Chieftain Royalty Company v. XTO Energy, Inc.

IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF OKLAHOMA
CHIEFTAIN ROYALTY COMPANY, 	)
)
Plaintiff, 	)
)
v. 	) No. CIV-11-29-FHS
)
XTO ENERGY, INC., 	)
)
Defendant. 	)
OPINION AND ORDER
Now before the court for its consideration is the Motion for
Class 	Certification 	filed 	on 	January 	6, 	2012, 	by 	Plaintiff,
Chieftain 	Royalty 	Company 	(“Chieftain”). 	The 	parties 	have 	fully
briefed the issues with Defendant, XTO Energy, Inc. (“XTO”), having
filed 	a 	Response 	(“XTO’s 	Response”) 	on 	January 	20, 	2012, 	and
Chieftain having filed its Reply on January 27, 2012. 	On February
6, 2012, the Court held a hearing on class certification. 	Having
considered the parties’ respective briefs, the arguments presented
at 	the 	class 	certification 	hearing, 	and 	the 	parties’ 	proposed
findings of fact and conclusions of law, the Court finds the Motion
for 	Class 	Certification 	(“Chieftain’s 	Motion”) 	should 	be 	granted
with a class certified as requested by Chieftain.
Background
XTO 	is 	an 	oil 	and 	gas 	exploration 	company. 	In 	order 	to
explore for and obtain production of oil and gas, XTO enters into
leases 	with 	mineral 	interest 	owners 	(“lessors”), 	who 	grant 	XTO
(“lessee”) “the right to explore, drill for, produce and market the
hydrocarbons 	and 	other 	products 	from 	the 	leased 	premises.”
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Affidavit of Daniel T. Reineke (“Reineke Affidavit”), Exhibit A to
Chieftain’s 	Motion 	at 	3. 	In 	exchange, 	the 	lessors 	receive
compensation under the lease and “a continuing fractional interest
in 	the 	sale 	of 	the 	produced 	products.” 	Id. 	It 	is 	Chieftain’s
contention that “[u]nder both the explicit and implicit terms of a
typical 	lease, 	a 	lessee/producer 	is 	required 	to 	perform 	all 	work
and bear all costs and expenses necessary to produce and market the
products 	from 	the 	lessor’s 	mineral 	estate, 	including 	putting 	the
gas 	in 	marketable 	condition 	(also 	called 	marketable 	gas, 	residue
gas, pipeline quality gas and marketable commodity).” Id. at 3-4. 1
The raw gas at the wellhead contains non-hydrocarbon contaminants
(i.e. 	water 	vapor, 	carbon 	dioxide, 	hydrogen 	sulfide, 	nitrogen,
oxygen, helium, dust, and other substances) and hydrocarbons known
as 	“natural 	gas 	liquids” 	(i.e., 	ethane, 	propane, 	normal 	butane,
iso-butane, and natural gasoline, commonly called “NGLs”). 	Id. at
4. 	This raw gas, or “wet gas,” requires conditioning to eliminate
or 	reduce 	the 	contaminants 	to 	acceptable 	limits 	to 	make 	this 	gas
marketable. 	Id. 	at 	5. 	This 	conditioning 	process 	initially
involves 	the 	flow 	of 	“the 	production 	stream 	through 	initial
mechanical separators, which separate the raw gas vapor phase from
the liquid phase of the stream.” 	Id. 	If necessary, some initial
compression 	occurs 	on 	the 	lease 	to 	allow 	the 	gas 	to 	enter 	the
gathering 	system, 	which 	“consists 	of 	a 	series 	of 	small, 	low
pressure 	pipelines 	which 	typically 	collect 	raw 	gas 	from 	multiple
wells located within a localized geographical area and deliver the
raw gas to a central point for treatment and processing.” 	Id. at
7. 	Further 	compression 	typically 	takes 	place 	on 	the 	gathering
1 The fractional interest, or “royalty interest,” retained by
the lessor is typically between one-eighth and one-quarter, free of
costs 	and 	expenses, 	with 	the 	lessee 	typically 	receiving 	between
three-quarters and seven-eighths of the resulting production, less
costs and expenses. 	Reineke Affidavit at 4.
