R&J Oil v. Rodgers
| Decision Date | 10 January 2020 |
| Docket Number | CIVIL ACTION NO. 3:18-CV-00117-GNS-CHL |
| Parties | R&J OIL, et al. PLAINTIFFS v. R.C. RODGERS, et al. DEFENDANTS |
| Court | U.S. District Court — Western District of Kentucky |
This matter is before the Court on Plaintiffs' Motion for Partial Summary Judgment (DN 42) on Counts V and VI of their Complaint (DN 1). The motion is ripe for adjudication. For the reasons that follow, the motion is GRANTED.
Plaintiffs Keith and Nikkoll Johnson are residents of Ohio who decided to invest in the oil and gas industry in hopes of enhancing their retirement savings. ( ).1 Plaintiffs entered into a "Refurbishing Contract Agreement" with John Patterson ("Patterson") and Defendants Ronnie Charles Rodgers ("Rodgers") and R&R Plus, LLC ("R&R Plus"), a Tennessee limited liability company of which Rodgers was the sole member. ( . The Refurbishing Contract Agreement provided that Rodgers and R&R Plus would transfer mineral rights to a 67-acre tract in Tennessee, along with an existing well and associated personalty, and refurbish the existing well. (Pls.' Mem. Supp. Mot. Partial Summ. J.Ex. A, at 1-3). Patterson, who is not a party to this action, was to check the wells and remove the oil. (Pls.' Mem. Supp. Mot. Partial Summ. J. Ex. A, at 3).
Plaintiffs, Rodgers, and R&R Plus entered into a separate "Escrow Agreement" to accomplish the transfer of the mineral rights, designating Defendant Elmer George ("George") a party to the contract as the escrow agent.2 (. The Escrow Agreement provided that Plaintiffs would deposit $105,000 with George, who was not to release the funds "until receipt from the Parties of all documents, properly completed and executed, necessary to affect [sic] the transfer of ownership or assignment of the Oil and Gas Lease, including but not limited to the Assignment of Oil and Gas Lease and Refurbishing [Contract] Agreement between First Party and Second Parties herein . . . ." (Pls.' Mem. Supp. Mot. Partial Summ. J. Ex. B, at 1). The Escrow Agreement further stated that in the event the transfer documents were not received within thirty days, George was to return the escrow funds to Plaintiffs. (Pls.' Mem. Supp. Mot. Partial Summ. J. Ex. B, at 1).
Plaintiffs, Rodgers, and R&R Plus also signed a document titled "Assignment of Oil and Gas Lease" ("Assignment"). (. Notwithstanding the nominal caption, the Assignment conveyed only an 87.5% working interest in a particular well (#12313) and did not include transfer of the referenced oil and gas lease. (Pls.' Mem. Supp. Mot. Partial Summ. J. Ex. C, at 1). Nevertheless, upon receipt of the executed Assignment and Refurbishing Contract Agreement, George disbursed the escrowed funds. (George Aff. ¶ 27).
Notably, before closing it was necessary for Rodgers and R&R Plus to obtain the leasehold interest they were obligated to transfer to Plaintiffs under the terms of the Refurbishing Contract Agreement. George effected this transfer by drafting a document ("Adventure Assignment") conveying Adventure Enterprises, Inc.'s interest in the well and lease to Rodgers and R&R Plus. (. The language of the Adventure Assignment assigned to Rodgers and R&R Plus all of Adventure Enterprises' interests in both the "well and Oil and Gas Lease . . . ." (Pls.' Mem. Supp. Mot. Partial Summ. J. Ex. D, at 1). Indeed, before preparing either transfer, George consulted John Nisbet, Adventure Enterprises' Tennessee attorney, who provided a written title abstract to George and advised that, "[b]ecause [Rodgers] is purchasing BOTH the well and lease, I would suggest that you include a paragraph about the lease." (.
After the closing, relations between Plaintiffs and Rodgers ultimately fell apart. Plaintiffs allege Rodgers failed to meet his obligations under the Refurbishing Contract Agreement. (Pls.' Mot. 7). The well was eventually filled with concrete and the permit necessary to drill was temporarily lost. (Pls.' Mot. 7). In this lawsuit, Plaintiffs assert claims against George because he failed to accomplish the transfer of the oil and gas lease to them from Rodgers as specified in the Escrow Agreement. (Compl. ¶¶ 56-65). Plaintiffs have moved for summary judgment on those claims.
