Foster v. Merit Energy Co.
178 Oil & Gas Rep. 571
W.D. Okla.2012Background
- Lois Foster sues Merit Energy for royalty under Oklahoma oil-and-gas leases alleging POP contracts improperly shift post-production costs to royalty owners.
- Plaintiff seeks relief on behalf of nearly 15,000 Merit Oklahoma royalty owners, not just Foster.
- Merit pays royalties under varied lease forms and language across about 3,387 leases, with differences in how royalties are calculated and valued.
- Oklahoma law and implied covenants to market govern whether post-production costs may be charged to royalties, with language and marketing logistics influencing outcomes.
- The court must decide whether a class action is appropriate under Rule 23, considering commonality, typicality, adequacy, and Rule 23(b)(3) predominance and superiority.
- The court ultimately denies class certification, finding no commonality and predominance suitable for a class-wide adjudication.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is there commonality under Rule 23(a) for class treatment? | Foster asserts Merit treats all class members the same, allowing classwide resolution. | Merit contends lease language and marketing facts vary, preventing common resolution. | No; commonality not satisfied; lease variations and factual differences preclude class-wide adjudication. |
| Are the Rule 23(a) requirements (numerosity, commonality, typicality, adequacy) satisfied? | Numerosity met; uniform royalty treatment suggests common issues. | Commonality and adequacy are undermined by lease-language diversity and conflicts of interest. | Commonality and adequacy not satisfied; class not certified. |
| Do the Rule 23(b)(3) predominance and superiority requirements hold? | Common questions predominate due to uniform payment practice. | Predominance fails because lease language and individualized facts control outcomes; manageability is unresolved. | Predominance and superiority not satisfied; class certification denied. |
| Can adjudication by representation for a class with diverse leases be appropriate? | Certification by representation could adjudicate widespread claims. | Varied lease terms prevent one-stroke adjudication; subclassing not feasible. | Not appropriate; fostered by litigious uncertainty and lease-language variance. |
| Is Foster an adequate representative given variations within the class? | Her lease reflects typical issues of class members. | Her stronger case relative to some class members undermines adequacy. | Adequacy not met; Foster cannot adequately represent the diverse class. |
Key Cases Cited
- Dukes v. Wal-Mart Stores, Inc., 131 S. Ct. 2541 (U.S. 2011) (rigorous analysis required; commonality may be insufficient for class-wide relief)
- Mittelstaedt v. Santa Fe Minerals, Inc., 954 P.2d 1203 (Okla. 1998) (lease language and implied covenants influence post-production cost allocation)
- TXO Production Corp. v. State ex rel. Comm’rs of the Land Office, 903 P.2d 259 (Okla. 1994) (transportation and other costs depend on market location and lease language)
- Tara Petroleum Corp. v. Hughes, 630 P.2d 1269 (Okla. 1981) (lease language types (market value, gross/proceeds) affect royalties)
- Johnson v. Jernigan, 475 P.2d 396 (Okla. 1970) (market availability and point of sale affect cost allocation)
- Teel v. Public Service Co. of Oklahoma, 767 P.2d 391 (Okla. 1985) (lease language significance in royalty determinations)
- Howell v. Texaco, Inc., 112 P.3d 1154 (Okla. 2004) (discussion on Mittelstaedt and lease-language impact on royalty allocations)