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system as the raw gas is of insufficient pressure to move along the
gathering system and into the processing plant. 	Id. 	Gas from the
wells, 	or 	“fuel 	gas,” 	is 	used 	to 	power 	the 	compressor 	and 	other
equipment 	on 	the 	gathering 	system. 	Id. 	The 	raw 	gas 	within 	the
gathering system is also subjected to a dehydration process where
“some of the constituents of the raw gas may condense and drop out
of 	the 	raw 	gas 	stream 	in 	the 	form 	of 	liquids 	(also 	called 	“drip
liquids,” 	“drip 	condensate” 	and 	“scrubber 	oil”).” 	Id. 	These
valuable 	drip 	liquids 	“are 	typically 	collected 	at 	the 	compressor
stations and sold by the operator of the gathering system for his
own 	account.” 	Id. 	Additional 	treatment 	of 	the 	raw 	gas 	may 	take
place 	on 	the 	gathering 	system 	and 	these 	services 	are 	all 	spelled
out in the Gas Gathering Agreement between the lease operator and
the 	gathering 	system 	operator, 	referred 	to 	as 	a 	“midstream”
company. 	Id. at 7-8. 	After passing through the gathering system,
the 	raw 	gas 	is 	then 	delivered 	to 	a 	treating 	and/or 	processing
plant, 	which 	functions 	to 	“(i) 	transform 	the 	low 	pressure 	raw
wellhead 	gas 	into 	residue 	gas 	that 	is 	“pipeline 	quality” 	gas 	in
order 	that 	it 	may 	enter 	the 	high-pressure 	interstate 	pipeline
system; and (ii) to extract the NGLs so they can be marketed.” 	Id.
These 	types 	of 	services 	are 	spelled 	out 	in 	the 	Processing
Agreements entered into with midstream companies.
Chieftain is a royalty owner in numerous XTO wells located in
Oklahoma. 	See 	Affidavit 	of 	Robert 	S. 	Abernathy 	(“Abernathy
Affidavit”)(Dkt. 	No. 	97). 	Chieftain 	has 	a 	direct 	lessor-lessee
relationship 	with 	XTO 	in 	at 	least 	two 	of 	the 	XTO 	wells. 	Id. 	and
Affidavit of Alyce Hoge, Exhibit D to Chieftain’s Motion at 3. 	At
issue in this case with respect to the putative Class members are
2,296 	XTO 	wells. 	Affidavit 	of 	Karissa 	K. 	Cottom, 	Exhibit 	1 	to
XTO’s 	Response. 	These 	wells 	are 	covered 	by 	approximately 	14,300
leases 	from 	which 	XTO 	markets 	gas. 	XTO’s 	Response 	at 	3-4.
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Chieftain asserts that there are in excess of 16,000 royalty owners
who qualify as members of the proposed Class. 	Affidavit of Barbara
A. Ley (“Ley Affidavit”), Exhibit B to Chieftain’s Motion at 11.
With respect to the majority of XTO’s Oklahoma wells, XTO is
the operator and it directly markets the gas for itself and other
working 	interest 	owners. 	With 	respect 	to 	the 	remaining 	Oklahoma
wells, 	XTO 	separately 	markets 	the 	gas 	in 	its 	role 	as 	a 	non-
operator. 	Chieftain brings this action for itself, and on behalf
of the putative Class members, against XTO seeking to recover for
XTO’s 	failure 	to 	properly 	pay 	royalties 	due 	on 	the 	production 	of
gas and gas constituents from these Oklahoma wells. 	As set forth
in 	its 	state 	court 	Petition 2, 	Chieftain 	asserts 	theories 	of
recovery 	for 	(1) 	breach 	of 	contract, 	(2) 	tortious 	breach 	of
contract, (3) breach of fiduciary duty or quasi-fiduciary duty, (4)
fraud 	(actual 	and 	constructive) 	and 	deceit, 	(5) 	conversion, 	(6)
conspiracy, (7) accounting, and (8) injunctive relief. 	Chieftain’s
underlying 	claim 	as 	to 	all 	theories 	of 	recovery 	is 	that 	XTO 	has
underpaid 	royalties 	on 	gas 	and 	gas 	constituents 	by 	improperly
deducting costs or fees incurred to transform the wellhead gas into
2 Chieftain’s state court Petition was filed in the District
Court of Coal County, Oklahoma, on December 17, 2010. 	On January
21, 	2011, 	XTO 	removed 	Chieftain’s 	state 	court 	action 	to 	this
federal court. 	On April 22, 2011, this Court applied the first-to-
file rule and stayed this action pending a ruling from the United
States 	District 	Court 	for 	the 	District 	of 	Kansas 	in 	Wallace 	B.
Roderick Revocable Living Trust v. XTO Energy, Inc., Case No. 08-
1330-JTM-KMH 	(“Roderick”), 	to 	allow 	the 	Kansas 	federal 	court 	the
opportunity to decide whether it would carve out the Oklahoma class
in 	the 	Roderick 	case 	and 	transfer 	it 	to 	this 	Court. 	On 	June 	3,
2011, the Roderick Court severed all claims related to the Oklahoma
wells from its case and transferred those claims to this Court. See
Wallace 	B. 	Roderick 	Revocable 	Living 	Trust 	v. 	XTO 	Energy, 	Inc.,
Case 	No. 	11-192-FHS 	(E.D. 	Okla.). 	On 	June 	30, 	2011, 	the
transferred 	Roderick 	case 	(Case 	No. 	11-192-FHS) 	and 	the 	instant
case were consolidated as related cases.
