Rupert v. Range Res. - Appalachia

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JAMES A. RUPERT, WILLIAM E. and KAREN A. TRAVIS, and BRYAN MARTIN, individually and on behalf of all others similarly situated, Plaintiffs, v. RANGE RESOURCES - APPALACHIA, LLC and RANGE RESOURCES CORP, Defendants.

CIVIL No. A. 2:21-1281

United States District Court, W.D. Pennsylvania

May 26, 2022

MEMORANDUM OPINION ^[1]

PATRICIA L. DODGE UNITED STATES MAGISTRATE JUDGE

In this putative class action, Plaintiffs seek damages on behalf of themselves and the putative class, alleging that Defendants Range Resources Appalachia, LLC (“Range Appalachia”) and Range Resources Corporation (“Range Corporation”) (collectively “Defendants”) have failed to make all payments owed under certain oil and gas leases. They aver that Defendants violated a provision in these leases that requires them to pay royalties based upon the actual purchase price paid by arm's-length purchasers for the natural gas and natural gas liquid products produced, reduced by not more than a pro-rata royalty share of the actual Post Production Costs incurred during such period not exceeding $0.80 per Metric Million British Thermal Unit (“MMBTU”).

Pending before the Court are three motions: (1) a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6) filed by Range Appalachia; (2) a motion to dismiss pursuant to Fed R. Civ. P. 12(b)(6) filed by Range Corporation; and (3) a motion for class certification filed by Plaintiffs. The matters have been fully briefed and are ripe for disposition.

I. Relevant Procedural History

Plaintiffs commenced this putative class action on September 24, 2021. (ECF No. 1.) After Defendants moved to dismiss (ECF Nos. 14; 16, ) Plaintiffs filed an Amended Complaint asserting claims of breach of contract, a declaratory judgment, and an accounting. (ECF No. 29.)

Plaintiffs next moved for a temporary restraining order or preliminary injunction seeking to enjoin Defendants from remitting royalties that Defendants agreed were due to Plaintiffs and the putative class members under their respective lease agreements. (ECF No. 32.) The parties were directed to meet and confer to determine whether any agreement could be reached. After conferring, they advised the Court that they had failed to come to a resolution.

Thereafter, the Court ruled on the motion for injunctive relief. In denying the motion, the Court found that although Plaintiffs were likely to succeed on the merits given Defendants' concession that Range Appalachia had been underpaying royalties owed to Plaintiffs and putative class members, Plaintiffs had not shown it was more likely than not that irreparable harm would result if Plaintiffs and putative class members received at least some payments to which they were entitled. The Court further found that the requested injunctive relief did not fit the injury. (Id.) Particularly relevant to the motions pending before the Court, the Court noted that “[I]t is abundantly clear from the parties' representations to the Court during a video conference that an active dispute remains regarding whether Defendants will have paid Plaintiffs all monies to which they are entitled once these reimbursements are mailed.” (ECF No. 45 at 3.)

Each of the three motions now pending were filed before Plaintiffs' motion for a preliminary injunction became ripe. Following this Court's ruling, the Court issued a briefing order for the pending motions.

Range Appalachia has moved to dismiss under Fed.R.Civ.P. 12(b)(1) and Fed.R.Civ.P. 12(b)(6). (ECF Nos. 41-42.) Plaintiffs submitted a response in opposition along with four exhibits (two declarations and two letters) (ECF No. 52.) Range Appalachia replied. (ECF No. 57.)

Range Resources also moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). (ECF Nos. 39-40.) Plaintiffs filed a response in opposition and attached various exhibits, including a remittance statement, a declaration, two LinkedIn profiles, a cover letter, a reimbursement check, and Range Resources' 2019 Form 10-K. (ECF No. 53.) Range Resources has replied. (ECF No. 58.)

Also pending is Plaintiffs' motion for class certification, which is supported by a brief and exhibits. (ECF Nos. 36-37.) Thereafter, Defendants jointly filed a brief in opposition, to which Plaintiffs replied and filed two additional exhibits. (ECF Nos. 47; 55.)

II. Relevant Factual Background

This oil and gas action relates to the purported nonpayment of royalties. (ECF No. 29 ¶¶ 20-22.) The putative class consists of

Persons and entities, including their respective successors and assigns, to whom Range since, September 1, 2017, has paid royalties, or has an obligation to pay royalties, under oil and gas leases which became to be owned by Range on or after October 13, 2010 and precludes Range from deducting Post Production Costs from its Royalty Calculation on Natural Gas, NGLs, and related constituents in excess of $0.80 per MMBTU.

