Klima Well Serv., Inc. v. Hurley

133 F.Supp.3d 1297

KLIMA WELL SERVICE, INC., Plaintiff

v.Harry HURLEY, et al., Defendants.

Case No. 14–1250–SAC.

United States District Court, D. Kansas.

Signed Sept. 24, 2015.

Timothy R. Keenan, Keenan Law Firm, PA, Great Bend, KS, for Plaintiff.

Jonathan A. Schlatter, Will B. Wohlford, Morris, Laing, Evans, Brock & Kennedy, Chtd., Wichita, KS, for Defendants.

MEMORANDUM AND ORDER

SAM A. CROW, Senior District Judge.

This is an action brought to collect oil and gas lease unit operating expenses which were billed to, but not paid by the three individual defendants holding working interests in these leases. The plaintiff Klima Well Service, Inc. ("KWS") brought this action in state court as the operator of the oil and gases leases operated as the Alameda Unit in Kingman County, Kansas. (Dk. 7–1). The defendants removed this action based on diversity jurisdiction, and the plaintiff's motion to remand it was denied. (Dk. 22). At this point in the proceedings, the action against defendant Scott Scammell III has been dismissed by joint stipulation (Dk. 24), the defendant Miles Herson has had a clerk's entry of default entered against him for failure to file an answer or other defense (Dk. 33), and the defendant Harry Hurley ("Hurley") has defended the action and filed the pending motion for summary judgment (Dk. 35) which is the subject of this order. Two weeks after Hurley filed his motion, the parties held their final pretrial conference, and the pretrial order was filed the same day. (Dks. 39 and 40).

KWS's original petition filed July 11, 2014, in the District Court of Kingman County, Kansas, alleged Hurley's indebtedness for operating expenses attributable to his undivided 2.7% working interest incurred from February 1, 2013, through February 28, 2014, and totaling $75,296.56 plus interest at the annual rate of ten percent. (Dk. 7–1). The petition also alleged that KWS holds a valid and perfected mechanic's lien for this amount on Hurley's working interest based on a Statement of Lien on Oil and Gas Lease filed in the county clerk's office. KWS's petition asked for foreclosure on the mechanic's lien. In the prayer for relief, KWS's petition pleaded:

For a money judgment against Defendant Harry Hurley in the amount of Seventy-five Thousand Two Hundred Ninety-six Dollars and Fifty-six Cents ($75,296.56) for amounts owed through February 28, 2014, and for the foreclosure of the mechanic's lien filed by the Plaintiff against the undivided interest of Harry Hurley; for a money judgment against Defendant Harry Hurley for operating expenses incurred for the months of March, April and May totaling $10,736.17, and for future operating expenses incurred from June 1, 2014, forward, until the time of sale, together with interest thereon at the rate of 10% per annum until paid....

....

For the foreclosure of the mechanic's liens held by the Plaintiff against the respective undivided working interests of the Defendants in the Alameda Unit; for its court costs herein, and for such other and further relief as the Court may deem just and equitable.

(Dk. 7–1, p. 7).

Hurley seeks summary judgment arguing three issues. First, KWS may not enforce a mechanic's lien only against Hurley's working interest, as the Kansas oil and gas mechanic's lien statute, K.S.A. 55–207, provides the lien is "upon the whole of such leasehold." Second, KWS may not claim a valid mechanic's lien because KWS never contracted with Hurley to do work on the Alameda Unit. Third, KWS may not claim an implied contract with Hurley, because there is an express agreement between KWS and Hurley, the Alameda Plan of Unitization, which KWS has breached so as to render it unenforceable.

STANDARDS GOVERNING MOTION

Rule 56 authorizes a court to "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A fact is material if it would affect the outcome of a claim or defense under the governing law. See Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "[T]he dispute about a material fact is "genuine," ..., if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. The essential inquiry is "whether the evidence presents a sufficient disagreement to require submission to the jury or whether the evidence is so one sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, 477 U.S. at 251–52, 106 S.Ct. 2505. The summary judgment movant bears the initial burden of pointing out those portions of the record that show it entitled to judgment as a matter of law. Thomas v. Wichita Coca–Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir.1992), cert. denied, 506 U.S. 1013, 113 S.Ct. 635, 121 L.Ed.2d 566 (1992). If the movant meets that burden, the non-movant must come forward with specific facts based on admissible evidence from which a rational fact finder could find in the non-movant's favor. Adler v. Wal–Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir.1998).

