Slamon v. Carrizo Marcellus LLC

          MEMORANDUM OPINION

          Robert D. Mariani United States District Judge.

         I. Introduction and Procedural History

         This matter is a putative class action concerning royalty payments made on oil and gas leases. Presently before the Court is Plaintiff's Motion for Expedited Emergency Relief Pursuant to Fed.R.Civ.P. 23(d) to correct communications sent by Defendants BKV Operating LLC and BKV Chelsea LLC (collectively "BKV") to putative class members. Plaintiff, James Slamon, claims that he and others similarly situated were paid royalties on their oil and gas leases that were improperly calculated by Original Defendants, Reliance Marcellus II, LLC, Reliance Holdings USA, Inc., (collectively "Reliance"), and Carrizo (Marcellus) LLC ("Carrizo"). Doc. 1. The Court granted in part and denied in part the Original Defendants' motion to dismiss the Plaintiffs complaint on September 5, 2017. Doc. 30. Plaintiff has also sought but has not been granted thus far class certification for similarly situated lessors of these Defendants.

         After the lawsuit was filed, BKV purchased a number of leases at issue in this case from Defendants Carrizo and Reliance. On June 14, 2018, Plaintiff filed the Motion for Emergency Relief after learning that BKV has contacted putative class members to renegotiate material terms in the leases at issue and to settle potential claims for damages. Doc. 43. Four days later, Plaintiff filed an Amended Complaint adding BKV as Defendants to the suit. Doc. 47. On June 27, 2018, this Court held an evidentiary hearing regarding Plaintiffs Motion, after which BKV and Plaintiff filed respective briefs. Docs. 56, 59. The Motion is now ripe for adjudication.

         II. Factual Allegations

         On June 7 and June 8, 2018, BKV sent a package of materials-including a cover letter, an Amendment and Ratification of Oil and Gas Lease, and a Full and Final Release (the "Materials") to 317 putative class members in this action, including Plaintiff James Slamon, seeking to renegotiate the valuation term in the leases and to release all potential claims against BKV in exchange for a "signing bonus." June 27, 2018 Hearing Stipulations (the "Stipulations"), ¶¶ 1, 3, 4. See also June 27, 2018 Hearing Exhibits 1 and 2 (BKV Materials sent to Plaintiff Slamon and putative class member Robert Coughlin). Other than the addressee's contact information and signing bonus figures, the materials are substantively identical. Stipulations ¶ 5. Under the terms of the materials, BKV's offer would expire on July 1, 2018. Id. ¶ 8. If the lessor executes the materials, BKV would have up to 60 days to send the signing bonus. Id. ¶ 9. The sums of the signing bonuses vary, but in most instances they are in the tens or hundreds of thousands of dollars. W. ¶ 10.

         Under the lessors' original lease terms, the valuation of their oil and gas production will be determined by the "greater of the prevailing market price or the price paid to the Lessee from the sale or use of the gas. Paragraph 4(f) of the leases, which provides valuation term in full, reads:

(f) Valuation. The value of oil, gas, or other hydrocarbon production shall be determined on the basis of the greater of (i) the prevailing local market price at the time of sale or use, or, NYMEX spot price as published at the time of safe, whichever is greater, or (ii) the price paid to Lessee from the sale or use of the gas, including proceeds and any other thing of value received by Lessee; provided, however, that when gas production is sold in an arms-length sale transaction with an unaffiliated third party, the value of such gas production shall be the price paid to Lessee.

Doc. 1 at 35. Under the terms of BKV's Materials, the italicized portion above would be removed, such that the lessee would only receive payment as determined by the "price paid to Lessee from the sale or use of the gas..." Stipulations ¶ 11. In addition to amending the valuation term, BKV's Materials, if executed, would also discharge potential claims against not only BKV, but also Carrizo and Reliance. Id. ¶ 13. However, BKV's materials did not mention the existence of this action. Hearing Exs. 1 and 2.

         At the time these materials were sent, BKV was not a party to this action, but was the direct successor-in-interest to Defendants Carrizo and Reliance for the leases at issue in this case. Id. ¶ 6. After learning of these communications, Plaintiff filed the instant motion and filed an Amended Complaint to add BKV as Defendants. Doc. 47. Plaintiff claims that the Materials sent to putative class members "misleadingly solicit a change to future rights under the Class Leases and a full release of the claims at issue in this class action, all without disclosing the existence of this class action, describing the Class Members' rights under the class action, or explaining Class Counsel's role in representing the interests of Class Members." Doc. 43 at 2.

         Plaintiffs motion seeks an order requiring BKV "(1) to identify all Class Members to whom the misleading communication was sent and provide Class Counsel with copies of all such communications; (2) authorizing Class Counsel to prepare and send a responsive communication to all Class Members, informing them of this class action, describing the nature of the legal claims Class Counsel is asserting on their behalves, and explaining the legal effect of executing any of the BKV documents; (3) declaring ail contract amendments, releases or other legal documents executed by any putative Class Member in response to the misleading BKV communication to be deemed void and legally unenforceable; and (4) enjoining BKV from sending any misleading or materially incomplete communication to Class Members in the future." Doc. 43 at 2-3.

         Upon receipt of Plaintiffs motion, the Court held an evidentiary hearing to develop the factual record on June 27, 2018. As of the evidentiary hearing, 16 lessors have executed and returned the Materials to BKV. Id. ¶ 7. While Plaintiffs Motion for Emergency Relief is pending, BKV has agreed to not send any signing bonuses for the executed Materials. Id. ¶ 14. At the conclusion of the hearing, the Court ordered the parties to file additional briefing and encouraged counsel to agree upon the text of a potential curative notice to be sent to those who received BKV's original Materials. Accordingly, in addition to filing their respective briefs, the parties also filed a letter on July 10, 2018 informing the Court that counsel have "agreed upon the text of a proposed curative to class members, without reference to which party may send the proposed notice." Doc. 58 at 1. The proposed curative notice includes three pages of text, including a description of the pending class action, contact information for Plaintiffs counsel, and an assurance that those who have already executed the Materials may have an opportunity to "reconsider" their decision, and that they would not be "bound by that prior decision of the signed Materials unless and until [they] re-sign and return the Materials again after [their] receipt of this letter." Doc. 58-1 at 1.

         III. Analysis

         Federal Rule of Civil Procedure 23(d) grants broad authority to a court overseeing a class action to issue orders to "determine the course of proceedings" or "impose conditions on the representative parties." Fed.R.Civ.P. 23(d). Because class actions "present opportunities for abuse as well as problems for courts and counsel in the management of cases...a district court has both the duty and the broad authority" to supervise communication between the parties and potential class members. Gulf Oil Co. v. Bernard,452 U.S. 89, 100, 101 S.Ct. 2193, 2200, 68 L.Ed.2d 693 (1981). "[A]n order limiting communications between parties and potential class members should be based on a clear record and specific findings that reflect a weighing of the need for a limitation and the potential interference with the rights of the parties." Id. at 101. "Only such a determination can ensure that the court is furthering, rather than hindering, the policies embodied in the Federal Rules of Civil Procedure, especially Rule 23." Id. at 101-02. "In addition, such a ...