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Slamon v. Carrizo (Marcellus) LLC

United States District Court, M.D. Pennsylvania

August 22, 2019

JAMES SLAMON, Plaintiff,
v.
CARRIZO (MARCELLUS) LLC, et al., Defendants.

          MEMORANDUM OPINION

          Robert D. Mariani United States District Judge.

         I. Introduction

         Presently before the Court is the Motion of Plaintiff James Slamon and Plaintiffs counsel LeVan Law Group and Berger Montague PC (collectively "Class Counsel") seeking an Order from this Court establishing a Common Benefit Fund (Doc. 75). Specifically, Plaintiff and Plaintiff's counsel assert that:

[b]ased on Class Counsel's efforts in pursuing this Action, and in an attempt to release the claims brought in this case, Defendants BKV Chelsea LLC and BKV Operating LLC (collectively, "BKV") have made individual settlement offers to hundreds of putative Class Members which, in the aggregate, constitute many millions of dollars. Unless the Court orders the creation of a common benefit fund, putative Class Members who accept the BKV offer will have reaped the benefits of Class Counsel's years of effort without paying their fair share of the costs and fees associated with the litigation.

(Id. at 1-2). Accordingly, Plaintiff and Class Counsel request that the Court enter an Order:

(i) establishing a common benefit fund to compensate Class Counsel for services rendered and to reimburse them for expenses incurred in conjunction with services benefitting putative Class Members who received and accepted a settlement offer from BKV in exchange for releasing claims brought in this class action; (ii) directing Defendants, including in particular BKV, to hold back and set aside (a) 33 1/3% of any settlement payment (whether or not characterized as a "signing bonus") to any putative Class Member, for common benefit attorneys' fees; and (b) an additional 1 2/3% of any settlement payment (whether or not characterized as a "signing bonus") to any putative Class Member for common benefit costs and expenses incurred by Class Counsel herein; and (iii) directing Defendants to place the held-back and set-aside amounts into a "common benefit trust fund" established and maintained by Class Counsel, or by another escrow agent as directed by the Court.

(Id. at 2).

         For the following reasons, Plaintiffs Motion will be denied.

         II. Procedural History

         In this action, Plaintiff James Slamon claims that he and other similarly situated individuals were paid royalties on their oil and gas leases that were improperly calculated by Defendants, Reliance Marcellus II LLC, Reliance Holdings USA, Inc., (collectively "Reliance"), and Carrizo (Marcellus) LLC ("Carrizo").

         On October 3, 2016, Slamon filed a five-count Complaint in the Court of Common Pleas of Susquehanna County, Pennsylvania seeking declaratory relief for breach of the terms of the Lease (Count I) and alleging breach of contract (Count II), breach of contract through a breach of the implied duty of good faith and fair dealing (Count III), and breach of fiduciary duty (Count IV), and requesting an accounting (Count V). (Doc. 1, "Tab A"; see also, Doc. 1-1). Defendants removed the case to this Court on October 31, 2016. (Doc. 1, at 1-6). Thereafter, Carrizo and Reliance filed separate motions to dismiss (Docs. 15, 17) which this Court by Opinion and Order (Docs. 30, 31) filed September 5, 2017 granted in part and denied in part. The Court granted Defendants' motions to dismiss Count IV of Plaintiffs Complaint and Plaintiffs breach of fiduciary duty claim found in Count IV of his Complaint was therefore dismissed with prejudice. In all other respects, the Court denied Defendants' Motions to Dismiss. (See Doc. 31).

         By Order dated June 15, 2018 (Doc. 46), the Court granted Plaintiffs unopposed Motion for Leave to File and Amend Complaint (Doc. 45). In that same Order, the Court ordered that it would schedule an evidentiary hearing to address Plaintiffs Motion for Expedited Emergency Relief Pursuant to Federal Rule of Civil Procedure (Doc. 43) upon receiving notice that all parties had been served with the Plaintiffs Amended Complaint which added BKV Operating LLC and BKV Chelsea LLC (collectively "BKV") as defendants in this case as successors-in-interest to the original defendants' rights under the putative Class Members' Paid Up Oil and Gas Leases. (See Pl.'s First Am. Compl. (Doc. 47)).

