to demonstrate
there is a genuine issue. Hall Holding, 285 F.3d at 424 (citing Celotex, 477 U.S. at 324). In
applying the summary judgment standard, the Court must review the facts and draw all
reasonable inferences in favor of the non-moving party. Logan v. Denny’s, Inc., 259 F.3d 558,
566 (6th Cir. 2001) (citing Liberty Lobby, 477 U.S. at 255).
B.
KPI is the moving party and therefore bears the burden of presenting adequate evidence
in support of the claim on which it seeks judgment. Chao, 285 F.3d at 424. But evidence can
only be determined to be adequate and useful when it is put in context by a particular claim.
Maudie’s Response indicates there is confusion about the breach of contract/breach of
warranty claim KPI is attempting to assert. [Compare R. 19-1 at 4 and id. at 3.] Maudie believes
the issue of contract ambiguity may be pertinent, but Maudie also discusses breach of the general
warranty contained in the deed. This confusion is justified because KPI fails to outline the claim
it is pursuing. No case is cited laying out a claim’s elements. In fact, no substantial legal
argument about the basis for this breach claim exists. In KPI’s motion, the legal analysis
consists of a declaration: “Plaintiff was deceived by Defendant Maudie Shepherd who sold
Plaintiff a mineral estate that she had previously conveyed, subject only to her life estate.” [R.
18-1 at 5.] In KPI’s Reply, another attempt at legal argument is presented, but the argument’s
essence is that KPI would never pay $17,000 to an eighty-seven year-old woman for mineral
rights that lapse at her death. [R. 20 at 1.] Because such a thing would be “patently
preposterous,” [id.] entering into such a contract could never be KPI’s intent. [Id.]
KPI bypassed legal analysis in favor of discussing the damages it claims it is owed. But
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damages are only owed upon a finding that one has committed a legal wrong. In spite of KPI’s
cursory argument, denying its motion is imprudent. This is because the issue in need of
resolution will most likely be an issue of contract interpretation, and “the construction and
interpretation of a contract, including questions regarding ambiguity, are questions of law to be
decided by the court.” Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99, 105 (Ky. 2003).
Consequently, outright denying KPI’s motion may just delay resolving this issue until even
closer to trial—a detrimental outcome for all.
The Court therefore orders that KPI must supplement its motion with proper legal and
factual support within seven days of the date of entry of this order or the Court will deny its
motion as to this claim. If KPI files a supplementary brief, Maudie will be given seven days
from the date of KPI’s filing to respond.
C.
KPI’s remaining claim is that Maudie committed a fraud on KPI. The evidence of fraud
is that Maudie possessed a life estate but purported to sell KPI a fee simple. KRS § 381.150
states that when this situation arises, the purchaser only receives the seller’s actual interest,
meaning KPI paid a fee simple price for a life estate interest.
Maudie argued against KPI’s claim on two grounds: first, she claimed that the applicable
statute of limitations barred this claim; second, Maudie contended that KPI failed to carry its
burden of showing there was no genuine issue of a material fact. Maudie’s first argument is
misplaced, and this claim is timely. However, KPI’s motion is still denied because it has not
carried its burden.
Ky. Rev. Stat. (KRS) § 413.120(12) sets the statute of limitations for fraud claims at five
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years. Under that rule, KPI’s limitations period would have expired in 2008. However, as KPI
noted, KRS § 413.130(3) provides a safety valve, dictating that the statute of limitations on a
fraud claim does not accrue until the fraud is discovered, with the caveat that “the action shall be
commenced within ten (10) years after the time of making the contract or the perpetration of the
fraud.” The underlying contract was entered into in 2003, but the cause of action did not accrue
until 2010, and this action was filed in 2011. Consequently, the statute of limitations does not
impact this claim.
A fraud claim in Kentucky has six elements that must be proven by clear and convincing
evidence: (1) a material representation; (2) which is false; (3) which is known to be false or made
recklessly; (4) made with inducement to be acted upon; (5) acted in reliance thereon; and (6)
causing injury. Yeager v. McLellan, 177 S.W.3d 807, 809-10 (Ky. 2005) (citation omitted).
Significant questions persist about at least one of these elements, especially when viewed in the
light most favorable to Maudie, and so KPI’s motion will be denied.
The representation on which this claim is based is that Maudie purported to convey a fee
simple yet only owned a life estate. KPI’s fraud claim fails because it has not introduced any
evidence showing that Maudie made that representation to induce KPI to act. In other words,
there has been no suggestion that Maudie believed KPI would only be interested in purchasing
her rights if she could convey a fee simple. If Maudie did not know that, then the fact that she
possessed a life estate but attempted to convey a fee simple demonstrates mistake or perhaps
confusion. Her motives might have been nefarious, and additional evidence may show that, but
that evidence is not currently before the Court. Because KPI did not prove this element, its
summary judgment argument must be denied.
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III.
Accordingly, and the Court being sufficiently advised, it is hereby ORDERED as
follows:
1.
Plaintiff KPI’s Motion for Summary Judgment [R. 18] as to its claim for breach
of contract/breach of warranty will remain pending for seven days following the date of entry of
this order in order to allow KPI to supplement its motion with sufficient legal and factual
support. If KPI does not file supplementary materials in that time, KPI’s motion on this claim
will be denied;
2.
KPI’s Motion for Summary Judgment as to its claim for fraud against Maudie
Shepherd is DENIED; and
3.
The dates for the Final Pretrial Conference and Jury Trial remain as scheduled [R.
10].
This 14th day of December, 2012.
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