United States District Court, D. Kansas
MEMORANDUM AND ORDER
ERIC F. MELGREN, District Judge.
Plaintiff Paul Atkins filed this lawsuit against Defendants in the District Court of Jefferson County, Kansas, on January 6, 2014, alleging fraud, fraud on the court, and conspiracy claims under Kansas law. On February 12, 2014, Defendants Heavy Petroleum Partners, LLC, Cherokee Wells, LLC, Robert DeFeo, Jens Hansen, John Wesley Broomes, and Hinkle Law Firm LLC (hereinafter, "the Removing Defendants") timely filed a Notice of Removal in this Court. This matter is before the Court on Plaintiff's Motion to Remand Action to the District Court of Jefferson County under 28 U.S.C. § 1447(c) (Doc. 12). Also pending before the Court is Plaintiff's Motion to Stay Proceedings Until Resolution of the Plaintiff's Motion to Remand (Doc. 13). As explained in more detail below, the Court denies Atkins' Motion to Remand, and the Court grants, at least temporarily, Plaintiff's Motion to Stay Proceedings.
I. Factual and Procedural Background
Plaintiff Atkins filed this action in state court against the following eleven defendants: (1) Heavy Petroleum Partners, LLC, (2) Cherokee Wells, LLC, (3) Robert DeFeo, (4) John Wesley Broomes, (5) Hinkle Law Firm, LLC, (6) Prometheus Petroleum, LLC, (7) David E. Orr, (8) Arden Ellis, (9) Jens Hansen, (10) Jag Petroleum, LLC, and (11) Maclaskey Oilfield Services, Inc. Atkins' Petition alleges various state law claims arising from a dispute over an oil and gas lease in northeast Kansas. The following facts are either taken from the Petition that Atkins filed in the District Court of Jefferson County, Kansas, on January 6, 2014 ("Plaintiff's Petition"), or from the record in a separate lawsuit filed in the District of Kansas styled Heavy Petroleum Partners, LLC v. Atkins, Case No. 09-1077-EFM ("the First Lawsuit").
Atkins is allegedly the sole owner of a 6.5% overriding royalty interest in an oil and gas lease ("the Noll Lease"). Atkins is also an owner of a family-owned business, J.J.R. of Kansas Limited ("J.J.R."), which had an ownership interest in a separate oil and gas lease ("the Zachariah Lease"). Late in the pendency of the First Lawsuit, the parties disputed whether J.J.R. had an ownership interest in the Noll Lease. This dispute is explained in more detail below.
In the present lawsuit, as one of his claims, Atkins asserts that Defendants fraudulently obtained his interest in the Noll Lease during the pendency of the First Lawsuit. Atkins also alleges various other fraud and conspiracy claims which are described below when they are relevant to the issues arising on the Motion to Remand.
In the First Lawsuit, Heavy Petroleum Partners LLC ("HPP") and Cherokee Wells, LLC ("Cherokee Wells") brought an action against J.J.R. and Atkins (as an owner of J.J.R.) alleging that J.J.R. and Atkins had wrongfully interfered with HPP and Cherokee Wells' oil and gas lease interests by shutting-in (turning off) producing oil wells. HPP and Cherokee Wells asserted breach of contract claims and sought to quiet title. On November 16, 2009, J.J.R. and Atkins sought leave to amend their Answer in the First Lawsuit to assert several counterclaims against HPP and Cherokee Wells, including fraud claims. Specifically, J.J.R. and Atkins alleged:
Defendants have been damaged by their reliance upon the false, fraudulent, intentionally misleading statements and representations of partners, employees and agents of plaintiffs when defendants detrimentally relied on the statements that plaintiff Heavy Petroleum Partners, L.L.C. was skilled, experienced and qualified to conduct heavy petroleum extraction on defendants' lease with the use of secondary recovery steam injection technology. This fraud resulted in damages to defendants due to their detrimental reliance.
The magistrate judge denied the Motion for Leave to Amend finding, among other things, that J.J.R. and Atkins' request for leave to assert fraud claims was futile because the claims were "conclusory and lack[ed] the specificity required by [Fed. R. Civ. P.] 9(b)" and therefore would not survive a motion to dismiss.
On June 9, 2010, the district court granted HPP and Cherokee Wells' motion for partial summary judgment and entered summary judgment in favor of HPP and Cherokee Wells on their quiet title claim. In December 2010, the district court held a jury trial on the limited issue of whether J.J.R. and Atkins breached their duty to pay under a contract. A jury found J.J.R. and Atkins liable in the amount of $87, 387.03. J.J.R. and Atkins appealed the judgment to the Tenth Circuit Court of Appeals.
After the December 2010 jury trial and the district court's entry of judgment, and during the pendency of J.J.R. and Atkins' appeal, HPP executed on its judgment. The district court later described the execution as follows:
HPP applied for and received a Writ of Execution to execute on the property of JJR in order to satisfy the outstanding portion of the judgment. Although Defendants objected to the sale, and the case was on appeal to the Tenth Circuit, Defendants did not request a stay of execution on the judgment or post a supersedeas bond. Thus, the Marshal's Sale was proper. HPP executed upon the Noll lease during the Marshal's Sale....
