Opinion
CIVIL ACTION NO. 7:00-CV-163-R.
April 11, 2001.
MEMORANDUM OPINION AND ORDER
Now before the Court in this action for slander of title and declaratory relief is Defendant Acer Petroleum Corporation's ("Acer") Motion to Dismiss Plaintiff JLM Investment Inc.'s ("JLM") complaint pursuant to Rules 12(b)(1) and 12(b)(7) of the Federal Rules of Civil Procedure. For the reasons discussed below, Acer's Motion to Dismiss is GRANTED.
I. BACKGROUND FACTS
On August 11, 2000, JLM, a Texas citizen, instituted the current action in federal court on the basis of diversity jurisdiction. The only defendant to the action is Acer, a Florida citizen. The suit centers upon a conflict over whether Acer has a right to 15% of the production from an oil and gas lease entered into by JLM, as a result of a limited assignment under a prior lease. Because there are several leases and transfers involved in this suit, the Court will briefly describe the history of this case.
The following facts are taken from JLM's Original Complaint. All of the disputed leases were executed with regard to the same forty acre tract of land (the "tract"). The owners of the mineral rights to the tract are Robbielyn Pruitt, who owns an undivided 3/5 interest in the tract, Eugena Threatt, who owns an undivided 1/5 interest in the tract, and Diana Adams Brooks, who owns the remaining 1/5 interest (collectively, the "mineral owners"). On November 30, 1992, the mineral owners executed a lease referred to by the parties as the "Kodiak Lease," to which there are several interested parties. Further, on December 28, 1993, the mineral owners executed another lease referred to by the parties as the "Crustacean Lease."
In mid-1995, the mineral owners executed Term Mineral Deeds in favor of W.R. Doyle ("Doyle"), which granted Doyle their interest in the mineral rights for a specified period of time. Then, on October 23, 1997, Doyle executed in favor of Acer a Limited Assignment of Overriding Royalty Interest (the "Limited Assignment") of up to $400,000 in the leasehold estate made up of the Kodiak and Crustacean Leases. The present validity of the Kodiak Lease is in dispute in this lawsuit.
Finally, on September 24, 1999, Doyle executed a lease on the tract in favor of JLM (the "JLM Lease"). The estate covered by the JLM Lease currently has one well producing oil, which oil is being sold to Equiva Trading Company ("Equiva").
The Term Mineral Deeds in favor of Doyle have expired. However, all three of the mineral owners have ratified the JLM Lease.
JLM filed this suit alleging slander of title and seeking declaratory judgment after Acer notified Equiva that under the Limited Assignment, Acer was entitled to a 15% percent overriding royalty interest in whatever was produced from the wells covered under the JLM Lease. JLM alleges in its Original Complaint that the Kodiak Lease has expired, and thus any interest created by the Limited Assignment has expired with it.
II. ANALYSIS
Acer asserts in its motion to dismiss that the Court must rule upon the validity of the Kodiak Lease in issuing a judgment in this case. Acer further argues that there are indispensable parties, not currently joined to this action, who have an interest in the Kodiak Lease. Thus, the Court may not proceed without their presence in the suit. However, the joinder of such necessary parties, all of whom are Texas citizens, would destroy the diversity of citizenship upon which this Court's jurisdiction in this matter is based.
A. Rule 19
Rule 19 of the Federal Rules of Civil Procedure explains when a court should join a party. "The purpose of Rule 19 is `to permit joinder of all materially interested parties to a single lawsuit so as to protect the interested parties and avoid waste of judicial resources.'" Cross Timbers Oil Co. v. Rosel Energy, 167 F.R.D. 457, 459 (Kan. 1996) (citation omitted). Under Rule 19(a), a party should be joined, when feasible, if:
(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.
If the court determines that such a party should be joined, but that joinder is not feasible because it would deprive the court of jurisdiction over the suit, the court must determine if "the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable." Fed.R.Civ.P. 19(b). The Rule sets out a list of factors the court must consider in deciding whether a party is indispensable. They are:
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 adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.
1. The Validity of the Kodiak Lease is an Issue that is Before the Court
JLM argues that the only issue currently before the Court is whether Acer has waived its right to receive the 15% overriding royalty under the Limited Assignment. JLM further claims that the Court can decide whether Acer has waived its rights without ever considering whether the Kodiak Lease remains valid.
However, at the same time that JLM argues to the Court that the Kodiak Lease is virtually irrelevant to the present suit, JLM betrays itself several times, both in its Original Complaint as well as in its Response, by referring to the "indisputable fact that the prior Kodiak Lease terminated." Response at 5. In its Original Complaint, JLM explained quite summarily that the Kodiak Lease "terminated under [its] own terms . . ." Complaint at 4. Further, JLM devoted almost an entire page of its Response to the argument that the Koiak Lease terminated by its own terms after it did not produce oil for more than sixty days. It is curious that a party trying to convince the Court that the validity of the Kodiak Lease is not in issue would spend so much effort arguing that the lease has actually terminated. If it is not important to the present suit, then why devote a good portion of the Response to the issue?
