Skarphol et al v. Amerada Hess Corporation et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
Diana Skarphol, Brian Hove, Kevin Hove, )
Jason Hove, Celeste Knudsen, Maynard ) ORDER GRANTING PLAINTIFFS’
Iverson, Marlene Friedt, Ione Schmidt, ) MOTION FOR REMAND
Elaine Iverson, Leon Iverson, Alan Iverson, )
Myron Iverson, David Iverson, Phyllis )
Iverson, Shana Iverson-Fried, Joann Enger, )
Susan Belden, Duane Simpson, Wanda )
Black, Yvonne Iverson, Ashley Iverson, )
Melody Iverson, )
)
Plaintiffs, )
)
vs. ) Case No. 1:21-cv-228
)
Amerada Hess Corporation, Hess )
Corporation, Hess Bakken Investments II, )
LLC, and Hess Tioga Gas Plant LLC, )
)
Defendants, )
_______________________________________________________________________________
Before the Court is the Plaintiff’s related motion for remand (Doc. No. 7) and the issue of
whether Defendant Hess Tioga Gas Plant LLC (“Hess TGP”) was fraudulently joined as a Defendant.
The issue has been fully briefed and the parties have supplemented the record as requested by the
Court. See Doc. No. 21. For the reasons set forth below the Plaintiffs’ motion for remand is granted.
I. BACKGROUND
The Plaintiffs initiated this breach of contract action in North Dakota state court alleging that
wrongful deductions had been taken from their lease royalties. See Doc. No. 1-3. The Defendants
removed the action on December 30, 2021, asserting the existence of diversity jurisdiction. See Doc.
No. 1. In their notice of removal, the Defendants acknowledged they had been unable to establish the
citizenship of Hess TGP, but they asserted the Plaintiffs had fraudulently joined the company, such that
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Hess TGP’s citizenship cannot be utilized to deprive this Court of jurisdiction. A first amended
complaint was filed on June 9, 2022. See Doc. No. 19.
For diversity purposes, the Plaintiffs are citizens of North Dakota, Oregon, Colorado, and
Michigan. See Doc. No. 1, p. 2-3. Defendants Amerada Hess Corporation and Hess Corporation are
the same corporate entity. Hess Corporation is a citizen of Delaware and New York. See Doc. No.
1, p. 3. Hess Bakken Investments II, LLC is also a citizen of Delaware and New York. See Doc. No.
1, p. 3-4. Defendant Hess TGP is, at a minimum, a citizen of North Dakota. See Doc. No. 21, p. 3.
On January 28, 2022, the Plaintiffs filed a motion to remand, arguing removal was improper
based on the citizenship of Hess TGP. See Doc. No. 7. The Defendants responded they were unable
to determine the citizenship of Hess TGP because its citizenship depends on the citizenship of various
third parties. See Doc. No. 10, p. 3-4 n.1. On September 15, 2022, the Court (Judge Daniel Traynor)
entered an Order requesting additional information concerning Hess TGP’s citizenship. See Doc. No.
20. In compliance with the Court’s Order, the parties submitted a joint status report and stipulation
on November 11, 2022. See Doc. No. 21. The joint status report and stipulation reveals that Hess
TGP’s citizenship includes the citizenship of the owners of shares that are publicly traded, and the
parties stipulated this includes at least one citizen of North Dakota for diversity purposes. The parties
agreed in their stipulation that “the remaining jurisdictional question for the Court is whether Hess
TGP was fraudulently joined.” See Doc. No. 21, ¶ 6. The case was reassigned to the undersigned on
October 25, 2023. See Doc. No. 26.
II. LEGAL DISCUSSION
The parties dispute whether Defendant Hess TGP was fraudulently joined in this action. It is
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undisputed that the presence of Hess TGP in this action destroys diversity. Absent a finding of
fraudulent joinder by the Court, remand to state court where the action was commenced is required.
