David Pollock v. Energy Corporation of America

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
Nos. 15-2648 & 15-2649
______________
DAVID F. POLLOCK, as Executor of the Estate of Margaret F. Pollock;
JOHN T. DIBIASE, JR.; JOHN S. FRAYTE; STUART W. WHIPKEY;
PATRICIA L. CHRISTOPER; LOUIS A. VECCHIO; BESSIE P. VECCHIO;
BARBARA A. MORRIS; GENE M. VIRGILI; ERIN R. VIRGILI;
LLOYD R. SHAFFER, III, on Behalf of Themselves and All Others Similarly Situated
v.
ENERGY CORPORATION OF AMERICA,
Appellant in 15-2648
JOHN T. DIBIASE, JR.; JOHN S. FRAYTE; STUART W. WHIPKEY;
PATRICIA L. CHRISTOPHER; LOUIS A. VECCHIO; BESSIE P. VECCHIO;
GENE M. VIRGILI; ERIN R. VIRGILI; LLOYD R. SHAFFER, III,
Appellants in 15-2649
______________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
(D.C. Civ. No. 2-10-cv-01553)
District Judge: Honorable Robert C. Mitchell
_____________
Argued September 15, 2016
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Before: CHAGARES, GREENAWAY, JR., and RESTREPO, Circuit Judges.
(Opinion Filed: October 24, 2016)
Kevin C. Abbott
Stacey L. Jarrell
Nicolle R. Snyder Bagnell [ARGUED]
Justin H. Werner
Reed Smith
225 Fifth Avenue
Suite 1200
Pittsburgh, PA 15222
Counsel for Appellant/Cross Appellee
William R. Caroselli
David A. McGowan
Caroselli Beachler McTiernan & Conboy
20 Stanwix Street
7th Floor
Pittsburgh, PA 15222
Robert C. Sanders [ARGUED]
12051 Old Marlboro Pike
Upper Marlboro, MD 20772
Counsel for Appellees/Cross Appellants
______________
OPINION*
______________
GREENAWAY, JR., Circuit Judge.
Appellant Energy Corporation of America (“ECA”) challenges the District Court’s
denial of its motion for judgment as a matter of law with respect to the jury verdict in
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
2
favor of a class of landowners (“Appellees”). Appellees lease the mineral rights to their
property to ECA for the purposes of extracting the natural gas therefrom in exchange for
royalties equivalent to one-eighth of the net proceeds from the eventual sale of the gas.
ECA argues that there was an insufficient evidentiary basis for the jury to find that it
breached its lease agreements from November 22, 2006 through March 26, 2012 by
improperly withholding post-production costs for transporting and marketing the gas.
ECA requests, in the alternative, a new trial on the ground that the District Court erred in
allowing testimony by Appellees’ expert, a request that the District Court treated as a
motion for reconsideration of its earlier decision to allow the expert testimony. For the
reasons set forth below, we affirm the judgment of the District Court in its entirety.
I. BACKGROUND
ECA is an exploration production company that “goes out and looks for places [in
which it believes] natural gas may exist . . . and enters into . . . leases with people to lease
their mineral rights.” (J.A. 1642.) Appellees are a certified class of Pennsylvania
landowners who entered into such mineral-rights leases with ECA. Although there is
some variation in the terms of the respective leases, “the leases all generally provide that
[Appellees] are entitled to a royalty of one-eighth of the net proceeds received from the
sale of gas.” (J.A. 8.) The Supreme Court of Pennsylvania has held that post-production
costs—the transportation and marketing costs incurred once the gas enters the interstate
pipeline to bring the gas to market—are properly deductible from the gross proceeds of
3
gas sales prior to the disbursement of royalties, a process called the “netback method.”1
Kilmer v. Elexco Land Servs., Inc., 990 A.2d 1147, 1149, 1158 (Pa. 2010).
Until 2012, ECA sold the gas it produced exclusively to its affiliate company,
EMCO (Eastern Marketing Corporation), which then marketed, shipped, and sold the gas
to buyers.2 In the ECA-EMCO base contract, ECA is designated “Seller,” and EMCO is
designated “Buyer.” (J.A. 1947.) The base contract specifies that “[t]he title to the gas
sold and delivered pursuant to this Contract shall pass from SELLER to BUYER’s
Purchaser(s) at the Delivery/Receipt Point(s) identified on the attached Limited Term
Purchase/Sale Agreement(s).”3 (J.A. 1948.)
