Anderson Living Trust v. WPX Energy Prod., LLC

THE ANDERSON LIVING TRUST f/k/a THE JAMES H. ANDERSON LIVING TRUST;THE PRICHETT LIVING TRUST; CYNTHIA W. SADLER and ROBERT WESTFALL, Plaintiffs, v. WPX ENERGY PRODUCTION, LLC f/k/a WPX ENERGY SAN JUAN, LLC;WILLIAMS PRODUCTION COMPANY, LLC and WPX ENERGY ROCKY MOUNTAIN, LLC f/k/aWILLIAMS PRODUCTION RMT COMPANY, LLC, Defendants.

No. CIV 12-0040 JB/KBM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

December 31, 2015

MEMORANDUM OPINION AND ORDER

THIS MATTER comes before the Court on the Plaintiffs' Motion for Reconsideration of Order Denying Class Certification, filed June 1, 2015 (Doc. 288)("Motion"). The Court held a hearing on October 23, 2015. The primary issue is whether the Court should reconsider its earlier Memorandum Opinion and Order, filed March 19, 2015, in which the Court denied the Plaintiffs' Motion and Supporting Brief to Determine That This Matter Proceed as a Class Action, filed January 6, 2014 (Doc. 194), on the ground that the Plaintiffs did not satisfy rule 23 of the Federal Rules of Civil Procedure's requirements. The Court concluded that the Plaintiffs did not meet rule 23's commonality and predominance requirements because the Court had to examine too many different lease variations to resolve the proposed class' claims. See Memorandum Opinion and Order at 1-3, filed March 19, 2015 (Doc. 278)("Class Certification MOO"). The Plaintiffs contend that the implied-duty-to-market claim provides a basis on which the Court can certify a class. Because the Court dismissed the claim on which the Plaintiffs argue that the Court should reconsider its Class Certification MOO, and because the Plaintiffs provide no other sound reasons for the Court to change its earlier ruling, the Court declines to change its ruling and will thus deny the Motion.

FACTUAL BACKGROUND

The Court has summarized the Plaintiffs' factual allegations on numerous occasions, see Anderson Living Trust v. ConocoPhillips Co., LLC, 952 F. Supp. 2d 979 (D.N.M. 2013)(Browning, J.)("First MTD MO"); Anderson Living Trust v. WPX Energy Prod., LLC, 27 F. Supp. 3d 1188, 1192-95 (D.N.M. 2014)(Browning, J.)("Second MTD MOO"); Anderson Living Trust v. WPX Energy Prod., LLC, 2015 WL 3543011 (D.N.M. May 26, 2015)(Browning, J.). The Court has even made extensive factual findings for the purposes of deciding whether to certify this case as a class action. See Class Certification MOO at 3-75. It incorporates by reference those discussions, and sets forth additional facts pertinent to the issues raised in this Memorandum Opinion and Order.

The named Plaintiffs are: the Anderson Living Trust, formerly known as the Jams H. Anderson Living Trust; the Prichett Living Trust; Cynthia W. Sadler; and Robert Westfall. The named Plaintiffs are individuals and trusts owned by individuals with no in-depth knowledge of the oil-and-gas industry. Owing to the leases' ages, no Plaintiff personally executed the lease that now pays his, her, or its royalty; rather, all of the named Plaintiffs inherited their royalty interests. See Complaint ¶ 26, at 10-12. There are two Defendants in this case: (i) WPX Energy Production, LLC ("WPX Energy"), formerly known as WPX Energy San Juan, LLC, and Williams Production Company, LLC; and (ii) WPX Energy Rocky Mountain, LLC ("WPXRocky Mountain"), formerly known as Williams Production RMT Company, LLC. The Court will refer to WPX Energy and WPX Rocky mountain as "the Defendants."

This case is a proposed class action on behalf of landowners who executed long-term leases with the Defendants. See Fourth Amended Complaint for Underpayment of Oil and Gas Royalties ¶ 26, at 10-12, filed September 27, 2013 (Doc. 129)("FAC"). The leases, which were executed largely in the 1940s, allow the Defendants to drill for natural gas on the Plaintiffs' land in exchange for a royalty payment -- usually one-eighth of the proceeds from sale. See Complaint ¶ 26, at 10-12. The Plaintiffs contend that the Defendants have been underpaying the royalties in a number of ways¹ -- most notably by paying royalties on natural-gas liquids at the same price per MMBtu² that they pay for natural gas, which is a cheaper product. See Complaint ¶¶ 12-105, at 5-33. The Plaintiffs seek damages for this underpayment going back to 1985. See Complaint ¶ 33, at 14.

