Opinion
[Copyrighted Material Omitted]
Keith L. Grayson, Grayson & Grayson, P.A., Heber Springs, AR, for Plaintiff.
G. Alan Perkins, Perkins Peiserich Greathouse Morgan Rankin, Little Rock, AR, Marc S. Tabolsky, Schiffer Odom Hicks & Johnson PLLC, Houston, TX, Matthew K. Hansen, Michael Vance Powell, Locke Lord LLP, Dallas, TX, for Defendants.
ORDER
Kristine G. Baker, United States District Judge
Presently before the Court is plaintiff Charles Hicks’ motion for class certification (Dkt. No. 42). Defendants responded (Dkt. No. 48), Mr. Hicks’ replied (Dkt. No. 51), and defendants filed a sur-reply (Dkt. No. 54). On February 20, 2018, the Court held a hearing on class certification. Considering the motion papers, applicable authorities, witness testimony, and oral arguments, the Court concludes that Mr. Hicks has failed to carry his burden to satisfy the requirements of Federal Rule of Civil Procedure 23, and the Court denies his motion for class certification (Dkt. No. 42).
I. Overview
Mr. Hicks asserts claims for the breach of his and the putative class members’ oil and gas leases, as well as various tort, common law, and statutory claims, all arising from defendants’ alleged underpayment of royalties. Mr. Hicks seeks injunctive, declaratory, and monetary relief on behalf of himself and the putative class members. In his complaint, Mr. Hicks generally alleges three different theories for underpayment of royalties: (1) defendants purportedly improperly deducted post-production expenses from royalty payments; (2) defendants allegedly paid royalties based on sales volumes rather than wellhead volumes; and (3) defendants violated the "affiliate-sale" provision of the class members’ leases by purportedly failing to pay royalty owners a price higher than that paid by other producers in the same township and range (Dkt. No. 1).
Mr. Hicks’ complaint contains the following eleven counts and demands for relief: (1) fraud and fraudulent concealment; (2) a declaration that defendants underpaid royalty owners; (3) breach of contract; (4) violation of the Arkansas Deceptive Trade Practices Act ("ADTPA"), codified at Arkansas Code Annotated § 4-88-101, et seq. ; (5) breach of the good faith prudent operator standard, codified at Arkansas Code Annotated § 15-73-207; (6) unjust enrichment; (7) civil conspiracy; (8) conversion; (9) accounting; (10) temporary and injunctive relief; and (11) treble damages and attorneys’ fees for royalty underpayments (Id., at ¶¶ 36-70). The same acts and omissions by defendants are alleged to provide a basis for all of the claims of tortious conduct (see id. ). By prior Order, the Court previously dismissed Mr. Hicks’ good faith prudent operator standard claim, his conversion claim, his unjust enrichment claim, and his equitable accounting claim (Dkt. No. 28).
II. Background
Separate defendant SWN Production (Arkansas), previously known as SEECO, Inc., and herein referred to as "SEECO," operates natural gas wells in the Fayetteville Shale "play," which is located throughout northern Arkansas. Per Arkansas Code Annotated § 15-71-101, et seq., the Arkansas Oil and Gas Commission ("AOGC") has the authority to designate "drilling units" within which the owners of unleased mineral rights may be "integrated" after notice and a hearing. See Ark. Code Ann. § 15-72-303(b). Since January 1, 2007, SEECO has been designated as the "operator" of drilling units in over 700 AOGC integration orders (Dkt. No. 48-4, ¶ 4). Those 700 integration orders apply to wells in 47 different township and range combinations (Id. ). As the AOGC-authorized operator in these areas, SEECO is required, by statute, to distribute the first 1/8 royalty on behalf of other "working interest owners" who market their share of gas production from the same drilling unit (Dkt. No. 48-6, at 10).
SEECO operates 100 wells within the 36 sections of land that make up Township 10 North, Range 9 West in Arkansas (Id., ¶ 3). Mr. Hicks is a resident of Pulaski County, Arkansas, who owns mineral interests located in Section 28, Township 10 North, Range 9 West, Cleburne County, Arkansas (Dkt. No. 42, at 2). Mr. Hicks’ mineral interest was "integrated" pursuant to AOGC Order No. 803-2009-12 ("Order No. 803-2009-12") (Dkt. No. 42-2). SEECO sought the integration of Section 28, Township 10 North, Range 9 West, in Cleburne County, Arkansas (Id., at 1). The Order No. 803-2009-12 lists the owners of unleased mineral interests in Section 28, Township 10 North, Range 9 West, including Mr. Hicks (Id., at 2). Order No. 803-2009-12 designates SEECO as operator of Section 28, Township 10 North, Range 9 West (Id., at 6).
Order No. 803-2009-12 gives the unleased mineral interests owners four options: (1) execute a lease with any party on mutually-agreed upon terms for the production of the unleased mineral interests or with SEECO based upon the AOGC’s Form Lease; (2) participate in the initial well by paying a proportionate share of the costs of drilling, completing, and equipping the initial well; (3) affirmatively choose to become a "Non-Consenting Party; " or (4) fail to make an election. Uncommitted leasehold working interest owners were offered similar options (Id., at 3-5). Mr. Hicks admits that he opted for the fourth option and did not make an election (Dkt. No. 70, at 42). Per Order No. 803-2009-12, unleased mineral interest owners who failed to make an election were integrated and were to be compensated with "a cash bonus of $1[,]500.00 per net mineral acre, and a 3/16 royalty." (Dkt. No. 42-2, at 3).
