Steven J. Abraham, & H Ltd. v. WPX Energy Prod., LLC

• Decision Date: 30 September 2017
• Docket Number: No. CIV 12-0917 JB/CG,CIV 12-0917 JB/CG
• Parties: STEVEN J. ABRAHAM, and H LIMITED PARTNERSHIP on behalf of themselves and others similarly situated, Plaintiffs, v. WPX ENERGY PRODUCTION, LLC, f/k/a WILLIAMS PRODUCTION COMPANY, LLC; WILLIAMS FOUR CORNERS, LLC; and WILLIAMS ENERGY RESOURCES, LLC, Defendants.
• Court: U.S. District Court — District of New Mexico

STEVEN J. ABRAHAM, and H LIMITED PARTNERSHIPon behalf of themselves and others similarly situated, Plaintiffs, v. WPX ENERGY PRODUCTION, LLC, f/k/a WILLIAMS PRODUCTION COMPANY,LLC; WILLIAMS FOUR CORNERS, LLC; and WILLIAMS ENERGY RESOURCES, LLC, Defendants.

No. CIV 12-0917 JB/CG

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

September 30, 2017

MEMORANDUM OPINION AND ORDER

THIS MATTER comes before the Court on: (i) the Plaintiffs' Motion to Alter or Amend and to Reconsider Memorandum Opinion and Order [Doc. 252], filed September 15, 2016 (Doc. 255)("Motion to Amend"); and (ii) the Plaintiffs' Second Motion for Class Certification, filed September 15, 2016 (Doc. 256)("Second Motion for Class Certification"). The Court held a hearing on January 24, 2017. The primary issues are: (i) whether the Plaintiffs may raise a new class definition not in the Fourth Amended Complaint, filed October 31, 2013 (Doc. 96-1); (ii) if the Court required the Plaintiffs to amend their Complaint before proposing a new class definition, whether rules 15(a) and 16(b)(4) bar such an amendment; (iii) whether the Plaintiffs previously waived their new class definition by proposing and withdrawing an older one; (iv) whether the new proposed class is ascertainable; (v) whether the new proposed class definition creates commonality; and (vi) whether the new proposed class definition will allow common issues to predominate over individual ones. The Court concludes that (i) the Plaintiffs may raise a new class definition not in the operative complaint; (ii) even if the Plaintiffs could not do so, rules 16(b)(4) and 15(a) would not bar the Plaintiffs from amending their complaint; (iii) the Plaintiffs have not previously waived their new class definition; (iv) the proposed class definition is ascertainable; (v) the proposed class definition does not create commonality; and (vi) common issues would not predominate over individual ones. Accordingly, the Court denies the Motion to Amend and the Second Motion for Class Certification.

FACTUAL BACKGROUND

Plaintiffs Steven J. Abraham and H Limited Partnership filed this class action in August 2012 to recover damages for gas royalty underpayments that Defendant WPX Energy Production L.L.C.("WPX Energy") allegedly makes. Motion to Amend at 1. WPX Energy pays the plaintiff royalty owners on a payment method called the keep-whole payment methodology. See Motion to Amend at 1. This payment method "pays royalty on a well's volume of produced MMbtus (British Thermal Units) based on methane volume and omits royalty [payments] on the value of [Natural Gas Liquids]" or NGLs. Motion to Amend at 2. The Plaintiffs' major contention is that this payment method does not pay them royalties on the value of refined NGLs. See Motion to Amend at 1. Previously, the Plaintiffs moved the Court to certify them as a class, which the Court denied. See Abraham v. WPX Production Productions, LLC, 317 F.R.D. 169, 175 (D.N.M. 2016)(Browning, J.)("Abraham"). The Court denied the previous motion for class certification for several reasons. First,

because the Plaintiffs' class definition includes only those wells whose gas is or has been processed at three specific processing plants, the Court cannot adequately ascertain the class. Second, because the Plaintiffs' class definition includes only that gas that was processed for natural gas liquid extortion and marketing, the Court must determine which gas was processed.

317 F.R.D. at 175. In other words, the Court held that the proposed class was not ascertainable.

See 317 F.R.D. at 254.

The Court further concluded that "how the Defendants should have paid the Plaintiffs . . . varies between leases" because of "textual variations among the leases." 317 F.R.D. at 175. The Court ruled that these factors destroyed two key requirements of class certification, commonality and predominance. See Fed. R. Civ. P. 23(a)(2), (b)(3). The Court also held, however, that the Plaintiffs met the other requirements for class certification. See Abraham, 317 F.R.D. at 175. Because the Court ultimately denied the Motion, the Plaintiffs have now filed a Motion to Amend and Second Motion for Class Certification.

