United States: Fourth Circuit Vacates Gas Royalties Class Certification On Ascertainability And Dukes Commonality Analysis

On August 19, 2014, the United States Court of Appeals for the Fourth Circuit ruled in favor of CNX Gas Company, LLC, EQT Production Company, and Buckhorn Coal Company, vacating and remanding the U.S. District Court for the Western District of Virginia's certification of five classes related to coalbed methane ("CBM") gas royalty litigation. While the opinion, which involves mineral and property rights and oil and gas jurisprudence, is important for the coal and gas industry, it is equally noteworthy for its class certification analysis of ascertainability and Wal-Mart v. Dukes commonality.

Highlighting recent Supreme Court jurisprudence on class certification and the stringent requirements of Rule 23 of the Federal Rules of Civil Procedure, the Fourth Circuit concluded that the district court's analysis "lacked the requisite rigor to ensure the requirements of Rule 23 were satisfied by any of the certified classes."

The Court began with an analysis of the district court's decision to certify the "ownership classes," in which plaintiffs sought a declaration that class members are the true owners of CBM. The Fourth Circuit concluded that the district court "abused its discretion in at least two ways." First, the district court "failed to rigorously analyze whether the administrative burden of identifying class members in the ownership cases would render class proceedings too onerous," and second, the district court "improperly lowered the burden of proof the plaintiffs must satisfy to demonstrate the prospective classes' compliance with Rule 23(a)'s commonality requirement." Because the class certifications failed to meet the ascertainability and commonality requirements of Rule 23, the Court declined to address the remaining Rule 23 prerequisites for the ownership classes, but noted that the district court will need to "rigorously analyze each class's compliance with all of the Rule 23 requirements."

Speaking to the ascertainability requirement (i.e., that class members be readily identifiable), the Court found that the lower court's reliance on defendants' submissions of ownership schedules to the Virginia Gas and Oil Board "glossed over" the reality that ownership of gas estates is dynamic and fluid, resulting from conveyances postdating those initial submissions. The Appellate Court further noted that such ownership changes are not necessarily easily addressed by reference to land records, which in and of itself may be a complicated process, and one further obfuscated by "numerous heirship, intestacy, and title-defect issues." The Court concluded that such "complications pose a significant administrative barrier to ascertaining the ownership classes."

With regard to commonality, the Fourth Circuit held that it was improper to leave open at the certification stage whether the central question of ownership is in fact a common question. Rather, district courts "must definitively determine that the requirements of Rule 23 have been satisfied, even if that determination requires the court to resolve an important merits issue." Plaintiffs argued that the Virginia Supreme Court's 2004 decision in Harrison-Wyatt, LLC v. Ratliff dictated a finding that plaintiffs are entitled to CBM royalties. The Fourth Circuit held that the district court abused its discretion by certifying the class without "decid[ing] the matter one way or the other."

In addition, the Court did not believe that the question of CBM ownership could be answered on the basis of the Harrison-Wyatt decision or the Virginia Oil and Gas Act alone. Rather, the Fourth Circuit agreed with defendants that the "the court will need to resolve each ownership conflict with reference to specific deed language," and that "[s]uch individualized review precludes a finding of commonality."

The Fourth Circuit next examined the district court's decision to certify the royalty underpayment classes, in which plaintiffs sought payment of royalties they believe defendants improperly escrowed or withheld. Focusing on commonality, as well as predominance and superiority, the Court concluded that the district court again abused its discretion by certifying the five classes under Rule 23(b)(3).

The Court specifically highlighted that the district court placed "an inordinate emphasis on the sheer number of uniform practices without considering whether those practices are relevant to assessing the defendants' ultimate liability." Additionally, the Court held that Plaintiffs' varying leases "will make it difficult, if not impossible, for a court to assess the validity of the defendants' royalty payment practices on a classwide basis." Lastly, the Court directed the district court on remand to "give further thought to other factors that may bear on the superiority analysis," including a) the effect of dominating state-law issues on the suitability of this litigation in a federal forum, b) what state-law mechanisms may be available to resolve the underpayment claims as an alternative to a class action, and c) an assessment of the defendants' efforts to resolve and pay undisputed claims.

While it is unclear how the district court will rule on remand, the Fourth Circuit has signaled that class certification requires district courts to rigorously analyze each Rule 23 requirement and ensure that Plaintiffs have met their burden of demonstrating that each prerequisite to class certification has been satisfied.

The cases are: EQT Production Company v. Robert Adair, No. 13-414; EQT Production Company v. Eva Mae Adkins, No. 13-415;EQT Production Company v. Julia A. Kiser, No. 13-414; CNX Gas Company LLC v. Jeffrey Carlos Hale, No. 13-419, and CNX Gas Company LLC v. Doris Betty Addison, No. 13-421. Jonathan T. Blank of McGuireWoods LLP represents CNX Gas Company and argued on behalf of all defendants. Michael Willis Smith of Christian & Barton argued on behalf of Defendant EQT Production Company. In addition, the following lawyers and law firms represented Defendants and Intervenor-Defendants in the cases: Wade Massie, Penn, Stuart & Eskridge; James Creekmore, Creekmore Law Firm PC; Blair Gardner, Jackson Kelly PLLC; and Eric Whitesell, Gillespie, Hart, Altizer & Whitesell.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.