Steven J. Abraham, & H Ltd. v. WPX Prod. Prods., LLC, CIV 12-0917 JB/CG

• Decision Date: 16 August 2016
• 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 PRODUCTION PRODUCTIONS, 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 PARTNERSHIP,
on behalf of themselves and others similarly situated, Plaintiffs,
v.
WPX PRODUCTION PRODUCTIONS, 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

August 16, 2016

MEMORANDUM OPINION AND ORDER¹

THIS MATTER comes before the Court on the Plaintiffs' Renewed Motion for Class Certification, filed January 13, 2014 (Doc. 116). The Court held a multi-part class certification hearing, which took place on: (i) May 8 and 9, 2014; (ii) March 13 and 14, 2014; (iii) June 30, 2014; and (iv) July 14, 2014. See Transcript of Hearing, taken March 13, filed June 26, 2014 (Doc. 200); Transcript of Hearing, taken March 14, 2014 (Doc. 201); Transcript of Hearing, taken May 8, 2014, filed June 26, 2014 (Doc. 198); Transcript of Hearing, taken May 9, 2014, filed June 26, 2014 (Doc. 199); Transcript of Hearing, taken June 30, 2014, filed July 23, 2014 (Doc. 211); Transcript of Hearing, taken July 14, 2014, filed July 23, 2014 (Doc.

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212)(collectively, "Tr.").² The primary issues are: (i) whether a class is ascertainable; (ii) whether the determination of which class wells' gas is processed at the processing plants named in the Plaintiffs' class definition defeats the predominance requirement of rule 23 of the Federal Rules of Civil Procedure; (iii) whether textual variations among the leases within the proposed class defeat commonality and predominance under rule 23; and (iv) whether rule 23(a)'s requirements -- numerosity, commonality, typicality, and adequacy -- and rule 23(b)(3)'s requirements -- predominance and superiority -- are otherwise met with regard to the proposed class. First, because the Plaintiffs' class definition includes only those wells whose gas is or has been processed at three specific processing plants, and the Court cannot determine whether some of the wells' gas was processed at those 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 extraction and marketing, the Court must determine which gas was processed. This inquiry weighs against finding predominance. Third, the central issue in this case -- how the Defendants should have paid the Plaintiffs -- varies between leases. Accordingly, when considered alongside the other individual issues, textual variations among the leases destroy commonality and predominance. Therefore, this proposed class action satisfies the rule 23(a) prerequisites of numerosity, typicality, and adequacy, and the rule 23(b)(3) requirement of superiority, but it fails rule 23(a)(2)'s commonality prerequisite and rule 23(b)(3)'s predominance requirement. The Court thus denies the Motion.

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FINDINGS OF FACT

Both the Plaintiffs and the Defendants have submitted proposed findings of fact. See Plaintiffs' Proposed Findings of Fact and Conclusions of Law Regarding Class Certification, filed August 15, 2014 (Doc. 217)("Plaintiffs' Findings"); Defendants' Requested Findings of Fact and Conclusions of Law, filed August 18, 2014 (Doc. 218)("Defendants' Findings"). The Court has carefully considered all proposed facts, and accepts some of them, rejects others, and finds some facts that no party brought to its attention.³ The Court also liberally judicially notices background facts. See Fed. R. Evid. 201. All of these findings of fact are authoritative only on the question of class certification, and the parties may relitigate any of them at the merits stage. See Abbott v. Lockheed Martin Corp., 725 F.3d 803, 810 (7th Cir. 2013); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 313 (3d Cir. 2008); Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4th Cir. 2004). The Court applied the Federal Rules of Evidence at the class certification hearing, ruled on several evidentiary objections, and considered only admissible evidence in finding these facts.

The Court organizes this portion of its Memorandum Opinion and Order into eight parts. First, it will define some of the specific industry terms applicable in this case. Second, it will introduce the important players in this action: the Defendants and their corporate affiliates, the named Plaintiffs, and the absent class members. Third, the Court will explain the process of producing, gathering, and processing or treating natural gas, including the transfer-of-title

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process in this case. Fourth, the Court will describe the breakdown of the different textual royalty provisions in the class leases. Fifth, it will describe the different textual overriding royalty provisions among the class. Sixth, the Court will describe how the Defendants have paid royalties and overriding royalties to the class. Seventh, it will describe the issues relevant to WPX Production's gathering and processing negotiations and agreements. Eighth, and last, the Court will summarize a few key pieces of evidence relating to the parties' and the Court's ability to construct a classwide damages-distribution model.

