Strack v. Cont'l Res., Inc.

• Decision Date: 20 April 2021
• Docket Number: 117,276
• Citation: 507 P.3d 609
• Parties: Mark Stephen STRACK, Sole Successor TRUSTEE OF the PATRICIA ANN STRACK REVOCABLE TRUST DTD 2/15/99 and the Billy Joe Strack Revocable Trust Dtd 2/15/99, and Daniela A. Renner, Sole Successor Trustee of the Paul Ariola Living Trust and the Hazel Ariola Living Trust, for Themselves and All Others Similarly Situated, Plaintiffs/Appellees, v. CONTINENTAL RESOURCES, INC., Defendant, and Daniel M. McClure, Objector/Appellant.
• Court: Oklahoma Supreme Court

507 P.3d 609

Mark Stephen STRACK, Sole Successor TRUSTEE OF the PATRICIA ANN STRACK REVOCABLE TRUST DTD 2/15/99 and the Billy Joe Strack Revocable Trust Dtd 2/15/99, and Daniela A. Renner, Sole Successor Trustee of the Paul Ariola Living Trust and the Hazel Ariola Living Trust, for Themselves and All Others Similarly Situated, Plaintiffs/Appellees,

v. CONTINENTAL RESOURCES, INC., Defendant,andDaniel M. McClure, Objector/Appellant.

No. 117,276

Supreme Court of Oklahoma.

FILED APRIL 20, 2021

Douglas E. Burns and Terry L. Stowers, Burns & Stowers, P.C., Norman, Oklahoma, for Plaintiffs/Appellees.

Kerry W. Caywood and Angela Caywood Jones, Park, Nelson, Caywood, Jones, LLP, Chickasha, Oklahoma, for Plaintiffs/Appellees.

Harvey D. Ellis, Crowe & Dunlevy, Oklahoma City, Oklahoma, for Objector/Appellant.

Daniel McClure, Objector/Appellant, Houston, Texas.

Winchester, J.

¶1 The three questions before this Court are (1) whether Oklahoma's class action attorney fee statute, 12 O.S.Supp.2017, § 2023(G), allows for the percentage-of-common-fund method in calculating attorney fees, (2) whether the district court abused its discretion in awarding 40% of the common fund to class counsel, equaling over $19 million in attorney fees and a $2,500 hourly rate, and (3) whether the district court abused its discretion in awarding a $400,000 incentive award to the named class representatives. We answer these questions in the affirmative.

¶2 Oklahoma's class action attorney fee statute gives courts flexibility and discretion in calculating fee awards under the lodestar method or the percentage-of-common-fund method (percentage method). The named class representatives in this case requested attorney's fees per a signed contingency fee contract wherein they agreed that class counsel would receive 40% from the common fund. The class representatives entered into this contingency fee agreement on behalf of a potential class of 33,890 Oklahoma royalty owners. Class counsel contends that this type of agreement is customary in these types of cases. However, the class representatives and class counsel must act in a fiduciary relationship on behalf of the silent class members in a class action. Oklahoma's class action attorney fee statute places the district court also in a fiduciary role to the class when awarding fees. See 12 O.S.Supp.2017, § 2023(G)(4)(b). In granting attorney's fees and incentive awards in this case, the district court failed to consider this role to the royalty owners whose mineral interests are at the heart of this litigation and to ensure that not only class counsel but also the royalty owners benefited from this litigation.

¶3 The district court abused its discretion when it calculated attorney's fees under the percentage method, awarding fees that totaled more than 300% of the actual hours worked and equaled a $2,500 hourly rate. The district court also abused its discretion in granting an incentive award not based on evidence of the actual work performed by the class representatives in this case.

FACTS AND PROCEDURE

¶4 Class Representatives—Billy J. Strack, as trustee for the Patricia Ann Strack Revocable Trust Dated 2/15/99 and the Billy Joe Strack Revocable Trust Dated 2/15/99, and Hazel Ariola, as trustee of the Paul Ariola Living Trust and the Hazel Ariola Living Trust—filed this action against Continental Resources, Inc. for underpayment of oil and gas royalties.¹ They sued on behalf of themselves and sought to certify a class of 33,890 Oklahoma royalty owners. Litigation lasted for over seven years without a trial until the parties entered into a settlement agreement.² The district court approved the settlement agreement, requiring Continental to pay $49,800,000 into a common fund for Period 1 claims, plus an estimated $7,500,000 for Period 2 claims. The settlement further provided for an estimated $50,000,000 for claims during the Future Production Period.³

¶5 Class Representatives filed a motion for attorney's fees pursuant to 12 O.S.Supp.2017, § 2023(G), and requested a $400,000 incentive award to Class Representatives from the common fund. Class Representatives requested attorney's fees per a signed contingency fee contract wherein Representatives agreed that class counsel would receive 40% of the gross recovery from the common fund.

