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Strack v. Continental Resources, Inc.

Court of Appeals of Oklahoma, Division II

February 8, 2017

BILLY J. STRACK, Trustee of the Patricia Strack Revocable Trust DTD 2/15/99 and Billy Joe Strack Revocable Trust DTD 2/15/99, and DANIELA A. RENNER, Sole Successor Trustee of the Paul Ariola Living Trust and the Hazel Ariola Living Trust, for themselves and all others similarly situated, Plaintiffs/Appellees,
v.
CONTINENTAL RESOURCES, INC., Defendant/Appellant.

          Mandate Issued: 10/27/2017

         APPEAL FROM THE DISTRICT COURT OF BLAINE COUNTY, OKLAHOMA HONORABLE DENNIS HLADIK, TRIAL JUDGE

          Douglas E. Burns, Terry L. Stowers, BURNS & STOWERS, P.C., Norman, Oklahoma and Kerry W. Caywood, Angela C. Jones, PARK, NELSON, CAYWOOD, JONES, LLP, for Plaintiffs/Appellees

          Jay P. Walters, GABLEGOTWALS, Oklahoma City, Oklahoma, Graydon D. Luthey, Jr., GABLEGOTWALS, Tulsa, Oklahoma and Guy S. Lipe (Pro Hac Vice), VINSON & ELKINS, LLP, Houston, Texas, for Defendant/Appellant

          JERRY L. GOODMAN, JUDGE

         ¶1 Continental Resources, Inc. (Continental), appeals a June 11, 2015, order granting Billy J. Strack, Trustee of the Patricia Ann Strack Revocable Trust DTD 2/15/99 and the Billy Joe Strack Revocable Trust DTD 2/15/99, and Daniela A. Renner's, Sole Successor Trustee of the Paul Ariola Living Trust and the Hazel Ariola Living Trust (collectively "Plaintiffs"), amended motion for class action certification. Based on our review of the record and applicable law, we reverse.

         BACKGROUND

         ¶2 Plaintiffs are four family trusts, the Strack Trusts and Ariola Trusts (collectively, "Trusts"). The Trusts are mineral owners in Blaine County, Oklahoma, whose minerals were subject to oil and gas leases with Continental. The mineral interests were included in governmentally-sanctioned drilling and spacing units. Continental is an oil and gas company and was a working interest owner and operator that drilled and completed producing wells in such units.

         ¶3 Plaintiffs filed a petition as a putative class against Continental on November 4, 2010. Plaintiffs alleged failure to pay royalties on all hydrocarbons, improper deductions, insufficient reporting, and failure to receive the best price. [1] Plaintiffs asserted Continental engaged in systematic schemes to misreport and skim oil and gas production and royalty proceeds from royalty owners, inter alia. The proposed class contained over 14, 000 royalty owners in more than 1, 100 wells in 35 counties in the state of Oklahoma for over 22 years. [2] [3] Continental filed a motion to dismiss or to strike class allegations on October 11, 2013, which was ultimately denied. Plaintiffs filed an amended petition on November 5, 2014, adding a claim for declaratory, injunctive and/or mandamus relief, requesting Continental account for the production and proceeds attributable to the wells and to accurately inform the class of the facts on which their royalties were based.

         ¶4 On January 12, 2015, Plaintiffs filed an amended motion to certify, seeking a hybrid, issue class action under 12 O.S.2011 and Supp. 2013, § 2023 (B)(1) and/or (B)(2) and § 2023(C)(6)(a). [4] More specifically, Plaintiffs sought certification with respect to approximately 48 legal issues, namely:

overarching, legal-based interpretations and equitable issues which define and are applicable to [Continental's] duties, obligations and conduct vis-à-vis its royalty owners. These 'issues' are appropriate for disposition by the Court (not a jury) in the form of either declaratory or injunctive relief, i.e., either as a 'B1 Class' or as a 'B2 Class'.

         Plaintiffs further requested "Injunctive and/or Mandamus Relief, " requiring Continental to account to royalty owners for all production and proceeds attributable to the wells.

         ¶5 In support of its motion, Plaintiffs contended § 570.12 of the Production Revenue Standards Act (PRSA), 52 O.S.2011, § 570.1 et seq., provided a uniform reporting standard that Continental was mandated to comply with, including accurately informing a royalty owner of the facts on which their royalty was based. Plaintiffs asserted, however, that Continental: 1) had refused to report to royalty owners the full consideration it received for the sale of oil and gas produced from class wells; 2) engaged in a barrel-back scheme with its affiliated companies; 3) refused to disclose to royalty owners deductions for gathering, compression, dehydration, and compressor fuel where such charges were embedded within the price which Continental received from the purchase of the gas; and 4) refused to report and pay royalty on skim oil and condensate. Plaintiffs requested the court first resolve the applicable law, thereby assisting in the advancement and resolution of the action. Plaintiffs asserted the 48 issues would assist the court in determining: 1) whether further declaratory or injunctive relief would be appropriate for § 2023(B)(1) or (B)(2) class certification; 2) which remaining issues or claims, including damages, should be certified for a § 2023(B)(3) class; and 3) if there were any claims or issues that might require individualized treatment by the court. Finally, Plaintiffs requested the trial court issue broad, class-wide injunctive, mandamus or declaratory relief, requiring Continental to provide each putative class member a well-by-well, month-by-month statutory accounting.

