RICHMOND, Virginia – EQT says a federal judge improperly certified a class in an oil and gas royalties case.
The company filed its first brief January 8 in the appeal before the U.S. Fourth Circuit Court of Appeals.
“This appeal concerns certification of breach of contract and fraud claims arising from alleged underpayment of royalties on natural gas liquids under thousands of gas leases with widely varying language that plaintiffs themselves argued are ambiguous as to NGLs,” the 68-page filing states. “Plaintiffs failed to carry their burden to satisfy Rule 23 on any of their claims. The certification should be reversed.”
The company goes on to say there is “no credible dispute” that the district court improperly certified a class on the plaintiffs’ fraud claims.
“Fraud is an inherently individualized inquiry, and many class plaintiffs will be unable to show reliance because of their individual communications and knowledge,” the brief states. “This was demonstrated by the district court’s summary judgment order dismissing the named plaintiffs’ fraud claims for failure to establish reliance.”
EQT says certification should be reversed on the plaintiffs’ breach of contract claims because the more than 3,700 leases in the class were made at different times by different parties. Some were negotiated by EQT Production and some were done by other companies and later acquired by EQT.
“There is no one lease form or type of royalty provision, but many different types of leases with varying royalty language, and even more with additional terms that greatly impact the lessors’ claims, not to mention differences in individual circumstances and intent of the parties who originally entered into each lease,” the January 8 filing states, adding that the named plaintiffs hold two leases that were negotiated by other operators that contain unique language that is not representative of the proposed class.
“Worse, the district court simply glossed over plaintiffs’ admission that they could not ascertain the class because it would require them to ‘spend countless hours reviewing thousands of lease files and transaction’ to link royalty payments to eases and then to class members over many years.”
EQT says the district court also erred by ignoring the plaintiffs’ failure to show each class member actually suffered damages.
“Class certification is not proper where, as here, individual damages issues must be resolved to determine if there is even liability,” EQT’s brief states.
EQT says the issues presented for review to the Fourth Circuit are whether the district court erred by certifying a class:
* On fraudulent concealment when the class plaintiffs have individual knowledge and reliance issues, and the class representatives’ fraudulent concealment claims have been dismissed on summary judgment;
* On claims for underpayment of royalties on NGLs when there are material variations in lease terms, well quality, and processing and marketing arrangements, and plaintiffs admitted that the leases are ambiguous as to NGLs;
* Where plaintiffs admitted they can’t ascertain the class, and ascertaining class membership will require extensive individualized review of wells, leases and owners over the entirety of the class period; and
* When plaintiffs have not produced a uniform damages model or demonstrated that every class member suffered concreate harm.
The Fourth Circuit agreed to hear the appeal in November. The following day, U.S. District Judge John Preston Bailey stayed the case before him in federal court pending the appeal.
In October, 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. EQT petitioned the Fourth Circuit for the appeal the following day.
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 their complaint 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 said the plaintiffs’ fraud claim is time-barred because it wasn’t filed in time before the two-year statute of limitations. But he also said even if it wasn’t time-barred, the fraud claims fails on the merits.
Bailey wrote 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.” Bailey also said 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.”
Bailey’s order said 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 said 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 said 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)