Curd Minerals, LLC v. Diversified Prod.

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CURD MINERALS, LLC, A Virginia limited liability company, Plaintiff, v. DIVERSIFIED PRODUCTION, LLC, A Pennsylvania limited liability company, Defendant.

Civil Action No. 1:22-00113

United States District Court, S.D. West Virginia, Bluefield

September 30, 2024

MEMORANDUM OPINION AND ORDER

DAVID A. FABER, SENIOR UNITED STATES DISTRICT JUDGE

This matter is before the court on the court's sua sponte consideration of subject-matter jurisdiction. For the reasons explained below, this case is REMANDED to the Circuit Court of McDowell County, West Virginia.

I. Background

This case arises from a dispute over the ownership of the oil-and-gas estate underlying two wells in McDowell County. See Compl., ECF No. 1-1. Plaintiff Curd Minerals LLC (“Curd”) seeks to quiet title to the oil-and-gas estate underlying the wells, and asserts claims of trespass, conversion, and ejectment against defendant Diversified Production, LLC (“Diversified”) which is the lessee of the disputed oil-and-gas rights. See id.

Diversified removed this action to this court from the Circuit Court of McDowell County based on diversity jurisdiction on March 3, 2022. See Notice of Removal, ECF No. 1. Diversified also filed counterclaims to quiet title to the disputed property under two theories. It claimed that it produced the oil-and-gas under a valid lease or, in the alternative, that it had adversely possessed the disputed property from Curd. See Answer & Countercl., ECF No. 4 at 1112.

Curd did not contest removal, and the case proceeded in due course. The court eventually had before it cross-motions for summary judgment that appeared ripe and ready for adjudication. See ECF Nos. 78, 91. Curd asked the court to declare it the owner of the property under a 1931 tax deed acquired by its predecessor. See ECF No. 92. Diversified asked the court to invalidate Curd's 1931 deed, arguing that it conveyed no interest because the prior owners' property rights were automatically forfeited to the state under West Virginia's repealed forfeiture-for-nonentry provision of the state Constitution, W.Va. Const. art. XIII, § 6 (repealed 1992). See ECF No. 84 at 7-11. Diversified also asked the court to grant summary judgment, arguing that Curd had not offered evidence that the disputed wells were on the property described in its 1931 tax deed. See id. at 16-24. Additionally, Diversified argued that it “has shown that . . . there is a factual basis for summary judgment that Diversified's adverse possession of the oil and gas through production of the Diversified Wells has ripened into title thereto.” See ECF No. 93 at 5-6.

When reviewing these competing claims of title to the disputed oil-and-gas estate, one glaring issue appeared to the court: The purported owners of the property, at least according to Diversified, are not parties to the suit.

Diversified contends that the owners of the disputed property are the “Dennis Heirs,” whose predecessors leased more than 6,000 acres of oil-and-gas rights to Diversified's original predecessor, the Hope Natural Gas Company, pursuant to a 1961 lease agreement. See ECF No. 41-2 at 35-48. The Dennis Heirs consist of the individuals who acquired the interests of the following original lessors under the 1961 lease: Rose L. Dennis, Chloe V. Smith, E.E. Smith, Percy V. Dennis, Maurine M. Dennis, John W. Dennis, Marion M. Dennis, W. Clyde Dennis, Bessie B. Dennis, Ruth D. Scott, Henry Scott, Eula B. Dennis, and W. Clyde Dennis. See id. Diversified, since its predecessor drilled the disputed wells in 2006, has paid royalties to the Dennis Heirs as lessors of the oil-and-gas rights. See ECF No. 93-1.

The absence of the Dennis Heirs from this suit makes the claims of Curd and Diversified extraordinary. Curd asks the court to quiet title to property without joining the purported title holders to the suit. And Diversified asserts that it has gained title to the oil and gas by acting under the “color of title”-despite leasing the rights from the Dennis Heirs. Under these theories, the Dennis Heirs could be deprived of their ownership interests without notice or the opportunity to be heard.

When the court realized this apparent defect in the proceedings, it ordered Curd and Diversified to brief the issue of whether all necessary and indispensable parties had been joined under Rule 19 of the Federal Rules of Civil Procedure. See ECF No. 104. Both parties filed response briefs. Curd argued that the Dennis Heirs are not necessary parties because, according to Curd, it owns the property and the Dennis Heirs have never claimed ownership of it. See ECF No. 106. Diversified argued that the Dennis Heirs are only necessary and indispensable parties if the court rules against Diversified on its motion for summary judgment. See ECF No. 107 at 2-3. Diversified also insisted that “given the substantial investment of time, effort and resources by the parties and the substance of this case, the threshold issues [presented in Diversified's motion for summary judgment] should be addressed by this court prior to turning to a potential Rule 19 issue that may not materialize.” Id. at 3.

