Opinion
Civil Action No: SA-99-CA-0763-XR.
October 27, 2004
ORDER
Before the Court are Defendant's motion for summary judgment on all claims of Carl Greenwood, Lyda Moreland, and Lida Beatrice Greenwood Moreland (docket no. 123), supplemental motion for summary judgment on all claims of Lyda Moreland (docket no. 124), and motion for decertification (docket no. 137), as well as Plaintiffs' various responses, Defendant's replies, and extensive appendices submitted by both parties. After reviewing the motions, the responses, and the history of this case, the Court has decided that a hearing is necessary to resolve issues raised by the parties as well as other issues and questions that the Court itself is concerned with.
I. Procedural Background
This case arises from the attempt by Plaintiffs to file a class action against Defendant. The issue of certification has come before the Court four previous times, twice certification was denied, and twice certification was granted. As this case sits presently, there are two subclasses of plaintiffs that were certified by Judge Edward Prado:
Judge Prado presided over this case from its inception until he was elevated to the United States Court of Appeals for the Fifth Circuit in 2003.
Subclass I:
Subclass II:
(1) All persons and private entities who own or owned royalty interests under leases in Arkansas, Colorado, Kansas, Louisiana, Montana, and New Mexico;
(2) Where Exxon Corporation (or Exxon Mobil Corporation) is the lessee;
(3) The lease provided for payment of royalties on natural gas production on an amount realized/net prceeds basis or a market value/market price basis;
(4) From which Exxon Corporation (or Exxon Mobil Corporation) has produced natural gas (including natural gas liquids) that was directly or indirectly sold or transferred to Exxon Corporation (or Exxon Mobil Corporation) or within Exxon Corporation (or Exxon Mobil Corporation); and
(5) During the time period from July 14, 1995 through the present.
(1) All persons and private entities who own or owned royalty interests under leases in Texas;
(2) Where Exxon Corporation (or Exxon Mobil Corporation) is the lessee;
(3) The lease provides for payment of royalties on natural gas production on an amount realized/net proceeds basis;
(4) From which Exxon Corporation (or Exxon Mobil Corporation) has produced natural gas (including natural gas liquids) that was directly or indirectly sold or transferred to Exxon Corporation (or Exxon Mobil Corporation) or within Exxon Corporation (or Exxon Mobil Corporation); and
(5) During the time period from July 14, 1995 through the present.
The Court designated Beth Blakemore Hunter, Carl Greenwood and "Ben Myers" as class representatives. The division of the subclasses resulted from the reversal by the Fifth Circuit of the Court's initial certification in Stirman v. Exxon Corp., 280 F.3d 554 (5th Cir. 2002). The Fifth Circuit found that the initial certification was faulty because it did not take into account the pronouncement in Yzaguirre v. KCS Resources, Inc., 53 S.W.3d 368, 374 (Tex. 2001), that there is no implied covenant to market in a lease that is measured on market value, rather than the amount realized or proceeds. Stirman, 280 F.3d at 562. The Fifth Circuit held that typicality was lacking in the initial certification because that certification did not distinguish between "market value" leases and "amount realized/proceeds" leases. Id. The Fifth Circuit also noted, though contrary to Defendant's assertions did not so hold, "There is reason to suspect that Hunter will not be an adequate representative. . . . Hunter has no incentive to fully litigate those claims not applicable to her. Further, . . . she has an incentive to litigate claims relating to [her more valuable leases] over other claims." Id. at 563 n. 7.
This was apparently meant to be "Bea Meyers," otherwise known as Lida Beatrice Greenwood Meyers.
Following the Fifth Circuit's determination in Stirman, the case was re-certified, over Defendant's objection, as described above. Defendant petitioned for review with the Fifth Circuit once again, but the Court declined to review the second certification order. Subsequent to this case being reassigned to the present judge, Defendant filed the present motion to decertify, as well as motions for summary judgment as to certain named plaintiffs. In the motions for summary judgment, Defendant claims that Carl Greenwood, Lyda Moreland, and Lida Beatrice Greenwood Meyers cannot show that they have claims within the class definition. Plaintiffs' response to Defendant's argument asserts that these plaintiffs may well have no valid cause of action. In the motion to decertify, Defendant claims that no plaintiff has been put forward as an adequate representative for either subclass. In addition, Defendant claims that the Court should decertify under its continued duty to evaluate the propriety of class certification. Specifically, Defendant asserts that there have been intervening court cases that foreclose class treatment of the purported class in this case. Defendant also asserts that certain factors in determining class certification have yet to be fully met by Plaintiff, including the "typicality," "commonality," "predominance," and "superiority" requirements. Plaintiff has responded, stating that Defendant's actions have resulted in the snail's pace with which this case has proceeded, that discovery confirms that the named plaintiffs have been injured by Defendant's course of conduct, and that the cases cited by Defendant are neither binding nor relevant to the present status of this case.
