CHAPTER 15 SPECIAL ROYALTY LITIGATION ISSUES: CLASS ACTIONS
| Jurisdiction | United States |
(Sept 2003)
SPECIAL ROYALTY LITIGATION ISSUES: CLASS ACTIONS
Amanda Catlin
Thompson & Knight L.L.P.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
(214)969-1239
Table of Contents
I. Introduction
II. Theoretical Basis for the Class Action Lawsuit
A. Advantages of Class Actions
B. Disadvantages of Class Actions
C. Anatomy of a Class Action
D. Alternatives to the class action for the royalty owner
III. Problems with Litigating Individual Contracts in a Class Action
A. Carrell's Arguments Against the Propriety of Class Actions for Royalty Litigation
B. McArthur's Arguments in Favor of the Propriety of Class Actions in Oilfield Litigation
C. A Comment on the Conceptual Problems
D. Case Law Developments in Litigating Individual Contracts
[1] Louisiana
[2] Texas
[3] Oklahoma
[4] Arkansas
[5] Fifth Circuit Court of Appeals
IV. Conflict of Laws Issues
———————
[Page 15-ii]
SYNOPSIS
V. Ethical Considerations in Royalty Class Actions
A. Settlements
[1] Standards for Approving Class Actions for Settlement
[2] Ethical Concerns in Settlements
B. Other Conflicts between Attorneys and Class Members
VI. Conclusion
———————
[Page 15-1]
I. Introduction
Once used primarily in federal practice for antitrust, securities, civil rights, and employment law claims, class actions lately have become fashionable in oil and gas litigation. Oil and gas plaintiffs and their lawyers have learned to use the class action device to combine the claims of thousands of royalty owners across a state or a country in one forum. A class action can allow plaintiffs to use the power of aggregation to pursue a number of small claims that could not economically be pursued on an individual basis. But that same power can lead to abuses. Some class actions serve only to exaggerate weak claims, unfairly enhance the settlement value of otherwise questionable cases, or compromise the defendant's ability to raise what would be valid defenses to individual claims.
The oil and gas class action cases of the recent past often involve diverse plaintiffs, multiple defendants, and center around multiple individual contracts. The certification decision in these cases usually focuses on the question of whether individual or common issues predominate.
Opinions from the Third, Fifth, Sixth, Seventh, Ninth, and Eleventh Circuits in the last few years demonstrate a renewed vigor in reviewing class certification orders. 1 . The vast majority of states have now adopted Federal Rule 23 verbatim or in a modified form. But although the state and federal courts are now generally aligned regarding the standards governing class action certification, the application of those standards can vary by jurisdiction.
[Page 15-2]
This article discusses class action theory, conceptual issues with applying class action treatment to broad classes of royalty owners, conflict of law issues, and ethical considerations in class actions. This article also samples relevant case law from various jurisdictions.
II. Theoretical Basis for the Class Action Lawsuit
Plaintiffs argue that the class action is the only practicable way for royalty owners to join together and level the frequent imbalance of power and information between oil companies and the various individuals and companies with whom they deal. "The aggregation of claims gives the class a 'more powerful litigation posture' than individual suits."2
A class action "provides a means by which, where a large group of persons are interested in a matter, one or more may sue or be sued as representatives of the class without needing to join every member of the class."3 When obtaining relief is not economically feasible within the traditional framework of multiple, small, individual suits for damages, class actions furnish an efficient means for numerous claimants with a common complaint to obtain a remedy. For instance, it would be too expensive for royalty owners with royalties of less than $100 a year to pursue their claims individually.4 "But, there is no 'right' to litigate a lawsuit as a class action."5
The primary objectives of class actions are promoting judicial economy and efficiency, protecting defendants from inconsistent verdicts, protecting the interests of absent class members, providing access to judicial relief by small claimants, and enforcing laws through private attorney general suits.6 The class action is a procedural device intended to advance
[Page 15-3]
judicial economy; it is not intended to alter parties' burdens of proof, right to a jury trial, or the elements of recovery.7
A. Advantages of Class Actions
More often than not, the advantages of class actions weigh heavily on the plaintiffs side. Among the benefits to the plaintiff class are a powerful litigation posture, tolling of the statute of limitations for absent class members, and a potential for increased attorneys' fees. 8 Class action lawsuits are necessary for plaintiffs who have a claim that would be economically impossible to pursue individually because either the claim is too small or the class member too poor.9 The increased potential recovery provides an incentive for the involvement of qualified lawyers and expert witnesses, and justifies committing more resources to the case.10 The statute of limitations is tolled for all of the members of the class upon the filing of the class complaint.11 Unnamed class members may be better protected from having to respond to certain discovery requests.12
And attorney fee awards may be increased because of the possibility of creating a common fund which includes the combined damage claims of many plaintiffs.13 As a result, many class actions are settled so defendants may avoid the tremendous liability exposure attendant to class actions.14 A class action suit provides some advantages from a defendant's perspective as well.
