McKnight et al v. Linn Operating Inc
Filing
174
ORDER denying 119 Motion to Certify Class, as more fully set out. Signed by Honorable David L. Russell on 2/1516. (jw)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
JENNIFER MCKNIGHT and
SCOTT MCKNIGHT, on behalf of
Themselves and all others similarly
situated,
Plaintiffs,
v.
LINN OPERATING, INC., a
Delaware Corporation, LINN
ENERGY, LLC, a Delaware
Limited Liability Company,
DOMINION EXPLORATION
MIDCONTINENT, INC., an
Oklahoma corporation, and
DOMINION OKLAHOMA
TEXAS EXPLORATION &
PRODUCTION, INC., a
Delaware Corporation,
Defendants.
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Case No. CIV-10-30-R
ORDER
Plaintiffs Jennifer McKnight and Scott McKnight, on behalf of themselves and all
other royalty owners similarly situated, have filed a motion for class certification in this
action against Defendants Linn Operating, Inc., Linn Energy, LLC, Dominion
Exploration Management, Inc. and Dominion Oklahoma Texas Exploration &
Production, Inc. Doc. No. 119. Defendants have filed a response to the motion [Doc.
No. 140] and Plaintiffs have filed their reply brief [Doc. No. 149]. On February 5 and 8,
2016, the Court held an evidentiary hearing on the motion for class certification.
Pursuant to the Court’s Order, the parties have filed proposed findings of fact and
conclusions of law.
The individual Plaintiffs, the McKnights, own royalty interests in the Millington
4-11 well in Grady County, Oklahoma.
Linn Operating, Inc., the wholly owned
subsidiary of Linn Energy, currently operates Plaintiffs’ well and the “class wells,” i.e.,
the wells in which proposed class action members own royalty interests. Dominion
Exploration Management, Inc. and Dominion Oklahoma Texas Exploration &
Production, Inc. previously owned or operated some of the class wells. Linn Operating,
Inc. currently operates 1,693 wells in the state of Oklahoma which fall within the
proposed class definition. Of those 1,693 wells, 1171 were acquired from the Dominion
entities. The individual Plaintiffs’ royalty interests are derived from a lease with the
following royalty language:
The lessee shall monthly pay lessor as royalty on gas marketed, one-eighth
(1/8) of the proceeds if sold at the well, or if marketed by lessee off the
leased premises, then one-eighth (1/8) of its market value at the well, which
proceeds or market value shall be deemed to be the price paid by the
purchaser in either case under any gas sale contract entered by lessee and
approved by the Federal Power Commission or other regulatory agency
having jurisdiction, if such approval is necessary, but in no event shall
lessee be required to pay more than one-eighth (1/8) of the actual amount
received by the lessee and lessor hereby authorizes lessee to enter any such
contract and obtain any such regulatory agency approval thereof covering
the full interest in gas produced hereunder without joinder therein by lessor
....
Leases with alternative language are involved in this class action, but according to
Plaintiffs, any variation in lease language does not affect the issue of class certification
because each class lease contains the implied duty to market. However, the royalty
2
owners having some leases which negate the implied duty to market are included in the
class to satisfy the “pot theory” explained in Chieftain Royalty Co. v. QEP Energy Co.,
281 F.R.D. 499, 506 (W.D. Okla. 2012) where it was found that “the minimal impact of
lease language issue was conceded by Defendant at oral argument that if there are any
leases in a unit that have the implied duty to market, all royalty owners in that unit should
be part of the certified class, because all royalty owners share in the pool of payments. In
essence, shorting the pot shorts everyone who shares the proceeds of the royalty pot.”
The class of which Plaintiff seeks certification consists of over 30,000 members having
34,000 leases. However, Linn Operating, Inc. has admitted that it cannot link any of the
leases in its possession to 189 wells.
The basis of this action is the underpayment of royalties arising from Defendant’s
failure to properly report, account for, and distribute royalty interest payments from
January 2002 to the present. Plaintiffs allege that Defendants have breached their lease
contracts with the class member lessors, breached their fiduciary duties owed to them
pursuant to unitization orders of the Oklahoma Corporation Commission, and were
unjustly enriched by the underpayments of royalty. See Second Amended Complaint.
Plaintiffs also seek an accounting regarding any and all matters necessary to determine
whether Plaintiffs and class members have received their rightful share of the monies
derived from production from the class wells. Id.
