Trans Energy, Inc. v. Eqt Prod. Co.

• Decision Date: 25 February 2014
• Docket Number: No. 12–2553.,12–2553.
• Citation: 743 F.3d 895
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: TRANS ENERGY, INC., a Nevada Corporation; Republic Partners VI, LP, a Texas limited partnership; Republic Energy Ventures, LLC, a Delaware Limited Liability Company; Prima Oil Company, Inc., a Delaware Corporation, Plaintiffs–Appellees, v. EQT PRODUCTION COMPANY, a Pennsylvania Corporation, Defendant–Appellant.

743 F.3d 895

TRANS ENERGY, INC., a Nevada Corporation; Republic Partners VI, LP, a Texas limited partnership; Republic Energy Ventures, LLC, a Delaware Limited Liability Company; Prima Oil Company, Inc., a Delaware Corporation, Plaintiffs–Appellees,

v.EQT PRODUCTION COMPANY, a Pennsylvania Corporation, Defendant–Appellant.

No. 12–2553.

United States Court of Appeals,Fourth Circuit.

Argued: Dec. 12, 2013.

Decided: Feb. 25, 2014.

ARGUED:W. Henry Lawrence, IV, Steptoe & Johnson, PLLC, Bridgeport, West Virginia, for Appellant. James C. Ho, Gibson, Dunn & Crutcher, LLP, Dallas, Texas; Stuart A. McMillan, Bowles Rice LLP, Charleston, West Virginia, for Appellees. ON BRIEF:Amy Marie Smith, Bridgeport, West Virginia, John Joseph Meadows, Steptoe & Johnson, PLLC, Charleston, West Virginia, for Appellant. James E. Scott, Bowles Rice LLP, Charleston, West Virginia; Ashley E. Johnson, Gibson, Dunn & Crutcher LLP, Dallas, Texas, for Appellees.

Before WILKINSON and GREGORY, Circuit Judges, and JOHN A. GIBNEY, Jr., United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed in part and vacated in part by published opinion. Judge GREGORY wrote the opinion, in which Judge WILKINSON and Judge GIBNEY joined.

GREGORY, Circuit Judge:

This appeal arises from an action to quiet title. The parties make competing claims of ownership to the gas rights underlying a 3,800 acre plot of land located in northern West Virginia known as Blackshere.The parties filed cross-motions for summary judgment, and the district court ruled in favor of the plaintiffs. The defendant, EQT Production Company (“EPC”), appealed the district court's decision on the merits, as well as several of its procedural rulings. EPC also makes a new argument on appeal, challenging whether subject matter jurisdiction existed in the district court.

Finding no error in any of the district court's decisions, we affirm the judgment as to three of the four plaintiffs. However, in order to retain jurisdiction, we exercise our authority to dismiss plaintiff Republic Energy Ventures, LLC (“REV”) from the case, and we vacate the judgment with respect to that party.

I.

In 1892, John Blackshere and South Penn Oil Company (“South Penn”), which would later become Pennzoil Products Company (“Pennzoil”), entered into an oil and gas lease covering the Blackshere property (the “Blackshere Lease” or “Lease”). The transfer was recorded with the Wetzel County Clerk. In 1901 and 1902, South Penn entered into two indenture agreements with Carnegie Natural Gas Company and Hope Natural Gas Company (“Hope”). The indentures purported to sever South Penn's gas rights from its oil rights and allocate the gas rights to Carnegie and Hope.¹ It is undisputed that these indentures were never recorded.

In 1965, Hope conveyed all of its interests and rights to any property in Wetzel County to Consolidated Gas Supply Corporation (“Consolidated Gas”). The transfer, which was recorded, did not reference the Blackshere Lease. Consolidated Gas is a predecessor in title to EPC.² As a result, the parties agree that EPC's alleged interest in Blackshere's gas rights derives from any right in the property that Hope transferred to Consolidated Gas by way of this 1965 conveyance.

On October 15, 1996, Pennzoil assigned its rights in the Blackshere Lease to Cobham Gas Industries, Inc. (“Cobham”) through an assignment and bill of sale (the “Assignment”). The Assignment was recorded through a memorandum of assignment (the “Memorandum”) filed with the Wetzel County Clerk.

On November 5, 2004, Cobham conveyed its interest in the property (the “2004 Assignment”) to plaintiff Prima Oil Company, Inc. (“Prima”) by way of a recorded transfer (the “2004 Confirmatory Assignment”). Prima is a wholly-owned subsidiary of plaintiff Trans Energy, Inc. (“Trans Energy”). After the 2004 Assignment, Trans Energy assigned half of its portion of the leasehold interest to plaintiff Republic Partners VI, LP (“Republic Partners”). REV's interest in the matter derives from an overriding royalty interest in whatever production Republic Partners obtains from the lease.

