Opinion
NO. 2011-CA-002069-MR
02-22-2013
CHESAPEAKE APPALACHIA, LLC APPELLANT v. SAM COLLINS III; MARIETTA COLLINS, AS SPOUSE OF SAM COLLINS III; WILLIAM LEWIS COLLINS, INDIVIDUALLY AND AS CO-TRUSTEE OF THE ANNE LESLIE COLLINS PROPERTY TRUST; TERESA COLLINS, AS SPOUSE OF WILLIAM LEWIS COLLINS; D. BRUCE ORWIN AS CO-TRUSTEE OF THE ANNE LESLIE COLLINS PROPERTY TRUST; JANET COLLINS McGAHA; TIM McGAHA, AS SPOUSE OF JANET COLLINS McGAHA; UNKNOWN TRUSTEE OF THE CAROL P. COLLINS REVOCABLE LIVING TRUST; PATRICIA ELLEN COLLINS BENTLEY; WILLIAM E. BENTLEY, AS SPOUSE OF PATRICIA ELLEN COLLINS BENTLEY; ROGER CLAY COLLINS APPELLEES
BRIEFS FOR APPELLANT: Leigh Gross Latherow Ashland, Kentucky BRIEFS FOR APPELLEES: Joe F. Childers Lexington, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM KNOTT CIRCUIT COURT
HONORABLE STEVEN D. COMBS
ACTION NO. 08-CI-00181
OPINION
REVERSING AND REMANDING IN PART, AND VACATING IN PART,
BEFORE: CAPERTON, DIXON AND TAYLOR, JUDGES. DIXON, JUDGE: Appellant, Chesapeake Appalachia, LLC, appeals from an order of the Knott Circuit Court granting partial summary judgment in favor of Appellees, ten heirs of Sam and Jesse Collins (collectively the "Collins heirs"), who are owners of property located in Knott County, Kentucky. Chesapeake also appeals from a subsequent jury verdict entered in favor of the Collins heirs awarding compensatory and punitive damages.
On August 29, 1956, Goodloe Brothers Company, a Virginia corporation, deeded to Sam Collins one tract of land located on Carr's Fork of the North Fork of the Kentucky River, as well as three other tracts contiguous to the first tract and located on Smith's Branch of Carr's Fork, in Knott County, Kentucky. The three parcels totaled approximately 790 acres, and were later designated by the Collins family as Tracts A-E. The deed conveyed to Collins the surface, coal and all other mineral rights while reserving to Goodloe Brothers the oil and gas rights, as well as certain rights associated with the exploration and production of oil and gas. The specific reservation provided:
It is especially stipulated and agreed by the parties hereto that the Grantors preserve unto their selves all the oil and gas rights and privileges on the lands hereinabove described and conveyed, which reservation together with all the rights and privileges incident to exploration for oil and gas are reserved unto said grantors, their successors
and assigns forever, it being understood that if the existing oil and gas leases are terminated for any reason, the grantors reserve the right and privilege of executing new leases or otherwise selling and conveying the oil and gas rights and privileges and exercising all of the elements of the ownership therein.
In 1949, more than seven years prior to the Collins deed, Goodloe Brothers had leased to Inland Gas Corporation (now Chesapeake) the oil and gas rights underlying approximately 708 acres of the Collins property (all except Tract B). In addition to leasing the rights to explore for and produce oil and gas, the 1949 lease, in contrast to the 1956 severance deed, provided for broad rights that could be exercised by Inland Gas, as the lessee. Specifically, the 1949 lease provided:
Lessor . . . hereby grants . . . the title to all the oil and gas . . . for the sole and only purpose of searching for, exploring, drilling and operating for, producing, and marketing oil, gas and gasoline, together with the right of way and servitude for pipelines, telephone lines, structures, houses and buildings, and all other rights and privileges necessary, incident to and convenient for the economic operation of this land . . . .Accordingly, when Collins purchased the property from Goodloe Brothers in 1956, the land was already subject to the rights previously conveyed to Inland Gas to explore for and produce oil and gas on all of the property except Tract B, which consisted of 82 acres. Although Tract B was not included in the broad 1949 lease, it became burdened with the more limited reservation contained in the 1956 deed upon execution of such.
