Anderson Living Tr. v. Energen Res. Corp.

• Decision Date: 05 December 2019
• Docket Number: No. 13-CV-00909 WJ/CG,13-CV-00909 WJ/CG
• Parties: THE ANDERSON LIVING TRUST f/k/a THE JAMES H. ANDERSON LIVING TRUST, et al., Plaintiffs, v. ENERGEN RESOURCES CORPORATION, Defendant.
• Court: U.S. District Court — District of New Mexico

THE ANDERSON LIVING TRUST f/k/a

THE JAMES H. ANDERSON LIVING TRUST, et al., Plaintiffs, v. ENERGEN RESOURCES CORPORATION, Defendant.

No. 13-CV-00909 WJ/CG

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

December 5, 2019

MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS' NARROWED MOTION FOR CLASS CERTIFICATION

THIS MATTER comes before the Court upon Plaintiffs' Narrowed Motion for Class Certification Filed Pursuant to District Court Order of July 23, 2018 (Doc. 235). Having reviewed the parties' pleadings and the applicable law, the Court finds that Plaintiffs' motion is well-taken and, therefore, is granted.

BACKGROUND

Plaintiffs are four trusts owning royalty interests in oil and gas wells that filed a putative class action complaint against Defendant Energen Resources Corporation ("Energen"). Energen is the owner and operator of oil and gas wells in the San Juan Basin, located in Northwestern New Mexico and Southern Colorado. Plaintiffs allege that Energen was systematically underpaying royalties due them from the production of oil and gas from the wells in which they own royalty interests. On appeal, the Tenth Circuit affirmed this Court's rulings granting summary judgment to Defendant on claims asserted by two of the Plaintiffs, but remanded certain claims asserted by the Neely-Robertson Revocable Family Trust which owns royalty interests in New Mexico oil and gas wells, and the Tatum Living Trust which owns royalty interests in wells located in Colorado. See Anderson Living Tr. v. Energen Res. Corp., 886 F.3d 826, 847 (10th Cir. 2018) ("ALT").

Energen Resources Corporation operated and produced natural gas from approximately 112 wells in the State of Colorado (see Energen's expert report, Doc. 158-1, p. 15) from 2004 until 2015, when it conveyed its interests to Southland Royalty Company. Energen's gathering, treating and processing agreements with "Red Cedar" allowed the use, as fuel, natural gas from Energen's Colorado wells for compression, gas movement, gathering, treating and processing volumes of natural gas produced from the Tatum Trust and Class Members' wells. It is undisputed that Energen does not pay royalty on the volumes of gas produced from the Tatum Trust and putative Class wells, which gas is used for compression, field fuel and plant fuel by Energen and its contracting parties, principally Red Cedar Gathering Company.

As Defendant notes, Plaintiffs now seek to certify a much different class than they originally proposed. Plaintiffs no longer seek to certify a class consisting of all Colorado and New Mexico royalty owners and instead restrict the proposed class to the Tatum Trust ("Trust") and only Colorado royalty owners with interests in the 153 leases at issue in this case. Also, Plaintiff seeks class certification based on a single underpayment theory, namely that Energen failed to pay additional royalties on gas used as fuel and that Energen breached its duty of good faith and fair dealing by failing to disclose all deductions related to those royalties. Plaintiffs define the putative class as:

All persons or entities who own non-cost bearing interests that are subject to the Class oil and gas leases productive of natural gas and other hydrocarbons in the State of Colorado, which were previously owned in whole or in part by Energen and its predecessors by name change, conveyance or acquisition. Southland Royalty Company LLC now owns the leases.

Doc. 235 at 4. These oil and gas leases provide for the payment of royalty on natural gas used off the lease premises, and do not contain other language which indicates the lessor is to share the expense or cost of off-lease processes or gathering activity for which the fuel gas is used. Colorado has adopted a version of the marketable condition rule, which in its purest form requires the lessor to market the gas solely at its expense. Under Colorado law, the marketable condition rule applies only when the lease does not provide otherwise. ALT, 886 F.3d at 830.

DISCUSSION¹

The trial court may certify a class only if, after rigorous analysis, it determines that the proposed class satisfies the prerequisites of Federal Rule of Civil Procedure 23(a). Trevizo v. Adams, 455 F.3d 1155, 1163 (10th Cir. 2006). Rule 23(a) imposes four prerequisites for class certification:

(1) the class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

Rigorous analysis by the district court before granting class certification is necessary because of the "potential unfairness to the class members bound by the judgment if the framing of the class is overbroad." Trevizo v. Adams, 455 F.3d 1155, 1163 (10th Cir. 2006) (citing Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161 (1982).

