Reinhart Oil & Gas v. Excel Directional Tech.

• Decision Date: 15 November 2006
• Docket Number: Civil Action No. 06-cv-01469-EWN-BNB.
• Parties: REINHART OIL & GAS, INC., Plaintiff, v. EXCEL DIRECTIONAL TECHNOLOGIES, LLC, Defendant.
• Court: U.S. District Court — District of Colorado

Page 1240

463 F.Supp.2d 1240

REINHART OIL & GAS, INC., Plaintiff, v. EXCEL DIRECTIONAL TECHNOLOGIES, LLC, Defendant.

Civil Action No. 06-cv-01469-EWN-BNB.

United States District Court, D. Colorado.

November 15, 2006.

John `Jack' Markham Tanner, Susan F. Fisher, Fairfield & Woods, P.C., Denver, CO, for Reinhart Oil & Gas, Inc.

Christopher Michael Kamper, Stewart Mcnab, Carver, Kirchhoff, Schwarz, McNab & Bailey, LLC, Denver, CO, for Excel Directional Technologies, LLC.

ORDER AND MEMORANDUM OF DECISION

NOTTINGHAM, District Judge.

This is a contract dispute. Plaintiff Reinhart Oil & Gas alleges Defendant Excel Directional Technologies, L.L.C. negligently drilled a directional oil well, causing Plaintiff in excess of $75,000 in damages. This matter is before the court on "Defendant's Motion to Dismiss," filed August 28, 2006. Jurisdiction is premised upon 28 U.S.C. § 1332 (2006).

FACTS

1. Factual Background

Plaintiff is a Texas corporation with its principal place of business in California. (Compl. ¶ 1 [filed July 28, 2006] [hereinafter "Compl."].) Defendant is a limited liability company, the sole member of which is a resident of Colorado. (Id, ¶ 2.) Plaintiff's in the business of oil and gas exploration. (Id. ¶ 5.) In 2005, Plaintiff became interested in exploring for oil on property in Montezuma County, Colorado (hereinafter "the Project"). (Id. ¶ 6.) Plaintiff, while retaining fifty-five percent ownership interest in the Project, contracted with Crystal River Oil & Gas, L.L.C. ("Crystal River") to be the operator of the Project. (Id. ¶ 8; Resp. in Opp. to Def.'s Mot. to Dismiss, Ex. 1 at 5 [Assignment of Claim], Ex. 2 at 1 [Klawiter Aff.] [filed Sept. 21, 2006] [hereinafter "Pl.'s Resp."].) RMS Monte Cristo ("RMS"), which is not a party to the present action, retained an ownership interest of thirty-seven percent in the Project.¹ (Pl.'s Resp., Ex. 1 at 5 [Assignment of Claim].) Crystal River has never held an ownership interest in the Project. (Pl.'s Resp., Ex. 1 at 1 [Spillane Aff.], Ex. 2 at 2 [Klawiter Aff.].) Crystal River, as operator of the Project, hired Defendant to perform directional drilling for the Project.² (Compl. ¶ 11.) Plaintiff claims that Defendant drilled the well in deviation from Crystal River's instructions.³ (Id. ¶ 13-14.) Further, Plaintiff avers that Defendant's negligence resulted in over $75,000 in damages. (Id. ¶ 3.) Crystal River paid Defendant $38,000 on the Project. (Pl.'s Resp., Ex. 1 at 2 [Spillane Aff.].) Plaintiff and RMS, however, were the sources of funds to pay the Project's bills. (Pl.'s Br., Ex. 1 at 1 [Spillane Aff.], Ex. 2 at 1 [Klawiter Aff.].) Plaintiff alleges Defendant demanded an additional $77,160.40, and threatened to file a lien on the Project property upon nonpayment. (Id. ¶ 19.) On July 27, 2006, Crystal River and RMS assigned to Plaintiff all claims against Defendant regarding the Project. (Pl.'s Resp., Ex. 1 at 5-7 [Assignment of Claim].) Crystal River forfeited all rights to proceeds from a judgment in Plaintiffs favor; whereas RMS retained the right to forty percent of the proceeds from any such judgment, roughly reflecting RMS' ownership interest in the Project. (Id.)

2. Procedural History

On April 18, 2006, Crystal River filed a complaint against Defendant containing allegations and claims for relief virtually identical to those made by Plaintiff in the present action. (See No. 1:06-cv-00729-WYD-BNB [Compl. (filed Apr. 18, 2006)].) On May 30, 2006, Plaintiff filed an amended complaint to correct an error in naming the parties. (Am. Compl. [filed May 20, 2006] [hereinafter "Crystal River Am. Compl."].) On July 17, 2006, Defendant moved to dismiss the action, arguing that because Crystal River and Defendant are both citizens of Colorado, the court could not exercise diversity jurisdiction over the matter. (Def.'s Mot. to Dismiss [filed July 17, 2006].) Instead of filing a response to Defendant's motion, Crystal River stipulated to dismissal of the action without prejudice on July 28, 2006. (Stipulated Mot. to Dismiss Without Prejudice [filed July 28, 2006].) That same day, Judge Wiley Y. Daniel entered an order granting the stipulated motion to dismiss without prejudice. (Order [filed July 28, 2006].)

