Naylor Farms, Inc. v. Chaparral Energy, LLC , 923 F.3d 779 ( 2019 )

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS May 3, 2019
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
NAYLOR FARMS, INC.; HARREL’S
LLC,
Plaintiffs - Appellees,
v. No. 17-6146
CHAPARRAL ENERGY, LLC,
Defendant – Appellant,
_____________________
BLACK STONE MINERALS
COMPANY, L.P.,
Amicus Curiae.
_________________________________
Appeal from the United States District Court
for the Western District of Oklahoma
(D.C. No. 5:11-CV-00634-HE)
_________________________________
Anthony J. Shaheen, Holland & Hart LLP, Denver, Colorado (Christopher A. Chrisman
and Jessica M. Schmidt, Holland & Hart LLP, Denver, Colorado; Linda J. Byford,
Chaparral Energy, LLC, Oklahoma City, Oklahoma; John J. Griffin, Jr., Harvey D. Ellis,
Jr., and Charles V. Knutter, Crowe & Dunlevy, Oklahoma City, Oklahoma, with him on
the briefs), for Defendant-Appellant Chaparral Energy, LLC.
Conner L. Helms (Gary R. Underwood and Erin M. Moore, with him on the brief), Helms
Underwood & Cook, Oklahoma City, Oklahoma, for Plaintiffs-Appellees Naylor Farms,
Inc. and Harrel’s LLC.
Daniel H. Charest and Warren T. Burns, Burns Charest LLP, Dallas, Texas, filed an
amicus curiae brief for Black Stone Minerals Company, L.P. in support of Plaintiffs-
Appellees Naylor Farms, Inc. and Harrel’s L.L.C.
_________________________________
Before MORITZ, MURPHY, and EID, Circuit Judges.
_________________________________
MORITZ, Circuit Judge.
_________________________________
Defendant Chaparral Energy, L.L.C. (Chaparral) operates approximately 2,500
oil and gas wells in Oklahoma. Plaintiffs Naylor Farms, Inc. and Harrel’s, L.L.C.
(collectively, Naylor Farms) have royalty interests in some of those wells. As a
result, Naylor Farms receives a portion of the proceeds those wells generate. But
according to Naylor Farms, Chaparral systematically underpaid Naylor Farms and
other similarly situated royalty owners by improperly deducting from their royalty
payments certain gas-treatment costs—costs that Naylor Farms says Chaparral was
required to shoulder under Oklahoma law. Thus, Naylor Farms brought a putative
class-action lawsuit against Chaparral and moved to certify the class under Rule 23
of the Federal Rules of Civil Procedure. The district court granted Naylor Farms’
motion to certify, and Chaparral now appeals the district court’s certification order.
For the reasons discussed below, we affirm.
Background
Under Oklahoma law, lessees like Chaparral are subject to an implied duty of
marketability (IDM).1 The IDM imposes upon lessees “a duty to provide a
1
The parties agree that Oklahoma substantive law controls.
2
marketable product available to market.” Mittelstaedt v. Santa Fe Minerals, Inc., 954
P.2d 1203, 1206 (Okla. 1998). Consistent with this duty, lessees are generally
precluded from passing along to royalty owners any costs the lessees incur in making
a product marketable. See id. at 1208. And because “raw or unprocessed gas” must
typically “undergo[] certain field processes”—such as gathering, compressing,
dehydrating, transporting, and producing (GCDTP services)—to make the gas
marketable, lessees generally bear the costs associated with performing such services.
Id. at 1205, 1208.
Citing the IDM, Naylor Farms brought a putative class-action lawsuit against
Chaparral, asserting claims for breach of contract, breach of fiduciary duty, fraud,
unjust enrichment, and failure to produce in paying quantities. As relevant here,
Naylor Farms’ complaint alleges that Chaparral breached the IDM by improperly
deducting GCDTP-service costs from the royalty payments Chaparral made to Naylor
Farms and to other similarly-situated royalty owners. More specifically, Naylor
Farms contends that in an attempt to circumvent the IDM, Chaparral enters into
wellhead sales contracts with midstream processing companies. Under the terms of
those contracts, the midstream companies acquire title or possession of unprocessed
gas at or near the wellhead.2 Yet according to Naylor Farms, the midstream
2
The contracts fall into two categories: percentage-of-proceeds (POP)
contracts and percentage-of-liquids (POL) contracts. The vast majority of the
contracts at issue are POP contracts. Under a POP contract, the midstream processing
company takes possession of the entire gas stream, processes the gas, sells it to a
downstream purchaser, and then pays Chaparral a percentage of the resulting
proceeds. Under a POL contract, the midstream processing company obtains
3
companies don’t actually pay Chaparral for the gas at this time. Instead, the
midstream companies first perform certain GCDTP services and then sell the treated
gas to downstream purchasers.
At that point, Naylor Farms asserts, the midstream companies (1) take the
gross proceeds they receive from the downstream sales; (2) deduct from those gross
proceeds the costs and fees associated with performing the GCDTP services;3 and
(3) pay Chaparral for the gas they previously acquired at the wellhead by giving
Chaparral the resulting net proceeds. Chaparral then calculates royalty payments
based on the net proceeds it receives from the midstream companies, rather than
calculating royalty payments based on the gross proceeds the midstream companies
receive from the downstream sales. And in doing so, Naylor Farms alleges, Chaparral
impermissibly “requires royalty owners to bear the costs of transforming unprocessed
gas into a marketable product,” thus violating the IDM. Id. at 13.
Based on this theory of liability, Naylor Farms moved to certify a class
comprising it and other similarly situated royalty owners.4 In relevant part, Naylor
(1) possession of and title to the natural gas liquids (NGLs) and (2) possession of
(but not title to) the residue gas at the wellhead. Chaparral retains title to the residue
gas, which the midstream processing company returns to Chaparral after performing
certain GCDTP services. The midstream processing company then charges Chaparral
a fee for performing the GCDTP services and also retains the NGLs.
3
Under a POL contract, the midstream processing company charges a fee and
retains the NGLs.
4
After Naylor Farms moved to certify, Chaparral filed for bankruptcy. The
bankruptcy court initially imposed an automatic stay on the underlying proceedings.
But it then partially lifted that stay so the district court could rule on Naylor Farms’
motion to certify.
4
Farms argued that certification was appropriate under Rule 23 because (1) whether
Chaparral breached the IDM is a common question, see Fed. R. Civ. P. 23(a)(2); and
(2) this and other common questions predominate over any individual ones, see Fed.
