Eqt Prod. Co. v. Adair

• Citation: 764 F.3d 347
• Decision Date: 19 August 2014
• Docket Number: 13–418,Nos. 13–414,13–2382,13–419,13–2384.,13–422,13–415,13–421,13–2376,13–2378,13–2381,13–2383,s. 13–414
• Parties: EQT PRODUCTION COMPANY, Petitioner, v. Robert ADAIR, on behalf of himself and all others similarly situated, Respondent. EQT Production Company, Petitioner, v. Eva Mae Adkins, on behalf of herself and all others similarly situated, Respondent. EQT Production Company, Petitioner, v. Julie A. Kiser, Plaintiff and Class Representative, Respondent. CNX Gas Company, LLC, Petitioner, v. Jeffrey Carlos Hale, on behalf of himself and all others similarly situated, Respondent. CNX Gas Company, LLC, Petitioner, v. Doris Betty Addison, on behalf of herself and all others similarly situated, Respondent. Buckhorn Coal Company LLLP; Commonwealth Coal Corporation; Harrison–Wyatt LLC, Petitioners, v. Doris Betty Addison; Jeffrey Carlos Hale, Respondents. Robert Adair, on behalf of himself and all others similarly situated, Plaintiff–Appellee, v. EQT Production Company, Defendant–Appellant. Eva Mae Adkins, on behalf of herself and all others similarly situated, Plaintiff–Appellee, v. EQT Production Company, Defendant–Appellant. Julie A. Kiser, Plaintiff and Class Representative, Plaintiff–Appellee, v. EQT Production Company, Defendant–Appellant. Jeffrey Carlos Hale, on behalf of himself and all others similarly situated, Plaintiff–Appellee, v. CNX Gas Company, LLC, Defendant–Appellant. Doris Betty Addison, on behalf of herself and all others similarly situated, Plaintiff–Appellee, v. CNX Gas Company, LLC, Defendant–Appellant. Doris Betty Addison; Jeffrey Carlos Hale, Plaintiffs–Appellees, v. Buckhorn Coal Company LLLP; Commonwealth Coal Corporation; Harrison–Wyatt LLC, Defendants–Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

764 F.3d 347

EQT PRODUCTION COMPANY, Petitioner,

v.Robert ADAIR, on behalf of himself and all others similarly situated, Respondent.

EQT Production Company, Petitioner,

v.Eva Mae Adkins, on behalf of herself and all others similarly situated, Respondent.

EQT Production Company, Petitioner,

v.Julie A. Kiser, Plaintiff and Class Representative, Respondent.

CNX Gas Company, LLC, Petitioner,

v.Jeffrey Carlos Hale, on behalf of himself and all others similarly situated, Respondent.

CNX Gas Company, LLC, Petitioner,

v.Doris Betty Addison, on behalf of herself and all others similarly situated, Respondent.

Buckhorn Coal Company LLLP; Commonwealth Coal Corporation; Harrison–Wyatt LLC, Petitioners,

v.Doris Betty Addison; Jeffrey Carlos Hale, Respondents.

Robert Adair, on behalf of himself and all others similarly situated, Plaintiff–Appellee,

v.EQT Production Company, Defendant–Appellant.

Eva Mae Adkins, on behalf of herself and all others similarly situated, Plaintiff–Appellee,

v.EQT Production Company, Defendant–Appellant.

Julie A. Kiser, Plaintiff and Class Representative, Plaintiff–Appellee,

v.EQT Production Company, Defendant–Appellant.

Jeffrey Carlos Hale, on behalf of himself and all others similarly situated, Plaintiff–Appellee,

v.CNX Gas Company, LLC, Defendant–Appellant.

Doris Betty Addison, on behalf of herself and all others similarly situated, Plaintiff–Appellee,

v.CNX Gas Company, LLC, Defendant–Appellant.

Doris Betty Addison; Jeffrey Carlos Hale, Plaintiffs–Appellees,

v.Buckhorn Coal Company LLLP; Commonwealth Coal Corporation; Harrison–Wyatt LLC, Defendants–Appellants.

