Chieftain Royalty Co. v. SM Energy Co.

100 F.4th 1147

CHIEFTAIN ROYALTY COMPANY, on its behalf andas representative of a class of similarly situated royalty owners, Plaintiff - Appellee, v. SM ENERGY COMPANY, including predecessors, successors and affiliates;Enervest Energy Institutional Fund XIII-A, L.P.; Enervest Energy Institutional Fund XIII-WIB, L.P.;Enervest Energy Institutional Fund XIII-WIC, L.P.; Enervest Operating, LLC;Four-Point Energy, LLC, Defendants - Appellees.C. Benjamin Nutley, as personal representative of the Estate of Charles David Nutley, Objector - Appellant,andDanny George, Objector - Appellant.

No. 22-6069

No. 22-6124

No. 22-6125

United States Court of Appeals, Tenth Circuit

FILED May 1, 2024

Appeal from the United States District Court for the Western District of Oklahoma (D.C. No. 5:11-CV-00177-D)

Bradley E. Beckworth of Nix Patterson, LLP, Austin, Texas (Jeffrey J. Angelovich, Susan Whatley, Lisa P. Baldwin, Trey Duck, Andrew G. Pate, and Nathan B. Hall of Nix Patterson, LLP, Austin, Texas, and Robert N. Barnes, Patranell Britten Lewis, and Emily Nash Kitch of Barnes & Lewis, LLP, Oklahoma City, Oklahoma, with him on the briefs), for Plaintiff-Appellee.

Eric Alan Isaacson of the Law Office of Eric Alan Isaacson, La Jolla, California (C. Benjamin Nutley of the Law Office of C. Benjamin Nutley, Kamuela, Hawaii and John W. Davis of the Law Office of John W. Davis, Tampa, Florida, with him on the briefs), for Objector-Appellant Nutley.

John J. Pentz of the Law Office of John Pentz, Wayland, Massachusetts, for Objector-Appellant George.

Before TYMKOVICH, MORITZ, and ROSSMAN, Circuit Judges.

ROSSMAN, Circuit Judge.

This case originated as a class action dispute about the underpayment of oil and gas royalties due on wells in Oklahoma. Plaintiff-Appellee Chieftain Royalty Company (Chieftain) sued non-party SM Energy Company, the operator of the wells, under various tort theories, including fraud, breach of contract, and breach of fiduciary duty. In 2015, those underlying claims settled for approximately $52 million.

Following settlement, counsel for Chieftain (Class Counsel) moved for attorneys' fees, and Chieftain, as named plaintiff and class representative, sought an incentive award for its CEO, Robert Abernathy (also called class representative). Two class members objected—Appellants C. Benjamin Nutley¹ and Danny George (collectively, Objectors)—and appealed the awards. We affirmed the settlement but reversed the attorneys' fees and incentive awards, remanding to the district court for further proceedings.

The re-awarded fees and incentive award are now before us in this appeal. Exercising jurisdiction under 28 U.S.C. § 1291, we vacate in part, affirm in part, and remand. The class did not receive notice of the 2018 attorneys' fees motion as required under Federal Rule of Civil Procedure 23(h)(1), so we vacate the district court order awarding attorneys' fees and remand with instructions to direct class-wide notice of the 2018 attorneys' fees motion and to re-open the period for objections. Accordingly, we do not reach the merits of Objectors' appellate challenge to the re-awarded attorneys' fees. We affirm the district court's incentive award to Mr. Abernathy.

I

A

In 2015, the parties in the underlying class action settled for a cash payment of $52 million, "to be distributed pro rata to the class members after payment of expenses and fees."² Chieftain Royalty Co. v. Enervest Energy Inst. Fund XIII-A, L.P. (Chieftain I), 888 F.3d 455, 458 (10th Cir. 2017) (amended Apr. 11, 2018), cert. denied, — U.S. —, 139 S. Ct. 482, 202 L.Ed.2d 388 (2018). The parties moved for preliminary approval of the class action settlement, which the court granted, and the court set a final fairness hearing for November 30, 2015.

The motion for preliminary approval contained a proposed notice to the class, titled "Notice of Proposed Settlement, Motion for Attorneys' Fees, and Fairness Hearing" (the 2015 Class Notice). The 2015 Class Notice gave the class information about the proposed settlement and notice that Class Counsel "would seek an award of attorneys' fees in an amount not to exceed forty percent (40%) of the Settlement Cash Amount and reimbursement of Litigation Expenses in an amount not to exceed $900,000."³ Joint App. at 129. The 2015 Class Notice further stated the class representative, Mr. Abernathy, would seek a "Case Contribution Award," also called an "incentive award," of 1% of the settlement amount. The 2015 Class Notice warned:

Unless otherwise ordered by the court, any class member who does not object in the manner described herein will be deemed to have waived any objection and shall be forever foreclosed from making any objection to the proposed settlement and the application for attorneys' fees and expenses and case contribution awards and will not be allowed to present any objections at the fairness hearing.

