RICHMOND, Virginia – EQT says a federal appeals court should reverse a lower court class certification order in an oil and gas royalties case.
In a reply brief filed February 28, EQT says the Fourth Circuit Court of Appeals should reverse U.S. District Judge John Preston Bailey’s order based on four fundamental class certification requirements.
First, it says a district court must perform a “rigorous analysis” before certifying a class. Second, it says the plaintiffs must affirmatively prove that class certification is appropriate. Third, it says there must be common answers to questions that will materially advance the litigation. And fourth, claims must be capable of resolution on a classwide basis because of commonality, typicality and predominance.
“Instead of reckoning with these requirements, the response brief of appellees tries to mask the district court’s failure to conduct a rigorous analysis of Rule 23’s requirements by simply pointing to conclusory statements in the certification order itself,” the EQT filing states. “It is not enough simply to recite conclusory findings from the district court’s order and then conclude that the requirements of Rule 23 are met.
“Appellees must demonstrate specifically how their claims fit within Rule 23. Here, they cannot and do not.”
Rule 23 is a federal rule of civil procedure that governs how class actions are handled. It requires a judge to certify that a case is suitable for class action status.
EQT filed its first brief in the appeal January 8 that focused on 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 also said then the plaintiffs “failed to carry their burden to satisfy Rule 23 on any of their claims. The certification should be reversed.”
The plaintiffs in the case filed their reply February 7 saying Bailey did nothing wrong in certifying a class action. The named plaintiffs in the case are William D. Glover, Linda K. Glover, Richard A. Glover, Christy L. Glover and Goshorn Ridge LLC.
“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, 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.
In the original complaint filed in 2019, 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.
In the newest filing, EQT argues there is no “common royalty obligation” in the more than 3,700 class leases and that lease differences prove a lack of commonality and predominance.
“Without ever specifically addressing class lease language, the district court strictly construed each class lease against EQT and summarily ruled that the class leases ‘required royalties to be paid on third party sales,’ somehow transforming countless variations in express lease language into one uniform implied obligation to pay NGL royalties as Appellees demand,” the reply states “The district court also never discussed class lease language regarding the deduction of post-production costs but designated two subclasses based on whether the class leases ‘do not provide for any post production deductions’ or ‘do provide for post-production deductions, but do not meet the requirements … And thus, EQT is said to have a ‘common royalty obligation’ under each of the over 3,700 class leases, irrespective of lease language.”
Instead, EQT says the class leases are not uniform.
“The class includes thousands of individual leases with thousands of lessors,” the filing states. “The class leases were entered into at different times. Some were negotiated and drafted by EQT more than a decade ago. Some were negotiated and drafted by other operators and recently acquired by EQT. …
“Despite appellees’ misleading lease chart, the class leases are not of a certain form, nor do the leases fall within discernable categories. Indeed, many ‘categories’ include only one or two leases, negating appellees’ contentions that these are ‘form’ leases. The leases are different contracts, made at different times, with different people.”
It also says the court can’t ignore class lease language.
“Normally, these many variations in lease language would be fatal to class certification — a court cannot certify a contract claim based on materially different contracts,” the reply states. “Appellees know this. That is why at the district court, appellees argued that class leases are ‘ambiguous’ so the district court would ‘interpret’ all 3,700 leases with one broad stroke.
“Now realizing their blunder … appellees change course and argue that unidentified ‘plain and unambiguous language’ in every class lease imposes a ‘common royalty obligation’ to pay NGL royalties in the particular manner demanded by appellees.”
EQT says neither the plaintiffs nor Bailey identify what “plain and unambiguous” class lease language is contained in every class lease that purportedly imposes a common obligation on EQT to separately pay royalties based on a gross downstream third-party sales price for refined NGL products.
“Appellees do not, and cannot, cite any case that stands for the proposition that when interpreting a contract, the court may entirely disregard the language of that contract,” the brief states. “Regardless of appellees’ flip-flop about whether the ‘plain language’ of the leases requires a higher royalty or whether the leases are ambiguous, appellees cannot avoid the fact that leases must be examined on an individual basis, taking the entire contract into account.
“Either the class leases are not ambiguous and each and every lease must be examined to determine the royalty required by its ‘plain language’ or the class leases are ambiguous and each and every lease must be examined to determine the parties’ intent, based on the individual lease language and potentially other extrinsic evidence.
“Under no circumstance can individual lease language be ignored.”
EQT also says a uniform payment methodology is not uniform breach of contract.
“As expected, appellees also try to avoid the problem of lease variation by arguing that EQT employed a ‘uniform payment method’ for NGL royalties,” the filing states. “According to Appellees, this ‘uniform methodology’ is more important than ‘textual variations in the class leases.’ Appellees equate ‘uniform payment method’ to uniform breach of contract, arguing that they are somehow relieved of their burden to prove that each class lease was breached.
“Appellees do not cite any legal authority to support their contention that lease language does not matter because there is no such case. Appellees contend that EQT owed a ‘common royalty obligation’ based on the ‘plain and unambiguous language’ of the class leases, but they failed to identify language in any class leases that allegedly imposes a uniform obligation on EQT to calculate and pay NGL royalties as appellees demand.”
EQT says the common royalty payment method is not enough to satisfy the requirements for class certification when there is varying lease language.
“Appellees’ reliance on an alleged uniform payment methodology to avoid review of the 3,700 individual class leases and prove breach of contract in one fell swoop is simply a red herring,” EQT claims.
The company also argues that the class has not been and can’t be ascertained because Bailey erred when ordering EQT to create records to try to ascertain the class for class counsel by reviewing county land records. It says that burden should belong to the class instead of the company.
“Appellees do not even attempt to explain in the response how the district court will determine class membership, including how the court will resolve gaps in lease ownership over time, much less did appellees put forth any evidence to support that making these determinations is administratively feasible,” EQT says. “In fact, the record evidence proves that it is not administratively feasible using EQT’s records. …
“Not only this, but EQT cannot perform this work using only its own records, as it acquired many of the leases and wells at issue from other operators and, therefore, must necessarily resort to review of county land records to create the linkage requested by appellees.”
It also says class counsel “flatly ignore the record in arguing that none of the complicating factors in determining ownership over time … exist in this case.”
“It was appellees’ burden to ascertain the class and, as demonstrated by their response, they fell woefully short,” EQT claims.
And EQT again maintains the certification of the fraudulent concealment claim must be reversed.
“Contrary to logic and any reasonable interpretation of the law, appellees refuse to concede the certification of their meritless and time-barred fraud claim,” the brief states. “Appellees intentionally fail to mention in the response that the district court dismissed the fraud claims of the named class representatives, the Glovers and Goshorn Ridge, on summary judgment.
“In dismissing appellees’ fraud claims, the district court held that the claims are barred by the statute of limitations and fail on the merits. More specifically, the court found that appellees ‘failed to adduce evidence of reliance, causation and damages’ to support a claim for fraud against EQT.”
EQT says each element of each cause of action asserted must be provable through evidence that is common to the class. It says the plaintiffs were required but failed to demonstrate that each element of their fraud claim is provable through evidence.
“Appellees lack all credibility — failing to discuss or even mention the district court’s summary judgment on their fraud claim in the response,” EQT argues. “Because appellees cannot prove the elements of causation, reliance and damages for their own clients, which require ‘individualized proof,’ they undoubtedly cannot prove the elements of the certified fraud claim on behalf of the class either.”
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 Jennifer Hicks, Chelsea Heinz, 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)
