Abuse of Discretion and the Sliding Scale of Deference: Restoring the Balance of Power Between Circuit Courts and District Courts for Rule 23 Class Certification Decisions in Oil and Gas Royalty Litigation

• Author: David C. Miller
• Position: J.D. Candidate, The University of Iowa College of Law, 2018; B.A., Political Science and Religion, Baylor University, 2015
• Pages: 1811-1842

1811

Abuse of Discretion and the Sliding Scale

of Deference: Restoring the Balance of

Power Between Circuit Courts and District

Courts for Rule 23 Class Certification

Decisions in Oil and Gas Royalty

Litigation

David C. Miller*

ABSTRACT: Certifying a class is the first and most important step in

bringing a claim as a class action. For certain plaintiffs, especially those

suing on the basis of a contract like royalty owners of oil and gas leases, the

class action is the only practical means of bringing a claim against the oil

and gas production companies. In the past few years, the Supreme Court has

raised the standard for Rule 23 class certification requirements. Over the

same timeframe, circuits like the Fifth Circuit have reversed numerous orders

certifying classes. Royalty owners are especially susceptible to unfavorable

review because a reviewing court can point to minute differences within leases

as the reason why the class fails to satisfy Rule 23. Rather than focus on the

requirements of Rule 23, this Note examines the relationship between the

circuit and district courts and the standard of review that should govern the

circuit courts’ review of a certification order. There is a consensus that the

abuse-of-discretion standard applies to review of certification orders, but the

ambiguous definition of abuse of discretion has allowed circuit courts free

reign when reviewing classes. To maintain the class action as a managerial

tool for the district court, this Note proposes two solutions. First, the Note

explains that codifying the abuse-of-discretion standard in Rule 23 will

prevent circuit courts from circumventing the standard and push circuit

courts to treat abuse of discretion as an independent standard. Second, the

Note argues that each issue within the certification order falls somewhere

*

J.D. Candidate, The University of Iowa College of Law, 2018; B.A., Political Science and

Religion, Baylor University, 2015. I would like to thank the Editorial Board of Iowa Law Review

Volume 103 for their work on this piece. I would also like to thank my family, who has loved me

from afar for the past three years, and, more specifically, my mother, who has challenged me to

give my all in everything that I do and been my rock when I doubted that my all was enough.

1812 IOWA LAW REVIEW [Vol. 103:1811

along the abuse-of-discretion spectrum, and the Note provides examples from

royalty litigation to illustrate how the spectrum should operate. These steps

remedy the current imbalance of power between circuit and district courts

regarding the decision to certify a class.

I. INTRODUCTION ........................................................................... 1812

II.RULE 23, STANDARDS OF REVIEW, AND OIL AND GAS LEASES:

THE IDEAS BEHIND CERTIFICATION FOR ROYALTY OWNERS ....... 1814

A.CLASS ACTIONS AND THE REQUIREMENTS OF RULE 23 ............ 1815

1.The “Substantive” Requirements of Rule 23 ............. 1816

2.The “Procedural” Requirements of Rule 23 ............. 1819

B.FEDERAL APPELLATE STANDARDS OF REVIEW .......................... 1820

C.THE BASICS OF ROYALTY LITIGATION IN TEXAS OIL AND

GAS LAW .............................................................................. 1822

III.THE CIRCUIT COURTS’ UNDEFINED POWER OVER CLASS

CERTIFICATION ........................................................................... 1823

A.CHANCES OF CERTIFICATION: THE STATISTICS BEHIND THE

REVIEW OF CERTIFICATION ORDERS ........................................ 1825

B.DOES “ABUSE OF DISCRETION” HAVE ANY MEANING? ............. 1827

C.THE ROYALTY OWNER CLASS: IMPOSSIBLE TO CERTIFY? ......... 1830

IV. RESTORING THE DISTRICT COURT’S ROLE IN CERTIFICATION

BY RESTORING ABUSE OF DISCRETION ........................................ 1832

A.NOT NEGLECTING ABUSE OF DISCRETION: CODIFYING THE

ABUSE-OF-DISCRETION STANDARD .......................................... 1833

B.GIVING ABUSE OF DISCRETION MEANING: HOW THE

STANDARD MIGHT APPLY TO ROYALTY LITIGATION ............... 1838

V.CONCLUSION .............................................................................. 1841

I. INTRODUCTION

“Drill, baby, drill.”1

In recent years, domestic oil drilling has evoked strong opinions on both

sides of the issue, with the arguments stemming from environmental,

economic, or other reasons.2 No matter the position taken on the issues

1. Former Md. Lieutenant Governor Michael S. Steele, Speech at the 2008 Republican

National Convention (Sept. 3, 2008).

