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Ulibarri v. Southland Royalty Co., LLC

United States District Court, D. New Mexico

April 3, 2019




         In this dispute over the calculation of natural gas royalty payments, Gerald Ulibarri and White River Royalties, LLC (Plaintiffs) seek to bring their claims on behalf of a putative class of similarly situated leaseholders. Their proposed class includes all individuals or entities that Defendant Southland Royalty Company, LLC (Southland) has paid royalties pursuant to lease agreements containing certain types of royalty provision language. Plaintiffs hired a landman, Terry A. Moores, to conduct chain of title work to determine which individuals and entities have held lessors' interests in the relevant leases since January 1, 2015. Southland argues that Mr. Moores's chain of title opinions are unreliable in various respects and his report and testimony should be excluded from the Court's class certification analysis.[1] Having considered the submissions of counsel and relevant law, the Court will deny Southland's motion.

         I. Background

         A. The Underlying Complaint and Proposed Class

         Southland holds the lessee's interest in numerous lease agreements under which it produces natural gas from “gas only” wells in New Mexico. (Docs. 99 at 3; 106 at 11.) Plaintiffs hold the lessors' interests in several such lease agreements. (Doc. 99 at 3-4.) They allege that, since January 1, 2015, Southland has consistently underpaid royalties it owes on the sales proceeds of natural gas and related products produced under these lease agreements by not basing payments on the actual sale proceeds of the natural gas products. (See Id. at 8.) Instead, they argue, Southland undervalues the natural gas products and consistently deducts “post-production costs, ” like treatment and processing, from their royalty payments. (See Doc. 106 at 2.) Plaintiffs allege that, pursuant to their lease agreement language, their royalty payments are meant to be calculated solely based on sale proceeds and not adjusted for the cost of post-production processing. (See id.)

         Plaintiffs seek to bring this action on behalf of a putative class including all individuals and entities who have been paid royalties by Southland at any time since January 1, 2015, and hold a lessor's interest in a lease agreement that contains one of four different types of royalty payment provisions.[2] (See Id. at 1-3.) The four types of royalty provisions that delineate the proposed class include: “proceeds royalty provisions, ” “gross proceeds royalty provisions, ” “greater of market value or gross proceeds royalty provisions, ” and “gross proceeds without deduction of post-production costs royalty provisions.” (See Id. at 3.) The definition excludes “any person or entity who has been a working interest owner in a well located in New Mexico on whose behalf Southland paid royalties on natural gas produced by Southland in New Mexico . . . .” (Id.)

         In their first set of interrogatories, Plaintiffs asked Southland to use the proposed class definition to “[i]dentify, in an electronic format or database, the names, last known telephone numbers, and last known addresses of the Plaintiff and the Proposed Class Members, and each well name and Southland internal identification number . . . for which [it] paid such Plaintiff and the Proposed Class Members Royalties.” (Doc. 126-1 at 2.) Southland objected, asserting that it did not possess the information necessary to determine the putative class members' identities. (See Id. at 3.) Southland asserted that it could tie a particular lease to a particular well, and a particular well to a particular royalty recipient. (Id.) However, because multiple leases may cover a single well, they lacked information to definitively tie particular leases to particular royalty payments. (See id.) Southland argued that connecting specific royalty payments to the underlying lease requiring that payment would be unduly burdensome and costly because “[t]he only way this determination can be made is by review of all title instruments in the county records relating to the Subject Leases.” (Id.) According to Southland, “[s]uch a task would require hiring a title expert to review all of the relevant county records and to establish the chain of title stemming from interests in all of the Subject Leases.” (Id.)

         B. Terry Moores's Proffered Expert Testimony

         Plaintiffs subsequently retained Mr. Moores “to conduct the title examination work which Southland stated was necessary in order to properly identify the persons who have been lessors of record under each of the 325 Lease Agreements . . . .” (Doc. 126 at 2.)[3] Mr. Moores is a landman who currently works as a managing member of SandStoneLand, LLC-an independent landman firm specializing in the four corners region and Wyoming. (See Doc. 126-3.) He has decades of similar experience performing title examination and land work contracting services for various clients. (See Docs. 126 at 3; 126-3.)

