Kahle et al v. Chesapeake Energy Corporation et al
Filing
22
MEMORANDUM OPINION AND ORDER Denying Plas' 13 Motion For Remand And LIFTING STAY Signed by Senior Judge Frederick P. Stamp, Jr on 6/3/11. (mji)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
MELVIN W. KAHLE, JR. and
CAROL KAHLE,
Plaintiffs,
v.
Civil Action No. 5:11CV24
(STAMP)
CHESAPEAKE ENERGY CORPORATION,
CHESAPEAKE APPALACHIA, LLC,
KEVIN SWIGER and
STATOIL USA ONSHORE PROPERTIES, INC.,
Defendants.
MEMORANDUM OPINION AND ORDER
DENYING PLAINTIFFS’ MOTION FOR REMAND AND LIFTING STAY
I.
Procedural History
The plaintiffs, Melvin W. Kahle, Jr.. and Carol Kahle, filed
this declaratory judgment action in the Circuit Court of Ohio
County, West Virginia on January 14, 2011.
The plaintiffs seek a
declaratory judgment that the defendants do not have the right to
enter or drill upon their property and that both the May 15, 2006
oil and gas Lease signed by the Kahles and Range ResourcesAppalachia, LLC (“Lease”) and the alleged assignment of the Lease
to
Chesapeake
Appalachia,
LLC
(“Chesapeake”)
and
Statoil
USA
Onshore Properties, Inc. (“Statoil”) be declared null and void.
The complaint includes a stipulation by the plaintiffs regarding
the
amount
in
controversy.
Specifically,
the
plaintiffs
acknowledge that they will neither seek nor accept damages in this
matter in excess of $75,000.00, excluding any award that may be
made for attorney fees.
Despite this stipulation, the defendants
removed the case to this Court on February 14, 2011.
On February 22, 2011, defendants Chesapeake Energy Corporation
(“Chesapeake Energy”) and Kevin Swiger filed a motion to dismiss
the complaint.
In support of this motion, the defendants argue
that neither Mr. Swiger nor Chesapeake Energy are parties to the
Lease
and
complaint.
there
are
no
claims
asserted
against
them
in
the
Before the motion to dismiss was fully briefed, the
plaintiffs filed a motion for a stay of briefing pending a decision
on their motion for remand, which had not yet been filed.
10,
2011,
the
plaintiffs
filed
their
motion
for
On March
remand.
Subsequently, the defendants filed a response to the motion for a
stay of briefing, as well as a response to the motion for remand.
The
plaintiffs
then
filed
timely
replies
to
both
of
these
responses.
This Court issued an order on March 30, 2011 granting the
plaintiffs’ motion for a stay pending a decision on the motion for
remand.
Accordingly, all briefing deadlines and proceedings in
this case are currently stayed.
The motion for remand is pending
before this Court and is ripe for disposition. Having reviewed the
parties’ pleadings and the relevant law, this Court finds that the
plaintiffs’ motion for remand must be denied.
2
II.
Facts1
On May 15, 2006, the plaintiffs entered into the Lease with
Great Lakes Energy Partners, LLC (“Great Lakes”), a wholly owned
subsidiary of Range Resources Corporation that later changed its
name to Range Resources-Appalachia, LLC (“Range”).
The Lease does
not grant Range the authority to sell or assign it. The plaintiffs
allege that Range orally agreed to terminate/surrender the Lease,
and then on August 20, 2010, Range confirmed the termination of the
Lease in writing via a letter to the Kahles.
After the plaintiffs
received the letter from Range, Chesapeake and/or Chesapeake Energy
informed them that it had acquired the Lease. On October 18, 2010,
the defendants2 issued a notice of entry that they would be
entering the plaintiffs’ land.
Kevin Swiger, Chesapeake Energy’s
senior field representative, allegedly physically entered the
plaintiffs’ land despite being told that the Lease had been
terminated.3
The plaintiffs also learned that Chesapeake had
applied for a permit to drill on the plaintiffs’ property beginning
in
December
2010.
According
to
the
plaintiffs,
Chesapeake
Appalachia, Chesapeake Energy, and Statoil could not have acquired
1
For the purposes of this opinion, this Court adopts, for the
most part, the facts as set forth by the plaintiffs in their
complaint.
