Leggett v. EQT Prod. Co.

800 S.E.2d 850

Patrick D. LEGGETT, et al., Plaintiffs Below, Petitioners

v.EQT PRODUCTION COMPANY, et al., Defendants Below, Respondents

No. 16-0136

Supreme Court of Appeals of West Virginia.

Rehearing Granted: January 25, 2017

Submitted Upon Rehearing: May 2, 2017

Filed: May 26, 2017

Dissenting Opinion of Justice Davis May 30, 2017

Marvin W. Masters, Esq., Richard A. Monahan, Esq., April D. Ferrebee, Esq., The Masters Law Firm lc, Charleston, West Virginia, and Michael W. Carey, Esq., Carey, Scott, Douglas & Kessler, PLLC, Charleston, West Virginia, Attorneys for Petitioners

David K. Hendrickson, Esq., Carl L. Fletcher, Jr., Esq., Hendrickson & Long PLLC, Charleston, West Virginia, Attorneys for Respondents

Howard M. Persinger, III, Esq., Persinger & Persinger, L. C., Charleston, West Virginia, Attorney for Amici Curiae, West Virginia Land and Mineral Owners', Association, West Virginia Royalty Owners', Association, West Virginia Farm Bureau, National Association of Royalty Owners, Appalachia, and Lewis Maxwell Oil & Gas LLC

Timothy M. Miller, Esq., Mychal S. Schulz, Esq., Katrina N. Bowers, Esq., Babst, Calland, Clements & Zomnir, P. C., Charleston, West Virginia, Attorneys for Amici Curiae, West Virginia Oil and Natural Gas Association, and West Virginia Independent Oil and Gas, Association

Michael J. Hammond, Esq., Dodaro, Matta & Cambest, P. C., Canonsburg, Pennsylvania, Attorney for Amicus Curiae Bounty Minerals, LLC

LOUGHRY, Chief Justice:

This case is before the Court upon certified questions presented by the United States District Court for the Northern District of West Virginia regarding whether this Court's decision in Tawney v. Columbia Natural Resources, L.L.C. , 219 W.Va. 266, 633 S.E.2d 22 (2006), has "any effect" upon whether a lessee of an oil and/or gas lease subject to West Virginia Code § 22-6-8 (1994) may deduct post-production expenses from the lessor's royalty. Upon original hearing, a majority of this Court reformulated the certified question and held that royalties paid pursuant to leases which were subject to West Virginia Code § 22-6-8 could not be "diluted" by costs incurred downstream from the wellhead, nor could amounts attributable to loss or beneficial use of volume be deducted prior to calculation of royalties.

However, upon careful review of the briefs on rehearing, the appendix record, the arguments of the parties and amici curiae,¹ and the applicable legal authority, we conclude that both the legislative intent and language utilized in West Virginia Code § 22-6-8 permits allocation or deduction of reasonable post-production expenses actually incurred by the lessee and more specifically permits use of the "net-back" or "work-back" method of royalty calculation.

I. FACTS AND PROCEDURAL HISTORY

The petitioners Patrick D. Leggett, et al (hereinafter "the petitioners") are owners of a 75% undivided interest in the gas estate of a 2,000-acre tract in Doddridge County. Certain wells on the property are "flat-rate" wells, i.e. wells for which the lease provides for payment of a sum certain per well, per year. In 1982, the Legislature enacted the predecessor of West Virginia Code § 22-6-8,² which provides that permits for flat-rate wells will not be issued unless the lessee swears by affidavit that it will pay the lessor no less than one-eighth "of the total amount paid to or received by or allowed to [the lessee] at the wellhead for the oil or gas so extracted, produced or marketed[.]" (emphasis added).

The petitioners filed suit against respondent EQT Production Company and affiliated companies (hereinafter "EQT")³ for underpayment of royalties, resulting from EQT's deduction of certain costs incurred for the gathering and transporting of the gas to the interstate pipeline. In particular, EQT takes the full price it obtains by selling the gas at the interstate pipeline and deducts "some" of the costs ("midstream" costs or "postproduction" costs) incurred after it is extracted,⁴ but before it reaches the market at the pipeline. EQT maintains that the only way to capture the statutorily-required "wellhead" price is to utilize this so-called "net-back" or "work- back" method which deducts postproduction expenses from the sales price to duplicate the "wellhead" price. The petitioners contend that neither West Virginia Code § 22-6-8(e) nor the common law of West Virginia permit deduction or allocation of costs in this manner for purposes of royalty calculation.

Accordingly, the District Court certified the following questions to this Court pursuant to the Uniform Certification of Questions of Law Act, West Virginia Code § 51-1A-1 (1996) et seq .:

1. Does Tawney v. Columbia Natural Resources, L.L.C ., 219 W.Va. 266, 633 S.E.2d 22 (2006), which was decided after the enactment of West Virginia Code § 22-6-8, have any effect upon the Court's decision as to whether a lessee of a flat-rate lease, converted pursuant to West Virginia Code § 22-6-8, may deduct post-production expenses from his lessor's royalty, particularly with respect to the language of "1/8 at the wellhead" found in West Virginia Code § 22-6-8(e) ?