¶6 Class Representatives asserted that using the lodestar method to calculate attorney's fees from Burk v. City of Oklahoma City , 1979 OK 115, 598 P.2d 659, was not required in a common fund case. In the alternative, Class Representatives contended a lodestar calculation would yield approximately the same result as the requested 40% of the common fund; the calculation of attorney's fees under the lodestar method would be $6,288,831 with an enhancement of 317% yielding approximately the same result as 40% of the common fund for the Period 1 claims, or $19,920,000.

¶7 Class Representatives did not present detailed time records as part of their motion for attorney's fees. Instead, Class Representatives submitted the time records to the district court for an in camera review. Daniel McClure,⁴ a class member with a small mineral interest, objected to Class Representatives' requested attorney's fees and incentive award, arguing both requests were excessive and not consistent with Oklahoma law. McClure as a royalty owner also requested copies of his own counsel's time records. Class Representatives provided 190 pages of billing records with nearly every description of the services rendered by class counsel redacted, asserting the information was protected by the attorney-client privilege, the work-product doctrine, and class counsel's mental impressions and litigation strategy. The district court would not allow McClure access to the detailed billing records thereby depriving a client—standing in the shoes of the other 33,890 royalty owners—to see what his own attorneys charged him.

¶8 The district court held an evidentiary hearing pursuant to 12 O.S.Supp.2017, § 2023(G)(4)(a) ;⁵ awarded attorney's fees from the common fund in the amount of $19,920,000, representing 40% of the settlement payment for the Period 1 claims; and awarded an additional 40% of the eventual settlement payment for Period 2 claims. The district court also granted a $400,000 incentive award to Class Representatives, amounting to $200,000 to each trustee.

¶9 McClure appealed. The Court of Civil Appeals (COCA) reversed the district court's attorney fee award, reasoning the express mandates of Burk were not met. COCA concluded that an attorney fee request in a common fund case is subject to the lodestar methodology even if a contingency fee agreement with class representatives exists. COCA further determined that the district court had not completed a proper lodestar analysis and held an enhancement of 317% was not based on the statutory criteria under 12 O.S.Supp.2017, § 2023(G)(4)(e). COCA also reversed the amount of the incentive award to Class Representatives, reasoning the district court abused its discretion when it set the award amount. Class Representatives sought certiorari, and this Court granted.

STANDARD OF REVIEW

¶10 The reasonableness of attorney's fees and incentive awards depends on the facts and circumstances of each case and is a question for the trier of fact. The standard of review for considering the district court's award is an abuse of discretion. Hess v. Volkswagen of Am., Inc. , 2014 OK 111, ¶ 9, 341 P.3d 662, 666. As a general matter, an abuse of discretion review standard includes an appellate examination of both fact and law issues; an abuse occurs when a court bases its ruling on an erroneous legal conclusion or there is no rational basis in the evidence for the decision. Christian v. Gray , 2003 OK 10, ¶ 43, 65 P.3d 591, 608.

¶11 The issues in this appeal also concern the district court's legal interpretation of Oklahoma's class action attorney fee statute, 12 O.S.Supp.2017, § 2023(G). Statutory construction poses a question of law; the correct standard of review is de novo . State ex rel. Prot. Health Servs. State Dep't of Health v. Vaughn , 2009 OK 61, ¶ 9, 222 P.3d 1058, 1064. Under the de novo standard of review, the Court has plenary, independent, and non-deferential authority to determine whether the district court erred in its legal rulings. Id .

DISCUSSION

¶12 Oklahoma's class action statutory scheme provides attorney's fees for class counsel. We turn to the three questions before the Court: (1) whether a court can award attorney's fees under the percentage method; (2) whether the district court's attorney fee award was an abuse of discretion; and (3) whether the district court's incentive award was an abuse of discretion. And we answer yes to these questions. Oklahoma's class action statutory scheme gives courts a liberal framework in calculating and awarding fees, mandating that the award be reasonable. The attorney fee award here is unreasonable and an abuse of discretion. Similarly, the district court's incentive award is an abuse of discretion as it is not supported by evidence.

I. Oklahoma's class action attorney fee statute allows for the percentage method for calculating attorney fees.

¶13 Historically, Oklahoma courts have used two primary methods for calculating attorney's fees: the lodestar method and the percentage method, e.g., a contingency fee arrangement. See, e.g., Burk , 1979 OK 115, ¶ 10, 598 P.2d at 661 ; State ex rel. Bd. of Comm'rs of Harmon Cty. v. Okla. Tax Comm'n , 1944 OK 250, ¶ 4, 194 Okla. 359, 151 P.2d 797, 798. The lodestar method for calculating fees is to 1) determine the compensation based on the hours spent multiplied by an hourly rate, and 2) enhance or decrease the fee through consideration of the factors outlined in Burk , 1979 OK 115, ¶ 8, 598 P.2d at 661. See Spencer v. Okla. Gas & Elec. Co. , 2007 OK 76, ¶ 13, 171 P.3d 890, 895.

¶14 The percentage method allows attorney's fees to come from the proceeds of a fund. When an action creates a common fund...