         Service of Plaintiff's Amended Complaint upon all Defendants was effected as confirmed in Plaintiffs counsel's letter to the Court dated June 16, 2018. (Doc. 48). Thus, by Order dated June 21, 2018, (Doc. 49), the Court scheduled an evidentiary hearing to be held on Plaintiffs Motion for Expedited Emergency Relief Pursuant to Federal Rule of Civil Procedure 23(d). The evidentiary hearing was held on June 27, 2018, and on that date, this Court ordered Defendants to file a brief in response to Plaintiffs Rule 23(d) Motion, required Plaintiff to file a brief in reply thereto and further ordered the following:

3. The parties shall make every good faith effort to agree upon the text of a proposed curative notice to putative class members, without reference to which party may send the proposed notice, which is an issue reserved for the Court. The parties shall inform the Court of whether they have reached an agreement as to the text of a proposed notice, and if so, include the text of the proposed notice, in a letter to the Court by Thursday, July 5, 2018.
4. Defendants shall not effectuate any Release of Claims and/or Lease Amendment and Ratification materials executed by putative class members that Defendants have received, or any such materials that Defendants may receive, prior to the Court's ruling on Plaintiffs Rule 23(d) Motion (Doc. 43).

(Doc. 51, at ¶¶ 3, 4).

         On July 10, 2018, Class Counsel informed the Court via letter that Plaintiff and BKV had agreed upon the text of a proposed curative notice to putative class members (Doc. 58) and attached the agreed-upon language thereto (Doc. 58-1).

         After briefing by the parties, this Court, by Order dated July 27, 2018, granted as modified Plaintiffs Motion for Expedited Emergency Relief Pursuant to Federal Rule of Civil Procedure 23(d) and ordered the Defendants BKV Operating LLC and BKV Chelsea LLC to provide Plaintiffs counsel with the identity of all putative class members to whom BKV sent the disputed communication at issue in Plaintiffs Motion and a copy of such communications. (Doc. 65; see also, Doc. 64). In addition, the Court ordered BKV to send the proposed curative notice as set forth in Doc. 58-1 in full to all putative class members to whom BKV had sent the disputed communication at issue in Plaintiffs Motion, except that the deadline for responding to BKV's settlement offers was extended to August 31, 2018. The Court further ordered that "[a]ll other aspects of the proposed curative text (Doc. 58-1) shall remain the same." (Doc. 65, ¶ 1(b)). The Court's Order also provided:

c. Any previously executed cover letter, Full and Final Release, and/or Lease Amendment and Ratification (the "Materials") that any putative class member executed and returned to BKV is hereby declared not enforceable unless and until the class member re-signs and returns the Materials after receipt of the proposed curative notice.
d. All parties are hereby enjoined from sending any misleading or materially incomplete communications to putative class members in the future.
2. For the reasons set forth in the accompanying memorandum opinion [Doc. 64], parties may continue to engage in communications with putative class members that occur in the ordinary course of business, such an annually scheduled "Landowner Town Hall Meetings." Docs. 62, 63. However, parties shall be prohibited from engaging in any misleading or confusing communications regarding the pending action, including, but not limited to, discussing any potential settlement offers without referencing putative class members to the curative notice to be sent by BKV.

(Id. at ¶ 1(c-d); ¶ 2)(emphasis in original). The Court thereafter approved (Doc. 67) an unopposed request for two non-substantive changes to the curative notices as set forth in a letter of August 2, 2018 to the Court from counsel for the BKV Defendants (Doc. 66).

         On August 30, 2018, Plaintiff and Plaintiff's counsel filed the Motion at issue here for establishment of a common benefit fund. (Doc. 75).

