Cadle Co. v. Gasbusters Prod. I Ltd. P'ship, 2015-CA-000323-MR

• Decision Date: 12 August 2016
• Docket Number: NO. 2015-CA-000323-MR,2015-CA-000323-MR
• Citation: 509 S.W.3d 713
• Parties: The CADLE COMPANY ; and The Cadle Company II, Inc., Appellants v. GASBUSTERS PRODUCTION I LIMITED PARTNERSHIP; and FL-Gasbusters, Inc., Appellees
• Court: Kentucky Court of Appeals

509 S.W.3d 713

The CADLE COMPANY ; and The Cadle Company II, Inc., Appellants

v.GASBUSTERS PRODUCTION I LIMITED PARTNERSHIP; and FL-Gasbusters, Inc., Appellees

NO. 2015-CA-000323-MR

Court of Appeals of Kentucky.

AUGUST 12, 2016; 10:00 A.M.

Discretionary Review Denied by Supreme Court February 9, 2017.

BRIEFS FOR APPELLANTS: Trevor W. Wells, Will E. Messer, Lexington, Kentucky

BRIEF FOR APPELLEES: Stephen P. Stoltz, Stefan J. Bing, Lexington, Kentucky

BEFORE: DIXON, NICKELL, AND VANMETER, JUDGES.

OPINION

VANMETER, JUDGE:

The doctrine of res judicata serves to preclude relitigation of claims which have been previously adjudicated. The issue we must decide in this case is whether the Lawrence Circuit Court erred in granting summary judgment in favor of Gasbusters Production I Limited Partnership and its general partner, FL-Gasbusters, Inc. (hereinafter jointly "Gasbusters"), and against The Cadle Company ("Cadle") as a result of a bankruptcy judgment. We hold that the trial court did not err and therefore affirm its judgment.

I. Factual and Procedural Background.

In 2002, C. Lester Paul and Margaret S. Paul, individually and on behalf of a number of corporate entities, initiated this action in Lawrence Circuit Court against Gasbusters, which action was designated No. 02-CI-00274. The corporate entities were stated as Delstar Resources, Inc., a Nevada corporation; Delstar Resources, Inc. (KY), an administratively dissolved Kentucky corporation; Bluegrass Drilling Corporation, Inc., a Kentucky corporation; and Delta Gas Corporation, Inc., a Georgia corporation. In addition, The Viking Group, Inc., included in the caption and body of the Complaint, was stated to be a sole proprietorship and assumed name of C. Lester Paul. The Complaint stated six counts:

Count I alleged Gasbusters owed plaintiffs and Bluegrass Drilling certain costs and expenses for labor and services for operating oil and gas wells operated by Gasbusters. The amount claimed due for the years 1996, 1997, and 1998, including interest, was approximately $440,000.

Count II alleged that Gasbusters, the partnership, was incorrectly organized and that the individually named defendants were jointly and severally liable to plaintiffs for the amounts claimed due from Gasbusters.

Count III alleged that plaintiffs and Delstar Resources were the owners of certain oil and gas mineral rights in Lawrence and Martin Counties, which were subject to a 1980 lease to Raymond Burgess. These rights were claimed to be subject to a sublease to Gasbusters, as to which Gasbusters had failed to pay the contracted royalties. The amount claimed was in excess of $50,000.

Count IV alleged that plaintiffs and Delta were the assignees of a 1980 Production Mortgage on oil and gas wells known as the "Robertson Coal Co. Wells Nos. 1 and 3." The amount claimed due was $180,000. Count IV also alleged plaintiffs and Delta were the assignees of a Mortgage and a Quitclaim and Sublease Agreement dated June 15, 1991, securing payment of a $72,000 mortgage note from Raymond Burgess. Gasbusters was alleged to be liable to pay these amounts.

Count V alleged that C. Lester Paul was the assignee from Appalachian Natural Gas Corp. and Raymond Burgess of all claims and causes of action under another Lawrence Circuit Court action, docket no. 94-CI-00144, Appalachian Natural Gas Corp. and Raymond Burgess v. William J. M. Polan, Gasbusters, Inc., and Gasbusters Limited Partnership . The judgment sought under this other action was $350,000.

Count VI alleged that Gasbusters had erroneously received a royalty payment from Dominion Field Services, LLC, for production on well meter No. 824440.

In 2004, the Pauls, as Debtors, filed a Chapter 7 bankruptcy in the Western District of Kentucky. Both Cadle and The Cadle Company, II ("Cadle II") were listed on the Debtors' Petition for Relief as creditors and were participating parties in the Pauls' bankruptcy action. In May 2005, the bankruptcy court approved the Bankruptcy Trustee's sale to Cadle of the Pauls' interests in the Lawrence Circuit Court Civil Action No. 02-CI-00274, the present action. Cadle was then substituted as a party plaintiff in the Lawrence Circuit Court Action by Order entered in August 2005.¹ The Lawrence Circuit Court action lay dormant while the parties and their counsel shifted their focus to litigating various claims in the federal courts.

