Anderson Living Trust v. WPX Energy Production
Opinion
In this case, we address the immediate appealability of a district court's denial of class certification. The named plaintiffs are the Anderson Living Trust (formerly known as the James H. Anderson Living Trust), Robert Westfall, and the Minnie Patton Scholarship Foundation Trust (collectively, the Trusts), 1 and the defendants *1137 are WPX Energy, Inc., and two of its subsidiaries (collectively, WPX).
Two years after the district court denied class certification, the parties settled the Trusts' individual claims. After settling, the parties jointly asked the court to enter a stipulated judgment dismissing with prejudice the Trusts' individual claims, and the court did so. In the judgment, the Trusts reserved any right they may have to appeal the district court's class-certification denial. The Trusts now appeal that denial, contending that the class-certification order merged with the stipulated judgment dismissing their individual claims, resulting in a final, appealable order under
Relying on
Microsoft Corp. v. Baker
, --- U.S. ----,
BACKGROUND
The Trusts and more than 1,000 putative class members (as lessors), and WPX (as lessee), are signatories to 507 separate gas leases covering 3,157 gas wells in the San Juan Basin-2,889 in New Mexico and 268 in Colorado. WPX holds the working interests in these leases, entitling it to develop and produce the hydrocarbons beneath the leased land. For their part, the Trusts and putative class members retain royalty interests, overriding royalty interests, or both, in the hydrocarbons produced. 3
On December 5, 2011, the Trusts filed a putative class action against WPX in New Mexico state court, alleging seven claims: (1) that WPX underpaid royalties and overriding royalties; (2) that WPX committed fraud, misstated the value of the hydrocarbons, and wrongly participated in affiliate sales; 4 (3) that WPX breached its duty to market the hydrocarbons developed from the leases; (4) that WPX violated the New Mexico Oil and Gas Proceeds Payment Act; (5) that WPX breached the lease contracts by acting in bad faith; (6) that WPX unjustly enriched itself; and (7) that WPX converted the Trusts' and putative class members' royalties and overriding royalties. WPX removed the case to the United States District Court for the District of New Mexico.
Two years into the litigation, the Trusts moved to certify their claims as a class action. Among the issues the Trusts sought to certify were these two: (1) whether WPX, under the terms of the leases, should be paying royalties and overriding royalties to the Trusts and putative *1138 class members based on "the price WPX and its affiliates received in the first arm's length sale ... from the hydrocarbons produced and sold from their wells" and (2) whether WPX, under the terms of the leases, could pay royalties to the Trusts and putative class members based on an index value "when WPX and its affiliates receive[d] a higher value for said hydrocarbons." 5 Appellants' App. vol. 3 at 657 ¶¶ 5, 7. WPX opposed the motion. On March 19, 2015, the district court declined to certify the class. The Trusts filed a Motion to Reconsider, which the court also denied.
Four months later, the Trusts filed a Fifth Amended Complaint, alleging an additional class claim: that WPX had breached its duty to sell the Trusts' and putative class members' hydrocarbons at the highest obtainable price and to pay them royalties and overriding royalties based on that price. Citing Fed. R. Civ. P. 23(d)(1)(D), WPX moved to strike the Fifth Amended Complaint's class allegations bearing on the new claim-the duty to sell the hydrocarbons at the highest obtainable price-arguing that the court had already denied class certification. But, noting that the Trusts hadn't asserted this highest-obtainable-price claim in their first certification motion, the court refused to strike the class allegations based on this additional claim. The district court said the Trusts could move to certify the new claim. 6
Instead of moving to certify this additional class claim, the Trusts settled with WPX. The parties jointly moved to enter a stipulated judgment dismissing the Trusts' individual claims, advising that "[a]ll Plaintiffs' claims for relief alleged in this Action are hereby dismissed with prejudice pursuant to the settlement between the parties." Appellants' App. vol. 11 at 2836 ¶ 1. In the judgment, the Trusts reserved "any rights [they] may have to appeal the Court's Order ... denying their motion for class certification, including the Court's denial of Plaintiffs' motion for reconsideration thereof."