Realizing that the 1949 lease did not cover Tract B and that the 1956 severance deed did not provide for the broad rights contained in the earlier lease, a trustee for Inland Gas approached Collins in 1958 and obtained a right of way agreement. The agreement, dated September 11, 1958, granted to Inland Gas the following rights:
That the [Collins] for and in consideration of One Dollar paid, the receipt of which is hereby acknowledged, and the further consideration of Fifty Cents . . . per lineal rod for each pipe line, to be paid after the laying of same, does hereby grant to the [Trustee] an easement or right of way to construct, maintain, and operate pipe lines, valves, meters, drips, and other appurtenants necessary to the operation of said pipe lines over and through the [Collins property] . . . .Approximately three months later, on December 5, 1958, Goodloe Brothers leased to the trustee for Inland Gas the oil and gas rights underlying Tract B. At that point, Inland Gas was the lessee of the oil and gas rights to all five tracts of the Collins property.
It is not disputed that the Collins heirs have never lived on the subject property and the surface has never been developed in any manner.
Pursuant to the two leases, Inland Gas drilled five wells on the Collins property. However, one of the wells was capped after the United States Army Corps of Engineers condemned 90.44 acres of the Collins property in 1972 to build Carr's Fork Lake. Four of the wells are still producing gas and are now, through various assignments and conveyances, owned by Chesapeake. Further, Chesapeake operates a "gathering line" known as the G-108 Pipeline that crosses the Collins property from east to west, and was constructed in 1958 pursuant to the right of way agreement. This gathering line collects gas from many different wells, including the four wells on the Collins property. In addition to the G-108 gathering line, there is a high pressure interstate transmission line that crosses the Collins property from north to south known as the PM-3 line. This line is not owned by Chesapeake but rather is owned and operated by Columbia Gas Transmission Corporation ("Columbia Gas").
Sometime in 2007, Chesapeake made the decision to construct a new compressor station and discharge pipeline to tie its G-108 line into Columbia Gas's PM-3 line. The compressor station was subsequently constructed on part of the property that was previously condemned by the Corps. That property is surrounded on three sides by the Collins property. The compressor station is located approximately 765 feet from the boundary of the Collins property and 1,500 feet from the PM-3 pipeline, requiring Chesapeake to lay the discharge pipeline, 890 feet of which crosses the Collins property. At the tie-in location, on Tract D, Chesapeake disturbed two acres of property with the intention of constructing a regulation or measurement facility to regulate the flow of the gas into the transmission line. Chesapeake claimed that a survey conducted prior to the project indicated that the entire discharge pipeline would be located on the Corps' property.
In October 2007, one of the Collins heirs, Sam Collins III, received a phone call informing him of the construction of the discharge pipeline and Chesapeake's intent to connect the compressor station with the PM-3 transmission line. Collins thereafter contacted Columbia Gas and objected to the tie-in plan. Columbia Gas subsequently refused to complete the tie-in until the dispute was resolved. Chesapeake was forced off of the property by the Collins heirs before completion of the discharge pipeline and tie-in.
In May 2008, Chesapeake filed an action in the Knott Circuit Court against Sam Collins III and William Lewis Collins, another heir, seeking an injunction to prevent the interference with the construction of the discharge pipeline. In July 2008, Chesapeake filed an amended complaint naming the remaining Collins heirs. Thereafter, the Collins heirs filed an answer and counterclaim seeking damages and injunctive relief to prevent Chesapeake's trespass onto the property in question. In January 2009, Chesapeake was permitted to file another amended complaint that, in addition to injunctive relief, sought damages for unjust enrichment, intentional interference with contractual relations, nuisance, trespass to realty, trespass to chattels, and a declaration of rights. Finally, in February 2009, the Collins heirs filed an amended counterclaim to add a claim for nuisance resulting from the noise emitted from Chesapeake's compressor station.
