Tenth Circuit Applies U.S.Supreme Court Dukes and Comcast Decisions, and Decertifies Class Actions Based on Lack of Commonality

ABSTRACT: The rigorous standards for class certification enunciated in recent U.S. Supreme Court decisions are being applied in the federal Circuit courts. Wal-Mart v. Dukes and Comcast require strong proof of "commonality" and other FRCP Rule 23 elements, at the class certification stage, even if this overlaps with the merits of the case.

XTO Energy is an oil and gas company that produces natural gas and its constituent products from wells. In Wallace B. Roderick Trust v. XTO Energy, Inc., - F.3d - , 2013 U.S. App. LEXIS 13842 (10th Cir. July 9, 2013), the U.S. District Court for the District of Kansas had certified a class comprised of “[a]ll royalty owners of [XTO] . . . from wells located in Kansas that have produced gas and/or gas constituents (such as residue gas or methane, natural gas liquids, helium, nitrogen or condensate) from January 1, 1999 to present.” The lawsuit made claims for breach of contract, unjust enrichment, and an accounting, all of which turned on the central allegation that XTO systematically underpaid royalties by improperly deducting costs associated with placing gas (and its constituent products) in marketable condition. In Chieftain Royalty Co. v. XTO Energy, Inc., - F.3d - , 2013 U.S. App. LEXIS 13837 (10th Cir. July 9, 2013) (unpublished), a federal district court in Oklahoma had similarly certified a class of royalty owners who were allegedly underpaid royalties, for the same reason.

In both cases, decided the same day, the Tenth Circuit decertified the class actions, based mainly on the lack of commonality. Both lower courts had found commonality, based on XTO having employed a uniform methodology for the payment of royalties to the plaintiffs. But the Tenth Circuit stated, citing Dukes,  that:

“the mere raising of a common question does not automatically satisfy Rule 23(a)’s commonality requirement.  Instead, the common contention must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.”

The Tenth Circuit found error in the district courts’ commonality analysis, finding that while the trial courts had accepted plaintiffs’ contention that all leases contained an “implied duty of marketability”, there appeared to be variations among different class members’ leases, and the courts did not require plaintiffs to affirmatively demonstrate that this duty was in fact common to all class member leases. In Roderick, the Tenth Circuit held the Kansas district court may have impermissibly “altered the burden of proof” by assuming that the implied duty of marketability was in all leases, because XTO had failed to point to any lease provision unambiguously negating the existence of any implied duty of marketability. The burden is on plaintiffs to show commonality; it is not upon defendant to show the lack thereof. In the Chieftain Royalty, the Tenth Circuit cited Comcast for the proposition that “. . . the district court must address the lease language issue as it relates to Rule 23 before certifying the class.”

The lesson in these cases for class action defendants, both in pending and in newly filed cases, is clear.   The rules of the game for class certification have changed. In newly filed cases, plaintiffs face a high burden of proof, per the U.S. Supreme Court holdings in Dukes and Comcast, that “commonality” and the other elements required by Rule 23 have been met. District Courts must engage in “rigorous analysis” to make this determination, and plaintiffs must be put to their proof. Absent such proof from plaintiffs, a class should not be certified in the first instance. In cases where a class has already been certified, defendants should consider whether a motion for decertification is appropriate.