Wiggins v. Enserch Exploration, Inc.

• Decision Date: 11 December 1987
• Docket Number: No. 05-86-01180-CV,05-86-01180-CV
• Citation: 743 S.W.2d 332
• Parties: William A. WIGGINS v. ENSERCH EXPLORATION, INC. and E.P. Operating Company.
• Court: Texas Court of Appeals

Page 332

743 S.W.2d 332

William A. WIGGINS v. ENSERCH EXPLORATION, INC. and E.P. Operating Company.

No. 05-86-01180-CV.

Court of Appeals of Texas Dallas.

Dec. 11, 1987.

Rehearing Denied Jan. 21, 1988.

Ronald H. Williamson, Sulphur Springs, for appellant.

Stuart C. Hollimon, Dallas, for appellee.

Before HOWELL, McCLUNG, and STEWART, JJ.

HOWELL, Justice.

William R. Wiggins and Wiggins Brothers, Inc. appeal the district court's order certifying Wiggins Brothers, Inc. (defendant) as the representative of a class of defendants consisting of the royalty interest owners in the Opelika Gas Unit situated in Henderson County, Texas. ¹ In three points of error, defendant asserts that the district court abused its discretion in concluding that the facts of this case meet the requirements of Rule 42 of the Texas Rules of Civil Procedure. Because defendant's contentions are without merit, we affirm the trial court's certification order.

Enserch Exploration, Inc. and E P Operating Company (plaintiffs) sued William R. Wiggins and defendant, seeking a declaratory judgment construing several pooling agreements each of which contains an identical royalty provision. The several pooling agreements were combined to form the unit. ² A dispute exists as to whether royalties due on gas produced from the unit that is sold and delivered to unaffiliated third parties at the tailgate of the Opelika processing plant should be based on the market price at the wells or on the proceeds that plaintiffs actually receive from the sale of such gas. Plaintiffs contend that royalties are determinable on the latter basis while defendant contends that royalties are to be based on the market price at the well. Plaintiffs also allege that all or most of the royalty owners in the unit have been overpaid in the past because plaintiffs have erroneously followed the wellhead basis. In addition to declaratory relief, plaintiffs seek recovery of the alleged overpayments. In order to obtain relief against the approximately 1300 royalty owners, plaintiffs filed a motion to certify all royalty owners in the unit as a class of defendants and to certify defendant as the class representative. The district court granted plaintiffs' motion for certification and defendant has appealed.

Our review of the district court's certification order is limited to determining whether the court abused its discretion. Parker County v. Spindletop Oil & Gas Co., 628 S.W.2d 765, 769 (Tex.1982); RSR Corp. v. Hayes, 673 S.W.2d 928, 930 (Tex.App.--Dallas 1984, writ dism'd). A trial court abuses its discretion when it fails to properly apply the law to undisputed facts, but not when it bases its decision on conflicting evidence. RSR, 673 S.W.2d at 930.

To qualify as a class action, the circumstances of the case must meet all the prerequisites in Rule 42(a) and at least one of the requirements of Rule 42(b). TEX.R.CIV.P. 42. In its first point of error, defendant asserts that the trial court abused its discretion by concluding that the circumstances of this case meet the requirement of Rule 42(a)(3), ³ which provides that one member of a class may be sued as a representative party on behalf of all class members only if "the claims or defenses of the representative part[y] are typical of the claims or defenses of the class...." TEX.R.CIV.P. 42(a)(3). This "typicality" requirement is satisfied when the evidence shows that the claims or defenses of the class representative have the same essential characteristics as those of the class as a whole. Appleyard v. Wallace, 754 F.2d 955, 958 (11th Cir.1985). ⁴ The claims or defenses need not be identical or perfectly coextensive, only substantially similar. Thillens, Inc. v. Community Currency Exchange Ass'n, 97 F.R.D. 668, 678 (N.D.Ill.1983).

Defendant contends that the "typicality" requirement is not met because plaintiffs presented no evidence that they had overpaid royalties to defendant or to any other class member, or that they sold gas from the unit to any third parties that are not affiliated with plaintiffs. Of course, the issues of plaintiffs' overpayments of royalties and sales of gas to unaffiliated third parties are issues that concern the merits of plaintiffs' claim against defendant and the rest of the class. However, the probability of plaintiffs' success on the merits of their claims is an improper standard by which to measure the propriety of class certification. See Huff v. N.D. Cass Co., 485 F.2d 710, 712 (5th Cir.1973); Smith v. Lewis, 578 S.W.2d 169, 172 (Tex.Civ.App.--Houston [14th Dist.] 1979, writ ref'd n.r.e.). Thus, plaintiffs' alleged failure to present evidence on the merits of their claims is irrelevant in deciding whether the "typicality" requirement has been met.

