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Adair v. EQT Corp.

United States District Court, W.D. Virginia, Abingdon Division

March 29, 2017

ROBERT ADAIR, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, Plaintiff,
v.
EQT PRODUCTION COMPANY, Defendant. EVA MAE ADKINS, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, Plaintiff,
v.
EQT PRODUCTION COMPANY, Defendant. JULIE A. KISER, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, EQT PRODUCTION COMPANY, JEFFERY CARLOS HALE, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, CNX GAS COMPANY LLC, DORIS BETTY ADDISON, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, CNX GAS COMPANY LLC, Defendant.

          OPINION

          James P. Jones United States District Judge

         Table of Contents

         I. Background. . .......................................................................................................... 4

         II. The Parties' Arguments. .. ..................................................................................... 7

         A. Hale, Addison, Adair, and Kiser. . ..................................................................... 7

         1. Proposed Class Definitions. . ........................................................................... 8

         2. Specific Legal Claims. . ................................................................................. 10

         3. Defendants' Response. . ................................................................................ 12

         B. Adkins v. EQT. . ............................................................................................... 20

         1. Proposed Class Definitions. . ......................................................................... 20

         2. Specific Legal Claims. . ................................................................................. 20

         3. Defendants' Response. . ................................................................................ 23

         III. Discussion. . ....................................................................................................... 26

         A. Hale, Addison, Adair, and Kiser. . ................................................................... 26

         1. Numerosity, Typicality, and Adequacy. . ...................................................... 26

         2. Ascertainability. . ........................................................................................... 35

         3. Commonality and Predominance .................................................................. 38

         4. Superiority. . .................................................................................................. 83

         5. Fail-Safe Classes ........................................................................................... 89

         6. Statutes of Limitations. . ................................................................................ 91

         7. Class Action Fairness Act ............................................................................. 93

         B. Adkins v. EQT. . ............................................................................................... 94

         1. Numerosity, Typicality, and Adequacy. . ...................................................... 94

         2. Ascertainability. .. .......................................................................................... 99

         3. Commonality and Predominance ................................................................ 100

         4. Superiority. . ................................................................................................ 111

         5. Fail-Safe Class. . .......................................................................................... 113

         IV. Conclusion. . .................................................................................................... 115

         In these related cases, the plaintiffs' latest motions for class certification are before the court, having been fully briefed and argued.[1] In summary, I grant certification, at least in part, for the Hale, Adair, and Adkins classes, and deny certification for the Addison and Kiser classes.

         I. Background.

         These cases have a long history - unusually long, at least for this court. As I earlier related,

The five cases involve two coalbed methane [gas] (“CBM”) producers, EQT Production Company (“EQT”) and CNX Gas Company LLC (“CNX”), with the Adair, Adkins, and Kiser cases concerning EQT and the Hale and Addison cases involving CNX. The earliest case - Adair - was filed in this court on June 15, 2010, and the other four following thereafter, with the last - Kiser - being filed on April 20, 2011. Numerous hearings have been held in the five cases, and dozens of orders and opinions entered, either by me or U.S. Magistrate Judge Pamela Meade Sargent, covering a wide range of procedural and substantive issues. After substantial briefing and argument, I certified classes in all of the cases on September 30, 2013. The defendants then sought interlocutory appeals of the certifications pursuant to Federal Rule of Civil Procedure 23(f). After briefing and argument, the court of appeals granted the appeals and remanded the cases by opinion dated August 19, 2014.

         In its opinion, the court of appeals summarized the classes certified by this court as follows:

