Douglas Imhoff v. Oscar Gayle House

• Court: Kentucky Supreme Court
• Decided: August 23, 2021
• Docket: 2020 SC 0530
• Status: Unknown

Opinion

RENDERED: AUGUST 26, 2021 TO BE PUBLISHED

Supreme Court of Kentucky 2020-SC-0530-MR

DOUGLAS IMHOFF; PATRICIA IMHOFF; APPELLANTS VIVIAN HAMILTON; JACK HARRIS, JR.; DONNA HARRIS AND MARGARET JOHNSON

ON REVIEW FROM COURT OF APPEALS V. NO. 2020-CA-0711 CLAY CIRCUIT COURT NO. 16-CI-00102

HONORABLE OSCAR GAYLE HOUSE, APPELLEE JUDGE, CLAY CIRCUIT COURT

AND

VINLAND ENERGY OPERATIONS, LLC; REAL PARTIES IN INTEREST VINLAND ENERGY, LLC AND VINLAND ENERGY EASTERN, LLC

OPINION OF THE COURT BY JUSTICE VANMETER

AFFIRMING

Douglas Imhoff and others appeal from the Court of Appeals’ order

granting Vinland Energy’s petition for a writ of prohibition of the first class,

thereby vacating the Clay Circuit Court’s denial of Vinland’s motion to dismiss

Appellants’ claim for breach of contract. For the following reasons, we affirm.

I. Factual and Procedural Background

The appellants in this case, Douglas and Patricia Imhoff, Jack and

Donna Harris, Margaret Johnson and Vivian Hamilton (collectively referred to as “the Lessors”), are Kentucky landowners who leased their land to Vinland

Energy, an oil and gas producer.1 Under the three separate lease agreements

— the Imhoff lease, the Harris lease, and the Johnson/Hamilton lease —

Vinland acquired the right to extract oil and gas from the Lessors’ land, in

exchange for one-eighth of the market price of all oil and gas taken. The

Lessors are aware of at least thirty-five other Kentucky landowners with

identical leases. The leases are silent with respect to the apportionment of

severance taxes.

Until 2015, Vinland deducted severance taxes as post-production costs

before paying royalties to the Lessors. The royalty statements the Lessors

received disclosed the precise amount of severance tax deducted from each

royalty check paid to each named Lessor. The record reflects that Vinland

ceased deducting severance taxes in 2015 following the issuance of this Court’s

opinion in Appalachian Land Co. v. EQT Production Co., which held, as a matter

of first impression, that in the absence of a specific lease provision

apportioning severance taxes, natural gas lessees may not deduct severance

taxes or any portion thereof prior to calculating a royalty value. 468 S.W.3d

841 (Ky. 2015).

1 Vinland Energy Operations, LLC (“VEO”) serves as operator on the leased properties for Vinland Energy Eastern, LLC (“VEE”). Vinland Energy, LLC is the parent corporation of the sister subsidiaries VEO and VEE. Only VEE is the signatory to the leases. For ease of reference, we will refer to the Real Parties in Interest collectively as “Vinland.”

2 In April 2016, the Lessors filed a breach of contract class action suit in

Clay Circuit Court alleging that Vinland impermissibly deducted severance

taxes as a post-production cost before paying them royalties. Vinland moved to

dismiss on grounds that the circuit court lacked subject-matter jurisdiction

over the claims because none of the Lessors met the required amount in

controversy. The circuit court summarily denied Vinland’s motion for

dismissal2 as well as its motion for reconsideration. Vinland then sought a writ

of prohibition, which the Court of Appeals granted on the basis that the circuit

court lacked subject-matter jurisdiction. This appeal followed.

II. Standard of Review

“The Court of Appeals shall have appellate jurisdiction only, except that

it may . . . issue all writs necessary in aid of its appellate jurisdiction[.]” KY.

CONST. § 111(2). “Thus, whether to grant or deny a petition for a writ is not a

question of jurisdiction, but of discretion.” Hoskins v. Maricle, 150 S.W.3d 1, 5

(Ky. 2004) (citing Bender v. Eaton, 343 S.W.2d 799, 800 (Ky. 1961)). We, then,

review the Court of Appeals’ decision to grant the writ for abuse of discretion.

Appalachian Racing, LLC v. Commonwealth, 504 S.W.3d 1, 3 (Ky. 2016). “That

is, we will not reverse the lower court’s ruling absent a finding that the

determination was ‘arbitrary, unreasonable, unfair, or unsupported by sound

legal principles.’” Id. (quoting Commonwealth v. English, 993 S.W.2d 941, 945

(Ky. 1999)).

2 The Court of Appeals reviewed the motion as one for summary judgment

rather than one to dismiss because Vinland attached an affidavit to the motion.