PROCEDURAL BACKGROUND

The Court will outline the basic allegations and legal arguments underlying the Plaintiffs' motions. The Court will also describe the Defendants' responses to those arguments. Finally, the Court will summarize the hearing on these motions.

1. The Motion to Amend.

The Plaintiffs contend that the Court should alter or amend its opinion in Abraham based on a new proposed class definition. See Motion to Amend at 5. Specifically, the Plaintiffs have proposed the following new class definition:

The class consists of all present and former owners of royalty and overriding royalty from August 2006 to the present whose instruments provide for payment on "proceeds" or on "market value at the well" by WPX Energy Production LLC and its corporate predecessors on production of natural gas from San Juan Basin conventional formations and whose royalty and overriding royalty has been calculated on a "keep-whole" method omitting payment on the value of the processed natural gas liquids portion of the production.

The New Mexico subclass consists of present and former owners of royalty and overriding royalty that burden WPX Energy Production LLC oil and gas leases and wells in the San Juan Basin in New Mexico.

The Colorado subclass consists of present and former owners of royalty and overriding royalty that burden WPX Energy Production LLC oil and gas leasesand wells in the San Juan Basin in Colorado.

The Class membership excludes the United States of America in its own right and as trustee for Indian tribes or Indian lessors and any other lessors for which an agency of the Secretary of Interior administers royalties. The class excludes the State Land Board of Colorado and the Commissioner of Public Lands of New Mexico and oil and gas leases issues by either of those states. The class excludes WPX Energy Production, LLC f/k/a Williams Production Company, LLC, Williams Four Corners, LLC and Williams Energy Resources, LLC and their predecessors, successors and affiliates.

Motion to Amend at 5-6. The Plaintiffs make several arguments why this class definition improves upon the original one. First, the Plaintiffs contend that, unlike in the original class definition, "the class members can be identified without regard to where their gas was processed, or whether it was processed on the WFC system." Motion to Amend at 6. The Plaintiffs assert, "[t]he class includes owners who are paid on the keep-whole methodology regardless of the circumstance of the gas processing." Motion to Amend at 6. They assert that "WPX records provide a database which can identify the class members." Motion to Amend at 6.

Next, the Plaintiffs argue that "the amended class definition addresses many of the Court's concerns about commonality," because, "[d]uring the relevant period, WPX has uniformly paid royalty and overriding royalty to the members of the putative class on a keep-whole method for production gathered and processed by WFC . . . ." Motion to Amend at 7. According to the Plaintiffs, this royalty payment system "calculates payment to class members despite variables in gas flow delivery to processing plants and whether in given instances some of the class wells' gas stream may not be processed." Motion to Amend at 7.

Regarding the issue of predominance, the Plaintiffs contend that "[c]ommon issues will predominate where the class is limited to those owners paid on proceeds and market value of gas at the well leases." Motion to Amend at 9. Specifically, they argue that, under the new class definition, "the Court must resolve the premier common issue, whether plaintiffs are entitled toroyalty on processed NGLs, as to only two lease forms," "proceeds" leases and "market value of gas at the well" leases. Motion to Amend at 9-10. The Plaintiffs' key contention is that, despite the Court previously categorizing all of the leases at issue into eleven categories (plus another for illegible leases), only two categories of leases exist under the Plaintiffs' new class definition, namely, "proceeds" leases and "market value" leases. Motion to Amend at 20; Abraham, 317 F.R.D. at 274-75. The Plaintiffs concede that the leases previously referenced as those in Categories B and F are excluded from their new class definition. See Motion to Amend at 20-21.¹

Finally, the Plaintiffs assert that, given the new class definition, the Court should certify the Plaintiffs' claims for breach of the implied covenant to market. See Motion to Amend at 22. Their contention is that "WPX does not market the NGLs for the benefit of the class under the keep-whole methodology." Motion to Amend at 22. The Plaintiffs argue that this conduct breaches the implied covenant to market "as to all royalty owners who are entitled to processed NGLs under their royalty provisions." Motion to Amend at 22-23. According to the Plaintiffs, the two categories of leases in their proposed class -- proceeds and market value leases -- "entitle royalty owners to payment on processed NGLs." Motion to Amend at 23. The Plaintiffs conclude that, because those two lease categories are allegedly entitled to payments on NGLs, the implied covenant to market "applies to those two lease types across the board." Motion to Amend at 23.

Separately, the Plaintiffs contend that their claim for breach of the duty of good faith and fair dealing is also certifiable. See Motion to Amend at 26. They argue that, because WPX Energy has denied the class members payment on NGL royalties, WPX Energy has breached theduty of good faith and fair dealing.

In conclusion, the Plaintiffs ask the Court to amend its decision in Abraham to conclude that the Plaintiffs' new class definition satisfies all of the rule 23 class certification requirements, and certify the case as a class action based on...