Pal Oil, LLC v. United Am. Energy, LLC
| Decision Date | 26 October 2012 |
| Docket Number | NO. 2011-CA-001120-MR,NO. 2011-CA-000744-MR,2011-CA-000744-MR,2011-CA-001120-MR |
| Parties | PAL OIL, LLC; NORMAN LEDFORD; CORNELIUS ARTHUR; ARROWHEAD ENTERPRISES OF KENTUCKY, INC; AND MONTIE PARKS APPELLANTS v. UNITED AMERICAN ENERGY, LLC APPELLEE AND ARROWHEAD ENTERPRISES OF KENTUCKY, INC; MONTIE PARKS; PAL OIL, LLC; NORMAN LEDFORD; AND CORNELIUS ARTHUR APPELLANTS v. UNITED AMERICAN ENERGY, LLC APPELLEE |
| Court | Kentucky Court of Appeals |
NOT TO BE PUBLISHED
APPEAL FROM FAYETTE CIRCUIT COURT
The appellants argue the circuit court's multifaceted judgment is erroneous in several respects. In particular, they argue that the circuit court erred in 1) asserting subject matter jurisdiction in this matter; 2) conducting a bench trial, rather than a jury trial; 3) holding PAL Oil, Arrowhead, Ledford, Parks, and Arthurliable for fraud in relation to their purported sale of an oil and gas lease they never owned (i.e., the "Tyree" lease) to UAE; 4) holding PAL Oil, Ledford, and Arthur liable for breach of contract and indemnity relating to the Tyree lease on the same basis; 5) holding Arrowhead, Ledford, Parks, and Arthur liable for breach of contract and indemnity relating to four other leases3 which the circuit court determined had "expired" as a matter of law prior to when these appellants purported to sell them to UAE; 6) dismissing their counterclaims against UAE for abandoning the purportedly "expired" leases; 7) holding Arrowhead, Ledford, Parks, and Arthur liable for breach of contract and indemnity relating to their conveyance to UAE of a half-interest, rather than a full interest, in another oil and gas lease known as the "Henderson" lease; 8) ruling on various evidentiary issues; and, 9) awarding UAE excessive damages and prospective attorneys' fees. These overarching issues, as well as several sub-issues included therein, will be addressed in turn below. The facts of this case will be discussed as they become relevant within the context of each issue.
Before we address the merits of this case, we will first address the appellants' contentions that the Fayette Circuit Court never had the authority to 1) prohibit the appellants from removing this matter to the United States District Court for the Eastern District of Kentucky; and 2) conduct a bench trial. Both ofthese contentions stem from clauses contained in two contracts that these parties executed herein (i.e., Section 18.5 of the 2006 and 2007 Agreements for the Purchase of Assets (APAs), which will be discussed more fully below). In both of these APAs, Section 18.5 provides:
Consent to Jurisdiction. The Buyer and the Seller hereby irrevocably submit to the jurisdiction of the United States District Court for the Eastern District for Kentucky in any action or proceeding arising out of or relating to this Agreement, and the Buyer and the Seller hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in such federal court. The Buyer and the Seller hereby irrevocably waive, to the fullest extent they may effectively do so, their rights to a trial by jury, and to the defense of an inconvenient forum to the maintenance of such action or proceeding. Any action or proceeding arising out of or relating to this Agreement for which the United States District Court for the Eastern District of Kentucky does not have jurisdiction shall be brought in the Circuit Court of Fayette County, Kentucky.
As noted, the appellants' first argument relating to Section 18.5 is that the Fayette Circuit Court erred in prohibiting them from removing this matter to the United States District Court for the Eastern District of Kentucky. The entire substance of their argument is as follows:
"Defects in subject-matter jurisdiction may be raised by the parties or the court at any time and cannot be waived." Privett v. Clendenin, 52 S.W.3d 530, 532 (Ky. 2001); seeKarahalios v. Karahalios, 848 S.W.2d 457, 460 (Ky. App. 1993). In Prudential Resources Corp. v. Plunkett, 583 S.W.2d 97 (Ky. App. 1997), the Court of Appeals affirmed the dismissal of a case based on a forum selection clause because parties' agreements as tothe forum for disputes arising out of a contract will be given effect, so long as the forum selection clause does not produce an unfair or unreasonable result. Id.; seealsoPrezocki v. Bullock Garages, Inc., 938 S.W.2d 888, 889 (Ky. 1997).
