Atmos Energy Corp. v. Honeycutt
| Decision Date | 25 January 2013 |
| Docket Number | NO. 2011-CA-000783-MR,NO. 2011-CA-000601-MR,2011-CA-000601-MR,2011-CA-000783-MR |
| Parties | ATMOS ENERGY CORPORATION; ATMOS ENERGY MARKETING, LLC; and ATMOS GATHERING COMPANY, LLC APPELLANTS v. BILLY JOE HONEYCUTT; TAMMIE HONEYCUTT; JAMES T. BEWLEY; NORMA BEWLEY; JACKIE McCOMBS; PATRICIA McCOMBS; ROYCE HOUCHIN; EDWARD G. PARSLEY; ORAOLA PARSLEY; DEBORA PARSLEY; DELORES JONES and RICHARD D. JONES, SR., as Executors of the ESTATE OF MOLLIE KERSEY, deceased; PARK CITY GAS, LLC; RHONDA W. EHRICH and JIM BROWN, Co-Executors of the ESTATE OF ROBERT E. THORPE, JR.; STRIDER LLC, DT AND ASSOCIATES, INC. (a/k/a TD AND ASSOCIATES, INC.); ELI SAKHAI; AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.; SMITH ENERGY #1, LLC; RP ENERGY #1, LLC; and EC VENTURES, LLC APPELLEES BILLY JOE HONEYCUTT; TAMMIE HONEYCUTT; JAMES T. BEWLEY; NORMA BEWLEY; JACKIE McCOMBS; PATRICIA McCOMBS; ROYCE HOUCHIN; EDWARD G. PARSLEY; ORAOLA PARSLEY; DEBORA PARSLEY; DELORES JONES and RICHARD D. JONES, SR., as Executors of the ESTATE OF MOLLIE KERSEY, deceased CROSS-APPELLANTS v. ATMOS ENERGY CORPORATION; ATMOS ENERGY MARKETING, LLC; and ATMOS GATHERING COMPANY, LLC CROSS-APPELLEES |
| Court | Court of Appeals of Kentucky |
NOT TO BE PUBLISHED
APPEAL FROM EDMONSON CIRCUIT COURT
By way of background, between 2001 and 2003, Robert Thorpe entered into natural gas leases with several landowners in Edmonson County, Kentucky. When Thorpe entered into the leases, he was doing business as a sole proprietor under the names Resource and Energy Technologies Company and Resource and Energy Technology Companies ("RETCO"). In 2002, John Charles became Thorpe's business partner. Thorpe and Charles drilled natural gas wells on the leased properties. In November 2003, Thorpe and Charles formed Park City Gas, LLC ("Park City") and were Park City's only two members. Thorpe then assigned the leases to Park City.
Thorpe and Charles also formed Resource Energy Technology, LLC ("RET"), in November 2003.3 Thorpe and Charles were the only two members of RET. In December 2006, Park City and RET entered into a contract whereby RET would be the operator of the natural gas wells on the leased property. In November 2006, RET, through Thorpe and Charles, entered into a contract withappellant Atmos Gathering under which Atmos Gathering agreed to build a gas gathering system, to provide gas compression services, to deliver the gas from the wellheads to a treatment facility, and to deliver the gas from the treatment facility to the interstate transmission pipeline ("Gas Gathering Contract"). RET, through Thorpe and Charles, also entered into a contract with appellant Atmos Marketing, whereby Atmos Marketing would purchase the gas at the delivery point on the interstate transmission pipeline ("Gas Marketing Contract").
RET entered into a separate contract with non-party HNNG Development, LLC, to design and build the treatment facility. Because HNNG was not able to complete the treatment facility, Atmos Gathering and RET executed two written amendments to their contract under which Atmos Gathering would complete the treatment facility. The parties' amended agreement provided for Atmos Gathering to recoup its investment in the project from the proceeds of the sale of the gas. Pursuant to the contract, Atmos Marketing would act as the disbursing agent for the sale proceeds, taking specified deductions from the sale proceeds for the various services provided by Atmos Gathering and for recovery of Atmos Gathering's investment. Atmos Marketing was to pay any remaining sale proceeds to RET.4 A subsequent amendment provided that Atmos Gathering wasto purchase the gas from RET at the wellhead. According to Doug Schroeder, who testified on behalf of Atmos Gathering, Atmos Gathering regarded much of its investment as a loan to RET, and also regarded its top priority in the disbursement of proceeds from the sale of gas as a structured repayment of that loan.
