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EQT Production Co. v. Vorys, Sater, Seymour and Pease, LLP

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

April 27, 2018

EQT PRODUCTION COMPANY PLAINTIFF
v.
VORYS, SATER, SEYMOUR AND PEASE, LLP, et al. DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          David L. Bunning United States District Judge

         EQT Production Company was hauled into court six years ago regarding their rights and ownership in certain oil interests in southeastern Kentucky. EQT lost in that action and was forced to convey properties and pay approximately $14 million in trespass damages. EQT, claiming that their former attorneys are responsible for those damages, initiated the instant action. The Court therefore must drill down through the underlying litigation and explore whether EQT's attorneys are potentially liable for legal malpractice.

         Defendants John Keller and Vorys, Sater, Seymour and Pease, LLP (collectively, “the Vorys Defendants”) and Dale A. Phillips and Phillips Law Office (collectively, “the Phillips Defendants”) seek judgment as a matter of law in their favor on Plaintiff EQT Production Company's (“EQT”) legal-malpractice claims against them. Specifically, both the Vorys Defendants and the Phillips Defendants argue that EQT's legal-malpractice claims are barred by the statute of limitations and that EQT has failed to create a genuine issue of material fact regarding whether the Vorys Defendants or the Phillips Defendants committed professional negligence in their representation of EQT. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         In the spring of 2001, EQT decided to sell certain oil interests on thousands of noncontiguous acres throughout southeastern Kentucky-primarily in Leslie, Letcher, and Perry Counties.[1] (Docs. # 71 at 4; 74 at 6-7). The contemplated transaction involved three types of property interests: properties that EQT owned in fee simple, properties that EQT leased from third-parties, and existing wells that EQT owned, along with the associated equipment and pipelines situated on the property. Id. EQT operated some of these properties with a joint-venture partner, KRCC Oil and Gas Company (“KRCC”). Id.

         In preparation for the offering, Joe Morris, EQT's Vice President of Geoscience, and Lester Zitkus, EQT's Vice President of Land, drew maps with tract outlines around the oil fields EQT wished to sell. (Doc. # 74-1 at 4). Several of these maps outlined in blue ink some of the properties that EQT owned. (Docs. # 74-2; 74-3; 74-4). EQT also established a Data Room, which contained a Data Room Summary that detailed information about the properties and assets offered for sale, instructions for bidding, a Purchase and Sale Agreement, and an Assignment. (Doc. # 74-7).

         After establishing the Data Room, but before the bid deadline, EQT retained John Keller, a partner at Vorys, Sater, Seymour and Pease, LLP, to represent EQT in the anticipated transaction.[2] (Docs. # 71 at 5; 74 at 8; 74-8). On August 30, 2001, Journey Acquisition-II, LP (“Journey”) submitted a collective bid of $70, 700, 000, with $64, 090, 000 offered for EQT's interests and $6, 600, 000 offered for KRCC's interests. (Docs. # 71 at 5; 74 at 8; 74-10). Along with its bid, Journey presented the draft Purchase and Sales Agreement, with red-lined comments. (Doc. # 74-10). Because Journey was the highest bidder, EQT and KRCC accepted Journey's offer. (Doc. # 74 at 9).

         On September 3, 2001, Zitkus made additional comments on the red-lined Purchase and Sales Agreement and faxed the document to Keller the next day. Id. Of particular relevance, Zitkus claims he made a note next to Section One of the Purchase and Sale Agreement (“PSA”), entitled “Property to be Sold and Purchased, ” instructing Keller to “Reference Boundaries.” (Doc. # 74-10 at 14).

         On September 5, 2001, at EQT's suggestion and with EQT's consent, KRCC also retained the Vorys Defendants. (Docs. # 74 at 10-11; 74-12; 74-13). Jointly representing the sellers, Keller amended EQT and KRCC's Joint Venture Agreements, and also made revisions to both EQT's and KRCC's PSAs. (Doc. # 74 at 11-17). Over the month of September, EQT, KRCC, and Journey negotiated the details of the transaction. (Docs. # 74-6 at 73-75; 74-11; 74-14). At the same time, EQT, KRCC, and Keller exchanged and revised numerous versions of the Amended Joint Venture Agreements. (Docs. # 74-6 at 148-51; 74-11; 74-16).

         Although Keller was tasked with drafting and revising the various agreements, including some of the exhibits, EQT prepared the maps that were attached to the agreements. (Docs. # 71-2 at 4; 74-6 at 57-58, 141, 194-95). The Blue Line Boundary Maps, which Zitkus and Morris had prepared for the Data Room, were attached to the PSAs. When attached to the EQT PSA, the Blue Line Boundary Maps became Exhibit N. (Docs. # 71-18 at 195-206; 74-19 at 196-207). When attached to the KRCC PSA, the Blue Line Boundary Maps became Exhibit J. (Doc. # 74-20 at 111-116).