Also on July 28, 2006, Plaintiff filed a complaint in this court. (Compl.) Plaintiff asserted two claims against Defendant: (1) negligence by drilling the well 180 degrees in the wrong direction and by failing to keep Crystal River informed regarding the activities and progress on the project and (2) declaratory judgment that Plaintiff is owed no additional money on the Project and, more specifically, that Plaintiff, as assignee of Crystal River's claims against Defendant, owes no further payment to Defendant. (Id. ¶¶ 21-28.) On August 28, 2006, Defendant filed a motion to dismiss Plaintiffs complaint. (Def.'s Mot. to Dismiss, filed Aug. 28, 2006 [hereinafter "Def.'s Br."].) Defendant argues this court lacks subject matter jurisdiction, because Plaintiff gained its claim against Defendant through an improper and collusive assignment from a nondiverse party in violation of 28 U.S.C. § 1359. (Id. at 4-6.) In the alternative, Defendant argues Crystal River is an indispensable party to the action that must be joined, which, in turn, would destroy diversity and require dismissal. (Id. at 6-10.) On September 21, 2006, Plaintiff responded to the motion.. (Pl.'s Resp.) On October 4, 2006, Defendant replied in support of its motion. (Def.'s Reply in Supp. of Mot. to Dismiss [filed Oct. 4, 2006] [hereinafter "Def.'s Reply"].) This matter is fully briefed and ripe for review.

ANALYSIS

1. Legal Standard

Federal courts are courts of limited jurisdiction, empowered to hear only those cases authorized and defined in the Constitution which have been entrusted to them under a jurisdictional grant by Congress. Henry v. Office of Thrift Supervision, 43 F.3d 507, 511 (10th Cir.1994) (citing Bender v. Williamsport Area Sch, Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 89 L.Ed.2d 501 [1986]) (further citations omitted). When a federal court lacks subject matter jurisdiction over a dispute, the court must remand the action to state court. 28 U.S.C. § 1447(c) (2006). This rule is inflexible and without exception, requiring a court to deny jurisdiction in all cases where jurisdiction does not affirmatively appear in the record. Amundson & Assoc. Art Studio, Ltd. v. Nat'l Council on Compensation Ins., Inc., 977 F.Supp. 1116, 1120-21 (D.Kan.1997) (citing Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites, 456 U.S. 694, 702, 102 S.Ct. 2099, 72 L.Ed.2d 492 [1982]).

Congress created diversity jurisdiction by statute to allow federal courts to entertain suits where the parties are citizens of different states and the amount in controversy exceeds $75,000, exclusive of interest and costs. 28 U.S.C. § 1332 (2006). However, "`[t]he courts must rigorously enforce Congress' intent to restrict federal jurisdiction in controversies between citizens of different states.'" Martin v. Franklin Capital Corp., 251 F.3d 1284, 1289 (10th Cir.2001) (quoting Miera v. Dairyland Ins. Co., 143 F.3d 1337 [10th Cir.1998] ).

Federal Rule of Civil Procedure 12(b)(1) provides that a defendant may move to dismiss a complaint for "lack of jurisdiction over the subject matter." Fed.R.Civ.P. 12(b)(1) (2006). "The party invoking jurisdiction bears the burden of establishing such jurisdiction...." Radil v. Sanborn W.Camps, Inc., 384 F.3d 1220, 1224 (10th Cir.2004.) A Plaintiff "has the duty to support jurisdictional allegations in a complaint by competent proof of the supporting facts if the jurisdictional allegations are challenged by an appropriate pleading." Pytlik v. Profl Res., Ltd., 887 F.2d 1371, 1379 (10th Cir.1989. Moreover, "[w]here a party attacks the factual basis for subject matter jurisdiction, the court does not presume the truthfulness of factual allegations in the complaint, but may consider evidence to resolve disputed jurisdictional facts." Radil, 384 F.3d at 1224 (citing Pringle v. United States, 208 F.3d 1220, 1222 (10th Cir.2000)).

Here, Defendant challenges jurisdiction based on 28 U.S.C. § 1359, which bars a district court from exercising jurisdiction over "a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court." 28 U.S.C. § 1359 (2006) (hereinafter "section 1359" or "§ 1359"). "`This statute is aimed at preventing parties from manufacturing diversity jurisdiction to inappropriately channel ordinary business litigation into the federal courts.'" Amoco Rocmount Co. v. Anschutz Corp., 7 F.3d 909, 916 (10th Cir.1993) (quoting Yokeno v. Mafnas, 973 F.2d 803, 809 [9th Cir.1992] ); see Kramer v. Caribbean Mills, Inc., 394 U.S. 823, 828-29, 89 S.Ct. 1487, 23 L.Ed.2d 9 (1969) (reasoning that collusive assignments could allow "a vast quantity of ordinary contract and tort litigation [to be] channeled into the federal courts at the will of one of the parties"). In essence, "Section 1359 is designed to prevent the litigation of claims in federal court by suitors who by sham, pretense, or other fiction acquire a spurious status that would allow them to invoke the limited jurisdiction of the federal courts." Nolan v. Boeing Co., 919 F.2d 1058, 1067-68 (5th Cir.1990); Martinez v. U.S. Olympic Comm., 802 F.2d 1275, 1277-80 (10th Cir.1986) (noting that "sham transactions" aimed solely at creating federal diversity jurisdiction are "condemned by § 1359"). The party asserting jurisdiction bears the burden of demonstrating a diversity-creating assignment was not improper or collusive. Amoco, 7 F.3d at 916. This court is under a duty to dismiss the present action if, at any stage in the proceedings, it becomes apparent that jurisdiction is lacking. Bradbury v. Dennis, 310 F.2d 73, 74 (10th Cir.1962).

2. Evaluation of Claims

As explained above, Defendant seeks dismissal of Plaintiff's complaint...