Slone v. Quest Energy Corp.

• Decision Date: 06 September 2022
• Docket Number: Civil Action 7:21-CV-00101-REW-EBA
• Parties: RAY SLONE, and BARBARA SLONE, PLAINTIFFS, v. QUEST ENERGY CORPORATION, SAMUEL COAL COMPANY, INC., THOMAS M. SAUVE, and MARK C. JENSEN, DEFENDANTS.
• Court: U.S. District Court — Eastern District of Kentucky

RAY SLONE, and BARBARA SLONE, PLAINTIFFS,
v.
QUEST ENERGY CORPORATION, SAMUEL COAL COMPANY, INC., THOMAS M. SAUVE, and MARK C. JENSEN, DEFENDANTS.

Civil Action No. 7:21-CV-00101-REW-EBA

United States District Court, E.D. Kentucky, Southern Division, Pikeville

September 6, 2022

REPORT AND RECOMMENDATION

EDWARD B. ATKINS, UNITED STATES MAGISTRATE JUDGE

I. FACTS AND PROCEDURAL HISTORY

This matter is before the Court on the Plaintiffs' Motion to Remand to the Knott Circuit Court. [R. 8]. The factual and legal history of the action, as gleaned from the pleadings, is as follows:

Barbara Slone, and her husband Ray Slone, assert that they were the prior owners of Samuel Coal Company, Inc. [R. 1]. On August 27, 2012, Barbara Slone, acting as the President of Samuel Coal, signed and delivered a letter of intent to Mark Jensen, agreeing to sell and transfer the mineral rights and “other associated rights to extract all resources on approximately 390 acres of land from Samuel Coal Inc.... by [to] Chilton Domestic Energy LLC or its affiliates (the ‘Purchaser' or ‘Chilton').” [R. 1-1]. Then, on December 20, 2012, Samuel Coal, Barbara Slone, and Quest Energy Corporation, acting through its Manager Thomas Sauve, entered a “Contract For Acquisition of Samuel Coal Company, Inc.,” by Quest. [R. 1-1]. The purchase agreement called for Quest to purchase “ . . . Samuel Coal and all of its assets . . . from Samuel Coal for the

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total Purchase Price of Seven Million Dollars ($7,000,000.00) . . .” [R. 1-1]. The Plaintiffs allege that some, but not all, payments were made in accordance with the terms of the contract. As a result, they filed an action in the Knott Circuit Court alleging breach of the Acquisition Contract and seeking damages as a result. [R. 1-1]. In that action, the Slones obtained a judgment awarding them “[p]artial judgment for the installment acquisition payments owed to date, which are for 2013 ($250,000.00), 2014 ($600,000.00), 2015 ($600,000.00), 2017 ($600,000.00), less royalty payments already made ($105,626.63) for a total judgment of $2,544.373.37).” [R. 1-1]. That judgment is now final.

In this action, the Slones maintain that Quest, now a related entity of Samuel Coal, is controlled by and through its directors, Sauve and Jenson, and has refused to satisfy the judgment from the Knott Circuit Court. [R. 1-1] They assert that the Defendants, Sauve and Jenson formed Quest in order to acquire Samuel Coal so that they might syphon off Quest/Samuel Coal's assets. They brought this action seeking to pierce Quest's corporate veil to enforce the Knott Circuit Court judgment against Quest, alleging that Samuel Coal is an alter-ego of Quest and that Sauve and Jensen are also jointly and severally liable for Quest's conduct. [R. 1-1 at pg. 2].

The Defendants removed the action to federal court, and Plaintiffs now move to remand the matter to state court. [R. 1 & 8]. The presiding judge referred the Motion to Remand to the undersigned for the purpose of preparing a recommended disposition. [R. 16]. The motion has been fully briefed and is ripe for review.

