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Roco, Inc. v. EOG Resources, Inc.

United States District Court, D. Kansas

October 24, 2014

ROCO, INC., on behalf of itself and all others similarly situated, Plaintiffs,
v.
EOG RESOURCES, INC., Defendant.

MEMORANDUM AND ORDER

JULIE A. ROBINSON, District Judge.

This putative class action was removed in March 2014 from the District Court of Seward County, Kansas. The Second Amended Complaint ("SAC") alleges that Defendant EOG Resources, Inc. ("EOG") underpaid Kansas and Oklahoma royalty owners of EOG-operated gas wells. This matter is before the Court on the following motions: Defendant's Motion for Partial Judgment on the Pleadings (Doc. 22); Sonya Smith's Motion to Intervene as Named Plaintiff (Doc. 32); Plaintiff Roco Inc.'s Motion to Amend Complaint (Doc. 34); and Defendant's Motion to Sever and Transfer Oklahoma Claims to the Western District of Oklahoma (Doc. 24). These matters are now fully briefed and the Court is prepared to rule. For the reasons explained in detail below, the Court grants Smith's motion to intervene and Plaintiff's motion for leave to amend. The Court determines that these amendments render moot Defendant's motion for judgment on the pleadings. The Court further denies Defendant's motion to sever and transfer, as it finds that the requisite factors counsel against splitting this action into two cases located in two district courts.

I. Procedural and Factual Background

On December 22, 2008, Roco filed this suit in the District Court of Seward County, County, Kansas alleging claims on behalf of itself and all other similarly situated royalty owners of Defendant-operated gas wells in Kansas. Roco is a Kansas corporation and has a royalty interest in one EOG-producing well in Kansas; EOG sold its interest in the lease to a third party in April 2013. Roco alleges that EOG underpaid royalty owners by taking numerous deductions before the gas products were in marketable condition, and by not obtaining the highest and best reasonable price for all the constituents of the gas stream. Roco alleged that many of these deductions were not included on the royalty owners' check stubs so they were hidden.

The parties proceeded to conduct some limited discovery in 2009 and 2010 and the case appears to have been stagnant in 2011, 2012, and much of 2013. On November 6, 2013, Plaintiff sought leave to amend its petition to add a new putative subclass of royalty owners in EOG wells in Oklahoma. Defendant opposed the motion on grounds of undue delay, bad faith, and prejudice. It did not raise a futility argument. The state court granted leave to amend on February 7, 2014. The amended petition alleged nine claims for relief, several of which were brought under Oklahoma law and applied to the Oklahoma royalty owners only.

On March 3, 2014, EOG filed its Notice of Removal pursuant to the Class Action Fairness Act of 2005 ("CAFA").[1] Defendant alleged, inter alia, that "specifically, with the addition of putative class claims on behalf of Oklahoma royalty owners, the amount in controversy exceeds $5 million."[2] Plaintiff filed its SAC on April 17, 2014, defining the proposed Class as follows:

All royalty owners of EOG Resources, Inc. wells in Kansas or Oklahoma that were operated by or marketed and directly paid to royalty owners by EOG Resources, Inc. that produced gas, NGLs, Helium, or other constituents of the gas stream from January 1, 1993 to the date Class Notice is given.
Excluded from the Class are: (1) the Bureau of Ocean Energy Management, Regulation and Enforcement (f/k/a Minerals Management Service) (Indian tribes and the United States); (2) Any NYSE or NASDAQ listed company (and its affiliates) that are producing oil and gas companies; (3) Defendant, its affiliates, and employees, officers, and directors; and, (4) overriding royalty interests.[3]

The SAC alleges two claims: breach of the gas royalty leases under both Kansas and Oklahoma law, and breach of fiduciary duty under Oklahoma law. The parties agree that Count II applies only to those putative class members located in Oklahoma.

Within days of Plaintiff filing the SAC, Defendant filed its motion for partial judgment on the pleadings, in which it argues that Roco lacks standing to assert claims on behalf of royalty owners located in Oklahoma because it has suffered no injury in Oklahoma for which Oklahoma law could redress. Plaintiff argues that it has standing to assert claims on behalf of both Kansas and Oklahoma royalty owners. Nonetheless, Sonya Smith, a royalty owner of EOG-owned wells in Oklahoma seeks to intervene in this suit; Roco seeks leave to amend in order to add Smith as a Plaintiff. Roco argues that intervention and amendment render moot any standing challenge.

In the alternative to its motion for partial judgment on the pleadings, EOG moves for severance of the Oklahoma claims in this case and transfer of those claims to the Western District of Oklahoma. EOG contends that severance and transfer is warranted in this case based on a stipulation filed in a previously-dismissed putative class action filed by the same class counsel in the Western District of Oklahoma, as well as under 28 U.S.C. ยง 1404.

II. Standing, Intervention, and Leave to Amend

As a general rule, the court first addresses a motion for leave to amend because if leave is granted, the motion for judgment on the pleadings is moot. Defendant's motion for judgment on the pleadings in this case challenges Plaintiff's standing to assert the Oklahoma claims alleged. In its response to the motion for judgment on the pleadings, Plaintiff disputes that it lacks standing, but admits that the alleged standing problem is cured by allowing Smith to intervene on behalf of the Oklahoma royalty owners. Defendant contends that the Court should first decide the motion for judgment on the pleadings, which would render moot the motion to intervene and therefore Plaintiff's motion to amend because no remaining Oklahoma claims would exist in which to intervene.