“Four of the five classes - Adair, Addison, Hale, and Kiser -consist of persons who have never received CBM royalties for a CBM interest they claim to own. As defined by the district court, the classes include (1) all persons or their successors, (2) whom EQT or CNX have identified as being the owners of the gas estate in a tract underlying a CBM drilling unit, (3) whose interest in the CBM is ‘in conflict' because a different person owns the coal estate in the same tract.
“The ownership classes can be further broken down. In two cases (the ‘force pooled' classes) - Adair and Hale - the plaintiffs' purported CBM interests have been force pooled by a [Virginia Gas and Oil] Board order.
“In the other two ownership cases (the ‘voluntary lease' classes) - Kiser and Addison - the defendants entered voluntary lease arrangements with the putative class members. Nonetheless, the class members' CBM interests have been subject to pooling, and their royalties have either been paid into Board escrow accounts or internally withheld by EQT and CNX.
“The primary object of the ownership classes is to obtain the release of escrowed or suspended royalties. To that end, they seek a declaratory judgment that: (1) the ownership conflict EQT and CNX identified between gas estate owners and coal estate owners is ‘illusory'; (2) as gas estate owners, the class members are entitled to the CBM royalties withheld; and (3) any royalties held in escrow or internally suspended by EQT and CNX as a result of the ‘illusory' ownership conflict must be paid to the class members.
“The fifth class - Adkins - is unique, as it consists of persons whose CBM ownership interest is not disputed. Instead, the putative class includes persons who have received a royalty from EQT at some point since January 1, 1995. The Adkins plaintiffs allege that EQT has systematically underpaid CBM royalties. The four other classes make similar claims against the defendants. Each of the classes seek a complete accounting of the royalties EQT and CNX have remitted to class members, paid into escrow, or internally suspended.”

Adair v. EQT Prod. Co., Nos. 1:10CV00037, 1:10CV00041, 1:11CV00031, 1:10 CV00059, 1:10CV00065, 2015 WL 505650, at *1-2 (W.D. Va. Feb. 6, 2015) (quoting EQT Prod. Co. v. Adair, 764 F.3d 347, 355 (4th Cir. 2014)) (footnotes omitted).

         The court of appeals remanded the case and instructed this court to conduct “a more rigorous analysis as to whether the requirements for class certification have been satisfied.” EQT Prod. Co., 764 F.3d at 352. In the meantime, however, two events occurred that the plaintiffs contend has simplified the court's task. As a result, the plaintiffs no longer seek a determination of CBM ownership. Instead, they seek an accounting of royalty payments by the defendants, as well as a determination of the propriety of certain practices relating to the calculation of those royalties.

         The first of these simplifying events was the Virginia legislature's enactment of House Bill 2058, which amended Virginia Code Ann. § 45.1-361.1 to direct the release of money held in CBM escrow accounts to the gas interest owner, absent a coal interest owner's proceeding against or agreement with the gas interest owner. Because this amendment required operators to identify CBM gas owners by the end of 2015, the plaintiffs assert that concerns regarding the ascertainability of class members are now moot.

         The second simplifying event was the issuance of an opinion by the Supreme Court of Virginia in Swords Creek Land Partnership v. Belcher, 762 S.E.2d 570 (Va. 2014). Swords Creek affirmed that court's earlier holding in Harrison-Wyatt, LLC v. Ratliff, 593 S.E.2d 234 (Va. 2004), and clearly established that CBM is a mineral estate separate and distinct from the coal estate. Swords Creek Land P'ship, 762 S.E.2d at 572 (“CBM is not a constituent part of coal at any time but rather is a separate mineral estate.”). As a result of this determination of Virginia law, the coal owners who previously laid claim to CBM royalties have relinquished those claims. The plaintiffs argue that these events have simplified both the nature of the primary dispute and the questions raised by the court of appeals regarding class certification.

         II. The Parties' Arguments.

         A. Hale, Addison, Adair, and Kiser.

         In light of these two events, the plaintiffs in Hale, Addison, Adair, and Kiser have framed their cases as actions for an accounting. The plaintiffs represent that after the classes have been certified, they will move for summary judgment as to questions of “pure law” regarding the liability of the defendant CBM operators. Once those questions have been answered, the plaintiffs say, the accounting can take place and damages can be calculated as to each subset of class members. In short, the plaintiffs believe this action should consist of three “phases” as follows: Phase 1 - Answer legal questions via summary judgment.

Phase 2 - Perform requested accounting.
Phase 3 - Calculate the plaintiffs' damages. Such calculations will be performed as to specific subsets of class members, and in some instances may involve calculating damages for individual class members.

         During oral argument on their motions for class certification, the plaintiffs argued that other courts have favored this bifurcated approach. See, e.g., McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482, 488-89, (7th Cir. 2012) (allowing limited class action treatment regarding issue of whether employer's practices had a disparate impact on African-American employees), abrogated on other grounds by Phillips v. Sheriff of Cook Cty., 828 F.3d 541, 559 (7th Cir. 2016).