In 2011, Trans Energy was granted a permit by the West Virginia Department of Environmental Protection to drill a new gas well on the property. Prior to drilling the new well, Prima discovered EPC's alleged interest in the Lease resulting from the unrecorded Hope indenture. The plaintiffs then filed this action, seeking to quiet title to the Blackshere Lease and requesting declarations that they have rightful title to the gas rights underlying the property, and that Prima was a bona fide purchaser for value (“BFP”) with no actual or constructive knowledge of a competinginterest in the property when it acquired Cobham's interest in 2004.

EPC answered and filed several counterclaims seeking a declaration that it held superior title to Blackshere's gas rights, as well as tort claims for trespass, conversion, and waste.³

After significant discovery was undertaken by both sides, EPC filed a motion for an extension of time to complete discovery and to defer consideration of the plaintiffs' anticipated motion for summary judgment. The parties then filed cross-motions for summary judgment. The plaintiffs also filed a motion in limine to exclude evidence of punitive damages.

On October 22, 2012, the district court informed the parties by letter of its tentative rulings. The district court stated its intention to (1) grant the plaintiffs' motion for summary judgment; (2) deny the defendant's motion for summary judgment; (3) deny the defendant's motion for an extension of time to complete discovery and to defer consideration of the plaintiffs' summary judgment motion; and (4) grant the plaintiffs' motion in limine to exclude evidence of punitive damages. The court also advised the parties not to file any further motions or pleadings with respect to the rulings contained in the letter.

The next day, EPC filed a motion for leave to file a supplemental memorandum in support of its summary judgment motion and against the plaintiffs' summary judgment motion.

On November 26, 2012, the district court entered two memorandum opinions in accordance with its tentative letter rulings. In a thorough, well-reasoned opinion, the court granted the plaintiffs' motion for summary judgment, denied the defendant's motion for summary judgment, and denied the defendant's motion for leave to supplement the record. The second opinion denied EPC's motion for an extension of time to complete discovery and to defer consideration of the summary judgment motions, and granted the plaintiffs' motion to exclude punitive damages evidence. The court then entered final judgment in favor of the plaintiffs, and this appeal followed.

II.

A.

Although not raised below, EPC challenges on appeal whether the district court had subject matter jurisdiction over the case. Whether subject matter jurisdiction exists is a question of law that we review de novo. In re Kirkland, 600 F.3d 310, 314 (4th Cir.2010). The plaintiffs relied on diversity of citizenship in filing the case in federal court. See28 U.S.C. § 1332(a)(1). The case was originally filed against EQT Corporation.⁴ By mutual agreement of the parties, EQT Corporation was substituted as a defendant by EPC, a Pennsylvania company. It is undisputed that Trans Energy is a Nevada Corporation and Prima is a Delaware Corporation. The complaint identified Republic Partners as a citizen of Texas and REV as a citizen of Delaware, thereby establishing complete diversity. However, the plaintiffs now acknowledge that they improperly alleged the citizenship of Republic Partners and REV by referring only to the states in which those entities are organized and do business. See Carden v. Arkoma Assocs., 494 U.S. 185, 195, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990) (partnershipshave citizenship of their partners); Gen. Tech. Applications, Inc. v. Exro Ltda, 388 F.3d 114, 120 (4th Cir.2004) (limited liability companies have citizenship of their members).

A federal statute allows for the curing of jurisdictional pleading defects on appeal. See28 U.S.C. § 1653 (“Defective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts.”). In accordance with this, the plaintiffs filed a motion to supplement the record with an affidavit attesting to the Texas citizenship of each member of Republic Partners. At oral argument, EPC conceded the accuracy of this information. Accordingly, we grant the plaintiffs' motion to supplement the record, and we find no jurisdictional defect with respect to Republic Partners.

As to REV, the plaintiffs now concede that it includes members who are citizens of Pennsylvania, the same as EPC. To keep diversity of citizenship intact, the plaintiffs propose to have REV dismissed as a party under Federal Rule of Civil Procedure 21. See Newman–Green, Inc. v. Alfonzo–Larrain, 490 U.S. 826, 836, 109 S.Ct. 2218, 104 L.Ed.2d 893 (1989) (holding that the courts of appeals have the authority to dismiss a dispensable nondiverse party by virtue of Rule 21). EPC argues, however, that REV is an indispensable party under Rule 19 and cannot be dismissed.

Under Rule 19(b), when joinder of parties is not feasible because of, among other things, nondiversity, a court must decide whether “ ‘the action should proceed among the parties before it, or should be dismissed’ because the absent party is indispensable.” Yashenko v. Harrah's NC Casino Co., LLC, 446 F.3d 541, 552 (4th Cir.2006) (quoting Fed.R.Civ.P. 19(b)). In making this determination, a court must evaluate:

first, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be...