United States District Court, M.D. Pennsylvania
D. Mariani United States District Judge.
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
[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).
following reasons, Plaintiffs Motion will be denied.
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").
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).
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.
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).
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).
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
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).
August 30, 2018, Plaintiff and Plaintiff's counsel filed
the Motion at issue here for establishment of a common
benefit fund. (Doc. 75).
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).
Contentions of the parties
Plaintiff's Assertions in Support of his Motion for an
Order Establishing a Common Benefit Fund
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).
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
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.
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).
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).
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.
and Plaintiffs counsel summarize their theory in support of
their Motion for the Establishment of a Common Fund as
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
(Id. at 10)(emphasis in original).
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.).
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
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).
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.
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).
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).
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).
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.
Defendants' Responses to Plaintiff's Motion
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.).
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.).
then sets forth its reasons why the motion of Plaintiff and
Plaintiffs counsel should be denied. First, BKV argues that
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