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a 	marketable 	condition 	for 	sale. 	According 	to 	Chieftain, 	these
improper deductions from the royalty payments include, but are not
limited to, the following: “(1) deducting direct and indirect fees
for 	marketing, 	gathering, 	compression, 	dehydration, 	processing,
treatment, 	and 	other 	similar 	services; 	(2) 	not 	paying 	royalty 	on
wellhead 	gas 	that 	was 	used 	off 	the 	lease 	premises 	or 	in 	the
manufacture of products; and (3) not paying royalty on condensate
that dropped out of the gas stream.” 	Petition, ¶ 13.
In 	Chieftain’s 	Motion, 	it 	seeks 	the 	certification 	of 	the
following class:
All 	non-excluded 	persons 	or 	entities 	who 	are 	or 	were
royalty 	owners 	in 	Oklahoma 	wells 	since 	July 	1, 	2002,
where XTO, including its predecessors or affiliates, is
or 	was 	the 	operator 	(or, 	as 	a 	non-operator, 	XTO
separately marketed gas). 	The Class Claims relate only
to payment for gas and its constituents (helium, residue
gas, 	natural 	gas 	liquids, 	nitrogen 	and 	condensate)
produced 	from 	the 	wells. 	The 	Class 	does 	not 	include
overriding 	royalty 	owners 	or 	other 	owners 	who 	derive
their interest through the oil and gas lessee.
The persons or entities excluded from the Class are: (1)
agencies, departments or instrumentalities of the United
State of America and the State of Oklahoma; (2) publicly
traded 	oil 	and 	gas 	exploration 	companies 	and 	their
affiliates; (3) the claims of royalty owners in XTO wells
gathered by Timberland and processed at the Tyrone Plant
which 	are 	presently 	the 	subject 	of 	the 	action 	styled
Fankouser, et al v. XTO Energy, Inc., Case No CIV-07-798-
L 	USDC 	WD 	OK 	(formerly 	Beer 	et 	al 	v. 	XTO); 	and 	(5)
persons or entities that Plaintiffs’ counsel is, or may
be 	prohibited 	from 	representing 	under 	Rule 	1.7 	of 	the
Oklahoma Rules of Professional conduct.
Chieftain’s Motion at 43-44.
Class Certification Principles
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When 	assessing 	the 	propriety 	of 	a 	plaintiff’s 	request 	for
class certification, a federal court does not make a determination
on 	the 	merits 	of 	the 	suit, 	but 	rather 	the 	inquiry 	is 	whether 	the
plaintiff has satisfied the requirements of Rule 23 of the Federal
Rules 	of 	Civil 	Procedure. 	DG 	ex 	rel. 	Stricklin 	v. 	Devaughn, 	594
F.3d 1188, 1194 (10 th Cir. 2010). 	Certification is appropriate if
“the 	proposed 	class 	satisfies 	the 	requirements 	of 	Rule 	23(a) 	and
the requirements of one of the types of classes in Rule 23(b).” Id.
Under 	Rule 	23(a), 	a 	party 	seeking 	certification 	must
affirmatively demonstrate that
(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.
In assessing these factors, the court should accept the allegations
in 	the 	complaint 	as 	true, 	but 	it 	“need 	not 	blindly 	rely 	on
conclusory allegations which parrot Rule 23 requirements.” 	J.B. ex
rel. Hart v. Valdez, 186 F.3d 1280, 1290 n. 7 (10 th Cir. 1999). 	The
certification 	evaluation 	requires 	“the 	trial 	court 	[to 	be]
satisfied, 	after 	a 	rigorous 	analysis, 	that 	the 	prerequisites 	of
Rule 	23(a) 	have 	been 	satisfied.” 	General 	Telephone 	Co. 	of
Southwest v. Falcon, 457 U.S. 147, 161 (1982). 	On occasion, this
”’rigorous 	analysis’ 	will 	entail 	some 	overlap 	with 	the 	merits 	of
the plaintiff’s underlying claim,” 	Wal-Mart Stores, Inc. v. Dukes,
131 S.Ct. 2541, 2551 (2011), as “it may be necessary for the court
to 	probe 	behind 	the 	pleadings 	before 	coming 	to 	rest 	on 	the
certification 	question,” 	Falcon, 	457 	U.S. 	at 	160. 	The 	court 	is
invested 	with 	broad 	discretion 	in 	resolving 	the 	certification
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issue. 	Rector v. City & County of Denver, 348 F.3d 935, 949 (10 th
Cir. 	2003). 	An 	order 	certifying 	a 	class 	may 	later 	be 	altered 	or
amended before final judgment. 	Fed.R.Civ.P. 23(c)(1)(C).
