John M. Duhe, Jr. v. Texaco, Inc.

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

08-655 C/W 08-656

JOHN M. DUHE, JR., ET AL.

VERSUS

TEXACO, INC., ET AL.

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APPEAL FROM THE
SIXTEENTH JUDICIAL DISTRICT COURT
PARISH OF IBERIA, NO. 86,848 C/W 88,707
HONORABLE WILLIAM D. HUNTER, DISTRICT JUDGE

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OSWALD A. DECUIR
JUDGE

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Court composed of Ulysses Gene Thibodeaux, Chief Judge, and Sylvia R. Cooks
Oswald A. Decuir, Judges.

AFFIRMED.

William Martin Hudson, III
Patrick B. McIntire
Lawrence E. Marino
Lisa A. Benefield
Oats & Hudson
Suite 400, Gordon Square
100 E. Vermilion Street
Lafayette, LA 70501
(337) 233-1100
Counsel for Plaintiffs/Appellees:
Katie Meranto
Lawrence Toups

Robert L. Theriot
Liskow & Lewis
First City Tower
1001 Fannin Street, Suite 1800
Houston, TX 77002
(713) 651-2957
Counsel for Defendants/Appellants:
Texaco, Inc.
Texaco Exploration & Production, Inc.

Joe B. Norman
Liskow & Lewis
701 Poydras Street, Suite 5000
New Orleans, LA 70139-5099
(504) 581-7979
Counsel for Defendants/Appellants:
Texaco, Inc.
Texaco Exploration & Production, Inc.

Vanessa W. Anseman
Liskow & Lewis
822 Harding Street
Lafayette, LA 70505
(337) 232-7424
Counsel for Defendants/Appellants:
Texaco, Inc.
Texaco Exploration & Production, Inc.

Charles Simon McCowan, III
Kean, Miller, Hawthorne, D’Armond,
McCowan & Jarman, LLP
P. O. Box 3513
Baton Rouge, LA 70825
(225) 387-0999
Counsel for Defendants/Appellants:
Texaco, Inc.
Texaco Exploration & Production, Inc.

DECUIR, Judge.

Texaco, Inc. appeals a January 24, 2008 judgment of the district court

certifying two consolidated actions as a class action under Louisiana Code of Civil

Procedure Articles 591- 597. The class that was certified is a sub-class in the same

litigation giving rise to our decision in Duhe v. Texaco, 99-2002 (La.App. 3 Cir.

2/7/01), 779 So.2d 1070, writ denied, 01-637 (La. 4/27/02), 791 So.2d 637. (Duhe I).

That decision concerned certification of a sub-class based upon underpayment of

royalties on oil production. The present action is very similar, but deals with claims

for underpayment of royalties based upon natural gas production.

The original plaintiffs in this case had their gas claims dismissed in federal

court. Texaco, Inc. v. Duhe, 274 F.3d 911 (5th Cir. 2001). Likewise, their claims

were dismissed in state court on the grounds of res judicata. Over Texaco’s

objection, the trial court allowed several amendments to the suit for the purpose of

adding new plaintiffs. The proposed class representatives, Katie Meranto (through

her grandson, Shane Boudreaux, to whom she granted power of attorney) and

Lawrence Toups are all who remain from those amendments.

The issue before us is whether the trial court correctly certified “Class III--Self

Serving Gas Allocations” as a class of royalty payees of Texaco, Inc .

