KJBJ, LLC et al v. Enervest Operating, LLC
Filing
17
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS' MOTION TO REMAND (DKT. NO. 9 ) AND DENYING AS MOOT THE MOTION FOR JURISDICTIONAL DISCOVERY (DKT. NO. 10 ). Signed by District Judge Irene M. Keeley on 6/27/16. (mh)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
KJBJ, LLC,
KENNETH L. POTE, and
JEANNE POTE,
Plaintiffs,
v.
//
CIVIL ACTION NO. 1:16CV55
(Judge Keeley)
ENERVEST OPERATING, LLC,
Defendant.
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
On February 24, 2016, KJBJ, LLC, Kenneth L. Pote, and Jeanne
Pote (collectively, “the plaintiffs”), filed suit against defendant
EnerVest Operating, LLC (“EnerVest") in the Circuit Court of
Harrison County, West Virginia (Dkt. No. 1-1 at 9).
EnerVest
removed the case to this Court on March 31, 2016 (Dkt. No. 1),
invoking this Court's diversity jurisdiction pursuant to 28 U.S.C.
§ 1332.
Contending that EnerVest is a West Virginia citizen, the
plaintiffs filed a motion to remand on April 29, 2016 (Dkt. No. 9),
and also filed a motion in the alternative seeking jurisdictional
discovery (Dkt. No. 10).
80–81 (2010).
See Hertz Corp. v. Friend, 559 U.S. 77,
The question presented is whether EnerVest’s nerve
center, and therefore its principal place of business, is in
Houston, Texas, or Charleston, West Virginia. As discussed below,
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
the Court concludes that EnerVest’s nerve center is located in
Houston, Texas.
BACKGROUND
Plaintiffs Kenneth and Jeane Pote are residents of Aurora,
Colorado.
Together with KJBJ, they acquired working interests and
overriding royalty interests in forty-three (43) West Virginia
wells and four (4) Pennsylvania wells (Dkt. No. 1-1 at 9).
Those
wells were originally operated by Ranger Petroleum, Ltd. and
Interstate
Drilling,
Inc.,
neither
of
which
had
agreements permitting increases in well tending fees.
Ranger merged with Interstate in 1987.
In
approximately
2002,
EnerVest
operating
Id. at 10.
Id.
acquired
Interstate
and
assumed the right to operate approximately 150 of Interstate’s
wells.
Id.
The plaintiffs allege that, since 2002, in an effort
to generate revenue, EnerVest has improperly increased well tending
fees by 10% annually, resulting in a charge of excessive well
tending fees and leasehold operating costs to working interest
owners.
Id.
Allegedly, EnerVest has operated the wells “in an uneconomic
way by failing to lock in gas prices” even though it knew that this
practice was essential to maximize the working interest owners’
2
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
returns
and
to
avoid
excessive
expenses.
Id.
at
11.
The
plaintiffs also allege that EnerVest did not communicate with them
about negative cash flow.
Similarly, they complain that EnerVest
failed to suggest ways to improve production and net income, reduce
expenses, and close unproductive wells to avoid future losses. Id.
They
conclude
that
EnerVest
intends
unwarranted costs against the wells.
to
continue
charging
Id.
The plaintiffs first became aware of EnerVest’s wrongful
conduct on February 27, 2014.
Id. at 11.
February 24, 2016 (Dkt. No. 1-1 at 9).
This lawsuit followed on
The complaint alleges six
counts, including gross negligence, breach of contract, breach of
the contractual duty of good faith and fair dealing, breach of
fiduciary duty, fraud, and a demand for an accounting (Dkt. No. 1-1
at 12-15)
EnerVest removed the case on March 31, 2016, invoking this
Court’s diversity jurisdiction pursuant to 28 U.S.C. § 1332 (Dkt.
No. 1 at 3).
at 2.
Kenneth and Jeane Pote are citizens of Colorado.
Id.
KJBJ is a Colorado limited partnership, of which the Potes
are believed to be members.
Id.
EnerVest is a Delaware limited liability company with three
members,
EnerVest,
Ltd.,
EnerVest
3
Advisors,
Ltd.,
and
Jones
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
Enervest, Ltd., all of which are Texas limited partnerships.
at 2-3.
Id.
EnerVest attached to its notice of removal the affidavit
of Fabené J. Welch (“the Welch affidavit”), Senior Vice President,
General Counsel and Secretary of EnerVest Employee Services, LLC,
which provides all employee services for EnerVest (Dkt. No. 1-2).
In
her
affidavit,
Welch
avers
that
EnerVest’s
corporate
headquarters and nerve center are located in Houston, Texas.
Id.
The plaintiffs allege that EnerVest is a West Virginia citizen
and contend that EnerVest removed the case improperly (Dkt. No. 9).
Based on the Welch affidavit, however, EnerVest contends that its
nerve center is located in Houston, Texas (Dkt. No. 11).
