Chesapeake Energy Corporation produces natural gas. As gas royalty class actions have become more popular in the last decade, it has also been a defendant in a number of cases alleging that it underpaid mineral royalties to various landowners. One of these cases recently resulted in a denial of class certification that is worth some attention.
In Williams v. Chesapeake Lousiana, Inc., No. 10-1906, 2013 U.S. Dist. LEXIS 34778 (W.D. La. Mar. 11, 2013), which alleged that Chesapeake had violated the Louisiana Mineral Code by underpaying class members for gas royalties, the plaintiff moved for class certification at the same time as Chesapeake moved to deny certification. (A valid, if underused tactic.) In its motion to deny certification, Chesapeake argued that, because the Louisiana Mineral Code requires that any mineral lessor seeking relief must provide notice before suing, individual issues would predominate over any common issues. (This argument is not unique to royalty class actions; many statutes–including consumer fraud states and warranty statutes–have similar notice requirements.)
So the question became: given the Supreme Court’s ruling in Shady Grove that federal law governs Rule 23, and state law cannot supplant it, how did this individualized notice requirement affect the class certification inquiry? The court decided that the notice requirement was a substantive–rather than a procedural–requirement, and so was not superseded by Rule 23. As it reasoned,
The notice requirement is what gives shape to the substantive rights and remedies of the parties in royalty litigation; it is the means by which the Louisiana legislature has chosen to define the rights and obligations of each party in this particular area of law. In this situation, the Court is convinced that procedure and substance are so interwoven that a rational separation because well-nigh impossible.
(Internal quotation omitted.) Since each class member would have to provide her own notice of litigation, the court denied certification.
The takeaway from this case: while it won’t work every time, defense attorneys should watch out for when a notice provision will create an individualized issue for a proposed class.