1. Definitions: The Terminology Applicable in This Case.

1. The Court will first define the operative terms used throughout this Memorandum Opinion and Order. The Court takes many of the definitions from a similar case involving royalty disputes in the San Juan Basin, Anderson Living Trust v. WPX Energy Production, LLC, 306 F.R.D. 312 (D.N.M. 2014)(Browning, J.)("Anderson"). The Court divides the definitions into three sections: one on lease terminology, which defines the terms that relate to the legal relationship between the Plaintiff-lessors and Defendant-lessees; a second on oil-and-gas production, gathering, and processing, which defines the terms that relate to the working relationship between the Plaintiff-landowners and Defendant-oil companies; and a third on royalty accounting, which defines the terms that relate to the financial relationship between the Plaintiff-royalty owners and the Defendant-working interest owners. The Court will, in subsequent sections, explain how these concepts relate to this case, but includes this section as both a preface and a reference.

a. Lease Terminology.

2. A "mineral lease" is "[a] lease in which the lessee has the right to explore for and extract oil, gas, or other minerals," and splits land into a working interest and a royalty interest. Black's Law Dictionary 971 (9th ed. 2009).

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3. A "mineral deed" is "[a] conveyance of an interest in the minerals in or under the land." Black's Law Dictionary 477 (9th ed. 2009).

4. A "working interest" includes "[t]he rights to the mineral interest granted by an oil-and-gas lease, so called because the lessee acquires the right to work on the leased property to search, develop, and produce oil and gas, as well as the obligation to pay all costs"; a working interest in land entails the right to drill, and remove oil and gas from the land, subject to burdening royalty interests. Black's Law Dictionary 1745 (9th ed. 2009).

5. A "royalty interest" is "[a] share of production -- or the value or proceeds of production free of the costs of production -- when and if there is production." Black's Law Dictionary 1466 (9th ed. 2009).

6. The word "production" in the oil-and-gas industry has numerous meanings, but they typically revolve around the well, and not around subsequent processing: a "production" can refer to the well itself, to the fresh-out-of-the-ground product that the well produces, or to the act of drawing the product out of the ground. 8 Howard R. Williams, Charles J. Meyers, Patrick H. Martin & Bruce M. Kramer, Williams & Meyers Oil and Gas Law 816-18 (2013)("Williams & Meyers").

7. "Authorities are split over what costs are the costs of production." Black's Law Dictionary 1466 (9th ed. 2009). For example, under Colorado law, production "end[s] when a first-marketable product has in fact been obtained," which often only occurs after processing, Rogers v. Westerman Farm Co., 29 P.3d 887, 904 (Colo. 2001)(en banc).

8. An "overriding royalty" is "[a] share of either production or revenue from production (free of the costs of production) carved out of a lessee's interest under an oil-and-gas

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lease. . . . An overriding royalty interest ends when the underlying lease terminates." Black's Law Dictionary 1446 (9th ed. 2009).

9. An overriding royalty interest is considered a subcategory of royalty interest. See Garman v. Conoco, Inc., 886 P.2d 652, 657 (Colo. 1994)(en banc)("An overriding royalty is, first and foremost, a royalty interest." (quoting 2 Williams & Meyers § 418.1)).

10. A "division order" is "[a] contract for the sale of oil or gas, specifying how the payments are to be distributed." Black's Law Dictionary 549 (9th ed. 2009).

11. "Royalty owners enter into division orders to sell minerals and to instruct how payments are to be made under a mineral lease." Black's Law Dictionary 549 (9th ed. 2009).

12. "Working-interest owners also commonly sign division orders to instruct purchasers how payments are to be divided." Black's Law Dictionary 549 (9th ed. 2009).

13. A division order cannot modify the underlying mineral lease's terms. See Anderson, 306 F.R.D. at 321.

14. A "division order is typically terminable at the will of either party." 8 Williams & Meyers at 272.

15. A "transfer order" is an instrument conveying a royalty interest to another person. Anderson, 306 F.R.D. at 321.

b. Natural Gas Terminology.

16. "Hydrocarbons" are a class of chemical compounds composed exclusively of hydrogen and carbon; it is also a generic term for petroleum products such as oil and natural gas.⁴

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17. "Natural gas" is a gaseous mixture of hydrocarbons, the primary one being methane (CH₄), commonly used as fuel in homes and in businesses. Glossary, United States Energy Information Administration,...