This brief argument labors under several misapprehensions of Kentucky and federal law.
We will begin with the appellants' reference to "subject matter jurisdiction." When UAE filed this case in Fayette Circuit Court, the Fayette Circuit Court's subject matter jurisdiction over this matter was never at issue. "[S]ubject matter does not mean 'this case' but 'this kind of case.'" Harrison v. Leach, 323 S.W.3d 702, 705 (Ky. 2010) (citation omitted). The Fayette Circuit Court, as a court of general jurisdiction, has been vested with subject-matter jurisdiction over exactly the type of case UAE brought to it—contract disputes and suits in equity. Ky. Const. §§ 109 & 112(5); Kentucky Revised Statute (KRS) 23A.010; Peter v. Gibson, 336 S.W.3d 2, 5 (Ky. 2010). The Fayette Circuit Court "acquired jurisdiction of the subject matter [of UAE's claims] when the petition [or, as in this case, the complaint] was filed and summons issued[.]" Hudson v. Manning, 250 Ky. 760, 63 S.W.2d 943, 945 (1933). Consequently, there is no merit in the argument that the circuit court was not vested with subject matter jurisdiction.
Giving the appellants the benefit of the doubt, however, we will assume that they meant to assert that the Fayette Circuit Court should have dismissed this matter, in light of the forum selection clause, on the ground ofimproper venue. Certainly, both of the cases cited by the appellants—Plunkett and Prezocki, supra—stand for the proposition that when a litigant properly asserts an enforceable forum selection clause, the court should enforce it and dismiss the matter without prejudice.
The litigants in Plunkett and Prezocki sought to enforce their respective forum selection clauses prior to filing their answers in those matters. Plunkett, 583 S.W.2d at 99; Prezocki, 938 S.W.2d at 888. The defense of improper venue is among the irrevocably waivable defenses identified in CR4 12.02(b)-(e). And, failure to raise any of those defenses (1) in a pre-answer motion to dismiss the original complaint, (2) in an answer to that complaint, or (3) in a matter-of-course amendment to that answer results in an irrevocable waiver. See CR 12.08(1).
Here, the appellants waited over two years after UAE initiated this matter before asserting the forum selection clause of Section 18.5. They did not do so through a pre-answer motion, an answer to the original complaint, or through a matter-of-course amendment to that answer.
Aside from the rule of waiver stated in the Civil Rules, the general law of waiver in Kentucky also supports that the trial court correctly determined that this matter should not have been dismissed on the basis of the forum selection clause. "Our law is clear that a 'waiver' is a voluntary and intentional surrender or relinquishment of a known right, or an election to forego an advantage which theparty, at his option, might have demanded or insisted upon." Weinberg v. Gharai, 338 S.W.3d 307, 314 (Ky. App. 2011) (citing Barker v. Stearns Coal & Lumber Co., 291 Ky. 184, 163 S.W.2d 466, 470 (1942)). Unequivocally, the appellants knew from the onset of this litigation that they had the option, if it applied, to transfer this matter to the United States District Court for the Eastern District of Kentucky. Yet, as mentioned, they made no attempt to exercise this option or inform the circuit court of their intent to do so for over two years. They then sought to enforce the forum selection clause after the Fayette Circuit Court had already granted partial summary judgment against them on a number of UAE's claims for indemnity—claims that the appellants vigorously litigated.
In a footnote of their brief, the appellants assert that they could not have asserted the forum selection clause until two years into this litigation because "UAE answered damages interrogatories and produced documents (in February 2010) indicating that damages exceeded the federal jurisdiction minimum." Stated differently, the appellants claim that they simply could not have known that the United States District Court for the Eastern District of Kentucky could have assumed diversity jurisdiction of this case until February, 2010, when UAE attached a specific dollar figure to their claims.
Federal courts, particularly the United States District Court for the Eastern District of Kentucky, encourage the practice of parties conducting federal jurisdictional discovery in state courts; for an excellent summary of this practice, see May v. Wal-Mart Stores, Inc., 751 F. Supp. 2d 946 (E.D. Ky. 2010).Nevertheless, 28 U.S.C.5 § 1446 only permits litigants to remove a civil action based upon diversity of citizenship from a state court to a federal court within "1 year after commencement of the action, unless the...
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