Order No. 803-2009-12 also states that the "requested one-year term oil and gas lease ... employed by [SEECO] is in the form of Exhibit ‘B’ of the [Joint Operating Agreement]." (Id., at 1). That lease— the "AOGC Form Lease"— lays out the terms between a mineral interest owner and lessee. As relevant here, the AOGC Form Lease referenced by Order No. 803-2009-12 states that:
In the event that the sale [of gas] is to an Affiliate ("Affiliate" being defined as having a ten percent (10%) common ownership), then the proceeds derived form [sic] the sale of all gas shall be a price no less than that received from any other purchaser within the governmental township and range in which the lease is situated.
(Dkt. No. 42-1, at 1). This provision is hereafter referred to as the "affiliate-sale" provision.
Mr. Hicks asserts that SEECO sells all of its gas in the Fayetteville Shale to Southwest Energy Services ("SES"), a wholly-owned subsidiary of SEECO (Dkt. 42, ¶ 5). Richard Jason Kurtz, an employee of Southwestern Energy, testified that SEECO and SES are both owned by Southwestern Energy (Dkt. No. 42-7, at 9). Mr. Kurtz confirmed that SEECO sells all of its gas in Arkansas to SES (Id., at 5).
Megan Martin, another employee with Southwestern Energy, explained that royalty owners in Arkansas are paid the "weighted average sales price" (the "WASP") (Dkt. No. 42-8, at 6). Ms. Martin testified that there is only one WASP for the entire state of Arkansas, so all royalties for wells in the Fayetteville Shale play are paid the same WASP price (Id. ). Ms. Martin explained that the WASP is calculated by taking the price per metric cubic foot ("MCF") sold by SES to each purchaser and averaging those prices (Id., at 29). Ms. Martin testified that SEECO does not know what the other well operators and working-interest owners were actually paid for the gas they sold (Id., at 18). She also testified that, to determine the actual sales price paid by the other purchasers, she would need to speak directly with the other gas sellers (Id., at 19).
A slide attached to Ms. Martin’s deposition demonstrates how the WASP is calculated (Dkt. No. 42-8, at 32). If, for example, SES sells one MCF to one purchaser for $3.95, one MCF to another for $4.00, and another MCF to a separate purchaser for $4.05, the WASP is $4.00.
Mr. Hicks presents his royalty check stub, dated December 25, 2015, as evidence of the royalties he received from SEECO. Per this check stub, non-SEECO working interest owners received $2.53, $2.64, and $1.52 per MCF for their sales of natural gas, while SEECO received a WASP price of $2.15 per MCF (Dkt. No. 42-5, at 4). Mr. Hicks asserts that SEECO did not inform him or the putative class members that SEECO calculated their royalties based upon the WASP price (Dkt. No. 42, ¶ 8).
Mr. Zachary Pullin, an employee of Southwestern Energy, testified that the check-stub Mr. Hicks receives contains a price calculated by "dividing the volume into the value...." (Dkt. No. 42-9, at 6). In response to a question regarding whether it is possible to determine the highest price in a governmental township and range in the Fayetteville Shale, Mr. Pullin testified that it would be possible to "write a query to take the volume and the value to come up with a price...." (Id., at 7). Mr. Pullin testified that the prices listed on Mr. Hicks’ check-stub for other sellers, including BHP, BP, and XTO, are calculated numbers, rather than a representation of the actual price those sellers received for natural gas (Id. ). Mr. Vincent Parasco, the Director of Corporate Land for Southwestern Energy, testified that Southwestern does keep records of which mineral interests are integrated and that, since 2013, Southwestern has used a code to identify integrated owners (Dkt. No. 42-6, at 7). Mr. Parasco also testified that, to determine the current integrated owners, he would need to review division orders, which are a separate data set (Id., at 12). Specifically, to identify all current integrated owners, Mr. Parasco testified that the following process would be necessary:
I would— I would definitely pull an integrated— do a report on the DO side that showed me who was marked as integrated royalty interest. I’d also pull the lease side; and I would look at the section, township, and ranges from what I pulled or where the wells are located. And then I would go to our common drive and pull spreadsheets and well files from the file room probably as well as lease records....
(Id. ). Mr. Parasco also testified that he takes no action to determine whether SEECO’s royalty payments to integrated owners comport with the "affiliate-sale" provision (Id., at 9).
III. Discussion
Mr. Hicks argues that SEECO underpaid royalties to the integrated owners who signed the AOGC Form Lease or were "deemed to have accepted" the AOGC Form Lease by paying royalties based upon the WASP price rather than paying those integrated owners according to the "affiliate-sale" provision of the AOGC Form lease. Accordingly, Mr. Hicks proposes certification of the following class:
Integrated mineral interest owners who meet the following conditions: (1) were integrated on or after October 31, 2006; (2) accepted or were deemed to have accepted a lease containing the terms in Exhibit "1"; (3) owned minerals in a drilling unit in which SWN PRODUCTION (ARKANSAS) was either the operator or a working interest partner on or after October 31, 2006; and (4) have received royalties or excess royalties from SWN PRODUCTION (ARKANSAS).