         As of September 28, 2001, neither the EQT PSA nor the KRCC PSA contained references to the Blue Line Boundary Maps in Section One or Section Eighteen. (Doc. # 74 at 15). Sometime between September 28 and October 4, 2001, however, KRCC contacted Keller and requested that he “clarify” the PSA to limit the transaction to the “properties within the Blue Line Boundary Maps.” (Doc. # 74 at 15). Notably, Keller made the requested changes to the KRCC PSA. Id. Specifically, he added references to Exhibit J and limiting language to two sections of the KRCC PSA: Section One, the “Property to be Sold and Purchased” section and Section 18, the “Further Assurances Clause.” Id. at 15-16. After the changes, the relevant portions of those sections read as follows:

1. Property to be Sold and Purchased. Seller agrees to sell and Buyer agrees to purchase, for the consideration hereinafter set forth, and subject to the terms and provisions herein contained, the following described properties, rights and interests:
...
The Leasehold Interest, Wells, Pipelines, rights and interests specified in the foregoing subsections (a), (b), (c), (d) and (e), exclusive of the properties, rights and interests excluded herein, are herein sometimes collectively called the “Oil and Gas Properties, ” or “Properties”. The Properties do not include, and there is hereby expressly excepted and excluded therefrom and reserved to Seller all property not described above or being included in this Agreement, including but not limited to the following: … 2) with respect to lands located outside of the areas shown on Exhibit J and with respect to deep rights reserved by Seller, all right, title and interest Seller owns or has a right to acquire under any AMI[3] agreement covering the Properties (regardless of whether an assignment has been made to Seller or not as of the date of this Agreement)…

(Doc. # 74-20 at 11) (italic emphasis added).

         18. Miscellaneous Matters.

(a) Further Assurances. After the Closing, Seller and Buyer shall execute and deliver, and shall otherwise cause to be executed and delivered, from time to time, such further instruments, notices, division orders, transfer orders and other documents, and do such other and further acts and things, as may be reasonably necessary to more fully and effectively grant, convey and assign the Properties to Buyer and to otherwise carryout the transaction contemplated hereby. Without limiting the foregoing, if after Closing it is determined that Seller owns Property being hereby sold by Seller to Buyer as described in Section 1(a), (c), or (d) hereof within the geographic areas outlined in blue on the map attached hereto as Exhibit J which were inadvertently omitted from the Assignment contemplated hereunder, Seller shall convey such interests to Buyer for no additional consideration, and the parties will otherwise proceed to take such actions with respect to such interests as would have occurred if such interests had been included in the Closing …

Id. at 34 (italic emphasis added).

         Keller did not incorporate similar limiting language into the EQT PSA. (Doc. # 74-6 at 108, 172-175). Nor did he inform EQT that KRCC had sought such revisions. Id.

         On October 4, 2001, the EQT PSA was executed. (Docs. # 71 at 5; 74-19). On that same day, EQT and KRCC executed their Amended Joint Venture Agreements to exclude their joint-venture properties being sold to Journey. (Doc. # 74-18). The KRCC PSA was executed several days later, on October 9, 2001. (Docs. # 71 at 5; 74-20). Immediately thereafter, a due-diligence period commenced for the Journey Transaction. (Doc. # 74-6 at 39-40). And on November 30, 2001, the Journey Transaction closed. (Doc. # 71 at 5).

         EQT and Journey's agreement was memorialized in three documents: the PSA, the Master Assignment, and the Oil and Gas Lease. The PSA sets forth the details of the transaction and identifies the interests EQT sold to Journey. (Doc. # 74-19). Several exhibits were attached to and incorporated into the PSA. Exhibit A lists several hundred property interests and details the name, acreage, and other information about each individual interest. Id. at 57-67. The Blue Line Boundary Maps were attached to the PSA as Exhibit N. Id. at 196-207. The Master Assignment and the Oil and Gas Lease were executed at the closing on November 30, 2001. (Docs. # 71-19; 71-20). The Master Assignment grants to Journey subleases in certain lands that EQT had already leased from third parties, and the Oil and Gas Lease provides that EQT would lease certain properties to Journey for at least five years. Id.

