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Henceroth v. Chesapeake Exploration, L.L.C.

United States District Court, N.D. Ohio, Eastern Division

March 23, 2018

DALE H. HENCEROTH, et al., Plaintiffs,
v.
CHESAPEAKE EXPLORATION, L.L.C., Defendant.

          MEMORANDUM OF OPINION AND ORDER [RESOLVING ECF NOS. 86 AND 105 ]

          Benita Y. Pearson, United States District Judge

         Two matters are pending before the Court. The first is Plaintiffs' Motion for Class Certification. ECF No. 86. Defendant responded with an Amended Opposition (ECF No. 96), Plaintiffs replied (ECF No. 101), and Defendant rebutted (ECF No. 104). The second is Defendant's Motion to Exclude Expert Testimony of W.R. Harper, Jr. and Daniel T. Reineke. ECF No. 105. Plaintiffs are opposed. See ECF No. 110. A hearing was conducted. See Transcript (ECF No. 114).

         For the following reasons, the Court grants Plaintiffs' Motion for Class Certification, and denies Defendant's Motion to Exclude Expert Testimony.

         I. Background

         The named Plaintiffs, Dale H. Henceroth and Marilyn S. Wendt, along with eight others brought suit against Defendant Chesapeake Exploration, L.L.C. (“CELLC”) for breach of contract in this putative class action. ECF No. 18. Eight of the ten original proposed class representatives were dismissed after Plaintiffs filed their Second Amended Complaint (“SAC”). ECF No. 101 at PageID #: 7770.

         CELLC is in the business of exploring and producing oil and gas, collectively known as “hydrocarbons.” Plaintiffs are landowners in Ohio who originally entered into oil and gas leases with Anschutz Exploration Corporation (“Anschutz”). CELLC later entered into a business relationship with Plaintiffs after CELLC purchased Anschutz's interests in these leases. Through these leases, Plaintiffs agreed to lease the oil and gas rights to their land to CELLC. In exchange, Plaintiffs received an up-front bonus and are entitled to a percentage of the revenues received from the sale of the hydrocarbons in the form of royalty payments. The royalty payments are calculated based on the terms of the lease. ECF No. 96 at PageID #: 7723. Plaintiffs allege that CELLC calculated the royalties using the incorrect price as proscribed by the terms of the leases. ECF No. 18 at PageID #: 312.

         There are 623 total leases at issue. The leases can be divided into three groups. All leases have a royalty provision in the body of the lease at Section 5(B) (“Section 5(B)”). The first group (“Group One”) consists of 526 leases that are governed solely by Section 5(B). The second group (“Group Two”) consists of 90 leases containing an addendum with a governing royalty provision. This royalty provision is commonly referred to in the oil and gas industry as a “Market Enhancement Clause.” The third group (“Group Three”) consists of seven leases containing an addendum with a different royalty provision. ECF No. 101 at PageID #: 7761. Named Plaintiff Dale H. Henceroth's two leases are a part of Group Two because they contain the Market Enhancement Clause. ECF Nos. 86-3, 86-4. Named Plaintiff Marilyn S. Wendt's lease is a part of Group One. ECF No. 86-5.

         Plaintiffs move for class certification on a single claim---that CELLC calculated the royalties using the incorrect price. ECF No. 86. Defendant supported its opposition to certification with the expert report of Kris Terry. ECF No. 92-4. Consequently, Plaintiffs supported its reply with the expert reports of W.R. Harper, Jr. (“Harper”) and Daniel T. Reineke (“Reineke”). ECF Nos. 102-1, 102-2. Defendant moves to exclude the testimony and opinions of Harper and Reineke. ECF No. 105.

         II. Standard of Review

         A. Class Certification

         The principal purpose of class actions is to achieve efficiency and economy of litigation with respect to both the parties and the courts. See Gen. Tel. Co. v. Falcon, 457 U.S. 147, 159 (1982). Before certifying a class, the district court must conduct a “rigorous analysis” of the prerequisites of Fed. R. Civ. P. 23. Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551 (2011). A district court has broad discretion in deciding whether to certify a class, although it must exercise that discretion within the framework of Rule 23. Beattie v. CenturyTel, Inc., 511 F.3d 554, 55960 (6th Cir. 2007); In re American Medical Systems, Inc., 75 F.3d 1069, 1079 (6th Cir. 1996).

         “Rule 23 does not require a district court, in deciding whether to certify a class, to inquire into the merits of the plaintiff's suit.” Beattie, 511 F.3d at 560. But in evaluating whether class certification is appropriate, “it may be necessary for the court to probe behind the pleadings, ” because the relevant issues are often “enmeshed” within the legal and factual considerations raised by the litigation. Falcon, 457 U.S. at 160. The party seeking class certification bears the burden of establishing that the requisites are met. Alkire v. Irving, 330 F.3d 802, 820 (6th Cir. 2003).