(Dkt. No. 42, at 2). In the class certification motion, Mr. Hicks argues that the common issue uniting the class is whether defendants violated the "affiliate-sale" provision contained in the AOGC’s form lease. The class certification motion does not address the allegedly improper deduction of post-production expenses or the calculation of royalties based off of sales volumes rather than wellhead volumes. Accordingly, the Court will only address Mr. Hicks’ assertion that the class should be certified for injuries caused by the alleged violation of the "affiliate-sale" provision.
Although "class certification is not the time to address the merits of the parties’ claims and defenses, the ‘rigorous analysis’ under Rule 23 must involve consideration of what the parties must prove." Elizabeth M. v. Montenez, 458 F.3d 779, 786 (8th Cir. 2006). The parties have all presented extensive arguments on the interpretation of the "affiliate-sale" provision of the AOGC Form Lease, as well as upon the issue of whether Mr. Hicks, and those other mineral interest owners who failed to make an election under Order No. 803-2009-12, are bound by the AOGC Form Lease. Even assuming for purposes of resolving this motion only without deciding that Mr. Hicks is bound by the AOGC Form Lease and that the "affiliate-sale" provision requires SEECO to pay royalty owners a price that is different from the WASP price, the Court finds that, based on the record evidence and briefings at this stage of the litigation, Mr. Hicks has failed to meet his burden of proof for certification of the proposed class.
A. Rule 23(a)
To obtain class certification, plaintiffs must meet all four requirements of Federal Rule of Civil Procedure 23(a), commonly referred to as numerosity, commonality, typicality, and adequacy of representation, and must fall into one of the categories of Rule 23(b). Amchem Products, Inc. v. Windsor, 521 U.S. 591, 614, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); Blades v. Monsanto Co., 400 F.3d 562, 568-69 (8th Cir. 2005); Fed.R.Civ.P. 23. The party seeking certification bears the burden of showing that the class should be certified and that the requirements of Rule 23 are met. Coleman v. Watt, 40 F.3d 255, 258-59 (8th Cir. 1994). The district court is afforded broad discretion to decide whether certification is appropriate. Luiken v. Domino’s Pizza, LLC, 705 F.3d 370, 372 (8th Cir. 2013) (quoting Prof’l Firefighters Ass’n of Omaha, Local 385 v. Zalewski, 678 F.3d 640, 645 (8th Cir. 2012) ). According to the Eighth Circuit Court of Appeals:
A district court considering a motion for class certification must undertake a rigorous analysis to ensure that the requirements of Rule 23(a) are met. Frequently that rigorous analysis will entail some overlap with the merits of the plaintiff’s underlying claim, and the district court may resolve disputes going to the factual setting of the case if necessary to the class certification analysis. The court’s factual findings with respect to the class certification question are reviewed for clear error.
Bennett v. Nucor Corp., 656 F.3d 802, 814 (8th Cir. 2011) (internal quotations and citations omitted). Furthermore, Mr. Hicks must prove that the proposed class fits into one of the three types of class actions described in Federal Rule of Civil Procedure 23(b). Courts in the Eighth Circuit have also held that a "proposed class sought to be represented must be adequately defined and clearly ascertainable." Duchardt v. Midland Nat. Life Ins. Co., 265 F.R.D. 436, 443 (S.D. Iowa 2009) (quoting Ihrke v. N. States Power Co., 459 F.2d 566, 573 (8th Cir. 1972) (internal citation omitted) ). Mr. Hicks bears the burden of showing that all of these requirements are met. Coleman v. Watt, 40 F.3d 255, 258-59 (8th Cir. 1994).
1. Ascertainability
Based upon the evidence before the Court at this stage of the litigation, the Court concludes that the proposed class is not adequately defined or clearly ascertainable. Defendants argue that individual issues will predominate over common ones, and the Eighth Circuit Court of Appeals has held that this type of argument "implicates not only the commonality and predominance requirements, but also Rule 23’s implicit requirement that a class ‘must be adequately defined and clearly ascertainable.’ " McKeage v. TMBC, LLC, 847 F.3d 992, 998 (8th Cir. 2017) (quoting Sandusky Wellness Ctr. v. Medtox Sci., Inc., 821 F.3d 992, 996 (8th Cir. 2016) ) (internal quotation omitted). "A class may be ascertainable when its members may be identified by reference to objective criteria." Sandusky, 821 F.3d at 997-98.
Recently, the Eighth Circuit has twice had the opportunity to determine whether class members were clearly ascertainable. In Sandusky, the plaintiffs alleged Medtox Scientific violated the Telephone Consumer Protection Act ("TCPA") by sending unsolicited faxes in violation of the TCPA. The district court denied the class certification because the fax logs identified some fax recipients who were not protected by the TCPA. The Eighth Circuit concluded that the district court erred in denying class certification, as the "fax logs showing the numbers that received each fax" constituted an "objective criteria that make the recipient clearly ascertainable." Id. at 997. In McKeage, the plaintiffs alleged TMBC, LLC, violated Missouri law by charging a document fee when selling boats and trailers under form contracts governed by Missouri law, and a district court approved class certification. 847 F.3d at 995. The Eighth Circuit affirmed the district court’s class certification decision on the grounds that the "class members were identified by reviewing TMBC’s customer files according to objective criteria" and because this review process excluded "most customers who may have been subject to TMBC’s individual defenses...." Id. at 999.