         1. Proposed Class Definitions.

         The Hale and Adair plaintiffs propose nearly identical class definitions. Where the Hale proposed class refers to CNX, the Adair proposed class refers to EQT. In addition, both class definitions encompass gas claimants who received royalties between a given date and January 1, 2016. For the Hale class, that date is September 23, 2010; for the Adair class, that date is June 15, 2010. In all other respects, these plaintiffs' class definitions are identical:

All gas claimants who were identified by [CNX/EQT] in filings with the Board as “unleased” owners of gas estate interests and for whom [CNX/EQT] has applied, as of the later of the date of this Court's class certification order or the resolution of an interlocutory appeal of such order, pursuant to Virginia Code § 45.1-361.22:2(A), for the release of funds held in escrow or internally, and all such gas claimants who have received distributions from escrow or directly from [CNX/EQT] as a result of a judicial determination of ownership or agreement between [September 23, 2010/June 15, 2010] and January 1, 2016. “Gas claimants” is defined by Virginia Code § 45.1-361.1. The Class excludes (a) the Defendant, (b) any person who serves as a judge in this civil action and his/her spouse, (c) any individuals who have received a Court-supervised accounting of [CNX's/EQT's] payments into escrow or internal suspense, and (d) any person who operates a gas well in Virginia and any person who holds a working interest in a well operated by [CNX/EQT] in Virginia.

Hale v. CNX Gas Co., 1:10CV00059, Pl.'s Revised Class Definitions 1-2, ECF No. 481; Adair v. EQT Prod. Co., 1:10CV00037, Pl.'s Revised Class Definitions 1-2, ECF No. 576.

         The Addison and Kiser plaintiffs also propose nearly identical class definitions. Where the Addison proposed class refers to CNX, the Kiser proposed class refers to EQT. In addition, both class definitions encompass gas claimants who received royalties between a given date and January 1, 2016. For the Addison class, that date is November 9, 2010; for the Kiser class, that date is April 20, 2011. In all other respects, these plaintiffs' class definitions are identical:

All gas claimants who voluntarily leased gas estate interests and for whom [CNX/EQT] has applied, as of the later of the date of this Court's class certification order or the resolution of an interlocutory appeal of such order, pursuant to Virginia Code § 45.1-361.22:2(A) or (C), for the release of funds held in escrow or held internally, and all such gas claimants who have received distributions from escrow or directly from [CNX/EQT] as a result of a judicial determination of ownership or agreement between [November 9, 2010/April 20, 2011] and January 1, 2016. “Gas claimants” is defined by Virginia Code § 45.1-361.1. The Class excludes (a) the Defendant, (b) any person who serves as a judge in this civil action and his/her spouse, (c) any individuals who have received a Court-supervised accounting of [CNX's/EQT's] payments into escrow or internal suspense, and (d) any person who operates a gas well in Virginia and any person who holds a working interest in a well operated by [CNX/EQT] in Virginia.

Addison v. CNX Gas Co., 1:10CV00065, Pl.'s Revised Class Definitions 2, ECF No. 399; Kiser v. EQT Prod. Co., 1:11CV00031, Pl.'s Revised Class Definitions 2, ECF No. 360.

         2. Specific Legal Claims.

         As noted, the plaintiffs seek, first and foremost, an accounting. During oral argument, the plaintiffs asserted that they are entitled to this accounting as a matter of right because the defendants owe them a fiduciary duty. The plaintiffs characterize the accounting question as being one of six questions of law or fact that are common to the class.

         In Virginia, one who is owed a fiduciary duty is entitled to an accounting if there is an allegation that the fiduciary is not living up to its duty. See Va. Code Ann. § 8.01-31 (“An accounting in equity may be had against any fiduciary . . . for receiving more than comes to his just share or proportion.”). An action for an accounting must normally be predicated on some wrong. Accordingly, at oral argument, the plaintiffs acknowledged that an accounting would not be available if, at the summary judgment phase, the court decided the five other common questions in favor of the defendants. According to the plaintiffs, those common questions are as follows.

         First, whether the defendants' cost deductions are excessive. The plaintiffs argue both that the costs are excessive and that the excessive nature of the deductions can be evidenced by examining the defendants' common practices. These alleged practices include CNX's decision to fabricate gathering rates by manipulating accounting data, rather than basing gathering rates on post-production costs. The plaintiffs also claim that CNX improperly charged the gas owners for the depreciation of capital assets and facilities and that EQT improperly charged the gas owners for gathering, compression, property taxes, depreciation, and fuel costs. They further argue that the defendants improperly passed selling, general, and administrative charges to them. Because the defendants' respective courses of conduct were the same for all class members, the plaintiffs assert, this issue can be adjudicated as to the entire class.