         In the years that followed the 2001 Journey Transaction, both EQT and Journey continued their respective oil exploration and drilling operations in southeastern Kentucky. (Doc. # 74 at 20). During this time, EQT sought title opinions from various attorneys, including the Phillips Defendants, before drilling additional wells. (Docs. # 73-3; 73-4; 73-5; 73-6; 73-7; 73-8; 73-9; 73-10). When requesting title opinions, EQT did not inform Phillips about the Journey Transaction. (Doc. # 70-6 at 67-68, 78). And when rendering his title opinions, Phillips's inquiry stopped when he reached EQT's acquisition of the lease. (Doc. # 73-1 at 11-12). Put another way, Phillips did not examine EQT's “title as a lessee” or attempt to determine “what, if anything, [EQT] had done with the lease” because his examination was limited to the “oil and gas ownership” estate. Id. at 12.

         In April of 2006, questions arose internally within EQT about the Fordson Coal Lease. (Doc. # 71-23). Specifically, Sam Smallwood, a Landman in EQT's Land Department noticed that the entire leased acreage of the Fordson Coal Lease-which consists of 6, 333 acres across Perry, Letcher, and Leslie Counties-was listed on the Perry County Assignment, but was not listed on the assignments to Journey that covered Letcher and Leslie Counties. Id. at 2. Although Smallwood and a member of EQT's Land Administration Group, Michele Weber, believed that “the intent was to only sell Journey the acreage of the lease located in Perry County” and to “keep the acreage in Letcher and Leslie Counties along with the wells in those counties, ” they reached out to Zitkus for advice. Id. Zitkus agreed with Smallwood and Weber's “collective assessment, ” but thought that EQT “should confirm the intent” and suggested contacting Greg Shockley, who worked at Journey, to pursue a “corrective assignment.” Id.

         Smallwood followed Zitkus's suggestion and met with Shockley on August 11, 2006. (Doc. # 71-24). During this meeting, Smallwood and Shockley discussed the Fordson Coal Tract, among other things. Id. With respect to the Fordson Coal Tract, Shockley memorialized his discussion with Smallwood as follows:

We have never claimed the portion in Letcher County. Not in P&SA, maps, assignments, etc. Probably should have been excluded in the first place to make clear but I don't see that we have any claim to this parcel. Told him I thought we would be willing to execute some type of letter agreement saying this.

Id. at 2. Shockley's memorandum regarding his meeting with Smallwood was forwarded to Journey's President, Brian Baer, but no curative assignment was executed. (Doc. # 71-11 at 16).

         On October 9, 2006, EQT obtained a title opinion from William Davidson, an attorney in Pikeville, regarding the Letcher County portion of the Fordson Coal Lease. (Docs. # 71-27 at 42-44; 73-12). Although Smallwood had not informed Davidson about the potential issues with the Fordson Coal Lease, he issued a memorandum approving drilling based on the title opinions, and EQT began drilling wells on the Letcher County portion of the Fordson Coal Lease in December of 2006. (Doc. # 71-11 at 69-92).

         Issues with the Journey Transaction resurfaced in 2009. (Doc. # 71-25). Specifically, Mary Beth Mazzei, an Accounting/Land Clerk with Journey, e-mailed Smallwood in February of 2009 regarding missing lease files. Id. at 3. Shawn Columbus, a Contract Analyst with EQT responded to Mazzei and informed her that the leases did “not appear to be a part of the 2001 acquisition.” Id. at 2. In reply, Mazzei informed Columbus that although the leases did not appear on the 2001 acquisition, they were “exhibited on the maps” and “included” in the PSA. Id.

         After Mazzei and Columbus exchanged several other e-mails, detailing their conflicting research and explaining their positions, higher-ups at EQT and Journey joined the discussion. (Doc. # 71-15). Again, Smallwood and Shockley[4] discussed the parties' “intent” with respect to the Journey Transaction. Id. at 5. And Shockley reminded Smallwood that they had “found several errors/omission[s]” in the PSA and maps, but had “always been able to work [issues] out in the past.” Id. at 6. Shockley also suggested that EQT and Journey “document this and the Fordson Coal Tract Parcel in some fashion.” Id. As best the Court can tell, these issues were not resolved, and drilling continued.

         In 2011, Journey contacted EQT regarding alleged trespasses. (Doc. # 71-14). Specifically, Journey claimed that since 2007, EQT drilled at least fifteen “gas wells on the property covered by the Fordson Lease that Journey owns.” Id. at 2. Through the summer of 2012, EQT and Journey exchanged correspondence and attempted to resolve the dispute amicably. (Doc. # 71-15). The parties, however, maintained their positions, with Journey alleging that EQT had conveyed the entire 6, 333 acres of the Fordson Coal Lease to Journey, and EQT contending that “it was the intent of the parties at the time of the 2001 transfer that only certain” portions of the Fordson Coal acreage-those in Perry County and not those in Letcher or Leslie Counties-“would be sold to Journey.” Id. at 2.