The Fourth Circuit Court of Appeals has had the opportunity to address ascertainability in the context of a royalty payment dispute. In EQT Production Co. v. Adair, the plaintiffs alleged that EQT Production unlawfully withheld and underpaid royalties from mineral rights owners. 764 F.3d 347, 355 (4th Cir. 2014). The district court certified a class, including "all persons, and their successors-in-interest, who EQT ... identified in their filings with the Board as being the owners of a gas estate, whose interest in [mineral rights] is conflicted because a different person owns the coal estate in the same tract." Id. at 359. The district court concluded that "some class members will be easy to identify because the classes are all defined in reference to the ownership schedule that EQT ... submitted to the Board." Id. The Fourth Circuit, however, noted that the ownership schedules could not aid a court in ascertaining those class members who obtained their mineral interests after the schedules were first prepared and that it was not sufficient to gloss over this problem by noting that any ownership changes could be determined by reference to local land records. Id. The Fourth Circuit concluded that, "[w]ithout even a rough estimate of the number of potential successors-in-interest, we have little conception of the nature of the proposed classes or who may be bound by a potential merits ruling." Id. at 359-60. Accordingly, the appellate court remanded the matter to the district court for further consideration. Id. at 360.
The Court acknowledges that, as a prerequisite to class certification, the Eighth Circuit does not require that it must be administratively feasible to identify members of the proposed class. See Sandusky, 821 F.3d at 995 (noting that the Eighth Circuit has not adopted the Third Circuit Court of Appeals’ heightened ascertainability standard). Here, however, Mr. Hicks has failed to present sufficient evidence to allow the Court to identify, even in a general manner, the members of the proposed class. Order No. 803-2009-12— the AOGC Order that integrated Mr. Hicks’ mineral interests— lists approximately 50 separate unleased mineral owners (see Dkt. No. 42-2, at 1-2). Order No. 803-2009-12 also applies to "any unknown spouse, heir, devisee, personal representative, successor or assigns of said owners of unleased interests." (Id., at 2). Mr. Hicks’ proposed class encompasses all of these unleased mineral interest owners, as well as their successors-in-interest. It also includes any other mineral interest owners in Arkansas who were integrated by SEECO after October 31, 2006, and who received royalties from SEECO.
Even if the Court were to restrict its analysis only to those mineral interest owners listed in Order No. 803-2009-12, the undisputed record evidence is that SEECO does not maintain an easily accessible list of current or past integrated owners (Dkt. No. 42-6, at 7). Presumably, the Court would be forced to review public title records to compile a complete list of mineral interest owners who were integrated by Order No. 803-2009-12. Indeed, to identify every proposed class member, the Court would have to conduct the same search for every integration order sought by SEECO during the class period. Defendants represent that SEECO has sought nearly 700 other integration orders in Arkansas since January 2007 (Dkt. No. 48-4, ¶ 4).
Mr. Hicks presents only one integration order: Order No. 803-2009-12. Defendants have attached other integration orders to their response (see Dkt. No. 48-18). It is not clear to the Court if these integration orders presented by defendants are a comprehensive list of the integration orders naming SEECO as operator.
The record evidence does not allow the Court to predict accurately the number of potential class members or the scope of a potential merits ruling. The undisputed record evidence indicates that, to identify every owner integrated by Order No. 803-2009-12, the Court would have to conduct an extensive review of both SEECO’s records and public land records. A review of both types of records would be required to identify the proposed class members, especially each owner who is an "unknown spouse, heir, devisee, personal representative, successor or assigns of said owners of unleased interests." (Dkt. No. 42-2, at 2). Further, assuming without deciding that every integration order naming SEECO as operator includes the same language as Order No. 803-2009-12, the Court would have to conduct the same searches for each of the at least 700 integration orders designating SEECO as a drilling unit operator (see Dkt. No. 48-4, ¶ 4). Accordingly, even without applying the heightened ascertainability standard rejected in Sandusky, the Court finds, based upon the record evidence before it, that Mr. Hicks has failed to meet his burden of proof to show that his proposed class is adequately defined and clearly ascertainable.
2. Numerosity
To certify a class pursuant to Rule 23(a)(1), this Court must first make a finding that "the class is so numerous that joinder of all members is impracticable." Fed.R.Civ.P. 23(a)(1). Rule 23(a) "requires only the impracticality, not the impossibility, of joinder." United States Fid. & Guar. Co. v. Lord, 585 F.2d 860, 870 (8th Cir. 1978). "The Eighth Circuit has not established strict requirements regarding the size of a proposed class...." Estate of Mahoney v. R.J. Reynolds Tobacco Co., 204 F.R.D. 150, 153 (S.D. Iowa 2001) (citing Emanuel v. Marsh, 828 F.2d 438, 444 (8th Cir. 1987) ). Defendants do not oppose the proposed class on numerosity grounds. As discussed previously, the number of proposed class members is unknown to the Court. If each of SEECO’s integration orders lists as many unleased mineral interest owners as listed on Order No. 803-2009-12, then the Court estimates that the proposed class will contain at least 35,000 members. Other district courts have certified proposed classes with fewer members. See Cortez v. Neb. Beef, Inc., 266 F.R.D. 275, 289 (D. Neb. 2010) (concluding that class of 3,490 met the numerosity requirement); Rattray v. Woodbury Cty., Iowa, 253 F.R.D. 444, 452 (N.D. Iowa 2008), order aff’d, 614 F.3d 831 (8th Cir. 2010) (concluding that a class of 1,750 met the numerosity requirement). Based upon the evidence presented and the parties’ filings, the Court finds that Mr. Hicks has satisfied the numerosity requirement.
