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(1) Black Diamond Energy Partners 2001-A Ltd v. S & T Bank

June 15, 2012

(1) BLACK DIAMOND ENERGY PARTNERS 2001-A LTD., (2) BLACK DIAMOND ENERGY PARTNERS 2001-B LTD., (3) BLACK DIAMOND ENERGY PARTNERS 2002-A LTD., (4) BLACK DIAMOND ENERGY PARTNERS 2002-B LTD., (5) BLACK DIAMOND ENERGY PARTNERS 2003-A LTD., (6) BLACK DIAMOND ENERGY PARTNERS 2003-B LTD., (7) BLACK DIAMOND ENERGY PARTNERS 2004-A LTD., (8) BLACK DIAMOND ENERGY PARTNERS 2004-B LTD., (9) BLACK DIAMOND ENERGY PARTNERS 2005-A LTD., (10) BLACK DIAMOND ENERGY PARTNERS 2005-B LTD., (11) BLACK DIAMOND ENERGY PARTNERS 2005-C LTD., (12) BLACK DIAMOND ENERGY PARTNERS 2006-A LTD., (13) BLACK DIAMOND ENERGY PARTNERS 2006-B LTD., (14) BLACK DIAMOND ENERGY PARTNERS 2007-A LTD., (15) BLACK DIAMOND ENERGY PARTNERS 2007-B LTD., (16) BLACK DIAMOND ENERGY PARTNERS 2008-A LTD., (17) BLACK DIAMOND ENERGY PARTNERS 2008-B LTD., APPELLANTS (PLAINTIFFS),
v.
S & T BANK, APPELLEE (DEFENDANT).



Appeal from the District Court of Johnson County The Honorable John G. Fenn, Judge

The opinion of the court was delivered by: Kite, Chief Justice.

Before KITE, C.J., and GOLDEN, HILL, VOIGT, and BURKE, JJ.

NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third. Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne, Wyoming 82002, of typographical or other formal errors so correction may be made before final publication in the permanent volume.

[¶1] Black Diamond Energy Partners 2001-A Ltd., 2001-B Ltd., 2002-A Ltd., 2002-B Ltd., 2003-A Ltd., 2003-B Ltd., 2004-A Ltd., 2004-B Ltd., 2005-A Ltd., 2005-B Ltd., 2005-C Ltd., 2006-A Ltd., 2006-B Ltd., 2007-A Ltd., 2007-B Ltd., 2008-A Ltd., and 2008-B Ltd. (BDE Partners) are Nevada limited partnerships which own interests in coal bed methane wells located in Wyoming. Black Diamond Energy, Inc., (BDE, Inc.) is a Wyoming corporation and the managing general partner of BDE Partners 2001-A Ltd. through 2006-A Ltd. Black Diamond Energy, Inc. of Delaware (BDE Del) is a Delaware corporation and the managing general partner of BDE Partners 2006-B Ltd. through 2008-B Ltd. BDE, Inc. and BDE Del are wholly owned subsidiaries of Koval Resources, LLC (Koval Resources), a Nevada limited liability company.

[¶2] Koval Resources entered into a loan agreement in Pennsylvania with S&T Bank (S&T), a regional state bank with offices only in Pennsylvania. Koval Resources ultimately defaulted on the loan. BDE Partners filed a complaint in Wyoming against S&T alleging negligence, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing and other claims. S&T moved to dismiss the complaint, asserting Wyoming lacked personal jurisdiction because S&T did not have sufficient contacts with the State to establish personal jurisdiction. The district court granted S&T's motion. BDE Partners appealed, claiming the district court erred in concluding it did not have personal jurisdiction over S&T. We reverse.

ISSUE

[¶3] The issue for our determination is whether the district court correctly concluded it did not have personal jurisdiction over S&T.

FACTS

[¶4] BDE Partners are comprised of approximately 3800 limited partners and two general managing partners who reside in various states, including Pennsylvania and Wyoming. BDE Partners own interests in approximately 430 coal bed methane wells located in Johnson, Converse, Sublette, Sweetwater, and Campbell counties in Wyoming. BDE, Inc. owns 36% and/or 40% of BDE Partners 2001-A Ltd. through 2006-A Ltd. BDE Del owns 36% of BDE Partners 2006-B Ltd. through 2008-B Ltd. Charles and Eric Koval are the owners and principal officers and directors of Koval Resources, BDE, Inc. and BDE Del.

[¶5] In 2002, Koval Resources and S&T entered into a loan agreement in Pennsylvania pursuant to which S&T agreed to extend a revolving line of credit to Koval Resources in the amount of $5,000,000. The funds were to be used exclusively as working capital for Koval Resources operations. Charles Koval, Eric Koval and their respective spouses individually guaranteed the loan and pledged their assets as collateral. Additionally, BDE, Inc., acting as corporate guarantor for the loan, executed a guaranty and suretyship agreement with S&T providing that it would mortgage or assign certain oil and gas royalty interests it owned in Wyoming as collateral.

[¶6] At the time the loan agreement was executed, the Kovals were residents of Pennsylvania and BDE, Inc.'s principal offices were located there as well. The loan agreement and note provided that they were governed by and to be construed in accordance with Pennsylvania law and, in the event of a dispute, Koval Resources consented to the "non-exclusive jurisdiction" of a Pennsylvania court. BDE, Inc.'s guaranty and surety agreement likewise provided that it was governed by Pennsylvania law and that BDE, Inc. consented to the non-exclusive jurisdiction of the courts in Pennsylvania.

