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TIDEWAY OIL PROGRAMS, INC., DAVE GAMMILL, TIDEWAY ENERGY GROUP, INC. AND TIDEWAY ENERGY LIMITED PARTNERSHIP v. S. BARNETT SERIO

APRIL 20, 1983

TIDEWAY OIL PROGRAMS, INC., DAVE GAMMILL, TIDEWAY ENERGY GROUP, INC. AND TIDEWAY ENERGY LIMITED PARTNERSHIP
v.
S. BARNETT SERIO, SR., Individually and On Behalf of all other persons Similarly Situated



EN BANC

PART I

BROOM, PRESIDING JUSTICE, FOR THE COURT:

Oil and gas interests of lessees and their assignees are at issue in this class action appeal from the Chancery Court of Adams County, the Honorable Frank W. Walden, chancellor. S. Barnett Serio, Sr., brought this action in October, 1980, charging that defendants, Tideway Oil Programs, Inc., Tideway Energy Group, Inc., Miller Oil Purchasing Company, Dave Gammill, and Tideway Energy Limited Partnership 1977-2, breached their fiduciary duty owed Serio and the other members of a class he represented. Serio's complaint charged that this fiduciary duty arose out of the relationship between the class members and the defendants as "co-tenants" and "joint venturers" in certain oil and gas leases covering a 480-acre block of land located near Larto Lake, Catahoula Parish, Louisiana. Members of the class were alleged to be Serio, G. G. Cornwell, and all of the persons comprising the Tideway Oil Limited Partnership 1975-1 and the Tideway Oil Limited Partnership 1975-2.

 Serio charged that as a result of the class's relationship to the defendants as co-tenants and joint venturers, the defendants were under a duty to convey proportionate interests in leases obtained covering lands adjoining the 480-acre unit in which defendants and complainants held interests as co-tenants. Serio's bill sought to compel the defendants to execute certain assignments, and sought other mandatory injunctive relief, accountings, actual and punitive damages, attorneys' fees, etc. General and special demurrers were filed by the defendants but overruled by the chancellor, who also denied the defendants' motion for interlocutory appeal. Two Justices of this Court then granted an interlocutory appeal pursuant to Mississippi Code Annotated 11-51-7 (Supp. 1982). The bill charges the parties are "joint venturers." This on its face would require evidentiary proceedings prior to a determination of whether the law of "joint venture" applies rather than disposing of the case by demurrer.

 Appealing from the chancellor's decision overruling the general and special demurrers below, appellants/defendants Tideway, et al., argue, inter alia: (1) the Adams County Chancery Court has no subject matter jurisdiction; (2) there is no equity on the face of the complaint: the complaint fails to state a cause of action, and complainant attempts to enforce the rights of other parties; and (3) venue of this suit is not proper in Adams County. These three issues are discussed here in PART I of this opinion, and the issue of punitive damages is discussed in PART II. Other issues not reached in either PART I or PART II are left for decision in the appropriate lower court after the presentation of proof.

 The following facts are alleged in the pleadings: Tideway Oil Programs, Inc. (TOPS), initiated the formation of two limited partnerships in 1975 (Tideway Oil Limited Partnership 1975-1 and Tideway Oil Limited Partnership 1975-2). TOPS was named the managing partner in both of these limited partnerships. During the same period of time, Joseph J. Ring, III, as an agent and employee of TOPS and its parent corporation, Tideway Energy Group (another defendant), acquired various oil, gas and mineral leases covering approximately 480 acres in the Larto Lake, Catahoula Parish, Louisiana, area. These leases were subsequently assigned in varying percentages of ownership to appellee Serio, the 1975-1 and 1975-2 limited partnerships, and others. Language in the complaint charges:

 The leasehold owners as joint venturers and partners proceeded to test the leasehold, and upon discovery of oil in paying quantities, to develop the area by drilling additional wells.

 As a result of these efforts, five producing wells were completed on the 480-tract between June 7, 1976, and October 8, 1978.

 During 1977, an operating agreement naming TOPS as operator of the unit was circulated among the various interest owners in the property. According to the complaint:

 While this agreement was being circulated for execution, Defendants were fraudulently, collusively, and in breach of the fiduciary and confidential relationship which they occupied with their co-owners, partners and joint venturers, acquiring adjoining and adjacent acreage without the knowledge of Complainants and to the exclusion of Complainants. The operating agreement was, therefore, obtained fraudulently by Defendants and is void as a result thereof.

 The operating agreement, signed by appellee Serio and attached to the complaint, provides:

 The liability of the parties shall be several, not joint or collective. Each party shall be responsible only for its obligations, and shall be liable only for its proportionate share of the costs of developing and operating

 the Unit Area. Accordingly, the lien granted by each party to Operator in Section 9 is given to secure only the debts of each severally. It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other partnership or association, or to render them liable as partners. (Emphasis added).