Under Oklahoma law, the implied duty to market is imputed into each and every
oil lease, unless otherwise provided by the express terms of the lease. Naylor Farms Inc.
v. Anadarko OGC Co., 2011 WL 753782 at *3 (W.D. Okla. May 9, 2011). Pursuant to
3
the implied duty to market, producers are responsible for marketing a well’s natural gas
production. Mittelstaedt v. Santa Fe Minerals, Inc., 954 P.2d 1203, 1206 (Okla. 1998).
The implied duty to market also requires the lessee to bear the full cost of any operations
or processes necessary to transform the unprocessed gas into a marketable product.
Mittlestaedt, 954 P.2d at 1205; Wood v. TXO Production Corp.. 854 P.2d 880, 881-82
(Okla. 1992).
Producers, like the Defendants herein, often enter into contracts with midstream
companies which process the gas under either percentage of proceeds (“POP”), fee or
keep-whole contracts.
Typically, these contracts allow the midstream companies to
acquire title or possession of the unprocessed and therefore unmarketable gas at the
wellhead or somewhere upstream of the midstream company’s processing facilities and
producers then declare that a “wellhead sale” has occurred and contend that the raw gas is
“marketable” at the wellhead. This is an attempt to seemingly comply with the implied
duty to market. However, the midstream companies provide the services of gathering,
compressing, dehydrating, treatment and processing (“GCDTP”) the gas and then
remitting to the producer either a percentage of what the midstream company receives
from the purchaser (POP) or the amount received from the pipeline minus a fee in kind or
in cash charged for performing the GCDTP services. Producers then calculate and pay
royalties based on the net amounts received from the midstream companies rather than
the gross amount the midstream companies receive from the pipeline sales.
By
calculating the royalty payments on such net amounts, the royalty owners bear the costs
of transforming the raw gas into a marketable product.
4
In this case, Plaintiffs seek certification of the following class and subclasses:
All royalty owners who own or owned mineral interests in wells
operated by Defendant Linn Operating, Inc., in the State of Oklahoma that
produced natural gas and/or natural gas constituents or components, such as
residue gas, natural gas liquids (or heavier liquefiable hydrocarbons), gas
condensate or distillate, or casinghead gas; and/or
All royalty owners who owned mineral interests in wells
operated by Defendants Dominion Exploration Midcontinent,
Inc., or Dominion Oklahoma Texas Exploration & Production
Inc. and/or any Dominion-owned affiliates (collectively,
"Dominion"), in the State of Oklahoma that produced natural
gas and/or natural gas constituents or components, such as
residue gas, natural gas liquids (or heavier liquefiable
hydrocarbons), gas condensate or distillate, or casinghead gas
and that were the subject of the Amended and Restated MidContinent Onshore Package Purchase Agreement, dated as of
August 30, 2007; who are further divided into the following
subclasses:
Subclass 1: All class members who have or had a direct
lessor-lessee relationship with Linn or Dominion;
Subclass 2: All class members who do not or did not have a
direct lessor-lessee relationship with Linn or Dominion;
Exclusions. The following are expressly excluded from the
class definition set forth above: (a) All agencies, departments
or instrumentalities of the United States of America or the
State of Oklahoma; (b) Defendant, its affiliates, predecessors,
officers, directors and employees; (c) publicly traded oil and
gas exploration companies and their affiliates and (d)
privately-held oil and gas exploration companies and their
affiliates; (e) persons or entities whom plaintiff's counsel is,
or may be prohibited from representing under Rule 1.7 of the
Oklahoma rules of Professional Conduct; (f) wells where all
of the leases state royalty is to be paid on "value of raw gas at
the mouth of well"; (g) wells where all of the leases state
royalty is “if sold in its natural state on the leased premises
where produced, ____ of the proceeds received by lessee
from the sale” and the gas is sold on the leased premises; (h)
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wells where all of the leases allow deductions from royalty,
such as or similar to the following language:
“[less] or [after the deduction of] a
proportionate part of the production, severance
and other excise and the cost incurred by lessee
in delivering, processing, compressing, or
otherwise making such gas or other substances
merchantable”
or
“after deducting from such royalty lessor’s
proportionate amount of all post-production
costs, which shall include, but shall not be
limited to gross production and severance taxes,
gathering and transportation costs from the
wellhead to the point of sale, treating,
compression, and processing, line loss/fuel,
separating and dehydration. On product sold at
the well, the royalty shall be _____ of the net
proceeds realized from such sale, after
deducting from such royalty lessor’s
proportionate amount of all of the above postproduction costs and expenses, if any”
or
“a royalty of ___ part of the net proceeds
realized by lessee from the sale thereof, less a
proportionate part of the production, severance
and other excise taxes and the cost incurred by
lessee in delivering, processing, compressing,
transporting, or otherwise making such gas or
other substances merchantable, said payment to
be made monthly”;
(i)
wells where the gas is sold at or near the wellhead and
directly transferred into an interstate pipeline; (j) wells
whose gas does not undergo any gathering,
compression, dehydration, treatment or processing
before entering an interstate pipeline; (k) wells that are
not subject to an Oklahoma Corporation Commission
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pooling or unitization order or private pooling or
unitization agreements.