         On March 4, 2019, the Court granted a concurred-in motion by Plaintiffs counsel (Doc. 90) for an amendment to the scheduling order which provided, inter alia, that Plaintiffs Motion for Class Certification shall be due on July 15, 2019, with Defendants' responses to be due on September 3, 2019, and Plaintiffs reply to be submitted by October 21, 2019. (Doc. 91). On July 15, 2019, Plaintiff filed his first "Motion for Class Certification", moving for class certification pursuant to Federal Rule of Civil Procedure 23(a), 23(b)(2) and 23 (b)(3). (Doc. 96).

         III. Contentions of the parties

         A. Plaintiff's Assertions in Support of his Motion for an Order Establishing a Common Benefit Fund

         Plaintiff and Class Counsel found this Motion on what they describe as a federal court's "equitable powers" to grant an attorney's fee award in the circumstance where a successful litigant has, through its efforts, conferred a common benefit upon other individuals who are not participants in the litigation. Thus, Plaintiff, in the brief in support of the motion states: "[i]ndeed, under the exercise of its equitable powers, a federal court may fashion an attorney's fees award to successful litigants who confer a common benefit upon a class of individuals not participating in the litigation." (Doc. 75-2, at 2). In support of this assertion, Plaintiff cites Polonski v. Trump Taj Mahal Associates, 137 F.3d 139, 145 (3d Cir. 1998) and Mills v. Electric Auto-Lite Company, 396 U.S. 375, 391-392, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970). (Id.).

         Plaintiff argues that "[i]t is beyond dispute that Class Counsel have been actively engaged with Defendants Carrizo (Marcellus) LLC ("Carrizo"), Reliance Marcellus II LLC and Reliance Holdings USA (collectively, "Reliance") for a substantial amount of time, having litigated this Action since October 2016. Class Counsel have spent considerable resources examining every potential facet of this case - investigating the claims, successfully opposing motions to dismiss, conducting fact discovery, retaining experts, and researching potential damages for putative Class Members." (Id. at 2-3). Thus, Plaintiff argues that "[c]ourts have routinely implemented common benefit funds because of the potential for non-parties to the litigation to ride the coat-tails of the attorneys who have expended significant efforts litigating this case." (Id. at 3). Plaintiff asserts that Defendant BKV has made "substantial individual settlement offers to hundreds of putative Class Members" thus creating what Plaintiff terms an "actual risk" that these settlement offers create "a free rider" who settles his or her own claims to avoid paying for the work done by Plaintiffs counsel. (Id.).

         Plaintiff notes that after conducting investigation and research, Class Counsel, on October 3, 2016, filed a Complaint on behalf of Plaintiff Slamon and further states that the Complaint was on behalf of "a proposed Class consisting of '[a]ll persons or entities who own property within the Commonwealth of Pennsylvania and who are, or have been, a royalty owner under a Paid Up Oil and Gas Lease with Defendants in which natural gas has been produced under the lease (the 'Class')." (Id. at 4). Plaintiff then states that he opposed motions to dismiss filed by Carrizo and Reliance, has served written discovery, including interrogatories and document requests on both Carrizo and Reliance and has engaged in additional discovery with respect to non-party DTE Energy Holdings, Inc., the broker through which Carrizo and Reliance purportedly sold gas produced on Plaintiffs property as well as the properties of the putative Class Members. (Id. at 5). Plaintiff also notes that on September 5, 2017, this Court issued a Memorandum Opinion denying Carrizo's and Reliance's motions to dismiss with the exception of Plaintiffs breach of fiduciary duty claim set forth in Count IV which was dismissed. (Id.).

