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K. Petroleum, Inc. v. Property Tax Map Number 7 Parcel 12, Knox County

United States District Court, E.D. Kentucky, Southern Division, at London

June 15, 2015

K. PETROLEUM, INC., Plaintiff,
v.
PROPERTY TAX MAP NUMBER 7 PARCEL 12, KNOX COUNTY, KENTUCKY, et al., Defendants.

MEMORANDUM OPINION AND ORDER

DANNY C. REEVES, District Judge.

This matter is pending for consideration of Plaintiff K. Petroleum, Inc.'s ("KPI") motion to dismiss. [Record No. 36] The plaintiff asserts that the defendants cannot maintain claims of trespass or seek punitive damages because their sole vehicle for recovery is reverse condemnation. Conversely, the defendants have moved for partial summary judgment on their counterclaim for trespass and punitive damages and on the plaintiff's claim for condemnation of a temporary rights-of-way. [Record No. 46] For the reasons outlined below, the plaintiff's motion will be granted and the defendants' motion will be denied.

I.

KPI is a company engaged in the construction, maintenance, and operation of gas pipelines. [Record No. 29, ¶ 1] In September 2014, as the result of a bridge relocation project, KPI began construction of the T-632 gas transmission pipeline over property owned by Defendants Jack Elliott, Jr., Marilyn Louise Elliott, and Holly Jean Elliott, and located in Knox County, Kentucky. KPI hired Mountain Ridge, LLC, to place the pipeline. [Record No. 36-3, p. 4] However, KPI did not seek condemnation of the property in issue prior to commencing work because "the pipeline was intended and believed to be constructed on property adjacent" to the defendants' property. [Record No. 29, ¶ 11] Employees of Mountain Ridge were told where to place the pipeline by a KPI representative and a state inspector that was overseeing the project. [Record No. 36-3, p. 17] On September 25, 2014, Jack Elliott, Jr. discovered that construction of the pipeline had begun on the property. After he was told that a "house tap" would not be provided, he demanded that Mountain Ridge's employees leave the property and cease all construction. [ Id., pp. 17-18] KPI attempted but was unable to reach an agreement with the defendants to allow installation of the pipeline to continue. [Record No. 29, ¶ 15] This delay caused the project to be put on hold for approximately three weeks and for the pipe already placed in the defendants' property to remain. [Record No. 36-3, p. 7]

On October 6, 2014, the plaintiff filed this action under Kentucky Revised Statutes §§ 278.502 and 416.550 through 416.670, seeking condemnation of a perpetual and temporary rights-of-way over the defendants' property. [Record No. 1, ¶¶ 1, 15] Under Rule 71.1(c)(3) of the Federal Rules of Civil Procedure which governs condemnation actions, the plaintiff named as defendants the individuals that were known to "have or claim an interest in the property." [Record No. 1, ¶¶ 1-2] Thereafter, KPI made arrangements to construct the portion of the T-632 pipeline at issue over other land not owned by the defendants. [Record Nos. 29, ¶11, 36-3, p. 7] The pipeline was finished and became operational on October 17, also asserted a counterclaim for trespass and punitive damages. [Record No. 10]

Thereafter, the defendants filed motions to dismiss the underlying action, asserting that an easement was no longer necessary and that the amount-in-controversy was not sufficient for federal diversity jurisdiction. [Record Nos. 17, 19] On February 2, 2015, the Court denied both motions. [Record No. 26] KPI subsequently filed an Amended Complaint setting forth claims relevant to temporary rights-of-way over the property in question and removing the claim for a permanent right-of-way. [Record No. 29] The defendants' Answer, filed February 18, 2015, again included a counterclaim for trespass and punitive damages. [Record No. 32] On March 19, 2015, the plaintiff moved to dismiss the counterclaim. [Record No. 36] The defendants then moved for partial summary judgment on their counterclaim and on the plaintiff's claim for condemnation of temporary rights-ofway. [Record No. 46]

II.

A. Plaintiff's Motion to Dismiss

When evaluating a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must determine whether the complaint alleges "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The plausibility standard is met "when the [moving party] pleads factual content that allows the court to draw the reasonable inference that the [nonmoving party] is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). Although the complaint need not contain "detailed factual allegations" to survive a motion to dismiss, the "[moving party's] obligation to provide the grounds of [its] entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal quotation marks and alteration omitted).

The defendants have filed a counterclaim for trespass and punitive damages as a result of the plaintiff's encroachment onto their land. [Record No. 32, p. 3] The plaintiff, however, asserts that the sole remedy available under the circumstances is reverse condemnation and that the defendants' counterclaim should be dismissed. [Record No. 36-2] Conversely, the defendants contend that the plaintiff's motion must be denied because the operation of the pipeline is not necessary or for a public use. [Record No. 42, pp. 3-7] The defendants do not contest that KPI, as a company engaged in the construction, maintenance, and operation of gas pipelines, has the power to condemn land for public purposes pursuant to K.R.S. §§ 278.502 and 416.550 through 416.670.

A review of Kentucky case law demonstrates that claims for trespass and punitive damages are disfavored in cases involving the power of eminent domain. In Witbeck v. Big Rivers Rural Electric Cooperative Corporation, 412 S.W.2d 265 (Ky. 1967), the plaintiff asserted a claim for trespass and punitive damages resulting from the defendant's entry onto their property without prior payment of compensation or an easement. This was determined to be a reverse condemnation case rather than a trespass case, eliminating the possibility of punitive damages. The court in Witbeck found:

The rule is that where an entity possessing the power of eminent domain prematurely enters upon the premises of the condemnee, the exclusive remedy of the landowners is based on Kentucky Constitution, Section 242, which provides that "just compensation for property taken" shall be made. This remedy is frequently referred to as "reverse condemnation." (citations omitted). The measure of damages is the same as in condemnation cases. Separate recovery of punitive damages is prohibited.

Id. at 269.

Likewise, in Kentucky & West Virginia Power Co. v. Vanhoose, 295 Ky. 339, 174 S.W.2d 538 (Ky. 1943), two landowners filed suit for trespass and punitive damages against an electric company as a result of power lines built across their property without first making just compensation. The court concluded that "[w]here land is taken for its use by a corporation having the power to condemn, without having made just compensations, ... the suit is to be treated as an appeal from a condemnation judgment." Id. at 539. In Eversole v. Morgan Coal Company, 297 S.W.2d 51 (Ky. 1956), a coal company departed from a rightof-way condemned over the landowner's property. There, the Court determined that the suit seeking payment for past use and requesting an injunction against future use should be construed as a condemnation case with the proper measure of damages being the difference between the market value before and after the taking. Id. at 54. The Kentucky Court of Appeals also has found that condemnation proceedings are the correct measure of damages ...


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