Chesapeake Appalachia, L.L.C. v. Mountain V Oil & Gas, Inc. et al
Filing
134
MEMORANDUM OPINION AND ORDER granting defendant Mountain V Oil & Gas, Inc.'s #26 MOTION to bifurcate the discovery and trial phases of this case with respect to punitive damages; and denying as moot the #63 MOTION for extension to file expert witness disclosures. Signed by Judge Thomas E. Johnston on 9/13/2012. (cc: attys; any unrepresented party) (taq)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION
CHESAPEAKE APPALACHIA LLC,
Plaintiff,
v.
CIVIL ACTION NO. 2:11-cv-00207
MOUNTAIN V OIL & GAS INC., et al.
Defendants.
MEMORANDUM OPINION AND ORDER
Pending are Defendant Mountain V Oil & Gas, Inc.’s motion to bifurcate the discovery and
trial phases of this case with respect to punitive damages [Docket 26] and motion for extension to
file expert witness disclosures [Docket 63.] For the reasons that follow, the Court GRANTS
motion to bifurcate the discovery and trial phases of this case with respect to punitive damages
[Docket 26] and DENIES AS MOOT Defendant’s motion for extension to file expert witness
disclosures.1 [Docket 63.]
I. BACKGROUND
This case concerns a dispute over mineral rights. Plaintiff, an Oklahoma-based oil and gas
company, claims that Defendant Mountain V Oil & Gas, Inc., a West Virginia oil and gas company,
wrongfully drilled a gas well on, and has extracted natural gas from, an 82-acre tract of land in
1
This motion is mooted by the Court’s January 5 and 23, 2012 and March 14, 2012,
Scheduling Orders.
Lincoln County, West Virginia. Plaintiff alleges that it owns the mineral rights to this land. (Docket
71 at 1-3.) Plaintiff further alleges that the deed to its mineral rights was recorded in Cabell County,
West Virginia in 1860. (Id. at 2.) Plaintiff states that at the time the deed was recorded, “Lincoln
County was part of Cabell County, West Virginia.” (Id.) Plaintiff alleges willful trespass, slander
of title, and conversion claims, among others. It seeks compensatory and punitive damages,
ejectment, an accounting, injunctive, declaratory and other relief. (Id. at 8.)
Defendant admits it leased the oil and gas estate from the owner of the mineral rights
connected with the Lincoln County tract of land. (Docket 9 at 3.) Defendant states that a copy of the
lease was recorded in the Lincoln County Clerk’s Office. (Id.) Defendant also freely admits that it
drilled a gas well on the tract and has extracted gas from the well. (Id.) Defendant claims that as the
oil and gas lessee, it at all times had a bona fide right to drill the gas well and extract gas from it and
any injury Plaintiff may have suffered results from Plaintiff’s failure to have properly recorded its
deed in Lincoln County as required under West Virginia Code § 40-1-9. (Id.) Defendant states that
it hired a title abstractor to inspect Lincoln County records and lawyers to conduct a title
examination. (Docket 26 at 1-2.) Defendant states that the title opinion asserted that the lessor of
the mineral rights owned the oil and gas rights to the property. (Id.) It was only after Defendant
obtained the title opinion that Defendant constructed the gas well and extracted gas. (Id.) Defendant
argues that it was Plaintiff’s failure to record properly its alleged interests in the Lincoln County tract
that prevented Defendant from ascertaining Plaintiff’s mineral rights claim. (Id.)
II. APPLICABLE LAW
Rule 42 of the Federal Rules of Civil Procedure provides:
2
(a)
Consolidation. If actions before the court involve a common question of law
or fact, the court may:
(1) join for hearing or trial any or all matters at issue in the actions;
(2) consolidate the actions; or
(3) issue any other orders to avoid unnecessary cost or delay.