II. Continuing Class Certification
Defendant's motions have raised numerous issues and questions that the Court feels have not fully been addressed by either party. Therefore, the Court orders briefing and a hearing be held to discuss each of the following issues and questions.
A. Adequacy of Representation
1. Hunter and the New Mexico Plaintiffs
The Fifth Circuit has noted that Hunter may not qualify as an adequate representative for the class. Specifically, the Court noted that her willingness to unilaterally impose the four year statute of limitations under Texas law, as well as her willingness seemingly to pursue more valuable claims to the detriment of other claims, made her a less than desirable representative. Stirman, 280 F.3d at 563. In response to the Fifth Circuit's concerns, Plaintiffs put forward three plaintiffs from New Mexico, Carl Greenwood, Lyda Moreland, and Bea Meyers, as the representative plaintiffs for a subclass of Plaintiffs that excluded Texas plaintiffs. Plaintiffs then put forward Hunter as the representative plaintiff for the Texas-only subclass. However, the Court certified Hunter, Carl Greenwood, and Bea Meyers as class representatives, and did not distinguish between the representatives. Defendant has now put forward a motion for summary judgment as to Carl Greenwood, Lyda Moreland, and Bea Meyers, asserting that the evidence establishes they individually have no cause of action under the class certification. Specifically, Defendant asserts that the New Mexico plaintiffs do not have interests in any transactions involving sales or transfers within the Exxon or Exxon Mobil Corporation. In response, Plaintiffs have apparently conceded this point, and state that they do not oppose the motions for summary judgment. However, should the Court grant the motions for summary judgment, this case might well revert to the posture prior to the Fifth Circuit's decision in Stirman; Hunter may be the only remaining named plaintiff and would therefore be the sole representative of both Subclass I plaintiffs and Subclass II plaintiffs. Accordingly, the Court directs the parties to answer the following question:
1. If the New Mexico plaintiff are dismissed, would Hunter solely represent both Subclass I and Subclass II, should that subclass continue?
If Plaintiffs are able to put forward another adequate representative for either subclass, they should also provide the Court with representative copies of the leases that would be involved in their claim.
2. The Leases Owned By Hunter
Defendant in its motion for decertification has pointed the Court to the leases owned by Hunter and notes that they have varying clauses for determining the royalty to be paid. As Defendant puts it, there may a "two-prong" royalty, a "three-prong" royalty, and even a "four-prong" royalty. The Court has reviewed these leases and, despite Defendant's assertions that each of the leases are different, and therefore not typical, the Court notes that each of the leases essentially treats the payment of royalty in the same way, just with different language. As the Court itself has noted in review of the leases, and Defendant has subsequently pointed out in its reply, the only time that the words "proceeds" or "amount realized" are used is in conjunction with gas "sold at the well." The term "market value at the well" is used when gas is "sold or used off the premises." From the plain language of the leases owned by Hunter, when gas is "used off the premises," she is entitled to a royalty based on the market value at the well, not the proceeds or amount realized. Therefore, the Court directs the parties to answer the following questions:
Though it failed to point this out in its motion for decertification.
2. What does the term "used" mean with respect to the leases owned by Hunter? Does "used" necessarily mean used by Exxon or Exxon Mobil by intracorporate transfer, rather than sold to a third-party? How can any of these leases fit within Subclass II, which purports to apply to "amount realized" or "proceeds" leases?
3. Is there a lease, whether in Texas or another state within the class, in which the "amount realized" or "proceeds" value applies to the "used" language similar to leases owned by Hunter? Is there any lease in which the amount realized or proceeds value applies to anything other than sale at the well?
4. What does "sold at the well" mean and how is it measured? Can this encompass "transfers" to subsidiaries? See Parry v. Amoco Prod. Co., No. 94CV105, 2003 WL 23306663, at *7 (Colo. Dist. Ct. Oct. 6, 2003) (rejecting this contention).