R. Civ. P. 23(b)(3).
In response, Chaparral asserted that whether it breached the IDM isn’t a
common question because a jury won’t be able to answer it without first assessing
“individualized issues, including the obligation created by each” individual lease
“and the gas produced from each” individual well. App. vol. 2, 410. Further,
Chaparral asserted, these individual questions about lease language and gas quality,
as well as individual questions about damages, predominate over any common
questions Naylor Farms might identify. Thus, Chaparral argued, Naylor Farms cannot
satisfy Rule 23’s certification requirements.
The district court disagreed and concluded that certification was appropriate.
As an initial matter, the court ruled that Naylor Farms identified at least one common
question: whether Chaparral breached the IDM. The district court then rejected
Chaparral’s arguments that answering this common question will require an
individualized assessment of either the language that appears in each lease or the
quality of the gas that comes from each well. Next, the district court ruled that
common questions, including whether Chaparral breached the IDM, predominate
over any individual ones. Ultimately, after addressing Rule 23’s remaining
5
requirements, the district court granted Naylor Farms’ motion to certify.5 Chaparral
now appeals the district court’s class-certification order.
Analysis
According to Chaparral, the district court erred in certifying the class under
Rule 23. In support, Chaparral advances three discrete arguments. It first asserts the
district court erred in failing to recognize that marketability constitutes an individual
question—one that necessarily predominates over any common ones in this litigation.
It next contends the district court erred in rejecting Chaparral’s argument that
distinctions in lease language also give rise to individual questions, and that those
individual questions likewise predominate. Finally, it insists the district court erred in
failing to recognize that in the absence of evidence indicating Chaparral employs a
uniform payment methodology, certification is inappropriate. We address each of
these arguments in turn.
I. Marketability
As discussed above, the cornerstone of Naylor Farms’ class-action lawsuit is
its allegation that Chaparral breached the IDM by improperly saddling Naylor Farms
and other similarly situated royalty owners with certain gas-treatment costs.
The parties agree that the success of this allegation turns in large part on when
the gas at issue became marketable. But they disagree about whether, in assessing
marketability, a jury will need to individually analyze the quality of gas that each
5
The district court excluded Naylor Farms’ fraud claim from the class-
certification order.
6
well produced. And by extension, they also disagree about whether the attendant need
to conduct such an individualized assessment renders class certification
inappropriate.
To resolve the parties’ disagreement on this point, we begin with an overview
of Oklahoma state law. We then discuss Rule 23’s certification requirements. Next,
we explain how the district court applied Rule 23 in the context of Naylor Farms’
state-law claims. Finally, we set forth the applicable standard of review and discuss
whether, considering that deferential standard, Chaparral’s marketability arguments
require us to reverse the district court’s class-certification order.
A. Oklahoma Law
As discussed in more detail below, the ultimate issue before us in this appeal is
whether the district court abused its discretion in concluding that Naylor Farms
satisfied Rule 23’s certification requirements. See Vallario v. Vandehey, 554 F.3d
1259, 1264 (10th Cir. 2009). And this ultimate issue presents a question of federal
law. But that doesn’t doom Oklahoma law to irrelevancy. On the contrary, at the
heart of the parties’ Rule 23 dispute lies an intermediate state-law question: When is
gas marketable under Oklahoma law? Thus, we begin our discussion with an
overview of that law. Cf. Wal–Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011)
(noting that Rule 23 analysis will often “overlap with the merits of the plaintiff’s
underlying claim”); CGC Holding Co., LLC v. Broad & Cassel, 773 F.3d 1076, 1087
(10th Cir. 2014) (explaining that Rule 23 inquiry requires “consideration of how the
7
class intends to answer factual and legal questions to prove its claim” and thus “will
frequently entail some discussion of the claim itself”).
To the extent we “are called upon to interpret state law” in resolving this
appeal, we begin by “look[ing] to the rulings of [Oklahoma’s] highest state court.”
Stickley v. State Farm Mut. Auto. Ins. Co., 505 F.3d 1070, 1077 (10th Cir. 2007)
(quoting Johnson v. Riddle, 305 F.3d 1107, 1118 (10th Cir. 2002)). It has been more
than two decades since the Oklahoma Supreme Court (OSC) has said anything
meaningful about marketability. See Mittelstaedt, 954 P.2d 1203. And neither party
suggests Mittelstaedt involved (or even contemplated, for that matter) the type of
wellhead sales contracts that Chaparral allegedly utilized here. Thus, in the absence
of any guidance from the OSC on the specific marketability questions before us in
this appeal, our task is “to predict how [the OSC] would rule” if it were to answer
those questions. Stickley, 505 F.3d at 1077 (quoting Johnson, 305 F.3d at 1118). In
undertaking that task, we find certain aspects of Mittelstaedt relevant to, albeit not
dispositive of, the issues before us.
In Mittelstaedt, the OSC began by explaining that the IDM imparts upon
lessees like Chaparral a duty “to provide a marketable product available to market.”
954 P.2d at 1208. And as the OSC noted, “[i]t is common knowledge that raw or
unprocessed gas” must usually undergo one or more GCDTP services to make that
gas marketable.6 Id. Thus, because the costs of such GCDTP services are often
6
In Mittelstaedt, the OSC discussed “separation, dehydration, compression,
and treatment” but didn’t mention gathering or transporting. 954 P.2d at 1208.
8
“associated with” making gas marketable, the OSC explained that the IDM typically
precludes a lessee from “deducting a proportionate share” of those costs from royalty
payments. Id. at 1205. But the OSC then recognized that a lessee may sometimes be
able to demonstrate that gas is “in a marketable form at the well[head].” Id. at 1208.
In that scenario, GCDTP services aren’t “necessary” to transform the already-
marketable gas into a marketable product. Id. at 1208. Yet a lessee may nevertheless
opt to perform such services with an eye toward “enhancing” the value of the
“already[-]marketable” gas. Id. at 1210. And when it does so, the OSC explained, the
cost of performing such GCDTP services “may be allocated to the royalty interests”
if the lessee can make certain additional showings. Id.
We derive two controlling principles from Mittelstaedt. First, Mittelstaedt
resolved that when unmarketable gas undergoes GCDTP services for the purpose of
transforming that unmarketable gas into a marketable product, the lessee must bear
the cost of the GCDTP services. Second, Mittelstaedt resolved that when marketable
gas undergoes GCDTP services to enhance the value of gas that is already
marketable, the lessee may, under certain circumstances, allocate the cost of the
GCDTP services to royalty holders.
Yet Mittelstaedt left unresolved a whole host of other questions. The most
obvious are these: What does the term “marketable” mean, and what factors
Nevertheless, because neither party identifies any legally significant distinctions
between these services, we continue to use the term “GCDTP services” when
discussing Mittelstaedt.
9
determine when, where, and if gas became marketable for purposes of applying
Mittelstaedt’s marketable-product rule?
Notably, the OSC has declined at least two recent invitations to address these
questions. See Order Denying Certiorari, Whisenant v. Strat Land Expl. Co., No.
