RICHMOND, Virginia – The Fourth Circuit Court of Appeals has agreed to hear an appeal in a key oil and gas royalties case.
On November 16, the federal appeals court granted the petition seeking an appeal from EQT Corporation in the case filed against it by the Glover family and Goshorn Ridge LLC regarding class certification in the case. On November 17, U.S. District Judge John Preston Bailey stayed the federal case pending the appeal.
Appeals focusing on class certification issues rarely are accepted, according to legal experts.
Last month, Bailey granted EQT’s motion for partial summary judgment on fraud claims in the case. William D. Glover, Linda K. Glover, Richard A. Glover, Christy L. Glover and Goshorn Ridge LLC are the named plaintiffs in the class action case against EQT Corporation and related companies.
The following day, EQT petitioned the Fourth Circuit for the appeal.
In August, Bailey had granted class certification in the case that accuses EQT of having shorted them on payments for natural gas royalties. After continuing the scheduled class certification hearing numerous times, Bailey granted the class certification without conducting a hearing on the matter. His August 31 order officially canceled the hearing.
Bailey’s October orders dismissing the plaintiff's fraud claims were handed down the same day parties on both sides began filing documents in advance of the trial that is scheduled to begin in January. EQT and the other defendants began filing almost 700 trial exhibits that include nearly 40,000 documents in the case.
In those orders, Bailey says the plaintiffs entered into an oil and gas lease with Republic Energy Ventures and Trans Energy in 2010. EQT took over operation of the lease in 2017 before selling the lease and wells to Tug Hill in 2021.
The plaintiffs took issue with a 10 percent processing fee charged by Williams Ohio Valley Midstream, claiming it was contrary to the terms of its lease. And when it received its first royalty remittance statement from EQT in 2018, the plaintiffs noticed EQT did not separately list out gas and natural gas liquids, instead only listing raw gas as measured at the wellhead. But court documents show EQT noted on its statements that it does not report NGL volumes on prices separately.
The plaintiffs filed a federal lawsuit in 2018 focusing on deductions purportedly taken by Republic Energy and Trans Energy in calculating royalties and claiming fraudulent representation. But the plaintiffs did not allege EQT failed to pay royalties on NGL sales or fraudulently concealed its NGL royalty methodology.
In 2019, the plaintiffs settled all claims from that action up until the time EQT took over and began paying royalties. Then, the plaintiffs filed an amended complaint changing the case to a class action, this time alleging EQT failed to pay royalties on downstream proceeds from refined NGL products and committed fraud in connection with royalty payments on NGL sales. It was consolidated into this new class action with a lawsuit with another class complaint. In June 2023, the plaintiffs filed an amended consolidated complaint
In his order, Bailey says the plaintiffs’ fraud claim is time-barred because it wasn’t filed in time before the two-year statute of limitations. But he also says even if it wasn’t time-barred, the fraud claims fails on the merits.
Bailey writes that Goshorn sent a letter to EQT asking whether the value of NGLs was included in the gas price. EQT responded, saying it was “not paying separately for natural gas liquids.” He also says EQT disclosed facts Goshorn now alleges were fraudulently concealed, and he adds Goshorn also conducted its own investigation through an independent consultant to analyze the methodology.
He says the resulting spreadsheet shows “Goshorn understood that it was being paid a royalty on ‘methane + NGLs’ based on the total mcf of gas, which was measured at the wellhead. Goshorn also admitted it understood NGLs were part of the gas stream.
“Conveniently, plaintiffs amended their complaint again recasting their misrepresentation claim as a claim for ‘fraudulent concealment,’” Bailey writes in a footnote to his order. “While fraudulent concealment can be a basis for tolling a statute of limitations period, Goshorn has failed to meet the burden to show that EQT Production actually prevented them from discovering or pursuing their potential cause of action within the statutory period. …
“In fact, EQT Production wrote back to Goshorn when specifically asked questions by Goshorn.”
The order says Goshorn alleges EQT “did everything it could to interfere with plaintiff Goshorn Ridge discovering the NGLs and how much EQT was making off of plaintiff’s NGL sales.”
But, “the contention is belied by the record,” Bailey wrote. “Goshorn has failed to adduce evidence of reliance, causation and damages, and EQT Production cannot be liable for fraud telling Goshorn that the Goshorn Lease says exactly what it states.”
Bailey says Goshorn also says there is no allegation or evidence that Goshorn relied to its detriment and suffered independent damages beyond its breach of contract claim as a result of EQT Production’s alleged fraud.
“Nor has Goshorn shown any damages beyond their breach of contract claim,” Bailey writes when noting the claim fails. He also says punitive damages are not recoverable here because the fraud claim fails as a matter of law.
In the original complaint, the plaintiffs claim EQT breached contracts by shorting them on payments for natural gas royalties and by failing to make timely royalty payments. They also say the company breached its fiduciary duties and misrepresented to them that they were being fairly compensated.
The company says it paid the owners for the value of natural gas liquids based on the BTU content of the gas until January 2021 and is not obligated to pay more just because it goes on to process the liquids and sell them as hydrocarbons.
The plaintiffs are being represented by Robert J. Fitzsimmons, Mark Colantonio and Donald M. Kresen of Fitzsimmons Law Firm in Wheeling, Eric M. Gordon of Berry Kessler Crutchfield Taylor & Gordon in Moundsville, Roger L. Cutright and Andrew R. Cutright of Cutright Law in Morgantown and Marvin W. Masters of The Masters Law Firm in Charleston.
The defendants are being represented by Lauren Varnado and David Dehoney of Michelman & Robinson and Chelsea Heinz, Jennifer Hicks, Mark Dausch, Timothy Miller and Tiffany Arbaugh of Babst Calland.
U.S. Fourth Circuit Court of Appeals case number 23-256 (U.S. District Court for the Northern District of West Virginia case number 5:19-cv-223)