Nichols v. Chesapeake Operating LLC et al
ORDER denying 12 and 25 plaintiff's Motion to Abstain under the Home-State Mandatory Abstention Exception to CAFA and plaintiff's Supplement to His Motion to Abstain under Home State Exception to CAFA (as more fully set out). Signed by Honorable Vicki Miles-LaGrange on 9/13/2017. (ks)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
BILL G. NICHOLS, on behalf of himself
and all others similarly situated,
CHESAPEAKE OPERATING, LLC,
and CHESAPEAKE EXPLORATION,
Case No. CIV-16-1073-M
Before the Court is plaintiff’s Motion to Abstain under the Home-State Mandatory
Abstention Exception to CAFA, filed October 14, 2016. On April 12, 2017, plaintiff filed his
Supplement to His Motion to Abstain under Home State Exception to CAFA. On June 27, 2017,
the parties filed a Joint Stipulation. On July 14, 2017, defendants filed their response, and on
September 5, 2017, plaintiff filed his reply. Based upon the parties’ submissions, the Court makes
Plaintiff filed this proposed class action for breach of lease, breach of fiduciary duty, fraud,
deceit and constructive trust against defendants in the District Court of Beaver County, Oklahoma
on August 9, 2016. In the Class Action Petition, plaintiff defines the proposed class as follows:
All persons who are (a) an “Oklahoma Resident”; and, (b) a royalty
owner in Oklahoma wells where Chesapeake Operating, LLC (f/k/a
Chesapeake Operating, Inc.) and/or Chesapeake Exploration, LLC
is or was the operator (or a working interest owner who marketed its
share of gas and directly paid royalties to the royalty owners) from
January 1, 2015 to the date Class Notice is given. The Class claims
relate to royalty payments for gas and its constituents (such as
residue gas, natural gas liquids, helium, nitrogen, or drip
Excluded from the Class are: (1) agencies, departments or
instrumentalities of the United States of America, including but not
limited to the U.S. Department of the Interior (the United States,
Indian tribes, and Indian allottees); (2) Defendants, their affiliates,
predecessors, and employees, officers, and directors; (3) Any NYSE
or NASDAQ listed company (and its subsidiaries or affiliates)
engaged in oil and gas exploration, gathering, processing, or
marketing; (4) the claims of royalty owners to the extent covered by
arbitration clauses or prior settlement agreements, if any, still in
effect on or after January 1, 2015; (5) overriding royalty owners and
others whose interest was carved out from the lessee’s interest; (6)
royalty owners and others who opted out or objected of record in
Fitzgerald Farms, LLC v. Chesapeake Operating, Inc., Case No. CJ10-38, Beaver County, Oklahoma; (7) royalty owners who have
already filed and still have pending lawsuits for underpayment of
royalties against Chesapeake at the time suit is filed herein; (8)
royalty owners taking gas in-kind, if any.
“Oklahoma Resident” means: Persons to whom, from January 1,
2015 to the date suit was filed herein, (a) Chesapeake mailed or sent
each monthly royalty check on an Oklahoma well to an Oklahoma
address (including direct deposit); (b) Chesapeake mailed or sent a
1099 for both 2014 and 2015 to an Oklahoma address; (c) the
Settlement Administrator in Fitzgerald Farms, LLC v. Chesapeake
Operating, Inc., Case No. CJ-10-38, Beaver County, Oklahoma
mailed or sent a distribution check and 1099 to an Oklahoma
address; and, (d) except for charitable institutions, were not subject
to the Oklahoma Withholding Tax for Nonresidents on royalties
paid in 2014 to the date suit was filed.
Class Action Petition [docket no. 1-1] at ¶ 13.
On September 15, 2016, defendants removed this action to this Court. On October 13,
2016, plaintiff filed a motion to remand. On February 23, 2017, this Court denied plaintiff’s
motion to remand.
Plaintiff now moves this Court for an order abstaining from jurisdiction over this putative
class action and remanding this case to the District Court of Beaver County, Oklahoma, under the
home state exception to diversity jurisdiction under the Class Action Fairness Act (“CAFA”).1
The home state exception provides:
A district court shall decline to exercise jurisdiction under paragraph
(B) [when] two-thirds or more of the members of all
proposed plaintiff classes in the aggregate, and the primary
defendants, are citizens of the State in which the action was
28 U.S.C. § 1332(d)(4)(B). It is undisputed that the two defendants in this case are citizens of
Oklahoma for purposes of CAFA and that this action was originally filed in Oklahoma state court.
The only disputed issue is whether two-thirds or more of the members of the proposed class are
citizens of Oklahoma.
