EQT Production Company v. Robert Adair
764 F.3d 347
| 4th Cir. | 2014Background
- Plaintiffs (five consolidated class actions) are royalty owners or claimed royalty owners of coalbed methane (CBM) in Virginia asserting that producers EQT and CNX improperly withheld, escrowed, or underpaid royalties. Classes include both disputed-ownership claimants (four cases) and a pure underpayment class (Adkins).
- CBM ownership disputes arise from historic severance deeds separating coal and gas estates; Virginia empowered the Gas and Oil Board to issue pooling orders and to require producers to escrow royalties for disputed interests.
- EQT and CNX submitted ownership schedules to the Board identifying conflicting gas/coal owners; defendants treated conflicts by paying into Board escrow or internally suspending royalty payments. Some wells were force-pooled; others involved voluntary leases.
- Plaintiffs sought declaratory relief that gas-estate owners own CBM (invoking Harrison-Wyatt), release of escrowed funds, and damages/accounting for alleged underpayments (including claims about affiliate sales and postproduction deductions).
- The district court certified multiple classes under Rules 23(b)(2) and (b)(3); defendants petitioned for interlocutory review under Rule 23(f). The Fourth Circuit granted review, vacated certification, and remanded for a more rigorous Rule 23 analysis.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule 23(f) review is appropriate | Certification was proper; interlocutory appeal unnecessary | Certification manifestly erroneous warranting immediate review | Court granted Rule 23(f) review because certification was manifestly improper |
| Ascertainability of ownership classes | Classes defined by defendants’ Board schedules; any successor ownership can be determined from land records later | Many ownership changes occurred; identifying successors would require individualized title/minitrials | Court: district court failed to rigorously assess administrative feasibility; remand to determine scope/number of successors and cure class definitions |
| Commonality re: CBM ownership (role of Harrison-Wyatt) | Harrison-Wyatt and statute establish gas-estate owners own CBM as matter of law, creating a common question | Harrison-Wyatt only holds that coal-only conveyances do not transfer CBM; deed language varies and ownership requires deed-by-deed intent analysis | Court: district court abused discretion by not resolving Harrison-Wyatt’s application; commonality not established as certified; need deed analysis or narrower subclasses |
| Predominance for underpayment claims (uniform practices v. individualized issues) | Defendants employed uniform royalty practices (affiliate sales, common deductions), so common questions predominate | Royalties calculation, deductions, and practices vary over time, by well, by lease; many individualized inquiries will predominate | Court: district court erred by relying on existence of uniform practices without testing whether they resolve the core liability issues; remand to assess predominance in light of variations |
| Effect of lease variation and implied duty of marketability | First marketable product rule (implied duty) applies, neutralizing lease variation; court limited classes to leases "silent" on deductions where needed | Many leases expressly allocate postproduction costs or differ materially; class members’ rights turn on lease terms making individual inquiries necessary | Court: plaintiffs did not show lease uniformity or that implied duty eliminates variation; silence limitation was undefined and inadequate; remand for detailed lease analysis and possible subclasses |
| Use of fraudulent concealment/statute of limitations as classwide issue | Defendants’ uniform reporting concealed deductions so concealment is defendant-focused and subject to common proof | Plaintiff knowledge and due diligence vary; tolling requires individualized proof which may defeat predominance | Court: district court misapplied concealment doctrine by not addressing plaintiff-specific elements; remand to analyze individual proof issues and impact on predominance |
Key Cases Cited
- Harrison-Wyatt, LLC v. Ratliff, 593 S.E.2d 234 (Va. 2004) (Virginia Supreme Court decision recognizing CBM as distinct mineral estate and addressing effect of coal conveyances)
- Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) (class certification requires rigorous analysis; common questions must generate common answers)
- Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) (plaintiffs must present evidence proving Rule 23 predominance at certification)
- Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S. Ct. 1184 (2013) (courts may consider merits to the extent relevant to Rule 23 analysis)
- Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147 (1982) (actual conformity with Rule 23(a) is indispensable to certification)