 Serio contends in his complaint that this agreement "fraudulently and contrary to the customs and usage of the industry sought to limit complainants' interests to the original leases." On the adjoining acreage acquired (leased) by defendant TOPS, seven producing oil wells were drilled. Serio alleges it was a breach of TOPS' fiduciary duty to refuse to convey to Serio, et al, their proportionate interests in the leases on the adjoining property obtained by TOPS. To Serio's complaint, defendant TOPS interposed a general and special demurrer raising as grounds the above stated arguments which are now before this Court.

 First argument of appellants is that the instant case is in substance an effort to adjudicate title to property in Louisiana, and that Mississippi courts lack subject matter jurisdiction.

 At the outset we note that Serio's case is basically for the breach of a duty. Therefore, it is evident that, in spite of the fact that one of the remedies sought by Serio is that the chancery court compel conveyance (assignments) of land interests in another state, his suit is not a suit adjudicating title. In Pomeroy, Equity Jurisprudence, 1318 (5th ed. 1941), the text writer makes the following observation:

 1318. Remedies in Personam beyond the Territorial Jurisdiction. - The power to act in personam, through their remedies, is still held by all courts of equity, . . . Of this nature must always be the remedies when the subject-matter either real or personal property, is situated beyond the territorial jurisdiction of the court, in another state or country. The jurisdiction to grant such remedies is well settled. Where the subjectmatter is situated within another state or country, but the parties are within the jurisdiction of the court, any suit may be maintained and remedy granted which directly affect and operate upon the person of the defendant,

 and not upon the subject-matter, although the subject-matter is referred to in the decree, and the defendant is ordered to do or to refrain from certain acts toward it, and it is thus ultimately but indirectly affected by the relief granted.

 Id. at 898-99 (Footnotes omitted).

 This view was first adopted by this Court in Sutton v. Archer, 93 Miss. 603, 46 So. 705 (1908). In Koehring Co. v. Hyde Construction Co., Inc., 254 Miss. 214, 178 So. 2d 838 (1965), this Court, quoting from 20 Am. Jur. 2d, Courts 119 (1965), noted that:

 Jurisdiction in rem is right where the decision sought is of a nature to directly affect real property. A court of one state has no jurisdiction to establish, to pass, or to quiet title to real property situated in another state, or to make any other decision directly affecting real property located in another state, or the title to that property. A decision in personam may be rendered by the court of a state with regard to a res which is not situated within the state if the decision merely obliges a person subiect to its jurisdiction in personam to dispose of the res, or to refrain from disposing of it, in the manner prescribed by the decision. . . . (Emphasis supplied).

 254 Miss. at 237-38, 178 So. 2d at 847.

 Who owns "Blackacre" is not in issue here. The question is: Have the defendants breached a duty to convey "Blackacre" rendering them liable for damages or specific performance?

 Appellants have confused two qualitatively distinct considerations which are raised when a lawsuit contains issues centering on real property located in another state. It is true that a Mississippi court cannot try title to Louisiana property. Zorick v. Jones, 193 So. 2d 420 (Miss. 1966). Nonetheless, if the suit is not one to try title but is a suit against the person of the defendant, the question is not one of subject matter jurisdiction by virtue of the location of the property, but rather is a question of the choice of law to be applied by the court having jurisdiction over the litigants' persons.

 We addressed such a question in Spragins v. Louise Plantation, Inc., 391 So. 2d 97 (Miss. 1980), which was a suit for specific performance of a contract for the sale of lands located in the state of Arkansas. We noted that the threshold question to be resolved was the question of whether Arkansas law or Mississippi law was to govern the parties' substantive rights. Nonetheless it should be noted that the law of either jurisdiction could be equally applied by a Mississippi court. The instant case not being a suit to adjudicate a question of title, Mississippi courts have subject matter jurisdiction.

 As may be gleaned from the foregoing discussion, appellant TOPS' "jurisdictional" assignment of error is in actuality a "choice of law" assignment of error. Appellant TOPS apparently has failed to recognize that the fact that Louisiana law may apply in the instant case does not preclude such law being applied by a Mississippi court. In ascertaining which state's substantive law is to be applied in a choice of law problem, this Court adopted the "center of gravity" doctrine in Craig v. Columbus Compress & Warehouse Co., 210 So. 2d 645 (Miss. 1968). This "center of gravity doctrine" or, in other words, "the most significant relationship test" was the test we applied in Spragins.

 In applying this test to the Spragins fact situation, this Court looked to such questions as whether the policies of each state were in conflict, the location of the property in question, the location of the execution of the agreements, the intent of the parties that lex loci apply since there was no "choice of law clause" , and the place where the deeds themselves were recorded. Based upon all of the foregoing facts, in Spragins we concluded that Arkansas law should be applied.

