Hershey v. ExxonMobil Oil Corp., Case No. 07-1300-JTM

CourtUnited States District Courts. 10th Circuit. United States District Courts. 10th Circuit. District of Kansas
PartiesJimmie Hershey, individually and on behalf of all others similarly situated, Plaintiff, v. ExxonMobil Oil Corporation, Defendant.
Docket NumberCase No. 07-1300-JTM
Decision Date31 March 2011


memorandum and order

This matter is before the court on plaintiff Jimmie Hershey's Motion for Class Certification. This prospective class action seeks an accounting for, and recovery of, amounts that Defendant should have paid as royalties on production from Kansas wells. Plaintiff alleges that Exxon has acted improperly in :

(1) reducing royalty payments for gathering charges, compression charges, processing fees, transportation, fuel charges, lost and unaccounted for allowances, and other "third party expenses" before gas is in marketable condition,

(2) deducting a royalty owners portion of the total severance tax reportedly paid on helium when no such tax was owing,

(3) deducting a royalty owners share of the total Conservation Fee paid when no such fee could properly be deducted from royalty payments,

(4) using a crude helium price to pay royalties on helium instead of the Grade A helium price that is applicable to helium that is in marketable condition, and (5) deducting processing, fractionization and other charges or fees from NGLs and helium before the NGLs or other constituents are placed into marketable condition.

The plaintiff's proposed class comprises:

All royalty owners of ExxonMobil Oil Corporation (including predecessors, successors and affiliates) from Kansas wells that have produced gas and/or gas constituents (such as residue gas or methane, natural gas liquids, helium, nitrogen or condensate) from January 1, 1988 to the date of class certification.

Excluded from the Class are: (1) the Mineral Management Service (Indian tribes and the United States); and (2) Defendant, its affiliates, predecessors, and employees, officers and directors.

Factual Background

Exxon has working interests in more than 1700 Kansas wells, each which often has multiple royalty owners. The Kansas Geological Survey contains some 1875 entries for leases operated by ExxonMobil Oil, Mobil and Exxon Mobil Oil.

These wells generally are located on land belonging to individual owners who lack the expertise and resources to directly access the mineral wealth lying beneath it. (Dkt. 92, Reineke Aff., at 3). The landowners have entered into leases with oil and gas producers, such as ExxonMobil, in which the active role in exploration and exploitation of the minerals is undertaken exclusively by the producers. In the typical lease, the lessors receive as compensation a fractional royalty interest (1/8 to 3/16) in the value of the minerals removed from the land.

The arrangement of royal payments among the wells, and the general nature of the production from the wells, is similar. The unprocessed or "wet" gas from the wells contain various valuable minerals, including (1) methane, (2) fractionated natural gas liquids (NGLs) such as propane, butane, and iso-butane, (3) helium; and nitrogen. The production process seeks to separate these valuable components from other substances in the raw well-head gas, including water, carbon dioxide, oxygen, and hydrogen sulfide, and improve the valuable components to marketable quality. (Dkt. 92, at 3).

Raw gas from each well is measured and tested to obtain volume and gas composition information. By condensation or mechanical process, the raw gas is separated from heavier components, and is then gathered, dehydrated, and compressed through a limited number of gathering systems. Once gathered, the gas is then processed at one of a handful of the natural gas processing plants in Kansas. These plants remove NGLs and remaining contaminants, and ensure that the remaining, "residue" natural gas is of marketable quality. (Dkt. 92, at 4). The plant thus renders four valuable products: (1) "residue" methane gas, (2) crude helium, (3) a "raw make" (or "Y grade") mixture of NGLs, and (4) nitrogen. Raw make NGLs and crude helium require additional fractionating and processing to be transformed into marketable commodities. (Id. at 5).

The royalties received by the prospective class of lessors are calculated under a similar procedure. Exxon first calculates in proceeds from the various gas and products that have been extracted from the gas. (Exxon Rule 30(b)(6) Resp., at 5). Next, Exxon then deducts all third party downstream charges after raw gas has left the lease. (Id. at 5-9, Resp. to Interog. No. 11). This practice thus excludes from the prospective royalty any accounting for mineral volumes which have been transferred in kind to a gathering line, processor or other party. (Dkt. 91 Exh. K, L, M). Plaintiff contends that these deductions or subtractions for third party costs (whether for gathering, compression, fuel, lost and unaccounted for allowances, processing, treatment, fractionization, etc.) are improper under the leases in question.