In the bankruptcy proceeding, Gasbusters filed a proof of claim. Initially, the Trustee objected on the basis that the claim was unliquidated. Gasbusters then filed an amended proof of claim which liquidated the amounts claimed. The Trustee later withdrew his objection, but Cadle II, which had purchased substantially all of the Pauls' bankruptcy estate, objected. One of Cadle II's objections was that certain expenses and other offset items were to be taken into account to reduce the amount of the claim. In supplemental answers to Gasbusters' Interrogatories, which were filed in September 2008, Cadle II described these offsets, as follows:

INTERROGATORY NO. 5: Do you object to the allowance of Gasbusters' amended proof of claim filed herin. [?][sic] If so, please explain as fully and completely as possible the factual basis for your contention including the proper dollar amount of such claim and how that amount was calculated. Identify all persons with knowledge of such facts and all relevant documents.

RESPONSE: See

General Objection. Subject to and without waiving the foregoing objections, Cadle states the following: Yes, Cadle objects to the allowance of Gasbusters' amended proof of claim and believes that the proper dollar amount of that claim should be zero. Cadle does not believe that Gasbusters has any valid claim against the Estate in that Gasbusters' claim is unenforceable against the debtors and property of the debtors under applicable law. More specifically, Cadle contests the underlying premise of Gasbusters' proof of claim and disputes the factual allegation that the Debtors (or their alleged alter egos) misappropriated mineral resources that belonged to Gasbusters and/or failed to compensate Gasbusters for mineral resources that Debtors sold to third parties. Even more specifically, Cadle disputes whether Gasbusters owns the mineral resources upon which it premises its trespass claims in light of its failure to meet the payment-term condition precedent of the settlement agreement purportedly reached in connection with Lawrence Circuit Court Civil Action No. 94-CI-144. Moreover, Cadle takes issue with the merits of Gasbusters' contention that Debtors (or their alleged alter egos) trespassed upon and/or misappropriated any mineral resources allegedly belonging to Gasbusters. To the extent that Mr. Streit's "expert" opinions are even admissible under the Daubert standard, Cadle disputes their validity and reliability for the reasons identified above in Interrogatory No. 3 in addition to various calculation errors (including without limitation, the failure to confine the opinion to the pre-Bankruptcy period, failure to account for periods of time when the natural gas transmission lines were unavailable, use of incorrect dekatherm data) and the other concerns raised in Cadle's Prehearing Brief and Objection, which Cadle incorporates by reference as if fully set out herein. Gasbusters calculations also fail to provide any credit for payments to Gasbusters and/or its

agents, attorneys, affiliates, receivers, and/or C. Lester Paul or any of his related entities in connection with Palm Beach County, Florida Circuit Court Case No. CL 96-9200 AI (Andrew Messing, et al v. Gasbusters Production I, et al).

To the extent that Gasbusters has any claim against the Estate, which Cadle disputes for the above-referenced reasons, the amount of that claim would be eclipsed by one or more of the following offsets for any sums that may be owed to the Debtors or entities affiliated with the Debtors: (a) offsets for all fees and expenses, including but not limited to those described in Lawrence Circuit Court Civil Action No. 02-CI-00274, related to gas production to which C. Lester Paul, Bluegrass Drilling or any other affiliated Paul entity may be entitled ; (b) a credit back for C. Lester Paul's share in the proceeds from any positive claim amount as a result of his majority ownership share of Gasbusters; (c) offsets to the extent of the claim(s) against Gasbusters for funds owed to Ray Burgess, his successors and assigns in connection with Gasbusters' original "purchase" of the applicable mineral resources, including without limitation those described in Lawrence Circuit Court Civil Actions No. 94-CI-0144, No. 02-CI-00274, and No. 05-CI-00156; (d) offsets for all unpaid mortgages of public record that encumber the source of Gasbusters claim; (e) an offset for the overriding 1/8^th royalty interest previously owned by Margaret S. Paul (with equitable title at a minimum now vested in Cadle), and not accounted for in Gasbusters' calculations.

(emphasis added).

By letter dated December 3, 2008, Cadle's counsel provided detail with respect to the claimed offsets:

With regard to the claimed offset (a) ["offsets for all fees and expenses, including but not limited to those described in Lawrence Circuit Court Civil Action No. 02-CI-00274, related to gas production to which C. Lester Paul ... may be entitled"], Cadle specifies the following of its Exhibits—in addition to the Operating Agreement itself, which is one of your designated Exhibits—as its supporting documentation: CADLE 8, 9, 18, 19, 24, 26, and 53 (p. 50). Cadle's total claimed offset is for $398,272.62 (calculated by taking the historical lease operating expenses for 1998 and extrapolating them across the 5.667 years covered by Mr. Streit's analysis).

With regard to claimed offset (c) ["offsets to the extent of the claim(s) against Gasbusters for funds owed to Ray Burgess, his successors and assigns in connection with Gasbusters' original "purchase" of the applicable mineral

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