To obtain certification of this action as a class action under Federal Rule of Civil
Procedure 23, Plaintiffs must first establish that the four requirements of F.R.Civ.P.
23(a), numerosity, commonality, typicality and adequacy of representation, are clearly
met, “under a strict burden of proof.” See F.R.Civ.P. 23(a); Trivizo v. Adams, 455 F.3d
1155, 1162 (10th Cir. 2006)(quoting Reed v. Bowen, 849 F.2d 1307, 1308 (10th Cir.
1988)). If all four of those requirements are met, the Court must determine whether
Plaintiffs have satisfied one of the conditions of Rule 23(b) that they claim is applicable.
See F.R.Civ.P. 23(b); Valario v. Vandeley, 554 F.3d 1259, 1267 (10th Cir. 2009), citing
Amchem Products, Inc. v. Windsor, 521 U.S. 591, 614, 117 S.Ct. 2231, 138 L.Ed.2d 689
(1997). “Rule 23 does not set forth a mere pleading standard.” Wal-Mart Stores, Inc. v.
Dukes, 564 U.S. 338, 131 S.Ct. 2541, 2551,
L.Ed.2d
(2011). It may be
necessary to probe behind the pleadings to make the class certification determination.
Id., citing General Telephone Co. v. Southwest v. Falson, 457 U.S. 147, 161, 102 S.Ct.
2354, 72 L.Ed.2d 740 (1982). A “rigorous analysis” is required which may entail some
overlap with the merits of the plaintiff’s underlying claim. Id. However, the Court
possesses “significant latitude in deciding whether or not to certify a class.” Valario v.
Vendehey, 554 F.3d at 1264, citing Shook v. Board of County Commissioners, 543 F.3d
597, 603 (10th Cir. 2008).
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Numerosity
Defendants do not challenge Plaintiff’s argument that this requirement of
F.R.Civ.P. 23(a) is met. Thus, Defendants effectively concede that it is. And indeed a
class of approximately 30,000 member is “so numerous that joinder of all members is
impracticable,” and this is particularly true where, as here, the members of the class live
throughout the United States.
Commonality
To establish the commonality prerequisite for class certification, Plaintiffs must
show that “there are questions of law or fact common to the class.” F.R.Civ.P. 23(a)(2).
To meet this requirement, members of the putative class “must possess the same interest
and suffer the same injury.” Trevizo v. Adams, 455 F.3d at 1163, quoting General
Telephone Company of Southwest v. Falcon, 457 U.S. 147, 156, 102 S.Ct. 2364, 72
L.Ed.2d 740 (1982). A common question “must be of such a nature that it is capable of
classwide resolution – which means that determination of its truth or falsity will resolve
an issue that is central to the validity of each one of the claims in one stroke.” Wal-Mart,
131 S.Ct. at 2251. See Chieftain Royalty Co. v. XTO Energy, Inc., 528 Fed. Appx. 938,
942 (10th Cir. July 9, 2013)(quoting Wal-Mart). “What matters to class certification . . .
is not the raising of common questions – even in droves – but rather the capacity of a
classwide proceeding to generate common answers apt to drive the resolution of the
litigation.” Id.
8
In this case, Plaintiffs claim that the following are questions of law or fact
common to the class; prefacing the listing by claiming that Defendants treat all royalty
owners the same, using a uniform method of paying all of them:
a.
When is gas in a marketable condition;
b.
Whether the raw gas at the wellhead is in a marketable condition;
c.
Whether Linn has deducted costs incurred to put the gas in a marketable
condition and whether those deductions are improper because of the lessee's
duty to market;
d.
Whether Linn calculated royalty payments on less than the actual sales
price of gas and whether it has the right to do so;
e.
Whether deductions taken, directly or indirectly by Linn and charged to
Royalty Owners in the proposed class result in an underpayment of royalty;
f.
Whether Linn has the right to use percentages of gas, NGLs and condensate
to pay third-party service providers without paying royalty on the amounts
thereof used;
g.
