The long-running litigation in the W.D. Va. over coalbed methane royalties has been on hold since the oral argument in May before the Fourth Circuit on the appeal of Judge Jones's orders certifying the cases into five class actions. Yesterday in EQT v. Adair, the Fourth Circuit, in an opinion by Judge Diaz, joined by Judges Wilkinson and Keenan, reversed the District Court's rulings, indicating that additional matters need to be addressed before the requirements for class certification can be met.
With respect to the classes where the issue was the ownership of the coalbed methane, the appeals court held that the District Court did not address in sufficient detail the difficulties of figuring out who are the members of the class, when "numerous heirship, intestacy, and title defect issues plague many of the potential class members’claims to the gas estate." I can see how this is a problem, having wrestled with essentially this very task in miniature for a couple of years. The heirs are spread out, their wills were not always written with these royalties in mind, many of them died intestate, some of them are under-aged, some of them are incommunicado, every family has its own story. On the other hand, the gas companies are regularly gathering information about who owns what - they usually know what they are missing.
More interestingly, the appeals court ruled that the District Court has to rule in advance of class certification on the big legal issue in the case, which is whether the Virginia Supreme Court's decision in the Harrison-Wyatt case resolves the ownership of coalbed methane in all cases or even many cases where there is a split mineral estate. This is good news or bad news for the members of the class - if the District Court rules that there is a single answer for all the non-coal owners, then all that is left is proving who they are. If the Court rules that there is not a single answer, then there will be no class action and the non-coal owners are left to try to litigate or deal with the coal owners over the meaning of their respective deeds, which has resulted in some easy money for the coal owners in some cases. In other cases, the coal owners have not claimed to own the coalbed methane. The opinion seems to suggest that a single answer is unlikely, unless the classes are somewhat redefined and narrowed. The panel suggested that "Harrison-Wyatt may provide a common answer to the ownership question for a class of gas estate owners whose severance deeds convey coal and only coal" and that "the plaintiffs may be able to identify a finite number of variations in deed language, such that the ownership question is answerable on a subclass basis." The District Court did not attempt to figure out how many deeds are like other deeds. Similarly, the appeals court suggested that there needed to be more detailed analysis of the language pertaining to royalties in the different leases, in the classes involving leased interests, such that for example the commonality requirement would be satisfied for landowners who all signed the same standard form of lease from CNX.
Finally, the appeals court concluded that the District Court has erred in certifying a class on the issue of the underpayment of royalties, without getting farther into the merits of what if anything the gas companies were doing that affected the payment of royalties. The District Court needed to focus more on whether common practices in calculating royalties were the cause of invalid payments, and not merely the nature and existence of common practices.
Finally, the appeals court required the District Court to look harder at the question of whether class treatment in federal court in the best way to proceed, while acknowledging that "collective action may offer the only realistic opportunity to recover" for the many individuals with small claims that would not support collection efforts outside of a group, because of legal fees.
The opinion concludes: "We recognize that there are numerous CBM owners in Virginia who haven’t received a penny of CBM royalties and others who may have gotten less than their due. We are not unsympathetic to their plight. But sympathy alone cannot justify certification under Rule
23. We therefore vacate the district court’s grant of the plaintiffs’ motions for class certification, and remand the case for further proceedings consistent with this opinion."