Since January 1, 2007, SEECO has been designated as the operator of drilling units in over 700 AOGC integration orders (Dkt. No. 48-4, ¶ 4). Order No. 803-2009-12— the Order that integrated Mr. Hicks’ mineral interests— lists approximately 50 unleased mineral interest owners (see Dkt. No. 42-2, at 2). For the purposes of this estimate, the Court assumes that the remaining 699 integration orders each integrate, on average, 50 unleased mineral interest owners. The Court acknowledges that this estimate is inexact, as the Court has no record evidence that indicates the number of successors-in-interest who may be class members.
3. Commonality
Rule 23(a)(2) provides that a class action may be certified only if "there are questions of law or fact common to the class." Fed.R.Civ.P. 23(a)(2). The Supreme Court held in Wal-Mart Stores, Inc. v. Dukes that:
Commonality requires the plaintiff to demonstrate that the class members have suffered the same injury. This does not mean merely that they have all suffered a violation of the same provision of law.... Their claims must depend upon a common contention— for example, the assertion of discriminatory bias on the part of the same supervisor. That common contention, moreover, must be of such a nature that it is capable of classwide resolution— which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.
564 U.S. 338, 350, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011). In other words, "[w]hat matters to class certification ... is not the raising of common questions, ... but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation." Id. (citation and quotation omitted) (emphasis added).
In his class certification motion, Mr. Hicks states that the following issues of law and fact are common to the proposed class:
1. Did Defendants breach their obligation to properly pay [sic] royalties to integrated leases pursuant to the lease they were deemed to have accepted?
2. Should the leases be voided and rescinded due to Defendants’ material breaches?
3. Should Defendants be required to pay class-wide damages for breach of the leases?
4. Did the Defendants intentionally conceal the underpayment of royalties?
5. In the alternative to rescission, should treble damages be awarded?
(Dkt. No. 42, at 3-4).
Mr. Hicks argues that "Defendants’ liability will rise or fall" based upon the resolution of these questions (Dkt. No. 43, at 11). Defendants argue that "resolution of Hicks’[ ] claim could resolve, at most, only issues regarding the particular township and range in which his interests are integrated (Township 10 North, Range 9 West)," as the "disposition of Plaintiff’s claims could, at most, only generate a common answer as to other integrated owners in the same township and range." (Dkt. No. 48, at 29). In essence, defendants argue that, because a resolution of each class members’ claim would require an analysis of prices paid by each purchaser in each township and range in Arkansas since October 31, 2006, the common questions posed by Mr. Hicks will not generate common answers. Mr. Hicks replies that SEECO has admitted that it pays "all royalty owners" the WASP price rather than the price required by the "affiliate-sale" provision of the AOGC Form Lease, and he claims therefore that each integrated royalty owner has been damaged, though he concedes that "[a]ny differences in gas prices in the township and range would be differences handled in the damage calculation for each member." (Dkt. No. 51, at 9).
Prior to the holding in Dukes, the Honorable G. Thomas Eisele found that a proposed class of Arkansas royalty owners met the commonality requirement. Riedel v. XTO Energy, Inc., 257 F.R.D. 494, 508 (E.D. Ark. 2009) (denying class certification). In Riedel, the plaintiffs asserted that XTO violated Arkansas law by deducting from the proposed class members’ royalty payments post-production expenses which should not have been deducted in the absence of contractual language specifically permitting such deductions. Id. The defendants in Riedel argued that the proposed class could not satisfy the commonality requirement because "a lease by lease analysis will have to take place...." Id. Judge Eisele concluded that the proposed class satisfied the commonality requirement. Id. at 509.
The Fourth and Tenth Circuit Courts of Appeal, however, have held that the commonality requirement is not met where there is significant evidence that common questions, applied to putative class members, will generate disparate answers, particularly where lease variations among putative class members are at issue. EQT Production Co., 764 F.3d at 368 (finding that variations in lease language defeated the commonality requirement among proposed class members); Wallace B. Roderick Revocable Living Trust v. XTO Energy, Inc., 725 F.3d 1213, 1218-19 (10th Cir. 2010) (concluding that plaintiffs failed to demonstrate commonality where there was significant evidence of lease language variation); see Abraham v. WPX Prod. Prods., LLC, 317 F.R.D. 169, 267 (D. N.M. 2016) ("Here, the primary issue is how much the Plaintiffs should have been paid— on the refined NGL values or the raw gas values, and the Defendants’ practices do not answer that question in a common way.").