When a plaintiff brings a civil action in state court, a defendant may remove the action to
federal court when the amount in controversy exceeds $75,000 and there is complete diversity of
citizenship among the parties. Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996); 28 U.S.C. §§ 1332
and 1441(a). A case may be removed from state court to federal court only if the action originally
could have been filed in federal court. In re Prempro Prod. Liab. Litig., 591 F.3d 613, 619 (8th Cir.
2010). Complete diversity means no defendant holds citizenship in the same state where any plaintiff
holds citizenship. Jet Midwest Int’l Co., Ltd v. Jet Midwest Grp., LLC, 932 F.3d 1102, 1104 (8th Cir.
2019). A corporation, including an alien corporation, is deemed to be a citizen of its state or place of
incorporation and the state or place where it has its principal place of business. Id.; 28 U.S.C. §
1332(c)(1); In re Arrowhead Cap. Mgmt. LLC Class Litig., 712 F. Supp. 2d 924, 929 (D. Minn. 2010).
It is well settled that an LLC’s citizenship is that of its members for diversity jurisdiction purposes.
GMAC Com. Credit LLC v. Dillard Dep’t Stores, Inc., 357 F.3d 827, 829 (8th Cir. 2004). The
citizenship of a limited liability company is the citizenship of each of its members. OnePoint
Solutions, 486 F.3d at 346. It is likewise settled that a limited partnership’s citizenship is the
citizenship of each of its partners. Carden v. Arkoma Assocs., 494 U.S. 185, 189 (1990). “Because
a member of a limited liability company may itself have multiple members–and thus may itself have
multiple citizenships–the federal court needs to know the citizenship of each ‘sub-member’ as well.”
Delay v. Rosenthal Collins Grp., LLC, 585 F.3d 1003, 1005 (6th Cir. 2009).
Following removal of a case to federal court, a plaintiff can seek remand of the action to state
court if it appears the court lacks subject matter jurisdiction. 28 U.S.C. § 1447(c). The removing party
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bears the burden of showing removal was proper by a preponderance of the evidence. In re Prempro
Prod. Liab. Litig., 591 F.3d at 620. All doubts concerning removal must be resolved in favor of
remand. Id. “It is axiomatic that a court may not proceed at all in a case unless it has jurisdiction.”
Crawford v. F. Hoffman-La Roche Ltd., 267 F.3d 760, 764 (8th Cir. 2001).
A federal court has a duty to assure itself that the threshold requirement of subject matter
jurisdiction has been met in every case. Bradley v. American Postal Workers Union, AFL–CIO, 962
F.2d 800, 802 n. 3 (8th Cir.1992). Federal courts are courts of limited jurisdiction, and it is presumed
that jurisdiction is lacking until the party claiming jurisdiction demonstrates otherwise. Kokkonen v.
Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994). Subject matter jurisdiction cannot be
waived, and if it appears the subject matter jurisdiction is lacking, the court is obligated to consider
the issue sua sponte. James Neff Kramper Family Farm P’ship v IBP, Inc., 393 F.3d 828, 834 (8th Cir.
2005); see also Fed. R. Civ. P. 12(h)(3) (“If the court determines at any time that it lacks subject-matter
jurisdiction, the court must dismiss the action.”)
“The doctrine of fraudulent joinder allows a district court to assume jurisdiction over a facially
nondiverse case temporarily and, if there is no reasonable basis for the imposition of liability under
state law, dismiss the nondiverse party from the case and retain subject matter jurisdiction over the
remaining claims.” Murphy v. Aurora Loan Servs., LLC, 699 F.3d 1027, 1031 (8th Cir. 2012), as
corrected (Nov. 28, 2012). Fraudulent joinder is defined as”the filing of a frivolous or otherwise
illegitimate claim against a non-diverse defendant solely to prevent removal.” Filla v. Norfolk S. Ry.
