HOLLY CREEK PRODUCTION CORP. VS. BANKS (DOWIE), ET AL.
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RENDERED: SEPTEMBER 25, 2009; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2008-CA-001851-MR
HOLLY CREEK PRODUCTION CORP.
v.
APPELLANT
APPEAL FROM WOLFE CIRCUIT COURT
HONORABLE FRANK ALLEN FLETCHER, JUDGE
ACTION NO. 07-CI-00191
DOWIE BANKS AND
MARTHA BANKS
APPELLEES
OPINION
AFFIRMING IN PART AND
VACATING IN PART
** ** ** ** **
BEFORE: ACREE AND VANMETER, JUDGES; LAMBERT,1 SENIOR
JUDGE.
LAMBERT, SENIOR JUDGE: Despite provisions in the rules of civil procedure
allowing for the liberal amendment of pleadings, Kentucky Rules of Civil
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Senior Judge Joseph E. Lambert sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statutes
(KRS) 21.580.
Procedure (CR) 5.01 requires that parties in default be given notice and served
with summons or warning order when “new or additional claims for relief [are
asserted] against them.” The question before the court in this case is whether the
complaint filed by Appellees and upon which a default judgment was entered
against Appellant was sufficiently broad to support additional claims for
nonpayment of royalties and punitive damages, without additional process.
In October 2007, Appellees filed a complaint in the Wolfe Circuit
Court against Appellant for nonpayment of oil and gas royalties and possible lease
termination. They claimed that no royalty payments had been made since
September 19, 2005, pursuant to Appellant’s long-term oil and gas lease on
property owned by Appellees. Process was issued and served upon Appellant, but
no answer or any response was made other than a telephone call from Appellant’s
president to Appellees’ attorney to advise that money was unavailable at that time
to pay the royalties due. Several months later an interlocutory default judgment
was entered and a hearing on damages was set for August 19, 2008. After
receiving the default judgment, but before the hearing, Appellant paid Appellees
$6,879.37 as royalties for the years 2005 through 2007.
At the August 19, 2008, hearing on damages at which Appellant did
not appear, Appellee, Dowie Banks, acknowledged the recent payment, but also
claimed there were unpaid royalties going back to 1994 through 1998. After this
evidence was allowed, Appellees orally moved to amend their complaint to include
an additional royalty claim for $8,600 and a claim for punitive damages. The trial
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court granted the motions to amend and thereafter entered judgment awarding
Appellees $8,600 as royalties for 1994 through 1998 and the additional sum of
$25,800 in punitive damages for a total of $34,400 in compensatory and punitive
damages. In its final judgment and order, the trial court noted that $6,879.37 had
been paid for the 2005 through 2007 period and the judgment was for only 1994
through 1998. The lease was ordered terminated.
At the outset, we recognize that Appellant was in default for failure to
appear and that the next proper step was to determine damages pursuant to CR
55.01. We also recognize that CR 15 authorizes the amendment of pleadings in
various circumstances and that CR 15.01 provides that leave to amend “shall be
freely given when justice so requires.” Thus, the amendment of pleadings is not
disfavored; rather, it is encouraged in pursuit of the goals of the rules of civil
procedure, provided other parties are not unfairly prejudiced and due process of
law is observed.
The essential elements of due process of law are notice and
opportunity to be heard. Storm v. Mullins, 199 S.W.3d 156, 162 (Ky. 2006).
Many controversies have raged about the cryptic and
abstract words of the Due Process Clause but there can
be no doubt that at a minimum they require that
deprivation of life, liberty or property by adjudication be
preceded by notice and opportunity for hearing
appropriate to the nature of the case.
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313, 70 S.Ct. 652,
656-57, 94 L.Ed.2d 865 (1950). In painstaking detail, the rules of civil procedure
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describe the processes by which parties to civil actions shall be given notice and
provided an opportunity to be heard. It is fundamental that no judgment shall be
entered against a party unless that party has been given a full measure of due
process of law. To guarantee this principle, CR 5.01 provides that even parties
who are in default and whose rights are thereby diminished are not subject to
liability for damage claims unless their due process rights are fully observed. CR
5.01 provides, in part, “[p]arties so in default shall be given notice of pleadings
asserting new or additional claims for relief against them by summons or warning
order issued thereon as provided in Rule 4.” This Court has held that “a default
judgment is void if entered on an amended complaint which asserts new or
additional claims and no summons has been served on the amended complaint.”
Roadrunner Mining, Engineering & Development Co., Inc. v. Bank Josephine, 548
S.W.2d 153, 154 (Ky. App. 1977).