         ¶6 Continental responded, objecting to Plaintiffs' request, noting no Oklahoma court had ever certified a hybrid, or issue class. Continental contended a § 2023(B)(2) class was inappropriate because Plaintiffs were seeking primarily monetary damages, citing Harvell v. Goodyear Tire and Rubber Co., 2006 OK 24, 164 P.3d 1028. Continental further argued Plaintiffs were seeking 48 advisory opinions on issues that did not resolve the underlying claims, on issues unrelated to numerous prospective class members, and on the meaning and intent of statutes or common law without addressing specific conduct in the case. Finally, Continental contended Plaintiffs were seeking a constitutional end-run around recent developments in class action law, noting royalty owners' rights turned on the specific language in their leases and the unique facts applicable to their specific oil and gas wells. Thus, certification was improper.

         ¶7 After significant additional briefing by the parties, the trial court granted Plaintiffs' amended motion for class certification by order entered on June 11, 2015. The trial court found Plaintiffs' accounting claim was an independent and severable statutory claim that could be considered by the court for injunctive or mandamus relief as a § 2023(B)(1) and (B)(2) class. The court further held it had the duty to determine the law applicable to the case. Thus, it held the 48 legal issues and interpretations of law were related to Plaintiffs' accounting claim and were proper for the court to rule upon.

         ¶8 In short, the order provides the case shall proceed as a class action certified pursuant to 12 O.S.2011 and Supp. 2013, § 2023 (A), 12 O.S.2011 and Supp 2013, § 2023 (B)(1), 12 O.S.2011 and Supp. 2013, § 2023 (B)(2), and 12 O.S.2011 and Supp. 2013, § 2023 (C)(6) (i.e., Issue Certification). The class (Class Members) was defined as:

All non-excluded persons or entities who are or were royalty owners in Oklahoma wells where Continental Resources, Inc. or any affiliate of Continental Resources, Inc., is or was the operator and/or working interest owner/lessee under oil and gas leases, or under governmentally created or sanctioned pooling of interests by the Oklahoma Corporation Commission, including forced pooling orders, drilling and spacing unit orders, enhanced production orders, field wide unit orders or orders approving unit agreements, from and after July 1, 1993. The Class Claims relate only to payment for hydrocarbons produced from the wells. The Class does not include overriding royalty owners or other owners who derive their interest solely through the oil and gas lessee.
The persons or entities excluded from the Class are agencies, departments or instrumentalities of the United States of America and the State of Oklahoma, publicly traded oil and gas exploration companies and their affiliates, and other persons or entities that Plaintiffs' counsel is, or may be prohibited from representing under Rule 1.7 of the Oklahoma Rules of Professional conduct. [ sic ]

         An Order nunc pro tunc was filed on July 17, 2015, attaching Exhibit 1 which had been inadvertently omitted from the June 11, 2015, order. Continental appeals.

         STANDARD OF REVIEW

         ¶9 An order certifying a class action pursuant to 12 O.S.2011 and Supp. 2013, § 2023 "shall be subject to a de novo standard of review by an appellate court reviewing the order." 12 O.S.2011 and Supp. 2013, § 2023 (C)(2); Marshall Cty., OK. v. Homesales, Inc., 2014 OK 88, ¶ 6, 339 P.3d 787, 882.

         ANALYSIS

         ¶10 In Oklahoma, class actions are governed by 12 O.S.2011 and Supp. 2013, § 2023, which provides, in relevant part:

A. PREREQUISITES TO A CLASS ACTION. One or more members of a class may sue or be sued as representative parties on behalf of all only if:
1. The class is so numerous that joinder of all members is impracticable;
2. There are questions of law or fact common to the class;
3. The claims or defenses of the representative parties are typical of the claims or defenses of the class; and
4. The representative parties will fairly and adequately protect the interests of the class.

         B. CLASS ACTIONS MAINTAINABLE. An action may be maintained as a class action if the prerequisites of subsection A of this section are satisfied and in addition:

1. The prosecution of separate actions by or against individual members of the class would create a risk of:
a. inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or
b. adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or
2. The party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
3. The court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include:
a. the interest of members of the class in individually controlling the prosecution or defense of separate actions,
b. the extent and nature of any litigation concerning the controversy already commenced by or against members of the class,
c. the desirability or undesirability of concentrating the litigation of the claims in the particular forum, and
d. the difficulties likely to be encountered in the management of a class action.

         C. DETERMINATION BY ORDER WHETHER CLASS ACTION TO BE MAINTAINED; NOTICE; JUDGMENT; ACTIONS ...


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