 As appears from the above application of the "center of gravity" doctrine, proper application of this rule requires the ascertainment of various facts that bear upon the relationship of the parties and the nature of the subject matter so that the Court may evaluate these factors and ascertain the state having the most significant relationship to the issues before the Court. Therefore, it is obvious that a choice of law question may hardly, if ever, be appropriately resolved by this Court on demurrer. Indeed in many instances the trial court may be unable to rule on the question of whether a complaint has stated a cause of action until it can determine which substantive law governs the rights of the parties. In such a situation, only after hearing testimony can a court determine whether a cause of

 action is stated.

 It would appear (but we do not decide) from the averments of Serio's bill of complaint that Louisiana law may be applicable in the instant case. The land in which the complainants and defendants hold interests as co-tenants is located in Louisiana. Lands in which Serio seeks to have assignments executed are located in Louisiana. The existing assignments are of record in Louisiana. The relationship of the litigants arises from the co-tenancy located in Louisiana. Any de facto operating agreement must be determined by looking at actions occurring in Louisiana and the "custom and usage" would certainly seem to require proof of Louisiana custom and usage to determine its substantive components. Nonetheless, the complaint alleged that all of the litigants are Mississippi residents. Therefore, although Louisiana law may apply to the instant case, such a determination cannot be fully and judiciously made without an evidentiary presentation. We are able to rule upon the pleadings and state with confidence that Mississippi courts have subject matter jurisdiction. Upon remand, the complainant Serio will be permitted to present evidence in support of the applicable law and all other pertinent factual issues.

 Strenuously, the appellants argue that should we hold "that a Mississippi court may rightfully retain jurisdiction of this suit" venue lies before the Chancery Court of the First Judicial District of Hinds County, rather than in Adams County. In their brief they further assert that none of the individual defendants or corporate defendants are domiciled in, or residents of Adams County, and then they assert that "the cause of action is not alleged to have nor did it occur or accrue in Adams County, and defendant Dave Gammill is a resident citizen whose county of household and residence is in Hinds County, Mississippi." Therefore, the appellants argue that upon the undisputed facts defendant Gammill, pursuant to Mississippi Code Annotated 11-11-3 (1972), has a statutory right to have the cause transferred to Hinds County.

 In his reply brief, appellee Serio makes no contention that the appellants are in error when they state that Serio did not allege that any of the parties were domiciled or resided in Adams County and neither do they take issue with the appellants' assertion that the cause of action was not charged to have occurred or accrued in Adams County. Serio takes the position that venue is a procedural question not to be decided on an interlocutory appeal, and he relies upon Atwell Transfer Co. v. Johnson, 239 Miss. 719, 124 So. 2d 861 (1960). We think that, inasmuch as the matter is here on

 interlocutory appeal and having decided that the demurrers below were properly overruled, we should go further and hold that the chancellor was in error in refusing the motion of the appellants to transfer the cause to Hinds County. In affirming the chancellor's order overruling the demurrers, we are ruling on a matter not purely procedural and, in view of notions of judicial economy, we think the venue question should be settled here, rather than refuse to do so which could ultimately result in unnecessary expense and delay. The pleadings make no charge that any of the defendants (appellants) had any contact with Adams County. The cause of action asserted is based upon the defendants' inaction: that is, their failure to make assignments of oil and gas interests. Upon such a state of affairs, the defendants are entitled to transfer of venue as stated above. Robertson v. Evans, 400 So. 2d 1214 (Miss. 1981), is an instance wherein we denied an interlocutory appeal, but nevertheless directed a chancellor to transfer the cause to the "proper circuit court and thus avoid a clear abuse of discretion on his part in proceeding to try" a personal injury tort action. In similar manner here we have effectuated a transfer of the present cause as to venue.

 Accordingly, an order will be entered here directing transfer of the cause from the Chancery Court of Adams County to the Chancery Court of the First Judicial District of Hinds County. The clerk of the Chancery Court of Adams County will transmit all papers and pleadings in this cause to the Chancery Clerk in Hinds County, and the Chancery Court of the First Judicial District of Hinds County will proceed to hear this cause and enter its decree not inconsistent with this opinion.

 ROBERTSON, JUSTICE, FOR THE COURT:

 PART II

 A.

 Barnett Serio, Sr. is not a bashful man. His complaint charges these defendants with fraud, breach of fiduciary duty and much more. That complaint demands temporary and permanent injunctive relief, an accounting, actual damages in the amount of $200,000.00, punitive damages in the amount of $1,500,000.00, plus attorneys fees and costs.

 Squarely presented is the question of whether the chancery courts of this state have the power to assess punitive damages. To put the issue another way, does so much of Serio's complaint as asks punitive damages lie within the subject matter ...


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