The only consistent information³ that the Plaintiffs received regarding their royalties are their monthly check stubs, which contain figures -- broken down by well, for those Plaintiffs who own royalty interests in more than one well -- for the total "price," "quantity," "value," "deductions," and "net [proceeds]" of all gas recovered from the Plaintiffs' wells over that payment period, and the "interest," "paid int[erest]," "value," "deductions," and "net share" of the Plaintiffs' royalty. E.g., Check Stubs of James H. Anderson Living Trust (dated over numerous years), filed with the Court during the class certification proceedings as Plaintiffs' Ex. 1. See Complaint ¶¶ 86-87, at 26-27; id. ¶ 95, at 28-29. The Plaintiffs also receive the checks, which contain only the final dollar figure of the royalty payout for that payment period. See, e.g., Check Stubs of James H. Anderson Living Trust at 1-2.

PROCEDURAL BACKGROUND

In the Class Certification MOO, the Court stated that the Plaintiffs must satisfy rule 23's requirements to proceed as a class action. See Class Certification MOO at 231. "To be certified under rule 23(b)(3), a class must meet all four of rule 23(a)'s requirements -- numerosity, commonality, typicality, and adequacy -- and both of rule 23(b)(3)'s requirements -- predominance and superiority." Class Certification MOO at 231. The Court concluded that, "although the underpayment claims satisfy rule 23(a)'s other requirements, they lack commonality under rule 23(a)(2)." Class Certification MOO at 231. Second, the Court determined that "the underpayment claims fail to satisfy rule 23(b)(3)'s predominancerequirement." Class Certification MOO at 231. The Court therefore denied the Plaintiffs' motion to certify the case as a class action. See Class Certification MOO at 283. Before the Court considered whether to certify a class, however, it considered whether to dismiss the Plaintiffs' claims for breach of the implied duty to market.

1. The Court's Dismissal of the Plaintiffs' Third Cause of Action.

In the Plaintiffs' third cause of action, they asserted that the Defendants' practice of deducting the cost of rendering the hydrocarbons marketable from the Plaintiffs' royalty payments violated the implied duty to market. See First Amended Complaint for Underpayment for Oil and Gas Royalties ¶¶ 41-53, at 13-16, filed January 12, 2012 (Doc. 1-1); Second Amended Complaint ¶¶ 43-55, at 13-16, filed February 16, 2012 (Doc. 10)("SAC"). The Court construed their claim as an assertion that the Defendants violated the marketable-condition rule sub-part of the implied duty to market. Although each state describes the marketable-condition rule in its own way, in general, the marketable-condition rule prohibits lessees from deducting certain post-production costs from lessors' royalty payments. See Garman v. Conoco, Inc., 886 P.2d 652, 661 (Colo. 1994); Wood v. TXO Prod. Corp., 854 P.2d 880, 882 (Okla. 1992); Gilmore v. Superior Oil Co., 192 Kan. 388, 388 P.2d 602, 606 (1964). In contrast, the implied duty to market is broader: it requires lessees to extract the minerals subject to a lease and to market them. See Elliott Indus. LP v. BP Am. Prod. Co., 407 F.3d 1091, 1113 (10th Cir. 2005)("Elliott Industries"). After an extensive consideration of Tenth Circuit precedent, the Court concluded that "the Tenth Circuit's decision in Elliott Industries bars the Plaintiffs' allegation of a breach of the marketable condition rule and breach of the implied duty to market hydrocarbons." First MTD MO, 952 F. Supp. 2d at 1046-47.

The Court described the facts of Elliott Industries in detail, exploring all of the Plaintiffs' contentions that Tenth Circuit precedent did not foreclose the Court from determining that New Mexico law recognized their cause of action. See First MTD MO, 952 F. Supp. 2d at 1022-24. The Court described how, in Elliott Industries, the plaintiffs alleged that the lessee defendant breached the implied duty to market by taking "'excessive cost deductions" from the plaintiffs' royalty payments. First MTD MO, 952 F. Supp. 2d at 1022. In other words, the plaintiffs alleged that the defendants violated the marketable-condition rule sub-part of the implied duty to market. The Court explained that the Tenth Circuit determined that: (i) New Mexico had not adopted the marketable-condition rule; and (ii) the defendants did not violate "any implied duty to market under New Mexico law" because they were actively producing, processing, and selling the refined gas, which "'complied with the implied duty to market as articulated by the New Mexico courts.'" First MTD MO, 952 F. Supp. 2d at 1023 (quoting Elliott Industries, 407 F.3d at 1113).

The Court then exhaustively described New Mexico case law considering whether the marketable-condition rule is implied as a matter of law into oil and gas leases. See First MTD MO, 952 F. Supp. 2d at 1023-24. It explained how the Supreme Court of New Mexico has twice "expressly declined" to adopt the marketable condition rule. First MTD MO, 952 F. Supp. 2d at 1023. The Court then determined that Elliott Industries precluded the Plaintiffs' allegation that the Defendants breached the marketable-condition rule sub-part of the implied duty to market. See First MTD MO, 952 F. Supp. 2d at 1048. The Court therefore discussed how Elliott Industries foreclosed the Plaintiffs' assertion that the Defendants could not deduct post-production costs from their royalty payments. It did not consider whether Elliott Industries foreclosed the argument that the implied duty to market requires lessees to secure the best pricereasonably obtainable. See First MTD MO, 952 F. Supp. 2d at 1049. The...