         In June of 2012, EQT reached out to Keller, seeking advice regarding the dispute over the Fordson Coal Lease and the lease of the fee tracts. (Doc. # 74-22). By e-mail dated June 8, 2012, Keller indicated that he had reviewed his Journey files and relayed his legal opinions:

With respect to Fordson Coal lease, not only is this only listed on the Perry County assignment, but Ex A to the PSA lists this lease as only being in Perry County. However, it lists the entire acreage and the PSA says the seller's entire interest in the leases will be conveyed. I don't find anything else about this lease and have no recollection of this being raised. My sense is that you have a good argument that what was intended to be included was the lease insofar as it covers land in Perry County only. This is certainly the way the parties acted post-closing. I was hopeful the asset allocation schedule might be helpful, but that only allocated the purchase price among wells, not acreage. However, if the only wells on this lease were in Perry, that is helpful in showing no value was given on lease rights in the other counties.

Id. at 2.

         Five days later-on June 13, 2012-Journey filed suit against EQT in the Eastern District of Kentucky, seeking a declaration that the 2001 transaction transferred to Journey all property interests described in Exhibit A, regardless of whether those properties were inside or outside of the blue line boundaries on Exhibit N. Journey Acquisition-II, L.P. v. EQT Prod. Co., No. 6:12-cv-108-GFVT-EBA (E.D. Ky. 2012) (Doc. # 1 therein). Journey also alleged that EQT had trespassed by drilling and operating certain wells on Journey's property (now known as the “Trespass Wells”). Id.

         On August 18, 2014, after both EQT and Journey sought summary judgment, Judge Van Tatenhove ruled in Journey's favor, finding that the transaction documents unambiguously conveyed to Journey those properties listed on Exhibit A, and that the transaction was not limited to the properties depicted within the blue line boundaries on Exhibit N. Id. (Doc. # 141 therein); Journey Acquisition-II, L.P. v. EQT Prod. Co., 39 F.Supp.3d 877 (E.D. Ky. 2014). This interpretation led Judge Van Tatenhove to conclude that EQT had trespassed on Journey's property. Id. Nonetheless, genuine issues of material fact precluded summary judgment, and the question of whether EQT's trespasses had been committed in good faith was left for a jury. Id. On September 8, 2014, the jury trial commenced. Id. (Doc. # 186 therein). Four days later-on September 12, 2014-the jury found that EQT had trespassed in bad faith and returned a verdict in favor of Journey. Id. (Doc. # 195 therein).

         On June 24, 2015, Judge Van Tatenhove denied EQT's post-trial motions, requesting judgment as a matter of law and a new trial. Id. (Doc. # 220 therein); Journey Acquisition-II, L.P. v. EQT Prod. Co., No, 6:12-cv-108-GFVT, 2015 WL 3893003 (E.D. Ky. June 24, 2015). And the next day-June 25, 2015-Judge Van Tatenhove entered judgment in favor of Journey, awarding Journey an amount of stipulated damages and prejudgment interest. Id. (Doc. # 221 therein). Thereafter, Judge Van Tatenhove's and the parties' attention turned toward the logistics of enforcing the court's orders and transferring the property interests. Id. (Doc. # 226 therein); Journey Acquisitions-II, L.P. v. EQT Prod. Co., No. 6:12-cv-108-GFVT, 2015 WL 9461387 (E.D. Ky. July 24, 2015). As part of that process, the parties filed a Joint Stipulation regarding Journey's damages on July 31, 2015. Id. (Doc. # 227 therein). And finally, on August 5, 2015, Judge Van Tatenhove entered a Final Judgment. Id. (Doc. # 230 therein); Journey Acquisitions-II, L.P. v. EQT Prod. Co., No. 6:12-cv-108-GFVT, 2015 WL 4985728 (E.D. Ky. Aug. 5, 2015). On September 2, 2015, EQT appealed to the United States Court of Appeals for the Sixth Circuit. Id. (Doc. # 241 therein). Ultimately, that appeal was unsuccessful. Id. (Doc. # 251 therein); Journey Acquisitions-II, L.P. v. EQT Prod. Co., 830 F.3d 444 (6th Cir. 2016).

