Kling Realty Co., Inc. v. Chevron Usa, Inc.

• Decision Date: 10 July 2009
• Docket Number: No. 08-30043.,08-30043.
• Citation: 575 F.3d 510
• Parties: KLING REALTY COMPANY, INC; Walet Planting Co., Plaintiffs-Appellants, v. CHEVRON USA, INC., individually and as successor in interest, formerly doing business as Texaco, Inc., formerly doing business as Texaco Exploration and Production, Inc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

575 F.3d 510

KLING REALTY COMPANY, INC; Walet Planting Co., Plaintiffs-Appellants, v. CHEVRON USA, INC., individually and as successor in interest, formerly doing business as Texaco, Inc., formerly doing business as Texaco Exploration and Production, Inc., Defendant-Appellee.

No. 08-30043.

United States Court of Appeals, Fifth Circuit.

July 10, 2009.

J. Michael Veron (argued), Alonzo P. Wilson (argued), Veron, Bice, Palermo & Wilson, Lake Charles, LA, Edward Paul Landry, Landry, Watkins, Repaske & Breaux, New Iberia, LA, for Plaintiffs-Appellants.

G. William Jarman (argued), Alan James Berteau, Louis Victor Gregoire, Jr., Donna Vandever Yelverton, Kean, Miller, Hawthorne, D'Armond, McCowan & Jarman, Baton Rouge, LA, for Defendant-Appellee.

Appeal from the United States District Court for the Western District of Louisiana.

Before HIGGINBOTHAM, BENAVIDES and STEWART, Circuit Judges.

CARL E. STEWART, Circuit Judge:

The original opinion in this case was issued by the panel on December 17, 2008. Kling Realty Co. Inc. v. Chevron USA Inc., 306 Fed.Appx. 24 (5th Cir.2008). A petition for rehearing is currently pending before this panel. The petition for panel rehearing is granted to the extent that we VACATE our previous opinion and replace it with the following opinion. In all other respects, the petition for panel rehearing is DENIED.

This case involves the contamination of land by oil and gas exploration over several decades during the twentieth century. Plaintiffs-Appellants Kling Realty Co. and Walet Planting Co. (together, "Kling/Walet") sued Defendant-Appellee Chevron USA Inc. ("Chevron"), successor in interest to Texaco, and two other defendants in state court. Chevron removed to federal court, alleging improper joinder of nondiverse defendants. The district court dismissed the non-diverse defendants, and denied Kling/Walet's motion to remand. The district court dismissed all claims with prejudice, holding that they were barred by prescription and dismissed as moot Kling/Walet's motion for leave to add a non-diverse party. We AFFIRM the judgment.

BACKGROUND

Kling/Walet's claims are rooted in the contamination of their property in Iberia Parish, allegedly caused by Chevron's predecessor (Texaco) while it was engaged in the exploration and production of oil and gas. Kling/Walet and Chevron were parties to an oil and gas lease relating to the property, which terminated, at the latest calculation, in August 1974. Four wells were established on the Kling/Walet property, the claims in this case relate to Well No. 6 ("Well"), the only well that was productive for Chevron.¹ The Well was plugged and abandoned in October 1971.

Kling/Walet have used the property for sugar cane farming since the 1970s. At the time that they began farming, Kling/Walet were concerned that crops would not grow on a small piece of their property. After bringing their concerns to Chevron, Kling/Walet entered into a release of claims associated with the Well and any pit, tank battery, or other piece of equipment associated with the Well (the "1973 Release"), for consideration of approximately $4,000. It is undisputed that Chevron's activities on the property ended no later than 1974.

Kling/Walet filed this action in June 2006 in Louisiana state court. Kling/Walet sought to recover compensatory and punitive damages from Chevron, Estis Well Service, LLC ("Estis"), and Jack P. Martin, Sr. ("Martin") (collectively, "Defendants") for contamination of their property located in Iberia Parish, Louisiana. Kling/Walet are citizens of Louisiana, as are Estis and Martin. Chevron is not. Kling/Walet allege that they are lessors, assigns, and/or successors in interest to certain oil, gas, and mineral leases with Chevron. Kling/Walet alleged that Defendants conducted and/or participated in various oil and gas exploration and production activities on land including their property, causing ongoing property damage and various forms of emotional distress.

In August 2006, Chevron filed a notice of removal. In October 2006, Kling/Walet responded with a motion to remand to state court. In January 2007, the district court entered a Memorandum Ruling and Order, concluding that non-diverse Defendants Estis and Martin had been improperly joined, dismissing the claims against them, concluding that diversity jurisdiction was proper, and denying the motion to remand.