If the court is satisfied that the four threshold requirements
of Rule 23(a) have been met, the plaintiff must then come forward
and establish that the proposed class meets one of the requirements
for 	certification 	under 	Rule 	23(b). 	Here, 	Chieftain 	alleges
certification 	is 	appropriate 	under 	Rule 	23(b)(3), 	which 	allows 	a
class 	to 	be 	maintained 	where 	“questions 	of 	law 	or 	fact 	common 	to
class 	members 	predominate 	over 	any 	questions 	affecting 	only
individual 	members, 	and 	that 	a 	class 	action 	is 	superior 	to 	other
available 	methods 	for 	fairly 	and 	efficiently 	adjudicating 	the
controversy.”
Numerosity
With 	respect 	to 	the 	numerosity 	element 	of 	Rule 	23(a)(1),
Chieftain 	bears 	the 	burden 	of 	establishing 	that 	“the 	class 	is 	so
numerous as to make joinder impracticable.” 	Peterson v. Okla. City
Hous. 	Auth., 	545 	F.2d 	1270, 	1273 	(10 th 	Cir. 	1976). 	Chieftain
asserts the numerosity element is satisfied as the putative class
consists of in excess of 16,000 royalty owners scattered throughout
Oklahoma and other states. 	In XTO’s Response, it does not contest
Chieftain’s 	argument 	as 	to 	numerosity. 	Consequently, 	the 	Court
finds Chieftain has satisfied the numerosity requirement under Rule
23(a)(1).
Commonality
The 	second 	prerequisite 	under 	Rule 	23(a) 	requires 	a 	showing
that 	“there 	are 	questions 	of 	law 	or 	fact 	common 	to 	the 	class.”
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Fed.R.Civ.P. 	23(a)(2). 	This 	commonality 	requirement 	entails 	a
demonstration that the class members “possess the same interest and
suffer 	the 	same 	injury.” 	Falcon, 	457 	U.S. 	at 	156. 	A 	common
contention 	must 	therefore 	drive 	the 	claims 	asserted 	in 	the
litigation. 	This common contention “must be of such a nature that
it 	is 	capable 	of 	classwide 	resolution 	- 	which 	means 	that
determination of its truth or falsity will resolve an issue that is
central to the validity of each one of the claims in one stroke.”
Wal-Mart, 	131 	S.Ct. 	at 	2551. 	Dissimilarities 	or 	factual
differences 	in 	the 	claims 	do 	not 	necessarily 	preclude
certification. 	DG 	v. 	Devaughn, 	594 	F.3d 	1188, 	1195 	(10 th 	Cir.
2010)(“Factual 	differences 	between 	class 	members’ 	claims 	do 	not
defeat 	certification 	where 	common 	questions 	of 	law 	exist.”).
Certification 	is 	appropriate 	upon 	a 	finding 	of 	“a 	single 	issue
common to the class.” 	J.B. ex rel. Hart, 186 F.3d at 1288.
At 	its 	core, 	this 	action 	involves 	the 	application 	and
definition 	of 	the 	implied 	duty 	of 	marketability. 	Under 	Oklahoma
law, an implied duty to market production is placed on an oil and
gas lessee. 	Wood v. TXO Production Corp., 854 P.2d 880, 882 (Okla.
1993). 	“[T]he 	implied 	duty 	to 	market 	means 	a 	duty 	to 	get 	the
product 	to 	the 	place 	of 	sale 	in 	a 	marketable 	form.” 	Id. 	An 	oil
and gas lessee bears all costs associated with turning the raw gas
into a marketable product, unless the lease expressly and clearly
provides 	that 	such 	costs 	are 	to 	be 	proportionately 	borne 	by 	the
lessor. 	Mittlestaedt 	v. 	Santa 	Fe 	Minerals, 	Inc., 	954 	P.2d 	1203,
1207 (citing Wood, 854 P.2d at 883). 	Oklahoma law does allow for
post-production 	costs 	to 	be 	charged 	to 	royalty 	owners 	where 	the
product is in a marketable condition if the lessee can prove that
(1) 	the 	costs 	are 	reasonable, 	(2) 	the 	actual 	royalty 	revenues
increased in proportion with the costs assessed against the royalty
interest, 	and 	(3) 	the 	costs 	are 	associated 	with 	transforming 	an
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already marketable product into an enhanced product. 	Mittlestaedt,
954 P.2d at 1208, 1210.
It 	is 	Chieftain’s 	contention 	that 	it 	has 	satisfied 	the
commonality 	requirement 	because 	“the 	determination 	of 	what
processes 	are 	necessary 	to 	create 	a 	‘marketable’ 	product 	is 	a
common 	question 	that 	will 	be 	answered 	uniformly 	for 	all 	Class
members.” 	Chieftain’s 	Motion 	at 	19. 	Tethered 	to 	this 	legal
determination 	is 	the 	common 	factual 	issue 	of 	“[w]hether 	XTO
routinely 	deducted 	any 	costs 	and 	expenses, 	incurred 	before 	the
products 	became 	commercially 	marketable, 	from 	payments 	that 	were
due and owing to the Class member royalty owners.” 	Id. at 17. 	The
Court finds that these common questions are sufficient to establish
commonality.
