WHEELING – An oil and gas drilling company has reached a $42.6 million settlement regarding improper royalty deductions.
Jay-Bee Production Company announced the proposed settlement of the federal class action lawsuit August 29. If approved by U.S. District Judge John Preston Bailey later this year, the settlement would cover claims for improper deductions from 2010 to 2023.
The company denies the claims in the lawsuit but is settling to resolve the dispute and avoid additional litigation. A press release says the settlement is subject to the final court approval as well as reaching a threshold minimum percentage of participation by the class members.
John Preston Bailey
| legalnewsline.com
The case also is notable because Bailey certified it as a class action without conducting a hearing about it.
In an April 4, 2023, order, Bailey granted a motion for class certification in a case. But on April 18, the defendant companies filed an appeal with the U.S. 4th Circuit Court of Appeals questioning Bailey’s certification. That request to appeal eventually was denied by the 4th Circuit.
“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.”
The class-action complaint originally was filed in Tyler Circuit Court in January 2020. It was removed to federal court later that year.
The plaintiffs alleged Jay-Bee and the other defendants unlawfully deducted post-production expenses from royalty payments in violation of the terms of their oil and gas leases. The plaintiffs claimed breach of contract, breach of fiduciary duty, breach of implied covenant of good faith and fair dealing, conversion, misrepresentation, fraud and concealment, civil conspiracy and negligence.
Under the terms of the settlement, Jay-Bee will pay up to $42.6 million into a settlement fund to disburse payments to the class that includes people and entities paid or due royalties from May 21, 2010, to December 31, 2023.
The defendants – which include Jay-Bee Production Company, JB Exploration I LLC, BB Land LLC and other entities and individuals – will stop charging post-production expenses under certain leases determined by the court to not allow post-production expenses to be charged to royalty owners. On other leases, Jay-Bee will be able to charge specific post-production expenses based on the language of the lease as determined by the court.
The defendants also will refund such 2024 decisions directly to royalty owners with interest.
After attorney fees and expenses, eligible class members will receive a minimum payment of $200. For more information on the settlement and royalty questions, go to www.Jay-BeeClassAction.com.
U.S. District Court for the Northern District of West Virginia case number 5:20-cv-101