         Second, whether the defendants paid royalties based on improperly low prices. The plaintiffs argue that the defendants used swap contracts and other financial instruments to pay royalties based on prices lower than those realized by the defendants. The plaintiffs further argue that the defendants paid royalties based on prices below the published index prices. Again, they assert that these practices affected the royalties of all class members.

         Third, whether the defendants improperly delayed making payments into escrow. The plaintiffs argue that the defendants have consistently made late payments and that, in some cases, payments were delayed by years. They also assert that this practice raises further common questions, such as whether these late payments provide the plaintiffs with a cause of action and, if so, the extent to which the plaintiffs are entitled to damages.

         Fourth, whether the defendants may permissibly deduct severance taxes from the lessors' royalties. The plaintiffs in the Hale and Adair classes argue that this practice is unlawful. See Hershey v. ExxonMobil Oil Corp., No. 07-1300-JTM, 2011 WL 1234883, at *5 (D. Kan. Mar. 31, 2011) (holding that whether lessee made proper deductions for severance taxes was a common question that justified certification). Importantly, such taxes appear to be deducted from the royalties of all class members.

         Fifth, whether the defendants improperly force-pooled, drilled, completed, and produced CBM wells before a pooling order had been entered. This claim applies only to some of the Hale putative class members.[2]

         3. Defendants' Response.

         a. Ascertainability.

         While the defendants' briefs address ascertainability, their discussions contemplate only the classes that the plaintiffs originally named in their motions to certify the classes. At oral argument, the plaintiffs proposed new class definitions that narrow the classes and appears to make them more ascertainable. As a result, many of the arguments made in the defendants' briefs no longer apply.

         Nonetheless, the defendants consistently argue that not all gas claimants will have been identified by January 1, 2016.[3] They cite the revised version of Virginia Code Ann. § 45.1-361.22:2(A), which allows the Virginia Gas and Oil Board to extend the time by which gas well operators must file their applications for payment and delay the release of funds in escrow. The defendants further note that the plaintiffs make no attempt to explain how unidentified gas claimants will be ascertained. The plaintiffs suggest that those claimants who have not yet been identified will identify themselves, but the defendants argue that class certification cannot be based on such speculation. See Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 592-93 (3d Cir. 2012) (“Many courts and commentators have recognized that an essential prerequisite of a class action, at least with respect to actions under Rule 23(b)(3), is that the class must be currently and readily ascertainable based on objective criteria.”

         b. Commonality.

         The defendants also argue that the plaintiffs' claims do not present common questions suitable for class adjudication because they “do not generate common answers apt to drive resolution of this case.” Kiser v. EQT Prod. Co., 1:11CV00031, Def.'s Mem. Opp'n Class Certification 6, ECF No. 352. They further note that the question of whether an accounting is appropriate cannot be considered a common question for purposes of class certification unless and until the court has found some wrongdoing by the defendants.[4] In addition, EQT argues that the questions regarding its deduction of severance taxes are not of sufficient importance to justify certification of the class due to the relatively low dollar amounts at issue. Finally, both EQT and CNX allege that, contrary to the plaintiffs' allegations, their royalty payment practices are not uniform across the classes and that, as a result, questions regarding those payment practices are neither common questions nor have common answers.[5]

         c. Predominance.

         The plaintiffs argue that while individual determinations of damages will eventually become necessary, the “pure legal questions” presented above represent the fundamental issues in these cases. They assert that once these questions are resolved, damages will largely be calculated using basic formulas. Some of the legal questions apply only to certain subgroups within the proposed classes, but the plaintiffs argue that such a bifurcation or division of parties does not detract from the fact that the above questions are the predominate issues in this matter. See McReynolds, 672 F.3d at 491 (“If there are genuinely common issues . . . identical across all the claimants, . . . the accuracy of the resolution of which is unlikely to be enhanced by repeated proceedings, then it makes good sense, especially when the class is large, to resolve those issues in one fell swoop while leaving the remaining, claimant-specific issues to individual follow-on proceedings.” (citation omitted)).