In April and June 2009, respectively, Chesapeake filed a motion for partial summary judgment on its request for declaratory relief, and the Collins heirs filed a motion for partial summary judgment on their trespass claim. On September 10, 2009, the trial court held a hearing on the cross motions. However, on October 13, 2009, while the motions were still pending, the trial judge informed the parties that she was recusing from the matter. A special judge was thereafter appointed and the motions were again heard in December 2009.
By order entered April 7, 2010, the trial court adopted the Collins heirs' proposed order verbatim in granting their motion for partial summary judgment. The trial court first held that the 1958 right of way agreement was "null and void" and that its easement was rescinded for a material breach because Chesapeake had failed to satisfy the terms of the agreement when it did not pay the required consideration for construction of the discharge pipeline. The trial court further held that there was no language in the 1956 deed or the 1958 agreement that contemplated the construction of the discharge pipeline from the compressor station.
Having rescinded the 1958 right of way agreement and ruling that Chesapeake had no rights under the 1956 deed to construct the discharge pipeline, the trial court declared that, as a matter of law, Chesapeake was a trespasser and would be required to "answer in damages for such trespass" at trial. The trial court ordered Chesapeake to remove the discharge pipeline and reclaim all disturbed property. Finally, the trial court limited the issues at trial to (1) the amount of compensatory damages to be awarded to the Collins heirs for Chesapeake's trespass in laying the pipeline from the compressor station to the tie-in location, and (2) whether the noise from the compressor station constituted a nuisance and, if so, the amount of damages to be awarded for such.
A trial was held in August 2011. At the close of evidence, the jury awarded the Collins heirs $64,490 in compensatory damages on the trespass and nuisance claims and $600,000 in punitive damages on the trespass claim. Chesapeake thereafter appealed to this Court.
Chesapeake first argues that the trial court erroneously granted the Collins heirs' motion for summary judgment on the trespass claim. Specifically, Chesapeake alleges that the trial court misconstrued the plain language of the 1958 right of way agreement as well as erroneously resolved disputed factual questions as to whether Chesapeake had breached the terms of the agreement. Further, Chesapeake challenges the trial court's finding that, as a matter of law, the 1956 deed and the 1958 agreement did not permit the construction of the pipeline.
Our standard of review on appeal of a summary judgment is "whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996). Summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." CR 56.03. The trial court must view the record "in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991). Summary judgment is proper only "where the movant shows that the adverse party could not prevail under any circumstances." Id. Finally, since summary judgment involves only legal questions and the existence of any disputed material issues of fact, an appellate court need not defer to the trial court's decision and will review the issue de novo. Lewis v. B & R Corporation, 56 S.W.3d 432, 436 (Ky. App. 2001).
With respect to the consideration required under the 1958 right of way agreement, Chesapeake points out that the plain language of the agreement requires payment of 50 cents per lineal rod for the pipeline constructed on the subject property "to be paid after the laying of same." However, Chesapeake's position is that it was forced off of the property before the pipeline was finished, and that any determination of the amount it owes under the 1958 agreement cannot be ascertained until such time. While the Collins heirs argued in the trial court that all that was left of the project was to tie in the discharge pipeline with the PM-3 line, they did not dispute that additional pipeline may be needed to do so. As such, Chesapeake contends that it could not have materially breached the agreement because payment was not yet due.
Chesapeake also submits that it presented evidence that it attempted to pay the Collins heirs on several occasions prior to and during construction of the pipeline. Nevertheless, the trial court adopted the heirs' argument that the attempted payments were conditioned upon a new agreement and did not specifically indicate they were pursuant to the 1958 agreement. After reviewing the record, we are of the opinion that there is significant conflicting evidence as to whether Chesapeake's actions or inactions constituted a material breach of the 1958 agreement.