(b)
Separate Trials. For convenience, to avoid prejudice, or to expedite and
economize, the court may order a separate trial of one or more separate
issues, claims, crossclaims, counterclaims, or third–party claims. When
ordering a separate trial, the court must preserve any federal right to a jury
trial.
III. DISCUSSION
A.
The Parties’ Arguments
Defendant argues that bifurcation of the punitive damages phase of the trial from the liability
phase is necessary for several reasons. Defendant claims that absent bifurcation it will suffer
prejudice in two distinct respects. First, it claims that evidence of Defendant’s wealth “should not
be used as a weapon against it to confuse the jury at the liability stage of the trial.” (Docket 26 at 7.)
It argues that until Plaintiff has set forth a prima facie case on the issue of punitive damages,
evidence of Defendant’s wealth is not relevant. (Id.) Second, Defendant states that it will also suffer
prejudice because Plaintiff is a business competitor and, in the course of discovery, has sought
disclosure of Defendant’s proprietary and financial information (e.g. gross and net profits from 2000
to the present; business profits and losses; costs; business forecasts and budget projections; and
amount and structure of Defendant’s capitalization). (Id. at 3.) Defendant argues that evidence of
Defendant’s financial wealth is only admissible in connection with Plaintiff’s punitive damages
claim, and Plaintiff is “highly unlikely” to prevail on an intentional trespass claim, the claim on
which the punitive damage claim depends. (Id. at 5-6.) Under these circumstances, it is, according
3
to Defendant, unfair to permit Plaintiff, a business competitor, to invade Defendant’s private
proprietary financial information prior to a ruling that Plaintiff has survived summary judgment on
the issue. (Docket 30.) Defendant also argues that bifurcation aids appellate review because it
“permits the reviewing court to more easily evaluate whether passion and prejudice influenced the
jury’s findings on liability and compensatory damages.” (Docket 26 at 5.) Finally, Defendant
contends that bifurcation will not be costly and will not require two trials. (Docket 30 at 4.) It argues
that if and when Plaintiff survives summary judgment on the issue of punitive damages, Defendant
can “immediately produce two years worth of audited financial statements and have its previously
retained expert review these statements and prepare a report.” (Id.) Thereafter, depositions on the
issue can be “undertaken in short order prior to trial.” (Id.) At trial, no evidence of Defendant’s
wealth will be heard unless and until the jury decides “whether it believes that the trespass, if any,
was sufficiently willful to entitle [Plaintiff] to an award of punitive damages.” (Id.) In the event the
jury makes such a finding, then the parties “will immediately present additional evidence to the same
jury regarding punitive damages, including [Defendant’s] wealth.” (Id.)
Plaintiff responds that its interest was properly recorded in 1860 in Cabell County, the county
that then embraced the disputed mineral estate. (Docket 28 at 1.) In a footnote, Plaintiff states that
the date of recording the deed pre-dated West Virginia’s statehood and the West Virginia statutes
on which Defendant relies, namely, West Virginia Code §§ 40-1-9, 40-1-10. (Id. at 1- 2 n.1.)
Plaintiff cites the West Virginia Constitution for the proposition that “all interests in land derived
from the Commonwealth of Virginia prior to the formation of West Virginia shall remain valid in
West Virginia subsequent to its formation.” (Id.) Plaintiff faults Defendant for conducting an
inadequate title search. (Id. at 2.) It claims that Defendant’s intrusion onto Plaintiff’s mineral rights
4
was a “knowing, willful, wanton, reckless, and intentional invasion” of Plaintiff’s property rights
and, thus, the intentional trespass and punitive damages claims are intertwined. (Id. at 3.) Plaintiff
argues that bifurcation will only increase litigation costs because there will have to be two discovery
phases and two trials concerning overlapping evidence on Defendant’s willfulness. (Id.) Plaintiff also
argues that any potential prejudice to Defendant by admitting evidence of its wealth in the trial will
be cured by appropriate jury instructions and that the parties’ protective order eliminates any misuse
by Plaintiff of Defendant’s financial information. (Id. at 4.)
