Henley Mining, Inc. v. Parton

Filing 15

MEMORANDUM OPINION & ORDER 7 MOTION to Dismiss by David E. Parton : The Court hereby ORDERS Defendant David E. Partons Motion to Dismiss [R. 7] is DENIED. Signed by Judge Gregory F. VanTatenhove on 3/26/19.(SYD)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
LONDON

HENLEY MINING,

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INC., Plaintiffs,
V.
DAVID E. PARTON,
Defendant.

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Civil No: 6:17-cv-00092-GFVT

MEMORANDUM OPINION
&
ORDER

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This Court recently granted Plaintiff Henley Mining’s Motion to Reconsider [R. 11] the
Court’s earlier order invoking Burford abstention. Now, the Court turns to the motion from
which it previously abstained: Defendant David E. Parton’s Motion to Dismiss. [R. 7.] For the
following reason, the motion is DENIED.
I
Defendant David Parton and his two brothers were equal owners and directors in three
corporations: Parton Bros. Contracting, Inc.; Bud Equipment, Inc.; and Pine Mtn. Security, Inc.
[R. 7-1 at 2.] On or around March 2015, David Parton and his brothers closed and consolidated
their businesses into Henley Mining, Inc. [R. 7-1 at 2.] The Parton brothers partially dissolved
certain corporations by distributing, “a substantial portion of the Corporations’ cash and
distribution in-kind of certain assets to Defendant and the Brothers.” Id. Mr. Parton strongly
disagreed with merging the corporations into Henley Mining and registered his dissenting vote at
a Special Shareholders Meeting in October 2016. Id. After the merger, the Corporations paid

Mr. Parton what they considered an accurate amount of money pursuant to the Dissenters’ Rights
Statute, but Mr. Parton challenged the amount owed to him. Id.
Henley Mining, Inc. filed a Complaint in diversity in this Court seeking a determination
of fair value pursuant to Kentucky’s Dissenters’ Rights Statutes. See Ky. Rev. Stat. Ann.
§271B.13-010. In May, 2017, Mr. Parton filed a motion to dismiss the case on the grounds that
this Court lacked subject matter jurisdiction. [R. 7.] After considering the motion, applicable
law, and the arguments of the parties, the Court elected to abstain from hearing the controversy,
invoking the doctrine of Burford abstention. [R. 10.] Henley Mining moved this Court to
reconsider its previous ruling, on the grounds that the Court made a clear error of law. [R. 11.]
The Court granted that motion [R. 14], and now turns again to the Motion to Dismiss.
II
A
Motions to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) come
in two varieties: a facial attack or a factual attack. Gentek Bldg. Prods., Inc., v. SherwinWilliams Co., 491 F.3d 320, 330 (6th Cir. 2007). A facial attack “questions merely the
sufficiency of the pleading.” Id. When a motion raises a facial attack, the Court must accept all
the “allegations in the complaint as true,” and “if those allegations establish federal claims,
jurisdiction exists.” Id. On the other hand, a factual attack is “not a challenge to the sufficiency
of the pleading’s allegations, but a challenge to the factual existence of subject matter
jurisdiction.” United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994). When the 12(b)(1)
motion factually attacks subject matter jurisdiction, “no presumptive truthfulness applies to the
allegations,” and the court “must weigh the conflicting evidence to arrive at the factual predicate
that subject-matter does or does not exist.” Gentek Bldg. Prods., Inc., 491 F.3d at 330. All of

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Defendants’ 12(b)(1) arguments are properly analyzed below as factual attacks on subject matter
jurisdiction.
B
It is a longstanding truism that federal laws are “the supreme Law of the land; . . . any
Thing in the Constitution or Laws of any state to the Contrary notwithstanding.” Altria Group,
Inc. v. Good, 555 U.S. 70, 76 (6th Cir. 2008) (quoting U.S. Const., Art. VI, cl. 2). Consistent
with the Supremacy Clause, federal jurisdiction prevails over conflicting state forum provisions.
See Fidelity Federal Sav. And Loan Ass’n v. de la Cuesta, 458 U.S. 141, 152–53, 102 S. Ct.
3014, 73 L. Ed. 2d 664 (1982). As stated in Farm Bank v. Reardon, “[c]onflict preemption
occurs where compliance with both federal and state regulations is a physical impossibility, or
where state law stands as an obstacle to the accomplishment and execution of the full purposes
and objectives of Congress.” State Farm Bank v. Reardon, 539 F.3d 336, 342 (6th Cir. 2008)
(quoting Gade v. Nat’l Solid Wastes Mgmt. Ass’n, 505 U.S. 88, 89, 112 S. Ct. 2374, 120 L. Ed.
73 (1992)).
1
The Court exercises diversity jurisdiction over this matter pursuant to 28 U.S.C. § 1332.
This Court has original “diversity” jurisdiction over all civil actions when “the matter in
controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and the dispute
is between” those who are “citizens of different states.” 28 U.S.C. § 1332(a)(1). The parties do
not dispute that they are diverse or that the amount in controversy requirement is met.
Nevertheless, Mr. Parton argues that this Court lacks subject matter jurisdiction to hear
this case because “[t]he Dissenter’s Rights Statute is clear that a corporation’s petition for
determination of the fair value of its shares must be filed ‘in the Circuit Court of the county