Mr. Hicks’ proposed class encompasses all integrated mineral interest owners who were integrated on or after October 31, 2006; accepted or were deemed to have accepted a lease containing the "affiliate-sale" clause; owned minerals in a drilling unit in which SEECO was either the operator or a working interest partner on or after October 31, 2006; and have received royalties or excess royalties from SEECO (Dkt. No. 42, at 2). In support of his motion for class certification, Mr. Hicks presents AOGC Order No. 803-2009-12, which integrated Section 28, Township 10 North, Range 9 West, in Cleburne County, Arkansas, where Mr. Hicks’ mineral interests are located (Dkt. No. 42-2). Order No. 803-2009-12 references the AOGC Form Lease, which contains the "affiliate-sale" provision (Dkt. No. 42-1). Accordingly, assuming without deciding that the AOGC Form Lease applies to Mr. Hicks and the other unleased mineral interest owners who "failed to elect" any option under Order No. 803-2009-12, a point the parties dispute, Order No. 803-2009-12 only governs those integrated mineral interest owners who own mineral interests in Section 28, Township 10 North, Range 9 West, in Cleburne County, Arkansas. The proposed class extends far beyond this one drilling unit, yet Mr. Hicks presents no record evidence about the lease language governing the proposed class members who do not reside in Section 28, Township 10 North, Range 9 West, in Cleburne County, Arkansas. The Court declines to presume, especially without any record evidence presented by Mr. Hicks in support, that each of the AOGC’s integration orders that name SEECO as operator of a drilling unit incorporate leases with "affiliate-sale" provisions.
While defendants have attached certain integration orders to their response, neither party has explained how these integration orders relate to the proposed class (see Dkt. No. 48-18).
It is Mr. Hicks’ burden to demonstrate commonality. The record evidence does not provide the Court with enough information regarding the leases governing the absent class members. Accordingly, the Court concludes that Mr. Hicks has failed to meet his burden of demonstrating that there are questions of law or fact common to the class.
4. Typicality And Adequacy
Rule 23(a)’s last two requirements, typicality and adequacy, require an examination of the class representatives. The test for typicality is whether "there are other members of the class who have the same or similar grievances as the plaintiff." Donaldson v. Pillsbury Co., 554 F.2d 825, 830 (8th Cir. 1977). The typicality requirement generally is satisfied " ‘if the claims or defenses of the representatives and the members of the class stem from a single event or are based on the same legal or remedial theory.’ " Paxton v. Union Nat. Bank, 688 F.2d 552, 561-62 (8th Cir. 1982) (quoting C. Wright & A. Miller, Federal Practice and Procedure § 1764 at n. 21.1 (Supp. 1982) ). To satisfy the adequacy test, the plaintiff must show that "the representative parties will fairly and adequately protect the interests of the class." Fed.R.Civ.P. 23(a)(4).
Based upon the record evidence, the Court concludes that Mr. Hicks has not satisfied his burden of demonstrating that his claims and defenses are "typical of the claims or defenses of the class." Fed.R.Civ.P. 23(a)(3). "The presence of a common legal theory does not establish typicality when proof of a violation requires individualized inquiry." Elizabeth M. v. Montenez, 458 F.3d 779, 787 (8th Cir. 2006) (citation omitted). As discussed above, Mr. Hicks claims that he is damaged because SEECO calculates his royalties based upon the WASP rather than the "affiliate-sale" provision. To determine if Mr. Hicks’ claim is typical of the claims of the proposed class members, the Court would need to review evidence regarding the lease provisions governing the other class members. Mund v. EMCC, Inc., 259 F.R.D. 180, 185 (D. Minn. 2009) (finding typicality because "the class members’ claims arise out of materially identical contract provisions"). The Eighth Circuit has held that typicality may exist even where certain class members’ claims may arise out of contractual provisions that are different from those underlying the class representative’s claims. See DeBoer v. Mellon Mortg. Co., 64 F.3d 1171, 1174 (8th Cir. 1995) (finding typicality in a suit by mortgage holders despite the fact that some class members had different mortgage contracts). Here, however, Mr. Hicks has presented no record evidence regarding the lease provisions governing the class members who reside in locations not governed by Order No. 803-2009-12. Further, while defendants have presented record evidence of certain other integration orders, it is not clear to the Court the extent to which those other integration orders presented by defendants govern the proposed class members. Neither defendants nor Mr. Hicks address that issue. Accordingly, even assuming without deciding that Mr. Hicks’ claim is not otherwise barred by defenses or flaws specific to his claim, a point the parties dispute, the Court cannot assess whether Mr. Hicks’ claim is typical of the class members’ claims. The Court finds that Mr. Hicks has failed to meet his burden of demonstrating that his claim is similar to or typical of the class members’ claims.
The Court does, however, find that Mr. Hicks and the proposed class counsel would adequately represent the proposed class members. "The focus of Rule 23(a)(4) is whether: (1) the class representatives have common interests with the members of the class, and (2) whether the class representatives will vigorously prosecute the interests of the class through qualified counsel." Paxton, 688 F.2d at 562-63. To the extent the Court understands the interests of the absent proposed class members based on the limited record evidence before it, the Court finds that Mr. Hicks’ interests do not conflict with those proposed class members. Further, the Court finds that Mr. Hicks has "demonstrated a willingness to prosecute the interests of the class through qualified counsel." Id. at 563. Therefore, the Court finds that Mr. Hicks has satisfied Rule 23(a)(4)’s adequacy requirement.