For the following reasons, the Court concludes that EnerVest's
nerve center is located in Texas, not in West Virginia. Therefore,
because
the
parties
are
completely
diverse,
it
DENIES
the
plaintiffs’ motion to remand (Dkt. No. 9), and DENIES AS MOOT their
motion for jurisdictional discovery (Dkt. No. 10).
APPLICABLE LAW
The district court has original jurisdiction of civil actions
between
citizens
of
different
controversy exceeds $75,000.
states
where
the
amount
28 U.S.C. § 1332(a)(1).
4
in
To be a
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
“citizen” of a state, a natural person must be both a citizen of
the United States and be domiciled within the state. Newman-Green,
Inc. v. Alfonzo-Larrain, 490 U.S. 826, 828 (1989).
A person is
domiciled in a state where he is physically present and intends to
remain.
Miss. Band of Choctaw Indians v. Holyfield, 490 U.S. 30,
48 (1989).
An unincorporated association, including an LLC, is a citizen
of the state where it has its principal place of business and the
state under whose laws it is organized.
28 U.S.C. § 1332(d)(10).
An LLC is also assigned the citizenship of each of its members.
Gen. Tech. Applications, Inc. v. Exro Ltda, 388 F.3d 114, 120 (4th
Cir. 2004).
“nerve
An organization’s principal place of business is its
center,”
headquarters.
which
is
ordinarily
See Hertz, 559 U.S. at 95.
the
organization’s
The nerve center is the
“place where the corporation’s high level officers direct, control,
and coordinate the corporation’s activities.”
Id. at 80–81, 97.
When a federal court’s original jurisdiction is premised on
diversity of citizenship, a defendant who is not a citizen of the
state in which a state court action is filed may remove that action
to
a
federal
district
court
that
5
would
have
had
original
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
jurisdiction over the case when it was first filed.
28 U.S.C. §
1441(a), (b).
Removal statutes are strictly construed against the party
seeking removal, and the burden of establishing jurisdiction rests
on the removing party.
Mulcahey v. Columbia Organic Chem. Co.,
Inc., 29 F.3d 148, 151 (4th Cir. 1994).
removal
challenges
allegations
of
When the party opposing
jurisdictional
facts,
the
removing party must support its allegations by competent proof.
Hertz, 559 U.S. at 97 (citing McNutt v. Gen. Motors Acceptance
Corp., 298 U.S. 178, 189 (1936)).
preponderance of the evidence.”
“This proof must be by a
Asbury-Castro v. GlaxoSmithKline,
Inc., 352 F. Supp. 2d 729, 731 (N.D.W. Va. Jan. 19, 2005) (Stamp,
J.).
ANALYSIS
The sole issue in dispute is whether EnerVest’s nerve center,
and thus its principal place of business, is in West Virginia or
Texas.
If EnerVest is a citizen of Texas, complete diversity
exists. On the other hand, if EnerVest is a West Virginia citizen,
diversity jurisdiction is lacking and the Court must remand the
case.
6
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
The
plaintiffs
challenge
EnerVest’s
assertion
that
its
corporate headquarters/nerve center is located in Texas (Dkt. No.
9 at 4). They categorize the Welch affidavit as “self-serving” and
argue that the West Virginia Secretary of State’s designation of
EnerVest’s address is insufficient to establish jurisdiction.
at 4–5.
Id.
They direct the Court’s attention to EnerVest’s website,
which allegedly identifies EnerVest, Ltd., as the entity located in
Texas, and EnerVest Operating as the entity headquartered in
Charleston, West Virginia. Id. at 5. According to the plaintiffs,
the telephone provided on EnerVest’s website connects to the
Charleston, West Virginia, office.
Id.
EnerVest asserts that the Welch affidavit establishes that the
high-level officers who direct and control EnerVest are located in
Texas, and only one corporate officer resides in West Virginia
(Dkt. No. 11 at 2). According to Welch, the corporate headquarters
of EnerVest are located in Texas; only the eastern headquarters are
located in West Virginia.
Id.
EnerVest further argues that the
majority owners conduct operations from Texas, board meetings occur
there, and day-to-day operations and decision-making activities all
take place in Texas.
Id. at 3.
7
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
As a first step in its analysis, the Court rejects the
plaintiffs’
contention
that
an
affidavit
by
a
high-ranking
corporate officer is insufficient to establish the location of
EnerVest’s nerve center.
See Dkt. No. 9 at 4, 6 (repeatedly
characterizing the Welch affidavit as “self-serving”).
In Hertz,
the Supreme Court of the United States relied on similar affidavits
to vacate a judgment of the Ninth Circuit holding that Hertz’s
principal place of business was in California. 559 U.S. at 81 (“To
support its position, Hertz submitted a declaration by an employee
relations manager . . . .”).
The Fourth Circuit also has relied on
similar affidavits to determine a corporation’s principal place of
business.
See Hoschar v. Appalachian Power Co., 739 F.3d 163,
167–68 (4th Cir. 2014) (relying on the deposition testimony and
affidavit of a high-level manager in a corporation to determine
jurisdiction).
