Royalty owners of natural-gas wells filed suit against lessee, alleging that the lessee improperly calculated and intentionally underpaid royalties for gas that was processed through a certain plant.  The District Court certified the class.

On appeal, the U.S. Fifth Circuit agreed that the class was sufficiently ascertainable. The defendant relied on precedent from the Third Circuit to argue that Plaintiffs had to demonstrate “by a preponderance of the evidence, that the class is currently and readily ascertainable based on objective criteria.” But the Fifth Circuit has not adopted that heightened standard. “Instead, a party need only demonstrate — at some stage of the proceeding — that the class is adequately defined and clearly ascertainable. Here, both DEPCO and the public records provide sufficient objective criteria from which to identify class members.”

The Court also affirmed on commonality. The District Court determined that the answers to two common questions would determine whether DEPCO violated the implied duty to market: (1) Did the 82.5% value sale of residue gas and NGLs violate DEPCO’s duty to market owed to royalty owners? and (2) Did DEPCO violate its duty to market owed to royalty owners by failing to recover profits from DGS for gas sales DGS made to third parties? “Here, the express marketing clause in three of the Class Leases Forms imposes a duty to use ‘reasonable diligence,’ which is virtually identical to the implied duty to act as a ‘reasonably prudent operator.’ Given this close similarity and the fact that Texas law acknowledges that express marketing clauses might impose the same duty as the implied duty to market, the district court did not abuse its discretion in holding that DEPCO owed all class members the same duty, under either the express marketing clause or the implied duty to market.  Owing a uniform duty, however, is not necessarily sufficient to establish commonality. The duty DEPCO owed to the royalty owners was ‘an obligation to obtain the best current price reasonably available.'” The Texas Supreme Court explained that “variations in well locations, quality of production, and field regulations, among other factors, will require the jury to conduct a well-by-well analysis … unless the class offers particular evidence that the gas price at the wells can be evaluated classwide.”  Plaintiffs argued that they do not need to adduce evidence of a higher available price at each wellhead, but only evidence that DEPCO could have processed the gas at a fee lower than the 17.5% it paid DGS. “After reviewing the parties’ motions and evidence, and hearing extensive testimony regarding the Class Leases, the district court determined that DEPCO used a classwide pricing structure determined by the uniform processing fee, so that the gas price at the wells could be evaluated classwide.”  The Court of Appeal found that the second common question identified by the District Court was inadequately explained or supported.  But the Fifth Circuit recognizes that “even one common question may be sufficient to support commonality.”

The Court of Appeal, however, vacated and remanded on the basis of predominance. “DEPCO insists that each lease raises individual issues regarding tolling and the applicable statute of limitations, precluding predominance. DEPCO explains that the class certification order includes two categories of claims that are time barred: (1) claims that DEPCO breached the implied duty to market when it entered the GPPA in 2005; and (2) claims that DEPCO breached this duty beginning on January 1, 2008, when it failed to recoup profits on DGS’s downstream sales. Plaintiffs counter that the limitations periods were tolled by the discovery rule and fraudulent concealment. DEPCO responds to this by stating that the determination whether the limitation periods were tolled will require thousands of mini-trials. DEPCO raised these potential individual issues in the district court, but in its certification order, the court did not discuss how limitations and tolling questions might affect predominance.”

Seeligson v. Devon Energy Production Company, No.17-10320, 2018 WL 5045671 (5th Cir. Oct. 16, 2018).