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Zehentbauer Family Land LP v. Chesapeake Exploration, L.L.C.

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

July 20, 2018

CHESAPEAKE EXPLORATION L.L.C., et al., Defendants.



         Pending is Plaintiffs' Motion for Class Certification (ECF No. 103). The Court has been advised, having reviewed the record, the parties' briefs and the applicable law. For the reasons set forth below, the Court grants the motion in part.

         I. Background

         Plaintiffs Zehentbauer Family Land LP (“Zehentbauer”); Hanover Farms LP (“Hanover”); and Evelyn Frances Young, Successor Trustee of The Robert Milton Young Trust (“Young”) filed suit against Defendants Chesapeake Exploration L.L.C. (“CELLC”), Chesapeake Operating L.L.C., CHK Utica, L.L.C., Total E&P USA, Inc. (“TEPUSA”), Pelican Energy L.L.C., and Jamestown Resources L.L.C. See Class Action Complaint (ECF No. 1-1) at PageID #: 14-43.

         Defendants are in the business of oil and gas exploration and production. Plaintiffs are landowners located throughout eastern and southeastern Ohio who entered into oil and gas lease agreements with Ohio Buckeye Energy LLC (“Buckeye”) and CELLC. CELLC later merged with Buckeye and acquired Buckeye's lease rights. CELLC then leased those rights to the various defendants. Though the leases changed hands, the obligations remained unchanged. ECF No. 1-1 at PageID #: 20. Under these agreements, Defendants obtained Plaintiffs' oil and gas rights in exchange for a combination of fees and royalty payments of varying percentages. ECF No. 1-1 at PageID #: 45, 67, 68, 90, 91, 127, 128. Plaintiffs allege that Defendants have improperly reduced royalty payments by selling hydrocarbons with greater sale price deductions than is allowable under the agreements. ECF No. 1-1 at PageID #: 41.

         Plaintiffs split the leases into three subclasses or “Groups” Group A, Group B, and Group C. ECF No. 101-1 at PageID #: 2723-25, ¶ 5. Royalty provisions dictating payments for oil and gas products are common to each lease in the proposed class, although the royalty language varies among the subclasses. Group A's royalty provisions both contain language governing the sale price and royalty percentage, but the gas royalty provisions of the subclass contain a definitional clause and a comparable sales requirement (“CSR”) that the oil royalty provision does not. The definitional clause outlines the substances governed by the provision and the CSR governs hydrocarbon sales to corporate affiliates. Both of Group B's royalty provisions contain a CSR and the definitional clause. And finally, Group C's provisions both have the definitional clause, but no CSR. ECF 101-1 at PageID #: 2723, ¶ 5(a).

         Zehentbauer and Hanover have lease agreements that are a part of Group A and Young has an agreement in Group B. None of the named plaintiffs, however, have leases in Group C.[1]ECF No. 101-1 at PageID #: 2723-25, ¶ 5. Plaintiffs have moved to merge their claims and the claims of the other lessors into one action based upon the common claim that Defendants improperly reduced the royalties due. ECF No. 103 at PageID #: 3302.

         II. Standard of Review

         Class actions are the “exception” to the general rule that parties litigate issues by and for themselves. Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2550 (2011) (citation omitted). Indeed, class actions are only appropriate when there are common questions with common answers that “advance the litigation” towards resolution. Sprague v. Gen. Motors Corp., 133 F.3d 388, 397 (6th Cir. 1998). Class certification is only proper in cases when the Court finds, after a “rigorous analysis, ” that the proposed class fulfills all the requirements of Fed.R.Civ.P. 23. Dukes, 131 S.Ct. at 2551. This analysis often requires at least a glance beyond the pleadings as the relevant details are frequently intertwined with the legal and factual considerations of the litigation. Gen. Tel. Co. v. Falcon, 457 U.S. 147, 159 (1982). Within this framework, district courts are given broad discretion in determining whether class certification is proper. Beattie v. CenturyTel, Inc., 511 F.3d 554, 559-60 (6th Cir. 2007). The party moving to certify the class must demonstrate the propriety of a class action under Rule 23. In re Am. Med. Sys., Inc., 75 F.3d 1069, 1079 (6th Cir. 1996).