115,660 (Okla. Oct. 1, 2018); Order Denying Certiorari, Pummill v. Hancock Expl.
LLC, No. 114,703 (Okla. May 21, 2018). Further, the OSC declined one of these
invitations over the dissenting voices of two of its own members. See Dissent from
Order Denying Certiorari, Pummill, No. 114,703 (May 21, 2018) (Winchester, J.)
(noting that OSC “should grant certiorari to refine what constitutes a ‘marketable
product’ as that term is used in [Mittelstaedt]”).
Nevertheless, the Oklahoma Court of Civil Appeals (OCOCA) has attempted
to fill the resulting legal vacuum, albeit with somewhat inconsistent outcomes. See
Whisenant v. Strat Land Expl. Co., 429 P.3d 703, 707, 708–10 (Okla. Civ. App.
2018) (recognizing that term “marketable product” isn’t susceptible to and has no
uniform definition, but then implicitly suggesting marketability always turns, at least
in part, on individual characteristics of gas at issue); Pummill v. Hancock Expl. LLC,
419 P.3d 1268, 1278 (Oka. Civ. App. 2018) (indicating that in some cases, it may be
possible to answer marketability question based on characteristics of relevant market,
thus rendering individualized gas-quality assessment unnecessary).
In Whisenant, for instance, the OCOCA held that the state trial court erred
when, in proceeding under Okla. Stat. Ann. tit. 12, § 2023(B)(3), it certified a class
of Oklahoma royalty owners who brought claims similar to those Naylor Farms
10
advances here.7 See 429 P.3d at 706–07. Specifically, those royalty owners alleged
that the defendant, who operated several Oklahoma gas wells, breached the IDM by
calculating “royalties based on what it received from” a midstream processing
company, “rather than based on what” that midstream processing company “received
for the gas at the interstate (or intrastate) pipeline inlet.” Id. at 706.
In reversing the district court’s certification order, the Whisenant court
initially expressed its view that the OSC has, “for good reasons,” declined to “define
the meaning of ‘marketable product,’” opting instead to leave the marketability
question “open to resolution on a case-by-case basis.” Whisenant 429 P.3d at 708
(quoting Mittelstaedt, 954 P.2d at 1208). Nevertheless, immediately after suggesting
that the concept of marketability isn’t susceptible to any uniform definition or test,
the Whisenant court indicated that the answer to the marketability question will
always turn, at least in part, on “the quality of [the] gas” at issue. Id. at 710–12. Thus,
the Whisenant court reasoned, a “highly individualized and fact-intensive review of
each [class member’s] claim,” as informed by the quality of the gas at each
individual well, “would be necessary to determine if” the defendant in that case
breached the IDM. Id. at 707, 709–10 (quoting Strack v. Cont’l Res., Inc., 405 P.3d
131, 140 (Okla. Ct. Civ. App. 2017)).
In Pummill, on the other hand, a different panel of the OCOCA indicated that,
in some circumstances, it may be possible to determine whether gas is marketable
7
Section 2023(B)(3) is Rule 23(b)(3)’s state-law counterpart. See Whisenant,
429 P.3d at 706.
11
without undertaking such a gas-quality assessment. In that case, the state trial court
ruled that the gas at issue wasn’t marketable “at or near the wellhead” and that
instead the gas only became marketable once it “reache[d] the tailgate of” a
midstream processing plant—i.e., once the midstream processing company completed
certain GCDTP services. Pummill, 419 P.3d at 1271, 1276–78.
In reaching that conclusion, the trial court focused not on a qualitative analysis
of the gas itself, but on evidence about “the market in which” the defendants (there,
the well operator and multiple lessees) “chose[] to participate.” Id. at 1270–71, 1278.
In particular, although the gas at issue was physically transferred to the midstream
processing company near the wellhead, the trial court concluded that the well
operator was “not in the wellhead market.” Id. at 1271, 1278. Instead, the trial court
reasoned, no “actual sale” occurred until the gas was “acceptable for transport in”
and capable of being “transferred into” high-pressure pipelines. Id. at 1278. Thus, the
trial court deduced, the well operator was in the high-pressure pipeline market. And
because the gas wasn’t capable of being sold on the high-pressure pipeline market
until it was “compressed, treated, dehydrated, separated, and processed,” the trial
court ruled the gas wasn’t marketable until it underwent those services. Id.
The Pummill court affirmed. Id. at 1280. In doing so, it expressly endorsed the
trial court’s method of “focus[ing] on” when the gas at issue was first capable of
being sold on “the market in which” the well operator “chose[] to participate”—there,
the high-pressure pipeline market. Id. at 1278. And because the gas at issue wasn’t
capable of being sold on the high-pressure pipeline market until GCDTP services
12
rendered the gas “acceptable for transport in high-pressure pipelines,” the OCOCA
agreed the gas wasn’t marketable until that point. Id. Thus, the OCOCA held, the
IDM precluded the defendants from passing on to royalty owners the costs associated
with performing those GCTDP services. Id. at 1280.
Notably, en route to affirming the trial court’s ruling, the OCOCA declined to
adopt Kansas’s rule that gas is marketable once it is “acceptable to a purchaser in a
good[-]faith transaction.” Id. at 1276 (quoting Fawcett v. Oil Producers, Inc., 352
P.3d 1032, 1034 (Kan. Ct. App. 2015)). And the OCOCA likewise rejected the
defendants’ related argument that “raw or minimally processed gas” becomes
marketable as soon as a “limited group of potential purchasers” is willing to
“purchase” that gas “for further processing and sale downstream.” Id. at 1277; see
also id. at 1278 (explaining that “[e]vidence of hypothetical sales of raw product to a
limited group of potential purchasers to whom such gas would be acceptable[] does
not readily lend itself to a conclusion that the product being sold is ‘marketable’ in a
free and competitive market”). Instead, the Pummill court reasoned, gas becomes
marketable when it’s subject to an “actual sale.” Id. at 1278 (explaining that this
conclusion is “consistent with” OSC precedent describing “market value” of gas “as
being based on what [gas] will sell for, between a willing buyer and seller, in ‘a free
and open market’” (quoting Howell v. Texaco Inc., 112 P.3d 1154, 1159 (Okla.
2004))).
The OCOCA’s 2018 decisions in Pummill and Whisenant illustrate what has
long been clear: although “it is easy to articulate [Mittelstaedt’s] marketable-product
13
rule, application of it to a particular circumstance is difficult.” Foster v. Apache
Corp., 285 F.R.D. 632, 638 & n.14 (W.D. Okla. 2012). And for reasons we turn to
next, “[d]oing so in the class action context”—as the district court was required to
do here—is more difficult still. Id. at 638.
