Opinion
Case No. 09-1394-CM-KMH.
September 2, 2011
MEMORANDUM AND ORDER
Plaintiff Arkalon Grazing Association brings class action claims against defendant Chesapeake Operating, Inc. for underpayment or nonpayment of royalties on natural gas and/or constituents of the gas stream produced from wells in Kansas. Currently before the court is Plaintiff's Submission of Proposed Class Notice to the Court and Motion for Approval of Proposed Class Notice and its Mailing (Doc. 97), which was filed on May 9, 2011. Although plaintiff and defendant conferred about the content and form of the notice, defendant objects to plaintiff's motion because (1) the order certifying the class failed to define the "claims, issues, or defenses" as required by Federal Rule of Civil Procedure 23(c)(1)(B), which failure is the subject of defendant's appeal to the Tenth Circuit, and (2) notifying class members of the class action is premature until defendant's appeal is resolved. The Tenth Circuit denied defendant's petition on July 11, 2011, which renders defendant's objections moot.
Tenth Circuit Appeal No. 11-600.
The court reviewed the proposed notice, which is similar to notices used in other royalty owner class action litigation in this district. See Notice of Pendency of Class Action, Eatinger v. BP, No. 07-1266-EFM-KMH (D. Kan. Dec. 10, 2010) (Doc. 171-1); Notice of Pendency of Class Action, Freebird v. Merit Energy, Inc., No. 10-1154-KHV-JPO (D. Kan. Jan. 28, 2011) (Doc. 34-1). The court also reviewed the proposed method of notice. Specifically, the proposed method of notice requires plaintiff's class counsel to mail the notice to the 2,246 individuals listed in the Excel spreadsheet defendant provided to plaintiff after the Notice Administrator compares the addresses to the United States National Change of Address database. For any notice returned as undeliverable, plaintiff will engage the services of a private investigator to attempt to locate the current mailing addresses for those individuals. This court determines that the form and the content of the proposed notice and the proposed methods of providing notice constitute the best notice practicable under the circumstances and satisfy Federal Rule of Civil Procedure 23(c)(2)(B). Accordingly, the court grants plaintiff's motion (Doc. 97). IT IS THEREFORE ORDERED that Plaintiff's Submission of Proposed Class Notice to the Court and Motion for Approval of Proposed Class Notice and its Mailing (Doc. 97) is granted. The court directs plaintiff's counsel to mail copies of the Notice of Pendency of Class Action set forth in Appendix A to each potential member of the class in accordance with the procedure outlined above. The court further directs plaintiff to maintain a copy of all exclusion requests, provide a copy to defense counsel, and file and serve a list of all individuals requesting exclusion from the class on or before December 1, 2011.
The court made minor typographical changes to the proposed notice and modified the suggested dates.
NOTICE OF PENDENCY OF CLASS ACTION
TO: ALL CHESAPEAKE ROYALTY OWNERS ON KANSAS WELLS FROM JANUARY 1, 1998 TO THE PRESENT.
YOU ARE HEREBY NOTIFIED pursuant to Rule 23 of the Federal Rules of Civil Procedure and an Order from the United States District Court for the District of Kansas of the pendency of the above captioned class action lawsuit (the "Action").CLASS DEFINITION
On March 31, 2011, the Court entered an order certifying this Action as a class action on behalf of a class defined as follows:
All royalty owners of Chesapeake Operating, Inc. (and its predecessors and successors) from Kansas wells where royalties have been paid by Chesapeake that have produced gas and/or gas constituents (such as residue gas or methane, natural gas liquids, helium, nitrogen, or condensate) from January 1, 1998 to the present.
Excluded from the Class are: (1) the Mineral Management Service (Indian tribes and the United States); (2) Defendant, its affiliates, predecessors, and employees, officers and directors; (3) those few royalty owners that settled in Roberts v. Chesapeake, Case No. 04-1233-WEB in the United States District Court for the District of Kansas, and (4) Any NYSE or NASDAQ listed company (and its subsidiaries) engaged in oil and gas exploration, gathering, processing or marketing.
If you own or have owned royalty interest(s) in wells located in Kansas that produce or have produced gas and/or gas constituents from January 1, 1998, to the present, and if you have been paid for such royalty interest(s) by Chesapeake Operating, Inc. ("Chesapeake"), you are a member of the Class unless expressly excluded. This Notice is to advise you of the pendency and nature of the Action and your rights in connection with it. This Notice is not an expression of opinion by the Court as to the merits of any of the claims or defenses asserted by any of the parties to the Action or the ultimate outcome of the Action.
For purposes of the class definition, the term "royalty" does not include interests derived from assignments or reservations out of a lessee's interest in an oil and gas lease (commonly referred to as "overriding royalty" interests). To the extent that a member of the Class receives revenues from oil production or from an overriding royalty interest, such revenues are not affected by this Action.
BACKGROUND OF THE ACTION
1. The Action was originally filed in Seward County, Kansas on November 5, 2009. Chesapeake removed the Action to the United States District Court for the District of Kansas on December 11, 2009.
2. Arkalon Grazing Association ("Arkalon") is a Kansas corporation that owns royalty interest in a well located in Seward County, Kansas, for which Chesapeake pays Arkalon royalties. Arkalon has been appointed by the Court as Class Representative. Arkalon contends that Kansas law requires Chesapeake to bear all costs necessary to produce marketable products, and then pay royalties based on the commercial price for marketable products. Arkalon for itself and the Class sues Chesapeake for: (1) breach of leases, (2) unjust enrichment, and (3) for an accounting. It seeks remedies of monetary and compensatory damages, an accounting for all underpayments, an injunction, and attorneys' fees and expenses from the recovery, and costs.