2
The complaint does not specify which defendants issued the
notice of entry.
3
This fact does not appear in the complaint, but is stated in
the plaintiffs’ motion for remand.
3
an existing Lease from Range because Range had terminated the Lease
with the Kahles as of August 20, 2010.
III.
Applicable Law
A defendant may remove a case from state court to federal
court in instances where the federal court is able to exercise
original jurisdiction over the matter.
28 U.S.C. § 1441.
Federal
courts have original jurisdiction over primarily two types of
cases: (1) those involving federal questions under 28 U.S.C.
§ 1331, and (2) those involving citizens of different states where
the
amount
in
controversy
exceeds
$75,000.00,
exclusive
interests and costs pursuant to 28 U.S.C. § 1332(a).
seeking
removal
jurisdiction.
bears
the
burden
of
of
The party
establishing
federal
See Mulcahey v. Columbia Organic Chems. Co., Inc.,
29 F.3d 148, 151 (4th Cir. 1994). Removal jurisdiction is strictly
construed, and if federal jurisdiction is doubtful, the federal
court must remand.
Id.
The doctrine of fraudulent joinder creates an exception to the
requirement of complete diversity. See Mayes v. Rapoport, 198 F.3d
457,
461
(4th
Cir.
1999).
Under
this
doctrine,
removal
is
permitted even if a non-diverse party has been named as a defendant
at the time the case is removed if the non-diverse defendant has
been fraudulently joined.
Id.
“This doctrine effectively permits
a district court to disregard, for jurisdictional purposes, the
citizenship of certain nondiverse defendants, assume jurisdiction
over a case, dismiss the nondiverse defendants, and thereby retain
4
jurisdiction.” Id. When fraudulent joinder is alleged, a court is
permitted to examine the entire record by any means available in
order to determine the propriety of such joinder.
See Rinehart v.
Consolidation Coal Co., 660 F. Supp. 1140, 1141 (N.D. W. Va. 1987).
IV.
Discussion
In support of their motion to remand, the plaintiffs argue:
(1) the amount in controversy does not exceed $75,000.00; and (2)
diversity
of
citizenship
does
not
exist.
In
response,
the
defendants contend that they have satisfied their burden regarding
the amount in controversy requirement and have shown that Kevin
Swiger is fraudulently joined in this action. This Court addresses
each of these issues in turn.
A.
Amount in Controversy
The burden of establishing that the amount in controversy
exceeds $75,000.00, exclusive of interests and costs, rests with
the party seeking removal.
Mulcahey, 29 F.3d at 151.
This Court
has consistently applied the “preponderance of evidence” standard
to determine whether a defendant has met its burden of proving the
amount in controversy.
When no specific amount of damages is set
forth in the complaint, the defendant bears the burden of proving
that the claim meets the requisite jurisdictional amount.
Mullins
v. Harry’s Mobile Homes, Inc., 861 F. Supp. 22, 23 (S.D. W. Va.
1994).
In such circumstances, the Court may consider the entire
record before it and may conduct its own independent inquiry to
5
determine
whether
the
jurisdictional minimum.
amount
in
controversy
satisfies
the
Id.
In this case, the plaintiffs’ complaint does not set forth a
total monetary sum requested. But the plaintiffs do stipulate that
they will neither seek nor accept damages in excess of $75,000.00.
(Compl. 4.)
The plaintiffs argue that the amount in controversy
cannot be satisfied because of this stipulation.
however,
respond
that
the
stipulation
is
The defendants,
irrelevant
in
a
declaratory judgment action because in such an action, the amount
in controversy is judged by the value of the object of the
declaratory relief that is sought.
The defendants argue that the
object of this action -- the value of the Lease -- is worth more
than the jurisdictional amount.
This Court agrees.
“‘In actions seeking declaratory or injunctive relief, it is
well established that the amount in controversy is measured by the
value of the object of the litigation.’”
McCoy v. Erie Ins. Co.,
147 F. Supp. 2d 481, 492 (S.D. W. Va. 2001) (quoting Hunt v.
Washington State Apple Adver. Comm’n, 432 U.S. 333, 347 (1977)).
In assessing the value of the object of the litigation, the United
States Court of Appeals for the Fourth Circuit looks at the
pecuniary result to either party which a judgment would produce.