         Mr. Moores's opinions are based on a list of leases that were assigned to Southland by Energen Resources Corporation on January 1, 2015, and contain royalty provision language falling under one of the four relevant categories. (See Doc. 126-2 at 2-3.) Southland produced these leases during discovery. (See id.) To conduct his title examination of each lease, Mr. Moores relies on public recordings of transfers, assignments, and conveyances in county records to determine individuals and entities holding lessors' interests in the lease since January 1, 2015. (See Docs. 126 at 4; 126-2 at 1-2.) According to Mr. Moores's report, each of the relevant leases “are public[ly] recorded in either the San Juan County Recorder's Office or the Rio Arriba County Recorder's Office.” (Doc. 126-2 at 3.) Mr. Moores utilizes each county's grantor/grantee index to complete his title work-a resource in which recorded and filed leases are indexed “chronologically by Grantor's and Grantee's last name in a series of time separated index books, ” and also indexed alphabetically by the grantor's last name.[4] (Id. at 4-5.)

         Mr. Moores's methodology for identifying post-2015 leaseholders includes ascertaining the original lessor and the date the original lease was executed, then checking the indexes “looking forward from that date for the name of the original lessor . . . .” (Id. at 5.) “Each time I find a new Grantee . . . we will begin this same process for all Grantees for all the conveyances that pertain to the subject legal disruption we find up to the date of January 1, 2015.” (Id.) Mr. Moores plans to use other internal documents produced by Southland, including title opinions and division orders, to further cross-check his work, but had not begun that process at the time he filed his initial report. (Id. at 5-6.) Mr. Moores also opines that while his methodology is “comprehensive and has allowed [him] to identify hundreds of current lessors, [he] will not be able to identify each current person or entity who has held or holds a lessor's interest” in the relevant leases for a variety of reasons. (Id. at 9.) For example, some lessors use middle names or nicknames on conveyance documents, many of the original lessors are deceased, and some conveyance documents don't specify the percentage of an interest being conveyed. (See id.)

         Mr. Moores's report notes that Plaintiffs' counsel also requested he identify overriding royalty interest holders on the same leases. (Id. at 8.) He plans to conduct that title work using the same grantor/grantee index methodology, as well as by consulting a “tract index” through a title company “to research any additional conveyances which involve the creation or assignment of an overriding royalty interest.” (Id.) As of the date of his initial report, Mr. Moores had not yet begun the work of determining overriding royalty interest holders, but stated that he would begin such reviews after finishing his research on lessors' interests. (Id. at 8-9.) As of February 1, 2019, Mr. Moores had still not completed his title search to identify individuals and entities holding lessor's interests in the relevant leases. (Docs. 126 at 4.)

         Mr. Moores attached a summary of his findings to his report (“the summary”), which:

[I]dentifies the date the original lease was executed, the name of the original lessor(s), the name of the original lessee, the name(s) of the lessor(s) who held the lessor's interests under each applicable oil and gas lease as of January 1, 2015, and if applicable the name(s) of the lessor(s) who acquired the lessor's interests under the oil and gas lease at some point after January 1, 2015.

(Doc. 126-2 at 2-3.) As of the date of his initial report, Mr. Moores had “identified approximately 320 persons or entities that have held and/or currently hold the lessor's interests under the applicable oil and gas leases . . . .” (Id. at 7-8.) Since then, he has updated the summary with newly identified leaseholders three times and provided Southland with additional title documents “purportedly supporting the chain of title” eight times. (See Doc. 118 at 7.)

         Using Mr. Moores's lists of identified leaseholders, Plaintiffs' counsel has “made a comparison of persons identified by Mr. Moores as being lessors after January 1, 2015 under 253 of the 325 Leases . . . to persons identified in royalty accounting data produced by Southland . . . .” (Doc. 126-5 at 1.) Similarly, Plaintiffs' counsel also compared Southland's royalty accounting data to the individuals and entities identified as original lessors in the relevant lease agreements, as well as some of ...

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