In re Lease Oil Antitrust Litigation No. II

• Decision Date: 03 April 1998
• Docket Number: No. MDL 1206.,Civ.A. No. M-98-037.,MDL 1206.
• Citation: 48 F.Supp.2d 699
• Parties: In re LEASE OIL ANTITRUST LITIGATION (NO. II) Raul J. Guerra, et al., Plaintiffs, v. Texaco Exploration and Production, Inc., et al., Defendants.
• Court: U.S. District Court — Southern District of Texas

48 F.Supp.2d 699

In re LEASE OIL ANTITRUST LITIGATION (NO. II) Raul J. Guerra, et al., Plaintiffs, v. Texaco Exploration and Production, Inc., et al., Defendants.

No. MDL 1206.

Civ.A. No. M-98-037.

United States District Court, S.D. Texas, Corpus Christi Division.

April 3, 1998.

J.A. "Tony" Canales, Canales & Simonson, Corpus Christi, Texas, for plaintiffs.

Darrell Lee Barger, Barger, Hermansen et al, Corpus Christi, Texas, for defendants.

ORDER NO. 2

JACK, District Judge.

On this day, the Court sua sponte enters this Order of Temporary Injunction which enjoins all Defendants¹ (except for Mobil Oil Corporation)² and all named Plaintiffs in the above-styled multidistrict litigation³ from entering settlement agreements — either collectively or separately — which purport to settle any of the federal antitrust claims in this litigation without first notifying this Court and receiving the Court's approval of the settlement. This Order shall remain in effect until further order of this Court.

I. JURISDICTION

The Court has jurisdiction over the consolidated cases in this multidistrict litigation pursuant to the Judicial Panel on Multidistrict Litigation's transfer order of January 14, 1998, and 28 U.S.C. §§ 1331, 1332, 1367 and 1407.

II. FACTS & PROCEEDINGS

In April 1996, plaintiff royalty payees filed a class action suit in the Southern District of Texas, The McMahon Foundation et al. v. Amerada Hess Corp., et al., against 39 oil companies, alleging that the companies, in violation of § 1 of the Sherman Act, conspired for over a decade to artificially depress oil production royalty payments owed to the putative class members. In that same month, a separate group of plaintiffs brought a class action suit in state court, Cameron Parish School Board v. Texaco, Inc., against fifteen oil companies alleging violations of Louisiana law due to the underpayment of royalties owed for production of oil on properties in Louisiana. Cameron Parish was timely removed to federal court. Subsequently, three other groups of plaintiffs brought separate suits based on similar royalty underpayment allegations in federal court and based on state law violations (viz., Randolph Energy, Inc. et. al. v. Amerada Hess Corp. et. al., Stanley v. Gulf Oil Corp. et. al., Nicholson et. al. v. Marathon Oil).

In September 1996, a separate group of plaintiffs filed a putative class action in Alabama state court, E.M. Lovelace et al. v. Amerada Hess Corporation et al., based on similar royalty underpayment allegations, asserting that 24 oil company defendants violated the separate antitrust statutes of each of the fifty states. Lovelace was removed to federal court, and the plaintiffs sought a remand, arguing that federal antitrust claims were not at issue in their case since their claims were based strictly on state statutes. Notably, federal antitrust claims may only be brought in federal court. Marrese v. American Academy of Orthodpaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 1331, 84 L.Ed.2d 274 (1985); Freeman v. Bee Mach. Co., 319 U.S. 448, 451, 63 S.Ct. 1146, 87 L.Ed. 1509 (1943); General Investment Co. v. Lake Shore Ry., 260 U.S. 261, 43 S.Ct. 106, 116-17, 67 L.Ed. 244 (1922).

The federal court remanded Cameron Parish since it appeared that neither diversity nor federal question jurisdiction existed. Shortly after the remand and despite their representations that the federal antitrust claims were distinct from their own state law causes of action, the Lovelace plaintiffs agreed to a global settlement agreement with Mobil Corporation which released all claims — both state and federal — of a nationwide class of royalty payees. In May 1997, Mobil and counsel for Lovelace plaintiffs announced the terms of the settlement: in exchange for the nationwide class' release of all federal and state claims based on royalty underpayments, Mobil would pay $15 million to the class (with over 40% guaranteed to the attorneys)⁴, would alter its method of determining royalty payments in the future, and would allow counsel for plaintiffs access to certain documents and Mobil employees. After a fairness hearing, the Alabama state court approved both a settlement class and the proposed settlement in December 1997.

