Kansas SC rules against unhappy class action member

By Nathan Bass | Jan 22, 2013

TOPEKA, Kan. (Legal Newsline) - Stan R. Boles, a dissatisfied class action member, lost on his objection to the class certification and class action settlement agreement negotiated with Anadarko Petroleum Corporation by the class representative.

The Kansas Supreme Court found that the Stevens District Court did not abuse its discretion in the assessment of class representation or the character of the agreement. Justice Lee A. Johnson wrote the Jan. 11 opinion for the unanimous three-judge panel.

A group of royalty owners who were entitled to receive shares of the production of natural gas in southwest Kansas brought a class action against Anadarko Petroleum Corporation in 1998. Plaintiffs alleged that APC and its affiliates had underpaid royalties required by the plaintiffs' leases.

The case proceeded to a bench trial in 2002 and was reargued by the same judge in 2006 before finally being settled in June 2009. Prior to settlement, the class was expanded to over 6000 members by enlarging the geographical and geological boundaries of the included wells.

"The district court preliminarily approved the settlement, directed that notice be given to the class members, and set a fairness hearing for Sept. 15, 2009. Appellant Boles was the only class member to file an objection to the settlement agreement, and he also filed a motion to intervene in the proceedings and to conduct further discovery," the opinion states.

"Boles complained about counsel's failure to investigate and litigate the estimated value of the claims which he referred to as "non-gathering claims" or "non-gathering deduction claims."

Non-gathering claims refer to claimed reduction in royalties attributable to downstream events other than the gathering and fuel costs incurred in the gathering system. Examples of non-gathering claims are the failure of APC to account for the sale or loss of condensate during transmission, failure to extract and sell nitrogen, and the calculation of costs to extract helium when paying helium royalties.

The district court allowed Boles to present an expert, Daniel Reineke, to testify regarding the valuation of the non-gathering claims and Reineke estimated the claims to be $109 million. He opined that the settlement amount in total should be worth $149 million with the $40 million in gathering claims.

The judge approved the $33 million amount agreed to in the settlement agreement.

Boles appealed the district court's approval of the settlement to the state's highest court and the plaintiff class, as well as the defendant, Anadarko, asked the Court to affirm the approval of the settlement.

Justice Johnson started by looking at the objection to the certification of the amended class.

"The overarching theme of Boles' challenge to the class action settlement agreement is that it essentially gave away the class members' non-gathering claims without the efficacy and potential value of those claims being litigated."

"He relates that complaint to the class certification challenge by arguing that the relevant factors, especially the adequacy of representation factor, cannot be met when class counsel chose not to fully litigate the non-gathering claims," Johnson wrote.

K.S.A. 60-223(a) established four factors that must be met before a class is certified: (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of representation.

"Boles' adequacy complaint relies on the first factor in subsection (g)(1)(A)(i) of federal Rule 23, which considers "the work counsel has done in identifying or investigating potential claims in the action." Boles claims that the class counsel in this lawsuit failed to adequately identify and investigate the potential non-gathering claims.

"Discovery in this action was extensive, spanning at least 2 years," Johnson wrote. "Class counsel expended considerable work in identifying and investigating potential claims in this action.

"As a result of that effort, class counsel determined that the ancillary claims, including the non-gathering claims which occurred principally downstream from the gathering claims, had no merit. That assessment was consistent with the trial court's review of the non-gathering claims.

"Boles suggests that class counsel is inadequate for failing to independently determine the precise value of a hypothetical claim that counsel believes to be without merit and unrecoverable at trial. That cannot be the law," Johnson stated.

"Accordingly, we agree with the district court's finding that class counsel adequately represented the class members, and we affirm the district court's certification of the amended class."

Johnson then moved on to the approval of the settlement issue.

"Although Boles' expert opined that the class should have settled the gathering claims for $40 million or more, instead of $33 million, Boles does not present a challenge on appeal to the district court's approval of the settlement agreement as it relates to the fully litigated gathering claims.

"Instead, Boles argues that the district court went astray in permitting the class representative to release the non-gathering claims as part of the settlement because those claims were unlitigated and factually unrelated to the gathering claims, thereby creating a circumstance with insufficient adversity to protect the due process rights of the class members.

"Although Boles would have us view his non-gathering claims as being a separate and distinct cause of action, they are in reality simply additional damages for the class' allegation of a breach of contract.

"[We] have no due process concerns with the settlement of the non-gathering claims, along with the gathering claims, because they are based on the same underlying facts and theory of liability.

"In short, we conclude that the district court did not abuse its discretion when it approved the settlement agreement between the plaintiff class and APC."

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