A notable development in a lawsuit that before now, we were unaware of. Several landowners in Venango County (northwest PA) filed a lawsuit against Shell’s SWEPI drilling subsidiary in 2013 claiming SWEPI had stiffed them out of lease bonus payments due under duly signed lease contracts. The landowners attempted to turn the lawsuit into a class action, claiming the same thing had happened for about 300 leases in the area. A federal judge has just ruled against converting the lawsuit into a class action.
Landowner plaintiffs Thomas J. Walney and Rodney A. Bedow, Sr. alleged, on behalf of themselves and other PA leaseholders, that defendants SWEPI and its general partner Shell Energy Holding breached the terms of the class members’ oil and gas leases by failing to pay bonus monies that were allegedly owed under the terms of the subject leases. The case started out in county court but was passed up the line a couple of times, ending up in U.S. District Court for the Western District of PA.
As we read through the complaint (below), it appears to us that SWEPI didn’t just willy nilly decide to stiff a bunch of random landowners–but rather refused to pay lease bonuses to landowners where the title to the property had “defects”–as in SWEPI could not ascertain with 100% certainty that the people they were giving the bonus money to had free-and-clear ownership of the mineral rights. As drillers know, if you pay out the money now and later learn you paid it to the wrong people, you’ll never see that money back. Best to be certain up front before you pay.
Drillers sign leases with who they think is the right person/owners of the land or mineral rights. But after the lease is signed, the hard work begins (in the local county clerk’s office) to research the title, to ensure it actually belongs to the people you’ve just signed a contract with.
In this case, SWEPI maintains there were titles with problems, and therefore they would not pay the lease bonus payments until those issues are resolved.
On the other side of the isle, the landowners in question, Mssrs. Walney and Bedow, claimed they do own their properties free and clear and that SWEPI is playing games. They attempted to include some 300 other leases in the lawsuit under a claim of class action. It was the class action aspect of the lawsuit that a federal judge has just tossed out–not the underlying lawsuit by Walney and Bedow.
The judge said there are just too many inconsistencies in the various leases that want to be part of the class action, and that the fairest way to treat this is if each party litigates its own separate lawsuit against SWEPI. So, landowners are not out in the cold, they can still sue individually. However, what could have been a much easier (and less costly) situation for landowners just became harder. Ultimately the landowners collectively could not prove to the judge that they deserved to have a class action in this particular case.
A Pennsylvania federal judge has decertified a class of landowners in a suit alleging a Royal Dutch Shell unit failed to pay required bonuses on oil and gas leases, deciding that some of the leases presented complicating circumstances that made class certification inappropriate.
U.S. District Judge Susan Paradise Baxter said Sunday that cracks had formed in the plaintiffs’ position that individual leases would not have to be examined because the company “had an absolute and unconditional obligation to pay the bonus money.” Shell subsidiary SWEPI LP had argued certification of a class covering the nearly 300 leases at issue was improper because there are a slew of individual arguments about its obligation to pay bonuses.
The judge agreed that a closer look into the details was required and said allowing class members to pursue their claims individually is the most feasible alternative.
“SWEPI has potentially viable defenses related to title issues, requests by certain class members that their leases be surrendered, the failure of certain class members to present their drafts for payment and impossibility of performance,” the order said. “Plaintiffs cannot establish classwide liability based on the fact of nonpayment alone, as they originally asserted when the class was certified.”
The order added, “Because most of the common issues identified at the time of class certification have now been resolved, it cannot be said that common issues still predominate over individual issues at this stage of the proceedings.”
In April 2018, the previous judge on the case, U.S. District Judge Joy Flowers Conti, said the documents between SWEPI and the landowners that included an agreed-upon bonus constituted an enforceable contract. Judge Conti, however, denied a summary judgment bid by the landowners that sought a finding SWEPI had breached the lease agreements on a classwide basis.
Judge Conti had agreed with SWEPI that a clean title on the property being leased was a condition of payment and that the company had evidence there were title defects among several disputed leases, potentially excluding some class members.
For example, in more than 100 instances, SWEPI said there were issues with titles that had serious defects. There was disagreement between the landowners and SWEPI over whether the number was 24 or 115.
Judge Baxter said that as the court weighed the evidence, the energy company’s higher number was likely the right one. But the debate over these titles and other issues is evidence that class certification may be improper, the court said.
“Because SWEPI’s ‘pervasive’ title-related challenges to the class claims cannot be definitely resolved through evidence common to the class, the predominance requirement is no longer satisfied,” the order said.
Judge Baxter also denied the landowners’ bid for summary judgment, which asked the court to award between $17.7 million and $34.4 million, depending on how many of SWEPI’s arguments the court credited. There was too much evidence in dispute for such a quick win, according to the order.
Named plaintiff Thomas J. Walney first sued SWEPI and its general partner, Shell Energy Holding GP LLC, in Pennsylvania state court in 2013, alleging he was never paid his bonus and asserting breach of contract, fraud and other claims. The case was removed to federal court and breach of implied contract and unjust enrichment claims were eventually added, according to the opinion. In an amended complaint, Rodney A. Bedow was added as a named plaintiff.
In 2015, Judge Conti certified on the breach of contract claims a class of landowners who had inked oil and gas leases with SWEPI since 2009 and received a bank draft instrument in exchange but were never paid their bonus.
Joseph E. Altomare, an attorney for the landowners, said he was in the process of appealing the decision.
A representative with SWEPI did not immediately return a request for comment.*
*Law360 (Apr 2, 2019) – Pa. Landowners Lose Class Status In Shell Oil Lease Suit
The judge’s opinion, which outlines the history of the case and why she ruled the way she did regarding class action:
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