United States District Court, M.D. Pennsylvania
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 ...