This Court therefore finds it proper — and indeed,
necessary — to consider the Welch affidavit.
That affidavit reflects that EnerVest is headquartered in
Houston, Texas, as per the West Virginia Secretary of State’s
Designated Office Address and Principal Office Address (Dkt. No. 12 at 3).
are
It explains that, while EnerVest’s eastern headquarters
located
in
Charleston,
West
8
Virginia,
its
corporate
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
headquarters are situated in Houston, Texas.
Id.
Critically, it
specifies that the high-level management of EnerVest, including its
President and Chief Executive Officer, Executive Vice President,
and Chief Operating Officer, maintain their principal offices in
and manage the company from Texas.
Id.
Although Barry Lay, a
Senior Vice President and the General Manager of Appalachia North,
maintains his principal office in Charleston, one function of his
job relates to the business of the company in that region.
Similarly,
other
regional
respective regions.
Id.
managers
maintain
offices
in
Id.
their
As do the other regional managers, Mr.
Lay reports to senior management in Texas and does not direct or
supervise activities in other regions or in Texas.
Id. at 4.
The Welch affidavit also explains the corporate structure of
EnerVest. EnerVest’s parent company, EnerVest, Ltd., maintains its
principal office in Houston, Texas, as well.
Id. at 4.
EnerVest,
Ltd. also holds its board of director meetings in Texas and
conducts day-to-day operations from Texas.
Id.
Under Hertz, a court must ask where “high level officers
direct, control, and coordinate the corporation’s activities.”
Hertz, 559 U.S. at 80. In post-Hertz cases, the Fourth Circuit has
directed
district
courts
to
focus
9
on
the
location
where
a
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
corporation
actually
directs,
controls,
and
coordinates
its
activities, and to consider where high-level executives work and
management makes significant corporate decisions.
Hoschar, 739
F.3d at 172.
On
the
other
hand,
the
Fourth
Circuit
has
also
found
inconsequential the fact that a parent company maintains its
headquarters at the same location as a subsidiary, noting that
courts must focus on the location of direction, control, and
coordination of the subsidiary.
Id. at 173, n.4.
In that regard,
it has rejected as insufficient corporate filings with the State of
West Virginia listing the state where a corporation has its
principal place of business. Central W. Va. Energy Co. v. Mountain
State Carbon, LLC, 636 F.3d 101, 105 (4th Cir. 2011).
case,
the
Fourth
Circuit
disregarded
the
In that
location
of
a
corporation's day-to-day operations, and instead focused on where
corporate direction and control were located within a company. Id.
at 105–07.
After carefully considering the evidence of record, the Court
concludes,
because
its
high-level
officers
direct
corporate
business from Houston, Texas, EnerVest’s nerve center is located
there.
Although the Welch affidavit discusses at length how the
10
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
Texas office conducts the day-to-day operations of EnerVest, under
Hoschar and Mountain State Carbon that consideration is irrelevant.
What is significant is the fact that the high-level management of
EnerVest directs and supervises the company from its Texas office
(Dkt. No. 1-2 at 3–4).
Because the West Virginia office only
oversees the day-to-day management of the Appalachia North region,
it is analogous to the situation in Hoschar, where the Fourth
Circuit rejected the notion that “day-to-day operations and public
interface” indicate a corporation’s nerve center.
F.3d at 172.
Hoschar, 739
Although the West Virginia Secretary of State’s
designation, standing alone, is insufficient to establish this
Court’s jurisdiction, it does bolster the conclusion that Houston,
Texas, is EnerVest’s nerve center.
short,
EnerVest
has
established,
See Hertz, 559 U.S. at 97.
by
a
preponderance
of
In
the
evidence, that its nerve center, and therefore its principal place
of business, is located in Houston, Texas.1
1
EnerVest’s Operating’s website, which states that its
“Eastern Headquarters” is in Charleston while “EnerVest, Ltd.” has
its “Corporate Headquarters” in Houston, does not change the
Court’s conclusion (Dkt. No. 1-2 at 10). As in Hoschar, the Court
must consider where the “headquarters-type” decisions occur, and
not merely labels on websites. 739 F.3d at 173. These decisions
clearly emanate from Houston.
11
KJBJ, LLC et al. V. ENERVEST OPERATING, LLC
1:16CV55
MEMORANDUM OPINION AND ORDER DENYING THE PLAINTIFFS’
MOTION TO REMAND [DKT. NO. 9] AND DENYING AS MOOT THE
MOTION FOR JURISDICTIONAL DISCOVERY [DKT. NO. 10]
For all of the reasons discussed, the Court
DENIES
the
plaintiffs’ motion to remand (Dkt. No. 9), and DENIES AS MOOT their
motion for jurisdictional discovery (Dkt. No. 10).
It is so ORDERED.
The Court DIRECTS the Clerk to transmit copies of this Order
to counsel of record.
DATED:
June 27, 2016.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
12
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