Whether all of the Class Wells are subject to an Oklahoma Corporation
Commission pooling or unitization order;
h.
Whether Linn owes fiduciary duties to the class members and whether it
breached those duties by the manner in which it calculated and paid the
royalty owner putative class members;
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i.
Whether Linn violated the Production Revenue Standards Act, Okla. Stat.
tit. 52, § 570.12 in the manner in which it reported deductions on its check
stubs to Royalty Owners;
j.
Whether Linn properly reported all necessary and required information on
Royalty Owners’ check stubs from sales of gas produced from the class
wells;
k.
Whether Linn’s duty to market is owed to all putative class members
regardless of the terms of their leases and whether Linn breached that duty;
l.
Whether Linn was unjustly enriched as a result of the manner in which it
calculated and paid royalty and/or through the use of its affiliates to market
or gather the gas and perform other services;
m.
Whether Linn breached its obligations under the various leases by
incorrectly calculating royalties;
n.
Whether the structure of the transactions between Linn and non-affiliate
non-parties resulted in an underpayment of royalty to all the Royalty
Owners;
o.
Whether each Class Lease contains the implied covenant of good faith and
fair dealing;
p.
Whether Linn breached its implied duty of good faith and fair dealing;
q.
Whether Linn as operator, breached its duties (i.e. fiduciary or quasifiduciary) to Royalty Owners;
r.
Whether all Class Leases contain the IDM;
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s.
Whether Linn breached its implied duty to market;
t.
Whether gathering is chargeable to the Class Members’ royalty;
u.
Whether the raw gas from each Class Well undergoes one or more of the
GCDTP services;
v.
Whether the raw gas from the Class Wells is not a marketable product until
it is in a condition and location acceptable to an interstate pipeline; and
w.
Whether Linn calculates and pays royalty to the Class Members using a
uniform methodology
Many of the proposed common questions cannot be answered for all class
members in a single stroke, but require individualized inquiries by class member, well
and month. Still others of the proposed common questions will not generate answers apt
to drive resolution of this case. Questions which cannot be answered in one stroke for all
class members are those set forth in b, c, e, f, h, j, the second portion of k, l, m, n, p, q, s, t
and u. The evidence is that Defendant Linn uses more than 2,500 division order pay
decks to dictate whether class members are exempt or non-exempt from deductions for
the various GCDTP services on a month by month basis to determine how royalty owners
are paid and that Linn does not calculate and pay royalty to class members using a
uniform methodology. Moreover, whether royalty owners receive deductions for various
GCDTP services is also impacted by how Linn’s revenue accounting department codes
those services. Those facts above render the above-listed questions as questions that
cannot be answered on a class-wide basis. Proposed common questions that are not apt
to drive the resolution for this case are b, i, j, o and p. However, proposed common
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questions a and v are common questions of law that can be answered in one stroke for all
class members, albeit that those questions of law have already been answered because
this Court has already held that unless specifically negated as set forth in Wood v. TXO
Production Corp., 854 P.2d 880, 883 (Okla. 1992), all leases contain the implied duty to
market and that generally, gas is not marketable until it is in a condition and location
acceptable to an interstate pipeline. Proposed question w is a question of fact which the
evidence before the Court has already answered. Thus, the Court concludes that there are
at least two common questions of law that will generate common answers for the entire
class and which are apt to drive resolution of this litigation.
Typicality
“The commonality and typicality requirements of Rule 23(a) tend to merge.” WalMart,131 S.Ct. at 2552 n. 5. The typicality requirement limits the class claims to those
“fairly encompassed” by the claims of the named plaintiffs. General Telephone Co. of
the Northwest v. E.E.O.C., 446 US. 318, 330 (1980). Claims may be typical without
being identical such that “typicality may be satisfied even though varying fact patterns
support the claims or defenses of individual class members or there is disparity in the
damages claimed by the representative parties and the other members of the class.” In Re
Four Season Securities Laws Litigation, 59 F.R.D. 667, 681 (W.D. Okla. 1973), rev’d on
other grounds, 502 F.2d 834 (10th Cir. 1974)(citation omitted). But the requirement of
typicality is intended to ensure that the class representatives will, by establishing their
own claims, establish the bulk of the elements of each class member’s claims. See
Brooks v. S. Bell Tel. & Tel. Co., 133 F.RDr. 54, 58 (S.D. Fla. 1990), citing Gen. Tel. Co.
