Court Opinion

ID: 9545368
Source: CourtListenerOpinion
Date Created: 2023-08-07 17:10:41.665513+00
Date Added: 2024-06-11T15:14:35.277659
License: Public Domain

HANSEN, Presiding Judge,
dissenting.
¶ 1 In reviewing the denial of class certification, the majority inappropriately decides the merits of Kaiser-Francis’ defense, to wit, that the 1962 gas purchase contracts are still in full force and effect and control the relationship between the parties. Certainly if this is the case, Plaintiff/Appellants (Royalty Owners) lose on the merits. However, this issue has. riot been tried below and is not before us oh appeal. I dissent because Royalty Owners’ claims present issues of law and fact common to the class proposed for certification.
¶ 2 Royalty Owners sued to recover underpaid royalties. They allege and Kaiser-Francis admits Kaiser-Erancis is the operator of the subject wells. Although the record contains no express statement those sections have been unitized, that fact may be inferred from Kaiser-Francis’ reference to the subject wells being proposed and drilled pursuant to “applicable Joint Operating Agreements” and “orders of the Oklahoma Corporation Commission.” Royalty Owners allege Kaiser-Francis has been selling the gas produced from these wells to its own subsidiaries, Texas Southwest and Senex, at prices substantially less than market value. They allege the subsidiaries then resell the gas at a much higher rate, while Kaiser-Francis pays royalties based on the rate paid by the subsidiaries.
¶3 In its defense, Kaiser-Francis alleges Royalty Owners’ lessees entered gas purchase contracts in 1962 with ONG for the life of the lease. Texas Southwest bought an interest in those contracts from ONG in 1988. Kaiser-Francis asserts Royalty Owners’ lessees are contractually obligated to sell gas to Texas Southwest at the price specified in the 1962 contracts. Kaiser-Francis acquired a small interest in several of the oil and gas leases in Sections 20 and 29 in 1988, and later acquired other small interests. It asserts it is contractually obligated to sell under the 1962 contracts as to its small leasehold interest, “but most of the sellers under the Gas Purchase Contracts are parties other than Kaiser-Francis.”
¶4 Royalty Owners moved to certify the case as a class action, with the class defined as royalty owners, excess royalty owners, and other interest owners in Section 19 as well as Sections 20 and 29, claiming all had been similarly underpaid by Kaiser-Francis. The trial court’s order denying certification of the class makes no specific findings on the statutory requisites under 12 O.S.1991 § 2023, but the hearing transcript reflects the sole deficiency found by the trial court related to commonality, i.e., whether there are questions of law or fact common to the class. The trial court focused on the lack of privity between Kaiser-Francis and Royalty Owners except as to those leases in which Kaiser-Francis owned an interest, stating “even if we were to certify a class, we certified Section 29, get Kaiser-Francis in it only, you really almost need to bring in the defendants — the other defendants if you want them to be obligated. Otherwise you get to the end — whether it’s certified or not, you get to an end and say, well, Kaiser-Francis is only obligated to pay their own Lessor.”
¶ 5 Denial of class certification will not be disturbed unless abuse of discretion is shown. Mattoon v. City of Norman, 1981 OK 92, 633 P.2d 735, 741. However, the trial court must have “applied the proper standard in deciding whether to certify a class. ” Adamson v. Bowen, 855 F.2d 668, 675 (10th Cir.1988).1 The requirement of questions of law or fact common to the class is applied to the plaintiff’s theory of the case, not to the defense theory. “It is not for the court to indulge in speculation as to the facts which, if established, would defeat the class suit theory.” *662Railway Express Agency v. Jones, 106 F.2d 341, 343 (7th Cir.1939). If class members’ claims arise out of the same legal theory, the commonality requirement is satisfied. Donaldson v. Pillsbury Co., 554 F.2d 825, 831 (8th Cir.1977).
¶ 6 Liability for the payment of oil and gas proceeds to royalty interest owners repeatedly has been the subject of legislative attention. In 1990, the beginning of the time period for which Royalty Owners seek recovery, 52 O.S.Supp.1990 § 87.1(e) placed such liability on the first purchaser where a well spacing and drilling unit contained two or more separately owned tracts. In addition, 52 O.S.Supp.1990 § 540(A) required the first purchaser to pay oil and gas proceeds to the persons entitled thereto within specified time frames, but also permitted the owner of the right to drill and produce to be substituted for the first purchaser by an agreement under which such owner assumes the first purchaser’s statutory responsibilities. Therefore, either Kaiser-Francis, as the owner of the right to drill and produce the subject wells, or Texas Southwest, as the first purchaser, had direct liability to each royalty owner for proper payment of royalties. The liability of the first purchaser or owner of the right to drill and produce to the royalty .owner was in addition to and not instead of the lessee’s liability; therefore, the identity of the lessee under any particular royalty owner’s lease is irrelevant to the liability of Kaiser-Francis or Texas Southwest. 52 O.S.Supp.1990 § 540(B).
¶ 7 In 1992, the Legislature amended § 87.1 to delete the language ascribing liability to the first purchaser, and amended and renumbered § 540 as § 570.10 to incorporate it in the new, comprehensive Production Revenue Standards Act, 52 O.S.Supp.1992 §§ 570.1-570.15. The new § 570.10, effective July 1,1993, provides in part,
A. All proceeds from the sale of production shall be regarded as separate and distinct from all other funds of any person receiving or holding the same until such time as such proceeds are paid to the owners legally entitled thereto. Any person holding revenue or proceeds from the sale of production shall hold such revenue or proceeds for the benefit of the owners legally entitled thereto.
It sets forth in paragraph (C) the conditions under which first purchasers, working interest owners, and operators may relieve themselves from liability for payment of royalty proceeds. A first purchaser may discharge its duty by paying proceeds from production to the producing owner or, at the producing owner’s direction,, to the royalty owners or the operator of the well. A working interest owner may discharge its duty by paying royalty proceeds to the royalty owners or the operator. An operator discharges its duty by paying proceeds received by it as operator to the royalty owners. In short, whoever is holding the royalty proceeds is liable directly to the royalty owners.
¶ 8 Under Royalty Owners’ theory of the ease, Kaiser-Francis or its subsidiaries are holding royalty proceeds based on the difference between the price paid by the subsidiaries to Kaiser-Francis and the price they received on resale. Should Royalty Owners prevail on the merits, they can be made whole through judgment against the named defendants. Their lessees are not necessary parties. Therefore, the claims of owners of royalty interests in wells operated by Kaiser-Francis where production has been sold to Texas Southwest or Senex arise out of the same legal theory.
¶ 9 The trial court applied an improper standard in deciding whether to certify a class by speculating as to the merits and assuming the defense theory proved. The majority continues this error. While it admits any owner in a lease where Kaiser-Francis is an operator could separately pursue a cause of action against Kaiser-Francis for underpayment of royalty, it disregards the relationship established when Kaiser-Francis steps into the shoes of the lease operator by becoming unit operator. Each of the lessors in the unit could separately pursue a claim against the unit operator for underpayment of royalty. That they are entitled to proceed separately does not prevent them from qualifying as a class. The majority, however, effectively has decided there has been no underpayment of royalty and therefore there must not be a class.
*663¶ 10 I would reverse and remand with instructions to certify the case as a class action with members of the class being owners of any type of royalty interest in the minerals underlying Sections 19, Sections 20 and 29, Township 6 North, Range 8 West of Grady County, Oklahoma. 20 and 29, Township 6 North, Range 8 West of Grady County, Oklahoma.

. "Our class action scheme closely parallels that provided in Rule 23 of the Federal Rules of Civil Procedure, and we may look to federal authority for guidance and enlightenment as to its rationale.” Shores v. First City Bank Corp., 1984 OK 67, 689 P.2d 299, 301.