RICHMOND, Virginia – The Fourth Circuit Court of Appeals has reversed a lower court class certification order in a high-profile oil and gas royalties case.
In its August 20 opinion, the three-judge panel said the class certification of the plaintiffs’ breach of contract claim was valid. But it agreed with EQT that the lower court improperly certified a class based on the plaintiffs’ fraudulent concealment claim.
EQT had asked the Fourth Circuit to reverse U.S. District Judge John Preston Bailey’s order based on four fundamental class certification requirements. The case was argued last October.
First, EQT had said a district court must perform a “rigorous analysis” before certifying a class. Second, it said the plaintiffs must affirmatively prove that class certification is appropriate. Third, it said there must be common answers to questions that will materially advance the litigation. And fourth, it said claims must be capable of resolution on a classwide basis because of commonality, typicality and predominance.
EQT filed its first brief in the Fourth Circuit appeal early in 2024 that focused on certification of breach of contract and fraud claims arising from alleged underpayment of royalties on natural gas liquids under thousands of gas leases “with widely varying language that plaintiffs themselves argued are ambiguous as to NGLs.”
EQT also said then the plaintiffs “failed to carry their burden to satisfy Rule 23 on any of their claims. The certification should be reversed.” Rule 23 is a federal rule of civil procedure that governs how class actions are handled. It requires a judge to certify that a case is suitable for class action status.
The plaintiffs in the case filed their reply soon after, saying Bailey did nothing wrong in certifying a class action. The named plaintiffs in the case are William D. Glover, Linda K. Glover, Richard A. Glover, Christy L. Glover and Goshorn Ridge LLC.
In Wednesday’s 29-page ruling, the Fourth Circuit said Bailey was wrong when he “rejected EQT’s contention and held that ‘under West Virginia law, fraudulent concealment does not require a showing of reliance.”
“The district court abused its discretion in certifying plaintiff’s fraudulent concealment claims, as questions affecting only individual class members will predominate over common questions of law or fact,” Judge DeAndrea Gist Benjamin wrote. “West Virginia law requires proof of reliance on the defendant’s alleged fraudulent acts and considers the individual circumstances under which a plaintiff received and reacted to said acts.”
In a dissent, Judge Paul Niemeyer says he would reverse the class certification as to the plaintiffs’ contract claims as well.
the majority failed “to demand the rigorous analysis that the district court was required to conduct before finding that there are questions of law or fact common to the class and that the representative parties’ claims are typical of those of the class” as required by law.
“The majority also fails to require a rigorous analysis into whether common questions of law or fact predominate such that the class action is superior to other available methods for fairly and efficiently adjudicating the controversy,” Niemeyer wrote. “These failures are especially telling in the circumstances of this case where 70 different types of royalty leases are involved and were entered into at different times and in differing circumstances.”
Niemeyer says the judicial process in this case could be messy.
“The majority rushes to affirm a judicial process that will be chaotic and cause unnecessary expense, and in doing so, it blurs what have been clearly established criteria for satisfying the class action requirements,” he wrote. “Although the majority would have it otherwise, the class certified here is ‘no more than a hodgepodge of factually as well as legally different plaintiffs that should not have been cobbled together for trial.”
The Fourth Circuit agreed to hear EQT’s appeal in November 2023. The following day, Bailey stayed the case before him in federal court pending the appeal. In October, Bailey had granted EQT’s motion for partial summary judgment on fraud claims in the case. EQT petitioned the Fourth Circuit for the appeal the following day.
In the original complaint filed in 2019, the plaintiffs claim EQT breached contracts by shorting them on payments for natural gas royalties and by failing to make timely royalty payments. They also say the company breached its fiduciary duties and misrepresented to them that they were being fairly compensated.
The company said it paid the owners for the value of natural gas liquids based on the BTU content of the gas until January 2021 and is not obligated to pay more just because it goes on to process the liquids and sell them as hydrocarbons.
The plaintiffs are being represented by Robert J. Fitzsimmons, Mark Colantonio and Donald M. Kresen of Fitzsimmons Law Firm in Wheeling, Eric M. Gordon of Berry Kessler Crutchfield Taylor & Gordon in Moundsville, Roger L. Cutright and Andrew R. Cutright of Cutright Law in Morgantown and Marvin W. Masters of The Masters Law Firm in Charleston.
The defendants are being represented by Lauren Varnado and David Dehoney of Michelman & Robinson and Jennifer Hicks, Chelsea Heinz, Mark Dausch, Timothy Miller and Tiffany Arbaugh of Babst Calland.
U.S. Fourth Circuit Court of Appeals case number 23-256 (U.S. District Court for the Northern District of West Virginia case number 5:19-cv-223)