The answer to this question is plain. The issue of whether the Kodiak Lease has expired is too closely tied to the present suit to be cleanly extracted from the parties' arguments. The Court acknowledges that JLM is correct in asserting that other issues exist and may even be of greater importance than the validity of the Kodiak Lease. However, the question of whether Acer has waived its rights under the Limited Assignment is inextricably tied to the issue of whether the Kodiak Lease is in force. Thus, the Court holds that the validity of the Kodiak Lease is an issue that is present in the current suit.
2. There are Parties who Must be Joined to this Action
Crustacean Oil ("Crustacean") has a clear interest in the Kodiak Lease, which could very easily be adversely affected by the result of this suit, were it allowed to proceed in federal court. As the result of a settlement agreement entered into between Crustacean and Kodiak Petroleum Company on October 7, 1994, Crustacean was granted an "overriding royalty interest of 4% of the gross production of oil and gas from the Caperton Tract . . . pursuant to the Kodiak Lease." JLM Appendix at 65. JLM argues that Crustacean's interest is not related to this suit because it was created by this settlement agreement, and not by the Limited Assignment that created Acer's overriding royalty interest. However, the way the Crustacean came by its royalty interest in the Kodiak Lease is irrelevant. It is the fact that Crustacean is the holder of a royalty interest, which could be affected by the outcome of this suit, that is dispositive.
Courts are "generally agreed that royalty holders are indispensable parties to actions that challenge the validity of the leases under which they assert their rights." Hugoton Energy Corp. V. Plains Resources, Inc., 141 F.R.D. 320,323 (Kan. 1991) (citing, among others, Tardan v. California Oil Co., 323 F.2d 717 (5th Cir. 1963), in which the court held that "royalty claimants are indispensable to any action which involves title to lands or any interest therein . . ." Id. at 723.). In Hugoton, a group of landowner-lessors determined that several old leases had expired and secured several new leases in their place. The plaintiff, a lessee under the old leases, brought suit against one of the many landowner-lessors, challenging the validity of the new leases. The defendant argued that the other landowners, as well as all of the lessees under the new and old leases, were indispensable parties. The court agreed and held that the other landowners and lessees held a "vital stake in the outcome" of the action, and any judgment rendered in their absence would could cause the parties to be subject to multiple or inconsistent judgments. 141 F.R.D. at 322.
Similarly, Crustacean has a vital stake in the determination of whether the Kodiak Lease is still valid, as Crustacean stands to lose its 4% overriding royalty interest. Further, were the Court to proceed in this action without the presence of Crustacean, the Court's determination of the validity of the Kodiak Lease would not be binding upon Crustacean, leaving JLM subject to multiple or inconsistent judgments. As such, the Court holds that Crustacean is a necessary party under rule 19(a). Further, because Crustacean is a Texas citizen, its joinder is infeasible because it would destroy this Court's jurisdiction under diversity of citizenship.
The Court notes that there may be other royalty holders who have an interest in the Kodiak Lease. However, Crustacean is the only one that has been brought to the attention of the Court.
It is clear that Crustacean would be aligned with the Acer in this suit because their interests are similar as royalty holders. Further, both would be interested in maintaining the validity of the Kodiak Lease, which is contrary to the asserted interests of JLM.
Once a court determines that there are absent, necessary parties for whom joinder is infeasible, under Rule 19(b) the court must determine whether "in equity and good conscience the action should proceed among the parties before it." Fed.R.Civ.P. 19(b). There are four factors that a court must consider in making this determination.
First, the court must consider whether its judgment would be prejudicial to the present parties or the absent party. This has been established. If Crustacean is absent, its interest in the Kodiak Lease may be harmed and JLM may be subject to multiple or inconsistent judgments. With regard to the second factor, even if the Court felt that it might be possible to avoid deciding whether the Kodiak Lease is valid, it does not make sense to do so. Litigation is expensive, both for the taxpayers and the parties. The Court does not see the efficacy in allowing the full litigation of a suit to go forward where the ability of the Court to shape a remedy would be so limited. Third, the Court does not see how a judgment rendered in the absence of Crustacean would be adequate as Crustacean could bring another suit alleging that the Kodiak Lease is still valid. Finally, the Texas state court system is an available forum that is just as well equipped to handle this matter with regard to all interested parties. Thus, the four factors of Rule 19(b) lead the Court to conclude that Crustacean is an indispensable party and that this suit should not proceed in its absence.
III. CONCLUSION
For the foregoing reasons, Acer's Motion to Dismiss is GRANTED and JLM's Complaint is DISMISSED without prejudice.
It is so ORDERED.