B. Rule 23(b)
Mr. Hicks moves to certify the proposed class under Rule 23(b)(2) and (b)(3). Rule 23(b)(2) is satisfied if: (1) the party opposing the class "acted or refused to act on grounds that apply generally to the class," and (2) plaintiffs seek "final injunctive relief or corresponding declaratory relief" that is appropriate with respect to "the class as a whole...." Fed.R.Civ.P. 23(b)(2). Rule 23(b)(3) requires the Court to find "that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed.R.Civ.P. 23(b)(3).
As to Rule 23(b)(2), Mr. Hicks argues that the declaratory and injunctive relief sought in the complaint will "provide relief to each member of the class," and therefore the class is certifiable under Rule 23(b)(2). Defendants argue that, because Mr. Hicks is seeking an individualized award of monetary damages for each class member, Rule 23(b)(2) certification is inappropriate (Dkt. No. 48, at 42). The Court agrees that Mr. Hicks’ request for monetary relief renders the proposed class uncertifiable under Rule 23(b)(2). The Supreme Court held in Dukes that claims for monetary relief may not be certified under Rule 23(b)(2), at least where the monetary relief is not incidental to the requested injunctive or declaratory relief. 564 U.S. at 367, 131 S.Ct. 2541. Further, the Supreme Court found that "individualized determinations" of each class members’ damages precludes certification under Rule 23(b)(2). Id. at 366, 131 S.Ct. 2541. Mr. Hicks has conceded that it will be necessary to conduct an individualized determination to calculate each class members’ damages (Dkt. No. 51, 10-11).
The Court also concludes that the proposed class does not satisfy Rule 23(b)(3). The principal issue in this case is whether the AOGC Form Lease applies to all integrated mineral rights owners, excluding those who negotiated separate leases, and if it does apply to such integrated mineral rights owners, whether SEECO has underpaid royalties to those class members by paying them royalties based upon the WASP price rather than "a price no less than that received from any other purchaser within the governmental township and range in which the lease is situated." (Dkt. No. 42-1, at 1). To determine whether common issues predominate, it is appropriate to conduct "a limited preliminary inquiry" "to determine whether, given the factual settings of the case, if the plaintiff’s general allegations are true, common evidence could suffice to make out a prima facie case." Blades, 400 F.3d at 566-67 (quoting Amchem Prods., Inc., 521 U.S. at 623, 117 S.Ct. 2231).
Mr. Hicks argues that common issues predominate. He argues that common evidence will show that SEECO has underpaid royalties based upon the AOGC Form Lease, and, regardless of the circumstances of the individual class members, this common fact demonstrates that "common issues predominate." (Dkt. No. 43, at 16-17). Specifically, Mr. Hicks asserts that SEECO, by paying integrated mineral rights owners the WASP price rather than "a price no less than that received from any other purchaser within the governmental township and range in which the lease is situated," breached its common law, statutory, and contractual duties to the integrated mineral rights owners (see Dkt. No. 42, at 3-4). Further, he asserts that the breach of contact claim rises and falls on the common legal question surrounding the interpretation of the "affiliate-sale" provision (Id., at 19-20). Finally, Mr. Hicks further argues that any differences in damages among the class members "are objective and capable of mathematical computation for each member." (Dkt. No. 51, at 10).
Defendants, on the other hand, argue that individual questions of fact and law predominate because those royalty owners who did not sign a lease cannot rely upon the terms of the AOGC Form Lease (Dkt. No. 48, at 48). They point out that the process of comparing the WASP price paid by SEECO against those of the prices paid by other purchasers "presents a host of individualized questions." (Id., at 49). Defendants further point out that, because they do not have information regarding the prices other working interest owners received, they would have "to undertake extensive third-party discovery of other companies" to determine the prices paid for gas produced from every single well in the township and range where Mr. Hicks’ mineral interests are located (Id. ). To extend this process to the entire class, defendants assert that this process would have to occur in the "more than 40 different township and range combinations where SEECO operates wells and in which it has integrated mineral owners." (Id., at 50).
There are two decisions from the Eastern District of Arkansas addressing similar issues. At issue in Riedel, a case discussed earlier in this Order, plaintiffs alleged that XTO improperly deducted post-production expenses from the class members’ royalties, in violation of the class members’ leases. Riedel, 257 F.R.D. at 508. While the district court found that the proposed class satisfied Rule 23(a)’s commonality requirement, it ultimately concluded that plaintiffs failed to demonstrate that common issues predominated over individualized questions and denied class certification. Plaintiffs argued that XTO "completely ignored the language of the class members’ leases in calculating their royalties," and XTO responded that common issues did not predominate because of the "incredible multitude of different lease forms ... all containing different terms and conditions and subject to a variety of division orders...." Id. at 512. The district court held that it could "not simply presume, based solely on the fact that the contracts share a few words in common, that all class members entered into standardized form contracts which prohibited the deduction of post-production expenses." 257 F.R.D. at 512. Further, because many of the class members signed "division orders" that may have affected those class members’ rights vis-a-vis XTO and because there was "no evidence in the record of how similar or dissimilar such division orders may be," the district court found that plaintiffs failed to demonstrate that common issues predominated over individualized questions. Id.