Co., 336 F.3d 806, 809 (8th Cir. 2003). A defendant’s right to remove to federal court “‘cannot be
defeated by a fraudulent joinder of a resident defendant.’” Simpson v. Thomure, 484 F.3d 1081, 1083
(8th Cir. 2007). The burden is on the removing party to demonstrate joinder was fraudulent. Filla, 336
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F.3d at 809. Joinder is considered fraudulent when there is “‘no reasonable basis in fact or law’”
supporting the claims against the defendant. Murphy, 699 F.3d at 1031. “If there is a “colorable”
cause of action-that is, if the state law might impose liability on the resident defendant under the facts
alleged-then there is no fraudulent joinder.” Filla, 336 F.3d at 810. Reasonableness is the paramount
consideration. Id. A colorable cause of action is one that reasonable, but speculative. Id. at 810 n.10.
“Subsequent amendment of a complaint cannot defeat removal.” Masepohl v. Am. Tobacco Co., Inc.,
974 F. Supp. 1245, 1249–50 (D. Minn. 1997) (citing Pullman Co. v. Jenkins, 305 U.S. 534, 537
(1939)).
In this case, the complaint contains claims for (1) breach of contract, (2) fraud, (3) breach of
duty, (4) conversion, and (5) forfeiture of leases. See Doc. No. 1-3. The Defendants contend that
joinder was fraudulent because Hess TGP is not a party to the oil and gas leases which form the basis
of the Plaintiffs’ claims. The Plaintiffs maintain that Hess TGP and the other Hess Defendants
conspired to charge the Plaintiffs improper post-production costs to process gas in order to recoup the
costs of building, operating, and maintaining the Hess Tioga Gas Plant. The Plaintiffs further explain
they believe the Hess Defendants are closely intertwined and in many respects the same entity and
operated by the same members. There seems little question that the gas produced by the Plaintiffs’
leases was processed at Hess TGP beginning in or around 2014, and those costs were deducted from
the Plaintiffs’ royalties. The complaint describes the scheme as follows:
From 1949 until 2007, no costs associated with production were charged to the royalty
owners. Beginning in 2007, minimal costs were charged to the royalty owners until
2014 when new, never before charged costs were assessed against the royalty owners.
Again in 2015, and 2016, royalty interests were charged excessive costs of production
that were never agreed to by Plaintiffs. Coincidentally, in 2014, Defendant completed
construction of the Hess Tioga Gas Plant, a gas processing plant outside Tioga, North
Dakota. It is believed that a percentage of the cost for this plant was charged by one
Hess company, Hess Tioga Gas Plant LLC, to another Hess entity and that Amerada
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Hess Corporation, then illegally and fraudulently charged the royalty owners for their
share or a percentage of the share of the costs for either construction or operation of the
plant or a combination of the two.
See Doc. No. 1-3, ¶ 8 (emphasis added).
While not a model of clarity, the complaint includes claims against Hess TGP for fraud and
conversion. It is undisputed that North Dakota law recognizes such claims. In addition, the citizenship
of Hess TGP was not established until November of 2022. The complaint was filed in state court in
December of 2021. The Plaintiffs likely suspected the presence of Hess TGP would destroy diversity,
but as this case has demonstrated, the citizenship of an LLC is not so easy to determine. The number
of Hess entities involved in the ownership of Hess TGP and Hess Bakken Investments II, LLC is
remarkable and lends credence to the Plaintiffs’ claims and theories. Compare Doc. No. 1, ¶ 7 and
Doc. No. 21, ¶ 3. That no costs were charged to the royalty owners between 1949 and 2007; that
minimal charges were imposed from 2007 until 2014; and that after completion of the Hess Tioga Gas
Plant in 2013-2014, post-production costs rose significantly, also lends credence to the claims against
Hess TGP. The Court concludes the Plaintiffs claims against Hess TGP are colorable. With diversity
incomplete, the Court lacks jurisdiction.
III. CONCLUSION
The Court has carefully reviewed the entire record and relevant case law and concludes the
Court lacks subject matter jurisdiction due to a lack of complete diversity. See 28 U.S.C. § 1447(c).
The Plaintiffs’ motion for remand (Doc No. 7) is GRANTED. The Court ORDERS this case be
REMANDED to the District Court for the Northwest Judicial District, Williams County, North
Dakota.
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IT IS SO ORDERED.
Dated this 15th day of December, 2023.
/s/ Daniel L. Hovland
Daniel L. Hovland, District Judge
United States District Court
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