After oral argument in the Trusts' appeal, we ordered supplemental briefing on whether we have jurisdiction to decide the appeal. In our order, we observed that "[i]n
Microsoft Corp. v. Baker
, --- U.S. ----,
1. Did the plaintiffs in the present case settle their individual claims for full and fair value?
2. If so, how does that affect this court's jurisdiction under28 U.S.C. § 1291 to hear the present appeal under Baker ?
3. Even if fully and fairly settling their individual claims would give this court jurisdiction under28 U.S.C. § 1291 , would this court still lack jurisdiction under Article III of the United States Constitution's case-or-controversy requirement?
Suppl. Br. Order at 1-2.
The parties timely submitted their briefs. The Trusts contend (1) that the
*1139
parties settled for full and fair value; (2) that we have jurisdiction under
DISCUSSION
We first consider the options available to named plaintiffs seeking appellate review of orders denying class certification. Next, we examine the Supreme Court's Baker decision. Finally, we apply Baker 's framework to the Trusts' attempted § 1291 appeal to determine whether we have jurisdiction.
A. Options to Appeal Adverse Class-Certification Orders
Named plaintiffs seeking appellate review of an order denying class certification have three options.
See
Baker
,
This finality principle precludes immediate review of interlocutory orders, such as class-certification orders, unless Congress provides otherwise.
See
Mohawk Indus., Inc., v. Carpenter
,
Second, named plaintiffs may pursue an interlocutory appeal under
Third, they may petition the court of appeals for review under Fed. R. Civ. P. 23(f).
Baker
,
*1140
Fed. R. Civ. P. 23(f). And a court of appeals may grant an appeal "on the basis of any consideration that [it] finds persuasive." Fed. R. Civ. P. 23(f) advisory committee's note to 1998 amendment. The advisory committee anticipated that "[t]he courts of appeals w[ould] develop standards for granting review."
The rules committee adopted Rule 23(f) after the Supreme Court, in
Coopers & Lybrand v. Livesay
,
7
struck down the " 'death-knell' doctrine."
Baker
,
"After
Coopers & Lybrand
, a party seeking immediate review of an adverse class-certification order had no easy recourse."
Baker
,
B. Microsoft Corp. v. Baker
Forty years after
Coopers & Lybrand
, the Supreme Court decided
Baker
. In
Baker
, the named plaintiffs had filed a putative class action against Microsoft alleging that its videogame console, the Xbox 360, scratched game discs during play.
Returning to their menu of appellate options, the named plaintiffs attempted to obtain a final judgment under
The Supreme Court granted certiorari in
Baker
to resolve this question: "Do federal courts of appeals have jurisdiction under § 1291 and Article III of the Constitution to review an order denying class certification (or, as here, an order striking class allegations) after the named plaintiffs have voluntarily dismissed their claims with prejudice?"
Baker
,
First, the Court said the voluntary-dismissal tactic would invite "protracted litigation and piecemeal appeals."
Second, the Court said that the tactic would "undercut[ ] Rule 23(f) 's discretionary regime" by creating a means to obtain an appeal as of right for class-certification denials.
Id.
at 1714. The tactic would allow named plaintiffs to "altogether bypass Rule 23(f) [and] force an appeal by dismissing their claims with prejudice."
Id.
The rule's drafters "studied the data on class-certification rulings and appeals, weighed various proposals, received public comment, and refined the draft rule."
Id.
(citing Michael E. Solimine & Christine Oliver Hines,
Deciding to Decide: Class Action Certification and Interlocutory Review by the United States Courts of Appeals Under Rule 23(f)
,
Third, the tactic's "one-sidedness" would give the named plaintiffs an unfair advantage, "permit[ting] plaintiffs only, never defendants, to force an immediate appeal of an adverse certification ruling."
Id.
And "[y]et the 'class issue' may be just as important to defendants, for '[a]n order granting certification ... may force a defendant to settle rather than ... run the risk of potentially ruinous liability.' "
Id.
