Cheapside Minerals v. Devon EnergyCheapside Minerals v. Devon Energy
CHEAPSIDE MINERALS, LIMITED; PAUL R. LUCAS, JR., individually and as independent executor of THE ESTATE OF MARY K. LUCAS, deceased; JAMES E. NATHO; MARY NATHO; MCDOUGAL FAMILY 2003, LIMITED; ET AL.,
Plaintiffs—Appellees,
versus
DEVON ENERGY PRODUCTION COMPANY, L.P., formerly known as GEOSOUTHERN DEWITT PROPERTIES, L.L.C.,
Defendant—Appellant,
CONSOLIDATED WITH
No. 24-40026
CHEAPSIDE MINERALS, LIMITED; MCDOUGAL FAMILY 2003, LIMITED; PAUL R. LUCAS, JR., individually and as independent executor of THE ESTATE OF MARY K. LUCAS, deceased; JAMES E. NATHO; MARY NATHO; ET AL.,
Plaintiffs—Appellees,
versus
DEVON ENERGY PRODUCTION COMPANY, L.P., formerly known as GEOSOUTHERN DEWITT PROPERTIES, L.L.C.,
Defendant—Appellant.
Before JONES, WILLETT, and DUNCAN, Circuit Judges.
EDITH H. JONES, Circuit Judge:
Defendant Devon Energy Production Company, L.P. appeals from the district court‘s order remanding this oil-and-gas royalties dispute to Texas state court. Devon contends that the Class Action Fairness Act,
I. BACKGROUND
A group of 214 plaintiffs sued Devon in Texas state court, alleging that Devon had underpaid them in excess of $100 million in oil-and-gas royalties. Devon, a citizen of Oklahoma, is a lessee under certain leases concerning lands in Dewitt County, Texas.1 Devon markets and sells hydrocarbons produced from wells on those lands and pays royalties to the Plaintiffs. Devon makes those payments to locations specified by Plaintiffs from its offices in Oklahoma City, Oklahoma. There is no dispute that more than two-thirds of Plaintiffs are citizens of Texas but that some Plaintiffs do not reside in Texas. In fact, some Plaintiffs reside in places that are thousands of miles away from Texas, such as Alaska, Massachusetts, and the United Kingdom.
Pursuant to CAFA, Devon removed this case to federal court. Plaintiffs sought remand based on CAFA‘s “local controversy” exception.2 The district court agreed that the local controversy exception applied and ordered that the case be remanded.3
Devon appealed the remand order under
II. DISCUSSION
“We review de novo whether the local controversy exception to CAFA jurisdiction should apply in this case.” Opelousas Gen. Hosp. Auth. v. FairPay Sols., Inc., 655 F.3d 358, 360 (5th Cir. 2011) (per curiam).
A.
Before turning to the merits, we first address our appellate jurisdiction. We granted Devon permission to appeal under
Generally,
CAFA provides a basis for expedited appellate review of appeals from orders that either remand or deny remand of class action litigation. It provides: “Section 1447 shall apply to any removal of a case under this section, except that notwithstanding section 1447(d), a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed....”
Moreover,
B.
Turning to whether the district court erred in remanding this case, neither party disputes that the district court had subject matter jurisdiction pursuant to CAFA,
A district court shall decline to exercise jurisdiction under paragraph (2)—
(A)(i) over a class action in which—
(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;
(II) at least 1 defendant is a defendant—
(aa) from whom significant relief is sought by members of the plaintiff class;
(bb) whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class; and
(cc) who is a citizen of the State in which the action was originally filed; and
(III) principal injuries resulting from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed; and
(ii) during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons[.]
They dispute whether, as prong III requires, the “principal injuries” resulting from Devon‘s underpayment of royalties were sustained in Texas. For the following reasons, we agree with Devon that Plaintiffs failed to show the “principal injuries” from royalty underpayments were “incurred” in Texas.
i. Where were Plaintiffs’ injuries “incurred“?
According to prong III, a local controversy must be one in which the “principal injuries” were “incurred” in the state where the action was first filed. Devon asserts that Plaintiffs suffered their injuries where they reside. Devon contends that an underpayment of an oil or gas royalty is an injury to personal property, and a plaintiff‘s residence is determinative of where the plaintiff suffers that injury. Plaintiffs see it differently. They argue that they suffered their injuries “at the
“Texas law provides that oil and gas are realty when in place and personalty when severed from the land by production.” Phillips Petroleum Co. v. Adams, 513 F.2d 355, 363 (5th Cir. 1975) (collecting cases); accord Mitchell Energy Corp. v. Samson Res. Co., 80 F.3d 976, 982 (5th Cir. 1996) (“The right to payment for minerals already severed from the ground is considered personal property, not realty.“). The distinction arises because “[t]he right to payment for past production obviously has no effect upon the value to the leaseholder of the oil and gas still in the ground,” and, therefore, “accrued royalty interests are personal property,... as is the right to payment for severed minerals.” Phillips Petroleum Co., 513 F.2d at 363.