Plaintiff's standing is properly challenged by a Rule 12(b)(1) motion because a party's standing implicates subject matter jurisdiction.[4] The standing requirement for a named plaintiff is no different in the class action context.[5] Generally, a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction takes one of two forms: a facial attack or a factual attack. "First, a facial attack on the complaint's allegations as to subject matter jurisdiction questions the sufficiency of the complaint. In reviewing a facial attack on the complaint, a district court must accept the allegations in the complaint as true."[6] "Second, a party may go beyond allegations contained in the complaint and challenge the facts upon which subject matter jurisdiction depends. When reviewing a factual attack on subject matter jurisdiction, a district court may not presume the truthfulness of the complaint's factual allegations. A court has wide discretion to allow affidavits, other documents, and a limited evidentiary hearing to resolve disputed jurisdictional facts under Rule 12(b)(1)."[7] Defendant's motion is a facial attack on the jurisdictional allegations in the SAC. Therefore, in considering the motion, the Court accepts the allegations in the SAC as true.

To establish Article III standing, a plaintiff must show: (1) injury in fact, (2) causation, and (3) redressability.[8] "To demonstrate an injury in fact, a plaintiff must demonstrate the "invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical."[9] Furthermore, "there must be a causal connection between the injury and the conduct complained of-the injury has to be fairly... trace[able] to the challenged action of the defendant, and not... th[e] result [of] the independent action of some third party not before the court."[10] Last, "it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision."[11] "[T]he injury must affect the plaintiff in a personal and individual way."[12]

Defendant argues that Roco lacks standing as to the Oklahoma claims because it is not a resident of Oklahoma, and therefore there is no alleged connection between Roco's injuries and EOG's alleged violation of Oklahoma law. Plaintiff argues that its injuries are the same as those of the Oklahoma royalty owners, which is sufficient to establish standing. Moreover, post-intervention and amendment, Plaintiff argues that Intervenor Smith is a resident of Oklahoma, whose injury arose from EOG's violation of Oklahoma law, and thus intervention would cure any alleged standing issue because a favorable decision under Oklahoma law would redress her injury.

Assuming without deciding that the "logically antecedent" exception does not apply under these circumstances and therefore the Court is required to consider Roco's standing before class certification, [13] the Court is compelled to find that Roco lacks standing to assert the Oklahoma claims in this action. Several courts, including other district courts in the Tenth Circuit, have determined that the plaintiffs in a putative class action "may only assert a state law claim if a named plaintiff resides in, does business in, or has some other connection to that state."[14] It is undisputed that Roco neither resides in, nor does business in, nor has any other connection to the state of Oklahoma. Nonetheless, the addition of Smith as a named plaintiff would clearly cure the standing issue because she is a resident of Oklahoma and a royalty owner of EOG-producing wells in Oklahoma. Defendant argues that intervention and amendment would not render moot its standing challenge because Smith lacks standing to represent the Kansas royalty owners in this matter. But Defendant cites no authority for the proposition that each representative Plaintiff must establish standing in a putative class action as to each and every claim asserted. Instead, "each claim must be analyzed separately, and a claim cannot be asserted on behalf of a class unless at least one named plaintiff has suffered the injury that gives rise to that claim."[15] As long as at least one plaintiff has standing with respect to each claim alleged in the proposed Third Amended Complaint ("TAC"), it will satisfy the injury requirement of standing.

In class actions, where a named plaintiff's individual claims fail or become moot for a reason that does not affect the viability of the class claims, courts regularly allow or order plaintiff's counsel to substitute a new representative plaintiff.[16] The general rule is that if Plaintiffs are without standing, then amendment would not be allowed, as a plaintiff "may not create jurisdiction by amendment when none exists."[17] Where the only named plaintiff in a putative class action lacks standing from the outset of the case, and a class is yet to be certified, the proper course is dismissal.[18]

But the Court finds that dismissal would not be warranted in this case without leave to amend. Plaintiff does not seek to substitute an entirely new party in order to create jurisdiction where none previously existed. Unlike the cases that dismiss for lack of standing before class certification, [19] all parties agree that the named Plaintiff in this case has standing to assert the claims made under Kansas law with respect to the Kansas royalty owners. Taking the allegations in the SAC as true, Roco was injured by this Defendant in the same exact way the Oklahoma royalty owners are alleged to have been injured-by taking certain deductions before the gas products were in marketable condition, and by not obtaining the highest and best reasonable price for all the constituents of the gas stream. And there is a pending motion to intervene that cures the standing problem on the Oklahoma claims. Indeed, in Thomas, the primary case relied upon by EOG on the standing issue, the claims brought under state laws other than each plaintiff's own state of residence were dismissed for lack of standing with leave to amend.[20] This Court has subject matter jurisdiction over this action under CAFA, as set forth by Defendant EOG in detail in its notice of removal, and Plaintiff's standing is unchallenged as to the Kansas claim in this case.[21] Because this Court does not lack jurisdiction at the outset of this action, it will consider the motion to intervene and motion for leave to amend before ruling on the motion for judgment on the pleadings.[22]

As described below, because the Court will allow Smith to intervene in this matter as a representative plaintiff, Defendant's motion ...


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