         While its appeal was pending, EQT filed separate legal-malpractice actions against the Defendants-first suing the Vorys Defendants on August 17, 2015, and then suing the Phillips Defendants almost one year later, on August 2, 2016. On January 30, 2017, the two cases were consolidated.[5] (Doc. # 35); see also EQT Prod. Co. v. Phillips, 7:16-cv-164-DLB-EBA (E.D. Ky. 2016). This matter is now before the Court upon both the Phillips Defendants' and the Vorys Defendants' Motions for Summary Judgment. (Docs. # 70 and 71). Both Motions are fully briefed (Docs. # 70, 73, 75; 71, 74, 78), and ripe for the Court's review.

         II. ANALYSIS

         A. Standard of Review

         Summary judgment is appropriate when the record reveals “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine dispute of material fact exists where “there is sufficient evidence … for a jury to return a verdict for” the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The “moving party bears the burden of showing the absence of any genuine issues of material fact.” Sigler v. Am. Honda Motor Co., 532 F.3d 469, 483 (6th Cir. 2008). Once a party files a properly supported motion for summary judgment, by either affirmatively negating an essential element of the non-moving party's claim or establishing an affirmative defense, “the adverse party must set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 250. However, “the mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient.” Id. at 252.

         The Court must “accept Plaintiff's evidence as true and draw all reasonable inferences in [EQT's] favor.” Laster v. City of Kalamazoo, 746 F.3d 714, 726 (6th Cir. 2014) (citing Anderson, 477 U.S. at 255). The Court is not permitted to “make credibility determinations” or “weigh the evidence when determining whether an issue of fact remains for trial.” Id. (citing Logan v. Denny's, Inc., 259 F.3d 558, 566 (6th Cir. 2001)). “The ultimate question is ‘whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'” Back v. Nestle USA, Inc., 694 F.3d 571, 575 (6th Cir. 2012) (quoting Anderson, 477 U.S. at 251-52). If there is a dispute over facts that might affect the outcome of the case under governing law, the entry of summary judgment is precluded. Anderson, 477 U.S. at 248.

         As the moving parties, the Defendants must shoulder the burden of showing the absence of a genuine dispute of material fact as to at least one essential element of EQT's legal-malpractice claims. Fed.R.Civ.P. 56(c); see also Laster, 746 F.3d at 726 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)). Assuming Defendants satisfy their burden, EQT “must-by deposition, answers to interrogatories, affidavits, and admissions on file-show specific facts that reveal a genuine issue for trial.” Laster, 746 F.3d at 726 (citing Celotex Corp., 477 U.S. at 324).

         B. Applicable Law

         Before considering the issues raised in the Motions for Summary Judgment, the Court must determine which state's law governs. As a federal court sitting in diversity, the Court must apply “the choice of law rules of the forum state.” Hayes v. Equitable Energy Res. Co., 266 F.3d 560, 566 (6th Cir. 2001) (citing Klaxon Co. v. Stentor Elec. Mfg., 313 U.S. 487, 796 (1941)). Therefore, Kentucky choice-of-law rules govern.

         Although the parties do not address the choice-of-law issue in their briefs, they apparently believe that Kentucky law applies, and the Court agrees. EQT has alleged that the Defendants are liable in tort for professional negligence. Because this is a tort action, Kentucky law will apply “if there are significant contacts-not necessarily the most significant contacts-with Kentucky.” Foster v. Leggett, 484 S.W.2d 827, 829 (Ky. 1972); Saleba v. Schrand, 300 S.W.3d 177, 181 (Ky. 2009).

         Here, there are significant contacts with Kentucky. Although EQT is a Pennsylvania corporation with its principal place of business in Pittsburgh, Pennsylvania (Doc. # 1 at ¶ 1), Keller is a citizen of Arizona, and Vorys is an Ohio limited-liability partnership with is principal place of business in Columbus, Ohio (Doc. # 23 at ¶¶ 1-2), all other contacts point to Kentucky. Phillips is a citizen of Kentucky, as is his sole proprietorship, Phillips Law Office. (Doc. # 23 at ¶¶ 3-4). Furthermore, the Defendants' alleged malpractice is based on transaction documents and title opinions that relate to property and oil wells located in Kentucky, and the underlying Journey Litigation was filed, tried, and resolved in Kentucky. Given the strong preference for applying Kentucky law[6]and the significant contacts with the state, Kentucky law applies to this action. Accordingly, the Court will apply federal procedural law and Kentucky substantive law to resolve the Motions for Summary Judgment.

         C. Statute of Limitations

         Kentucky law[7] establishes a one-year statute of limitations for professional negligence claims, which includes legal malpractice:

Notwithstanding any other prescribed limitation of actions which might otherwise appear applicable … a civil action, whether brought in tort or contract, arising out of any act or omission in rendering, or failing to render, professional services for others shall be brought within one (1) year from the date of the occurrence or from the date when ...

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