Plaintiffs allege that Devon underpaid their royalties on sales of hydrocarbons that were already severed from the subject real property. Their royalties consist of the “gross proceeds received for the sale of production from the Royalty Owners’ Leases.” (emphasis added). Underpayments of royalties owed thus comprise injuries to Plaintiffs’ personal property.7
That still leaves unanswered where Plaintiffs suffered injuries to their personal property. To be sure, most Plaintiffs reside in Texas. But approximately ten percent of Plaintiffs either reside outside of Texas, requested that they be paid at addresses outside of Texas, or both.8 Generally, a plaintiff sustains an economic injury where he resides. See CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1079 (9th Cir. 2011) (“We have repeatedly held that a corporation incurs economic loss, for jurisdictional purposes, in the forum of its principal place of business.“); CMACO Auto. Sys., Inc. v. Wanxiang Am. Corp., 589 F.3d 235, 247 (6th Cir. 2009) (“Because the economic injury [plaintiff] suffered ... was clearly felt at its corporate headquarters [in California], the district court did not err in holding that CMA‘s contract claim accrued ... in California....“); Cantor Fitzgerald Inc. v. Lutnick, 313 F.3d 704, 710 (2d Cir. 2002) (“Where . . . the injury is purely economic, the place of injury usually is where the plaintiff resides and sustains the economic impact of the loss.” (citation and quotations omitted)). Notably, this court has observed that a plaintiff feels the “direct effect” of being underpaid in the place where he resides. See Callejo v. Bancomer, S.A., 764 F.2d 1101, 1110–12 (5th Cir. 1985) (holding, in regard to sovereign immunity, that “the breach of the certificates of deposits had direct effects in the United States” where plaintiffs resided, even though Mexico was specified as the place of payment “on the certificates themselves“). It follows that the Plaintiffs who reside or were paid at addresses outside of Texas could not have sustained their economic injuries in Texas because the underpayment
Plaintiffs counter that Devon agreed to pay royalties in Texas with the consequence that Devon‘s failure to satisfy its obligations occurred in Texas. Plaintiffs find support in the mineral leases, which state: “All royalties, surface damages, and other payments due under this lease shall be payable in DeWitt County, Texas, unless otherwise herein provided.”9 (emphasis added). This argument misses the mark for two reasons. First, making royalties “payable” in DeWitt County does not necessarily mean the leases required Devon to pay Plaintiffs there. See Payable, MERRIAM-WEBSTER‘S COLLEGIATE DICTIONARY (11th ed. 2007) (“payable” means “that may, can, or must be paid“). Moreover, in no way does this lease provision mean all Plaintiffs were actually paid in DeWitt County. Second, it is undisputed that Devon paid Plaintiffs from its offices in Oklahoma, and a number of Plaintiffs requested that Devon pay them at addresses outside of Texas. Plaintiffs also concede that “[u]nder Texas law, a breach of contract injury occurs at the location specified for payment.” (emphasis in original). Thus, at least some of the Plaintiffs sustained their injuries outside of Texas. Plaintiffs have failed to demonstrate they all sustained or “incurred” injuries in the state in which they brought this lawsuit.
ii. Must all injuries have occurred in Texas for the local controversy exception to apply?
The more challenging, and novel, question is how to interpret the “principal injuries” that must have been incurred within the forum state under prong III of the local controversy exception. The parties join issue over whether “principal injuries” means that all Plaintiffs, or some quantity of Plaintiffs, must have suffered their injuries in Texas. As a matter of statutory interpretation, “we follow the plain and unambiguous meaning of [
Plaintiffs contend they satisfy the principal injuries prong because the vast majority of Plaintiffs were underpaid their royalties in Texas and, therefore, their “principal injuries” occurred in the forum state. In other words, “principal” means “most” of the Plaintiffs who were injured. We hold, to the contrary, that Plaintiffs’ interpretation of “principal” is contrary to the prong III provision‘s plain meaning. As shown below, the meaning of “principal injuries” is unambiguous. “Principal injuries” qualitatively and comparatively
The structure of CAFA also supports our interpretation of “principal injuries.” First, CAFA ties the “principal injuries” sustained to the entire class, not just a subset of it. CAFA requires plaintiffs to show that the “principal injuries . were incurred in the State in which the action was originally filed.”
In other parts of CAFA, Congress enumerated when fewer than all plaintiffs must meet certain requirements. See
Moreover, Congress explicitly carved out exceptions to federal jurisdiction based on injuries that occurred inside and outside the forum state. CAFA provides that “mass actions”15 can be removed to federal court.16 But Congress provided that “the term ‘mass action’ shall not include any civil action in which ... all of the claims in the action arise from an event or occurrence in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State....”
Finally, our interpretation of the local controversy exception complies with the requirement that we construe the exception narrowly and “with all doubts resolved in favor of exercising jurisdiction over the case.” Opelousas Gen. Hosp. Auth., 655 F.3d at 360 (citations and quotations omitted); see also Arbuckle Mountain Ranch of Tex., Inc. v. Chesapeake Energy Corp., 810 F.3d 335, 337 (5th Cir. 2016) (“Congress crafted CAFA to exclude only a narrow category of truly localized controversies, and the exceptions provide a statutory vehicle for the district courts to ferret out the controversy that uniquely affects a particular locality to the exclusion of all others.” (citation and quotations
Here, the “principal injury” each Plaintiff sustained is obvious because there was only one type of injury: a financial harm resulting from Devon‘s alleged underpayment of their royalties. While most Plaintiffs sustained that injury in Texas, others did not. Therefore, the principal injuries prong is not satisfied in this case, and Plaintiffs have failed to demonstrate that the local controversy exception applies.
CONCLUSION
Because CAFA‘s local controversy exception does not apply, we VACATE the judgment of the district court, REMAND to the district court, and DIRECT that the case be reinstated on that court‘s docket.