United States District Court, E.D. Kentucky, Southern Division, Pikeville
ORDER AND OPINION
matter is before the Court on several motions. Defendant
Equitable Production Company ("EQT") has filed a
Motion to Dismiss (DE 89). Plaintiff Appalachian Land Company
("ALC") has filed a Motion for Partial Summary
Judgment and Award of Attorney's Fees and Expenses (DE
90), and a Motion to Certify Class (DE 116).
following reasons, EQT's Motion to Dismiss (DE 89) is
DENIED; ALC's Motion for Partial Summary
Judgment and Award of Attorney's Fees is GRANTED
IN PART and DENIED IN PART; and
ALC's Motion to Certify Class is GRANTED IN
EQT is a lessee, either by succession or as an original
party, under numerous Oil and Gas leases between EQT and
various other persons and entities in Kentucky, including
ALC. The leases require payment of royalties by EQT based
upon the market price of gas at the well, but many do not
contain any express language indicating which party is
responsible for paying Kentucky's severance tax. (DE 1;
89-1). Where a lease was silent, it was EQT's policy to
withhold at least part of the severance tax from royalty
payments. (DE 116-3 at 12-13).
ALC filed a class action complaint with this Court on July 8,
2008. (DE 1). The complaint alleged that EQT's deduction
of the severance tax constituted a breach of ALC's lease
contract, and those with similar language. After EQT filed
its Answer, the parties moved for a stay pending an appeal in
a substantially similar case: Poplar Creek Development
Co., u. Chesapeake Appalachia, LLC, Civ. No. 08-190
(E.D. Ky. 2008) (“Poplar Creek"). In that
case, the Sixth Circuit held that Kentucky law allowed
lessees, here EQT, to deduct gathering, compression and
processing costs from payment of royalties. Poplar Creek
Deu. Co. u. Chesapeake Appalachia, LLC, 636 F.3d 235,
244 (6th Cir. 2011).
Poplar did not speak specifically to severance
taxes, this Court found its logic applicable, and granted
judgment on the pleadings for EQT as to deduction of the tax.
(DE 60). ALC moved to alter the judgment, which this Court
denied, and then appealed to the United States Court of
Appeals for the Sixth Circuit. (DE 61; 64; 65). Finding no
Kentucky law directly on point, the Sixth Circuit certified a
question regarding deduction of severance taxes to the
Kentucky Supreme Court. (DE 66 at 3). After reformulating the
dispositive issue, the Kentucky Supreme Court held that
"the producer severing natural gas from the earth [here,
EQT] is solely responsible for the payment of the
severance tax," absent a specific contractual provision
apportioning the tax. Id. at 3-4. On October 27,
2015, the Sixth Circuit reversed this Court's judgment on
the pleadings, and remanded for further proceedings
consistent with the state Court's holding. Id.
2016, and admittedly in response to the Kentucky Supreme
Court decision, EQT ceased deducting the severance taxes from
royalties paid under market value leases without express
severance tax language. (DE 89-1; DE 89-3 at 3). On March 7,
2017, EQT reimbursed royalty owners for deductions taken from
1995 through 2016, by sending approximately 2, 431
reimbursement checks. (DE 119-2). EQT alleges that it paid
$1, 398, 167.71 in reimbursements, and also placed $62,
710.44 in a suspense account for reimbursing recipients that
have not yet been accurately identified. Id. ALC
admits to receiving a reimbursement check, but has not cashed
that check. (DE 91 at 3).
since filed a motion to dismiss ALC's claim for breach of
contract, arguing that its reimbursement of the deducted
severance tax has mooted the claim. (DE 89-1). ALC has filed
a motion for partial summary judgment, seeking judgment on
EQT's liability for breach of the lease and for
attorney's fees. (DE 90-1). ALC also requests that the
Court certify the class of "[a] 11 persons and entities
who have entered into oil and gas leases with [EQT]...which
obligate the lessee to pay royalties on gas produced from
wells, which leases do not expressly authorize the deduction
of severance taxes after it is severed from the
wellhead." (DE 116). The motions have been sufficiently
briefed, and the Court considers the arguments below.