B. Rule 23’s Certification Requirements
Rule 23 sets forth the requirements for class certification.8 See Wal–Mart
Stores, Inc., 564 U.S. at 345. Only two of those requirements are at issue here: Rule
23(a)(2)’s commonality requirement and Rule 23(b)(3)’s predominance requirement.9
A plaintiff seeking class certification satisfies Rule 23(a)(2)’s commonality
requirement by demonstrating that “there are questions of law or fact common to the
class.” Fed. R. Civ. P. 23(a)(2). A plaintiff satisfies Rule 23(b)(3)’s related
predominance requirement by showing that “questions of law or fact common to
class members predominate over any questions affecting only individual members.”
Fed. R. Civ. P. 23(b)(3).
8
Rule 23’s requirements inform our analysis of each of the three discrete
arguments Chaparral presents on appeal. See infra Sections II, III.
9
Chaparral asserts that “Rule 23 includes an ‘implied requirement of
ascertainability’” and that Naylor Farms cannot satisfy this “implied requirement”
here. Aplt. Br. 14 (quoting Brecher v. Republic of Argentina, 806 F.3d 22, 24 (2d Cir.
2015)). But Chaparral fails to “cite the precise references in the record where” this
ascertainability argument “was raised and ruled on” below. 10th Cir. Rule 28.1(A).
And it also fails to make a case for plain error on appeal. Accordingly, we decline to
address this argument. See Richison v. Ernest Grp., Inc., 634 F.3d 1123, 1131 (10th
Cir. 2011); Harolds Stores, Inc. v. Dillard Dep’t Stores, Inc., 82 F.3d 1533, 1540 n.3
(10th Cir. 1996). Likewise, although Chaparral makes passing reference to Rule
23(a)(3)’s typicality requirement, see Aplt. Br. 23, 33, we find these “stray
sentences” insufficient to adequately brief any argument on this point. Eizember v.
Trammell, 803 F.3d 1129, 1141 (10th Cir. 2015).
14
Rule 23(a)(2)’s commonality requirement “is easy to misread.” Wal–Mart
Stores, Inc., 564 U.S. at 349. It requires a plaintiff to do more than merely identify “a
common contention”; instead, that “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.” Id. at 350. In other words, the focus of Rule 23(a)(2)’s commonality
requirement is not so much on whether there exist common questions, but rather on
“the capacity of a classwide proceeding to generate common answers apt to drive the
resolution of the litigation.” Id. at 350 (quoting Richard A. Nagareda, Class
Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97, 132 (2009)).
Rule 23(b)(3)’s predominance requirement is related to, albeit “more
demanding than,” Rule 23(a)(2)’s commonality requirement. Comcast Corp. v.
Behrend, 569 U.S. 27, 34 (2013). To satisfy Rule 23(b)(3), a plaintiff must “show
that common questions subject to generalized, classwide proof predominate over
individual questions.” CGC Holding Co., 773 F.3d at 1087; see also Tyson Foods,
Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1045 (2016) (“An individual question is one
where ‘members of a proposed class will need to present evidence that varies from
member to member,’ while a common question is one where ‘the same evidence will
suffice for each member to make a prima facie showing [or] the issue is susceptible
to generalized, class[]wide proof.’” (alteration in original) (quoting 2 William B.
Rubenstein et al., Newberg on Class Actions § 4:50 (5th ed. 2012))).
15
Notably, this doesn’t mean a plaintiff must show “that all of the elements of
the claim entail questions of fact and law that are common to the class” or “that the
answers to those common questions [are] dispositive” of the claim. CGC Holding
Co., 773 F.3d at 1087. Instead, the predominance inquiry “asks whether the common,
aggregation-enabling[] issues in the case are more prevalent or important than the
non-common, aggregation-defeating, individual issues.” Id. (quoting Newberg on
Class Actions § 4:49). Thus, to determine whether a plaintiff can satisfy Rule
23(b)(3)’s predominance requirement, a court must first “characterize the issues in
the case as common or not, and then weigh which issues predominate.” Id. (quoting
Newberg on Class Actions § 4:50). Critically, so long as at least one common issue
predominates, a plaintiff can satisfy Rule 23(b)(3)—even if there remain individual
issues, such as damages, that must be tried separately. Tyson Foods, Inc., 136 S. Ct.
at 1045.
Having reviewed the relevant Rule 23 requirements and examined Oklahoma’s
treatment of the marketability question, we next explain how the district court treated
the interplay between the former and the latter in ruling on Naylor Farms’ motion to
certify.
C. The District Court’s Ruling
The district court found that Naylor Farms successfully identified at least one
common question: whether Chaparral breached the IDM.10 And the court then ruled
10
Chaparral contends the district court erred in concluding that the threshold
issue of whether each lease contains an IDM is “in and of itself” a common question.
16
that this common question predominates over any individual ones.
Critically, in doing so, the district court first narrowed the class to include only
those royalty owners whose leases contain clauses that are similar to the royalty
clauses (collectively, Mittelstaedt Clauses) the OSC considered in three cases:
(1) Mittelstaedt, (2) TXO Production Corp. v. State ex rel. Commissioners of Land
Office, 903 P.2d 259 (Okla. 1995), and (3) Wood v. TXO Production Corp., 854 P.2d
880 (Okla. 1993). Because the OSC has held that the language of these Mittelstaedt
Clauses “does not negate the IDM” and “is consistent with the marketable[-]product
rule,” the district court reasoned that—contrary to Chaparral’s arguments—any
remaining “variations in lease language” do not defeat commonality or
predominance. App. vol. 5, 1148, 1153.
Next, the district court rejected Chaparral’s argument that in order to
determine whether Chaparral breached the IDM, a jury will have to engage in an
Aplt. Br. 11. As an initial matter, we disagree with the premise of this argument; at
most, it appears the district court treated the existence of the IDM “and its alleged
breach” as a compound common question. App. vol. 5, 1154 (emphasis added).
In any event, even assuming the district court treated the existence of the IDM
as a standalone common question and even assuming it erred in doing so, the error
was harmless; the district court correctly concluded that whether Chaparral breached
the IDM is a common question. See Wal–Mart Stores, Inc., 564 U.S. at 350
(explaining that question is common for purposes of Rule 23(a)(2) if its answer “will
resolve an issue that is central to the validity of each one of the claims in one
stroke”); cf. Menocal v. GEO Grp., Inc., 882 F.3d 905, 916–17 (10th Cir.) (holding
that question of whether defendant’s policy violated federal statute constituted
common question), cert. denied, 139 S. Ct. 143 (2018). Chaparral doesn’t seriously
argue otherwise. And when it comes to satisfying Rule 23(a)(2)’s commonality
requirement, the existence of this single common question “will do.” Wal–Mart
Stores, Inc., 564 U.S. at 359.