Dixon v. Edwards, 290 F.3d 699, 710 (4th Cir. 2002) (“[T]he test
for determining the amount in controversy in a diversity proceeding
is ‘the pecuniary result to either party which [a] judgment would
6
produce.’”) (quoting Gov’t Emp. Ins. Co. v. Lally, 327 F.2d 568,
569 (4th Cir. 1964)).
The plaintiffs submit that the value of the Lease, from their
viewpoint, is less than $75,000.00 because no oil, gas, coalbed
methane, or other liquid hydrocarbons are currently being produced
on their land.
Further, the plaintiffs claim that it is likely
that the Lease will expire according to its terms before this
litigation is over, leaving it with little remaining value.
The
plaintiffs also challenge the defendants’ assertion that the value
of the Lease exceeds $400,000.00. Rather than consider the cost to
the defendants to obtain a similar Lease on the open market, the
plaintiffs submit that the Court should consider the cost of the
Lease when it was negotiated in May 2006.
Using this value, the
plaintiffs then calculate the approximate amount of loss, per
month, that the defendants would potentially suffer as a result of
delay.4
The plaintiffs challenge the defendants’ proof of the value of
the Lease, but they offer no affidavit in support of their own
valuation of the Lease.
The defendants, on the other hand,
submitted the affidavit of Brian C. Lohoff as part of their notice
of removal, which states that the value of the Lease to the
defendants
exceeds
$75,000.00,
based
upon
the
cost
to
the
defendants to secure the same property rights if a declaratory
4
The plaintiffs calculate the defendants’ loss for a threemonth delay (assuming they have the assigned Lease) to be $596.50.
(Mot. for Remand 6.)
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judgment was entered that voided the Lease.
(Lohoff Aff. ¶ 11.)
By
Lohoff
determining
the
replacement
cost,
Mr.
is
able
to
calculate the pecuniary result if the sought-after declaratory
judgment is entered.
The Kahles provide no affirmative evidence
that the value of the Lease is less than $75,000.00, nor do they
challenge Mr. Lohoff’s affidavit.
Instead, the plaintiffs present several arguments as to why
the Lease should be valued below the $75,000.00 threshold.
First,
they argue that the value of the Lease is zero because it was
terminated.
But
this
argument
improperly
plaintiffs will prevail in this action.
assumes
that
the
Second, the Kahles argue
that if the defendants prevail, they will have suffered no harm and
therefore, the amount in controversy threshold is not established.
But the affidavit of Mr. Lohoff, which states that a declaratory
judgment that the Lease is void would have a pecuniary result in
excess
of
plaintiffs
$75,000.00,
contend
that
refutes
the
this
Lease
assertion.
has
a
value
Third,
of
the
less
than
$75,000.00 because the primary term of the Lease is close to
expiring.
Even if the Lease term does expire, the defendants note
that the Lease also provides that it shall continue beyond the end
of the primary term for so long as gas is produced or if the lessee
“is engaged in a bona fide attempt to secure or restore the
production of oil, gas and/or coalbed methane gas or other liquid
hydrocarbons by conducting drilling . . . operations.” (Lease
¶ 1.1.) As the plaintiffs confirmed in their complaint, Chesapeake
8
Appalachia has applied for a permit to drill a well, and this
permit has since been granted.
But for the Kahles’ refusal to
allow Chesapeake Appalachia onto the property, drilling operations
may have already commenced within the primary term, thus securing
the Lease beyond that term.
Because a judgment declaring that the plaintiffs’ Lease is
void, measured from the viewpoint of the defendants, would have a
pecuniary result exceeding $75,000.00, the plaintiffs’ stipulation
as to damages does not impact the amount in controversy inquiry.
See McCoy, 147 F. Supp. 2d at 493-94 (refusing to credit a
stipulation as to damages where declaratory and injunctive relief
was sought).
Moreover, the plaintiffs’ arguments minimizing the
value of the Lease do not change the fact that based upon the
affidavit submitted by the defendants, the cost of complying with
the
sought-after
declaratory
relief
would
exceed
$75,000.00.
Accordingly, this Court finds that the Kahles’ stipulation must be
disregarded and that the defendants have met their burden of
proving that the amount in controversy exceeds $75,000.00.
B.