2. Does West Virginia Code § 22-6-8 prohibit flat-rate royalties only for wells drilled or reworked after the statute's enactment and modify only royalties paid on a per-well basis where permits for new wells or to modify existing wells are sought, or do the provisions of West Virginia Code § 22-6-8 abrogate flat-rate leases in their entirety?⁵

(footnote added).

II. STANDARD OF REVIEW

This Court has consistently held that " ‘[a] de novo standard is applied by this court in addressing the legal issues presented by certified question from a federal district or appellate court.’ Syl. Pt. 1, Light v. Allstate Ins. Co ., 203 W.Va. 27, 506 S.E.2d 64 (1998)." Syl. Pt. 2, Aikens v. Debow , 208 W.Va. 486, 541 S.E.2d 576 (2000). Moreover, "[w]here the issue on an appeal ... is clearly a question of law or involving an interpretation of a statute, we apply a de novo standard of review." Syl. Pt. 1, Chrystal R.M. v. Charlie A.L., 194 W.Va. 138, 459 S.E.2d 415 (1995). With this standard of review in mind, we proceed to the remaining certified question.

III. DISCUSSION

Upon review of EQT's petition for rehearing, this Court determined that substantial justice required us to revisit the prior opinion issued in this matter to ascertain whether the previous majority had misapprehended certain points of law. See W. Va. R. App. Proc. 25(b) ("A petition for rehearing is granted only in exceptional cases. The petition shall ... state with particularity the point of law or fact which in the opinion of the petitioner the Court has overlooked or misapprehended[.]"). While an admittedly uncommon occurrence, rehearing exists expressly for the purpose of ensuring that opinions which are not well-founded due to misapprehension of the issues, the law, or the facts are rectified. Justice demands this procedural remedy, which this Court has judiciously utilized when the issues or outcome demand it. See Knotts v. Grafton City Hosp., 237 W.Va. 169, 786 S.E.2d 188 (2016) (reversing and remanding upon rehearing after original affirm); W. Va. Reg'l Jail & Corr. Facility Auth. v. A.B. , 234 W.Va. 492, 498, 766 S.E.2d 751, 757 (2014) (stating that "public policy concerns raised by our initial opinion" compelled rehearing); Hosaflook v. Consolidation Coal Co ., 201 W.Va. 325, 329, 497 S.E.2d 174, 178 (1997) (twice granting rehearing in Human Rights Act case); Haines v. Kimble , 221 W.Va. 266, 654 S.E.2d 588 (2007) (rehearing granted); Committee on Legal Ethics of West Virginia State Bar v. Farber , 191 W.Va. 667, 447 S.E.2d 602 (1994) (same); Jewell v. Maynard, 181 W.Va. 571, 383 S.E.2d 536 (1989)(same); Dadisman v. Moore , 181 W.Va. 779, 384 S.E.2d 816 (1988) (same); Turner v. State Compensation Comm'r , 147 W.Va. 145, 126 S.E.2d 379 (1962) (same); Garges v. State Compensation Comm'r, 147 W.Va. 188, 126 S.E.2d 193 (1962) (same); Ellis v. Henderson, 142 W.Va. 824, 98 S.E.2d 719 (1957) (same); Reese v. Lowry, 140 W.Va. 772, 86 S.E.2d 381 (1955) (same); Bailey v. Baker, 137 W.Va. 85, 70 S.E.2d 645 (1952) (same); State v. Gilliland, 51 W.Va. 278, 41 S.E. 131 (1902) (same).

As this Court has observed, reconsideration upon rehearing is often facilitated by a more focused and clearer presentation of the arguments by the parties, who commonly have a better understanding of the Court's characterization of the dispositive issues following an initial opinion. See Caperton v. A.T. Massey Coal Co ., 223 W.Va. 624, 667, 679 S.E.2d 223, 266 (2008), rev'd and remanded , 556 U.S. 868, 129 S.Ct. 2252, 173 L.Ed.2d 1208 (2009) (Albright, J., dissenting) (noting that "[t]he more narrow and focused legal arguments and supporting facts of the rehearing process" aided in determination); A. B. , 234 W.Va. at 498, 518-19, 766 S.E.2d at 757, 777-78 (stating that briefs submitted seeking rehearing compelled Court to grant rehearing and criticizing respondent for attempting to supplement inadequate record on rehearing to meet issues discussed in initial opinion); Haines , 221 W.Va. at 272-73, nn.3 and 5, 654 S.E.2d at 594-95, nn.3 and 5 (discussing additional arguments and attempts to supplement the appendix to meet issues raised in initial opinion). Oftentimes, briefs upon rehearing pierce through any insufficiency or imprecision of argument which may have affected the Court's initial offering. This is particularly the case where a matter is before the Court on the necessarily limited record often submitted upon certified question. When a petition for rehearing compels the Court to conclude that the law may have been misapprehended, neither hubris nor sanctimony should give the Court pause in granting rehearing to correct any such error of law or fact. As Justice Frankfurter stated, "[w]isdom too often never comes, and so one ought not to reject it merely because it comes late." Henslee v. Union Planters Nat'l Bank & Trust Co ., 335 U.S. 595, 600, 69 S.Ct. 290,...