II. LEGAL STANDARD

A defendant may remove a civil action to federal court if “the district courts of the United States have original jurisdiction.” 28 U.S.C. § 1441(a). A federal court may exercise original jurisdiction, more specifically diversity jurisdiction, when “the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between” parties who are “citizens

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of different states.” 28 U.S.C. §1332(a)(1). Diversity jurisdiction requires complete diversity; that is, no defendant may be a citizen of the same state as any plaintiff. See Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373-74 (1978). Generally, the removal statute permits “the defendant or the defendants” in a state-court action over which the federal courts would have original jurisdiction to remove that action to federal court. Home Depot U.S.A., Inc. v. Jackson, 139 S.Ct. 1743, 1746 (2019). In addition, the case may not be removed if any defendant is “a citizen of the State in which such action is brought.” § 1446(c)(1).

III. ANALYSIS

A. Motion to Remand

Plaintiffs argue that this matter should be remanded to state court because complete diversity does not exist between the Plaintiffs and the Defendants as both the Plaintiffs and the Defendant Samuel Coal are Kentucky citizens, and the Defendants fail to establish by clear and convincing evidence that Samuel Coal was fraudulently joined as a defendant to this action. [R. 8 at pg. 4].

The burden of proving proper federal jurisdiction is on the removing party. Gafford v. Gen. Elec. Co., 997 F.2d 150, 155 (6th Cir. 1993). Thus, if an action is removed to federal court on the basis of diversity, and the removing party cannot demonstrate complete diversity among the parties, remand is proper. See Martin v. Walgreen Co., No. 7:19-CV-122-REW, 2020 U.S. Dist. LEXIS 34656, at *3 (E.D. Ky. Feb. 11, 2020). However, when a party removes a case involving non-diverse parties to federal court on diversity grounds, the removing party will defeat a motion to remand if it can show that the non-diverse parties were fraudulently joined. Saginaw Hous. Comm'n v. Bannum, Inc., 576 F.3d 620, 624 (6th Cir. 2009) (citing Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999)). The Sixth Circuit explained that “[f]raudulent joinder occurs when the non-removing party joins a party against whom there is no colorable cause of

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action.” Id. (citing Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 F.3d 904, 907 (6th Cir. 1999)).

There can be no fraudulent joinder unless it be clear that there can be no recovery under the law of the state on the cause alleged or on the facts in view of the law .... One or the other at least would be required before it could be said that there was no real intention to get a joint judgment, and that there was no colorable ground for so claiming

Alexander v. Electronic Data Sys. Corp., 13 F.3d 940, 949 (6th Cir. 1994) (quoting Bobby Jones Garden Apartments, Inc. v. Suleski, 391 F.2d 172, 176 (5th Cir. 1968)) (emphasis added). Thus, the fraudulent joinder inquiry requires courts to determine whether there was “any reasonable basis for predicting that [the plaintiff] could prevail” in the state court and under state law. Alexander, 13 F.3d at 949 (quoting Tedder v. F.M.C. Corp., 590 F.2d 115, 117 (5th Cir. 1979)).

The district court, when tasked with determining whether a non-diverse defendant has been fraudulently joined, may “pierce the pleadings” and “consider summary judgment-type evidence in the record.” Walker v. Philip Morris USA, Inc., 443 Fed.Appx. 946, 953 (6th Cir. 2011) (quoting Travis v. Irby, 326 F.3d 644, 648-649 (5th Cir. 2003)) (internal quotations omitted). Accordingly, “the Court is not limited to reviewing solely the complaint and notice of removal, for the very act of piercing the pleadings allows the Court to consider additional evidence, while resolving all unchallenged and contested factual allegations in the light most favorable to the plaintiff.” Hagyard-Davidson-Mcgee Assocs., PLLC v. Fed. Ins. Co., No. 5:20-cv-00171-JMH, 2021 U.S. Dist. LEXIS 171065, at *6-*7 (E.D. Ky. Sep. 9, 2021).

Defendants bear the burden of proving that Samuel Coal was fraudulently joined to this action for the sole purpose of destroying complete diversity. The relevant inquiry, then, is “whether Plaintiffs have a colorable claim under Kentucky law[.]” Walker, 443 Fed.Appx. at 956. Thus, to determine whether there is a reasonable basis for the Plaintiffs to prevail, the Court will examine each count enumerated in the Complaint through the lens of Kentucky's pleading

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standard. The Kentucky Rules of Civil Procedure provide, in relevant part,

A pleading which sets forth a claim for relief,

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