Excluded from the Class are: (1) Range, its current officers and employees; and (2) any person whose royalty underpayment claim against Range is subject to a binding arbitration provision.

(Id. ¶ 1.)

Each of the named Plaintiff leases contain the following language about royalties:

Royalty To pay Lessor as Royalty, less Lessor's proportionate share of all taxes, assessments and adjustments on production from the Leasehold as follows: . . . 2. GAS: To pay Lessor an amount equal to 18.25% of the net revenue realized by Lessee for all gas, NGL, and the constituents thereof produced and marketed from the Leasehold. Lessee may withhold Royalty payment until such time as the total withheld exceeds fifty dollars ($50.00)....

Natural Gas NGL, and related constituents Royalty Calculation. All royalty for natural gas, NGLs, and the constituents thereof produced by the wells payable under this Addendum for any Accounting Period shall be calculated using the actual purchase price paid by the First Purchaser of such products reduced by not more than the pro rata share of the actual Post Production Costs incurred during such period, but in no event shall the Post Production Costs exceed $0.80 per MMBTU.

...

‘Post Production Costs' shall mean and include all items of current expense, including depreciation, incurred in the sale of natural gas after oil or gas is produced at the wellhead but before the first point of sale to a First Purchaser, including but not limited to the cost of gathering, dehydration, compression, processing, transportation and arm[']s-length marketing of such gas. The term Post Production Costs does not include any Production Costs....

‘First Purchaser' shall mean the first arm[']s-length purchaser of oil or natural gas produced or NGL derived from natural gas produced from a well....

No Production Cost Assessment. No royalty paid under this instrument shall be reduced by any amount attributable to Production Costs.

(Id. ¶¶ 23-25.)

The named Plaintiffs' leases also have an identical Notice Provision that reads:

in the event that any default or alleged default by LESSEE in the performance of any of its obligations under this Lease, LESSOR shall notify LESSEE in writing setting out specifically in what respects LESSEE has breached this Lease. LESSEE shall then have sixty (60) days after receipt of said notice within which to dispute such alleged default or to meet or commence to meet all or any part of the default alleged by LESSOR. The service of said notice shall be precedent to bringing of any action by LESSOR arising out of or related to the Lease for any cause, and no such action shall be brought until the lapse of sixty (60) days after the service of such notice on the LESSEE. Neither the service of said notice nor the doing of any acts by LESSEE aimed to meet all of any part of the alleged breaches shall be deemed an admission or presumption that LESSEE has failed to perform any of its obligations under the Lease. All notice to LESSEE provided for in this Lease shall be sent by certified mail return receipt requested to LESSEE and LESSEE's address provided on Page One (1) of this Lease.

(Id. ¶ 26.)

On December 7, 2018, an attorney representing Plaintiff James A. Rupert and Ryan J. Rupert sent a certified letter to Range Appalachia stating that it was giving notice pursuant to Paragraph 19 of their leases and that Range Appalachia had breached the Leases in the following respects:

• Range Resources is improperly deducting post production costs from Rupert's royalty in excess of $0.80 per MMBTU (the “Cap”) on production of natural gas, NGLs, and related constituents sold by Range Resources under the Lease;

• Range Resources is improperly calculating the gross royalty using the point-of-sale rather than wellhead volume;

• Range Resources is failing to account to Rupert for their royalty share of the value of the sale of NGLs extracted from the gas and separately sold by Range Resources;

• Range Resources is failing to account to Rupert for their royalty share of the value of the natural gas removed from the property under the Lease which is consumed in the process of removing the gas of its NGLs prior to selling the residue gas (known in the oil and gas industry as “shrinkage”, or the difference between the amount of gas produced at the wellhead and the amount of gas that enters a pipeline);

• Range Resources is deducting “Firm Capacity” charges from the royalty to allegedly fulfill Range Resources' uninterrupted, long-term pipeline capacity commitments, though Range Resources does not provide an accounting to Rupert for any price benefit that may be received in connection with such fulfillment;

• Range Resources is failing to report to Rupert for their royalty share of the MMBTU attributable to NGLs and therefore, improperly calculating “Processing” charges deducted from their royalty attributable to NGLs;

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