A class action may be maintained if Rule 23(a) is satisfied and if falls into one of the types of class actions described in Rule 23(b). Plaintiff contends that the putative class satisfies Rule23(b)(3)'s requirements of predominance and superiority. Harrel's LLC v. Chaparral Energy, LLC (Naylor Farms, Inc.), 923 F.3d 779, 789 (10th Cir. 2019).

Rule 23(c) requires the Court to "define the class and the class claims, issues, or defenses." Fed. R. Civ. P. 23(c)(1)(B); see Abraham v. WPX Prod. Prods., LLC, 317 F.R.D. 169, 254 (D.N.M. 2016) (citing cases); Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 592-93 (3d Cir.2012) ("essential" prerequisite to a rule 23(b)(3) class action is that the "class must be currently and readily ascertainable based on objective criteria"). It is Plaintiffs' burden to show that the proposed class complies with Rule 23. Wallace B. Roderick Revocable Living Tr. v. XTO Energy, Inc., 725 F.3d 1213, 1218 (10th Cir. 2013).

I. Rule 23(a) Requirements

A. Numerosity

Rule 23(a)(1) requires that the putative class membership be sufficiently large to warrant a class action, because the alternative of joinder is impracticable. Some courts have held that numerosity may be presumed at a certain number; the Tenth Circuit, however, "has never adopted such a presumption." Abraham v. WPX Prod. Prods., LLC, 317 F.R.D. 169, 220 (D.N.M. 2016) (citing Trevizo v. Adams, 455 F.3d 1155, 1162 (10th Cir.2006). Defendant does not challenge this factor and the Court finds that the proposed class is so numerous that joinder of all members is impracticable. This factor is therefore satisfied.

B. Commonality

Rule 23(a)(2) requires that "there are questions of law or fact common to the class." Fed. R. Civ. P. 23(a)(2) (emphasis added). A single common question will suffice to satisfy rule 23(a)(2), but the question must be one "that is central to the validity of each one of the claims." Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 374 (2011), cited in Abraham v. WPX Prod. Prods.,LLC, 317 F.R.D. 169, 221 (D.N.M. 2016). The focus of Rule 23(a)(2)'s commonality requirement is not so much on whether there exist common questions, but rather on "the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation." Wal-Mart, 564 U.S. at 350, cited in Naylor Farms, Inc. v. Chaparral Energy, LLC, 923 F.3d 779, 789 (10th Cir. 2019) (emphasis in original).

Variations in Leases Language

Energen contends that the Trust's fuel gas claim also is atypical of any claim held by the putative Class Members and that in fact, only two leases are the same as the leases held by the Trust. The leases expressly require royalties to be paid on gas used as fuel, because they "explicitly prohibit Energen from deducting post-production costs." ALT, 886 F.3d at 848-49. Defendant points to language in the Tatum leases:

3/16 of the gross proceeds received by Lessee for all gas (including all substances contained in such gas) recovered or separated on the leased premises, produced from the leased premises and sold by Lessee in an arms' length transaction . . . .

* * *

Lessor shall not bear, directly or indirectly, any production or post-production cost or expenses, including without limitation, cost or expenses for storing, separating, dehydrating, transporting, compressing, treating, gathering, or otherwise rendering marketable or marketing the Products, and no deduction or reduction shall be made for any such costs and expenses in computing any payment, or the basis upon which any payment is, to be made to Lessor . . . .

Doc. 235-3, ¶¶3(b) & (d). Defendant contends that there are only two other leases of the 153 leases containing the same language forbidding Energen from deducting the in-kind post-production cost of fuel gas and that the other leases contain different language as to the allocation of post-production costs.² Defendant has attached portions of several leases to their response in order to illustrate some of the variations in lease language:

- Leases that expressly permit the deduction of costs associated with compression and gathering. Ex. E at ¶ 3; Ex. G at §3 & Ex. A at 1;

- Leases that expressly preclude the deduction of these costs. Ex. F at ¶¶ 3, 19.

- Leases that provide for payment on the "amount realized" from the sale of gas in a certain condition. Ex. H;

- Leases that require royalties to be paid on the "greater of" the market value of the natural gas at the well in a condition acceptable for delivery into a transmission pipeline, or the gross proceeds received for the sale of such gas. Ex. J at ¶ 4. These leases require an evaluation of the natural gas' condition to determine the allocation of costs, which is not required by the Trust's leases. Ex. 3 to Mot. at ¶¶ 3(b) and (d).

- Leases that are silent on how post-production costs should be allocated. Exs. C-D.

Doc. 240 at 4-5. Plaintiffs claim that this is a "strawman" argument because the "root" of the Trust's claim for underpayment of royalty on...