The plaintiffs claim that Texaco leased their property, developed the 18 fields

at issue here, and built a pipeline system to transport gas. Texaco then, as marketer

of natural gas, sold gas through “warranty contracts” with industrial customers such

as Louisiana Power & Light (LP&L), thereby obligating Texaco to deliver fixed

amounts of gas at fixed prices. By entering into these “warranty contracts,” rather

than “dedication contracts,” where all gas from one field is dedicated to a specific

customer but no volume is guaranteed, Texaco gained a competitive advantage. In

1974, Texaco’s gas production was insufficient to meet its supply requirements under

the “warranty contracts.” Consequently, Texaco had to buy gas on the open market

in a time of rising gas prices. Accordingly, Texaco was losing money, purchasing gas

at approximately $1.90 per cubic foot and selling it at the contracted price of 30.14

cents per cubic foot. Consequently, Texaco decided to use all of the gas that it

produced to meet its “warranty contract” obligations. This meant that the plaintiff’s

gas which had not been dedicated to those contracts was now being sold at submarket

prices so that Texaco could cut its own losses. Thus, Texaco obtained a benefit at the

expense of its royalty owners. This conduct occurred prior to the enactment of the

Natural Gas Policy Act (NGPA) in 1978. The resulting underpayment of royalties is

the subject of this class action.

Texaco’s liability was discharged in bankruptcy for claims prior to 1988, and

all “warranty contracts” expired in 1992. Therefore, plaintiffs’ claims involve only

the period of time from March 23, 1988 through December 31, 1992. The class

claims that Texaco breached its legal duties both under the leases and under the

Louisiana Mineral Code, specifically La.R.S. 31:122, which requires Texaco, as a

mineral lessee, to operate the class members’ properties as a reasonably prudent

operator for their mutual benefit. The class representatives claim that it was

reasonable for all class members to rely on Texaco to pay royalties in accordance with

the legal obligations prescribed in the agreements, as governed by the Louisiana

Mineral Code and related jurisprudence. They further claim that Texaco consistently,

since 1988, violated its obligation to its royalty owners.

The trial court defined the class as:

Every private (non-public) juridical person (including, but not limited
to, natural persons, corporations, partnerships, trusts, limited liability
corporations, joint ventures, estates, guardians, tutors, etc.):

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(1) Who owned or owns royalty interest(s) in natural gas
production from real property located in the State of Louisiana during
any time from March 23, 1988, to date;

(2) Whose natural gas from such properties were, and/or are,
produced by Defendants, their wholly controlled entities, or others;

(3) Whose natural gas was transported, and/or, marketed through
Defendants, their wholly controlled entities’, or affiliates’ Louisiana
Industrial System;

(4) Whose royalty payments for such natural gas production at
any time from March 23, 1988, were calculated and/or made by
Defendants; and

(5) Whose royalty payments were based upon allocations to
contract prices contained in the Louisiana Power & Light Compromise
and Settlement Agreement with Texaco, dated June 4, 1982; and

(6) Whose royalty payments were based upon prices which were
below “market value” (the highest prices obtainable for natural gas of
like kind, character, and quality, at the times of production with
reasonable effort).

ASSIGNMENTS OF ERROR

Texaco assigns four errors which may be summarized in one. The certified

class does not meet the requirements of revised La.Code Civ.P. art. 591; where it fails

to meet the requirements of commonality, typicality, adequacy of representation,

predominance of common issues and superiority of a class procedure.

Four fundamentals guide our review of class certification cases; (1) the

standard of our review is abuse of discretion; (2) we are to be guided by the state and

federal jurisprudence interpreting Federal Rule 23 and our own law; (3) for purposes

of certification, a court is not permitted to review the claims in a case on their

substantive merits; and (4) the burden is on the plaintiffs to establish that the statutory

criteria for a class certification are met. Duhe v. Texaco, 779 So.2d 1070.

Louisiana Code of Civil Procedure Article 591(A) lists the five elements

required to certify a class action. We will address only those disputed by Texaco.

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COMMONALITY

Texaco contends that the trial court erred in certifying the class because there

is no question common to the class. We disagree.