3. In support of its various claims noted above, Arkalon asserts that Chesapeake has underpaid royalties in various respects including: (1) improperly deducting from royalty owners the costs of placing the gas stream and all constituent products into marketable condition such as by deducting or contracting to have deducted the costs of gathering, compression, dehydration, treatment, processing, and other gas conditioning costs; (2) paying royalty based on a starting price that was below what Chesapeake received in arm's-length sales transactions; (3) failing to pay royalty on gas and its constituents that is lost, unaccounted for, or used by Chesapeake or others off the leased premises; (4) failing to pay royalties on condensate, nitrogen, helium and other gas constituents; (5) deducting Conservation Fee and Severance Tax on Helium which are not owed by royalty owners; (6) calculating royalty solely according to Chesapeake's internal accounting, royalty payment formulas, and record-keeping operations which are not known to royalty owner class members; and (7) paying royalty based on false and misleading representations on Chesapeake's check stub forms. Arkalon also contends Chesapeake owes interest on all underpaid amounts. Chesapeake has denied any liability and asserts various defenses.
4. Chesapeake maintains that it pays royalties based upon 100% of the amount that it receives when it sells the gas. Only certain class members have borne any deductions taken for costs incurred, and those costs are third party costs that are included by the purchaser in the calculating the sales proceeds Chesapeake receives. Chesapeake maintains that it fully complies with all its obligations to pay royalty as stated or implied in the leases, and fully complies with the obligations with respect to how it handles taxes. Chesapeake also maintains that the claims are barred in part by the statute of limitations. The Court has not determined the merits of any claim or defense being asserted.
5. On November 4, 2010, the Court issued an Order denying Chesapeake's motion to dismiss Arkalon's claims outside the statute of limitations based on the allegations made in Arkalon's Amended Complaint. The Court has not made a determination of the merits of any claim or defense asserted by any party.
6. On March 31, 2011, the Court certified the Action as a class action, appointed Arkalon Grazing Association as Class Representative, and appointed attorneys with the firm of Gunderson, Sharp Walke, L.L.P. as Class Counsel, that is, as the lawyers to represent the Class. This Court's Order that did so may be found in the public records of this case and can be accessed over the internet via PACER as described elsewhere below in this Notice.
7. The parties will be engaging in discovery on the merits of the claims, which will include, without limitation, the review and analysis of documents, the taking of depositions, and the exchange of expert reports. Like other cases, this case is subject to pre-trial proceedings and developments which may alter, limit or adjudicate claims or defenses being asserted.
YOUR CHOICES
8. This Notice is given to you in the belief that you may be a member of the Class whose rights may be affected by this Action. This Notice is intended merely to advise you of the pendency of this Action and of your rights with respect to the Action, including the right to remain a Class Member or to exclude yourself from the Class. YOU DO NOT HAVE TO DO ANYTHING TO REMAIN A CLASS MEMBER.
9. If you remain a class member, you will be bound by any judgment in this Action, whether it is favorable or unfavorable. If there is a recovery, you may be entitled to share in the proceeds, less such costs, expenses, and attorneys' fees as the Court may allow out of such recovery. If you remain a member of the Class and Chesapeake prevails in the Action, you may not pursue your own lawsuit on any of the issues decided in this Action.
10. IF YOU WISH TO EXCLUDE YOURSELF FROM THE CLASS, YOU MUST MAKE A REQUEST IN WRITING . To be a valid written request for exclusion, you must: (a) state the name and address of the person or entity requesting the exclusion; (b) state your Chesapeake Owner Number; or identify the well or wells in which you hold a royalty; (c) sign the request for exclusion as an individual or an officer or agent of the entity requesting exclusion; (d) mail the request to the Notice Administrator, at the address below. The request must be postmarked no later than November 15, 2011. Do not request exclusion if you wish to participate in this Action as a Class Member.
11. If you exclude yourself from the Class, you will not be bound by any judgment in this Action, nor will you be entitled to share in any recovery in this Action, but you may individually pursue any legal rights you may have against Chesapeake at your own expense.
12. If you do not request exclusion from the Class by November 15, 2011, you will be considered a Class Member, and you will be bound by any final judgment in this Action.
13. If you do not exclude yourself from the Class in the manner set forth above, you may enter an appearance in the Action personally or through your own counsel at your own expense. As a member of the Class, you will be represented by Class Counsel, Gunderson, Sharp Walke, LLP, 5301 West 75th Street, Prairie Village, Kansas 66208, on a contingent fee basis.
14. If you remain a Class Member, you will not be responsible for advancing any Class Counsel's attorneys' fees or costs. Any fees or expenses ultimately allowed by the Court to Class Counsel will be paid out of the recovery in the Action, if any. If there is no recovery, Class Members will have no liability for fees or expenses.
15. If this Notice was sent to you at your current address, you do not have to do anything further to receive future notices concerning this Action. If it was forwarded by the postal service, or if it was otherwise sent to you at an address which is not current, you should immediately contact the Notice Administrator, at the address below.
AVAILABILITY OF FILED PAPERS
16. This Notice is necessarily a summary and does not fully describe all the details of the contentions of the parties. The pleadings and other papers filed in this Action are available for inspection, during business hours, at the Office of the Clerk of the Court, United States District Court for the District of Kansas. The records are also available on-line for a fee through the PACER service at www.pacer.gov/. In addition, you may obtain a copy of the Complaint by downloading it from thehttp://www.strahm.com/Chesapeakeclassaction.html or by contacting the Notice Administrator:
Strahm Automation and Mailing Services
Class Notice Administrator for Arkalon v. Chesapeake (D. Kan.)
1700 Broadway
Kansas City, MO 64108
17. If you have any questions about this Notice, you may consult an attorney of your own choosing at your own expense, or the Notice Administrator whose contact information is in the preceding paragraph.