To determine whether the trial court’s final judgment was within the
reasonable scope of the complaint filed by Appellees, we must examine the
complaint in detail. The complaint consists of six numbered paragraphs and the ad
damnum clause likewise consists of six paragraphs. The first three paragraphs of
the complaint merely identify the parties and Appellant’s agent for service of
process. Paragraph four alleges that two oil and gas leases were entered into on
April 15, 1969; that the leases covered two parcels of Wolfe County property
owned by Appellees; and it sets forth the fee schedule for royalty payments.
Paragraph five states that “the defendant [Appellant herein] did pay the payments
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according to a schedule, annual payments with the last payment being made in the
amount of $1,473.15 on September 19, 2005.” Paragraph six alleges that
Appellants continued to remove gas from the property since September 19, 2005,
but that no payments had been received after that date and that, as a result of
Appellant’s failure to pay, Appellees suffered damages in an amount exceeding the
jurisdictional threshold of the court.
The ad damnum clause contains a demand for judgment in a sum
exceeding the jurisdictional threshold of the court. It also demands “[t]hat the
Defendants be required to present an accounting to the Plaintiffs for all gas
removed from the well;” [t]hat the lease with the Defendant be followed correctly
or be terminated, and that if the lease is terminated, that the wells be properly
capped and environmental problems properly cured.
The only reasonable construction of the complaint is that damages are
claimed for a period beginning on September 19, 2005. No reasonable person
reading paragraphs five and six could reach a different conclusion. Indeed,
Appellees do not argue that the six numbered paragraphs of the complaint seek
damages for any period other than September 19, 2005, forward. Their only
contention with respect to an earlier period is that they sought an accounting in the
ad damnum clause and point out that the accounting prayer was not limited to a
specific period of time.
This is not enough to support the additional compensatory and
punitive damages claims, particularly in view of the admonition of CR 8.06 that
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“All pleadings shall be so construed to do substantial justice.” For the final
judgment of the trial court to have been proper, one would have to construe the
demand for an accounting in the ad damnum clause as sufficiently broad to support
a judgment for $8,600 in compensatory damages for a term pre-dating any date
identified in the complaint; and a $25,800 punitive damage judgment when there is
not even a hint that punitive damages were sought or justified. No such
construction would be reasonable and these damages awards must be vacated.
Finally, we must determine whether termination of the oil and gas
lease as ordered by the trial court was proper. As stated hereinabove, the
complaint alleged the existence of an oil and gas lease and demanded that it be
followed correctly or terminated.
The Kentucky Rules of Civil Procedure embrace the concept of notice
pleading. CR 8.01. This concept is well expressed in Pike v. George, 434 S.W.2d
626, 627 (Ky. 1968).
Since the adoption of the civil rules liberality and
simplicity in pleadings is the style in Kentucky. Johnson
v. Coleman, Ky., 288 S.W.2d 348 (1956). Only a concise
statement of facts is required (CR 8.01) because the
“complaint need only give fair notice of a cause of action
and the relief sought.” Security Trust Co. v. Dabney,
Ky., 372 S.W.2d 401 (1963); 6 Kentucky Practice, Clay,
128.
And, in Pierson Trapp Co. v. Peak, 340 S.W.2d 456, 460 (1960), the Court said,
Under the theory of “notice” pleading adopted by
the Civil Rules a complaint will not be dismissed for
failure to state a claim unless it appears to a certainty that
the plaintiff would not be entitled to relief under any state
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of facts which could be proved in support of his claim.
Spencer v. Woods, Ky., 282 S.W.2d 851; Clay, CR 12.02.
It is immaterial whether the complaint states
“conclusions” or “facts” as long as fair notice is given.
Applying the liberal pleading standards of CR 8.01, we have no doubt
that Appellees’ assertion of the existence of an oil and gas lease and their demand
that it be followed correctly or terminated was sufficient notice to Appellants that
the viability of the lease was in controversy. Nevertheless, despite being served
with legal process in which possible lease termination was placed in issue,
Appellants defaulted and remained in default for many months and until after entry
of the trial court’s final judgment. Evidence presented at the CR 55.01 hearing on
damages and other relief was sufficient to justify the trial court’s determination
that the lease between the parties should be terminated.
Accordingly, the trial court’s termination of the oil and gas lease
between the parties is affirmed. With respect to all sums in damages,
compensatory and punitive, the trial court’s judgment is void; and it is therefore
vacated.
ALL CONCUR.
BRIEFS AND ORAL ARGUMENT
FOR APPELLANT:
BRIEF AND ORAL ARGUMENT
FOR APPELLEES:
Frank C. Medaris, Jr.
Hazard, Kentucky
Patrick E. O’Neill
Jackson, Kentucky
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