         The plaintiffs assert that their approach is consistent with the Fourth Circuit's directive to “take full advantage” of Rule 23(c)(4), which “permit[s] class treatment of separate issues in the case.” Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 441 (4th Cir. 2003) (internal quotation marks and citation omitted). “Neither Rule 23 nor any gloss that decided cases have added to it requires that every question be common. It is routine in class actions to have a final phase in which individualized proof must be submitted.” Suchanek v. Sturm Foods, Inc., 764 F.3d 750, 756 (7th Cir. 2014).

         The defendants assert that an analysis of the above questions does not show that class-wide issues predominate. While the plaintiffs frame the central issue in this case as being whether they are entitled to an accounting, the defendants frame the central issue as being whether they, the defendants, underpaid royalties. According to the defendants, the plaintiffs have not set forth class-wide questions capable of addressing this central issue that also predominate over individual issues. See Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 350 (2011) (“What matters to class certification . . . is not the raising of common ‘questions' - even in droves - but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation. Dissimilarities within the proposed class are what have the potential to impede the generation of common answers.” (citation omitted)). Citing Dukes, the defendants contend that, by focusing on the accounting action, the plaintiffs are stating an overly-broad, overly-inclusive issue that does not truly address the subject matter of this case and, therefore, does not satisfy the predominance requirement.

         The defendants argue both that individual issues predominate as to each of the five legal questions posed by the plaintiffs and that the plaintiffs have not offered the “evidentiary proof” necessary to satisfy the predominance requirement. Hale v. CNX Gas Co., 1:10CV00059, Def.'s Mem. Opp'n Class Certification 36, ECF No. 463; see also Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1428 (2013). They address each of the plaintiffs' stated legal questions in turn.

         First, the defendants argue that individual issues predominate over the question of whether their cost deductions are “unreasonable.” Hale v. CNX Gas Co., 1:10CV00059, Def.'s Mem. Opp'n Class Certification 23, ECF No. 463. They assert that the question of whether their payment practices violated the duties they owed will vary from class member to class member. In support of this contention, the defendants point to the Fourth Circuit's finding that the deductions taken from the putative class members were not uniform because the defendants took different deductions depending on where they sold the CBM. The Fourth Circuit further noted that deduction calculations can vary, both between different wells and within the same well over time. See EQT Prod. Co., 764 F.3d at 367. Determining the cost deduction for any given class member depends on a number of factors, including the applicable time frame, well location, place of sale, gathering rates, and the amount of gas transported. The defendants contend that the plaintiffs have offered no specific formula, calculation method, or expert analysis that can uniformly evaluate these factors.

         Second, the defendants argue that individual issues predominate over any common question regarding the reasonableness of the prices used to calculate royalty payments. They assert that, contrary to the plaintiffs' claim, they are not required to pay royalties at the “highest price obtainable” and that instead, they are required only to act as a “reasonably prudent operator, ” or to pay royalties based on a reasonable price. Hale v. CNX Gas Co., 1:10CV00059, Def.'s Mem. Opp'n Class Certification 28, ECF No. 463. The defendants further argue that whether a price is reasonable will depend on numerous individualized facts.

         Third, the defendants argue that individual issues predominate over the question of whether they delayed making payments into escrow. Again, they first note the plaintiffs' concession that this practice has not affected all class members. The defendants contend that in order to determine whether late payments have caused injury, the court will need to review the timeliness of every payment as to every class member, based on the date of each specific pooling order. This analysis will cover a twenty-two year span. In short, they say, this fact-intensive process alone will constitute a much larger portion of this action than any common issue.

         Fourth, the defendants contend that the question of whether they may deduct severance taxes from class members' royalties is not of “sufficient importance” to justify certifying the class. Kiser v. EQT Prod. Co., 1:11CV00031, Def.'s Mem. Opp'n Class Certification 7, ECF No. 352. They appear to concede that the severance tax issue presents a common question, but they also note that any damages that might result from this issue would be relatively small.[6] The defendants thus argue that “the costs associated with litigating [this] claim threaten to outweigh the potential recovery” and that the severance tax issue is not of central importance. Id. at 8.

         Fifth, the defendants argue that individual issues predominate over any common question regarding whether they force-pooled and produced gas from CBM wells before a pooling order was entered. They first note that this issue does not apply to all putative class members and that individual review would therefore be necessary to determine whether the putative class members were actually injured. The defendants also contend that individual issues will be raised by affirmative defenses. Whether or not the defendants committed any wrongdoing, they contend, will depend on the specific permits and facts that relate to their conduct at a given well.

