Whisenant v. Strat Land Exploration Co.

429 P.3d 703

Tony R. WHISENANT, on behalf of himself and others similarly situated, Plaintiff/Appellee,

v.STRAT LAND EXPLORATION CO., Defendant/Appellant.

Case No. 115,660

Court of Civil Appeals of Oklahoma, Division No. 4.

Decided: April 10, 2018

Mandate Issued: October 31, 2018

Rex A. Sharp, REX A. SHARP, P.A., Prairie Village, Kansas, for Plaintiff/Appellee

Mark Banner, HALL, ESTILL, HARDWICK, GABLE, GOLDEN & NELSON, P.C., Tulsa, Oklahoma, for Defendant/Appellant

OPINION BY DEBORAH B. BARNES, PRESIDING JUDGE:

¶ 1 Defendant Strat Land Exploration Co. (Strat Land) appeals from the trial court's order granting the motion for class certification filed by Plaintiff Tony R. Whisenant (Whisenant) on behalf of himself and others similarly situated. Based on our review, we reverse and remand for further proceedings.

BACKGROUND

¶ 2 In February 2015, Whisenant filed his "Second Amended Class Action Petition" asserting "claims based upon [Strat Land's] underpayment or non-payment of royalties on natural gas and/or constituents of the gas stream produced from wells in Oklahoma[.]" Whisenant asserts he has a royalty interest in a well — in particular, the Tretbar Family 1-15 well in Beaver County, Oklahoma — "owned in part and operated by [Strat Land]." He asserts Strat Land "has operated over 100 wells which produce gas in Oklahoma and many more in which it holds a working interest," and that the members of the proposed class are "so numerous and geographically dispersed that joinder of all members is impracticable." The wells in question are all located on or adjacent to the Oklahoma Panhandle in Ellis, Harper, Beaver, and Texas Counties.

¶ 3 Whisenant asserts there are questions of law and fact common to Whisenant and the other class members, including, among others, whether "raw gas [is] in Marketable Condition at the meter run/gathering line inlet," whether "[Strat Land] ... deduct[ed] (in cash or in kind) amounts for placing the gas (and its constituents) into Marketable Condition before paying royalty to [Whisenant] and the other Class Members," whether "[Strat Land] [paid] royalty to [Whisenant] and the other Class Members for all gas constituents, such as condensate, fractionated NGLs, nitrogen, and helium, produced from their wells," and whether "[Strat Land's] uniform practice of paying royalties based on the net, instead of the gross, gas contract value constitute[d] a breach of [Strat Land's] lease obligations to [Whisenant] and the other Class Members[.]"

¶ 4 Whisenant asserts "[he] is typical of other Class Members[ ] because [Strat Land] pays royalty to [him] and other Class Members using a common method" — i.e., "[Strat Land] pays royalty based upon the net revenue [Strat Land] receives under its marketing contracts" rather than based upon the gross amount the midstream company — in particular, DCP Midstream (f/k/a Duke Energy Field Services) — receives from its sale of the gas at the interstate (or intrastate) pipeline.¹

¶ 5 In December 2015, Whisenant filed a motion for class certification. As set forth in the trial court's order granting class certification, the proposed class consists of all royalty owners in Oklahoma wells

(a) operated by [Strat Land]; (b) marketed by Strat Land to DCP Midstream (f/k/a Duke Energy Field Services); and (c) that have produced gas and/or gas constituents (such as residue gas, natural gas liquids, helium, or condensate) from February 12, 2009 to the time Class Notice is given.

Excluded from the class are: (1) Office of Natural Resources Revenue f/k/a the Mineral Management Service (Indian tribes and the United States); (2) [Strat Land] and its employees, officers, and directors; (3) Any NYSE and NASDAQ listed company (and its subsidiaries) engaged in oil and gas exploration, gathering, processing, or marketing; and, (4) leases that contain clear and express language authorizing the deduction from royalty of "the cost incurred in processing, gathering, treating, compressing, dehydrating, transporting, and marketing, or otherwise making such gas or other substances ready for sale or use," the cost incurred in delivering, processing, compressing or otherwise making such gas merchantable," or similar clear and express language.