In May 2007, Chevron filed a motion for partial summary judgment, arguing, among other bases, that Kling/Walet's claims had prescribed.² In December 2007, the district court granted Chevron summary judgment on the issue of prescription for all claims and denied as moot Kling/Walet's motion for leave to amend. Kling/Walet appeal.

DISCUSSION

I. Diversity Jurisdiction

A determination that a party is improperly joined and the denial of a motion for remand to state court are questions of law reviewed de novo. McDonal v. Abbott Labs., 408 F.3d 177, 182 (5th Cir.2005). However, this court reviews a district court's procedure for determining improper joinder only for abuse of discretion. Guillory v. PPG Indus., Inc., 434 F.3d 303, 309-10 (5th Cir.2005).

Kling/Walet argue that the district court erred by piercing the pleadings and dismissing Martin because neither party presented summary judgment-type evidence related to whether they had any possibility of prevailing against Martin, and Chevron therefore did not meet its burden to show improper joinder.³ Chevron argues that Martin was properly dismissed because, Kling/Walet's petition fails to state a claim against Martin under Louisiana law. Chevron further points to the absence of allegations or evidence presented by Kling/Walet to show how Martin was connected to their property such that he faced any liability for the alleged contamination.

There are two bases on which the district court might determine that a plaintiff improperly joined a non-diverse defendant to defeat subject matter jurisdiction: "(1) actual fraud in the plaintiff's pleading of jurisdictional facts, or (2) inability to establish a cause of action." Campbell v. Stone Ins., Inc., 509 F.3d 665, 669 (5th Cir.2007). Under the second prong,⁴ the test "is whether the defendant has demonstrated that there is no possibility of recovery by the plaintiff against an in-state defendant, which stated differently means that there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an instate defendant." Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir.2004) (en banc). "This means that there must be a reasonable possibility of recovery, not merely a theoretical one." Campbell, 509 F.3d at 669 (quoting Ross v. Citifinancial, Inc., 344 F.3d 458, 462 (5th Cir.2003)). The burden of persuasion on a party claiming improper joinder is a "heavy one." Id.

The district court concluded that Kling/Walet failed to state a claim against Martin, relying largely on Canter v. Koehring, 283 So.2d 716 (La.1973), and Ford v. Elsbury, 32 F.3d 931, 936 (5th Cir.1994) (discussing liability of a supervisor-employee under Louisiana law and applying Canter). In Canter, the Louisiana Supreme Court held that an employee could only be held personally liable for injuries to third persons where: (1) the employer owed a duty of care to the third person, breach of which caused the damage for which recovery is sought; (2) that duty was delegated by the employer to the defendant; (3) the defendant employee breached his duty through personal (not technical or vicarious) fault; and (4) the employee had a personal duty toward the injured third party, the breach of which specifically caused the third party's damages. Canter, 283 So.2d at 721. Further, with regard to the accused employee's personal fault, personal liability cannot be imposed upon the employee simply because of his general administrative responsibility for some function of employment. Id.

The district court found Kling/Walet's suit distinguishable from Ford. In Ford, the plaintiffs sued a chemical plant and certain individual defendants, including the plant manager. 32 F.3d at 936-37. The defendants removed, alleging the manager, among other defendants, was improperly joined. This court concluded the Ford plaintiffs did have a reasonable possibility of recovery against the plant manager, where the facts showed that the plant manger knew of the leak that lead to the explosion. Id. at 938-39. Here, the district court concluded that, in contrast to Ford, Kling/Walet made only general and unsupported allegations that Martin breached a personal duty owed to them without pleading facts establishing what that actionable, non-general managerial duty might be. The district court concluded that the allegations in Kling/Walet's complaint and motion to remand were not enough to establish a Canter duty.

Kling/Walet argues that the district court abused its discretion by piercing the pleadings regarding Martin and improperly shifted the evidentiary burden from Chevron to Kling/Walet. Kling/Walet further asserts that its petition sufficiently alleges a claim against Martin under the requirements of Canter.⁵ Chevron argues that the district court conducted its analysis properly and that it correctly concluded that Kling/Walet would not be able to recover against Martin under Louisiana law. We acknowledge that it is less than clear from the passage of the district court's order denying remand whether the district court engaged in a Rule 12(b)(6)-style analysis, a summary inquiry after piercing the pleadings, or both, in arriving at its conclusion that joinder of Martin was improper.⁶ However, we need not parse the order to determine which it is.

We agree with the district court that Kling/Walet's conclusory allegations do not establish a reasonable possibility of recovery against Martin under Canter, although on different reasoning. See United States ex rel. Farmer v. City of Houston, 523 F.3d 333, 338 n....