In addition, plaintiff contends that Exxon has improperly deducted from the prospective class a severance tax for helium from all royalty payments, alleging that the severance tax statute is applicable only to natural gas, not helium. Similarly, plaintiff alleges that Exxon has deducted from the class royalty a charge for the conservation fee set forth in K.S.A. 55-176. Plaintiff contends that the fee authorized under K.S.A. 55-176 is directed solely at producers, and does not include royalty owners.

Plaintiff Jimmie Hershey is a royalty owner under oil and gas leases obligating Defendant to pay him royalties. (Hershey Aff. ¶ 2, Dkt. 62 ¶ 13). Hershey has retained counsel, is familiar with the claims being asserted, and wants to see that royalty owners are properly paid. (Hershey Aff.) He is staying informed about the litigation, will consult with counsel about important issues, and understands his obligations as class representative including to represent the best interests of the class and see that the case is vigorously prosecuted. Id. He has accepted the responsibilities of class representative and will fulfill them. Id.

Exxon's main argument is that the present action arises from "thousands of different mineral leases" underlying the potential class, which would present insuperable problems in effectively managing the litigation. (Dkt. 103, at 1). Exxon emphasizes both the geographic scope of the proposed class, involving "approximately 2,000 different wells in at least seven different counties," (id. at 8), and the length of time for which additional royalties are sought. The intervening period, Exxon stresses, saw significant regulator changes to the industry in pipeline access and the removal of price controls. (Id. at 8-9). The underlying leases go back even farther in time, reaching into the early decades of the Twentieth Century, have subsequently been subjected to "unitization agreements, division orders, mortgages, wills, operating agreements, modifications, settlement agreement, and other types of amendments." (Id. at 10). As a result, Exxon contends, "each individual lease file must be analyzed" to determine the specific rights of each class claimant. (Id.) Further, the leases were executed in states outside of Kansas, and are now held by residents many different states. (Id. at 11). The production from each well has also been significantly different in quality, method of production, and the method of sale. (Id. at 12-16).1

Conclusions of Law

To certify the present claim as a class action, Rule 23 requires the satisfaction of all four prerequisites of Subsection (a), and at least one of the three contained in Subsection (b). Amchem Prods. v. Windsor, 521 U.S. 591, 614 (1997). Resolving this issue is committed to the broad discretion of the trial court. Shook v. El Paso County, 386 F.3d 963, 967 (10th Cir. 2004), Rector v. City & County of Denver, 348 F.3d 935, 949 (10th Cir. 2003). In exercising this discretion, the court must perform a rigorous analysis of whether the proposed class satisfies the requirements of Rule 23. General Telephone v. Falcon, 457 U.S. 147, 155 (1982). The court may accept the allegations in the complaint as true, but it will not "blindly rely on conclusory allegations which parrot Rule 23 requirements." J.B. ex rel. Hart v. Valdez, 186 F.3d 1280, 1287 (10th Cir. 1999).

In resolving a requested certification, the court does not address the merits of plaintiffs claim. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177 (1974). However, because Rule 23's requirements are "'enmeshed in the factual and legal issues comprising the plaintiff's cause of action,'" Shook v. El Paso County, 543 F.3d 597, 612 (10th Cir.2008) (quoting Falcon, 457 U.S. at 160 (observing there is no "impermeable wall" between merits and decision to certify class)), the court must consider those elements individually, but "without passing judgment on whether plaintiffs will prevail on the merits." Shook v. El Paso County, 386 F.3d 963, 971 (10th Cir.2004). The court must remain focused on the requirements of Rule 23, not the merits underlying the class claim. Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4th Cir.2004); Adamson v. Bowen, 855 F.2d 668, 676 (10th Cir.1988); Anderson v. City of Albuquerque, 690 F.2d 796, 799 (10th Cir.1982).

Under Rule 23(a), the prospective class claimant must show (1) the class is so numerous that joinder of all members is impracticable, (2) questions of law or fact are common to the class, (3) the claims of the representative parties are typical of the claims of the class and (4) the representative parties will fairly and adequately protect the interests of the class. Under Rule 23(b)(3), the portion of the Rule relied upon by plaintiff here, a claimant must additionally show that class treatment is "convenient and desireable." Amchem Products, 521 U.S. at 615. Specifically, the claimant show that (5) "questions of law or fact common to the members of the class...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT