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Class Action Defense Cases–Beer v. XTO Energy: Oklahoma Federal Court Grants Class Action Treatment To Class Action Against Defendant Improperly Calculated Royalty Payments

Class Action Complaint Challenging Defendant’s Calculation of Royalty Payments based on Inter-Company Sale of Gas to Wholly-Owned Subsidiary Warranted Class Action Treatment Oklahoma Federal Court Holds

Plaintiffs, royalty owners, filed a class action in state court against XTO Energy seeking an accounting of gas produced by certain wells in Texas County, Oklahoma; the class action complaint requested “the legal right to receive a royalty calculated by [XTO]…regarding production from a well in Colorado, Kansas, New Mexico, Oklahoma or Texas.” Beer v. XTO Energy, Inc., ___ F.Supp.2d ___ (W.D. Okla. March 20, 2009) [Slip Opn., at 1]. According to the class action, defendant systematically underpaid royalty owners, id., at 2. After defense attorneys learned that plaintiffs were seeking more than $27 million in damages, they removed the class action to federal court. Id. Plaintiffs moved the district court to certify the litigation as a class action, id. The class action certification motion defined two subclasses: a Kansas subclass consisting of individuals “who receive royalties from at least one well located in Kansas,” and an Oklahoma subclass consisting of individuals “who receive royalties from at least one well located in Oklahoma.” Id., at 2-3. Defendant operates the wells at issue in the class action, and “sells the gas produced from the individual wells to its wholly-owned subsidiary, Timberland Gathering and Processing,” id., at 3. Defense attorneys opposed class action treatment. The district court determined that class action certification was warranted and granted plaintiffs’ motion.

The district court explained that whether class action treatment is warranted “is an intensely fact-based question that is fraught with practical considerations.” XTO Energy, at 4 (citation omitted). After summarizing the well settled rules governing class action certification under Rule 23, see id., at 4-6, the court stated that it was originally concerned with whether plaintiffs were adequate class representatives, id., at 6. Plaintiffs responded by filing supplemental materials, and the district court turned to the merits of the motion, id. The numerosity prong was not at issue, as defendant conceded that plaintiffs could establish it. Id., at 7. The commonality test also was satisfied because defendant’s own employees conceded that differences in lease language did not affect the royalty payments, id., at 9; the federal court therefore agreed that a common question existed as to whether defendant was permitted to base its royalty payments on an inter-company sale, id., at 8-9. And the typicality test was met because plaintiffs had standing to assert claims on behalf of the class; “defendant’s officers and its expert witness conceded that all royalty owners, regardless of well location, are treated identically by defendant for purposes of royalty payments.” Id., at 10. And finally, the court found that plaintiffs and their counsel would adequately represent the interests of the class, id., at 11-12.

Turning to Rule 23(b), the district court agreed with defense attorneys that it would be inappropriate to certify either a (b)(1) class or a (b)(2) class. See XTO Energy, at 12-15. The federal court agreed with plaintiffs, however, that a (b)(3) class should be certified. The district court found that common questions of law or fact will predominate over individual questions, and that litigating the dispute on a class-wide basis is the superior means of resolving it. Id., at 15-17. Accordingly, the district court granted plaintiffs’ motion and certified the litigation as a class action. Id., at 17.

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