(second alteration in original) (citation omitted) (quoting
Coopers & Lybrand
, 437 U.S. at 476,
Because of these drawbacks to the voluntary-dismissal tactic, the Court determined that a judgment obtained through this sleight of hand doesn't "qualify as a 'final decision' within the compass of § 1291."
Id.
at 1707. So though the
Baker
named plaintiffs created a final judgment under § 1291 in a "technical" sense by voluntarily dismissing their individual claims with prejudice, the Court determined that "practical" considerations-namely, § 1291 's finality principle and preserving Rule 23(f) 's balanced solution-precluded appellate jurisdiction.
Id.
at 1712 (quoting
Eisen v. Carlisle & Jacquelin
,
C. Application of Baker
Like the named plaintiffs in Baker , the Trusts seek appellate review under § 1291 of an order denying class certification. But unlike the named plaintiffs in Baker , the Trusts didn't act unilaterally-they first settled their individual claims against WPX for consideration, and then voluntarily dismissed their claims with prejudice. Emphasizing this distinction, the Trusts contend that Baker doesn't control this case. The settlement, they claim, puts them "in no different posture than had they litigated their claims to a positive, final judgment by jury trial." Appellants' Suppl. Br. at 7. Guided by Baker 's three-drawback framework, we disagree. 9
1. Protracted Litigation and Piecemeal Appeals
First, as in
Baker
, the danger of protracted litigation and piecemeal appeals remains even when named plaintiffs have settled their individual claims. If we sanction the settlement approach, named plaintiffs who settle their individual claims would have a right to appeal earlier denials of class certification under § 1291. If those named plaintiffs so appeal, and the appeals court then reverses and remands the district court's order denying class certification, the district court might decline to certify the class "on a different ground."
See
Baker
,
2. Rule 23(f) 's Discretionary Appellate-Review Regime
Second, like the
Baker
named plaintiffs' voluntary-dismissal tactic, the Trusts' settlement approach would disturb
*1143
Rule 23(f) 's discretionary appellate-review regime.
Baker
,
Nevertheless, the Trusts contend that Rule 23(f) is irrelevant to their class-certification appeal because the post-settlement stipulated judgment dismissing their individual claims "fulfills the requirements of a final decision under
But the Supreme Court rejected the
Baker
named plaintiffs' "technical[ly]" compliant § 1291 appeal.
3. One-Sidedness
Third, the Trusts' settlement approach, like the voluntary-dismissal tactic, gives plaintiffs the advantage.
See
id.
at 1715. Defendants enjoy no symmetrical right to settle named plaintiffs' individual claims and then appeal a class-certification grant.
10
Once the district court grants certification,
*1144
"the entire class is the actual plaintiff." Erwin Chemerinsky, Federal Jurisdiction 155 (7th ed. 2016). But "[c]lass members that have already settled their claims prior to [a] class action settlement are ... no longer class members ...." 4 William B. Rubenstein, Newberg on Class Actions § 13:23 (5th ed. 2018). So when named plaintiffs settle their individual claims before a class settlement, they forego their class-member status and their interests become "divorce[d]" from the class.
Muro v. Target Corp.
,
Litigation on the merits to final judgment, though, doesn't create the same lopsided opportunities as the Baker named plaintiffs' voluntary-dismissal tactic and the Trusts' settlement approach. Unlike settling, litigating on the merits to final judgment and then appealing under § 1291 provides symmetrical opportunities to plaintiffs and defendants. Then, dissatisfied named plaintiffs or dissatisfied defendants can appeal an adverse certification order.
Similarly, Rule 23(f) provides symmetrical appeal opportunities for thwarted named plaintiffs
and
thwarted defendants. We have found it "generally appropriate" to grant a Rule 23(f) petition from a class-certification grant when "a defendant's potential liability [is] so enormous that settlement 'becomes the only prudent course.' "
Vallario
,
And whatever differences may exist between permitting a plaintiff to force an immediate appeal of an adverse certification order versus permitting a defendant to do the same, balancing those differences is a "question[ ] of policy for Congress."