         At bottom, the defendants contend that the individual analyses that must take place as to each putative class member and each issue constitute a greater proportion of this action than the common “pure legal questions” cited by the plaintiffs. “[I]ndividualized damage determinations cut against class certification under Rule 23(b)(3).” Ward v. Dixie Nat'l Life Ins. Co., 595 F.3d 164, 180 (4th Cir. 2010). The defendants also note the plaintiffs' failure to propose any expert or scientific model that might be used to calculate damages, which the defendants point to as evidence of how difficult it would be to adjudicate each individual claim.

         Sixth, the defendants assert that individual trials are superior to a class action suit in this case, that there is sufficient financial incentive for the plaintiffs to litigate these trials individually, and that mechanisms provided by Virginia's regulatory scheme can further help resolve these matters. Thus, the defendants argue that this court should abstain from hearing these cases under the doctrine of Burford v. Sun Oil Co., 319 U.S. 315 (1943). See also Johnson v. Collins Entm't Co., 199 F.3d 710, 719 (4th Cir. 1999) (“Basic abstention doctrine requires federal courts to avoid interference with a state's administration of its own affairs.”).

         B. Adkins v. EQT.

         Unlike the plaintiffs in Hale, Adair, Kiser, and Addison, the plaintiff in Adkins does not seek an accounting. Instead, Adkins raises claims of breach of contract and conversion.

         1. Proposed Class Definitions.

         Adkins proposes the following class definition:

Each person to whom EQT Production Company (‘EQT') has paid since June 8, 2005, or is currently paying royalties under a lease(s) on gas produced by EQT from the Nora Field in the Commonwealth of Virginia and whose leases do not contain language expressly authorizing the lessee to deduct or expressly precluding the lessee from deducting the cost of gathering, treating, compression, dehydration, processing, and/or transportation when calculating royalty payments, according to business records maintained by EQT.
The Class excludes (a) EQT; (b) the federal government; (c) any person who serves as a judge in this civil action and his/her spouse; (d) any person who operates a gas well in Virginia; and (e) any person who holds a working interest ownership in a well operated by EQT in Virginia.

Adkins v. EQT Prod. Co., 1:10CV00041, Pl.'s Mem. Supp. Class Certification 7-8, ECF No. 357.

         Adkins argues that this revised class definition is more precise and, thus, cures the deficiencies noted by the court of appeals.

         2. Specific Legal Claims.

         The plaintiff in Adkins has restricted the scope of her case, such that she now raises only two claims: (1) breach of contract and (2) conversion. These claims stem from deductions that EQT has allegedly taken from the plaintiff's royalty payments. Adkins states that such deductions are for the purpose of making the gas marketable and argues that her royalty payments cannot properly be reduced for this reason. She also asserts that EQT has applied a “uniform accounting methodology” that has led to the systematic underpayment of royalties to members of the putative class. Id. at 6.

         The Adkins plaintiff asserts that application of the First Marketable Product Rule to the putative class members' leases constitutes a question common to the class. In its opinion, the Fourth Circuit expressed concerns about the commonality of the class based on variations among the gas owners' leases with the defendant, and it “invited plaintiffs to show that ‘there are a limited number of lease forms, such that the validity of the defendants' conduct can be assessed on a subclass basis.'” Id. at 10-11 (quoting EQT Prod. Co., 764 F.3d at 369). In response to this invitation, plaintiff's counsel reviewed many of the leases in the class. Although some leases require payment of royalties based on proceeds and others require payment based on market value - a variation noted by the Fourth Circuit - Adkins argues that this variation does not affect the question of whether EQT violated the First Marketable Product Rule, and thus does not preclude a finding of commonality. In addition, although some leases specify that the price of CBM must be determined at the gas well and others permit calculation at the point of sale - another variation noted by the Fourth Circuit - Adkins argues that this variation is similarly immaterial because EQT admits in its discovery responses that the gas is being sold at the well.

         At bottom, plaintiff's counsel state that their lease review did not reveal any material lease term that would affect the common question of whether EQT violated the First Marketable Product Rule. They now argue that this review, along with their new proposed class definition, establishes commonality, and they identify three common questions in this matter, as follows.

         First, what deductions EQT may take from the putative class members' royalties.

         Second, whether EQT has obtained the highest possible price for the CBM, in accordance with its duty to market the gas. Adkins asserts that this is a common question because there is no evidence that the prices EQT uses to calculate royalties vary among the putative class members.

