Union Pacific Resources Group v. Neinast

• Court: Texas Court of Appeals
• Writing for the Court: Taft
• Citation: Union Pacific Resources Group v. Neinast, 67 S.W.3d 275 (Tex. App. 2001)
• Decision Date: 20 September 2001
• Docket Number: No. 01-00-00006-CV.,01-00-00006-CV.
• Parties: UNION PACIFIC RESOURCES GROUP, INC., Union Pacific Resources Company, Duke Energy L.P., f/k/a Union Pacific Fuels, Inc., Union Pacific Austin Chalk Company, and Union Pacific Oil and Gas Company, Appellants, v. Russell NEINAST, W.J. Bowen, Jr., and Vilette Finke, Appellees.

67 S.W.3d 275

UNION PACIFIC RESOURCES GROUP, INC., Union Pacific Resources Company, Duke Energy L.P., f/k/a Union Pacific Fuels, Inc., Union Pacific Austin Chalk Company, and Union Pacific Oil and Gas Company, Appellants, v. Russell NEINAST, W.J. Bowen, Jr., and Vilette Finke, Appellees.

No. 01-00-00006-CV.

Court of Appeals of Texas, Houston (1st Dist.).

September 20, 2001.

Opinion Dissenting to Denial of En Banc Reconsideration March 7, 2002.

W. Stephen Rodgers, Bryan, Robert E. Davis, Dallas, Neil D. Kelly, Houston, Mary Ann Joerres, Jeffrey Charles King, Dallas, Andrew Harper Estes, Midland, C. Kelvin Adams, Bryan, David M. Gunn, Houston, for appellants.

R.Hal Moorman, Brenham, Robert R. Herring, James J. Ormiston, Levon G. Hovnatanian, Houston, for appellees.

Panel consists of Justices COHEN, TAFT, and PRICE.^*

OPINION

TAFT, Justice.

This is an interlocutory appeal from an order certifying a class of plaintiffs, which class includes appellees, Russell Neinast, W.J. Bowen, Jr., and Villette Finke, under rule 42 of the Texas Rules of Civil Procedure. Tex. R. Civ. P. 42; Tex. Civ. Prac. & Rem.Code Ann. § 5.014(a)(3) (Vernon Supp. 2001). The trial court defined the class as

(1) all persons and entities who own or owned royalty interests under leases located in the State of Texas (except for those in Crockett and Sutton counties as to claims accruing on or before March 31, 1999),

(2) where UPRC,¹ UPOG,² or UP Austin Chalk³ is the lessee,

(3) which provide for payment of royalties on natural gas production on an amount realized/net proceeds basis or a market value/market price basis,

(4) and from which UPRC, UPOG, or UP Austin Chalk have produced natural gas (including natural gas liquids) that was directly or indirectly sold or transferred to UP Fuels for marketing or resale,

(5) during the period April 1994 through the present (the class).

We address whether the trial court abused its discretion in certifying the class. We reverse and remand to the trial court with instructions to decertify the class.

Facts

Appellant Union Pacific Resources Group (UPRG) is a gas producer. UPRG acquires mineral interests in land, drills wells on that land, and produces gas. Individual owners of royalty interests convey mineral interests to the producer through leases. The producer, in turn, produces and markets the gas and then pays a royalty to the owner. The class certified consists of an estimated 30,000 individual royalty owners, who conveyed lease interests under more than 26,000 mineral leases, under which appellants, UPRG, UPRC, Duke Energy L.P., f/k/a Union Pacific Fuels, Inc., UP Austin Chalk, and UPOG, pay royalties. Because each lease is individually negotiated, each varies as to the lessor's and lessee's rights and duties. A random sample of 1000 leases yielded 150 variations concerning these rights and duties.

For several years, UPRC had two departments. One department produced gas; the other marketed it. In 1987, UPRC created a wholly owned subsidiary, Union Pacific Fuels, Inc. (UP Fuels), to market the gas UPRC produced. UP Fuels purchased gas produced by UPRC and then sold the gas to independent third-party purchasers. On March 31, 1999, UP Fuels was sold to Duke Energy. The sale incorporated a five-year agreement under which UPRC agreed to sell its natural gas to Duke Energy.

UP Fuels purchases gas from UPRC at an "index" price. Neither UPRC nor UP Fuels sets the index price. Index prices are published by major industry publications and are based on actual, arms-length transactions in the geographic locations covered by the particular indices. The index price UP Fuels uses to purchase gas from UPRC differs from the index price UP Fuels uses when it sells to independent third parties. Experts testified that UP Fuels uses lower index prices to buy gas from UPRC than when selling gas to a third-party purchaser in the market. When paying royalties, UPRC does not pay based on the amount that UP Fuels obtains when it sells UPRC's gas to independent third-party purchasers, but instead pays royalties based on the amount that UP Fuels pays UPRC.

Appellees, who own royalty interests under leases with UPRC, initially sued appellants for breach of contract, tortious interference with contract, and conspiracy. Appellees then sought certification as members of a class of similarly situated individuals, claiming UPRC and Duke Energy breached covenants implied in the members' leases. In certifying the class, the trial court found that all requirements of Texas Rules of Civil Procedure 42(a) had been met and that Texas Rule of Civil Procedure 42(b) had been satisfied because covenants implied in the individual leases presented common issues of fact and law. Appellants challenge the trial court's order as an abuse of discretion.