3 III. Analysis

“Because writs interfere with both the orderly, even if erroneous,

proceedings of a trial court and the efficient dispatch of our appellate duties,

the courts of this Commonwealth have periodically attempted to formulate a

rule governing the discretionary choice between issuing a writ and relegating a

petitioner to the right to appeal.”3 Hoskins, 150 S.W.3d at 5-6. The modern

rule for a writ of the first class states: “A writ of prohibition may be granted

upon a showing that (1) the lower court is proceeding or is about to proceed

outside of its jurisdiction and there is no remedy through an application to an

intermediate court[.]” Id. at 10.

“Jurisdiction, when used here, refers to subject-matter jurisdiction: the

authority not simply to hear this case, but this kind of case.” Davis v. Wingate,

437 S.W.3d 720, 725 (Ky. 2014) (internal quotations and citations omitted). “A

court acts outside its jurisdiction, accordingly, only where it has not been

given, by constitutional provision or statute, the power to do anything at all.”

Id. (citation omitted). “The ‘no remedy through an application to an

intermediate court’ requirement simply means that a writ petition must be first

addressed to the next higher court.” Appalachian Reg’l Healthcare, Inc. v.

Coleman, 239 S.W.3d 49, 53 (Ky. 2007) (citation omitted). Here, the challenged

writ action was correctly initiated in the Court of Appeals. Thus, we must

3 See KY. CONST. § 115 (“In all cases, civil and criminal, there shall be allowed as

a matter of right at least one appeal to another court[.]”)

4 determine whether the circuit court was about to proceed outside of its

jurisdiction.

“The Circuit Court shall have original jurisdiction of all justiciable cases

not vested in some other court[.]” KY. CONST. § 112(5). “The district court shall

be a court of limited jurisdiction and shall exercise original jurisdiction as may

be provided by the General Assembly.” KY. CONST. § 113(6). “[The] District

Court shall have exclusive jurisdiction in: (1) [c]ivil cases in which the amount

in controversy does not exceed five thousand dollars ($5,000), exclusive of

interests and costs, except . . . matters of equity[.]” KRS4 24A.120(1).

“In interpreting a statute, this Court must be guided by the intent of the

legislature in enacting the law.” Cnty. of Harlan v. Appalachian Reg’l

Healthcare, Inc., 85 S.W.3d 607, 611 (Ky. 2002). Further, “the failure of the

legislature to change a known judicial interpretation of a statute [is] extremely

persuasive evidence of the true legislative intent.” Rye v. Weasel, 934 S.W.2d

257, 262 (Ky. 1996).

A. Lessors Do Not Meet Required Amount in Controversy.

The Lessors contend that although no plaintiff seeks more than five

thousand dollars in damages, and in fact, the named plaintiffs combined do

not seek more than five thousand dollars, the aggregated claims of the named

plaintiffs and unnamed class members may exceed the five-thousand-dollar

threshold. The Lessors thus urge the amounts in controversy be aggregated.

4 Kentucky Revised Statutes.

5 In Hensley v. Haynes Trucking, LLC, we clarified that “a trial court needs

subject-matter jurisdiction over only one claim to exercise its power and

determine whether class certification is appropriate.” 549 S.W.3d 430, 439

(Ky. 2018). Implicit in our holding is the requirement that a trial court have

subject matter jurisdiction over at least one claim. The requirement has been

clear since Lamar v. Office of Sheriff, 669 S.W.2d 27, 31 (Ky. App. 1984),5

which the Lessors now ask us to overturn.

The Lessors argue that the Lamar court erroneously relied on U.S.

Supreme Court cases which construed strictly the statutory phrase “matter in

controversy.”6 The Supreme Court cases,7 the Lessors contend, strictly

construed jurisdictional statutes because federal courts have limited

jurisdiction. By contrast, Kentucky circuit courts have general jurisdiction,

which, Lessors argue, should create a presumption against divestiture of its

5 “[T]he sums of the individual claims of the respective parties may not be

aggregated in order to meet the jurisdictional amount requirements for an action to be brought in the circuit court and be maintained as a class action where none of the individual claims is equal to or exceeds the statutory jurisdictional amount.” 6 See 28 U.S.C.A. § 1332(a) (“The district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000[.]”). Lessors correctly note that federal courts use the terms “matter in controversy” and “amount in controversy” interchangeably. 7 The Class Action Fairness Act “affords a federal district court subject-matter jurisdiction over a class action lawsuit that alleges, in the aggregate, $5 million in controversy, even though no class member’s claim alone would satisfy the $75,000 amount-in-controversy requirement needed to establish diversity jurisdiction in federal court.” Hensley, 549 S.W.3d at 438 n.18 (citing 18 A.L.R. Fed. 2d 223 (2007)). However, no Kentucky statute allows class members to circumvent the individual amount-in-controversy requirement.

6 While a presumption against divestiture of the circuit court’s jurisdiction

may exist, here, any such presumption is easily rebutted: none of the Lessors

satisfy the amount-in-controversy requirement prescribed by the legislature.