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where a corporation’s principal office . . . is located.’” [R. 7-1 at 4 (citing K.R.S. § 271B13300(2)).] For Henley Mining, that means Bell County, Kentucky. The Dissenter’s Rights
Statutes include the proviso that the circuit court of the county in which a corporation has its
principal office shall have “plenary and exclusive” jurisdiction over dissenter’s rights actions
involving that corporation. K.R.S. § 271B.13-300(4). For these reasons, Mr. Parton believes that
Bell Circuit Court—and only Bell Circuit Court—has jurisdiction over this case. Therefore, the
issue is whether federal diversity jurisdiction must cede to the “plenary and exclusive” language
of Kentucky’s Dissenter’s Rights statutes. The Court finds that it must not.
Generally speaking, “[j]urisdiction is created by the law of the court’s creating and
cannot be defeated by the extraterritorial operation of a [state] statute . . ., even though it created
the right of action.” Marshall v. Marshall, 547 U.S. 293, 314 (2006). Diversity jurisdiction is
authorized by 28 U.S.C. § 1332, a federal statute. The Kentucky legislature’s inclusion of the
“plenary and exclusive” language in the dissenter’s right statute directly infringes upon the
Court’s congressionally authorized diversity jurisdiction. The Supremacy Clause mandates that
it must yield to the federal statute. While there are exceptions to this general rule, the Court can
find, and the parties have not referenced, any exception that would apply here.
2
Mr. Parton’s second argument is that federal courts lack subject matter jurisdiction over
this proceeding because it is administrative in nature. In support of this proposition he cites
Ackermann Enters v. City of Bellevue. Ackermann v. City of Bellvue, 2016 U.S. Dist. LEXIS
127198 (E.D. Ky. Sept. 19, 2016).
The Plaintiff in Ackermann brought, among other things, an inverse condemnation claim
against the state of Kentucky. The Court in Ackermann declined to exercise diversity

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jurisdiction over Plaintiff’s inverse-condemnation claim not because it was “administrative in
nature,” but because his claim was not ripe for federal review. Ackermann v. City of Bellevue,
2016 U.S. Dist. LEXIS 127198, *21. In reaching its conclusion, the Court in Ackermann applied
the rationale of Williamson, which holds “‘[i]f the [state] government has provided an adequate
process for obtaining compensation,’ then a landowner ‘has no claim against the government for
a taking.’” Id. at * 25 (quoting Williamson Cty. Reg’l Planning Comm’n v. Hamilton Bank of
Johnson City, 473 U.S. 172, 194–95 (1985)). In Kentucky, where Ackermann’s land was
situated, the process provided was a cause of action for inverse condemnation. Ackermann, 2016
U.S. Dist. LEXIS 127198 at *27. Put differently, because Ackermann’s alleged injury was a
taking without just compensation, Ackermann had to first seek compensation before bringing his
claim to federal court. The Court in Ackermann pointed out that often states form land-use
agencies to handle these types of matters. Id. at *29. Just because Kentucky has not formed
such an agency and instead requires landowners to file an inverse condemnation claim in state
court does not mean they may skip over that step and initiate litigation in federal court. Id. In
other words, because Kentucky had neither compensated Ackermann for the taking, nor refused
to do so, his claim was not ripe for federal review.
All of that to say, what occurred in Ackermann is entirely dissimilar from the case at
hand. The logic employed by the Court in Ackermann does not apply here. If the state court,
hearing Mr. Parton’s dissenter’s rights claim, ruled against him, he could not then assert his
dissenter’s rights in federal court. In contrast, had Ackermann not received just compensation
via Kentucky’s compensation procedures, he could have asserted his claim in federal court as a
violation of his Fifth Amendment rights. Ackermann, 2016 U.S. Dist. LEXIS 127198 at * 30
(“After following the designated state procedures, a landowner can come to court arguing that

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those procedures ‘fail[ed] to provide [him] adequate compensation’ and thus violated the Firth
Amendment.”) (quoting Williamson, 473 U.S at 195.))
Thus, Ackermann does not support Mr. Parton’s proposition that proceedings brought
pursuant to Kentucky’s dissenter’s rights statutes are administrative in nature and in fact has no
bearing on this case. Furthermore, while Kentucky’s courts have only been tasked with
resolving dissenter’s rights controversies a handful of times, a survey of those cases furnishes no
evidence that anyone involved considered the proceedings to be merely administrative. See
Shawnee Telecom Res., Inc. v. Brown, 354 S.W.3d 542 (Ky. 2011); Brooks v. Brooks Furniture
Mfgr., Inc., 325 S.W.3d 904 (Ky. App. 2010); Ford v. Courier-Journal Job Printing Co., 639
S.W.2d 553 (Ky. App. 1982) (interpreting an earlier version of Kentucky’s dissenter’s rights
statutes).
III
For the foregoing reasons, and being otherwise sufficiently advised, the Court hereby
ORDERS Defendant David E. Parton’s Motion to Dismiss [R. 7] is DENIED.
This the 26th day of March, 2019.

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