935 F.3d 496
6th Cir.2019Background
- From 2010–2012 Chesapeake and assigns entered hundreds of Ohio Utica Shale leases requiring royalties based on “gross proceeds” received from sale of produced oil and gas. Named plaintiffs represent subclasses of leases with materially similar royalty clauses.
- Defendants sell produced oil and gas to affiliated midstream companies and use a netback method (downstream sales prices minus midstream post‑production costs) to compute the notional wellhead price on which royalties are paid.
- Plaintiffs allege defendants underpaid royalties by (a) selling to affiliates at below‑market prices and (b) improperly deducting post‑production costs when calculating royalties; plaintiffs later limited class certification to the post‑production‑costs theory.
- District court certified two subclasses under Rule 23(b)(3), finding the central common question is whether the netback method and deductions of post‑production costs are consistent with the lease language; Group C not certified for lack of a named plaintiff.
- Defendants appealed, arguing that individualized issues (well quality, quantity, proximity to markets) prevent predominance and that plaintiffs’ theory was inconsistent or meritless; Sixth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Predominance for class certification under Rule 23(b)(3) | A common question predominates: whether the leases allow deduction of post‑production costs (netback method) | Individualized market‑price and well‑specific issues predominate, defeating class treatment | Held: Predominance satisfied for plaintiffs’ post‑production‑costs theory because liability turns on lease interpretation common to the class |
| Scope of pleaded theories | Plaintiffs initially pleaded both below‑market affiliate sales and post‑production deductions; at class stage plaintiffs proceed only on deductions theory | Plaintiffs improperly shifted theories after surviving pleadings motion | Held: Plaintiffs timely pleaded both theories; narrowing to deductions at certification is permitted |
| Merits inquiry at certification (Comcast/Amgen limits) | Merits may be probed only as needed to test predominance; the lease‑interpretation question is central and common | Defendants’ merits arguments (leases permit deductions) require probing and defeat certification | Held: Court may decline extensive merits resolution now; defendants’ merits challenge is premature for certification analysis |
| Applicability of other circuits’ holdings (EQT, Roderick) | Plaintiffs distinguish those decisions on material differences in lease uniformity and subclassing | Defendants rely on those cases to argue vacatur of certification | Held: Those cases are inapposite here because leases were categorized into subclasses with materially identical royalty clauses and marketability/well differences are not shown to defeat commonality |
Key Cases Cited
- Wal‑Mart Stores, Inc. v. Dukes, 564 U.S. 338 (class‑action commonality and typicality principles)
- Comcast Corp. v. Behrend, 569 U.S. 27 (damages model must align with liability at certification)
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (rigorous predominance analysis for Rule 23(b)(3))
- Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455 (merits may be considered to extent relevant to Rule 23 prerequisites)
- Lutz v. Chesapeake Appalachia, L.L.C., 71 N.E.3d 1010 (Ohio treats oil & gas leases as contracts; interpret by contract‑construction rules)
- EQT Production Co. v. Adair, 764 F.3d 347 (4th Cir.) (vacatur of certification where uniform practices alone insufficient for predominance)
- Wallace B. Roderick Revocable Living Trust v. XTO Energy, Inc., 725 F.3d 1213 (10th Cir.) (vacatur where varied lease language and marketability issues prevented common answers)
- EQT Prod. Co. v. Magnum Hunter Prod., Inc., [citation="768 F. App'x 459"] (6th Cir.) (application of at‑the‑well rule under Kentucky law discussed)
- Rikos v. Procter & Gamble Co., 799 F.3d 497 (6th Cir.) (applying Comcast analysis outside antitrust context)