         B. Expert Testimony

         The admission of expert testimony is governed by Fed.R.Evid. 702 and 703. Rule 702 states that an expert witness must be qualified “by knowledge, skill, experience, training, or education” to testify. Fed. R. Evid. 702. A district court “must determine whether the testimony has ‘a reliable basis in the knowledge and experience of [the relevant] discipline'” before the testimony may be admitted. Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 149 (1999) (quoting Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 592 (1993) (alteration in original)).

         Admissible testimony of a qualified witness must be both relevant and reliable. See Fed R. Evid. 702; Bradley v. Ameristep, Inc., 800 F.3d 205, 208 (6th Cir. 2015); United States v. Cunningham, 679 F.3d 355, 379-80 (6th Cir. 2012). Relevant testimony “will help the trier of fact to understand the evidence or to determine a fact in issue.” Fed R. Evid. 702 (a); Daubert, 509 U.S. at 591; Cunningham, 679 F.3d at 380. Reliability depends on “whether the reasoning or methodology underlying the testimony is scientifically valid and [ ] whether that reasoning or methodology properly can be applied to the facts in issue.” Daubert, 509 U.S. at 592-93. The test of reliability is “flexible, ” and “the law grants a district court . . . broad latitude when it decides how to determine reliability.” Kumho Tire, Ltd., 526 U.S. at 141-42 (citing Gen. Elec. Co. v. Joiner, 522 U.S. 136, 143 (1997)).

         III. Discussion

         A. Motion for Class Certification

         In order to certify a class, a court must identify the purported class and determine that the named plaintiffs are members of the class; establish that the requirements of Fed. R. Civ. P. 23(a) have been met; and determine that the case may be certified pursuant to at least one of the subcategories of Fed. R. Civ. P. 23(b).

         1. Class Definition

         In reviewing a motion for class certification, a court must first identify the purported “class” and determine that the named plaintiffs are members of the class. The class definition must specify “a particular group at a particular time frame and location who were harmed in a particular way” and define the class so that its membership can be objectively ascertained. Edwards v. McCormick, 196 F.R.D. 487, 491 (S.D. Ohio 2000). “[T]he class definition must be sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member of the proposed class.” Young v. Nationwide Mut. Ins. Co., 693 F.3d 532, 537 (6th Cir. 2012) (quoting 5 James W. Moore et al., Moore's Federal Practice § 23.21[1] (Matthew Bender 3d ed. 1997)) (internal quotation marks omitted).

         Plaintiffs seek to certify a class, defined as:

Every person except governmental entities who is, or has been, a royalty owner under an oil and gas lease in which (1) Anschutz Exploration Corporation is named as the lessee, (2) the lease was assigned to or otherwise acquired by Chesapeake Exploration, L.L.C., (3) the lease conveys rights to oil, natural gas and natural gas liquids in Ohio, and (4) one or more of these products was produced under the lease.

ECF No. 18 at PageID #: 349.

         Defendant does not challenge Plaintiff's proposed class definition. Both named Plaintiffs own royalties with oil and gas leases that fall within the proposed class definition. ECF Nos. 86-3, 86-4, 86-5.

         2. Rule 23(a) Prerequisites

         After a class has been identified, plaintiffs must establish that the requirements of Fed. R. Civ. P. 23(a) are met. Rule 23(a) lists four requirements for the certification of a class:

One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a). There is also an implied requirement that the class members be ascertainable. See Romberio v. UnumProvident Corp., 385 Fed.Appx. 423, 430-31 (6th Cir. 2009).

         i. Numerosity

         Rule 23(a)(1) requires that the class be “so numerous that joinder of all members is impracticable.” The Sixth Circuit has stated that, although “there is no strict numerical test, ‘substantial' numbers usually satisfy the numerosity requirement.” Daffin v. Ford Motor Co., 458 F.3d 549, 552 (6th Cir. 2006). According to Newberg's often-cited treatise, “a class of 40 or more members raises a presumption of impracticability of joinder based on numbers alone.” 1 William B. Rubenstein, Alba Conte and Herbert B. Newberg, Newberg on Class Actions § 3:12 (5th ed. 2017).

         Plaintiffs highlight that Defendant produced 623 leases with the same Section 5(B) provision. ECF No. 88 at PageID #: 7071. This is a large and “substantial” number sufficient to satisfy the numerosity requirement under Rule 23(a)(1). Defendant does not challenge Plaintiffs' numerosity argument.

         Given the large number of potential class members, as well as the nature of the claims, Plaintiffs have ...


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