In 	opposition 	to 	Chieftain’s 	commonality 	argument, 	XTO
contends 	that 	there 	are, 	in 	effect, 	86 	different 	lease 	forms
involved in this case and, therefore, it does not employ a uniform
method 	of 	paying 	Oklahoma 	royalty 	owners 	as 	the 	royalty 	payments
are determined by the language of the lease. 	XTO also argues that
the 	multiple 	marketing 	arrangements 	it 	has 	with 	the 	midstream
companies 	affects 	the 	determination 	of 	amount 	due 	to 	the 	royalty
owners. 	The Court rejects these arguments as the evidence before
it 	establishes 	that 	XTO 	operates 	under 	a 	generalized, 	uniform
method of calculating royalty payments by charging royalty owners
with deductions for making the gas marketable, without reference to
either the individual lease language or marketing arrangements with
midstream 	companies. 	See 	Ley 	Affidavit 	at 	¶ 	10 	and 	Reineke
Affidavit at p. 20, ¶F. 	In fact, when provided an opportunity to
explain 	XTO’s 	royalty 	payment 	system, 	XTO’s 	designated
representative, Joni VanMeter (“VanMeter”), was unable to contest
XTO’s 	implementation 	of 	a 	uniform 	system 	without 	reference 	to
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individual 	leases. 	VanMeter 	testified 	that 	she 	did 	not 	know 	how
many Oklahoma royalty owners, if any, have been flagged to not have
deductions 	for 	treating, 	processing, 	gathering, 	compression, 	and
dehydration. 	VanMeter Deposition, Exhibit F to Chieftain’s Motion,
at 80-82 and 150-151. 	Additionally, VanMeter could not relate any
instances where XTO paid royalty on fuel gas or on drip condensate.
Id. 	at 	151-157. 	Thus, 	the 	record 	reflects 	that 	XTO 	employs 	a
uniform 	royalty 	payment 	methodology 	which 	does 	not 	take 	into
account individual lease language. 3
In a related context, XTO also argues that a certification of
a class in this case would abridge the fundamental rule under the
Rules 	Enabling 	Act, 	28 	U.S.C. 	§ 	2072(b), 	that 	Rule 	23 	cannot 	be
interpreted to “abridge, enlarge or modify any substantive right.”
It 	is 	XTO’s 	position 	that 	certification 	would 	prevent 	it 	from
raising 	the 	material 	terms 	of 	the 	lease 	agreements 	in 	defense 	of
Chieftain’s claims. 	The Court disagrees. 	Contrary to XTO’s claim
that certification would require the Court to ignore the terms of
the 	various 	leases, 	the 	express 	terms 	of 	the 	various 	leases 	will
necessarily have to be evaluated, at the appropriate stage of these
proceedings, to determine whether the implied duty of marketability
has been abrogated. 	XTO’s defenses centered on the existence of a
duty 	to 	create 	a 	marketable 	product, 	or 	the 	scope 	of 	such 	duty,
3 A possible exception to this uniform treatment exists. 	For
class 	certification 	purposes, 	the 	parties 	relied 	on 	data 	from 	11
Sample Wells as being representative of XTO’s Oklahoma wells. 	On
one 	of 	the 	wells, 	the 	data 	suggests 	that 	a 	different 	payment
methodology was used, but XTO did not provide any explanation as to
why royalty owners were paid differently. 	Ley Affidavit, at 11.
On another well, “XTO did not provide enough royalty payment data
. 	. 	. 	to 	make 	this 	determination” 	as 	to 	calculation 	of 	royalty
payments. 	Id. 	The 	Court 	finds 	the 	uncertainty 	of 	the 	royalty
payment methodology as to these two sample wells does not prevent
certification 	in 	light 	of 	the 	substantial 	evidence 	of 	a 	uniform
policy on the remaining wells.
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remain available to XTO in the context of class certification. 	The
Court finds certification will not abridge any substantive right of
XTO.
