Kay Company, LLC v. Equitable Production Company

27 F.4th 252

The KAY COMPANY, LLC; Diane Dile Green, individually and attorney-in-fact for the heirs of Luther E. Kile; The H. A. Robson Trust; Edwin N. Vinson, beneficiary and trustee of the H.A. Robson Trust; David H. Daugherty, trustee of the H.A. Robson Trust; Mary Blair V. Chapuisat, beneficiary of the H.A. Robson Trust; H. Dotson Cather, trustee of Diana Goff Cather Trusts; Clyde Emerson McClung, individually; James E. Hamric, III, individually, Plaintiffs,andMarcus Huey; Estate of James Robert Huey; Kenneth Huey; Richard Huey; Barbara Huey; John Huey ; Laura Maynard, executrix of the estate of Jean Gould, deceased; West-Grubb, LLC; Stoney Meadows, LLC; Sarabeth Lamm; James G. West, LLC ; Captain Perry, LLC; Jennie G. West, LLC; Jennie's Legacy, Inc. ; J.B. West, LLC ; Brent Lambiotte; Charles Lambiotte; Jean Lambiotte Piggott, Intervenors/Plaintiffs – Appellees,

v. EQUITABLE PRODUCTION COMPANY, a qualified Pennsylvania Corporation; Equitable Resources, Inc., a Pennsylvania corporation, Defendants – Appellants,andStatoil North America, Inc., a Delaware corporation; Statoil Energy, Inc., a Virginia corporation; Statoil Energy Holdings, Inc., a Delaware corporation; Ashland Oil, Inc., a Kentucky corporation, Defendants.

No. 21-1614

United States Court of Appeals, Fourth Circuit.

Argued: December 8, 2021

Decided: March 1, 2022

ARGUED: David Dehoney, MCKOOL SMITH P.C., New York, New York, for Appellants. James Robert Russell, SHUMAN MCCUSKEY & SLICER PLLC, Morgantown, West Virginia, for Appellees. ON BRIEF: Lauren W. Varnado, MCKOOL SMITH P.C., Houston, Texas; Jennifer J. Hicks, BABST CALLAND, Charleston, West Virginia, for Appellants. John F. McCuskey, SHUMAN MCCUSKEY SLICER PLLC, Charleston, West Virginia, for Appellees.

Before GREGORY, Chief Judge, and TRAXLER and FLOYD, Senior Circuit Judges.

Affirmed by published opinion. Senior Judge Floyd wrote the opinion in which Chief Judge Gregory and Senior Judge Traxler joined.

FLOYD, Senior Circuit Judge:

This appeal involves a motion to enforce the final judgment and final order in a class action settlement made in the district court by the defendant in the class action, Appellants EQT Production Company and Equitable Resources, Inc., (collectively, EQT), and class members and Appellees, the "Huey Plaintiffs." Three years after entry of the final judgment and final order, the Huey Plaintiffs filed a lawsuit in the Circuit Court of Wetzel County, West Virginia (the Wetzel County litigation) against EQT, alleging that EQT trespassed on their mineral estate in violation of West Virginia statutory and common law. The district court denied the motion to enforce the final judgment and final order and declined to enjoin the Wetzel County litigation. EQT appealed.

We hold that the district court did not err in declining to enjoin the Wetzel County litigation, and, thus, affirm the court's denial of EQT's motion to enforce the final judgment order and final order.

I.

A.

In August 2006, the district court began presiding over a complex class action in which class plaintiffs filed a complaint against EQT. The named plaintiffs sought to represent all West Virginia residents and others who had entered into or were beneficiaries of oil or gas leases with EQT. EQT was involved in the exploration, production, and sale of natural gas within West Virginia and had the responsibility to pay the class plaintiffs a royalty on the gas produced from the wells on the leases in accordance with the terms of their respective leases. Class plaintiffs sought, among other things, "damages for improper deduction of post-production expenses from their royalty payments and damages for breach of lease agreements, breach of fiduciary duty, fraud, violation of the West Virginia Consumer Credit and Protection Act ( W. Va. Code § 46A-6-101, et seq. ), violation of the flat rate royalty statute ( W. Va. Code § 22-6-8 ), and punitive damages, all related to the improper payment of royalties. " J.A. 74 (emphasis added). The Huey Plaintiffs are members of the Flat Rate subclass in this class action.^*

On April 28, 2010, the district court approved a class action settlement of all claims against EQT. As part of the Second Amended Settlement Agreement, which the district court adopted as the Final Settlement Agreement (the Agreement), the district court approved a provision "releasing [EQT] from future claims by Class Members from any and all royalty claims through the settlement date of December 8, 2008." J.A. 142 (emphasis in the original).