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of Sw. v. Falcon, 457 U.S. 147 (1982). The Tenth Circuit has instructed district courts to
consider whether variances in lease language and gas marketability have effect on
typicality. Wallace B. Roderick Revocable Living Trust v. OXT Energy, Inc., 725 F.3d
1213, 1219 (10th Cir. 2013).
The McKnight’s claims are governed by a single lease pertaining to gas produced
from a single well, the Millington 4011 well. Their lease provides royalties are to be
based on either “proceeds” if gas is sold at the well, or “market value at the well” if gas is
sold off the lease. Throughout the class period, the gas has been sold off the lease. The
Court has already determined that lease language provided for payment of royalties of the
“market value at the well” does not negate the implied duty to market. See Hill v. Kaiser
Francis Oil Co., 2012 WL 4327665 at *2 (W.D. Okla. 2012). However, the differing
methods of paying the royalty owners and in particular the payment methodology used on
production from the Millington 4-11 well renders the Plaintiffs’ claims not typical of the
class claims. Unlike the owners of hundreds of other wells, costs associated with moving
the Millington 4-11 gas downstream from the lease were recorded by Linn accountants to
compression and transportation cost codes for which the McKnights were not exempt,
rather than to “Gath” or “Gathpa” codes, for which the McKnights and thousands of other
owners in hundreds of other wells were set up as “exempt” from deductions.
Adequacy
Rule 23(a) requires that the named plaintiffs and their counsel will adequately
represent the class. Legal adequacy is determined by the resolution of two questions: 1)
do the named plaintiffs and their counsel have any conflicts of interest with other class
13
members; and (2) will the named plaintiffs and their counsel prosecute the action
vigorously on behalf of the class. Rutter &. Wilbanks Corp v. Shell Oil Co., 314 F.3d
1180, 1187-88 (10th Cir. 2002), cert. denied sub nom. Brelsford v. Rutter & Wilbanks
Corp., 539 U.S. 915 (2003)(quoting Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (10th
Cir. 1998). Although the McKnights fall into one of the proposed subclasses of class
members, those having a direct lessor-lessee relationship with Linn or Dominion, there is
no true conflict between that class and those who do not have a direct lessor-lessee
relationship with Linn or Dominion. Although the Plaintiffs have offered their affidavits
generally attesting what their mineral interests are which has a producing gas well named
the Millington 4-11 and that they have to their knowledge no conflicts of interest with the
proposed class and attach some of the check stubs they have received, see Exhibits “8”
and “9” to Plaintiffs’ motion, the Court has serious questions concerning whether the
Plaintiffs can vigorously prosecute this action. In deposition testimony given a year after
this suit was filed, the Plaintiffs testified that they had never seen or read their lease or
check stubs and had no knowledge of the lease’s terms, including how it required
royalties to be calculated and whether deductions were permitted. See Exhibit “28” to
Defendants’ brief at pp. 14-18, 39-44, 51-54. Exhibit “29” to Defendants’ Brief at 14,
41, 46, 54-58, 60, 62.
The adequacy requirement mandates an inquiry into the willingness and ability of
the class representatives to “take an active role in and control the litigation and to protect
the interests of absentees.” Berger v. Compaq Computer Corp., 257 F.3d 475, 482 (5th
Cir. 2001)(quoting Horton v. Goose Creek Independent School District, 690 F.2d 470,
14
484 (5th Cir. 1982). Class representatives must possess a sufficient level of knowledge
and understanding to be capable of “controlling” or “prosecuting” the litigation. Id. See
also Tucker v. BP America Production Co., 278 F.R.D. 646, 655 (W.D. Okla.
2011)(because the class representative lacked a fundamental knowledge of the facts of
the case, the court found he was an inadequate class representative)).
Class counsel is clearly adequate to prosecute this case as shown by his
performance at the evidentiary hearing and as demonstrated in a prior successful class
action before this Court.
Rule 23(b)(1)
Plaintiffs for the first time in their proposed findings of fact and conclusions of
law suggest that this class action is appropriate under F.R.Civ.P. 23(b)(1)(A) or (B).
Rule 23(b)(1) provides that a class action that meets the requirements of Rule 23(a) may
be maintained as a class action if:
(1) prosecuting separate actions by or against individual class members
would create a risk of:
(A) inconsistent or varying adjudications with respect to individual class
members that would establish incompatible standards of conduct for the
party opposing the class; or
(B) adjudications with respect to individual class members that,
as a practical matter, would be dispositive of the interests of the
other members not parties to the individual adjudications or
would substantially impair or impede their ability to protect their
interests;
F.R.Civ.P. 23(b)(1)(A) & (B).
