Chieftain Royalty Co. v. Enervest Energy Institutional Fund XIII-A, L.P.
861 F.3d 1182
| 10th Cir. | 2017Background
- Class action alleged underpayment of gas royalties; parties settled for a $52 million common fund to be distributed pro rata after fees and costs.
- Class counsel asked for 40% of the fund; lead plaintiff Chieftain sought a 1% incentive award. Two class members (Nutley and George) objected.
- District court awarded class counsel 33 1/3% of the fund (stated as $17,333,333.33) and an incentive award to Chieftain of 1/2% ($260,000), rejecting objectors’ challenges.
- This is a diversity case; appellants argued Oklahoma law governs fee calculation and requires the lodestar method (with detailed time records) rather than a percentage-of-the-fund approach.
- The district court applied the percentage-of-the-fund method; class counsel had not produced contemporaneous detailed time records required under Oklahoma precedent (Burk).
- The district court also awarded an incentive payment to Chieftain based on purported services by its president, but the record lacked contemporaneous documentation of hours or clear findings on risk/burden.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether state (Oklahoma) law or federal law governs method for calculating common-fund attorney fees | Oklahoma law need not control; Rule 23(h) governs fee procedure | Oklahoma law governs calculation in diversity cases and mandates lodestar with records | Oklahoma law controls in diversity cases; court must apply Burk/lodestar method |
| Whether the district court properly awarded fees using percentage-of-fund without lodestar support | Percentage method is preferred in common-fund cases and empirical parity with lodestar justifies award | Lodestar required by Oklahoma law; counsel failed to produce required contemporaneous time records | Fee award reversed — district court abused discretion by not applying Oklahoma lodestar rules and by lacking required records |
| Whether Chieftain’s 1/2% incentive award was justified for risk/burden | Chieftain: award compensates lead plaintiff for time, monitoring, and risks; cited ~200–300 hours and future monitoring | Objectors: insufficient evidence and no findings; incentive awards must be documented and not percentage-based proxies | Incentive award reversed — record lacked sufficient evidence and district court made no findings on risk; percentage-based award disfavored without documentation |
| Whether percentage-based incentive awards to class representatives are per se permissible | Chieftain: percentage award reasonable and common in similar cases | Objectors: such awards are improper or must be tied to documented services; percentage awards risk conflicts/excessiveness | Court predicts Oklahoma would disfavor percentage awards; awards must be tied to documented reasonable time/services; remand for fact-finding |
Key Cases Cited
- Erie R.R. Co. v. Tompkins, 304 U.S. 64 (federal courts in diversity must apply state-created substantive rights)
- Byrd v. Blue Ridge Rural Elec. Coop., 356 U.S. 525 (clarifies Erie aims and application)
- Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (distinguishes procedural rules vs substantive rights under Rules Enabling Act)
- Burk v. Oklahoma City, 598 P.2d 659 (Okla. 1979) (Oklahoma requires detailed time records and lodestar as baseline in common-fund cases)
- Gottlieb v. Barry, 43 F.3d 474 (10th Cir. 1994) (discusses percentage-of-fund and Johnson factors)
- Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (lodestar presumptively reasonable; limits on upward adjustments)
- Chambers v. NASCO, Inc., 501 U.S. 32 (distinguishes sanction awards as federal procedural measures)
- Rodriguez v. West Publ’g Corp., 563 F.3d 948 (Ninth Circuit: incentive awards compensate class representatives for services rendered)