Finally, Chesapeake argues that the trial court erred in finding that, as a matter of law, neither the 1956 deed nor the 1958 agreement contemplated the construction of a discharge pipeline from a compressor station to a transmission line. Relying on the decision in Wiser Oil Company v. Conley, 346 S.W.2d 718, 722 (Ky. 1961), the trial court concluded that the two documents only reserved the right to explore and produce oil in "the customary manner prevailing when the lease was executed." The trial court noted:
Based upon the custom and use at the time, "pipelines," as implied by the 1956 Deed and contemplated by the 1958 Right of Way Agreement means well lines from wells to gathering lines and the gathering lines themselves. If pipelines from compressor stations had been intended by the parties, then there would have been a provision in the Deed or in the agreement stating that the pipelines from compressor stations was permissible. However, there is no such language in the 1958 Right of Way Agreement.
We find that the trial court's reliance on Wiser is misplaced. The surface owners in Wiser sought to enjoin an oil company from utilizing a new technology to increase the production of oil despite the fact that such would completely destroy the surface of the property. On appeal, the issue addressed by Kentucky's then-highest court was not whether new technology could be utilized to extract oil from the subject property, but rather whether an exemption from liability for damages would be limited only to those caused by methods that were "in the customary manner that prevailed when the lease was executed." Id. at 722. Thus, Wiser does not stand for the proposition that a mineral lessee cannot use new technology, only that a lessee may be required to pay the surface owner for any damage that results from the implementation of new technology.
Chesapeake introduced evidence that compressor stations such as the one in question have been utilized in the industry for years, even prior to the execution of the 1956 deed and 1958 agreement. Regardless, however, of whether it is or is not new technology, Chesapeake points out that the compressor station is located on the Corps' property, not that belonging to the Collins heirs. It is only the discharge pipeline that crossed the subject property, and Chesapeake maintains that it was no different from any of the other numerous pipelines running on the property and, thus, did not constitute new technology. Clearly, based upon the evidence introduced by both parties as to the industry standards and practices for exploring and producing gas, it is apparent that whether the discharge pipeline was new technology not contemplated by the 1956 deed or 1958 agreement was a factual question for a jury to decide.
We are of the opinion that the record before the trial court at the time the summary judgment motions were considered contained numerous genuine issues of material fact that should have precluded summary judgment on the trespass claim. We must agree with Chesapeake that the trial court engaged in significant fact-finding under the guise of rendering conclusions of law. Accordingly, as there were disputed issues of fact, the trial court erred in ruling that the Collins heirs were entitled to judgment as a matter of law. Scifres, 916 S.W.2d at 781; CR 56.03.
Chesapeake next argues that the trial court erroneously instructed the jury on punitive damages because the Collins heirs did not comply with CR 8.01. Specifically, during discovery, Chesapeake propounded the following interrogatory:
INTERROGATORY NO. 7. Describe in detail the nature of each and every item of damage allegedly suffered by the Defendants, including, but not limited to, property damages, and with respect to each, state specifically the amount of compensation you seek for that item and describe the method of computation you used at arriving at that amount, including any claim for unliquidated damages, stating, pursuant to CR 8.01, the amount of those claims and how the amounts are calculated and identify any expert witness who will testify regarding such damages.In their responses, the Collins heirs disclosed that they were claiming $64,944 in compensatory damages from the construction of the discharge pipeline and the noise from the compressor station. It is undisputed, however, that they did not, at any time prior to or during trial, provide information regarding their claim for punitive damages.
At the close of its case as well as the close of all evidence, Chesapeake sought to enforce the mandatory bar of CR 8.01. During a discussion on instructions, the trial court acknowledged that the Collins heirs had not supplemented the record as to the claim for punitive damages and indicated that under CR 8.01, and applicable case law, such would preclude the claim from going to the jury. Counsel for the Collins heirs argued that CR 8.01 only applies to compensatory damages and no information need be disclosed to the opposing party about punitive damages. Following a brief recess, the trial court ruled, without explanation, that a punitive damages instruction would be given.