Fraudulent Joinder
To establish fraudulent joinder, “the removing party must
demonstrate either ‘outright fraud in the plaintiff’s pleading of
jurisdictional facts’ or that ‘there is no possibility that the
plaintiff would be able to establish a cause of action against the
in-state defendant in state court.’” Hartley v. CSX Transp., Inc.,
187 F.3d 422, 424 (4th Cir. 1999) (quoting Marshall v. Manville
9
Sales Corp., 6 F.3d 229, 232 (4th Cir. 1993)).
A claim of
fraudulent
defendants.
joinder
places
Marshall, 6 F.3d at 232.
a
heavy
burden
on
the
“[T]he defendant must show that the
plaintiff cannot establish a claim against the nondiverse defendant
even after resolving all issues of fact and law in the plaintiff’s
favor. A claim need not ultimately succeed to defeat removal; only
a possibility of right to relief need be asserted.”
(internal citations omitted).
Id. at 232-33
Further, the burden is on the
defendants to establish fraudulent joinder by clear and convincing
evidence.
See Rinehart, 660 F. Supp. at 1141.
Here, the defendants do not allege outright fraud in the
plaintiff’s pleadings.
Instead, the defendants argue that the
plaintiffs simply do not assert a claim against Mr. Swiger.
Therefore,
to
defeat
the
plaintiffs’
motion
to
remand,
the
defendants must establish by clear and convincing evidence that,
even resolving all issues of fact and law in the plaintiffs’ favor,
the plaintiffs have not alleged any possible claim against Swiger.
The defendants have met this burden.
In support of their motion for remand, the plaintiffs contend
that because Kevin Swiger, a resident of West Virginia, is a nondiverse defendant, the case cannot be removed to this Court on
diversity of citizenship grounds. According to the plaintiffs, Mr.
Swiger wrongfully issued a notice of entry and committed trespass,
asserting non-existent property rights.
However, the plaintiffs
themselves acknowledge that their complaint does not “specifically
10
enumerate a cause of action against Mr. Swiger for trespass or
negligence.”
(Mot. for Remand 8.)
In their response, the defendants highlight the fact that the
only allegations in the complaint regarding Mr. Swiger are that he
is a senior field representative for Chesapeake Energy and a
resident of West Virginia. As there are no claims asserted against
Mr. Swiger and no relief sought from him, the defendants conclude
that Mr. Swiger was fraudulently joined in this action in order to
destroy diversity.
Although the plaintiffs argue that their
complaint can be construed as stating a claim for trespass or
negligence against Mr. Swiger, the defendants counter that the
allegations of the complaint do not relate to Mr. Swiger at all.
Further, the plaintiffs’ contention in their motion for remand that
Mr. Swiger actually entered the property cannot be considered for
purposes of determining the propriety of removal.
See Justice v.
Branch Banking and Trust Co., No. 2:08-230, 2009 WL 853993 (S.D. W.
Va. Mar. 24, 2009) (reviewing a fraudulent joinder claim and
stating
that
“[p]ost-removal
filings
may
not
be
considered,
however, when or to the extent that they present new causes of
action or theories not raised in the controlling petition filed in
state court.”) (quoting Griggs v. State Farm Lloyds, 181 F.3d 694,
700 (5th Cir. 1999)); see also Adkins v. Wells Fargo Bank, N.A.,
No. 5:09-cv-01333, 2010 WL 1780255 (S.D. W. Va. May 3, 2010)
(“Although the court may consider the entirety of the record at the
time of removal, the starting point of its analysis must be the
11
allegations of the Complaint, itself.”) (quoting White v. Chase
Bank USA, NA, No. 2:08-1370, 2009 WL 2762060, at *2 (S.D. W. Va.
Aug. 26, 2009)).
This Court concludes that the defendants have met their burden
of proving fraudulent joinder.
Therefore, the citizenship of Mr.
Swiger should be disregarded and the motion for remand must be
denied.
V.
Conclusion
For the reasons stated above, the plaintiffs’ motion for
remand is DENIED.
Pursuant to this Court’s order of March 30,
2011, the stay of discovery pending a decision on the motion for
remand is hereby LIFTED.
IT IS SO ORDERED.
The Clerk is directed to transmit a copy of this order to
counsel of record herein.
DATED:
June 3, 2011
/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE
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