Jessica M. Karmasek Aug. 20, 2013, 8:15pm

PHILADELPHIA (Legal Newsline) -- The U.S. Court of Appeals for the Third Circuit last week remanded a class action against an oil and gas company to a Pennsylvania court.

A three-judge panel of the court -- judges Marjorie Rendell, David Brooks Smith and Patty Shwartz -- affirmed the U.S. District Court for the Western District of Pennsylvania's remand order.

In its ruling Friday, the Third Circuit concluded that the Class Action Fairness Act's "home state" exception is not applicable to the case, but said remand is warranted under the act's "local controversy" exception.

Defendant Halcon Energy Properties Inc. had appealed the district court's order based on the home state exception.

CAFA provides federal courts with jurisdiction over civil class actions if the "matter in controversy exceeds the sum or value of $5,000,000," the aggregate number of proposed class members is 100 or more, and any class member is a citizen of a state different from any defendant.

Plaintiffs Jeffry S. Vodenichar, David M. King Jr. Leigh V. King, Joseph B. Davis, Lauren E. Davis, Grove City Country Club and Richard Broadhead filed suit on behalf of themselves and other similarly situated landowners who sought to lease the oil and gas rights in their land in Mercer County, Pa.

Defendants Morascyzk & Polochak and Co-eXprise, d/b/a CX-Energy, agreed to act as the plaintiffs' agents to negotiate leases of their oil and gas interests to energy companies under the terms of Landowner MarketPlace Agreements, or LMAs.

In exchange for their successful marketing efforts, M&P and CX-Energy were to be paid a "transaction fee."

M&P and CX-Energy entered into a Letter of Intent with Halcon, an oil and gas company, pursuant to which Halcon would lease up to 60,000 acres of oil and gas rights from landowners who entered into LMAs and who had submitted lease documents to Halcon.

Under the Halcon agreement, each landowner who executed an LMA was guaranteed a $3,850 per acre payment plus an 18.5 percent royalty on the net amount Halcon realized from the oil and gas recovered from the property.

According to the plaintiffs, Halcon agreed to accept the leases absent a title defect, an adverse environmental claim or restrictions on the ability to explore, drill for or produce oil, gas or hydrocarbons.

In their suit, the plaintiffs assert that Halcon rejected many of the leases for reasons other than those permitted under the agreement.

The company counters that the word "geology" was fraudulently omitted from the list of grounds upon which it could decline to lease the property, and that it was within its bargained-for rights to reject the leases.

The plaintiffs claim that this explanation was "pretextual," as Halcon sought to extricate itself from the lease arrangement because it lost a bid to secure oil and gas rights in other nearby properties, which made the leases of the plaintiffs' land less attractive.

The plaintiffs further claim that they did not know that any words were omitted from the agreements and if a change had been made, it was the fault of M&P and CX-Energy.

Shwartz, who authored the Third Circuit's 17-page ruling, said Halcon, which is not a citizen of Pennsylvania, is a primary defendant. Thus, the home state exception is inapplicable.

However, the same representative plaintiffs filed two complaints on behalf of an identically-defined putative class arising from the same factual allegations.

"The question here is whether the first and second filed actions are the same case or if the first filed action is an 'other class action,' as contemplated under the local controversy exception," Shwartz wrote.

In short, the Third Circuit said Halcon is defending the same case it had been defending since November 2012, with the exception of the addition of the other parties Halcon intended to join.

"The first filed action therefore is not an 'other class action' as contemplated under CAFA, but rather is the same case, albeit enlarged, and thus, the 'no other class action' prong of the local controversy exception is satisfied," Shwartz wrote.

"For these reasons, the local controversy exception to CAFA jurisdiction mandates remand of this truly local case involving Pennsylvania landowners and their land."

From Legal Newsline: Reach Jessica Karmasek by email at

More News