B.
Analysis
The Court is persuaded that Defendant will suffer unfair prejudice if bifurcation of the
punitive damages phase of the trial is not permitted. Based on the record as it now stands, it appears
that Plaintiff does not dispute that Defendant hired professionals to conduct a title examination of
the contested mineral estate and that the title opinion was that the oil and gas lessor owned the
mineral estate. While Plaintiff complains that its alleged mineral rights deed was recorded in Cabell
County prior to West Virginia’s statehood and, thus, necessarily prior to the passage of West
Virginia Code § 40-1-9, Plaintiff offers no authority for the proposition that it is exempted from
recording its mineral estate deed as required by § 40-1-9.2 The Court notes Plaintiff relies on Article
13 of the West Virginia Constitution for the proposition that Plaintiff’s interest in the mineral estate
2
Section 40-1-10 provides:
Every such contract, every deed conveying any such estate or term, and every deed
of gift, or trust deed or mortgage, conveying real estate shall be void, as to creditors,
and subsequent purchasers for valuable consideration without notice, until and except
from the time that it is duly admitted to record in the county wherein the property
embraced in such contract, deed, trust deed or mortgage may be.
5
is legally valid. The Court does not need to decide at this juncture whether that argument has merit
because, even assuming Plaintiff had a valid claim to the mineral estate, the issue here—at least as
far as punitive damages are concerned—is whether Defendant willfully disregarded Plaintiff’s
property interest. Relegated to a footnote is Plaintiff’s assertion that Defendant’s title opinion only
covered a period from April 15, 1982 to January 28, 2005, and that the opinion could not be certified
prior to 1909. Absent from Plaintiff’s argument is any assertion or evidence that all would-be
purchasers of real or mineral estate interests in Lincoln County, West Virginia have a legal duty to
conduct title searches in Cabell County. That may well be the case, but Plaintiff has not satisfied
the Court at this juncture that it is. Consequently, the Court agrees with Defendant that, where
Defendant hired lawyers to conduct a title examination and obtained a title opinion that stated that
the mineral lessee owned the mineral rights, Plaintiff’s claim that Defendant willfully trespassed on
Plaintiff’s mineral estate appears doubtful.
Additionally, Defendant offers a reasonable argument that a bifurcated litigation plan will
not result in excessive costs or be inconvenient. Defendant proposes that in the event that Plaintiff
survived summary judgment on the intentional trespass and punitive damages claims, discovery on
Defendant’s wealth will be conducted in short order prior to trial and that evidence of Defendant’s
wealth will be introduced only if and when a jury finds Defendant’s trespass was sufficiently willful
to merit punitive damages. This is a sensible plan which the Court will may revisit with the parties
following resolution of dispositive motions.
Finally, one further item informs the Court’s decision. Defendant is alleged to be a familyowned business who engages in direct business competition with Plaintiff. Plaintiff has in the
course of discovery sought substantial and sensitive proprietary business records from Defendant
6
including, among other items, profit and loss statements and business forecast records. As United
States Magistrate Judge Mary E. Stanley wisely observed when denying Plaintiff’s requests for
discovery of Defendant’s financial records, the oil and gas business is highly competitive. (See
Docket 52 at 6.) The Court agrees with Magistrate Judge Stanley’s conclusion that it is premature
to permit discovery of “extensive proprietary information and documents at a point in this litigation
when it is not clear that the claim for punitive damages is viable.” (Id.)
IV. CONCLUSION
Accordingly, for the foregoing reasons, the Court GRANTS Defendant’s motion to bifurcate
the discovery and trial phases of this case with respect to punitive damages [Docket 26.] The Court
also DENIES AS MOOT Defendant’s motion for extension to file expert witness disclosures.
[Docket 63.]
IT IS SO ORDERED.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party.
ENTER:
7
September 13, 2012
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?