         Plaintiff asserts that following his "successful opposition" to the motions to dismiss, "Class Counsel continued to vigorously pursue discovery from Defendants Carrizo and Reliance." [Id. at 6). Plaintiff further states that when Class Counsel learned of the acquisition by BKV of Carrizo's and Reliance's rights under the leases at issue, and that Carrizo had communicated with putative Class Members requesting consent to an assignment of their respective leases to BKV with a ratification of any prior assignments, including the Carrizo assignment to Reliance, that Class Counsel was successful in: obtaining a copy of the BKV Assignment Agreement; obtaining concessions from both Carrizo and Reliance that they would not interpret the ratification provision in the BKV assignment to impair any rights of Plaintiff or any putative Class Member; and obtained a redacted copy of the Purchase and Sale Agreement between BKV and Carrizo and Reliance. (Id. at 7).

         Thus, Plaintiff argues:

In short, up until the time when BKV made individual settlement offers to hundreds of putative Class Members, Class Counsel had, on behalf of Mr. Slamon and the proposed Class, vigorously pursued the claims at issue in this case, survived a motion to dismiss, and spent hundreds of thousands of dollars in time and out-of-pocket expenses positioning the case for success.

(Id. at 8).

         Next, Plaintiff asserts that when BKV "sent letters to hundreds of putative Class Members offering a 'signing bonus'" and requested that the putative Class Member either sign a Lease Amendment and Ratification and a Full and Final Release of all claims, including those in the action before this Court, or only a Release without a Lease Amendment, that the efforts by Defendants to obtain either the Lease Amendment and Ratification with a Full and Final Release of all claims or a Release without a Lease Amendment from the putative Class Members were the direct result of Plaintiff counsel's efforts in this case.

         Plaintiff and Plaintiffs counsel summarize their theory in support of their Motion for the Establishment of a Common Fund as follows:

In essence, the putative Class Member is releasing the exact claims at issue in this case that have been vigorously pursued by Plaintiff and Class Counsel for nearly two years. The consideration for giving up these claims against BKV, Carrizo, and Reliance is, according to the terms of the Release, "TEN DOLLARS ($10.00)," but, in reality, is the "signing bonus" monies, which range from $100 to more than $260, 000. There can be little doubt that the "signing bonus" is exactly what it appears to be - a settlement offer to settle the claims in the instant case.

(Id. at 10)(emphasis in original).

         Plaintiff makes a similar argument for those putative Class Members who received an offer that included an Amendment in addition to the Release, arguing that "while the Release addresses all claims brought in this action but in particular the royalty underpayment contentions, the Amendment also addresses the valuation contentions that have been vigorously pursued by Plaintiff and Class Counsel." (Id. at 11). Plaintiff notes that the settlement offers to putative Class Members who were sent the Amendment in addition to the Release "range from several hundred dollars to more than $460, 000." (Id.).

         Based on the above-stated assertions, Plaintiffs motion requests that the Court establish a common benefit fund for the payment of attorney's fees and expenses from individual settlements. Plaintiff, citing the decisions in Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1881); Central Railroad & Banking Co. v. Pettus, 113 U.S. 116, 5 S.Ct. 387, 28 L.Ed. 915 (1885); Sprague v. Ticonic National Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939); Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); and Hall v. Cole, 412 U.S. 1, 93 S.Ct. 1943, 36 L.Ed.2d 702 (1973), then argues:

The common benefit doctrine recognizes the federal courts' inherent authority to prevent unjust enrichment by those who benefit from the efforts of counsel in class proceedings and similar litigation, whose risk, investment, and effort generates, enhances, or protects a fund or benefit enjoyed by such beneficiaries.

(Doc. 75-2, at 12). Plaintiff, citing Hall v. Cole, supra, states that the "origins of this doctrine can be traced to the common fund rule whereby those who share in a fund must participate in paying attorney's fees when a prevailing plaintiff's litigation redounds to the benefit of the common fund." (Id. at 12-13). Plaintiff also cites to Polonski v. Trump Taj Mahal Associates, arguing that "[a]s the Third Circuit held in Polonski, under the exercise of its equitable powers, a federal court may fashion an attorney's fees award to successful litigants who confer a common benefit upon a class of individuals not participating in the litigation." (Id. at 13-14).