XTO 	also 	contends 	that 	the 	Supreme 	Court’s 	decision 	in 	Wal-
Mart 	has 	implemented 	a 	material 	shift 	in 	the 	class 	certification
analysis requiring the denial of certification in this case. 	The
Court 	disagrees. 	Wal-Mart 	involved 	a 	district 	court’s
certification 	of 	current 	and 	former 	female 	employees 	of 	Wal-Mart
who asserted Title VII sex discrimination claims in connection with
“the discretion exercised by their local supervisors over pay and
promotion 	matters.” 	Wal-Mart, 	131 	S.Ct. 	at 	2547. 	The 	Supreme
Court 	reversed 	and 	held 	that 	class 	certification 	under 	these
circumstances was not appropriate as there was no common contention
which 	was 	capable 	of 	classwide 	resolution. 	In 	addressing
commonality, the Supreme Court stated:
The only corporate policy that the plaintiff’s evidence
convincingly 	establishes 	is 	Wal-Mart’s 	“policy” 	of
allowing discretion by local supervisors over employment
matters. 	On 	its 	face, 	of 	course, 	that 	is 	just 	the
opposite 	of 	a 	uniform 	employment 	practice 	that 	would
provide the commonality needed for a class action; it is
a policy against having uniform employment practices.
Id. 	at 	2554 	(emphasis 	in 	the 	original). 	These 	facts 	are 	vastly
different from those involved herein. 	The discretion afforded Wal-
Mart 	supervisors 	with 	respect 	to 	employment 	decisions 	stands 	in
stark 	contrast 	to 	a 	uniform 	policy 	employed 	by 	an 	oil 	and 	gas
exploration 	company 	for 	the 	payment 	of 	royalties. 	Wal-Mart
reaffirmed 	the 	standard 	for 	commonality 	that 	all 	class 	members
suffer a common injury. 	Id. at 2551. 	Application of that standard
to 	a 	factual 	situation 	allowing 	individual 	Wal-Mart 	supervisors
discretion 	in 	making 	employment 	decisions 	does 	not 	mandate 	a
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similar outcome herein where a uniform royalty payment methodology
exists.
In 	sum, 	the 	Court 	finds 	the 	commonality 	requirement 	of 	Rule
23(a)(2) 	is 	satisfied 	as 	all 	putative 	class 	members 	“possess 	the
same interest and suffer the same injury,” Falcon, 457 U.S. at 156,
arising from general issue of the application of the implied duty
of 	marketability 	and 	XTO’s 	uniform 	royalty 	payment 	methodology.
This commonality finding permeates all claims asserted by Chieftain
- 	breach 	of 	contract, 	tortious 	breach 	of 	contract, 	breach 	of
fiduciary 	duty 	or 	quasi-fiduciary 	duty, 	fraud 	(actual 	and
constructive) and deceit, conversion, conspiracy, accounting, and
injunctive relief 4 - as the underlying basis for all claims is the
assertion 	that 	XTO 	has 	made 	improper 	deductions 	to 	transform
wellhead gas into a marketable condition for sale. 5 	The validity
of these individual claims and related defenses asserted by XTO, as
well as the scope of the implied duty of marketability as applied
to 	the 	class 	members’ 	lease 	agreements, 	are 	issues 	which 	do 	not
prevent certification, but rather, are issues capable of resolution
at the summary judgment stage of this litigation.
4 Chieftain 	references 	an 	unjust 	enrichment 	claim 	in 	its
briefing. 	A 	review 	of 	Chieftain’s 	Petition, 	however, 	fails 	to
reveal a separately plead claim for unjust enrichment.
5 The 	Court 	rejects 	XTO’s 	argument 	in 	the 	context 	of
Chieftain’s 	fraud 	and 	deceit 	claim 	that 	class 	certification 	is
inappropriate for lack of commonality given that each class member
must 	establish 	reliance 	on 	a 	false 	representation 	to 	his 	or 	her
detriment. 	Under 	the 	circumstances 	alleged 	here 	- 	false
representations 	uniformly 	made 	to 	royalty 	owners 	in 	writing, 	on
monthly 	check 	stubs 	- 	certification 	is 	not 	defeated 	given 	the
inference 	that 	could 	be 	drawn 	from 	such 	standardized
misrepresentations. 	See Weber v. Mobil Oil Corporation, 243 P.3d
1 	(Okla. 	2010)(claims 	for 	fraud 	and 	deceit 	appropriate 	for
certification 	in 	royalty 	owners 	class 	action 	where 	standardized
written misrepresentations alleged).
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Typicality
Class 	certification 	requires 	“the 	claims 	or 	defenses 	of 	the
representative parties be typical of the claims or defenses of the
class.” 	Fed.R.Civ.P. 	23(a)(3). 	“The 	commonality 	and 	typicality
requirements of Rule 23(a) tend to merge” as both elements seek to
determine “whether the named plaintiff’s claim and the class claims
are so interrelated that the interests of the class members will be
fairly and adequately represented in their absence.” 	Falcon, 457
U.S. 	at 	157-158, 	n.13. 6 	While 	the 	representative 	plaintiff’s
claims 	need 	not 	be 	identical 	to 	the 	class 	members’ 	claims, 	there
must be some nexus established. 	Devaughn, 594 F.3d at 1198-99. 	“A
named plaintiff’s claim is ‘typical’ when it arises out of the same
event, practice or course of conduct of the defendant, and is based
on 	the 	same 	legal 	theory 	on 	which 	the 	putative 	class 	claims 	are
predicated.” 	Hill v. Kaiser-Francis Oil Co., 2010 WL 2474051, at
*4 (W.D. Okla. 2010).
