Legal Methods

Basic Civil Procedure

James Sims formed a Louisiana limited liability company Keystar, LLC for the
purpose of investing in mineral rights. Sims entered into negotiations with Nalco,
Inc., a Louisiana corporation with its main office in Lake Charles, LA, to purchase
Nalco’s interest in a gas field in southwest Louisiana. As a result of negotiations,
Nalco granted Keystar a 90-day option to purchase the properties for
$10,000,000.00. The terms provided that if the option is exercised, Nalco must
transfer the properties to Keystar within six months. Mr. Sims then went about
trying to raise the $10,000,000.00 by granting membership interests in Keystar in
exchange for capital contributions.
The first investor that became a member of Keystar was Petroluv, Inc., a
Delaware corporation that invests in oil and gas properties through the country. It
currently had direct and indirect ownership interests in mineral properties in 14
states, although about 40% of the properties are located in Louisiana. Petroluv’s
home office is in Dallas, Texas. Several accountants, geologists, and attorneys work
in the Dallas office and make decisions regarding the management of the various
investments.
The second investor who became a member of Keystar was Mr. James Mapp,
a retired businessman who is a lifelong resident of Lake Providence, Louisiana. Mr.
Mapp suffered a serious stroke about a month after he became a member of Keystar.
He lost his ability to communicate and his mobility was severely limited. His wife a
native of Jackson, MS, decided that she needed to be near her family as she cared for
Mr. Mapp in his debilitated condition. She placed him in a highly regarded Jackson
area nursing home and she moved in with her sister in Jackson, MS. She did not sell
the family home in Lake Providence, LA, but she told her sister that she could never
return to Lake Providence with Mr. Mapp in his condition, although she held out
hope for a miraculous recovery that would let the couple return to their marital
home. Mr. Mapp’s doctors say that such a recovery is possible, but very unlikely.
Mr. Sims also retained an interest in Keystar. He grew up in Vermont, but he
always wanted to be in the oil and gas game. He moved out of his parent’s home in
Vermont to attend college in Tulsa, Oklahoma and earn a petro-business degree. Mr.
Sims lived in the dorms for the first two years of his schooling and then rented a
small garage apartment from a widow. He kept the apartment after graduation, but
his efforts to put together oil and gas investments keep him on the road six-eight
months out of the year. About three months ago, he purchased a two-bedroom
condo in Lafayette, Louisiana, where he expects to spend more time as mineral deals
come together. Mr. Sims also travels frequently throughout the Gulf South region
from Texas to Alabama, in motels when away from Lafayette. He maintains month-
to-month lease on his garage apartment in Tulsa and he returns there often as he
can, especially for the holidays, because he enjoys the company of the widow who is
his landlady.
 After Nalco granted Keystar the option to purchase the properties, the price
of gas began to go up. Keystar exercised the option, but Nalco sent Keystar a letter
saying that it did not intend to honor the option because Keystar had not satisfied
some representations and warranties in the agreement Keystar believes that it has
complied with all aspects of the agreement and it would like a court to rule that the
option is enforceable. Discuss in detail whether a federal court would have subject
matter jurisdiction over the case if Keystar chose to file a civil action in federal
court.