RICHMOND, Virginia – In a rare move, a federal judge has certified an oil and gas royalties case as a class action without conducting a hearing about it.
In an April 4 order, U.S. District Judge John Preston Bailey granted a motion for class certification in a case against Jay-Bee Oil & Gas Inc. and other related companies.
But on April 18, the defendant companies filed an appeal with the U.S. 4th Circuit Court of Appeals questioning Bailey’s certification.
Judge John P. Bailey
“Perhaps the most glaring problem with the certification order is the district court’s lack of attention to critical detail,” the defendants’ Petition for Permission to Appeal states. “Review is appropriate because the substantial errors contained in the district court’s ruling threaten to terminate the litigation despite the existence of strong merit defenses.”
The defendants’ petition doesn’t mention Bailey’s lack of a class certification hearing as a reason for appeal, but it does claim Bailey’s certification creates a conflict with Rule 23, which details the guidelines for class certification, and “raises unsettled legal questions under West Virginia oil and gas law.”
An attorney who has an extensive history with class-action cases, including in front of Bailey, said the lack of a hearing for class certification is “very rare, but not completely unheard of.”
“Certainly, it is rare for a court to grant a certification without holding some form of hearing,” Jeff Holmstrand told The West Virginia Record. “But it’s not completely unheard of for a court to grant certification or to deny certification without a hearing depending on the evidence presented.”
Holmstrand is not involved in the Jay-Bee case, but he is seen as a class-action expert. Of numerous class actions he’s worked in his career, he said he recalls only one that saw the class certified without a hearing. That also was a case before Bailey.
“In this (Jay-Bee) case, like most class actions, the question is whether the plaintiffs would be able to prove damages in a classwide fashion,” said Holmstrand, a partner at Grove Holmstrand and Delk in Wheeling. “I don’t know the particulars of this case, and I haven’t looked at the filings. But generally, classes that are certified without a hearing involve statutory violations, meaning there is a certain amount of damages per violation of a statutory code. Like in TCPA (Telephone Consumer Protection Act) cases, there typically is a $400 fine per each violation.”
While the Jay-Bee case is an oil and gas royalty dispute, the defendants say the roughly 3,500 leases of the royalty owners in the certified class contain “distinctly different royalty clauses.” The companies say Rule 23(b)(3) requires common questions of law or fact, but they argue Bailey ignored “profound material differences” among the lease clauses “raising questions as to whether the core issue in the case is common to the class.”
The defendants say the leases actually contain about 82 different types of royalty clauses “not including strikethroughs and handwritten insertions in some leases.” They also say Bailey certified both the plaintiffs’ breach of contract and fraud claims.
“By including the fraud claim, the district court changed the dynamics of this case,” the petition states. “Plaintiffs allege almost $50 million in actual damages, but with the availability of punitive damages based on the certification of the fraud claim, the risk of an adverse ruling increases to $250 million. …
“The differences in the leases will result in different outcomes and there are individualized questions that must be considered for each of the approximately 3,500 leases.”
The defendants argue Bailey didn’t perform a “predominance” analysis for commonality of the claims under Rule 23(b)(3), didn’t provide “rigorous analysis” under Rule 23(A), didn’t perform a proper analysis of “typicality and “adequacy of representation” and erred by certifying a class that is not ascertainable.
They say the case is “virtually certain to be reversed” after trial based on Bailey’s failure to satisfy the commonality and predominance requirements.
“The district court either ignored these issues or erred in resolving them, which is bound to cause confusion in trying this case to a jury,” the defendants’ 4th Circuit petition states. “Immediate appeal will help avoid what is shaping up to be an avoidable mess.”
The defendants also filed a motion to stay the district court proceedings pending the 4th Circuit appeal.
The defendants are being represented by Charles Bailey and Josef Horter of Bailey & Wyant in Charleston and by Mike Seely, Michael Leffel, Vi Tran, Shane McDonald and Drake Lawsage of Foley & Lardner. The plaintiffs are being represented by Brian Classer, Jonathan Marshall, Brian Swiger, Victor Woods and John Budig of Bailey & Glasser in Charleston; Timothy Linkous of Linkous Law in Morgantown; Scott Windom of Windom Law Office in Harrisville; Michael Benninger of Benninger Law in Morgantown; and William E. Ford III of Ford Law Office in Hobe Sound, Florida.
U.S. 4th Circuit Court of Appeals case number 23-161 (U.S. District Court for the Northern District of West Virginia case number 5:20-cv-101)