The Marshal's Sale was held on August 8, 2011. On November 3, 2011, the district court conducted a hearing on HPP and Cherokee Wells' Motion to Confirm Execution Sale. At this hearing, J.J.R. and Atkins appeared through counsel, and Atkins also appeared personally. The following day, on November 4, 2011, the district court entered an order confirming the execution sale.
J.J.R. and Atkins' appeal to the Tenth Circuit raised several issues. One of the issues they raised was the magistrate judge's denial of their request for leave to amend to assert counterclaims against HPP and Cherokee Wells. The Tenth Circuit rejected this argument and held that the "district court properly denied leave to amend." Specifically, the Tenth Circuit held that the fraud claims relied upon purely conclusory allegations that did not meet the heightened pleading standard of "particularity" required by Fed.R.Civ.P. 9(b). Thus, the Tenth Circuit concluded that J.J.R. and Atkins' request for leave to amend to assert the fraud claims was futile because they were subject to dismissal under Fed.R.Civ.P. 12(b)(6). J.J.R. and Atkins also asserted that the district court erred by granting summary judgment in favor of HPP and Cherokee Wells on the quiet title claim. The Tenth Circuit agreed and concluded that the district court should not have quieted title in HPP and Cherokee Wells' favor, thereby remanding the action to the district court on this issue.
Upon remand to the district court, HPP and Cherokee Wells again sought summary judgment on the quiet title claim, which the district court denied. On April 18, 2013, J.J.R. and Atkins filed a "Second Motion for Leave to Amend under Fed.R.Civ.P. 15 and Fed.R.Civ.P. 18 and Demand for Jury Trial." J.J.R. and Atkins sought Leave to Amend their Answer to assert five counterclaims: (1) fraud and concealment regarding compliance with the KCC rules required to protect the defendants' remaining interest in the lease; (2) fraud on the court through the Exhibit A contract with steam technology providers; (3) fraud in the inducement through the operating agreement; (4) fraud on the court through the procurement of the order certifying the U.S. Marshal sale; and (5) fraud in the delivery of and taking of defendant Paul Atkins ownership in Leavenworth County Register of Deeds Book 808 page 237.
The district court denied J.J.R. and Atkins' motion to amend because they were "woefully out of time." In that order denying leave to amend, this Court explained that the case was before it on a remand from the Tenth Circuit on the quiet title issue, that the district court had recently advised J.J.R. and Atkins that they cannot bring new claims, and that the only claims pending before this Court were those that the Tenth Circuit had vacated, reversed, and remanded.
On May 14, 2013, the district court presided over a bench trial on the quiet title claim, and on July 23, 2013, the district court awarded judgment in favor of HPP and Cherokee Wells and quieted title in their favor. In the Memorandum and Order awarding judgment in favor of HPP and Cherokee Wells, the district court acknowledged that Atkins had recently raised the issue that when HPP executed upon its judgment, HPP allegedly improperly sold Atkins' personal interest in the Noll Lease. The district court recognized that the sale was proper because J.J.R. and Atkins had not requested a stay of execution on the judgment or posted a supersedeas bond.
The district court agreed with HPP that the plain language of the Marshal's Deed stated that the execution applied only to property of J.J.R., but found that the plain language of the deed did not appear to resolve the factual question whether the property was in fact J.J.R.'s interest or Atkins' interest. The district court also noted that the parties agreed that HPP had no right to execute on Atkins' personal property and HPP specifically stated that it did not intend the Marshal's Deed to convey any interest owned by Atkins personally. Thus, the district court framed the issue as a factual dispute as to whether the property on which HPP had executed was owned by J.J.R. or Atkins. The district court gave the parties 60 days to reach an agreement about the title issue, and if they could not come to an agreement, the district court stated that it would appoint a special master to render a title opinion.
Atkins states in his Petition that he took "a timely appeal from the Kansas U.S. District Court case which is now before the Tenth Circuit Court of Appeals." J.J.R. and Atkins' Notice of Appeal stated that they sought review, among other things, of the district court's decision "not to [allow them to] amend their answer to include new counterclaims based on subsequent conduct and newly discovered fraud." Before taking that appeal, however, J.J.R. and Atkins filed a Motion to Alter or Amend the Judgment under Federal Rule of Civil Procedure 59(e). The district court denied that motion and refused to alter or amend the judgment. It noted "one important caveat, " however, about its previous statement that it had retained jurisdiction to determine whether HPP and Cherokee Wells improperly had executed on Atkins' personal ownership in a lease. The district court explained that J.J.R. and Atkins had stated in their Notice of Appeal to the Tenth Circuit that "[t]he part of the order addressing defendant Atkins' personal ownership interest that was never before this court is not a remaining issue regarding the rights of the parties.'" Thus, the district court concluded that J.J.R. and Atkins had abandoned their claim about Atkins' personal ownership interest in the lease. Consequently, the district court vacated its earlier assertion that it would appoint a special master to render a title opinion if the parties did not reach an agreement within 60 days on the title issue.