¶ 6 In its order granting the motion for class certification, the trial court determined the requirements under 12 O.S. Supp. 2014 § 2023 were satisfied. Among other things, the trial court determined that "generalized" evidence (in contrast to "individualized" evidence) could properly be used to prove the merits on a class-wide basis, citing to Tyson Foods, Inc. v. Bouaphakeo , ––– U.S. ––––, 136 S.Ct. 1036, 194 L.Ed.2d 124 (2016), and Wal-Mart Stores, Inc. v. Dukes , 564 U.S. 338, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011). The trial court determined Whisenant had made a prima facie showing that Strat Land paid royalties in the same manner across the board — i.e., that it paid royalties based on what it received from DCP Midstream rather than based on what DCP Midstream received for the gas at the interstate (or intrastate) pipeline inlet. The court acknowledged that in order for the proposed class — a class of approximately one thousand royalty owners throughout the United States — to win on the merits, it would have to prove that, for each of the approximately eighty-eight wells in question, Strat Land's royalty payment and cost-deduction method was improper. However, the court concluded that "predominantly generalized proof" was sufficient to determine this issue "in one stroke." The trial court stated that "the liability (and even damages) in this case will be decided entirely by a ‘battle of experts,’ which is a classic reason to certify a class action," citing, inter alia, Tyson .

¶ 7 From the trial court's order granting the motion for class certification, Strat Land appeals.

STANDARD OF REVIEW

¶ 8 An order a class action "shall be subject to a de novo standard of review by any appellate court reviewing the order." 12 O.S. Supp. 2014 § 2023(C)(2).² See also Marshall Cnty. v. Homesales, Inc. , 2014 OK 88, ¶ 8, 339 P.3d 878 ("[T]he district court's disposition of the class action issue does not ultimately determine any issues of fact. As a result, class certification resolves only a question of law and the de novo standard required by [ § 2023(C)(2) ] is appropriate for appellate review of class certification orders[.]"). "Some consideration of the merits is appropriate in a class certification, but only insofar as it informs what individual issues might be a part of the adjudicatory process." Weber v. Mobil Oil Corp. , 2010 OK 33, ¶ 13, 243 P.3d 1 (footnote omitted).

ANALYSIS

I. Prerequisites to a Class Action

¶ 9 "The class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only." Wal-Mart Stores, Inc. v. Dukes , 564 U.S. 338, 348, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011) (internal quotation marks omitted) (citation omitted). "In order to justify a departure from that rule, a class representative must be part of the class and possess the same interest and suffer the same injury as the class members." Id. at 348-49, 131 S.Ct. 2541 (internal quotation marks omitted) (citation omitted). In Oklahoma, class actions are governed by § 2023, which, like its federal counterpart, provides, in part, as follows:

A. PREREQUISITES TO A CLASS ACTION. One or more members of a class may sue or be sued as representative parties on behalf of all only if:

1. The class is so numerous that joinder of all members is impracticable;

2. There are questions of law or fact common to the class;

3. The claims or defenses of the representative parties are typical of the claims or defenses of the class; and

4. The representative parties will fairly and adequately protect the interests of the class.

The requirements of subsection A are generally referred to as numerosity, commonality, typicality, and adequacy of representation. Harvell v. Goodyear Tire & Rubber Co. , 2006 OK 24, ¶ 8, 164 P.3d 1028. A party seeking certification of a class action has the burden of satisfying all four requirements of subsection A, as well as one of the additional requirements contained in § 2023(B).³ Id. Pertinent to this case, § 2023(B)(3) requires predominance of common questions of law or fact to class members and superiority of class action adjudication.

¶ 10 The primary issue on appeal is whether there are common questions of law or fact. However, because the trial court certified the class action under § 2023(B)(3), "we consider [the issue of commonality] in conjunction with the court's further conclusion that common questions also predominate." EQT Prod. Co. v. Adair , 764 F.3d 347, 365 (4th Cir. 2014). This is so because when a class action is certified under section § 2023(B)(3) — the federal counterpart of which is Federal Rule of Civil Procedure 23(b)(3) — the " ‘commonality’ requirement is subsumed under, or superseded by, the more stringent Rule 23(b)(3) requirement that questions common to the class ‘predominate over’ other questions." Amchem Prod., Inc. v. Windsor , 521 U.S. 591, 609, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997).⁴

¶ 11 In the present case, class certification is inappropriate because a "highly individualized" review of the facts pertaining to each of the numerous wells is necessary. Strack v. Cont'l Res., Inc. , 2017 OK CIV APP 53, ¶ 32, 405 P.3d 131, cert. denied. Determining Strat Land's liability, and the appropriate damages (if any) to be awarded, to each of the royalty owners in the proposed class is not susceptible to class-wide resolution "in one stroke."⁵ As the following discussion shows, common questions of law or fact do not predominate in this case.

II. Mittelstaedt v. Santa Fe Minerals, Inc. : Oklahoma's Fact-Intensive Inquiry

¶ 12 The trial court's order states that Strat Land had a common corporate policy of not paying royalty on the gross value of the gas produced under the leases. However, the determination...