Thereafter, during closing arguments, Chesapeake learned for the first time that the Collins heirs were seeking punitive damages in the amount of $1,000 per day for each of the 1,300 days the discharge line was on the subject property. As Chesapeake had already made its closing argument, it had no opportunity to respond to the claim. The jury subsequently awarded $600,000 in punitive damages for the temporary trespass. The trial court later denied Chesapeake's CR 59.05 motion to vacate the punitive damages award.
CR 8.01(2) provides in pertinent part that:In Fratzke v. Murphy, 12 S.W.3d 269, 273 (Ky. 1999), our Supreme Court held that CR 8.01(2) is to be strictly construed so as to put the burden on the claimant to submit the amount of unliquidated damages in answers to written interrogatories because "the purpose of the rule is to allow a party to discover the amount an opposing party is seeking for unliquidated damage claims." (Emphasis in original). See also LaFleur v. Shoney's Inc., 83 S.W.3d 474 (Ky. 2002). Under Fratzke, exclusion of damages that are not disclosed is mandatory. As noted by the Fratzke Court:
When a claim is made against a party for unliquidated damages, that party may obtain information as to the amount claimed by interrogatories. If this is done, the amount claimed shall not exceed the last amount stated in answer to interrogatories; provided, however, that the trial court has discretion to allow a supplement to the answer to interrogatories at any time where there has been no prejudice to the defendant.
Contrary to the argument made by the dissent, our opinion today does not "bury a landmine in civil litigation." Rather, we merely hold that CR 8.01(2) means what it says. The language of the rule is mandatory and gives a trial court no discretion as to its application . . . . While the result in this case may seem harsh, it is required by the plain language of CR 8.01 and the holding of Burns v. Level, [957 S.W.2d 218 (Ky. 1997)].Fratzke, 12 S.W.3d at 273. See also Prater v. Castle, 139 S.W.3d 921, 926 (Ky. App. 2003) ("[I]f a party . . . fails to timely answer or to timely supplement answers to interrogatories concerning a claim for unliquidated damages, . . . a trial court is precluded from instructing the jury on an award for any claim of unliquidated damages in excess of the amount last stated in the answers to the interrogatories."). Because the purpose of CR 8.01(2) is to give opposing parties notice of the amount of the claim, Fratzke held that the failure to answer the interrogatories on the amount of unliquidated damages was not harmless. However, a trial court can authorize answers or supplemental answers to interrogatories for good cause, as late as during the trial itself. See Tennill v. Talai, 277 S.W.3d 248, 251 (Ky. 2009).
The Collins heirs are correct that Fratzke and its progeny concerned compensatory damages. However, CR 8.01 speaks in terms of unliquidated damages. Interestingly, there appears to be no published precedent in Kentucky as to whether punitive damages are, in fact, considered unliquidated damages for the purposes of CR 8.01. However, this Court has on several occasions declared that punitive damages are unliquidated damages. Pickett v. Shields, 2003-CA-000744-MR (December 2, 2005) ("We believe that punitive damages are by their very nature unliquidated and, thus, constitute unliquidated damages within the meaning of CR 8.01(2)."); Village Campground v. Liberty Bank, 2007-CA-001454-MR November 26, 2008) ("While we found no published Kentucky case defining 'unliquidated damages,' we note that they are defined in Black's Law Dictionary as '[d]amages that cannot be determined by a fixed formula and must be established by a judge or jury.' Black's Law Dictionary (8th Ed. 2004). Punitive damages would seem to fit squarely within that definition.").