The 	Court 	finds 	that 	Chieftain’s 	claims 	for 	breach 	of
contract, tortious breach of contract, breach of fiduciary duty or
quasi-fiduciary duty, fraud (actual and constructive) and deceit,
conversion, 	conspiracy, 	accounting, 	and 	injunctive 	relief 	are
typical 	of 	the 	class 	claims. 	All 	claims 	have 	as 	their 	nexus 	the
allegation 	that 	XTO 	made 	improper 	deductions 	from 	their 	royalty
payments in violation of the implied duty of marketability through
the utilization of a common and uniform methodology. 	As Chieftain
6 The 	Supreme 	Court 	also 	noted 	that 	the 	commonality 	and
typicality 	requirements 	“tend 	to 	merge 	with 	the 	adequacy-of-
representation 	requirement, 	although 	the 	latter 	requirement 	also
raises concerns about the competency of class counsel and conflicts
of interest.” 	Falcon, 457 S.Ct. at 157-58, n.13.
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and the class members have sustained the same injury 7 and will use
the 	same 	evidence 	to 	establish 	their 	claims, 	typicality 	is
satisfied.
Adequacy
The 	final 	prerequisite 	under 	Rule 	23(a) 	is 	that 	“[t]he
representative 	parties 	will 	fairly 	and 	adequately 	protect 	the
interest of the class.” 	Fed.R.Civ.P. 23(a)(4). 	Evaluation of this
factor involves the resolution of two questions: “(1) do the named
plaintiffs 	and 	their 	counsel 	have 	any 	conflicts 	of 	interest 	with
other 	class 	members 	and 	(2) 	will 	the 	named 	plaintiffs 	and 	their
counsel prosecute the action vigorously on behalf of the class.?”
Rutter 	& 	Wilbanks 	Corp. 	v. 	Shell 	Oil 	Co., 	314 	F.3d 	1180, 	1187-88
(10 th Cir. 2002). 	A minor conflict will not defeat certification -
the 	conflict 	must 	be 	fundamental 	in 	the 	sense 	that 	some 	class
members 	claim 	harm 	by 	the 	same 	conduct 	that 	benefitted 	other
members of the class. 	Valley Drug Co. v. Geneva Pharmaceuticals,
Inc., 	350 	F.3d 	1181, 	1189 	(11 th 	Cir. 	2003). 	Such 	a 	fundamental
conflict renders the class representative’s interests “actually or
potentially antagonistic to, or in conflict with, the interests and
objectives 	of other class members.” 	Id.
XTO 	contends 	a 	conflict 	exists 	between 	Chieftain 	and 	the
putative class members based on its contention that the two leases
submitted 	by 	Chieftain 	negate 	the 	implied 	duty 	to 	create 	a
marketable product, while other class members are operating under
7 The fact that elements of damages available to class members
may vary does not preclude a finding of typicality. 	See Fankhouser
v. 	XTO 	Energy, 	Inc., 	2010 	WL 	5256807, 	*4 	(W.D. 	Okla. 	2010)(“The
fact 	that 	damages 	may 	vary 	or 	that 	damages 	calculations 	must 	be
conducted 	on 	an 	individual 	basis 	for 	each 	class 	member 	will 	not
preclude a finding of typicality under Rule 23(a)(3).”).
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leases 	that 	do 	not 	negate 	such 	duty. 	Even 	assuming 	the 	Court
ultimately concludes at a later stage of this litigation that the
Chieftain-type 	leases 	negate 	the 	implied 	duty 	to 	create 	a
marketable product, any exclusion of such lessors does not present
a 	fundamental 	conflict 	as 	Chieftain 	is 	also 	a 	royalty 	owner 	in
numerous 	other 	XTO 	wells 	in 	Oklahoma 	where 	the 	implied 	duty 	to
market could be applicable. 	See Abernathy Affidavit at 1-3. 	Thus,
the Court is satisfied that no conflicts exist that would prevent
Chieftain from vigorously prosecuting this action on behalf of the
Class members. 	The Court also finds there is no dispute as to the
adequacy 	of 	class 	counsel 	to 	prosecute 	this 	action. 	Chieftain’s
attorneys are exceptionally well-qualified, experienced attorneys.
Moreover, 	lead 	counsel 	and 	their 	firms 	have 	participated 	in
numerous oil and gas class actions involving royalty owner issues.