17
individualized “well-by-well analysis” to determine when the gas from each well
became marketable. Id. at 1149. In rejecting this argument, the district court
acknowledged that gas quality might vary from well to well and that, as a result,
some gas might require more or different GCTDP services to become marketable
than other gas. But the district court explained that in order to determine whether
Chaparral breached the IDM, an individualized gas-quality analysis is nevertheless
“unnecessary” in this case because, as Naylor Farms demonstrated, all the gas at
issue “require[d]” at least one GCDTP service “to become marketable.” Id. at 1149,
1151, 1157.
Thus, the district court appeared to recognize, differences in the precise
number and nature of GCDTP services required to make the gas from each well
marketable are relevant only to the post-breach question of damages. And because
Naylor Farms “provided evidence that [its] expert can determine damages on a
class[]wide basis through use of a model,” the district court ruled these distinctions
don’t defeat predominance. Id. at 1155. Alternatively, the district court pointed out
that if necessary, it can divide the class into subclasses at a later date for purposes of
determining damages. See Fed. R. Civ. P. 23(c)(1)(C) (“An order that grants or
denies class certification may be altered or amended before final judgment.”), (c)(5)
(“When appropriate, a class may be divided into subclasses that are each treated as a
class under this rule.”). Accordingly, the district granted Naylor Farms’ motion to
certify.
18
D. Our Standard of Review
Our review of the district court’s decision is highly deferential. So long as the
district court “applied the proper standard in deciding whether to certify [the] class,
we may reverse that decision only for abuse of discretion.” CGC Holding Co., 773
F.3d at 1085 (quoting Adamson v. Bowen, 855 F.2d 668, 675 (10th Cir. 1988)); see
also Vallario, 554 F.3d at 1264 (“Because class certification decisions are necessarily
case specific, district courts possess significant latitude in deciding whether or not to
certify a class.” (citation omitted)). A “district court abuses its discretion when it
misapplies the Rule 23 factors—either through a clearly erroneous finding of fact or
an erroneous conclusion of law—in deciding whether class certification is
appropriate.” CGC Holding Co., 773 F.3d at 1085–86.
Here, Chaparral doesn’t argue that the district court failed to apply the proper
Rule 23 standard. Thus, in addressing those arguments Chaparral does make, we must
defer to the district court’s ruling unless Chaparral shows the district court’s
certification decision falls outside “the bounds of rationally available choices given
the facts and law involved in the matter at hand.” Id. at 1086 (quoting Vallario, 554
F.3d at 1264). For the reasons discussed below, we conclude that Chaparral fails to
make this demanding showing.
E. Chaparral’s Marketability Arguments
Chaparral’s primary argument on appeal is that the district court abused its
discretion in ruling that Naylor Farms demonstrated commonality and predominance
because such a ruling is irreconcilable with Oklahoma’s approach to determining
19
marketability. Or, as Chaparral puts it, “Certifying a class of ‘Mittelstaedt Clause
[l]eases’ is contrary to Mittelstaedt.” Aplt. Br. 16.
Recall that, under Mittelstaedt, two things are clear. First, when unmarketable
gas undergoes GCDTP services for purposes of transforming the unmarketable gas
into a marketable product, a lessee breaches the IDM by passing on to royalty owners
the cost of performing those GCDTP services. See Mittelstaedt, 954 P.2d at 1205.
Second, when marketable gas undergoes GCDTP services to enhance the value of
gas that is already marketable, a lessee may, under certain circumstance, allocate the
cost of those services to royalty owners without breaching the IDM. Id. at 1210.
Thus, to determine whether Chaparral breached the IDM—i.e., to answer the question
the district court determined was common to the class for purposes of satisfying Rule
23(a)(2)’s commonality requirement—a jury will have to determine when the gas at
issue became marketable.
Here, as Chaparral points out, the district court ruled that (1) the question of
when the gas became marketable can be answered via generalized, classwide proof
and (2) as a result, the marketability question doesn’t defeat predominance. See Fed.
R. Civ. P. 23(b)(3) (allowing for certification if common questions predominate over
individual ones); Tyson Foods, Inc., 136 S. Ct. at 1045 (“An individual question is
one where ‘members of a proposed class will need to present evidence that varies
from member to member,’ while a common question is one where ‘the same evidence
will suffice for each member to make a prima facie showing [or] the issue is
20
susceptible to generalized, class[]wide proof.’” (first alteration in original) (quoting
Newberg on Class Actions § 4:50)).
But according to Chaparral, the district court’s ruling on this point rests on a
flawed assumption. Specifically, Chaparral contends that in ruling a jury can answer
the marketability question without undertaking a well-by-well analysis, the district
court relied on the fact that all the gas at issue actually underwent GCDTP services.
And in so ruling, Chaparral argues, the district court made a legally erroneous
assumption: it incorrectly assumed that any time gas undergoes GCDTP services, this
proves, ipso facto, that the gas wasn’t marketable before it underwent those services.
We agree with Chaparral that if the district court assumed GCDTP services
function solely as a mechanism for transforming unmarketable gas into a marketable
product, then the court committed a legal error. As Chaparral correctly points out,
Mittelstaedt expressly recognizes that sometimes even marketable gas undergoes
GCDTP services—not to “create a marketable product” but to “transform[] an
already[-]marketable product into an enhanced” one. Mittelstaedt, 954 P.2d at 1209–
10; see also id. at 1208 (acknowledging that it’s possible for gas to “be in a
marketable form at the well[head],” i.e., before any GCDTP services are
performed).11 But we disagree with Chaparral that the district court ever assumed
otherwise.
11
In asserting that gas can be marketable at the wellhead, Chaparral appears to
rely in part on its position that the gas at issue here was in fact marketable at the
wellhead—because (according to Chaparral) that is where Chaparral first “sold” the
21
That is, contrary to Chaparral’s argument, the district court neither ruled nor
assumed “that gas must be unmarketable if it goes through a processing plant or
receives one or more of the GCDTP services.” Aplt. Br. 19. On the contrary, the
district court expressly recognized that the marketability question turns not on
whether the gas undergoes GCDTP services, but on whether the gas undergoes
GCDTP services “to become marketable.” App. vol. 5, 1151. Indeed, the district
court expressly relied on evidence indicating that all the gas at issue here “require[d]
GCDTP services to be made marketable” in order to distinguish the facts of this case
from those before this court in Wallace B. Roderick Revocable Living Trust v. XTO
Energy, Inc., 725 F.3d 1213 (10th Cir. 2013); in that case, the district court pointed
out, some of the gas at issue “may [have been] marketable at the well.” App. vol. 5,
1146 (emphases added) (quoting Roderick, 725 F.3d at 1217). Critically, in making
this distinction, the district court necessarily acknowledged both that (1) “gas may be
marketable at the well[head]” and (2) the performance of GCDTP services does not
prove, ipso facto, that the gas at issue was not marketable before those services were
gas “to a [midstream processing company] in a good[-]faith transaction.” Aplt. Br.