Defendants may avoid multiple trials held over long periods of time in different jurisdictions, and can settle the entire controversy in a single suit.15 Also, if defendants receive a favorable ruling,
[Page 15-4]
that ruling binds all members of the class and limits the amount of future litigation over the same dispute.
Through a single class action a defendant may be able to avoid a risk of collateral estoppel or res judicata that might arise from losing one of a series of multiple individual suits. For example, imagine a producer sued in multiple suits by royalty owners complaining of the fact that it markets its gas through an affiliate. If the producer loses any of those suits, other plaintiffs may try to assert that the producer is collaterally estopped from relitigating its liability. If the producer is successful in such a suit, the other plaintiffs will not be bound by the result since they were not parties to the case. Combining all of the common claims in one class proceeding eliminates this risk, since everyone is now a party to the same case and all will be bound by the result.
In general, however, most defendants oppose class certification of numerous claims in the plaintiffs chosen forum, unless certification is sought in order to give binding effect to a settlement.
B. Disadvantages of Class Actions
Many of the considerations that work to the plaintiffs' benefit in class actions are in turn disadvantages to defendants. For example, the increased exposure to liability that is an advantage to plaintiffs is one of the most important disadvantages to defendants of class action suits.16 In fact, the small size of the individual claims often makes it unlikely that the defendant would be sued at all if not for the class action.
Defendants suffer by having the statute of limitations tolled for the entire class. 17 In addition, the fact that certain kinds of discovery may be limited to named class members may, in effect, curtail a defendant's ability to obtain necessary information for its defense. 18 This is particularly true where a class has been certified even though the representative's claims are not the same as those of some of the unnamed class members.19
It has been recognized by the Fifth Circuit that class certification in mass tort class actions "dramatically affects the stakes for defendants."20 Although the claims against the
[Page 15-5]
defendant may lack merit, there is strength in numbers.21 The outcome of a trial may be skewed because the collection of claims makes it more likely that a defendant will be found liable and that the damage award will be greater.22 Furthermore, class certification creates a great deal of pressure on defendants to settle.23 Even if the chances of a favorable verdict are high, the risk of facing an "all-or-nothing verdict" is too great. 24 Other major disadvantages include the adverse publicity that results from class action suits and the exorbitant costs of class action litigation.
There are also potential disadvantages to the plaintiffs in a class action lawsuit. Once a court certifies a class action, the case will define the rights of all members of the class. Class members lose control over their rights, and they may find their claims settled or mismanaged, with no power of correction other than opting out of the litigation. 25 Also, the class action structure has often produced satellite attorneys' fees litigation prompted by concerns over lawyers receiving too large a share from the settlement or receiving a huge fee with little benefit to the class.26
The chief procedural advantage of the class action to the judicial system is supposed to be efficiency in resolving similar disputes by numerous plaintiffs in one forum. However, there is the potential for even that advantage to be lost when there are multiple class actions filed. Plaintiffs lawyers might file conflicting statewide or multi-statewide actions in different jurisdictions asking for classes to be certified which include...
To continue reading
Request your trial