In Engle v. Baptist Healthcare System, Inc., 336 S.W.3d 116 (Ky. App. 2011), the issue before this Court was whether a plaintiff could supplement his interrogatory responses during trial to identify the amount of punitive damages claimed. A panel of this Court held that under CR 8.01(2), interrogatory answers could indeed be supplemented as late as the close of evidence provided there was no prejudice to the opposing party. Id. at 122. Significantly, at no time did the panel conclude that a CR 8.01 analysis was unnecessary because punitive damages were not unliquidated.
Although we do not perceive the Collins heirs' submission of a punitive damages instruction to be a supplementation of their interrogatory responses, even if we were to do so, we would necessarily find that supplementation at that point was prejudicial to Chesapeake. Certainly, as Chesapeake points out, its litigation strategy would have been far different had it known that the Collins heirs were seeking punitive damages based upon the number of days the pipeline lay on the property. Certainly no disclosure of such intent was made during the twelve months that Chesapeake's motion for summary judgment was pending or the fourteen months that its motion for reconsideration was pending. While the language of CR 8.01 does not require a showing of prejudice, such is clear herein. Accordingly, we conclude that the jury should not have been instructed on punitive damages and the award must be vacated.
Chesapeake next argues that the trial court erred in giving a consolidated compensatory damage instruction for the separate nuisance and trespass claims. Specifically, before reaching the consolidated damages instruction, the jury had to answer a nuisance interrogatory in the affirmative. The jury then proceeded to the instruction on trespass, which did not require a finding because of the prior summary judgment on that claim. At the conclusion of the trespass instruction, the jury was instructed to proceed to the consolidated damage instruction only if it had answered the nuisance instruction affirmatively. If not, the jury was instructed to proceed to an instruction for damages on the trespass claim only. Chesapeake contends that as a result of the consolidated instruction, it is impossible to distinguish what portion of the $64,490 was to compensate the Collins heirs for the noise from the compressor station and what portion was to compensate for the temporary trespass from the discharge pipeline. Further, Chesapeake argues that the significance of the error is emphasized when analyzing whether the punitive damage award for the temporary trespass complies with due process.
An appellate court's review of claimed errors in jury instructions is de novo to determine whether the instructions are based on the evidence and whether they properly and intelligibly state the law. Combs v. Stortz, 276 S.W.3d 282, 288 (Ky. App. 2009). Further,
An error in a court's instructions must appear to have been prejudicial to the appellant's substantial rights or to have affected the merits of the case or to have misled the jury or to have brought about an unjust verdict in order to constitute sufficient ground for reversal of the judgment.Miller v. Miller, 296 S.W.2d 684, 687-88 (Ky. 1956) (Quoting Maupin v. Baker, 302 Ky. 411, 194 S.W.2d 991, 993 (1946)).
Although itemization of separate items of damages is the better practice, failure to do so is not necessarily prejudicial. See Carruba v. Speno, 418 S.W.2d 398, 402 (Ky. 1967). However, in light of the fact that we are reversing the trial court's order granting summary judgment on the trespass claim, the consolidated damage instruction must be deemed erroneous.
Finally, Chesapeake sets forth several alleged evidentiary errors including the exclusion of evidence pertaining to the amount of royalties received by the Collins heirs, the admission of videotapes and photographs of the compressor station, and the admission of information pertaining to Chesapeake's lost gross profits from the compressor station during the time period of the litigation. Suffice it to say, we have reviewed each item and conclude that the trial court's rulings on admission or exclusion were not an abuse of discretion. Goodyear Tire and Rubber Co. v. Thompson, 11 S.W.3d 575, 577 (Ky. 2000).
Accordingly, the order of the Knott Circuit Court granting summary judgment in favor of the Collins heirs is reversed and the jury's award of punitive damages is hereby vacated. This matter is remanded for further proceedings consistent with this opinion.
ALL CONCUR. BRIEFS FOR APPELLANT: Leigh Gross Latherow
Ashland, Kentucky
BRIEFS FOR APPELLEES: Joe F. Childers
Lexington, Kentucky