The evidence established that a single royalty provision governs the payment of royalties to defendant and to every other member of the class. Thus, any defense to plaintiffs' allegation of royalty overpayment would arise from a single factual and legal basis, regardless of the identity of the class member against whom the claim might be asserted. Because any claim or defense raised by defendant necessarily would be substantially similar to any claim or defense of the class as a whole, we hold that the trial court did not abuse its discretion in concluding that plaintiffs met the "typicality" requirement of Rule 42(a)(3).

Defendant asserts next that the trial court abused its discretion in concluding that defendant will fairly and adequately represent the interests of the defendant class. See TEX.R.CIV.P. 42(a)(4). Inasmuch as this case involves the certification of a defendant class, we must closely scrutinize the adequacy of representation to ensure that plaintiffs have not purposely selected a weak adversary to represent the class. Thillens, 97 F.R.D. at 679; see also Wright, Miller & Kane, Federal Practice & Procedure § 1770 (2d ed. 1986). The basic elements of this requirement are (1) an absence of antagonism between the representative and the class members and (2) an assurance of a vigorous defense by the representative. Mertz v. Harris, 497 F.Supp. 1134, 1139 (S.D.Tex.1980). Defendant contends that neither element is satisfied here.

First, defendant claims that its interests are irreconcilably antagonistic to those of the other class members. This antagonism allegedly arises because the class members acquired different kinds of royalty interests (e.g., term, perpetual, participating, nonparticipating) in many different manners, and because defendant allegedly contests the validity of the unit. We perceive no reason why the type of royalty interest owned by a class member or the manner of its acquisition will give rise to conflicting postures by class members at the trial on the merits. The royalty rights of all class members are governed by an identical royalty provision, which makes no distinction according to the particular type of royalty interest owned.

Neither do we perceive that questions as to the unit's validity will cause antagonism between defendant and the rest of the class. At the certification hearing, defendant's president, William R. Wiggins, conceded that although he questions the unit's validity, he has not asserted such a claim in past lawsuits. Neither has defendant raised any counterclaim concerning the unit's validity in this action. Future actions questioning the unit's validity would not concern the subject matter of this lawsuit, specifically, the construction of the common royalty provision. See Wright, Miller & Kane at § 1768. We conclude that the trial court did not abuse its discretion in finding that "[defendant] has no interest adverse to the other royalty owners in the ... Unit insofar as this action is concerned."

Defendant claims further that it cannot fairly and adequately represent the class members because it has neither the financial nor the technical ability to function alone as the sole class representative. The trial court has found to the contrary; the finding is not without basis in the record; therefore, we find no abuse of discretion. See Wright, Miller & Kane at § 1766. The main consideration surrounding the requirement of fair and adequate representation is "the forthrightness and vigor with which the representative party can be expected to assert and defend the interests of the members of the class, so as to insure them due process." Mersay v. First Republic Corp. of America, 43 F.R.D. 465, 470 (S.D.N.Y.1968). The evidence indicates that, even as the sole representative, defendant will vigorously defend the interests of the class in this action. The size of defendant's royalty interest is among the twenty largest in the class of approximately 1300. Some major oil companies own interests larger than defendant's. However, the position taken by plaintiffs may indirectly be more financially advantageous to those companies because it is likely that they are paying royalties under similar provisions elsewhere. Defendant is not burdened with similar obligations that might undermine its incentive to defend the case.

Indeed, defendant has shown a continuing interest in the proper calculation and payment of royalties on gas produced from the unit. Defendant has questioned plaintiffs' calculation methods in the past and has even audited plaintiffs' records to verify the proper payment of royalties on the unit's gas production. At the certification hearing, William R. Wiggins agreed that defendant intends to do the best it can to successfully defend plaintiffs' action in order to insure that defendant receives the highest possible royalty payments.

Nevertheless, defendant claims that it has neither the financial resources nor the technical support required to present a defense on behalf of so large a class. However, this is a factual question that the trial court has resolved against defendant. The finding is not unfounded; it follows that abuse of discretion has not been shown. We further...