[¶7] Shortly after the Koval Resources loan agreement and note were executed, BDE, Inc. entered into an escrow agreement pursuant to which partnership interests in BDE Partners 2002-B Ltd. would be offered for sale to qualified investors. Proceeds from the sales were to be deposited in an escrow account opened with S&T, held in the account until they reached a specified amount and then released to BDE, Inc. Similar escrow agreements were executed in subsequent years for the sale of interests in BDE Partners 2003-A Ltd. through BDE Partners 2008-B Ltd.

[¶8] Between 2002 and 2009, S&T and Koval Resources executed nine amendments to the original loan agreement and note. In some instances, the amendments merely extended the term of the loan. In other instances, the amendments also increased the principal amount of credit extended. All of the amendments provided that they were governed by Pennsylvania law and Koval Resources consented to the nonexclusive jurisdiction of courts in Pennsylvania. Between the fourth amendment in January of 2006 and fifth amendment a year later, two S&T senior vice presidents came to Wyoming where they met with BDE, Inc. employees and viewed BDE, Inc.'s assets and operations.

[¶9] By May of 2007, when the original loan agreement was amended for the sixth time, S&T had extended credit to Koval Resources in the amount of $20,000,000. With that increase in the principal amount, BDE Del joined BDE, Inc. as a corporate guarantor of the line of credit extended to Koval Resources. In September of 2007, S&T retained an independent petroleum engineer licensed in Wyoming to perform an evaluation of the reserves and economic value of BDE, Inc.'s oil and gas interests in three Wyoming counties. Shortly thereafter, S&T loaned Koval Resources and BDE, Inc. $3,320,000 in a separate term loan.*fn1 The promissory note evidencing the term loan provided that it was governed by federal law applicable to S&T and, to the extent not preempted by federal law, the law of Pennsylvania. It also provided that in the event of a lawsuit, BDE, Inc., and Koval Resources agreed upon S&T's request to submit to the jurisdiction of Pennsylvania courts.

[¶10] As collateral for the additional amounts loaned to Koval Resources and itself, BDE, Inc. executed new and amended agreements mortgaging additional oil and gas interests it owned in Wyoming and assigning interests it had in leases and pipelines located in Wyoming. Seven of the nine documents contained in the record evidencing BDE, Inc.'s mortgages or assignments of property provide that they are governed by Wyoming law; the remaining two provide they are governed by Pennsylvania law.

[¶11] In mid-January of 2008, BDE, Inc. and BDE Del each executed control agreements with S&T, whereby they granted S&T a security interest in and control over all of the BDE Partners. As with most of the other loan documents, the control agreements provided that they were governed by Pennsylvania law. Also in early 2008, BDE, Inc. began moving its offices from Pennsylvania to Wyoming. By late 2008, BDE, Inc. had completely relocated to Wyoming.

[¶12] Prior to the relocation, BDE, Inc. began experiencing cash flow and other financial problems and sold some of its Wyoming property. S&T approved the sale but advised that 100% of the proceeds would be applied to the outstanding loans. BDE, Inc. responded that it had other Wyoming properties it believed it could sell but would be obligated to distribute the proceeds of any such sales to its partners pursuant to the partnership agreements. BDE, Inc. expressed concern that S&T would delay sales and/or freeze the proceeds, leaving BDE, Inc. unable to pay BDE Partners in violation of the agreements. In response, S&T proposed that proceeds from sales of BDE, Inc. properties be payable to the bank in different percentages depending upon how the property had been designated*fn2 and that those percentages payable to S&T be applied either to the term loan debt or the line of credit. In the event the proceeds were applied to the line of credit, S&T advised BDE, Inc. that the availability of the funds would be reduced until the oil and gas reserves could be re-evaluated. In July of 2008, the Wyoming petroleum engineer hired by S&T completed another evaluation of BDE, Inc's Wyoming oil and gas reserves.

[¶13] BDE, Inc.'s financial condition continued to worsen and in the fall of 2008 its representatives met with S&T representatives in Pennsylvania to discuss the situation and request additional funding. In February of 2009, S&T's senior vice president came to Wyoming along with an oil and gas consultant hired by S&T to assess its collateral. They met with BDE, Inc. representatives, viewed its operations and property and traveled to Casper where they met with the petroleum engineer who had prepared the evaluations of BDE, Inc.'s reserves.

[ΒΆ14] Emails in the record reflect that communications between S&T and BDE, Inc., after S&T's February 2009 trip to Wyoming focused primarily on liquidating BDE, Inc.'s assets as a means of repaying the loans. In March of 2009, S&T's consultant visited Wyoming again to oversee the planned liquidation. Among his objectives during his stay were to review BDE, Inc.'s budget, determine what properties the company intended to keep and let go, meet with an oil and gas clearing house representative concerning potential interest in BDE, Inc.'s assets, discuss the company's salary plan and visit some of its key properties "to get a feel for the capital investment there in wells, infrastructure including pipelines, water treatments facilities, pipe lines, etc." S&T's consultant also indicated that BDE, ...


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