The trial court found that whether Texaco owed a statewide duty to their

royalty owners according to the Mineral Code, whether it violated its duty by

allocating gas to the “warranty contracts” instead of selling at market price; whether

it violated its duty by failing to pay members for their share of production, and

whether it complied with its reporting duties with respect to prescription defenses

were, all common questions. In Duhe I, this court found, like the trial court, that the

questions of whether Texaco violated its statewide duty to its royalty owners under

La.R.S. art. 31:122 of the Mineral Code by failing to pay them properly for their share

of production, and whether Texaco complied with its reporting duties under La.R.S.

art. 31:212.31 were common questions. Likewise in this case, Texaco offers no

convincing reason that these common questions do not satisfy the commonality

requirement in this natural gas royalty litigation. We find no abuse of discretion in

the trial court’s determination that the commonality element is satisfied.

TYPICALITY

Texaco next contends that the trial court erred in finding that the claims or

defenses of the representative parties are typical of the claims or defenses of the class.

All that is required to meet the test for typicality is that the representative plaintiffs’

claims are based on the same legal theory and arise out of the same event as the rest

of the class. Id.

In this case, both of the representatives share with each other and with the

absent members the same interests as royalty payees. All were paid their royalty

share by Texaco based upon gas classified as section 105 gas and sold to LP &L. We

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find no abuse of discretion in the trial court’s determination that the class

representatives’ claims were typical of the claims of the class.

ADEQUATE REPRESENTATION

Texaco contends that the two representatives of the class are inadequate

because they lack first hand knowledge and because their stake is not large enough

to insure participation in the litigation. The trial court found that the representatives

would fairly and adequately protect the interests of the class. There is no indication

at all that their claims would be in anyway antagonistic to the absent members. They

demonstrated, by their willingness to travel long distances to participate by the

proceeding, and in their testimony, a commitment to the pursuit of the interests of the

class. All that is required to meet the adequacy requirement is a finding that the legal

rights of the unnamed members are being protected. Id.

We find no abuse of discretion in the trial court’s finding that the class

representatives meet the adequacy requirement.

PREDOMINANCE AND SUPERIORITY

Texaco next contends that individual issues predominate; therefore, class

certification is improper.

In order to certify a class, the court must also determine that questions of law

or fact common to the members of the class predominate over any questions affecting

only individual members. The court must also find that the class action procedure is

superior to other available methods for fair and efficient adjudication of the

controversy. La.Code Civ.P. art. 591B(3).

Texaco argues that each royalty owner has a different lease, all of which must

be examined in order to determine the royalty obligation to each royalty owner.

Therefore, Texaco claims that, as to each royalty owner, individual questions have to

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be asked and answered as to Texaco’s obligation to pay and at what price.

Additionally, because each claim appears to have prescribed on its face, Texaco

asserts that there will be individual issues regarding exceptions of prescription. Based

on these differences, Texaco argues that questions affecting only individual members

predominate over common questions and that, consequently, class certification was

improper. The plaintiffs respond that there are questions of fact and law common to

all class members and that those questions predominate over any possible individual

issues relating to quantum, damages, relief, and/or defenses. Specifically, they

contend that Texaco breached its duty to market the gas in the mutual interest of itself

and the royalty owners. The plaintiffs allege that, as a result of this breach, they

sustained damages, in the form of lost mineral royalties. The liability of the

defendants is the central issue, which is obviously common to all of the claimants.

Moreover, this common issue of liability predominates over indivudal questions

important to only individual members of the class, such as the type and extent of their

damages.

In McCastle v. Rollins Environmental Services of Louisiana, Inc., 456 So.2d

612,620 (La.1984), the supreme court pointed out that “individual questions of

quantum do not preclude a class action when predominant liability issues are common

to the class.” The court further concluded that “a pragmatic rather than formalistic

review of the pleadings and the showing made herein clearly indicates that a class

action would be superior to other available adjudicatory methods for effectuating

substantive law, judicial efficiency and individual fairness in this case.” Id. at 621.

We find that common questions predominate in this case and that, given the

size of many of the claims, class action is the superior method of adjudication.

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DECREE

For the foregoing reasons, the judgment of the trial court is affirmed. All costs

of these proceedings are taxed to appellant, Texaco, Inc.

AFFIRMED.

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