The court rejected these arguments and deemed the Dennis Heirs necessary parties because of their ownership interests in the disputed property. See ECF No. 110. The court, therefore, ordered Curd to join the Dennis Heirs to the action under Rule 19. See id. At the time, the court was not aware of the domicile of any of the Dennis Heirs, as the parties were unable to provide that information at a status conference held on July 15, 2024. See ECF No. 109.

Curd joined the Dennis Heirs through an amended complaint filed on August 16, 2024. See Am. Compl. at ¶¶ 1-19, ECF No. 111. Several of the Dennis Heirs destroy complete diversity among the parties. At least one member of Curd (a limited liability company) is domiciled in Virginia, (see Curd Dep. Tr. 15:3-18:24), and according to the amended complaint, defendants Michael Lee Dennis, Thomas Kemper Steele, and Robert J. Dennis are also domiciled in Virginia.^[1] See Am. Compl. at ¶¶ 12, 15, 17, ECF No. 111.

Because the inclusion of these necessary parties destroys subject-matter jurisdiction, and the court did not know that the joinder of the defendants would destroy subject-matter jurisdiction at the time it entered its order requiring their joinder, the court will now reconsider that order.

II. Legal Standard

Courts may reconsider a prior joinder decision when joinder was granted without knowledge that the new defendants would destroy subject-matter jurisdiction: “[W]hen a trial court grants a plaintiff leave to amend the complaint by naming additional defendants, and the plaintiff fails to inform the court that one or more of those defendants will destroy diversity, the trial court may reconsider its earlier decision.” Messinger v. Window World, Inc., No. 2:18-cv-00912, 2019 WL 124833, at *1 (S.D. W.Va. Jan. 7, 2019) (quoting Bailey v. Bayer CropScience L.P., 563 F.3d 302, 307 (8th Cir. 2009)); see also Ramos v. Farmers Ins. (NWL), 586 F.Supp.3d 968, 970 (8th Cir. 2022) (“[A] trial court has ‘discretionary authority to reconsider and reverse its previous joinder decision' where a plaintiff fails to inform the court that one or more of the new defendants will destroy diversity.”) (quoting Bailey, 563 F.3d at 307).

When reconsidering a joinder decision, the court turns to Rule 19 of the Federal Rules of Civil Procedure. There are two inquiries under Rule 19: whether a “nonjoined party is necessary under Rule 19(a) and then whether the party is indispensable under Rule 19(b).” Dean v. City of Kenova, No. 3:21-0197, 2022 WL 1157502, at *2 (S.D. W.Va. Apr. 19, 2022) (quoting Gunvor SA v. Kayablian, 948 F.3d 214, 218 (4th Cir. 2020)). If a non-diverse party is necessary but dispensable, the court may proceed without joining that party to the action. See Crockett v. Alsirt, No. 7:18-1210-JFA-KFM, 2018 WL 5276269, at *3 (D.S.C. Oct. 24, 2018) (quoting Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 832 (1989)). When the non-diverse party is, on the other hand, necessary and indispensable, the court generally must dismiss the action. See Dean, No. 3:21-0197, 2022 WL 1157502, at *2. However, there is a third option for cases brought under the court's removal jurisdiction: remand to state court.

The removal statute, 28 U.S.C. § 1447(e), provides that “[i]f after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.” This adds an additional layer to the Rule 19 inquiry:

Section 1447(e) and Rule 19 in combination expand the district court's options for dealing with an attempt to join a necessary, non-diverse party where the case has been removed to federal court. The court may: (1) deem the party “indispensable” and dismiss the case; (2) deem the party not indispensable and continue its jurisdiction over the lawsuit without joinder; or (3) allow joinder and remand the case to state court.

Yniques v. Cabral, 985 F.2d 1031, 1035 (9th Cir. 1993); see also Trombino v. Transit Cas. Co., 110 F.R.D. 139, 148-50 (D.R.I. 1986). Under the third option, “in the case where remand is based on a lack of subject matter jurisdiction, the remand order may be entered at any time, for jurisdiction goes to the very power of the court to act.” Ellenburg v. Spartan Motors Chassis, Inc., 519 F.3d 192, 196 (4th Cir. 2008) (citing Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94 (1998)). “In addition, because the lack of subject matter jurisdiction may be noticed by the district court sua sponte or by any party, see Arbaugh v. Y & H Corp., 546 U.S. 500, 506, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (200...