         III. Discussion

         In order for class certification to be appropriate, the Court must find that the moving party has shown the proposed class to be well-defined by objective criteria, that each requirement of Rule 23(a) has been satisfied, and that the class meets one of the definitions listed under Rule 23(b).

         A. Class Definition

         Class certification is only appropriate when the proposed class is limited by definite and objective criteria. Edwards v. McCormick, 196 F.R.D. 487, 491 (S.D. Ohio 2000). “Fail-safe” classes those for which the definition only becomes fixed upon resolution on the merits will not be certified. See Randleman v. Fidelity Nat'l Title Ins. Co., 646 F.3d 347, 352 (6th Cir.2011). The characteristics that dictate membership in the class must be definite to ensure the class is administratively feasible. Young v. Nationwide Mut. Ins. Co., 693 F.3d 532, 537-38 (6th Cir. 2012) (citing Crosby v. Soc. Sec. Admin., 796 F.2d 576, 580 (1st Cir. 1986)). In this case the class moving to be certified has been defined as:

All persons entitled to royalty payments from Chesapeake Exploration, LLC, Chesapeake Operating, Inc., CHK Utica, LLC, Total E&P USA, Inc., Pelican Energy, L.L.C., and/or Jamestown Resources, L.L.C. at any time during the years of 2011 to the present under uniform oil and gas leases, known generally as Gross Royalty Leases, (some originally entered by Buckeye Exploration Corporation) which state that the lessors royalty shall be the stated percentage of the gross proceeds received by the lessee without any deductions except for a pro-rata share of governmentally imposed taxes and fees, in return for granting rights to produce oil, natural gas, and the constituents thereof from real property located in Ohio. Excepted from the foregoing class are persons who have filed separate actions requesting the relief sought here and those who have resolved claims requesting the relief sought here. Further excepted from the class are any such lessors employed or owned by any of the Defendants.

ECF No. 103 at PageID #: 3302.

         Defendants do not challenge either the proposed class definition or that each of the named Plaintiffs own “Gross Royalty Leases” that fall within the stated definition. ECF Nos. 72-5, 72-6, 72-7.

         B. Rule 23(a) Prerequisites

         In addition to being well-defined, each class must meet the requirements of Fed.R.Civ.P. 23(a). Rule 23(a) lists four criteria that must be met for class certification to be appropriate: numerosity, commonality, typicality, and adequacy of representation. Additionally, there is a fifth implied prerequisite of ascertainability created by the listed requirements. See Romberio v. UnumProvident Corp., 385 Fed.Appx. 423, 430-31 (6th Cir. 2009).

         1. Numerosity

         Rule 23(a)(1) requires that the class be “so numerous that joinder of all members is impracticable.” Rule 23(a)(1) calls for an examination of the specific facts of each case, but there are no predetermined numbers or levels that denote a sufficiently numerous class. Gen. Tel. Co. of the Northwest v. Equal Emp. Opportunity Commission, 100 S.Ct. 1698, 1706 (1980). Although “there is no strict numerical test, ” the Sixth Circuit has stated that a class of “substantial” numbers is sufficient to satisfy the requirement. Daffin v. Ford Motor Co., 458 F.3d 549, 552 (6th Cir. 2006). There are no hard rules as to what a “substantial” number is, but “a class of 40 or more members raises a presumption of impracticability.” 1 William B. Rubenstein, Alba Conte and Herbert B. Newberg, Newberg on Class Actions § 3:12 (5th ed. 2017).

         Plaintiffs claim there are 295 leases and even more assignments in question, ECF No. 103-1 at PageID #: 3313, and Defendants state that there are only 272 leases that meet the membership requirements. ECF No. 109-1 at PageID #: 3543. Determining which number is correct is irrelevant at this point. The parties seem to agree that the number is greater than 200 and that is “substantial.” Defendants do not challenge Plaintiffs' numerosity argument.

         Given the size of the proposed class and the nature of the claims the numerosity requirement is satisfied.

         2. Commonality

         Commonality requires that there be “questions of law or fact common to the class.” Rule 23(a)(2). A common issue for the purposes of class certification is one “[t]hat determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Dukes, 131 S.Ct. at 2551. The commonality analysis ensures there is at least ...

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