Commercial gas production began on the leased property in May 2008. In April 2009, the Landowners sued RET, Atmos Gathering, Atmos Energy, and Atmos Marketing in Edmonson Circuit Court seeking to recover unpaid gas royalties (e.g., "Honeycutt I.") The complaint in Honeycutt I asserted claims for breach of the lease agreements against RET, for a declaratory judgment as to the royalties due to the Landowners, and for an accounting from RET and the Atmos entities (collectively "Atmos"). Atmos asserted a cross-claim against RET for indemnification pursuant to its contract with RET and common law. RET asserted a counterclaim against the Landowners for interfering with the operation of its gas wells.
In July 2009, RET filed a voluntary petition for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Western District of Kentucky. Honeycutt I was then removed to the Bankruptcy Court where it became an adversary proceeding. In November 2009, the plaintiff Landowners in Honeycutt I and RET agreed to dismiss all claims without prejudice. The plaintiff Landowners also moved to dismiss their claim against Atmos for an accounting. Because Atmos's cross-claim against RET was the only remaining claim in Honeycutt I, Atmos moved to dismiss that claim. The claim was dismissed without prejudice.
In September 2009, while RET was in bankruptcy proceedings, the Landowners filed the instant matter in Edmonson Circuit Court against Thorped/b/a RETCO and the Atmos entities (e.g., "Honeycutt II"). The complaint in Honeycutt II asserted various tort claims against Thorpe and Atmos, including fraud, conversion, trespass, and negligence. Park City, who was later added as a defendant in Honeycutt II, asserted cross-claims against Atmos for apportionment, negligence, intentional interference with contractual relationships, and fraud. Atmos then asserted cross-claims against Thorpe and Park City for common law indemnity, contribution, and apportionment.
Additionally, Atmos filed a proof of claim in RET's bankruptcy proceeding for indemnity, contribution, apportionment, and breach of contract. Atmos's motion for relief from the automatic stay was denied by the Bankruptcy Court. After Atmos appealed the denial to the United States District Court, but before the appeal was decided, RET moved to voluntarily dismiss its bankruptcy proceeding because it was unable to propose a confirmable reorganization plan. RET's bankruptcy proceeding was thereafter closed on September 29, 2010.
The trial in Honeycutt II began on November 12, 2010. After a fourteen-day trial, the jury found the following: (1) RET was the implied agent of Atmos for purposes of paying royalties to the Landowners; (2) Atmos was liable for failing to pay royalties to the Landowners; (3) Atmos converted gas from the Landowners; (4) Atmos negligently failed to exercise reasonable care in its business transactions and failed to enforce its code of conduct; (5) Atmos intentionally interfered with the contractual relationship between the Landownersand Thorpe/Park City by preventing Thorpe/Park City from paying the Landowners' royalties, which led to the Landowners filing a successful action to forfeit the leases; (6) Atmos charged excessive post-production expenses back against the Landowners' royalties; (7) Atmos defrauded Thorpe/Park City and the Landowners; and (8) Atmos Gathering5 trespassed on property owned by one of the Landowners (i.e., the Estate of Mollie Kersey). Finally, the jury apportioned 100% of the fault to Atmos and 0% to Thorpe d/b/a RETCO and Park City. After post-judgment motions, the circuit court entered judgment for the Landowners, Thorpe and Park City in the amount of $28,454,210; the jury found that approximately $450,000 of this amount represented the Landowners' loss of gas revenues, $3,374,160 of this amount represented the Thorpe Parties' "lost future gas revenues," and the remainder represented punitive damages (of which the Thorpe Parties received $20,244,960).
Atmos now appeals each of the findings of the jury, with the exception of its findings relative to trespass. In sum, Atmos argues that it was entitled to a directed verdict because each of the claims asserted against it failed as a matter of law; that various errors relating to the selection of jurors and admission of evidence warrant a new trial; and, alternatively, that it is entitled to a reduction in the amount of punitive damages awarded to the Landowners and the ThorpeParties. The Landowners have cross-appealed, arguing that they were entitled to a greater amount of punitive damages.
Additional facts and procedural history will be discussed as it becomes relevant in our analysis.
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