2. See, e.g., Jim Angle, Domestic Drilling Advocates Warn of Increased Global Demand for Oil, Dwindling

Supply, FOX NEWS (Mar. 26, 2012), http://www.foxnews.com/politics/2012/03/26/domestic-

drilling-advocates-warn-increased-global-demand-for-oil-dwindling.html (explaining the immediate

2018] ABUSE OF DISCRETION 1813

underlying domestic drilling, domestic drilling is a significant portion of our

economy.3 In fact, during the summer of 2014, the United States was the

“world’s largest oil producer.”4

The more domestic production of oil and gas, the more relationships

form between oil and gas production companies and the landowners where

the drilling takes place.5 The oil and gas companies compensate these

landowners through leases that pay royalties.6 While this contractual

relationship might seem straightforward, “underpayments are widespread,”

and “[t]housands of landowners . . . are receiving far less than they expected

based on the sales value of gas or oil produced on their property.”7 Royalty

owners have “few . . . protective mechanisms” to combat this practice by the

production company.8

The class action is an essential litigation technique for royalty owners

because it allows them “to pursue a number of small claims that could not

economically be pursued on an individual basis.”9 To proceed as a class,

royalty owners must satisfy Federal Rule of Civil Procedure 23, which lays out

the requirements that district courts follow when deciding whether to certify

a class or not.10 Convincing a district court to certify a class of royalty owners

is far from a guarantee, but even if certified, a class typically must survive

review by the circuit court on interlocutory appeal.11 The jurisdictions where

most oil and gas production occurs, the Fifth Circuit, and more specifically

need for domestic drilling); Jack Healy, North Dakota Oil Pipeline Battle: Who’s Fighting and Why, N.Y.

TIMES (Dec. 2, 2016), https://www.nytimes.com/2016/11/02/us/north-dakota-oil-pipeline-battle-

whos-fighting-and-why.html (explaining the dispute behind the proposed Dakota Access pipeline that

would run from North Dakota to Illinois); Alec MacGillis, How Obama Let Big Oil Drill in the Pristine

Alaska Wilderness, POLITICO (Dec. 21, 2015), http://www.politico.com/magazine/story/2015/12/

alaska-oil-drilling-lobbying-obama-213442 (explaining how ConocoPhillips obtained the right to drill

more extensively in Alaska in the National Petroleum Reserve despite previous efforts to protect the

environment).

3. See Chris Isidore, The Obama Oil Boom, CNN MONEY (Jan. 28, 2015, 4:32 PM), http://money.

cnn.com/2015/01/28/news/economy/obama-oil-boom (describing how oil production steadily

increased under President Obama’s administration).

4. Id.

5. See Abrahm Lustgarten, Unfair Share: How Oil and Gas Drillers Avoid Paying Royalties,

PROPUBLICA (Aug. 13, 2013, 10:20 AM), https://www.propublica.org/article/unfair-share-how-

oil-and-gas-drillers-avoid-paying-royalties (“Like every landowner who signs a lease agreement to

allow a drilling company to take resources off his land, Feusner is owed a cut of what is produced,

called a royalty.”).

6. Id.

7. Id.

8. Id.

9. Craig A. Haynes & Amanda Catlin, Special Royalty Litigation Issues: Class Actions, in

PRIVATE OIL & GAS ROYALTIES 15-1, 15-1 (Rocky Mountain Mineral Law Found., Mineral Law Ser.

No. 1, 2003).

10. See infra Part II.A.

11. See FED. R. CIV. P. 23(f) (allowing either party to petition the circuit court for review of

an order granting or denying certification within 14 days of the order).