Citing Riedel, the Honorable Billy Roy Wilson denied class certification to a proposed class of mineral interest owners who alleged that XTO defrauded them by selling gas to a subsidiary at a below-market price. Mobley Lumber Co. v. XTO Energy, Case Nos. 1:16-cv-00012-BRW, 2017 WL 2905845, at *1 (E.D. Ark. Feb. 8, 2017). Judge Wilson held that "certification is not appropriate here because individualized questions about what each lease allowed predominate over the common questions." Id.
The Court agrees with the reasoning in Riedel and Mobley and finds on the record before it that Mr. Hicks has failed to demonstrate that common issues predominate over individualized questions or that a class action is the superior method of adjudicating the present action. Mr. Hicks has failed to present any expert evidence or testimony regarding the calculation of class damages. Mr. Hicks concedes that, to determine the amount of his own damages, "SEECO must conduct an inquiry to determine whether or not it is paying the appropriate price by comparing its price to those prices paid in all other thirty-six (36) sections [in his township and range]." (Dkt. No. 51, 10-11). Presumably, based on Mr. Hicks’s claims, this analysis would have to occur on a month-by-month basis going back to October 31, 2006. Mr. Hicks points to his royalty check stubs as proof that the prices paid by other purchasers are easily accessible to SEECO. Accordingly, based on this Court’s limited understanding of the issues presented in this litigation at this stage of the proceeding and without any expert testimony to guide it, the Court understands that to determine Mr. Hicks’ claimed damages for a given month, the Court would have to review, for that month, the prices paid by other purchasers in the same township and range where Mr. Hicks’ lease is located. The record indicates that the prices listed on the check-stubs submitted by Mr. Hicks, and presumably supplied by SEECO to other royalty owners, do not necessarily list the prices paid by all other purchasers in the same township and range (Dkt. No. 42-9, at 7). Instead, the record evidence suggests that significant third-party discovery will be necessary to conduct an exhaustive review of the prices paid by other purchasers in Mr. Hicks’ township and range (Dkt. No. 42-8, at 19). Further, upon review by the Court or the parties, any prices paid by other purchasers may have to be adjusted to an "mmBTU basis" in order to compare such prices accurately against the WASP price (Id., at 18).
Per the AOGC Form Lease, a lessor who sells natural gas derived from an integrated owner’s mineral interest to an "affiliate" must receive "a price no less than that received from any other purchaser within the governmental township and range in which the lease is situated." (Dkt. No. 42-1, at 1). This provision does not specify how far back in time the lessor must review the prices paid by other purchasers in the same township and range.
Mr. Hicks asserts that the "affiliate-sale" clause requires SEECO to pay integrated royalty owners at least the highest price paid to any other purchaser located in the same township and range; defendants argue that the language should be interpreted as requiring SEECO to pay at least the lowest price paid to any other purchaser located in the same township and range. The Court need not resolve this issue at this point in the litigation. In either event, the Court would be forced to review all of the prices paid by other purchasers and then, to calculate Mr. Hicks’ alleged damages, subtract the WASP price from the lowest or highest price paid by the other purchasers. For the predominance analysis, the Court asks only whether these individualized damage inquiries will predominate over common questions.
The Court further notes that the process outlined above, even if correct, would only resolve the amount of damages suffered by Mr. Hicks and other integrated owners in the township and range where his mineral interests are located. The record evidence indicates that the proposed class implicates approximately 47 other township and ranges and, to calculate the class-wide damages, the calculations and processes described above would have to be performed for each of those township range combinations in each of the approximately 142 months in the proposed class period (Dkt. No. 48-4, ¶ 4). Of course, this assumes that the integration orders governing those other integrated owners incorporate leases that contain an "affiliate-sale" provision identical to the one in the AOGC Form Lease. The Court is not inclined to make such an assumption, as Mr. Hicks submitted no record evidence to support this and the record evidence defendants submitted does not convince this Court to make such an assumption regarding the substance of the integration orders and leases governing the absent class members. The Court acknowledges that Mr. Hicks argues that defendants denied him discovery on this issue, yet Mr. Hicks filed no motion to compel discovery on this issue. Further, the Court takes judicial notice of the fact that the AOGC’s integration orders may be publicly searchable on the AOGC’s website. See Orders Cabinet, Arkansas Oil and Gas Commission, http://www.aogc.state.ar.us/docuware/orders.aspx (last visited August 20, 2018). In short, the Court has insufficient record evidence before it to determine the lease language governing the absent proposed class members.
142 complete months have passed between October 31, 2006, and the entry date of this Order.
Even if the integration orders and leases governing the entire proposed class were before the Court, and even if each integrated owner was governed by an "affiliate-sale" provision identical to the one in the AOGC Form lease, Mr. Hicks has failed to present any expert evidence or testimony regarding the calculation of class damages. In the absence of such evidence to guide the Court, based on the Court’s limited understanding of the issues presented, the Court determines at this stage that the only way to calculate each class members’ damages will be an individual inquiry into the prices paid for natural gas by other purchasers in approximately 47 township and range combinations across 142 months. The Court finds that, based upon the record evidence, these individualized inquiries would predominate over any common issues of law or fact. Accordingly, the Court concludes that Mr. Hicks has failed to demonstrate that common issues predominate over individualized questions or that a class action is the superior method of adjudicating the present action. IV. Conclusion
For the foregoing reasons, Mr. Hicks’ motion for class certification pursuant to Federal Rule of Civil Procedure 23 is denied.
It is so ordered this the 20th day of September, 2018.