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Cline v. Sunoco, Inc. (R&M)

United States District Court, E.D. Oklahoma

October 3, 2019

PERRY CLINE, on behalf of himself and all others similarly situated, Plaintiff,


          John A. Gibney, Jr. United States District Judge

         Perry Cline owns a royalty interest in one or more oil wells in Oklahoma. Sunoco, Inc. (R&M), and Sunoco Partners Marketing & Terminals, L.P. ("Sunoco"), purchase and resell oil from Cline's wells. Oklahoma law requires Sunoco to pay proceeds from the oil to Cline. If Sunoco pays the proceeds late, it must pay Cline interest on the payment at a rate set forth in Oklahoma's Production Revenue Standards Act ("PRSA"). See Okla. Stat. tit. 52, § 570, et seq.

         Cline has sued Sunoco for paying his production proceeds late without paying the required interest. Cline seeks to maintain a class action on behalf of other owners[1] whom Sunoco paid late and did not pay interest.

         Because Cline meets the requirements for class certification under Federal Rule of Civil Procedure 23, the Court will grant the motion and certify the class.

         I. BACKGROUND

         The PRSA governs the payment of proceeds for oil and gas production from Oklahoma wells. See Okla. Stat. tit. 52, § 570, et seq. The PRSA requires the first person who buys oil or gas from an interest owner ("first purchaser") or the person holding the proceeds from the sale of the oil and gas ("holder of proceeds") to pay the wells' interest owners their proceeds within specific times. The first purchaser or holder of proceeds must keep the funds "separate and distinct from all other funds." Id. § 570.10(A). With some exceptions, the first purchaser or holder of proceeds must pay statutory interest if it does not pay the proceeds on time. The payor must pay 6 percent or 12 percent interest, depending on the cause of the delay in payment.

         Sunoco buys crude oil from oil and gas producers, collects and transports the oil, and resells the oil. It contracts with thousands of oil and gas producers in Oklahoma to purchase their oil. Sunoco has paid over 100, 000 well owners royalty proceeds for oil and gas production from over 20, 000 properties since 2006. It maintains a division order[2] for each property. Sunoco sends division orders to owners and suspends payment until the owner returns a signed and completed division order. If an owner does not want to sign a division order, Sunoco says that it will remove the account from suspension and pay the owner, but that the owner must first tell Sunoco that he or she refuses to sign the division order. When Sunoco pays proceeds late, it often waits until an owner makes a request for interest before investigating the request and paying any necessary interest.

         Cline contends that Sunoco has engaged in an ongoing scheme to avoid making the required interest payments.

         The proposed class comprises owners of wells in Oklahoma who allege that Sunoco paid them oil proceeds late and without the statutory interest.[3] Specifically, Cline seeks to represent the following class[4]:

All non-excluded persons or entities who: (1) received Untimely Payments from Defendants (or Defendants' designees) for oil proceeds from Oklahoma wells and (2) who have not already been paid statutory interest on the Untimely Payments. An "Untimely Payment" for purposes of this class definition means payment of proceeds from the sale of oil production from an oil and gas well after the statutory periods identified in O[kla]. S[tat]. tit 52, §570.10(B)(1) (i.e., commencing not later than six (6) months after the date of first sale, and thereafter not later than the last day of the second succeeding month after the end of the month within which such production is sold). Untimely Payments do not include: (a) payments of proceeds to an owner under O[kla]. S[tat]. tit 52, §570.10(B)(3) (minimum pay); (b) prior period adjustments; or (c) pass-through payments.
The persons or entities excluded from the Class are: (1) agencies, departments, or instrumentalities of the United States of America or the State of Oklahoma; (2) publicly traded oil and gas companies and their affiliates; (3) persons or entities that Plaintiffs counsel may be prohibited from representing under Rule 1.7 of the Oklahoma Rules of Professional Conduct; and (4) officers of the court.

(Dk. No. 91, at 30; Dk. No. 114, at 13.)

         II. DISCUSSION [5]

         Federal Rule of Civil Procedure 23 governs class actions, including class certification. The party seeking certification must first satisfy the requirements of Rule 23(a): (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy. Fed.R.Civ.P. 23(a). In addition to the requirements of Rule 23(a), the proposed class must fall within at least one of the three types of class actions listed in Rule 23(b). Rule 23(b)(3), the relevant type of class action in this case, requires (5) predominance and (6) superiority. Fed.R.Civ.P. 23(b)(3). Although the Tenth Circuit does not require a separate ascertainability analysis, the Court will consider (7) ascertainability as a separate factor. The Court addresses each requirement in turn.

         A. Numerosity

         The proposed class representative must demonstrate that "the class is so numerous that joinder of all members is impracticable." Fed.R.Civ.P. 23(a)(1). The plaintiff must present "some evidence of established, ascertainable numbers constituting the class in order to satisfy even the most liberal interpretation of the numerosity requirements. There is, however, no set formula to determine if the class is so numerous that it should be so certified." Rex v. Owens ex rel State of Okla., 585 F.2d 432, 436 (10th Cir. 1978). The Court must consider "the particular circumstances of the case." Id; see also Gen. Tel. Co. of the Nw. v. EEOC, 446 U.S. 318, 330 (1980) ("The numerosity requirement requires examination of the specific facts of each case and imposes no absolute limitations.").

         Here, the proposed class encompasses thousands of interest owners, which easily satisfies the numerosity requirement under Rule 23(a)(1). See Rex, 585 F.2d at 436 (citing certified classes comprising 17 to 358 members).

         B. Commonality

         The proposed class meets the commonality requirement because it presents "questions of law or fact common to the class." Fed.R.Civ.P. 23(a)(2). "Even a single [common] question" satisfies this requirement. Wal-Mart, 564 U.S. at 359. Cline must show that "the class members have suffered the same injury," and that the "common contention... is capable of classwide resolution . . . [and] will resolve an issue that is central to the validity of each . . . claim[] in one stroke." Id. at 350; see also Wallace B. Roderick Revocable Living Tr. v. XTO Energy, Inc., 725 F.3d 1213, 1218 (10th Cir. 2013). Furthermore, "every member of the class need not be in a situation identical to that of the named plaintiff," and "[f]actual differences in the claims of the class members should not result in a denial of class certification where common questions of law exist." Milonas v. Williams, 691 F.2d 931, 938 (10th Cir. 1982). A common question of law requires the putative class to "share a discrete legal question of some kind." J.B. ex rel. Hart v. Valdez, 186 F.3d 1280, 1289 (10th Cir. 1999)

         Cline sets forth four questions of law and fact that he argues satisfy the commonality requirement:

(1) whether, under Oklahoma law, Sunoco owed interest to Plaintiff and the Class on any and all Untimely Payments;
(2) whether owners must make a demand prior to being entitled to receive statutory interest;
(3) whether Sunoco's failure to pay interest to Plaintiff and the putative class on any Untimely Payments constitutes a violation of the PRSA; and
(4) whether Sunoco defrauded Plaintiff and the putative class by knowingly withholding statutory interest [as applied to Count II ...

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