See Chieftain’s Motion, at 31, n.75. 	Consequently, the Court finds
Chieftain has satisfied the adequacy requirement of Rule 23(a)(4).
Predominance and Superiority
As noted above, in addition to satisfying the elements of Rule
23(a), Chieftain must establish one of the prerequisites under Rule
23(b) for certification. 	Chieftain seeks certification under Rule
23(b), which requires a findings that common questions predominate
over 	individual 	claims 	and 	that 	a 	class 	action 	is 	the 	superior
method 	for 	adjudicating 	the 	controversy. 	With 	respect 	to 	these
findings, the Court examines:
(A) 	the 	class 	members’ 	interest 	in 	individually
controlling 	the 	prosecution 	or 	defense 	of 	separate
actions;
(B) 	the 	extent 	and 	nature 	of 	any 	litigation 	concerning
the 	controversy 	already 	begun 	by 	or 	against 	class
members;
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(C) the desirability or undesirability or concentrating
the litigation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.
Fed.R.Civ.P. 	23(b)(3). 	These 	factors 	all 	weigh 	in 	favor 	of
certification. 	No 	litigation 	is 	pending 	concerning 	the 	putative
Oklahoma class members 8 and no interest in pursuing an individual
action 	is 	evident 	from 	the 	pleadings, 	nor 	does 	it 	appear 	to 	be
economically feasible to bring individual claims for what, in most
circumstances, 	would 	be 	a 	limited 	recovery. 	Furthermore, 	as 	the
central 	issue 	in 	this 	case 	involves 	the 	implied 	duty 	of
marketability 	and 	XTO’s 	uniform 	methodology 	for 	deductions 	with
respect 	to 	its 	Oklahoma 	wells, 	there 	is 	substantial 	benefit 	to
concentrating the litigation in this forum where the common issues
can 	be 	resolved 	in 	one 	arena. 	Finally, 	the 	Court 	does 	not
anticipate difficulties in the management of this class action.
Conclusion
Based on the foregoing reasons, the Court finds Chieftain has
satisfied its burden under Rule 23 of establishing this case as a
class 	action. 	Chieftain’s 	Motion 	for 	Class 	Certification 	is
granted and the following class is certified:
All 	non-excluded 	persons 	or 	entities 	who 	are 	or were
royalty 	owners 	in 	Oklahoma 	wells 	since 	July 	1, 	2002,
where XTO, including its predecessors or affiliates, is
or 	was 	the 	operator 	(or, 	as 	a 	non-operator, 	XTO
separately marketed gas). 	The Class Claims relate only
to payment for gas and its constituents (helium, residue
8 Of 	course, 	the 	Roderick 	case 	involving 	royalty 	owners 	in
Kansas 	wells 	is 	pending 	before 	the 	District 	Court 	of 	Kansas. 	On
March 28, 2012, the Roderick case was certified as a class action.
See Dkt. No. 108 (Memorandum Order and Opinion).
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gas, 	natural 	gas 	liquids, 	nitrogen 	and 	condensate)
produced 	from 	the 	wells. 	The 	Class 	does 	not 	include
overriding 	royalty 	owners 	or 	other 	owners 	who 	derive
their interest through the oil and gas lessee.
The persons or entities excluded from the Class are: (1)
agencies, departments or instrumentalities of the United
State of America and the State of Oklahoma; (2) publicly
traded 	oil 	and 	gas 	exploration 	companies 	and 	their
affiliates; (3) the claims of royalty owners in XTO wells
gathered by Timberland and processed at the Tyrone Plant
which 	are 	presently 	the 	subject 	of 	the 	action 	styled
Fankouser, et al v. XTO Energy, Inc., Case No CIV-07-798-
L 	USDC 	WD 	OK 	(formerly 	Beer 	et 	al 	v. 	XTO); 	and 	(5)
persons or entities that Plaintiffs’ counsel is, or may
be 	prohibited 	from 	representing 	under 	Rule 	1.7 	of 	the
Oklahoma Rules of Professional conduct.
Chieftain’s 	counsel 	of 	record 	are 	appointed 	as 	class 	counsel.
Since 	this 	is 	an 	action 	certified 	under 	Rule 	23(b)(3), 	“the 	best
notice that is practicable under the circumstances” must be given
“to all members who can be identified through reasonable effort.”
Fed.R.Civ.P. 23(c)(2)(B). 	The Court orders the parties to confer
and submit to the Court within 30 days of the date of this order a
notice that complies with Rule 23(c)(2)(B). 	Should the parties not
reach an agreement on such notice by the end of the 30-day period,
Chieftain 	shall 	notify 	the 	Court 	in 	writing 	and 	the 	Court 	will
thereafter set this matter for hearing on the issue of the notice
to be sent under Rule 23(c)(2)(B).
It is so ordered this 12 th day of April, 2012.
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