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Lowe v. PostRock Midcontinent Production, LLC

United States District Court, Tenth Circuit

November 11, 2013




This matter was removed from Wilson County, Kansas District Court on July 12, 2013. The Notice of Removal asserts diversity jurisdiction, alleging that the individual Defendants, who are all Kansas citizens, were fraudulently joined. Before the Court is Plaintiffs’ Motion to Remand (Doc. 14), in which Plaintiffs argue that the doctrine of fraudulent joinder does not apply here, thus destroying diversity jurisdiction. The motion is fully briefed and the Court is prepared to rule. As described more fully below, the motion to remand is granted.

I. Background

Plaintiffs filed their state court Petition on April 1, 2013, alleging claims for unpaid royalties on oil and gas leases between themselves and PostRock MidContinent Production LLC (“PostRock”). The Petition further alleges that Defendants diverted or transferred oil produced from Plaintiffs’ leaseholds to other locations without payment. The Petition alleges that during the relevant time period, Defendants Clark Edwards, Jay Kingery, and Jeff Morris were acting within the scope and course of their employment for PostRock. PostRock is Delaware limited liability corporation. The individual Defendants are all Kansas citizens. Plaintiffs are both Kansas citizens.

Plaintiffs allege five counts of relief in the Petition. Count I is a conversion claim against all Defendants, claiming that they diverted oil produced from Plaintiffs’ leaseholds to other locations without payment or credit and that they converted the oil and oil proceeds to Defendants’ own use and benefit. Count II is for breach of lease against PostRock, claiming PostRock breached the terms of several leases by failing to credit or deliver payment to Plaintiffs for their full share of oil produced from the wells on their leaseholds, and by causing Plaintiffs to receive inaccurate royalty payments by understating the volume of oil actually produced. Count III alleges misrepresentation and concealment against all Defendants, claiming the volume of oil produced from the leaseholds was falsely understated and reported to Plaintiffs and to the State of Kansas. Count IV alleges unjust enrichment against all Defendants based on Defendants’ receipt and retention of oil proceeds at Plaintiffs’ expense. Finally, in Count V, Plaintiffs allege an accounting claim against Defendant PostRock of all oil produced from Plaintiffs’ wells and the proceeds thereof.

Defendants filed their Notice of Removal on July 12, 2013. The Notice of Removal alleges that this Court may exercise diversity jurisdiction because there is complete diversity of citizenship and the amount in controversy exceeds $75, 000. Defendants allege that the Court should disregard the individual Defendants’ citizenship for purposes of jurisdiction under the doctrine of fraudulent joinder. They allege that Plaintiffs cannot prevail on any of the claims alleged against the individual Defendants because the claims against these Defendants are all tort claims subsumed and precluded by the breach of contract claim against PostRock.

Six days after removal, Defendants moved to dismiss all non-contract claims and all individual Defendants from the original Petition.[1] In that motion, Defendants argued that the non-contract claims were all subsumed and precluded by the breach of contract claim against PostRock, and that the claims against the individual Defendants could not lie because they were not signatories to the subject leases, which govern this dispute. On August 2, 2013, Plaintiffs filed a First Amended Petition, withdrawing Defendant Edwards as a party, adding factual detail to the claims, and clarifying which claims are asserted against which specific Defendants. On August 12, 2013, Plaintiffs filed a timely motion to remand for lack of complete diversity.

II. Standard

Federal courts are required to remand a case to state court “[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction.”[2] To avoid remand, a defendant must show that the action satisfies the requirements for federal jurisdiction.[3] Because federal courts “are courts of limited jurisdiction, there is a presumption against federal jurisdiction.”[4] Therefore, courts must resolve doubtful cases in favor of remand.[5] Defendants bear the burden of proving facts sufficient to establish jurisdiction.[6]

Remand is improper if the defendant properly removed a case to federal court that the plaintiff could have originally filed in federal court.[7] Federal courts are courts of limited jurisdiction, and as such they must have a statutory or constitutional basis to exercise jurisdiction over any controversy.[8] Under 28 U.S.C. § 1332(a), federal district courts have original jurisdiction of civil actions where complete diversity of citizenship and an amount in excess of $75, 000 (exclusive of interest and costs) in controversy exists. Removal jurisdiction over diversity cases is more limited than jurisdiction over diversity cases originally brought in federal court because removal based on diversity is available only if none of the defendants is a citizen of the state in which the action is brought.[9]

“The courts must rigorously enforce Congress’ intent to restrict federal jurisdiction in controversies between citizens of different states.”[10] The presumption is thus against removal jurisdiction, [11] and courts must refrain from exercising jurisdiction in all cases where such jurisdiction does not affirmatively appear on the record.[12] Statutes conferring both diversity and removal jurisdiction are to be strictly construed, and “[d]oubtful cases must be resolved in favor of remand.”[13]

It has long been held that the right of removal cannot be defeated by “a fraudulent joinder of a resident defendant having no real connection with the controversy.”[14] Fraudulent joinder is a term of art; it does not reflect on the integrity of the plaintiff or counsel, but exists regardless of the plaintiff’s motives when the circumstances do not offer any other justifiable reason for joining the defendant.[15] The removing defendant’s burden of proving fraudulent joinder is not unlike the burden of proving any claim of fraud.[16] “[U]pon specific allegations of fraudulent joinder, the court may pierce the pleadings, consider the entire record, and determine the basis of joinder by any means available.”[17] If fraudulent joinder applies, it permits the Court to disregard for jurisdictional purposes the citizenship of fraudulently joined defendants, assume jurisdiction, and dismiss the nondiverse defendants.[18]

III. Discussion

The Tenth Circuit addressed fraudulent joinder claims in Montano v. Allstate ...

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