Defendant EQT's Motion to Dismiss (DE 89)
5, 2017, EQT filed a motion to dismiss ALC's claim for
breach of contract in its entirety. (DE 89). EQT argues that,
since it previously reimbursed royalty owners for withheld
severance taxes dating back to 1995, ALC's claim has
become moot. (DE 89-1 at 4). Further, EQT points out that it
ceased the deduction of the severance taxes for market value
leases without express severance tax language in 2016,
meaning the desired effect of the litigation has already been
achieved. Id. at 4.
responded, arguing that EQT's reimbursement check
amounted to a settlement offer, which ALC rejected when it
did not cash the check. (DE 91 at 3). ALC cites the recent
United States Supreme Court case Campbell-Ewald v.
Gomez, for the proposition that a rejected settlement
offer has no effect on the plaintiffs interest in the
lawsuit. (DE 91 at 3); see also Campbell-Ewald Co. v.
Gomez, 136 S.Ct. 663, 672 (2016). Further, ALC asserts
that it seeks relief beyond what was offered by EQT, namely
deducted severance taxes dating back to July of 1993,
prejudgment interest, and attorney's fees. (DE 91 at 5).
Therefore, ALC concludes that, at best, EQT's
reimbursement of severance taxes dating back to 1995 only
offers a portion of ALC's requested relief, and there
remains an active controversy. Id.
characterizes the ALC reimbursement check as performance
under the lease agreement. (DE 96 at 1-2). EQT has pointed
out that, unlike the Rule 68 settlement offer in
Campbell-Ewald, its reimbursement check did not
require agreement to any conditions, restrictions, or
indicate that it was intended as settlement of any
outstanding claim. Id. at 3. And-under the lease
agreement between EQT and ALC-depositing the check in the
mail fully satisfied its payment obligation, mooting
ALC's claims. Id. at 4. EQT argues that any
remaining claims to prejudgment interest and attorney's
fees are not legally sufficient to create a controversy.
Id. at 6-15.
becomes moot "only when it is impossible for a court to
grant any effectual relief whatever to the prevailing
party." Campbell-Ewald Co. v. Gomez, 136 S.Ct.
663, 669, 193 L.Ed.2d 571 (2016) (internal citations
omitted). "As long as the parties have a concrete
interest, however small, in the outcome of the litigation,
the case is not moot." Id. Here, ALC retains a
stake in the outcome of the litigation-regardless of whether
EQT's reimbursement check is treated as a settlement
offer or performance-because it claims entitlement to damages
beyond what EQT included in the reimbursement check.
admits that it has reimbursed royalty owners which could be
identified, including ALC, for withheld severance taxes
dating back to 1995. (DE 89-1 at 4). But ALC alleges that it
is entitled to relief dating back to 1993. (DE 91 at 5). Even
without consideration of attorney's fees and interest, it
is clear that EQT has not tendered an offer that fully
satisfies ALC's demand for relief, and thus the check has
not mooted ALC's claims. See Mey v. N. Am. Bancard,
LLC, 655 Fed.Appx. 332, 336 (6th Cir. 2016).
And while EQT argues that it has no records by which to
calculate reimbursements prior to 1995, the difficulty that
ALC may face in proving the amount of reimbursement for those
years does not itself moot the claims. See Hrivnak v. NCO
Portfolio Management, Inc., 719 F.3d 564, 567-568
(6th Cir. 2013) ("As defendants would have
it, claims with little to no chance of success should be
dismissed as moot whenever they are mixed in with promising
claims that a defendant offers to compensate in full. That is
not how it works").
further argues that ALC cannot claim, and the Court should
not consider, reimbursement for severance taxes prior to
1998, since 1998 is the year in which ALC first acquired an
interest in the lease. But this argument is not persuasive,
as it confuses the merits of a claim with the existence of a
live controversy. ALC contends that its purchase of the lease
agreement included purchase of the rights to royalty payments
prior to 1998-EQT simply disagrees. EQT may not moot
ALC's claim by only offering what it believes ALC is
entitled to recover. See Hrivnak, 719 F.3d at
567-568 ("Reasonable though the defendants' offer
may have been (and may still prove to be), the disparity
between what they offered and what the plaintiff sought
generally will preclude a finding of mootness").
motion to dismiss stage, the Court will construe the
complaint in the light most favorable to the plaintiff,
accept its allegations as true, and draw all reasonable
inferences in favor of the plaintiff. See Handy-Clay u.
