FIRST CAME THE DRILLING: Now come the lawsuits over underpayments of royalties to landowners in the Fayetteville shale.
A $45 million settlement of a class action lawsuit against Southwestern Energy
is imperiled by heated action in a competing class action lawsuit in federal court.
Late in May, Southwestern Energy announced
a preliminary settlement of a lawsuit claiming royalty owners in the Fayetteville shale had been underpaid for gas taken from their land. That was in a Conway County circuit court case and a final hearing on that settlement is scheduled later this month..
The settlement provides that about $20 million of the settlement will go to lawyers.
Some, but not all of the same landowners are covered in a class action case in federal court. It is scheduled to go to trial Monday before federal Judge Brian Miller.
Key issue: The settlement terms in the state case provide that the settlement may be terminated if the case goes to trial Monday.
The federal filings have come fast and furiously in recent days. They have included emergency appeals by the gas company in favor of preserving the state court settlement. Allegations of misconduct mark the pleadings. Settling parties in the state case are anxious to dispose of the federal case, which they see as just a bid by lawyers to get a share of fees. The lawyers for landowners in the federal case argue that the settlement is a bad deal for landowners and a good deal for the lawyers in the state case and the gas company.
A gas glut has dropped gas prices and resulted in a virtual end to exploration in the Fayetteville shale, a relatively expensive gas play to drill. But gas continues to be produced from the play. The suit settled in state court has been litigated for seven years and covers some 13,000 landowners deprived of proper payments from 2006 to 2016. It provides for compensation for past underpayments and a new calculation of exploration expenses on future payments. Here's the full proposal.
Southwestern Energy has tried repeatedly to delay Monday's trial. Words have grown heated.
In an order last Wednesday Judge Miller described the motions as delaying actions and responded sharply to the gas company's criticism of his handling of the case.
The gist of their argument, said Miller, is that the plaintiffs' attorneys should be disqualified for entering into a "secret" agreement with attorneys representing state court class members so that the two suits could proceed on parallel tracks. That is, the state claim would represent Arkansas residents and the federal court claim would cover people outside Arkansas. The argument goes that they no longer want to go along with that agreement (the existence of which is disputed by the plaintiffs in the federal case.) The judge wrote:
"Suspecting such an agreement existed, defense counsel alerted the federal court that lawyers were attempting to certify “slice[s]” of the class action pie and divide fees between the lawyers.
"The defendants advocated for a broad nationwide class in federal court, and defense counsel represented that such an arrangement would eliminate prejudice from any suspected agreement “because there is no longer any charge of divided loyalties” between class counsel and its class members. The nationwide class without the Arkansas exclusions was eventually certified, and the defendants have not raised that issue again until now, though now they frame their argument as one premised on class counsel misleading the federal court. For the defendants to now argue that the agreement jeopardizes class counsels’ adequacy – but apparently, only class counsel in the federal case where a settlement has not materialized – is disingenuous"
Miller refused to stop the long-scheduled trial in federal court. Late Friday afternoon, the 8th U.S. Circuit Court of Appeals denied the gas company's emergency request to override Miller. So, at the moment, the case is on for Monday.
The filings in the case have grown heated. The gas company has accused Miller of abusing his discretion. He's forcefully disputed that.
Lawyers for plaintiffs in the federal case (known as the "Smith case") have accused those who settled the state case (known as the "Snow case") of collusion with the gas company.
... in an attempt to settle on the cheap and avoid a trial here, Defendants entered into a collusive reverse auction settlement that (i) pays the Snow plaintiffs’ attorneys two-thirds (⅔) of the cash benefit ($20 million), (ii) judicially endorses a fraudulently-created gathering charge which guarantees Defendants $101 million in future profits from the Smith Class, and (iii) provides less than $10 million to be shared amongst over 12,000 settlement class members to address well over $193 million in actual and statutory damages.
Second, as evidenced by the Snow transcript, Defendants violated ethical rules and the Court’s Orders and disrupted this litigation by sending notice to the Smith class. In addition to violating Court Orders and the attorney-client relationship between Class Counsel and the Class, the notice—rushed out around midnight on May 19—was misleading because it contained no reference to the Smith case nor any explanation of how the Snow settlement effects Smith Class members. Given the misleading nature of the Snow notice and the fact that this Court’s notice advised Class members that if they “DO NOTHING,” they will “[s]tay in this lawsuit” and “stay in [this] Class” approximately 12,000 Smith Class members would have no reason to respond to the Snow notice. Instead, they would reasonably rely on the representations in the Smith notice that this Court would oversee their claims that would be litigated by Smith Class Counsel in federal court. Smith Class members have been provided no reason to believe otherwise.
This is not a mistake. Defendants knowingly created this situation in an effort to jam a collusive settlement through state court before the impending trial in this case. The Court cannot allow the claims of Smith Class members—over which it exercises supervisory control—to be waived or their Due Process rights to be violated as a result of Defendants’ end-run around the Court’s supervisory authority.
Lawyers for Smith case plaintiffs want sanctions imposed against the defense lawyers for misleading their clients about the nature of the state settlement. Among others, they want records in the federal case unsealed so they could be available for the state judge to consider in a final hearing on approving the state court settlement to help judge whether that settlement is fair.
Here's the full motion for sanctions.
The record indicates Judge Miller still has under submission the request for a contempt citation and sanctions against the defense lawyers. He has granted a defense motion to exclude testimony about the state court settlement from the federal trial.
The developments have brought new parties into the case, including an effort to intervene by a landowner covered in the state court settlement who argued that the Smith case lawyers are trying to undermine that settlement only because they want out of the supposed secret fee agreement. The potential intervenor (whose effort to enter the case was denied by MIller) said they have decided to risk a trial "not for the benefit of the Class, but because their settlement hands are tied due to a substantial and irreconcilable conflict of interest."
The case employs an army of lawyers. Lawyers for plaintiffs in the federal case include Ben Caruth
of Morrilton, Erik Danielson
of Fayeteville, members of the Kessler Topaz
firm of Pennsylvania that has figured in many a hot class action legal/political story in Arkansas, former state senator Allen Gordon,
lawyers from Texas and Oklahoma and J.F. Valley
of Helena-West Helena. Lawyers on the defense side include lawyers from Texas, Rex Terry
of Fort Smith and lawyers from the Kutak Rock
office in Little Rock, with recent filings attempting to stop the trial coming particularly from Jess Askew
of Little Rock with Kutak Rock.
Plaintiffs lawyers in the state court settlement include Tulsa lawyers and Joe Cambiano and Dale Lipsmeyer of Morrilton. In state court, they've filed an extensive brief disputing the allegations of collusion raised in the federal case. They contend that their suit, as the first of several filed over gas payments, should take priority. It faults the Smith counsel for failing to include more than 4,000 landowners covered in their case. "The potential for chaos has been heightened and inflamed" by counsel in the federal case, they said. They contend there IS a fee settlement agreement and the Smith lawyers have breached it and lied about it. The federal court lawyers said they had an agreement only as it applied to a mediation effort, which failed. The state court lawyers dispute this vigorously.
The nut of that argument is in this portion of the pleading in Morrilton.
It closes by saying that, due to actions by the federal case lawyers, "the settlement in this case is in grave danger."
There's a third class action, known as the Stewmon case, in state court but it has seen little action since being certified as a class action.