Standard of Review

We review rule 42 orders certifying a class for abuse of discretion. Southwestern Refining Co. v. Bernal, 22 S.W.3d 425, 439 (Tex.2000); Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 402, 406 (Tex.2000); General Motors Corp. v. Bloyed, 916 S.W.2d 949, 955 (Tex.1996). Under this standard, we defer to the ruling of the trial court when discretionary matters depend on the resolution of conflicting facts. Walker v. Packer, 827 S.W.2d 833, 839 (Tex.1992). Discretionary matters that depend on interpreting the law, on the other hand, require no deference: the trial court has no "discretion" when it determines what the law is or when it applies the law to the facts. Walker, 827 S.W.2d at 839-40; see O.C.S., Inc. v. PI Energy Corp., 24 S.W.3d 548, 551 (Tex.App.-Houston [1st Dist.] 2000, no pet.) (stating that pure questions of law are reviewable de novo); Reading & Bates Constr. Co., 976 S.W.2d 702, 708 (Tex.App.-Houston [1st Dist.] 1998, pet. denied) (noting that trial court has "no discretion" to err in determining applicable law or to misapply applicable law to facts at issue). A trial court abuses its discretion, therefore, when it misinterprets the governing law or misapplies the governing law. See Walker, 827 S.W.2d at 840.

Appellees defend the trial court's ruling as a valid exercise of the broad discretion traditionally accorded to the trial court in certifying a class.⁴ The supreme court has recently curbed the breadth of that discretion, however, by instructing trial courts to scrutinize rigorously whether all rule 42 prerequisites to certification have been met. See Bernal, 22 S.W.3d at 439; Beeson, 22 S.W.3d at 403. The Bernal court relied extensively on interpretations under the federal class-action rule, on which rule 42 is patterned. Bernal, 22 S.W.3d at 433, 435-36; Beeson, 22 S.W.3d at 403-405. Although the flexibility of rule 42 "`enhances the usefulness of the class-action device[,]'" actual, rather than presumed, conformity to the requirements of the rule is "`indispensable.'" Bernal, 22 S.W.3d at 435 (quoting from General Tel. Co. v. Falcon, 457 U.S. 147, 160, 102 S.Ct. 2364, 2372, 72 L.Ed.2d 740 (1982)).

Proper rule 42 analysis demands that trial courts meaningfully determine the class-certification issues by inquiring beyond the pleadings to understand the claims, defenses, relevant facts, and applicable substantive law. See Bernal, 22 S.W.3d at 435. Any proposal to expedite resolving individual issues must not unduly restrict a party from presenting viable claims or defenses without that party's consent. Id. at 435-36 (citing TEX. R. CIV. P. 815, TEX. GOV'T CODE ANN. § 22.004(a) (Vernon Supp.2001) (Rulemaking power accorded to supreme court "may not abridge, enlarge, or modify the substantive rights of a litigant.")).

Class-Action Requirements

Class actions furnish an efficient means for numerous claimants with a common complaint to obtain a remedy when obtaining relief is not economically feasible within the traditional framework of multiple, small, individual suits for damages. Bloyed, 916 S.W.2d at 952. But, there is no "right" to litigate a lawsuit as a class action. Bernal, 22 S.W.3d at 439 (quoting from Sun Coast Resources, Inc. v. Cooper, 967 S.W.2d 525, 529 (Tex.App.-Houston [1st Dist] 1998, writ dism'd w.o.j.)).

Class actions must satisfy four threshold requirements: (1) numerosity (the class is so numerous that joinder is impracticable); (2) commonality (there are common questions of fact and law); (3) typicality (the representative's claims are typical of the class); and (4) adequacy of representation (the representative parties will protect the interests of the class). Bernal, 22 S.W.3d at 433; Tex. R. Civ. P. 42(a). Additionally, class actions must satisfy one of the four categories of rule 42(b). Bernal, 22 S.W.3d at 433; Tex. R. Civ. P. 42(a)-(b).

Commonality—Predominance

In their third issue, appellants contend no common question of fact or law predominates, as required by rule 42(b)(4). To satisfy the predominance requirement, the trial court must find that "the questions of law or fact common to the class predominate over any questions affecting individual members[.]" Tex.R. Civ. P. 42(b)(4). Of all prerequisites to class certification, predominance is "one of the most stringent." Bernal, 22 S.W.3d at 433. Although the non-exhaustive list of factors in rule 42(b)(4)(A-D) aids the court's rule 42(b)(4) inquiry, predominance is determined by: identifying the substantive issues that are dispositive of the litigation; assessing which issues will predominate; and determining whether these predominating issues are actually common to the class. Bernal, 22 S.W.3d at 433-34. Bernal further emphasized the importance of the predominance requirement by disapproving decisions that did not apply the predominance requirement to effect its purpose, which is "to prevent class-action litigation when the sheer complexity and diversity of the individual issues would overwhelm or confuse a jury or severely compromise a party's ability to present viable claims or defenses." 22 S.W.3d at 434.

Implied Covenant in Every Lease?

Predominance in this...