20; see also id. at 18 (“Gas is in marketable condition once it can be marketed.”).
As an initial matter, we question whether the OSC would adopt this good-
faith-transaction test for marketability. See Pummill, 419 P.3d at 1278–79
(suggesting good-faith-transaction approach is inconsistent with controlling OSC
authority). More importantly, as the district court noted below, accepting as true
Chaparral’s blanket assertion that all the gas at issue was marketable at the wellhead
because that is where Chaparral could first “market[]” it to midstream processing
companies, Aplt. Br. 18, would serve only to “demonstrate[]” commonality, not
“negate[]” it, App. vol. 5, 1149; such a blanket rule would obviate the need for any
individualized analysis of the gas from each well.
22
performed. Id. (quoting Roderick, 725 F.3d at 1217). Accordingly, we reject
Chaparral’s assertion that the district court assumed otherwise.
Alternatively, Chaparral argues that the district court erred in treating
marketability as a question of law. Instead, Chaparral asserts, marketability is a
question of fact—one that turns, at least in part, on “gas quality.” Aplt. Br. 23. And it
further insists that because the quality of its gas varies from well to well, a jury will
be unable to resolve the marketability question (and, by extension, the question of
whether Chaparral breached the IDM) without performing a well-by-well analysis to
determine whether any of the gas at issue was marketable at the wellhead. Thus,
Chaparral insists, the district court abused its discretion in failing to recognize that
marketability defeats commonality and predominance.
In evaluating this argument, we need not resolve whether the district court
treated marketability as a question of law or a question of fact. Nor must we resolve
whether, if the district court indeed treated marketability as a question of law, it erred
in doing so.12 Even assuming Chaparral is correct on both points, that doesn’t
necessarily mean Chaparral is entitled to reversal. On the contrary, “we may affirm
on any basis supported by the record, even if it requires ruling on arguments not
reached by the district court.” Richison, 634 F.3d at 1130. That is, we have a
“preference for affirmance”—one that “follows from the deference we owe to the
12
We nevertheless note in passing that it appears Oklahoma indeed treats
marketability as question of fact. See, e.g., Whisenant, 429 P.3d at 708 n.6; Pummill,
419 P.3d at 1274 n.9.
23
district courts and the judgments they reach, many times only after years of involved
and expensive proceedings.” Id. And “[b]ecause of the cost and risk involved anytime
we upset a court’s reasoned judgment, we are ready to affirm whenever the record
allows it.” Id. Thus, to demonstrate it is entitled to reversal, Chaparral must
“shoulder a heavy burden”: it “must come ready both to show” that the district court
erred and “to explain why no other grounds” will allow us to affirm the district
court’s decision. Id. For the reasons discussed below, we conclude that in light of the
OCOCA’s persuasive reasoning in Pummill, Chaparral cannot shoulder the second
part of this heavy burden here. See West v. Am. Tel. & Tel. Co., 311 U.S. 223, 237
(1940) (explaining that decision of intermediate state appellate court “is a datum for
ascertaining state law [that] is not to be disregarded by a federal court unless it is
convinced by other persuasive data that the highest court of the state would decide
otherwise”).
In Pummill, the OCOCA relied heavily on two factors in affirming the state
trial court’s ruling that the gas at issue wasn’t marketable before it underwent
GCTDP services. As an initial matter, the OCOCA pointed out that the first “actual
sale” of the gas occurred not when the defendants transferred the gas to a midstream
processing company, but instead “at the ‘tailgate’ of the [processing] plants, where
[the gas was] transferred into high-pressure lines.” 419 P.3d at 1277–78. And the
OCOCA deduced from the location of this first “actual sale” that “the market in
which” the defendants “chose[] to participate” was the pipeline market, not the
wellhead market. Id. Second, the OCOCA noted that the gas had to undergo GCDTP
24
services to make it “acceptable for delivery” into the high-pressure pipelines. Id. at
1277. Accordingly, the OCOCA concluded that the IDM precluded the defendants
from “deduct[ing] from [the plaintiffs’] royalties the proportionate expenses
associated with preparing the gas for sale” to such pipelines. Id. at 1280.
Here, Naylor Farms has presented evidence of these same two factors. More
importantly, it has presented classwide evidence of these same two factors. See Tyson
Foods, Inc., 136 S. Ct. at 1045 (explaining that for purposes of Rule 23(b)(3), “a
common question is one where ‘the same evidence will suffice for each member to
make a prima facie showing [or] the issue is susceptible to generalized, class[]wide
proof’” (alteration in original) (quoting Newberg on Class Actions § 4:50)). First, the
record contains classwide evidence indicating that Chaparral, like the defendants in
Pummill, elects to participate in the high-pressure-pipeline market: according to
Naylor Farms’ expert, this is where Chaparral’s gas is actually “sold.” Aplt. Supp.
App. vol. 18, 5270; see also Pummill, 419 P.3d at 1278 (noting that pipeline market
was where first “actual sale” of gas occurred). Second, Naylor Farms’ expert opined
that, as a classwide matter, the gas at issue here—like the gas at issue in Pummill—
was required to undergo at least one GCDTP service before it could “reach” and be
“sold into” the pipeline market.13 Aplt. Supp. App. vol. 18, 5270–71; see also
Pummill, 419 P.3d at 1277 (concluding that gas wasn’t marketable on pipeline market
13
Notably, despite Chaparral’s insistence that a well-by-well analysis is
necessary to determine when the gas became marketable, Chaparral fails to point to
any evidence in the record indicating that such an individualized analysis would yield
a different conclusion.
25
until it was “acceptable for delivery” into relevant pipelines); cf. Wood, 854 P.2d at
882 (explaining that IDM imposes “a duty to get the product to the place of sale in
marketable form” (emphasis added)).
In short, the district court’s ruling that marketability is subject to classwide
proof under the specific facts of this case is entirely consistent with the OCOCA’s
decision in Pummill. Thus, Chaparral faces an uphill climb in attempting to show that
this particular ruling rests on an error of state law. See West, 311 U.S. at 237. In
attempting to make that showing here, Chaparral relies heavily on the OCOCA’s
recent decision in Whisenant.
In Whisenant, the OCOCA held that the state trial court erred in certifying a
class of Oklahoma royalty owners under Oklahoma’s analog to Rule 23, reasoning
that a “highly individualized and fact-intensive review of each [class member’s]
claim,” as informed by the quality of gas at each individual well, “would be
necessary to determine if” the defendant in that case breached the IDM. 429 P.3d at
707–10 (quoting Strack, 405 P.3d at 140)). Citing Whisenant, Chaparral insists that
under Oklahoma law, marketability can never be susceptible to classwide proof
because it will always require an individualized assessment of the gas produced by
each well. And to the extent the district court failed to recognize as much here,
Chaparral contends, the court made a legal error and thereby abused its discretion.
