RICHMOND, Virginia – The plaintiffs in an oil and gas royalties case say a federal judge did nothing wrong in certifying a class action in the matter.
The named plaintiffs in the case – William D. Glover, Linda K. Glover, Richard A. Glover, Christy L. Glover and Goshorn Ridge LLC – filed their brief February 7 with the Fourth Circuit Court of Appeals. EQT appealed the case last year, saying U.S. District Judge John Preston Bailey improperly certified a class in the case.
“Because the district court did not abuse its discretion, its Certification Order should be affirmed, and EQT’s appeal should be denied,” the plaintiffs say in their filing. “District courts are afforded broad discretion in determining whether to certify a class action. The district court did not abuse that discretion here.”
The Fourth Circuit agreed to hear EQT’s 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 had granted EQT’s motion for partial summary judgment on fraud claims in the case. EQT petitioned the Fourth Circuit for the appeal the following day.
“For nearly a decade, EQT treated all class members identically by paying natural gas liquids royalties on a BTU basis under all class leases without regard to lease language,” the plaintiffs’ attorneys wrote in their brief. “Plaintiffs’ claims are straightforward: EQT breached the class leases by its uniform method of paying NGL royalties based upon an alter-ego sale utilizing a BTU price not associated with NGLs, instead of the much higher prices received from the sale of NGLs to third parties.
“Put differently, plaintiffs contend EQT should have paid royalties during the class period in the same manner as it does now under those same class leases.” They maintain the common question remains whether EQT breached the class leases by its uniform royalty payment method.
The plaintiffs’ attorneys say each of EQT’s “flurry of arguments” against certification fails. They say:
* Bailey did not abuse his discretion by finding EQT owed a comment royalty obligation.
* Textual variations in the class leases do not preclude certification.
* Plaintiffs didn’t concede – and Bailey didn’t find – that the leases were ambiguous.
* The class is ascertainable.
* Plaintiffs have sufficiently demonstrated standing and that individual class members’ damages are capable of being determined using a common method.
* Individual issues about the calculation of damages generally do not defeat certification.
* Bailey didn’t abuse his discretion by certifying plaintiffs’ fraudulent concealment claims because EQT’s uniform fraudulent conduct renders plaintiffs’ claims certifiable under West Virginia law.
Last month, EQT filed its first brief 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,” EQT’s 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 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’ Fourth Circuit brief was filed by Robert P. Fitzsimmons, Mark Colantonio, Clayton J. Fitzsimmons, Robert L. Fitzsimmons and Christine Pill Fisher of Fitzsimmons Law Firm in Wheeling and by Marvin W. Masters and April D. Ferrebee 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)