The Tenth Circuit Court of Appeals recently decided J.J.R. and Atkins' second appeal. With regard to the issue of the alleged impropriety of the district court not allowing them to amend their answer to include counterclaims of fraud, J.J.R. and Atkins apparently failed to brief this contention or raise any issues with regard to the fraud claims to the Tenth Circuit. Thus, the Tenth Circuit did not address the issue. J.J.R. and Atkins, however, apparently briefed the Noll lease issue to the Tenth Circuit and claimed that the district court erred when it found in its Order denying J.J.R. and Atkins' Motion to Alter or Amend Judgment that they had abandoned the Noll lease issue. In its Order, the Tenth Circuit pointed out that J.J.R. and Atkins "never filed a new notice of appeal or an amended notice of appeal relating to the denial of their Rule 59(e) motion, " thus, the court lacked jurisdiction to consider any challenges to that ruling. The Tenth Circuit also stated that it "lack[ed] jurisdiction over Defendants' arguments relating to the Noll lease issue because this was not identified as an issue subject to appeal in Defendants' notice of appeal. Indeed, far from identifying this as an issue for appeal, Defendants affirmatively disavowed it, explicitly stating in their notice of appeal that this issue was not a remaining issue regarding the rights of the parties.'" Accordingly, the Tenth Circuit only addressed the quiet title issue and ultimately affirmed the district court's memorandum and order quieting title in HPP and Cherokee Wells' favor.
It is in this mass of facts and proceedings that Atkins filed his state lawsuit. And Atkins' filing, in turn, prompted the Removing Defendants' removal which, in turn, prompted Plaintiff's Motion to Remand. There are two motions currently pending before the Court.
Atkins timely filed a Motion to Remand the lawsuit to state court (Doc. 12). In this motion, Atkins asserts that he properly joined the three Kansas defendants in this action, and because these three Defendants are Kansas residents, complete diversity does not exist. Accordingly, Atkins argues that the Court lacks subject matter jurisdiction and should remand this action to state court. The Removing Defendants filed a response to Atkins' motion. Atkins filed no reply, and the time for doing so has expired. The Court will address this motion in Part II.
Atkins also filed a Motion to Stay Deadlines, in which he requests that the Court stay further proceedings, including briefing on Defendants' Motion to Dismiss, until the Court rules upon Plaintiff's Motion to Remand and determines whether or not the Court has jurisdiction over the case. The Court will address Plaintiff's Motion to Stay Deadlines in Part III of this Order.
II. Atkins' Motion to Remand
The Removing Defendants timely removed the action to this Court based on diversity jurisdiction under 28 U.S.C. §§ 1332, 1441, and 1446. Defendants Jag Petroleum, LLC and David E. Orr consented to the removal. Defendants Arden Ellis, Prometheus Petroleum, LLC, and Maclaskey Oilfield Services, Inc. had not been served with this lawsuit when the Removing Defendants filed the Notice of Removal on February 12, 2014. Therefore, pursuant to 28 U.S.C. § 1446(b)(2)(A), these three Defendants did not need to consent to the removal.
The Removing Defendants acknowledge that Defendants John Wesley Broomes, Hinkle Law Firm, LLC, and Maclaskey Oilfield Services, Inc. are Kansas residents, and therefore the parties are not completely diverse, as the governing statute requires for this Court to exercise subject matter jurisdiction. The Removing Defendants argue, however, that Atkins fraudulently joined these three Defendants for the purpose of defeating diversity jurisdiction, and consequently, the Court must disregard them when determining whether subject matter jurisdiction exists. Atkins then timely filed a Motion to Remand to state court asserting that he did not fraudulently join these three Defendants.
A. Legal Standard
"Federal courts are courts of limited jurisdiction; they must have a statutory basis for their jurisdiction.'" Under the federal removal statute, 28 U.S.C. § 1441, a defendant may remove to federal court "any civil action brought in a State court of which the district courts of the United States have original jurisdiction." Here, defendants have removed this lawsuit from state court asserting that this Court has diversity jurisdiction under 28 U.S.C. § 1332.
Because federal courts are courts of limited jurisdiction, there is "a presumption against removal jurisdiction." As the party seeking to invoke diversity jurisdiction, the Removing Defendants bear the burden to establish the existence of diversity at the time of removal. To invoke diversity jurisdiction, "a party must show that complete diversity of citizenship exists between the adverse parties and that the amount in controversy exceeds $75, 000." In this case, the parties do not dispute that the amount in controversy exceeds the jurisdictional threshold. The dispute here centers on whether complete diversity of citizenship exists. The court lacks diversity jurisdiction when any of the plaintiffs has the ...