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Media Alerts - EQT Production Co. v. Adair - Fourth Circuit
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October 6, 2014
  EQT Production Co. v. Adair - Fourth Circuit
Headline: Unpaid Gas Owners Need More Than Just Sympathy

Areas of Law: Class Action Lawsuits; Property

Issue Presented: Whether the district court abused its discretion when it certified the claims of five classes under Fed. R. Civ. P. 23.

Brief Summary: Owners of subsurface gas estates brought five lawsuits against two coalbed methane producers. The suits alleged the producers had not paid royalties owed to plaintiffs. After a federal district court granted the plaintiffs' motions for class certification, the United States Court of Appeals for the Fourth Circuit granted review. Holding that the district court abused its discretion in certifying the classes by materially misapplying the requirements of Rule 23 in multiple ways, the Fourth Circuit vacated the district court's grant of the motions and remanded the case for reconsideration.

Extended Summary: Between June 2010 and April 2011, lead plaintiffs of five separate cases filed various federal complaints against two Virginia coalbed methane gas ("CBM") producers, EQT Production Co. ("EQT") and CNX Gas Co. ("CNX"). Four of the lawsuits alleged that EQT and CNX completely deprived plaintiffs of royalty payments from the production of CBM, and all five suits alleged that EQT and CNX had underpaid royalties.

Producers have captured CBM since the 1970s for use as a commercial energy source. However, issues have persisted regarding the ownership rights to CBM as different individuals often own the subsurface gas and coal mining rights. In 1990, Virginia enacted the Virginia Gas and Oil Act to enable CBM production on adjoining tracts of land and to overcome continuing ownership disputes. Under the Act, producers and alleged gas estate owners enter into lease agreements to facilitate the distribution of royalty payments.

EQT and CNX together operated between 750 and 900 CBM wells in Virginia. The plaintiffs - gas estate owners identified in the defendants' ownership schedules as holding conflicting interests in CBM - sought declaratory judgment that (1) the ownership conflicts that EQT and CNX had identified were illusory; (2) as gas estate owners, they were entitled to the withheld CBM royalties; and (3) any royalties held in escrow or suspended by defendants as a result of the illusory ownership conflicts must be paid. In addition to declaratory judgment relief, plaintiffs sought a complete accounting of the royalties, alleged various tort, property, and contract theories of recovery, and sought punitive damages.

Plaintiffs moved for class certification, and the district judge certified a total of five classes. EQT and CNX appealed the five certification orders to the U.S. Court of Appeals for the Fourth Circuit.

In a consolidated action, the Fourth Circuit first held that the district court failed to rigorously analyze the administrative burden of identifying the classes' members, and improperly lowered those plaintiffs' burden of proof in establishing commonality under Rule 23(a). Next, the Fourth Circuit held that the district court abused its discretion in certifying the class claims alleging EQT's and CNX's underpayment of royalties. Concluding that sympathy alone towards the numerous CBM holders who had not received a penny in royalties or had been underpaid could not justify certification under Rule 23, the Fourth Circuit vacated the district court's grant of plaintiffs' motions for class certification, and remanded the case for reconsideration of the motions consistent with its opinion.

To read the full text of this opinion, please click here

Panel: Judges Wilkinson, Keenan, and Diaz

Argument Date: 05/13/2014

Date of Issued Opinion: 08/19/2014

Docket Number: No. 13-414

Decided: Vacated and remanded by published opinion

Case Alert Author: Emily Bolyard

Counsel: ARGUED: Jonathan Todd Blank, MCGUIREWOODS LLP, Charlottesville, Virginia; Michael Willis Smith, CHRISTIAN & BARTON, Richmond, Virginia, for Appellants. Elizabeth Joan Cabraser, LIEFF, CABRASER, HEIMANN & BERNSTEIN, LLP, San Francisco, California, for Appellees. ON BRIEF: Stephen M. Hodges, Wade W. Massie, Mark E. Frye, PENN, STUART & ESKRIDGE, Abingdon, Virginia; R. Braxton Hill, IV, CHRISTIAN & BARTON, Richmond, Virginia, for Appellant EQT Production Company. Lisa M. Lorish, Tennille J. Checkovich, John Tracy Walker, IV, MCGUIREWOODS LLP, Charlottesville, Virginia; James R. Creekmore, Blair Nivia Wood, CREEKMORE LAW FIRM PC, Blacksburg, Virginia, for Appellant CNX Gas Company, LLC. Blair M. Gardner, Lee Adair Floyd, JACKSON KELLY PLLC, Charleston, West Virginia; Eric D. Whitesell, GILLESPIE, HART, ALTIZER & WHITESELL, Tazewell, Virginia, for Appellants Buckhorn Coal Company LLLP, Commonwealth Coal Corporation, and Harrison-Wyatt LLC. David S. Stellings, Daniel E. Seltz, LIEFF CABRASER HEIMANN & BERNSTEIN, LLP, New York, New York; Jackson S. White, Jr., THE WHITE LAW OFFICE, Abingdon, Virginia, for Appellees.

Author of Opinion: Judge Diaz

Case Alert Circuit Supervisor: Professor Renée Hutchins

    Posted By: Renee Hutchins @ 10/06/2014 01:15 PM     4th Circuit  

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