5. Is Hunter an adequate representative for both subclasses, given her leases?
B. Intervening Court Cases
Defendant has put forward three Texas cases which it refers to as "intervening royalty class decisions" which "have closed the door on class treatment of royalty claims." These cases are Union Pacific Resources Group v. Hankins, 111 S.W.3d 69 (Tex. 2003); Phillips Petroleum Co. v. Bowden, 108 S.W.3d 385 (Tex.App.-Houston [14th Dist. 2003], pet. granted Sept. 10, 2004); Enron Oil Gas Co. v. Joffrion, 116 S.W.3d 215 (Tex.App. — Tyler 2003, no pet. h.). None of these cases support the broad assertions given them by Defendant, but do give some support to the attempt at decertification.
Hankins stands for the proposition that, in Texas, a class action is not certifiable under the theory of a breach of the implied covenant to market when the proffered class combines market value leases and proceeds leases. Hankins, 111 S.W.3d at 73-74. Essentially, the Hankins court did nothing more than apply to class actions the rule set out in Yzaguirre v. KCS Resources, Inc., 53 S.W.3d 368 (Tex. 2001), that the implied covenant to market does not apply to market value leases. The Texas Supreme Court in Hankins found that there were not common issues that predominated throughout the class, as the class combined market value and proceeds leases. Defendant argues Hankins forecloses class treatment for both Subclasses I and II. Their argument is that Hankins affects Subclass I because many of the states involved in Subclass I "have expressly adopted, as their guide to implied covenant law, the same Texas authorities upon which Hankins was based." While it is true that certain states within Subclass I cited and/or relied upon Texas authorities in adopting the implied covenant to market, it not entirely clear that each state within Subclass I would adopt the rule set forth in Yzaguirre and applied in Hankins. Therefore, the Court directs the parties to answer the following question as to Subclass I:
6. Do the states in Subclass I delineate between proceeds and market value leases with respect to the implied covenant to market, as does Texas? If there has been no answer given, would they, if given the opportunity?
As to Subclass II, Defendant asserts that Hankins forecloses class certification because the leases owned by Hunter calculate royalty based upon both market value and proceeds. Hankins does little more than confirm what Stirman set forward, a class action in Texas for a breach of the implied covenant to market cannot encompass market value leases. As such, Hankins has little, if any effect on Subclass II, as defined in the Court's certification order because that order encompasses only proceeds leases. The Court does not accept Hankins as an intervening court case that forecloses class certification with regard to Subclass II. However, the Court is concerned that all the proffered leases owned by Hunter appear to be market value leases. As noted above, and argued by Defendant in its reply, the leases owned by Hunter do not appear to be proceeds leases. At this time, it appears that the leases owned by Hunter calculate royalty based upon market value at the well where intra-corporate transfers are involved. Accordingly, the Court here incorporates Questions 2 and 3 above and directs the parties to provide the Court with any Texas decisions interpreting the term "used" as used in the leases owned by Hunter.
Bowden and Joffrion add some value to Defendant's motion for decertification as to Subclass II. Bowden stands for the proposition that where individual leases would have to be examined by the jury to determine whether an express term speaks to the issue covered by the implied covenant to market, class certification is not appropriate. Bowden, 108 S.W.3d at 395-96. While Bowden is not binding on this Court, and is largely instructive only as to how the Texas courts interpret class certification under TEX. R. CIV. P. 43, Bowden shows the difficulty a trial court would have in applying the implied covenant to market to potentially thousands of leases. The Court does not accept Bowden as an intervening court case that forecloses class certification, but it does view Bowden as instructive on the issues of commonality, predominance, and superiority, issues revealed by the Fifth Circuit as potentially problematic in this case.
Similarly, Joffrion essentially stands for the proposition that a class action involving multiple leases is not appropriate for class action treatment in Texas. Again, Joffrion is an application of TEX. R. CIV. P. 43 and, as such, is not binding precedent on this Court. However, Joffrion also is instructive as to whether class certification is the superior form of treatment for the present cause.
Two recent Fifth Circuit cases shed some light on the problems involved in continuing class certification in this case. In Chevron USA Inc. v. Vermilion Parish Sch. Bd., 377 F.3d 459 (5th Cir. 2004), the Court found that the Louisiana notice statute applies to all claims for gas royalty payments. Id. at 462-64 (applying Art. 137 of the Louisiana Mineral Code). In Robinson v. Texas Automobile Dealers Assoc., No. 03-40691, ___ F.3d ___, 2004 WL 2222287 (5th Cir. Oct. 5, 2004), the Court found the individual issues of reliance and negotiation history precluded class treatment of claims under antitrust law. Accordingly, this Court directs the parties to brief the Court as to the impact of these two Fifth Circuit cases on continued class certification.