Nos. 13–414, 13–415, 13–418, 13–419, 13–421, 13–422, 13–2376, 13–2378, 13–2381, 13–2382, 13–2383, 13–2384.

United States Court of Appeals, Fourth Circuit.

Argued: May 13, 2014.

Decided: Aug. 19, 2014.

ARGUED:Jonathan Todd Blank, McGuirewoods LLP, Charlottesville, Virginia; Michael Willis Smith, Christian & Barton, Richmond, Virginia, for Appellants. Elizabeth Joan Cabraser, Lieff, Cabraser, Heimann & Bernstein, LLP, San Francisco, California, for Appellees. ON BRIEF:Stephen M. Hodges, Wade W. Massie, Mark E. Frye, Penn, Stuart & Eskridge, Abingdon, Virginia; R. Braxton Hill, IV, Christian & Barton, Richmond, Virginia, for Appellant EQT Production Company. Lisa M. Lorish, Tennille J. Checkovich, John Tracy Walker, IV, McGuirewoods LLP, Charlottesville, Virginia; James R. Creekmore, Blair Nivia Wood, Creekmore Law Firm PC, Blacksburg, Virginia, for Appellant CNX Gas Company, LLC. Blair M. Gardner, Lee Adair Floyd, Jackson Kelly PLLC, Charleston, West Virginia; Eric D. Whitesell, Gillespie, Hart, Altizer & Whitesell, Tazewell, Virginia, for Appellants Buckhorn Coal Company LLLP, Commonwealth Coal Corporation, and Harrison–Wyatt LLC. David S. Stellings, Daniel E. Seltz, Lieff Cabraser Heimann & Bernstein, LLP, New York, New York; Jackson S. White, Jr., The White Law Office, Abingdon, Virginia, for Appellees.

Before WILKINSON, KEENAN, and DIAZ, Circuit Judges.

Vacated and remanded by published opinion. Judge DIAZ wrote the opinion, in which Judge WILKINSON and Judge KEENAN joined.

DIAZ, Circuit Judge:

This appeal arises from the district court's decision to certify five related class action suits. The plaintiffs in each of the five classes generally allege that EQT Production Co. and CNX Gas Co. have unlawfully deprived the class members of royalty payments from the production of coalbed methane gas (“CBM”) in Virginia. Four of the five classes claim that EQT and CNX have improperly remitted royalty payments to escrow or suspense accounts instead of to the royalty owners. All five classes allege that EQT and CNX have been underpaying royalties.

The defendants petitioned for permission to appeal the five orders granting class certification pursuant to Federal Rule of Civil Procedure 23(f). We deferred ruling on the petitions, consolidated the cases, and ordered formal briefing.

We now grant the appeal and conclude that the district court abused its discretion when it certified the five classes. As we explain below, Rule 23 requires a more rigorous analysis as to whether the requirements for class certification have been satisfied. We therefore vacate and remand for reconsideration of the plaintiffs' motions for class certification.

I.

A brief explanation of the historical and statutory background is necessary to assess the implications of class certification in this case.

A.

CBM is a form of natural gas that resides in the pores of coal. When the pressure on coal is reduced—for example, from natural geologic shifts or mining—CBM is released from the surface of coal.

Like any form of methane, CBM is highly explosive. Historically, miners viewed CBM as a dangerous waste product and ventilated it into the atmosphere as a safety measure. By the 1970s, however, it became apparent that CBM could be used as an energy resource, and producers began to capture it for commercial use. CBM has since been recognized in Virginia as a “distinct mineral estate,” Harrison–Wyatt, LLC v. Ratliff, 267 Va. 549, 593 S.E.2d 234, 238 (2004), which means that the rights to CBM can be severed from the land.