See CGC Holding Co., 773 F.3d at 1085–86 (“The district court abuses its discretion
when it misapplies the Rule 23 factors—either through a clearly erroneous finding of
26
fact or an erroneous conclusion of law—in deciding whether class certification is
appropriate.”).
In light of Whisenant’s similar procedural posture, Chaparral’s argument isn’t
without appeal. But because that argument overlooks a critical aspect of Whisenant’s
analysis, we ultimately reject it. That is, the Whisenant court did hold that, in that
particular case, “determinations of the quality of gas and other facts pertinent to each
well” weren’t “susceptible to generalized proof.” 429 P.3d at 710. But the Whisenant
court also expressly eschewed the type of rigid, one-size-fits-all approach to
marketability that Chaparral asks us to endorse here. Specifically, the Whisenant
court recognized that the OSC has declined to adopt a uniform test for determining
when gas becomes marketable, and that the OSC has instead “left the issue open to
resolution on a case-by-case basis.” 429 P.3d at 708. And in recognizing as much, the
Whisenant court necessarily “left . . . open” the possibility that, in some cases, a
factfinder may be able to determine when gas became marketable without
undertaking an individualized inquiry into the quality of that gas. Id.
Critically, the facts in Pummill (and, by extension, the facts in this case) fit
comfortably in the space “left . . . open” by Whisenant. Id. Thus, despite any tension
that might exist between Pummill and Whisenant, we rely on both—and “disregard[]”
neither—in predicting how the OSC would answer the marketability question before
us in this appeal. West, 311 U.S. at 237. And in light of Pummill and Whisenant, we
predict the OSC would answer that question by holding that, under the facts of this
case, a jury could determine when the gas at issue became marketable without
27
individually assessing the quality of that gas; instead, a jury could make this
determination based solely on expert testimony that all the gas at issue was required
to undergo at least one GCDTP service before it could “reach” and be “sold into” the
pipeline market. Aplt. Supp. App. vol. 18, 5270–71. See Whisenant, 429 P.3d at 708
(opining that OSC has intentionally and wisely “left the issue [of marketability] open
to resolution on a case-by-case basis”); Pummill, 419 P.3d at 1273, 1278 (indicating
that in some cases, it may be possible to answer marketability question based on
characteristics of relevant market, thus rendering individualized gas-quality
assessment unnecessary). Accordingly, the district court didn’t abuse its discretion by
concluding that the marketability question in this particular case is subject to
common, classwide proof for purposes of satisfying Rule 23’s commonality and
predominance requirements. See Tyson Foods, Inc., 136 S. Ct. at 1045; CGC Holding
Co., 773 F.3d at 1086; Richison, 634 F.3d at 1130.
II. Lease Language
Next, Chaparral asserts that even if gas-quality variations don’t pose a bar to
certification, lease-language variations do. Specifically, Chaparral asserts that “[a]t
trial, every one of the contracts will have to be considered individually, defeating
commonality and predominance.” Aplt. Br. 27–28. But the district court concluded
otherwise, ruling that its decision to limit the class to leases containing a Mittelstaedt
Clause renders such an individualized analysis unnecessary.14
14
Naylor Farms asserts we should take judicial notice of certain briefing in
Mittelstaedt because, according to Naylor Farms, that briefing sheds additional light
28
In challenging this conclusion, Chaparral first asserts the district court
abdicated its duty to determine which leases actually contain a Mittelstaedt Clause
and instead merely “satisfied itself with [Naylor Farms’] contentions” that this is so.
Id. at 28. We disagree. As the district court noted, Naylor Farms prepared a chart that
“categorized” the leases at issue “by royalty[-]clause language.” App. vol. 5, 1143.
And we have previously indicated that this is precisely what a plaintiff should do to
establish commonality under these circumstances. See Roderick, 725 F.3d at 1219.
Like Naylor Farms, the plaintiffs in Roderick asserted that each class
member’s lease contained an IDM. Id. at 1218. But neither the plaintiffs nor the
district court bothered to examine all the leases to verify this assertion. Id. at 1219.
Thus, this court recommended that on remand, the plaintiffs should consider
“creat[ing] a chart classifying lease types.” Id. And if they did so, this court opined,
“the district court could” rely on that chart to “decide that no lease type negates the
IDM.” Id.
Here, Naylor Farms created such a chart. And contrary to Chaparral’s
assertions, the district court independently “confirmed that” the chart was “generally
accurate.” App. vol. 5, 1147. Notably, Chaparral doesn’t provide us with any
information that might call into question the district court’s assessment of the chart’s
accuracy. Instead, Chaparral merely asserts that because there exist distinctions
on the lease language at issue in Mittelstaedt as well as the arguments the parties
made about that language. Because we conclude we may resolve Chaparral’s lease-
language arguments without this additional information, we deny Naylor Farms’
motion to take judicial notice.
29
between the facts in this case and the facts in TXO, 903 P.2d 259, and Wood, 854
P.2d 880—each of which involved a Mittelstaedt Clause—“the district court could
not” rely on these two cases to “determine as a matter of law whether” Chaparral
could “share[]” certain costs with royalty owners. Aplt. Br. 28–29. In particular,
Chaparral asserts that although the costs in TXO and Wood were incurred on the
leased premises, “[t]he costs here were incurred off-lease.” Id. at 28.
Perhaps these “facts” will ultimately be relevant to the merits question of
whether Chaparral breached the IDM. Id. Perhaps not. Either way, we fail to see how
they might be relevant to the question of whether, as a threshold matter, the class
leases contain an IDM. And the chart was designed to aid the district court in
answering the latter question, not the former one. See Roderick, 725 F.3d at 1218
(noting that chart could aid district court in determining whether “every class
member’s lease” contained IDM and, by extension, could help district court
determine whether plaintiff satisfied Rule 23(a)(2)’s commonality requirement).
Here, Chaparral offers no further explanation regarding the relevance of these
“facts” vis-à-vis the district court’s Rule 23 inquiry. Aplt. Br. 28; see also Amgen
Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 466 (2013) (“Rule 23 grants
courts no license to engage in free-ranging merits inquiries at the certification stage.
Merits questions may be considered to the extent—but only to the extent—that they
are relevant to determining whether the Rule 23 prerequisites for class certification
are satisfied.”). Further, Chaparral’s position that all “[t]he costs here were incurred
off-lease” would tend to support the district court’s rulings on predominance and
30
commonality, not undermine them. Id. at 28; see also Tyson Foods, Inc., 136 S. Ct. at
1045; Wal–Mart Stores, Inc., 564 U.S. at 350. Accordingly, we decline to hold that
the district court abused its discretion by relying on Naylor Farms’ chart after
“confirm[ing] that” the chart was “generally accurate.” App. vol. 5, 1147.