George O’Malley, formerly the Vice President of Accounting for ECA, described
the flow of funds for the relevant time period as follows: (1) EMCO’s buyers paid
money constituting the gross proceeds from the gas sale into ECA’s concentration
account, or the account in which “ECA kept all the cash related to all its entities.” (J.A.
1621.) O’Malley explained that the buyers’ payments “were received into the ECA
1
The netback method does not permit deduction of the costs incurred in extracting
gas from the land, nor does it contemplate the deduction of “any cost[s] incurred after the
gas is sold.” (J.A. 1820; see Kilmer, 990 A.2d at 1149.)
2
Randall C. Farkosh, the Vice President of Marketing for ECA, testified that, in
marketing and shipping the gas, “EMCO actually acted as the agent for ECA.” (J.A.
1691–92.) In 2012, marking the end of the time period relevant to the case, “EMCO
merged into the parent company” and “no longer exists.” (J.A. 1706.) ECA now directly
markets, sells, and transports the gas it produces.
3
The base contract is silent with respect when title passes from ECA to EMCO, a
necessary intermediate step in the passage of title from ECA to EMCO’s buyers.
4
concentration account on behalf of EMCO” and remained in the ECA account, but were
put on EMCO’s books.4 (J.A. 1645.) (2) EMCO then paid ECA “the net proceeds of gas
sales” by check each month. (3) These checks were then “deposited by ECA back into
[its] concentration account.”5 (J.A. 1645–46.) (4) Finally, ECA paid one-eighth of the
money it received to Appellees.
On November 22, 2010, Appellees filed a complaint against ECA; they filed an
amended complaint on March 4, 2011. On March 28, 2011, ECA moved to dismiss the
amended complaint; the District Court granted this motion in part and dismissed it in part
by order dated August 22, 2011. The claims were further honed by cross-motions for
summary judgment that the District Court granted in part and dismissed in part on
January 24, 2013. After disputes surrounding class certification, discovery issues, and
motions in limine as to projected expert testimony,6 trial began on March 2, 2015.
4
O’Malley stressed that the books of the two corporations were kept separately,
and, indeed, the District Court instructed the jury that “[t]he parties agree that ECA and
EMCO were separate, independent corporations” and that “there is no claim in this case
that there was anything improper or unlawful about the intercompany accounting
between ECA and EMCO.” (J.A. 1860.)
5
Farkosh testified that the price agreed to between ECA and EMCO was, “[i]n
general, . . . the weighted average sales price less a marketing fee of 15 cents and less any
applicable transportation.” (J.A. 1684.)
6
For the purposes of this appeal, only the Daubert hearing that took place on
February 25, 2015, after which the District Court determined that it would allow
testimony by Appellees’ proposed expert witness, Julia Bodamer, is relevant, inasmuch
as ECA’s motion for a new trial challenges this decision.
5
The jury was called upon to determine whether Appellees had proved, by a
preponderance of the evidence, that: (1) Appellees were improperly underpaid royalties,
and, if so, that ECA had improperly deducted (2) transportation charges and (3)
marketing fees. On March 5, 2015, the jury rendered a verdict in favor of Appellees on
all claims, and the District Court entered judgment in the stipulated amount of
$911,922.16—$105,187.65 for interstate transportation charges and $806,734.51 in
marketing fees—plus prejudgment interest. The Court determined, on March 19, 2015,
that the total amount ECA owed Appellees was $1,148,018.44.
On April 2, 2015, ECA renewed its mid-trial motion for judgment as a matter of
law and moved in the alternative for a new trial, arguing both that the verdict lacked an
evidentiary foundation and that admission of testimony by Plaintiffs’ expert was error.
The District Court denied this motion on June 18, 2015.