Questions regarding ownership of the CBM estate have long plagued its commercial development in Virginia. CBM drilling often occurs on tracts of land where different persons own the subsurface gas rights (the “gas estate”) and coal mining rights (the “coal estate”). Until recently, severance deeds generally did not mention CBM, much less assign ownership rights. At times, both gas estate owners and coal estate owners have claimed title to CBM. Further complicating matters, a CBM drilling unit—the area of land underlying and surrounding a CBM well—typically encompasses 60 to 80 acres. Multiple, separately owned tracts of land often underlie a single unit, and each tract has the potential for an ownership conflict if the coal estate has been severed from the gas estate.

B.

In 1990, the Virginia legislature enacted the Virginia Gas and Oil Act, Va.Code Ann. § 45.1–361.1 et seq., to enable producers to capture CBM “[w]hen there are conflicting claims to the ownership of coalbed methane gas.” Id. § 45.1–361.22. Upon application from a CBM producer, the Act authorizes the Virginia Gas and Oil Board to enter orders “pooling all interests or estates in the [CBM] drilling unit for the development and operation thereof.” Id. Once issued, a pooling order consolidates all adjoining tracts of land with subsurface CBM into a single pool or unit of interests, enabling the CBM producer to extract the gas from a common reservoir. Under the Act, a pooling order deprives potential CBM owners of the right to prevent CBM extraction but does entitle CBM owners to a royalty payment.

To apply for a pooling order, producers must send notice to every “potential owner of an interest” in the CBM underlying a planned drilling unit. Id. § 45.1–361.22.1. The notices typically give each interest holder the option of reaching a voluntary lease agreement with the CBM producer prior to the entry of the final pooling order. A person who does not reach such an agreement is typically “deemed ... to have leased his gas or oil interest to the [CBM] well operator.” Id. § 45.1–361.22.6. Under the provisions of the Board's pooling orders, deemed lessors are entitled to a royalty of one-eighth of the net proceeds received by the CBM producer for their share of the CBM.

To identify the persons to whom they must send notice, CBM producers have historically prepared ownership schedules listing all of the potential interest holders—and conflicting claimants—to the CBM involved in each drilling unit. Preparing these schedules is often an arduous process, requiring extensive research and the preparation of numerous lease reports and title opinions. The Board's pooling orders adopt the ownership schedules submitted by the CBM producers and memorialize the ownership conflicts identified therein.¹

Whenever a CBM ownership conflict is identified, the Board must establish an escrow account to receive the royalties attributable to the disputed interest. See id. § 45.1–361.22.2. The CBM producer must “deposit into the escrow account one-eighth of all proceeds attributable to the conflicting interests plus all proceeds in excess of ongoing operational expenses.” Id. § 45.1–361.22.4. As of January 2010, the Board's escrow account contained over $25 million.

The Act provides three ways for persons with a disputed ownership claim to CBM to gain release of the escrowed funds. A claimant can obtain “(i) a final decision of a court of competent jurisdiction adjudicating the ownership of [CBM] as between [conflicting claimants]; (ii) a determination reached by an arbitrator ...; or (iii) an agreement among all claimants owning conflicting estates in the tract in question or any undivided interest therein.” Id. § 45.1–361.22.5.

II.

In this consolidated appeal, we consider the claims of five separate plaintiff classes, comprising actual or potential CBM interest holders, against two CBM producers, EQT and CNX. The Adair, Adkins, and Kiser cases involve claims against EQT, while Hale and Addison involve claims against CNX.

A.

Defendants EQT and CNX operate numerous CBM wells in Virginia, many of which are subject to Board pooling orders.² To apply for Board pooling orders, both EQT and CNX prepared schedules attempting to identify every potential CBM interest holder and any ownership conflict involved in each drilling unit.

In their submissions to the Board, EQT and CNX have consistently taken the position that a CBM interest is conflicted if, for a given tract of land that is part of a drilling unit, different persons own the gas estate and the coal estate. Because Board pooling orders incorporate the defendants' schedules, those orders memorialize the ownership conflicts identified by EQT and CNX.

Buckhorn Coal Co. LLP, Commonwealth Coal Corp., and Harrison–Wyatt, LLC (collectively, the “BCH–W defendants”) intervened as defendants in the...