Under CR8 23.01, one or more persons may sue on behalf of an entire class,

but a court must first certify the class. Certification is only possible if a

plaintiff first establishes subject-matter jurisdiction as class-actions do not

circumvent our judicial system’s jurisdictional requirements: “[Kentucky Rules

of Civil Procedure] shall not be construed to extend or limit the jurisdiction of

any court of this Commonwealth[.]” CR 82. Thus, the Lessors’ contention that

their claims should be aggregated for CR 23 purposes is inapposite because no

plaintiff has met the court’s jurisdictional requirement in order to certify the

class.

B. Class Actions Are Not Matters of Equity Per Se.

Additionally, the Lessors argue that regardless of the amount in

controversy, class actions fall under the circuit court’s jurisdiction over matters

of equity. Today,9 only one form of action is provided by CR 2, civil action.

Johnson v. Holbrook, 302 S.W.2d 608, 610 (Ky. 1957). However, the Civil Rules

“did not abolish . . . the time-honored distinction between remedies applicable

to a legal cause of action or to one sounding in equity.” Id. (citations omitted).

“If upon a full appraisal of the issues the case seeks remedies traditionally

8 Kentucky Rules of Civil Procedure. 9 Historically, the common law recognized many forms of action, including cases at law and actions in equity. RONALD W. EADES, KENTUCKY LAW OF DAMAGES § 8:1 (2021). 7 available in equity, the case is to be tried as a case in equity.” RONALD W.

EADES, KENTUCKY LAW OF DAMAGES § 8:1 (2021). But, “[i]f the action is one

which the recovery of money damages will provide relief, no equitable remedy

should be awarded.” Id.

While this Court has held some class actions to be equitable in nature,10

we have not held class actions to be matters of equity per se. Rather, “[t]he

right of a litigant to employ the class-action mechanism . . . is a procedural

right only, ancillary to the litigation of substantive claims.” Hensley, 549

S.W.3d at 441 n.27 (citing 35A C.J.S. Federal Civil Procedure § 86). Here, the

Lessors seek “legal and equitable remedies,” but as the Court of Appeals

correctly noted, the Lessors’ single cause of action is breach of contract, which

is regularly adjudicated in the district court.11 Further, Vinland ceased

withholding severance taxes from the Lessors’ royalties in 2015, before the

Lessors initiated this action, so injunctive relief is inappropriate.

Finally, the Lessors argue that CR 23 envisions jurisdiction in the circuit

court, and to deny that court jurisdiction would be to deny the Lessors their

right to obtain a remedy. The Lessors are correct in that the circuit court

exercises jurisdiction over class actions,12 but again, they mistake the

10 See Pyro Mining Co. v. Ky. Com’n on Human Rights, 678 S.W.2d 393, 395 (Ky. 1984); Schnuerle v. Insight Commc’n Co., L.P., 376 S.W.3d 561, 569 n.7 (Ky. 2012). Neither court held the class action to bestow jurisdiction upon the circuit court solely because of its outgrowth from principles of equity. 11 See, e.g., Prezocki v. Bullock Garages, Inc., 938 S.W.2d 888 (Ky. 1997). 12 “An appeal does not stay proceedings in the circuit court unless the circuit judge or the Court of Appeals so orders.” CR 23.06; “The court may refer issues 8 procedural vehicle as one exempt from the court’s jurisdictional limits which

are set by statute and the Kentucky Constitution.

Barring class actions which do not meet the circuit court’s amount-in-

controversy requirement does not leave the plaintiffs without an adequate and

proper remedy. The Lessors’ argument that legal costs and accessibility

functionally prohibit potential class members from filing individual, small-

dollar suits, could likewise be made for all plaintiffs seeking damages in the

district court. And yet, the legislature not unreasonably gave the district court

exclusive jurisdiction over civil cases in which the amount in controversy does

not exceed five thousand dollars.13 Expansion of subject-matter jurisdiction is

completely within the purview of the legislature.

IV. Conclusion

For the reasons stated above, we affirm the Court of Appeals’ decision.

All sitting. All concur.

related to the amount of the award to a Commissioner, as provided in CR 53.” CR 23.08. “Each circuit court may appoint a master commissioner[.]” CR 53.01. 13“We have a duty to accord to words of a statute their literal meaning unless to do so would lead to an absurd or wholly unreasonable conclusion.” Bailey v. Reeves, 662 S.W.2d 832, 834 (Ky. 1984) (citation omitted).

9 COUNSEL FOR APPELLANTS:

John Saoirse Friend Bishop Friend, P.S.C. John Cleveland Whitfield Caroline Ramsey Taylor Milberg Coleman Bryson Phillips Grossman, PLLC

COUNSEL FOR APPELLEE:

Honorable Oscar G. House

COUNSEL FOR REAL PARTIES IN INTEREST:

Karen J. Greenwell Virginia Hamilton Snell Wyatt, Tarrant & Combs, LLP