Meanwhile, the Judicial Panel on Multidistrict Litigation ("JPML") was considering whether and where to consolidate the five similar federal actions which were pending and involved royalty underpayment allegations. In November 1997, counsel for plaintiffs and the defendants in McMahon (the first case brought on behalf of a nationwide class) filed a global settlement with the federal district court in Houston. Before the Houston court could consider the settlement, McMahon and the other federal cases were transferred to this Court pursuant to 28 U.S.C. § 1407 for coordinated and consolidated proceedings.

III. DISCUSSION

A. Jurisdictional Complexities and Conflicts

As the Manual for Complex Litigation, Third, ("MCL") recognizes, the "pendency of related actions in state and federal courts can cause jurisdictional complexities and conflicts." MCL, § 31.32. From the beginning, this case has been wrought with such jurisdictional conflicts because various groups of plaintiffs have brought separate actions in disparate, forums citing different legal authority while, ultimately, all groups base their claims on the same alleged wrongful conduct: the underpayment of royalties to payees by the major oil companies. While the federal cases have been consolidated in this Court, several separate actions are still being pursued in state court — most notably the Lovelace case in Alabama — and those parallel proceedings need to be harmonized with the federal multidistrict litigation in order to ensure an equitable resolution of both the state and federal claims.

At this preliminary stage, it is evident that the federal claims in McMahon are stronger than the state law claims in Lovelace which are based on the antitrust statutes of all fifty states. First, although all states have some sort of antitrust statute, their provisions frequently differ. Antitrust Law Developments, 4th Ed. Ch. IX.C at 742. Some provisions are directly comparable to §§ 1 and 2 of the Sherman Act while some compare to §§ 3 and 7 of the Clayton Act and the Robinson-Patman Act. Id. Further, "states vary widely in their exemptions with many states having exemptions pertaining to particular industries." Id. at 743. While the federal statutes provide for treble damages, some state statues do not, and some allow treble damages only when the court finds that the violation was flagrant. Id. at 743-44. Finally, the sheer complexity of managing claims under so many different statutes caselaw makes Lovelace a less feasible vehicle than McMahon for prevailing on the antitrust action since the litigation costs to plaintiffs' counsel will necessarily be much greater in Lovelace.

The very fact that the claims are quite possibly weaker in Lovelace renders the state court case prone to an inadequate, or possibly even collusive, settlement: since the plaintiffs in Alabama state court are in a relatively weak bargaining position, those plaintiffs might be motivated to accept a settlement which reflects only the value of their lesser claims, rather than the value of the exclusive federal claims. Moreover, the state court litigants might be motivated to settle the exclusive federal claims at the same time and possibly for a bargain price since the exclusive federal claims are worthless to the state court plaintiffs, except for purposes of settlement.⁵ In these circumstances, the selfinterest of the state court litigants themselves might drive the case towards an inadequate settlement which even the most fastidious court might feel itself bound to approve when both parties are insisting that it is a fair resolution. For this simple reason, it has been recognized that, when there are parallel federal and state cases, "[i]f the federal claims are stronger than the state claims, a global settlement in state court is not proper. The dangers of a `hijacking' of the federal claims are too high, and the state's interest is too low, to justify state court approval of a global settlement that is opposed by the federal plaintiff." Marcel Kahan and Linda Silberman, Matsushita and Beyond: The Role of State Courts in Class Actions Involving Exclusive Federal Claims, 1996 Supreme Court Rev. 219, 260-61 (1996).

As mentioned, federal law confers exclusive jurisdiction over federal antitrust claims in federal courts, and the JPML has ordered that all such claims relating to the alleged underpayments of oil royalties be consolidated in this Court pursuant to § 1407. To allow these federal claims to be "hijacked" by a global settlement in state court — where the claims could not even be adjudicated — would effectively destroy those federal rights and the federal procedures designed to safeguard them and to enable their orderly resolution.

As explained in the MCL, the Federal Rules of Civil Procedure 16, 26, 37, 42 and 83 contain "numerous grants of authority that supplement a court's inherent power to manage litigation." MCL, § 20.1; see also, Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 2132-37, 115 L.Ed.2d 27 (1991). Specifically, Rule 16(c)(12) authorizes judges to adopt "special procedures for managing potentially difficult or protracted actions that may involve complex issues, multiple parties, difficult legal questions, or unusual proof problems" early in the litigation. Fed.R.Civ.P. 16(c)(12); MCL, § 20.1. In light of this mandate to adopt special procedures to better manage complex litigation, the Court, acting pursuant to the All Writs Act, will enter a preliminary order designed to avoid the conflicts that will inevitably arise if parties in a parallel state action prematurely enter into a settlement agreement which purports to release the exclusive federal antitrust claims which are now before ...