Baker
,
D. Options Available to the Trusts Post- Baker
The Trusts argue that " no alternative existed " to dismissing their claims with prejudice once the district court denied their class-certification motion. Appellants'
*1145
Reply Br. at 8. This is untrue. They had four options-though only three created a path to appellate review. Their choices included: (1) "settl[ing] their individual claims;" (2) seeking district-court certification of the interlocutory class-certification order and then this court's permission to appeal that order under
Finding daylight between the
Baker
named plaintiffs' voluntary-dismissal tactic and the Trusts' settlement approach requires splitting hairs. Voluntary dismissal is functionally a settlement for nothing. That the Trusts managed to procure a price for the dismissal of their individual claims is simply a new take on the old voluntary-dismissal tactic. The Trusts can't turn the district court's class-certification denial, an "inherently interlocutory" order, into a final, appealable order within the compass of
CONCLUSION
For the reasons above, we dismiss this appeal for lack of jurisdiction. We deny the Trusts' motion to certify. We grant WPX's motion for leave to file the settlement agreement in support of their response to the Trusts' motion to certify, deny WPX's motion to file a sur-reply to the Trusts' reply brief, and we deny the Trusts' motion for leave to file a reply to WPX's response to the Trusts' Rule 28(j) letter.
The Pritchett Living Trust, Cynthia W. Sadler, the Lee Wiley Moncrief 1988 Trust, the Kelly Cox Testamentary Trust 7/1238401, and SWMF Properties, Inc. were also named plaintiffs. But they haven't joined this appeal.
We deny the Trusts' motion to certify to the New Mexico Supreme Court the question "whether the marketable condition rule applies to private royalty leases and overriding royalty instruments in New Mexico." Appellants' Mot. to Certify at 4;
see also
Anaconda Minerals Co. v. Stoller Chemical Co.
,
A royalty interest in a gas lease is a real-property interest that vests when the developer extracts the gas. An overriding royalty interest is different. It is created by an assignment of the lessee's interest and bears no relationship to the lessor's royalty interest.
WPX allegedly transfers title to the hydrocarbons it produces on the leased land to two of its affiliate companies for a contracted "price" (though no money ever changes hands)-an alleged affiliate "sale"-before selling the hydrocarbons to unaffiliated companies (arms-length sales).
The industry considers the index value to be the "market value" for the hydrocarbons at the time and location of delivery. Appellants' App. vol. 7 at 1629:24-1630:2.
The Trusts never moved to certify the highest-obtainable-price claim, and that claim is not part of this appeal.
A three-justice minority concluded that the named plaintiffs' appeal qualified as a final decision under
Because
Coopers & Lybrand explained the need for symmetrical opportunities for plaintiffs and defendants to appeal adverse class-certification orders:
The class issue-whether to certify, and if so, how large the class should be-will often be of critical importance to defendants as well [as plaintiffs]. Certification of a large class may so increase the defendant's potential damages liability and litigation costs that he may find it economically prudent to settle and to abandon a meritorious defense. Yet the Courts of Appeals have correctly concluded that orders granting class certification are interlocutory.
We acknowledge that the Ninth Circuit has reached a different conclusion in an analogous case,
Brown v. Cinemark USA, Inc.
,
Reference
- Full Case Name
- The ANDERSON LIVING TRUST, F/K/A the James H. Anderson Living Trust; Robert Westfall; Minnie Patton Scholarship Foundation Trust, Plaintiffs - Appellants, and the Pritchett Living Trust; Cynthia W. Sadler; Lee Wiley Moncrief 1988 Trust; Kelly Cox Testamentary Trust 7/1238401; SWMF Properties, Inc., Plaintiffs, v. WPX ENERGY PRODUCTION, LLC, F/K/A WPX Energy San Juan, LLC and Williams Production Company, LLC; WPX Energy Rocky Mountain, LLC, F/K/A Williams Production RMT Company, LLC, Defendants - Appellees.
- Cited By
- 2 cases
- Status
- Published