City of Memphis, Tenn., 695 F.3d 531, 538
(6th Cir. 2012). Here, ALC claims royalties have
been withheld since at least July, 1993 (DE 91 at 5); that it
has not deposited EQT's reimbursement check (DE 103-1 at
5); that the check is not for the complete amount owed under
the lease agreement and thus does not cure EQT's breach
(DE 103-1 at 5-7)); and EQT admits that its check, even if
deposited, would not reimburse ALC for royalties prior to
1995 (DE 89-1 at 3-4). Not only does this preclude the Court
from finding ALC's claims to be mooted as discussed
above, but ALC has also stated a claim upon which relief can
be granted. As such, EQT's Motion to Dismiss ALC's
claim for breach of contract (DE 89) is denied.
Plaintiff ALC's Motion For Partial Summary Judgment and
For Partial Award of Attorney's Fees and Expenses (DE
determined that ALC's claims are not mooted, the Court
addresses summary judgment. On June 23, 2017, ALC filed a
motion for partial summary judgment, arguing that it is
entitled to judgment as to liability on the breach of
contract claim and should be awarded attorney's fees. (DE
90). EQT has opposed both parts of the motion. (DE 98).
judgment is proper "if the movant shows that there is no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law." Fed.R.Civ.P.
56(a). The moving party bears the initial burden and must
identify "those portions of the pleadings...which it
believes demonstrate the absence of a genuine issue of
material fact." Celotex Corp. v. Catrett, 477
U.S. 317, 323 (1986) (internal citation omitted).
the movant meets the initial burden, the opposing party
"must set forth specific facts showing that there is a
genuine issue for trial." Fed.R.Civ.P. 56(e). In the
Court's consideration of the motion, "the evidence
should be viewed in the light most favorable to the
non-moving party." Ahlers v. Schebil, 188 F.3d
365, 369 (6th Cir. 1999) (citing Anderson, 477 U.S.
Breach of Contract
Kentucky law, breach of contract requires showing (1) the
existence of a contract; (2) breach of that contract; and (3)
damages flowing from the breach. Metro
Louisville/Jefferson County Government v. Abma, 326
S.W.3d 1, 8 (Ky. Ct. App. 2009). Here, the existence of a
contract is admitted by both parties. See (DE 10 at
2, pp. 9). ALC argues that EQT breached the contract when it
failed to pay the full amount of royalties owed, namely
through deduction of the severance tax which the Kentucky
Supreme Court has clarified as improper. See Appalachian
Land Co. v. EQT Production Co., 468 S.W.3d 841, 848 (Ky.
2015); (DE 90-1 at 13). ALC has provided evidence that EQT
withheld at least $11, 453.41 in royalty payments to ALC
during the relevant time period. (DE 90-5 at 6-7).
attacks summary judgment in two ways. First, EQT argues that
the Kentucky Supreme Court decision should not be applied
retroactively against it, but rather should be applied only
prospectively. (DE 98 at 2-6). Second, EQT raises several
affirmative defenses, including payment and acceptance,
accord and satisfaction, laches, and estoppel.
Retroactivity of Kentucky Supreme Court Decision
correct that the Kentucky Supreme Court recognizes its own
ability to give a decision prospective or retroactive
application. See Hagan v. Farris,807 S.W.2d 488,
490 (Ky. 1991). And under Kentucky law, "[i]t
is...permissible to have a decision apply prospectively in
order to avoid injustice or hardship." Id. But