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“The most important element of Rule 23(b)(1)(A) is the question of what
constitutes “incompatible standards of conduct” warranting certification. Newberg on
Class Actions § 4:7 (7th Ed. 2012). “The critical answer is that courts generally will not
certify a class under Rule 23(b)(1)(A) simply because separate damages actions may
reach different results - inconsistent verdicts on liability and damages do not alone give
rise to incompatible standards of conduct.” Id. (footnote omitted). If the mere threat of
inconsistent jury verdicts enabled certification under 23(b)(1)(A), every case involving
multiple plaintiffs could fall into this category. Rule 23(b)(3) is specifically designed to
cover class actions seeking damages and Rule 23 establishes unique notice and opt-out
rights to protect absent class members in damage actions. Id. If all of these actions were
equally maintainable under Rule 23(b)(1)(A), litigants could readily circumvent Rule
23(b)(3) and its attendant procedural protections. Id. For these reasons, some courts
have concluded that money damage actions are not available in Rule 23(b)(1)(A) cases.
Newberg, at 4:7. Applying these principles, this case is not maintainable as a class action
under Rule 23(b)(1)(A).
Rule 23(b)(1)(B) provides for what is commonly known as limited fund class
actions. See Newberg, at 4:16. Where there are limited funds sought by multiple
claimants, those claimants who earlier pursue their claims may leave latter claimants
without a remedy, hence substantially impair or impede the latter claimant’s ability to
protect their interests. This form of class has no application to the facts before the Court.
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Rule 23(b)(3)
Plaintiffs also assert that their action is maintainable as a class action under Rule
23(b)(3), F.R.Civ.P. A class action under that provision requires the court to find that
common question of law or fact predominate over any questions affecting only individual
class members and that a class action is superior to other available methods for
adjudicating the controversy. F.R.Civ.P. 23. The matters pertinent to these findings
include:
(A) the class members' interests in individually controlling the prosecution
or defense of separate actions;
(B) the extent and nature of any litigation concerning the controversy
already begun by or against class members;
(C) the desirability or undesirability of concentrating the litigation of the
claims in the particular forum; and
(D) the likely difficulties in managing a class action
F.R.Civ.P. 23(b)(3).
Because many of the royalty owners have small interests, the class members do
not have interests of individually pursuing or prosecuting separate actions or the incentive
to do so. Of 1,171 wells acquired from Dominion, 844 of the class wells were the subject
of an earlier class action, similar to this case. Kouns v. Louis Dreyfus Natural Gas, CJ98-20.
Certainly it is desirable to concentrate this litigation involving over 34,000
royalty owners, over 36,515 leases and 1,693 wells in one forum. At the same time,
doing so poses substantial manageability difficulties, not the least of which is
determining who the class members are. But the Court finds that adjudicating this case as
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a class action is superior to other methods for fairly and efficiently adjudicating the
controversy.
However, the Court finds that common questions of law and fact do not
predominate over questions affectingly only individual members. This is so because of
Defendant Linn’s complex method of calculating and paying the individual royalties.
Linn does not pay all royalty owners across the board in the same manner.
A
determination of how much Linn paid each royalty owner and a second inquiry as to how
much it should have paid each owner will require owner by owner and month by month
calculations with examination of whether Linn’s pay decks listed owners as exempt from
some or all deductions for post-production services and an examination of how Linn’s
revenue accounts “booked” certain deductions. These individualized inquiries will be
necessary to determine whether Defendant Linn breached its contract with each of the
putative class members, not just to determine damages. Moreover to determine whether
Linn accurately reflected permissible deductions on the owners’ pay stubs (beyond the
question of whether Linn only reported net amounts rather than gross amounts), will
require examination of every pay stub.
Identifiable Class
Finally, the Court agrees with Defendant that class membership is not objectively
ascertainable. To determine whether the exclusions from the class set out in Plaintiffs’
class definition apply will require a well by well and month by month examination of
lease language and payment methodology, since for example only member wells in
which all the leases exempt the owners from deduction are excluded from the class. The
18
Court would be required to hold evidentiary hearings to determine which potential class
members qualified for inclusion and exclusion from the class. “If class members are
impossible to identify without extensive and individualized fact-finding or “mini-trials,”
then a class action is inappropriate.” Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 593
(3rd. Cir. 2012). That is the case here.
Conclusion
In accordance with the foregoing, Plaintiffs’ motion for class certification must be
DENIED.
IT IS SO ORDERED this 25th day of February, 2016.
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