         After setting forth the criteria established by the Third Circuit in Polonski for determining whether a fee award is appropriate under the common benefit doctrine, Plaintiff notes that "[w]hether a plaintiff is entitled to an award of attorney's fees and expenses under the common benefit doctrine is left to the discretion of the district court." (Id. at 14)(citing Hall, 412 U.S. at 15).

         Plaintiff argues that the work performed by Class Counsel satisfies the "three-part test" set forth in Polonski lor an award of attorney's fees under the common benefit/common fund analysis.

         First, Plaintiff argues that "Class Counsel's efforts spanning nearly four years in investigating, researching, and litigating the facts and legal claims at issue have resulted in the substantial settlement offers made by BKV to putative Class Members." (Doc. 75-2, at 15). Plaintiff argues that "[n]ow, after successfully opposing multiple motions to dismiss and with the evidence developed and collected as the result of Class Counsel's efforts in this Action over multiple years, BKV has presented all (or nearly all) putative Class Members with de facto settlement offers, despite almost none of them having initiated their own litigation against Carrizo, Reliance, or BKV." (Id. at 15-16). Plaintiff argues that in the absence of the current litigation before this Court "there is simply no reason to believe BKV would have offered multiple millions of dollars to settle these claims, regardless of BKV's characterization of the offers as a 'signing bonus'." (Id. at 16).

         Second, Plaintiff argues that the members of the class to whom Class Counsel has provided this benefit "is easily identifiable and ascertainable", reasoning that BKV had sent individual settlement offers to hundreds of putative Class Members and has produced copies of each of the original communications. (Id. at 16-17).

         Third, Plaintiff argues that because BKV has a "discrete list of individual putative Class Members that have accepted the BKV offer and the exact amounts of those settlements, the Court has a reasonable basis to spread the costs of the litigation to those settling putative Class Members and to do so in a proportionate manner by ordering BKV (or any other Defendant who directly or indirectly funds the settlement payments) to hold back a set percentage of each individual settlement for a determination of an appropriate attorneys' fee and allocation of expenses." (Id. at 17).

         Finally, Plaintiff in his brief in support of the motion stresses that "Class Counsel requests only that these funds be withheld at this point, not awarded and paid to Class Counsel." (Doc. 75-2, at 19). Plaintiff adds that the common benefit fund whose establishment Plaintiff and Class Counsel request is "not a guarantee that Class Counsel be paid any set amount" adding that no amounts will be disbursed without a review and approval by the Court. (Id.).

         B. Defendants' Responses to Plaintiff's Motion

         In response, each Defendant has filed a brief in opposition to Plaintiffs motion. The brief of Defendants BKV Operating LLC and BKV Chelsea LLC (Doc. 77) begins with the assertion that "BKV purchased a number of the leases at issue in this case from Defendants Carrizo and Reliance after this lawsuit had already been filed. When BKV first contacted lessors, it was not a party to this action." (Id. at 1). BKV acknowledges that it sought to renegotiate that section of the lease agreement to which various lessors are or were a party which addresses how the price paid to lessors for oil and gas extracted from the wells established under the leases is calculated. Likewise it acknowledges that it offered to pay lessors money in exchange for a lease amendment and release of past claims. (Id.).

         Then, characterizing Plaintiff and Class Counsel as engaging in a "blatant money grab", BKV argues that Plaintiff and Class Counsel are attempting to deprive those Pennsylvania lessors with whom BKV has entered into settlements of the benefit of the bargain they reached. Specifically, BKV argues that Class Counsel is attempting to force the lessors and BKV to place 35% of all funds BKV agreed to pay the lessors into a "Common Benefit Fund." (Id.).

         BKV then sets forth its reasons why the motion of Plaintiff and Plaintiffs counsel should be denied. First, BKV argues that if it

completes its settlement with potential class members before class certification, then the Court is without jurisdiction to order the recipients to contribute a portion of their payments to compensate Class Counsel. In other words, because there has been no class certification and the potential class members do not have individual lawsuits pending before the Court, the Court does not have authority to order that the ...

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