         Third, whether EQT's gas is first marketable when it has entered an interstate pipeline. Adkins asserts that the question of whether the First Marketable Product Rule applies turns on the answer to this question.

         Adkins argues that in order to receive a favorable adjudication on these issues, she will need to show that EQT's royalty calculations, which are based on uniform sales prices and affect all class members, constitute breaches of the class members' leases by resulting in underpayment of royalties. While there may be individual differences in the amounts of damages, Adkins argues that under the limited class definition proposed, the above common questions predominate over any such individual issues.

         3. Defendants' Response.

         a. Commonality and Typicality.

         The defendant asks the court to assess the elements of the claims made in Adkins' case. As the plaintiff concedes, the case “turns on the application of [the first marketable product] rule to all Class members.” Id. at 2. As such, the defendant suggests, the court must rule on the merits of the claims - and specifically the application of the First Marketable Product Rule - in order to decide the issue of class certification.

         The defendant contends that the version of the First Marketable Product Rule on which the case turns is an “extreme version of the rule” that has not been adopted in Virginia. Id., Def.'s Mem. Opp'n Class Certification 11, ECF No. 361. As a result, it asserts, the class should not be certified, because the plaintiff will be unable to show that there is a common question as to this issue.

         Furthermore, the defendant argues, even if the First Marketable Product Rule does apply, and the plaintiff can show that there is a common question - that is, whether EQT's gas is first marketable when it enters an interstate pipeline - the court should deny class certification because the plaintiff cannot show that this question has a common answer. According to the defendant, in order for this question to have a common answer, “all of the gas from all the wells must be marketable at the same location all of the time.” Id. at 29. Under Virginia law, however, this is not necessarily the case, and the question of marketability will therefore vary on a well-by-well basis. As a result, the defendant asserts, the plaintiff cannot show commonality on the issue of gas marketability.

         Next, the defendant contends that the plaintiff's newly proposed class definition does not remedy the problems created by variations among the class members' leases. It notes that although the plaintiff's expert identified twenty standard lease forms during her review, the review encompassed less than half of the actual leases at issue. The defendant also references language from individual leases in an effort to show how that language varies from lease to lease. Ultimately, the defendant asserts, the lease variations preclude the plaintiff from fulfilling the commonality and predominance class certification requirements.

         Citing Wallace B. Roderick Revocable Living Trust v. XTO Energy, Inc., 725 F.3d 1213 (10th Cir. 2013), the defendant argues that the plaintiff, in order to prevail, must prove that no single lease in the class negates the First Marketable Products Rule. It further asserts that, contrary to the claims of the plaintiff's expert, “nearly all” of the leases in the class contain language negating the First Marketable Product Rule. Adkins v. EQT Prod. Co., 1:10CV00041, Def.'s Mem. Opp'n Class Certification 20, ECF No. 361. In support of this assertion, and in an attempt to undermine the plaintiff's expert, the defendant calls attention to specific areas of contradictory language in the leases and disputes the admissibility of the plaintiff's expert's declaration. It also argues that Adkins' claims are not typical of the proposed class because her particular leases correspond to only two of the twenty lease forms identified by her expert.

         b. Predominance.

         EQT contends that Adkins cannot fulfill the predominance requirement because of the myriad of individual issues in this case. It notes that because the course of performance between two parties controls the meaning of the putative class members' leases, such course of performance must be analyzed with regard to each individual lease. There are thousands of leases at issue in this case. In addition to undermining any showing of commonality, the defendant asserts, the necessary individual analyses will predominate over any common questions regarding the meaning of the leases. To support its argument, the defendant provides several specific examples of individual courses of performance and asserts that these different courses of performance must result in different interpretations for each individual lease, thus affecting the outcome of each class member's claim. In addition, the defendant asserts that individual issues regarding damages will predominate over any common questions that might be raised in this case.

         c. “Fail-Safe” Class and State Interests.

         Finally, EQT characterizes the plaintiff's proposed class as an “impermissible fail-safe” class that violates Rule 23(c)(3)'s requirement that there be a “possibility of an adverse judgment against the class.” Id. at 33 (citing Randleman v. Fid. Nat'l Title Ins. Co., 646 F.3d 347, 352 (6th Cir. 2011)). It also argues that the involvement of “substantial state interests” and questions of state law that have never been addressed by a Virginia court support federal abstention in this case. Id. at 33-34.

         III. ...


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