Further, the parties do not dispute that as the party seeking remand, plaintiff bears the
burden of establishing by a preponderance of the evidence that the home state exception to CAFA
jurisdiction applies in this case. Plaintiff cannot rely solely on the allegations in his Class Action
Petition to establish that two-thirds or more of the members of the proposed class are citizens of
Oklahoma, but “must make some minimal [evidentiary] showing of the citizenship of the proposed
class at the time that suit was filed.” Reece v. AES Corp., 638 F. App’x 755, 769 (10th Cir. 2016)
(internal quotations and citation omitted). In other words, plaintiff has “to marshal and present
some persuasive substantive evidence (extrinsic to the amended petition) to establish the
Oklahoma citizenship of the class members.” Id.
In his supplement, plaintiff alternatively notes in footnote 1 that this Court can exercise its
discretion to remand under the Interest of Justice exception in 28 U.S.C. § 1332(d)(3). As this
issue was not briefed by the parties, the Court declines to address whether the Interest of Justice
exception would apply in this case.
There are three general categories of proposed class members implicated in this case: (1)
individuals, (2) entities, and (3) trusts. Each category has its own, unique citizenship test. For
diversity jurisdiction purposes, individuals are deemed citizens of the state where they are
domiciled, i.e, the last state in which he or she resided with an intent to remain indefinitely. See
id. For entities, corporations are deemed to be citizens of both the state where they are incorporated
and the place where they maintain their principal place of business. See 28 U.S.C. § 1332(c)(1).
For limited liability companies, limited partnerships, and other “unincorporated associations,”
CAFA deems each “to be a citizen of the State where it has its principal place of business and the
State under whose laws it is organized.” 28 U.S.C. § 1332(d)(10). Trusts are a bit more
complicated. When the trust itself is a party to the case, the citizenship of the trust is derived from
all of the trust’s members, which would include its beneficiaries, see Conagra Foods, Inc. v.
Americold Logistics, LLC, 776 F.3d 1175, 1181 (10th Cir. 2015), and when a trustee brings a case
in his or her own name as trustee, it is the trustee’s citizenship that controls for purposes of
diversity jurisdiction, see id.
In support of his motion, plaintiff has submitted the following evidence: (1) a declaration
of Joseph B. Kadane, plaintiff’s expert, attesting to his generation of a random sample of the
proposed class, to his statistical analysis of the data provided by plaintiff’s counsel, and to his
conclusion that more than two-thirds of the proposed class are citizens of Oklahoma2; (2) survey
data regarding the random sample of the proposed class; (3) a skip-trace investigation of the
random sample of the proposed class; and (4) plaintiff’s counsel’s data compilation and
conclusions regarding whether a particular member of the random sample of the proposed class
Mr. Kadane’s analysis and conclusion are based upon the data provided by plaintiff’s counsel
and plaintiff’s counsel’s conclusions regarding whether a particular member of the random sample
of the proposed class was an Oklahoma citizen.
was an Oklahoma citizen. Having carefully reviewed the parties’ submissions, and particularly
the evidence submitted by plaintiff, the Court finds that plaintiff has failed to establish by a
preponderance of the evidence that two-thirds or more of the members of the proposed class are
citizens of Oklahoma such that the home state exception to CAFA jurisdiction applies in this case.
Specifically, the Court finds there are significant flaws in the evidence provided. First, neither
plaintiff’s data nor plaintiff’s counsel’s conclusions regarding whether a particular member of the
random sample was an Oklahoma citizen properly addresses the requisite analysis for determining
the citizenship of a trust.3 Neither the survey data4 nor the skip-trace investigation documents
provide any information as to either the trustee’s citizenship or the trust beneficiaries’ citizenship.
Second, upon a comparison of plaintiff’s counsel’s data compilation and conclusions with the skiptrace investigation documents, the Court found a number of individuals that were found to be
Oklahoma citizens on plaintiff’s counsel’s data compilation that the skip-trace investigation
documents indicated were deceased. If an individual is deceased, an additional analysis would
necessarily need to be conducted to determine the citizenship of any heirs, etc. Finally, upon
review of the data compilation and conclusions and the skip-trace investigation documents, the
Court found there was an insufficient basis for plaintiff’s counsel’s determination of Oklahoma
citizenship for a few of the members of the random sample. In light of the above flaws, the Court
finds that Mr. Kadane’s conclusion cannot be relied upon by this Court and that without Mr.
Kadane’s conclusion, and without sufficient reliable data, this Court cannot find by a
preponderance of the evidence that two-thirds or more of the members of the proposed class are
Trusts make up approximately 14% of the proposed class.
The survey did not specifically address trusts.
citizens of Oklahoma. Accordingly, the Court finds that the home state exception to CAFA
jurisdiction does not apply in this case.
The Court, therefore, DENIES plaintiff’s Motion to Abstain under the Home-State
Mandatory Abstention Exception to CAFA and plaintiff’s Supplement to His Motion to Abstain
under Home State Exception to CAFA [docket nos. 12 and 25].
IT IS SO ORDERED this 13th day of September, 2017.
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