STATEMENT OF UNDISPUTED FACTS

The court regards the following statements to be undisputed based on the parties' summary judgment filings and on their stipulations found in the pretrial order.

1. KWS has been the operator of the Alameda Unit since November 1, 2011, as stated in Dennis Klima's affidavit. KWS also owns a 5.4% working interest in the Alameda Unit, and Klima Oil, Inc., a company related to KWS, owns an 11% working interest in the unit.

2. As reflected in an assignment of working interest dated March 6, 2013, Hurley is the owner of a 2.7% working interest in the Alameda unit that was assigned to him by Impact Global Resources.

3. Starting in March of 2013, KWS sent monthly joint interest billings to Hurley for his share of the operating expenses attributable to the Alameda Unit. These billings were sent by email at Hurley's request. According to Klima's affidavit, Hurley "has been billed for normal lease unit operating expenses through June 30, 2015 identified as account No. "HURH–0." " (Dk. 41–1, ¶ 4). The attached billing statements for this account go through March of 2014 and show a balance of $61,684.39. (Dk. 41–5, p. 24). Klima's affidavit also refers to a separate account No. "HURH–1" "for the purchase and installation of the generator to power the producing wells," (Dk. 41–1, ¶ 4), and the attached billing statements on this account show a balance of $13,612.17, (Dk. 41–5, p. 36).

4. From the date that Hurley acquired his working interest in the Alameda Unit, KWS produced oil that has been sold to the crude purchaser NCRA of McPherson, Kansas. Hurley received his share of NCRA sale proceeds through April of 2014. After that, the runs payable to Hurley have been placed in suspense by NCRA due to his non-payment of operating expenses.

5. KWS filed its mechanic lien on April 8, 2014. (Dk. 41–5, p. 1). The lien describes the "leasehold working interest owner" as Harry Hurley and describes the "leasehold property" as Hurley's 2.7% working interest in the Alameda Unit. The lien states:

KLIMA WELL SERVICE, INC., pursuant to a contract with HARRY HURLEY, and as operator of the above described oil and gas leasehold from February 1, 2013, through February 28, 2014, performed labor and furnished material, machinery and oil well supplies and services in connection with operating, drilling and completing of wells located upon the above described leasehold estate. KLIMA WELL SERVICE, INC., remains unpaid for labor and material machinery and oil well supplies furnished for the above stated time period, which services, materials, machinery and supplies are described on Exhibit "C", which is attached hereto and made a part hereof by reference.

(Dk. 41–5, p. 1).

6. In the pretrial order, the parties stipulate that, "Hurley did not directly contract with Plaintiff to perform the labor or furnish the oil-well supplies on the Alameda Unit which Plaintiff claims entitles it to a statutory lien against Hurley's undivided working interest." (Dk. 40, p. 2).

7. The parties also stipulate that, "The labor performed and oil-well supplies furnished on the Alameda Unit, which are more particularly described in the Statement of the Lien Plaintiff filed in the Kingman County District Court, and which Plaintiff alleges entitle it to a Statutory lien against Hurley's undivided working interest, arise from a contract or contracts Plaintiff entered into with itself." Id.

8. Another of the parties' stipulations states, "The management, operation and development of the Alameda Unit among Plaintiff as operator and Hurley as working interest owner are governed by the ‘Plan of Unitization and Operation–Alameda Unit–Kingman County, Kansas' (‘Operating Agreement’), which is recorded in Book Misc. 126, at Page 161 of the Office of the Register of Deeds of Kingman County, Kansas." Id. The parties also stipulate that KWS "has breached Sections 11, 13.6 and 17.2 of the Operating Agreement." Id.

9. The parties stipulate that, "Other than Operating Agreement, there is no written agreement between Plaintiff and Hurley pertaining to the Alameda Unit." Id. Finally, there is a stipulation that, "Plaintiff has never obtained express authorization from Hurley to make expenditures on the Alameda Unit." Id.

DISCUSSION

The court will address only the issues that have been properly and timely advanced in the summary judgment pleadings and that have been cogently argued and properly supported with the necessary legal authorities.

Mechanic Lien upon the Whole of such Leasehold

Hurley argues that a plain reading and strict construction of K.S.A. 55–207 shows KWS's lien to be invalid in that it is filed against only Hurley's working interest and not against the whole leasehold. Hurley chooses to read the statute as to "not provide for a lien upon less than the whole of the leasehold." (Dk. 36, p. 7). Thus, Hurley advocates that § 55207 simply "cannot be used to lien a...