Opinion ID: 2831274
Heading Depth: 2
Heading Rank: 2

Heading: Bowden Holdings

Text: We issued our opinion in Bowden in February 2008, affirming the court of appeals’ decertification order in part and reversing in part. Addressing the res judicata issue first, we cited our intervening opinion in Citizens Insurance Co. v. Daccach, 217 S.W.3d 430 (Tex. 2007), in which we held that class suits are “subject to the same preclusion rules as other procedural forms of litigation” and that class members are therefore barred from asserting in subsequent litigation claims that arose from the same transaction or subject matter as the class claims and either could have been 4 The subclass 3 claim was characterized as a breach of the implied covenant to manage and administer the lease. Bowden, 247 S.W .3d at 708. In Bowden, however, we held that the substance of the claim concerned Phillips’s “alleged failure to diligently market the gas and obtain a higher price.” Id. at 709. 4 or were litigated in the prior suit. Bowden, 247 S.W.3d at 697 (citing Daccach, 217 S.W.3d at 450, 451, 455). While we disagreed with the court of appeals’ conclusion that class representatives who split claims are per se inadequate, id., we noted that “[t]rial courts should assess the Rule 42 requirements in light of res judicata’s preclusive effect on abandoned claims when considering whether to certify a class,” id. at 698. We concluded: In the second certification order, the trial court acknowledged that the class limited its suit to a single claim for each subclass. On remand, it should consider the applicability of res judicata in future proceedings to abandoned claims in evaluating certifiability, as we explain in Daccach, as part of its determination [under Rule 42] of the prerequisites of commonality, typicality, superiority, adequacy of representation, and predominance. Id. (citation omitted). With regard to the court of appeals’ order decertifying the three subclasses on predominance grounds, we affirmed as to Subclasses 1 and 3, but reversed as to the GRA class. Id. at 709. As to Subclass 1, we held that “individual issues would predominate” because the claim for breach of the implied covenant to market would require an evaluation of “the price a reasonably prudent operator would have received at the wellhead,” and the royalty owners failed to provide evidence that such a price could be evaluated classwide. Id. at 701–02. Subclass 3, which alleged Phillips paid an unreasonably high post-production fee to the gas purchaser (affiliate GPM), similarly “fail[ed] to explain how a reasonable processing fee [could] be proven classwide.” Id. at 709. 5 With respect to the GRA class, however, we disagreed with the court of appeals’ conclusion that individualized issues would predominate.5 The GRA class was and is defined to include the following members: Royalty owners who own or owned royalty interests under leases located in the [S]tate of Texas; where Phillips Petroleum Company is the lessee; the royalty is paid pursuant to a Gas Royalty Agreement containing language substantially identical to the language bracketed in the Gas Royalty Agreement attached as Exhibit 1 and incorporated herein by reference; the Gas Royalty Agreement has no additional language relating to processing gas or the payment of royalty on natural gas liquids; and during the period February 1995 through the present. Id. at 695. The GRAs provide a specific formula for calculating the royalty, summarized in Bowden as “the ‘weighted average price’ multiplied by the total volume of natural gas production in M.c.f. times the one-eighth royalty interest, for gas delivered within the defined [multi]-county area.”6 Id. at 703. The royalty owners claimed that Phillips breached the GRAs in two ways: (1) by including in the weighted average price only sales of “dry residue natural gas production and exclud[ing] the liquid components, which are separated from the gas by Phillips’s downstream processing”; and (2) by failing to include in the weighted average price an adjustment for “the varying heat content of the components of gas produced.” Id. at 703–04. 5 The court of appeals also held that GRA class representatives Royce Yarbrough and Ted Powell were inadequate, Yarbrough because of conflicts with the class stemming from the owners’ proposed royalty calculation and Powell because there was no evidence of his adequacy. Bowden, 247 S.W .3d at 707. W e affirmed as to Powell and reversed as to Yarbrough, who remains the GRA class representative. Id. 6 There are three GRA forms, which provide for the weighted average price to be calculated using sales of gas in different groups of counties. Form BP includes sales within Hutchinson, Carson, Gray, and W heeler Counties, Texas. Form H includes sales within Sherman and Hansford Counties, Texas, and Texas County, Oklahoma. Form MH includes sales within Moore, Hartley, Sherman, and Hansford Counties, Texas, and Texas County, Oklahoma. 6 The court of appeals’ decertification of the GRA class was based on the trial court’s implicit finding that the GRAs are ambiguous and its plan to submit the interpretation issue to the jury, thereby raising thousands of individual issues regarding the intent of the parties in entering into each GRA. Id. at 705. We disagreed, however, that the GRAs’ pricing provisions are ambiguous. Id. at 706–07. Specifically, we held: The GRAs in Subclass 2 require royalties to be paid based on the volume of natural gas metered at the wells multiplied by a price averaged from sales to third parties, before liquid products are extracted or processed. Id. at 707. We further held that the GRAs do not provide for an adjustment to the price for heating content. Id. at 706. Because the GRAs “are unambiguous and may be construed classwide for royalty owners who executed substantially identical GRAs,” we held that the court of appeals erred in decertifying the GRA class on predominance grounds. Id. at 706–07. We remanded the case to the trial court “for further proceedings consistent with this opinion.” Id. at 709.