C. Commonality, Typicality, Predominance and Superiority
Defendant argues in its motion for decertification that the issues of commonality, typicality, predominance, and superiority have not been sufficiently addressed by the Court. The Fifth Circuit in Stirman recognized that the Court did not properly address most of these issues in its original certification order. The Court then addressed these issues in its current certification order. However, as noted above, the Court is concerned with the possibility that under Texas law, each individual lease may have to be examined before the implied covenant to market may be applied. Similarly, the Court is concerned that determination of damages may be extremely difficult, given the problems with which the parties have had in providing the Court with information on this issue. It appears that Defendant uses a "field price" to determine royalty calculations on intra-corporate transfers. It also appears that the field price is associated with something known as an "X Contract." The essence of Plaintiff's claim is that the use of this field price in the calculation of royalty payments causes damages because the field price is artificially set lower than the price of an arms' length transaction. Neither side has of yet provided the Court with any meaningful side-by-side comparison of what, in final dollar figures, a single plaintiff such as Hunter would have been paid if her royalty was calculated under an arms' length transaction as compared to the use of the field price. Defendant has provided, as their purported "side-by-side analysis" a completely indecipherable collage of over 70 numbers and figures which attempts to show the analysis for a one-month period, with no explanation as to how they are to be read. Plaintiff, on the other hand, has provided nothing in the way of numbers or figures in the way of calculating damages, providing little more than a conclusory affidavit stating that the use of the field price results in lower royalty payments. Accordingly, the Court directs the parties to answer the following questions:
Plaintiffs have provided the Court with a graph entitled "royalty price difference comparing Exxon's LGDB Price to the recomputed WASP with exclusion of non-arms' length transaction values." As the name would suggest, this graph provides little help to the Court's analysis of potential damages.
7. What is a "field price?" How is a field price calculated? What is an "X Contract?" How are these terms related?
In addition, the Court is concerned that there may be divergent issues in state laws that have not been sufficiently taken into account. Specifically, the Court is concerned that the issue of post-production costs has not been taken into account in determining common and typical issues. It appears that the different states may have divergent rules as to when and if royalty interest owners must contribute to post-production costs when royalty is measured by "market value at the well." In Texas, royalty interest owners must share in the reasonable costs to get the product to the point of sale, including compression, transportation, and processing costs. Heritage Resources, Inc. v. Nations Bank, 939 S.W.2d 118, 129-30 (Tex. 1996). In Colorado, however, the royalty interest owner does not share in post-production costs until the lessee gets the product to the point of sale in marketable form. Rogers v. Westerman Farm Co., 29 P.3d 887, 902 (Colo. 2001). In Louisiana, market value is "reconstructed" by beginning with the gross proceeds from the sale of the gas and deducting any costs of taking the gas from the well head to the market. Merritt v. Southwestern Elec. Power Co., 499 So.2d 210, 213 (La.Ct.App. 1986). The Court is concerned as to the impact that post-production costs may have on the continuance of the class, as well as the determination of damages. Accordingly, the Court directs the parties to answer the following questions:
8. Does "market value at the well" include post-production costs? Does the value of an arms' length transaction minus post-production costs charged to the royalty owner equal "field price?" Will any damages calculation take into account post-production costs?
9. Does "field price" take into account post-production costs?
10. How would the states' seemingly divergent treatment of post-production costs be applied to the subclasses?
III. Conlusion
Defendant makes no efforts to hide their ultimate position in this case: "that multistate class certifications simply cannot be maintained." This statement, of course, immediately seems at odds with the history of multistate, and even nationwide class treatment of certain issues, as well as the very existence of Rule 23. Essentially, Defendant would take the position that class actions are no longer allowed in today's world of litigation. The Court is not prepared to accept that rather bold proposition. The Court is, however, ready to examine this certified class action, and determine whether this case should remain in its present form, strongly bearing in mind that this case has historically been viewed as supporting class action treatment and has never been unequivocally denied such treatment.As such, the Court finds that further briefing and a hearing is necessary to resolve Defendant's pending motions for summary judgment and for decertification. Accordingly, the Court directs the parties to file briefing answering the Court's specific questions no later than November 30, 2004. The parties' briefing shall in no event exceed 30 pages. Further, the Court orders a hearing in this case to take place on Thursday, December 9, 2004 at 9:30 a.m., at which time the parties will address the status of the case, the Court's questions, and any other issues brought before the Court.
The Court is troubled by the fact that Defendant's motion for decertification and reply to Plaintiff's response more than doubled the Court's stated page limits. Leave will not be granted to exceed this 30 page limitation.