Supp. App. vol. 2 at 129-30. The fairness hearing was set for November 30, 2015, with objections to the proposed settlement due a few weeks in advance.

The 2015 Class Notice identified a website for the litigation, and the website contained "a copy of the Settlement Agreement, as well as other relevant documents." Supp. App. vol. 2 at 131. The 2015 Class Notice was mailed to the class on October 9, 2015. A few days later, local Oklahoma newspapers published summary notice of the proposed settlement.

The parties moved for final approval of the settlement on October 26, 2015. Class Counsel also moved for attorneys' fees, costs, and an incentive award (the 2015 motion). Two class members lodged timely objections: Mr. Nutley and Mr. George.⁴

After the final fairness hearing in late November 2015, the district court approved the $52 million cash settlement. Chieftain I, 888 F.3d at 458. The district court awarded Class Counsel 33?% of the fund ($17,333,333.33) as attorneys' fees and awarded Mr. Abernathy ½% ($260,000) as an incentive award. Id. at 458, 464. The district court determined notice "was given to all Settlement Class Members who could be identified with reasonable effort." Joint App. at 128. The "form and method" of the 2015 Class Notice, the district court explained, was "the best notice practicable under the circumstances, constitute[d] due and sufficient notice to all persons and entities entitled to receive such notice, and fully satisfie[d] the requirements of Rule 23 of the Federal Rules of Civil Procedure and due process." Id. at 128-29.

Objectors timely appealed. We affirmed the settlement but reversed the attorneys' fees and incentive awards.⁵ Chieftain I, 888 F.3d at 470. We held Oklahoma state law, not federal law, governed whether attorneys' fees or an incentive award were warranted and how to calculate them. Id. at 462 (attorneys' fees), 468-69 (incentive award). Citing Burk v. Oklahoma City, 598 P.2d 659 (Okla. 1979), we reasoned Oklahoma law does not permit the percentage-of-the-common-fund method for calculating attorneys' fees—the method the district court used when it awarded attorneys' fees of 33?% of the settlement fund. Chieftain I, 888 F.3d at 459-64. Instead, we found the lodestar method would produce a reasonable attorneys' fee award under Oklahoma law. Id. at 459, 469; see also Strack v. Continental Resources, Inc., 507 P.3d 609 (Okla. 2021) ("The lodestar method for calculating fees is to (1) determine the compensation based on the hours spent multiplied by an hourly rate, and (2) enhance or decrease the fee through consideration of the factors outlined in Burk."). Finally, we made an Erie guess⁶ that Oklahoma would disapprove of the district court's percentage-of-the-fund method for determining the incentive award. Chieftain I, 888 F.3d at 468. We concluded Mr. Abernathy's incentive award should have been calculated using "a reasonable rate for reasonable time expended on services rendered that were helpful to the litigation." Id. at 469.

B

On remand, Class Counsel filed two motions in the district court: (1) a motion for attorneys' fees in the amount of $17,333,333.33 (the 2018 attorneys' fees motion); and (2) a motion seeking an incentive award of $260,000.00 to Mr. Abernathy (the 2018 incentive award motion) (collectively, the 2018 motions).⁷ The 2018 motions sought different award amounts than the 2015 motion did. Recall, the 2015 motion sought 40% and 1% of the common fund in attorneys' fees and as an incentive award, respectively. The 2018 motions sought 33?% of the common fund in attorneys' fees and ½% of the common fund as an incentive award, albeit expressed in definite quantities rather than percentages.

In support of the 2018 motions, Class Counsel "compiled an extensive evidentiary record" not previously presented to the district court. Joint App. at 673. The new evidence included time records and declarations supporting attorney hours and rates along with records documenting Mr. Abernathy's time and the nature of his contributions. See id. at 673-74. Class Counsel did not notify the class of the 2018 motions.

Objectors Nutley and George again objected. Objectors contended the request for attorneys' fees was unreasonable because "the hours claimed by the attorneys and their hourly rates [were] excessive" and "their legal work [was] not properly documented." Joint App. at 674. They also opposed an incentive award "in excess of a very modest amount," with Objector Nutley suggesting a $5,000 figure and Objector George suggesting a $10,000 award. Id. at 531-32, 611-12. Objector George also claimed, under Federal Rule of Civil Procedure 23(h)(1), the 2018 attorneys' fees motion should have been the subject of class-wide notice.

While the 2018 motions were pending, the Oklahoma Supreme Court decided Strack v. Continental Resources, Inc., 507 P.3d 609 (Okla. 2021), which addressed certain questions unanswered at the time of Chieftain I. Strack held "both the lodestar and percentage[-of-the-fund] method[s] [are] potentially permissible" methods of determining an attorneys' fee award. Id. at...