Chaparral’s remaining arguments about lease language rest on its assertions
that (1) the leases at issue contain multiple royalty provisions and (2) the interplay
between these royalty provisions renders the leases ambiguous. According to
Chaparral, this ambiguity would entitle Chaparral to present individualized extrinsic
evidence of “the intent of the parties and the meaning of the leases” at trial, including
“exhibits [and] interlineations” to each individual lease, as well as evidence about
industry customs in effect “when the various leases were executed.” Aplt. Br. 33–36.
But as Naylor Farms points out, Chaparral didn’t advance this specific
extrinsic-evidence argument below as a basis for denying Naylor Farms’ motion to
certify the class. Instead, Chaparral merely asserted that, as a general matter,
“differences in royalty obligations” and lease language defeat commonality and
predominance.15 App. vol. 2, 411. Critically, our “rule against considering new
arguments on appeal applies equally when ‘a litigant changes to a new theory on
appeal that falls under the same general category as an argument presented at trial.’”
15
In its reply brief, Chaparral asserts for the first time that it raised an
extrinsic-evidence argument in its response to Naylor Farms’ motion for summary
judgment. We agree that Chaparral’s response to Naylor Farms’ summary-judgment
motion refers to what might be classified as extrinsic evidence. But we see no
argument there that the need to examine such evidence precludes certification. Nor
do we see any indication that the district court ever ruled on such an argument.
31
United States v. Nelson, 868 F.3d 885, 891 n.4 (10th Cir. 2017) (quoting Lyons v.
Jefferson Bank & Tr., 994 F.2d 716, 722 (10th Cir. 1993)). Further, Chaparral fails to
argue for plain error on appeal. Accordingly, it has waived its extrinsic-evidence
argument. See Richison, 634 F.3d at 1131.
Alternatively, even assuming Chaparral preserved its extrinsic-evidence
argument below, it fails to adequately brief this argument on appeal. This is so
because Chaparral fails to identify any specific extrinsic evidence—in the form of an
exhibit, interlineation, or industry custom—that might allow a jury to conclude that
Chaparral breached the IDM as to one lease but not another. See Fed. R. App. P.
28(a)(8)(A) (requiring argument section of appellant’s brief to contain “appellant’s
contentions and the reasons for them, with citations to the authorities and parts of the
record on which the appellant relies”); Bronson v. Swensen, 500 F.3d 1099, 1104
(10th Cir. 2007) (explaining that we routinely decline to consider inadequately
briefed arguments). Accordingly, even assuming the district court erred, we see no
basis upon which to conclude the district court’s error prejudiced Chaparral. See
Shinseki v. Sanders, 556 U.S. 396, 410 (2009) (explaining that “the party seeking
reversal normally must explain why the erroneous ruling caused harm”). Thus, we
decline to reverse on this basis. And for the same reasons, we likewise decline to
reverse based on Chaparral’s assertion that even in the absence of any ambiguity in
the leases, a jury will be required to consider industry customs in effect “when the
various leases were executed” to determine whether Chaparral breached the terms of
32
each individual lease. Aplt. Br. 36. Again, Chaparral neither identifies any particular
customs nor explains their legal relevance.
In its final lease-language argument, Chaparral asserts that individual
variations in its agreements with midstream processing companies, rather than in its
agreements with Naylor Farms and other royalty owners, defeat commonality and
predominance. In support, Chaparral says Naylor Farms’ underlying legal theory is
that Chaparral committed fraud by using wellhead sales contracts to circumvent
Oklahoma law. And to evaluate this theory, Chaparral contends, a jury will have to
conduct an individualized inquiry to determine whether Chaparral entered into each
of those wellhead sales contracts in good faith.
But this argument overlooks the fact that the district court declined to certify
Naylor Farms’ fraud claim. And Chaparral cites no authority indicating that whether
it entered into the wellhead sales contracts in good faith is dispositive of, or even
relevant to, the claims the district court did certify. Accordingly, we find this
argument inadequately briefed and decline to consider it as well. See Fed. R. App. P.
28(a)(8)(A); Bronson, 500 F.3d at 1104. And we further conclude that Chaparral
therefore fails to demonstrate the district court abused its discretion in certifying the
class despite minor variations in lease language.
III. Uniform Payment Methodology
As a final matter, Chaparral asserts Naylor Farms failed to demonstrate that
Chaparral uses a uniform payment methodology to calculate royalty payments and
33
that this “lack of a common payment methodology defeats class certification.” Aplt.
Br. 39.
We have indeed explained that the existence of a uniform payment
methodology, standing alone, isn’t sufficient to establish predominance. See
Roderick, 725 F.3d at 1220. But contrary to Chaparral’s assertion, we see nothing in
Roderick that indicates the existence of such a methodology is necessary to
accomplish this task. Accordingly, we reject this argument. And to the extent
Chaparral instead means to suggest that individual questions about damages defeat
predominance, we do not agree. “The fact that damages may have to be ascertained
on an individual basis is not, standing alone, sufficient to defeat class certification.”
Menocal, 882 F.3d at 922 (quoting Roderick, 725 F.3d at 1220)). Instead, “material
differences in damages determinations” will only destroy predominance if those
“individualized issues will overwhelm . . . questions common to the class.” Roderick,
725 F.3d at 1220.
We see no indication that will occur here. On the contrary, as the district court
pointed out, Naylor Farms “provided evidence that [its] expert can determine
damages on a class[]wide basis through use of a model,” thus obviating the need for
individualized evidence. App. vol. 5, 1155; see also Tyson Foods, Inc., 136 S. Ct. at
1045. And Chaparral fails to explain why that model is inaccurate or unworkable.
Further, the district court correctly noted that if necessary, it can later divide the class
into subclasses for purposes of determining damages. See Fed. R. Civ. P. 23(c)(1)(C),
(c)(5); Roderick, 725 F.3d 1213. Thus, the district court didn’t abuse its discretion in
34
ruling that individual questions about damages don’t defeat predominance. See
Roderick, 725 F.3d 1213 (“[T]he district court is in the best position to evaluate the
practical difficulties which inhere in the class action format, and is especially suited
to tailor the proceedings accordingly.”).
Conclusion
For the reasons discussed above, we conclude that Chaparral fails to
demonstrate the district court’s decision to certify the class falls outside “the bounds
of rationally available choices given the facts and law involved in the matter at
hand.” CGC Holding Co., 773 F.3d at 1086 (quoting Vallario, 554 F.3d at 1264). We
therefore affirm the district court’s order.
35