The Court has subject matter jurisdiction over this action under 28 U.S.C. § 1332 as there is complete diversity between the parties and the amount in controversy exceeds the sum of $75,000.00.
In ruling on a motion for summary judgment, the Court must determine whether there is any genuine issue of material fact that would preclude entry of judgment for the moving party as a matter of law. See Fed. R. Civ. P. 56(a). The moving party bears the initial burden of stating the basis for the motion and identifying evidence in the record that demonstrates an absence of a genuine dispute of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If the moving party satisfies its burden, the non-moving party must then produce specific evidence proving the existence of a genuine dispute of fact for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
While the Court must view the evidence in the light most favorable to the non-moving party, the non-moving party must do more than merely show the existence of some "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (citation omitted). Rather, the non-moving party must present specific facts proving that a genuine factual dispute exists by "citing to particular parts of the materials in the record" or by "showing that the materials cited do not establish the absence . . . of a genuine dispute . . . ." Fed. R. Civ. P. 56(c)(1). "The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient" to overcome summary judgment. Anderson, 477 U.S. at 252.
As an initial matter, the pending motion implicates the Escrow Agreement's indemnification clause.3 This provision provides:
First Party agrees to indemnify and hold harmless the Escrow Agent from any and all claims, liabilities, losses, expenses, actions, suits, or proceedings at law or in equity, or any other expense, fees, or charges of any character or nature whatever that it may incur by reason of acting as the Escrow Agent under this Escrow Agreement except for the Escrow Agent's gross negligence, bad faith or willful misconduct.
(Pls.' Mem. Supp. Mot. Partial Summ. J. Ex. B, at 1-2). In this instance, Plaintiffs are the First Party asserting a breach of contract claim against the Escrow Agent, George. George argues that the quoted indemnity provision shields him from this claim. (.
"Indemnify" is defined as "[t]o reimburse (another) for a loss suffered because of a third party's or one's own act or default." Black's Law Dictionary 886 (10th ed. 2014); CHS, Inc. v. Yellow Banks River Terminal, LLC, No. 4:16-cv-151-JHM, 2017 WL 4542225, at *4 (W.D. Ky. Oct. 6, 2017) (citation omitted). In this instance, there is no third-party claim—both Plaintiffs and George were parties to the Escrow Agreement—nor did Plaintiffs default on their obligations under the Escrow Agreement. As such, the concept of indemnity does not fit here. See Am. Towers LLC v. BPI Inc., 130 F. Supp. 3d 1024, 1037 (E.D. Ky. 2015) (). Even if the indemnity provision purported to protect George from this claim, "a party to a contractcannot recover indemnification from another contracting party for a breach which the first party caused or substantially helped to cause." Turner v. Glob. Seas, Inc., 505 F.2d 751, 754 (6th Cir. 1974).
Plaintiffs allege here that George breached the Escrow Agreement. (Compl. ¶ 56). Distilled, George's defense is that Plaintiffs must indemnify him for the damage that he caused Plaintiffs through George's alleged breach of the Escrow Agreement. While no Kentucky case is squarely on all fours with the present matter, Kentucky law strongly disfavors an interpretation of a contract that would either render the contract a nullity or fail to give effect to the intent of the parties. Henderson v. Cont'l Cas. Co., 39 S.W.2d 209, 211 (Ky. 1935). In this instance, requiring the buyers to protect their escrow agent from his own misfeasance would operate effectively to relieve their agent of any obligation to perform his duties. Nullification of George's duties is untenable. Kentucky courts strive to avoid interpretations of contracts resulting in an illusory promise, "that is, a promise merely in form, but in actuality not promising anything, [which] cannot serve as consideration." Maze v. Bd. of Dirs. for Commonwealth Postsecondary Educ. Prepaid Tuition Tr. Fund, 559 S.W.3d 354, 367-68 (Ky. 2018). Accepting George's contention that he cannot be held liable for his breach of the Escrow Agreement would render his promises illusory. See Commercial Movie Rental, Inc. v. Larry Eagle, Inc., 738 F. Supp. 227, 230-31 (W.D. Mich. 1989) ( ...
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