The Agreement defines royalty claims as:

Those claims asserted by the Plaintiff Class Representatives in this Action, individually and as representatives of the Class, including claims for improper royalty payments, improper deductions, improper measurement, improper accounting for natural gas liquids, improper sales prices, breach of lease agreements, breach of fiduciary duty, fraud, violation of the West Virginia Consumer Credit and Protection Act ( W. Va. Code § 46A-6-101, et seq. ), violation of the flat rate royalty statute ( W. Va. Code § 22-6-8 ), and punitive damages, all based upon the failure to pay proper royalty.

J.A. 89 (emphasis added).

The release was also temporally restricted to "the period covered by this settlement." J.A. 159. The Agreement defines the relevant "Compensation Period" as being "from February 1, 2000, to the Effective Date," J.A. 79, which was "the date by which this Agreement has been signed by all Parties hereto," J.A. 80. The Agreement was effective on or about December 8, 2008.

To obtain settlement funds, participating class members were required to submit a claim form. The claim form relevant here, the "Flat Rate Claim Form," notified class members that by accepting the settlement, they would "release [ ] [EQT] from any and all Royalty Claims through the Effective Date" and "warrant [their] Ownership Period in the Covered Lease during the Compensation Period." J.A. 101. That is, "[a]s consideration for this settlement," participating class members "REPRESENT[ED] and WARRANT[ED] that [they were] the owner[s] of the interest in the lease ... and [were] entitled to the Settlement Payment set for[th] herein." J.A. 102. Further, participating class members who held Flat Rate Leases were notified that they "cannot seek forfeiture of their Flat Rate Leases after entry of Final Order and Judgment in this civil action." J.A. 102. As members of the Flat Rate Lease subclass, the Huey Plaintiffs submitted a Flat Rate Claim Form and accepted settlement funds as part of the district court class action.

Additionally, as part of the final judgment in this case, the district court "BAR[RED] AND ENJOIN[ED] all Class Members from asserting Royalty Claims arising from the period covered by this settlement"; "ORDER[ED] that the Class Members' Royalty Claims against the Released Parties are released through the Effective Date, December 8, 2008"; "DECLARE[D], ADJUDGE[D], AND DECREE[D] that this Agreement provides the exclusive remedy for Class Members (and any successors in interest) with respect to any and all Royalty Claims ... that were or could have been brought in this action"; and "RESERVE[D] ... continuing and exclusive jurisdiction over the Parties and Class Members to administer, supervise, construe, and enforce the Agreement." J.A. 160.

B.

On June 9, 2017, the Huey Plaintiffs filed the Wetzel County litigation against EQT. In that case, the Huey Plaintiffs allege, among other things, that EQT trespassed on their mineral estate, which the Huey Plaintiffs, at some point, leased to EQT by the Hoge Lease. The Hoge Lease, entered into in 1900, included a habendum and cessation clause which provided that the lease was to have an initial term of five years and would continue to be held open "as long after the commencement of operations as said premises are operated for the production of oil or gas." J.A. 288. The Huey Plaintiffs were under the belief that the Hoge Lease was held open for production from 1935 to 2014 only by one well, EQT Well #1785.

The Wetzel County complaint alleges that EQT approached the Huey Plaintiffs in 2010 with proposed amendments to the Hoge Lease. The Huey Plaintiffs allege that their investigation and discovery in 2017 revealed that Well #1785 "was not producing [oil] for substantial periods of time in 1987 and 2004-2005." J.A. 288. Therefore, the Huey Plaintiffs allege that, because of the habendum clause, the Hoge Lease terminated on its own when the well stopped producing. Thus, they claim that when EQT entered the Hoge Lease property in 2013-2014 to drill and remove hydrocarbon products, they were trespassing in violation of West Virginia Code § 22-6-8 and the common law of West Virginia.

C.

On September 2, 2020, three years after the Huey Plaintiffs filed the Wetzel County litigation, EQT filed a motion with the district court to enforce the 2008 final order and judgment, alleging that the Huey Plaintiffs are in violation of the court's order adopting the Agreement. EQT alleges that (1) the trespass claim in the Wetzel County litigation is a royalty claim that was released by the Agreement's terms and (2) the Agreement was predicated on the validity of the subject leases and, by submitting a Flat Rate Claim Form and accepting settlement funds, the Huey Plaintiffs represented and warranted that they held a valid lease and had the right to payment, so the argument in the Wetzel County litigation seeking to terminate the Hoge Lease is in violation of the Agreement. The district court denied the motion.

The district court determined that "[t]he threshold question is whether the Huey Plaintiffs' trespass claim in the Wetzel County litigation is a ‘royalty claim’ that was or could have been brought in this case and was therefore released by the Agreement and Final Order." Kay Co. v. Equitable Prod. Co. , 535 F. Supp. 3d 537, 541 (S.D.W. Va. 2021). If so, the Huey Plaintiffs had released that claim by consenting to the Agreement and...