The Court noted that “the question posed [to the jury] was . . . whether ECA
deducted charges incurred after it sold the gas and title passed OR deducted charges it did
not incur.” (J.A. 14.) Observing that “[t]he jury received evidence that EMCO, not
ECA, incurred the marketing costs when it resold the gas to third party purchasers,” and
that “Plaintiffs’ expert . . . testified that title passed at the receipt pool and before any
interstate transportation charges were incurred,” the Court concluded “that there was
sufficient evidence of record for a jury to determine that ECA breached the leases by
improperly deducting these post-production charges.” (Id.) With respect to the expert
testimony, the Court declined to alter the decision it had made in considering ECA’s
6
motion in limine, noting that the expert “was sufficiently qualified to present expert
testimony regarding the oil and gas industry.” (JA 15.) ECA filed a Notice of Appeal
with this Court on July 9, 2015.7
II. JURISDICTION & STANDARD OF REVIEW
The District Court had jurisdiction over this case pursuant to 28 U.S.C.
§ 1332(d)(2)(A). This Court has jurisdiction under 28 U.S.C. § 1291.
“We review de novo a denial of a motion for judgment as a matter of law.” Foster
v. Nat’l Fuel Gas Co., 316 F.3d 424, 428 (3d Cir. 2003) (citation omitted). A renewed
motion for judgment as a matter of law “may be granted under Fed. R. Civ. P. 50(b) only
if, as a matter of law, the record is critically deficient of that minimum quantity of
evidence from which a jury might reasonably afford relief.” In re Lemington Home for
the Aged, 777 F.3d 620, 626 (3d Cir. 2015) (quoting Trabal v. Wells Fargo Armored
Serv. Corp., 269 F.3d 243, 249 (3d Cir. 2001)). In considering the motion, a court must
“view[] the evidence in the light most favorable to the nonmovant and giv[e] it the
advantage of every fair and reasonable inference.” Lightning Lube, Inc. v. Witco Corp., 4
F.3d 1153, 1166 (3d Cir. 1993) (citation omitted).
This Court’s “review of the order denying reconsideration is subject to a more
deferential and circumscribed standard of review than would apply if we also were to
have jurisdiction to consider the underlying dismissal order, as we review only whether
7
Appellees filed a cross-appeal, which they have withdrawn.
7
the District Court’s denial of reconsideration constitutes an abuse of discretion.” Long v.
Atl. City Police Dep’t, 670 F.3d 436, 446 (3d Cir. 2012).
III. DISCUSSION
A. Motion for Judgment as a Matter of Law
ECA contends, simply, that no evidence supports the jury’s verdict that ECA made
“any deductions from [the] proceeds” it received from the sale of gas prior to paying
royalties to the Appellees. (Appellant Br. 1.) ECA adds that, even if certain costs
incorporated into the price paid for the gas “were, incorrectly, considered deductions
taken by ECA from royalties,” there was no record evidence that the deductions were
improper. (Id. at 2.) ECA asserts that there is no difference between the royalties
Appellees currently receive and those they received when ECA sold its gas to EMCO.
ECA contends that Appellees received the benefit of their bargain—royalties
equivalent to one-eighth of ECA’s net proceeds—and urges that the jury’s verdict to the
contrary essentially penalizes ECA for the transparency of its contract with EMCO,
which reflects transportation and marketing costs that should not be equated with
deductions. At oral argument, ECA stressed that the verdict grants Appellees the benefit
of the higher rate obtained for the third-party sale ultimately made by EMCO without
requiring them to share a portion of the costs incurred in receiving that higher rate.
For ECA’s arguments to prevail, the record would have to be devoid of “that
minimum quantity of evidence” that would permit a jury to reasonably take the obverse
8
view of the royalty payments made during the relevant period. In re Lemington, 777 F.3d
at 626. We find evidence in the record that exceeds “that minimum quantity.”
As Appellees stated at oral argument, there must first be evidence to support the
jury’s conclusion that ECA took deductions from Appellees’ royalties. For this finding,
Appellees rely on what they deem a “critical admission” by O’Malley, who indicated that
post-production costs, including transportation, are “reflected” in Appellee’s royalty
statements and that, with respect to those costs, Appellees “bear a share, one-eighth, just
as allowed under the leases.” (J.A. 1629.) These admissions by ECA’s own executive
surpass that “minimum quantity of evidence” needed to support a reasonable
determination that deductions were made from the royalties.8
We turn now to the finding that the deductions were improper both as to
transportation and as to marketing costs. Appellees’ first argument that these deductions
were improper is that they were never incurred by ECA in the course of the dispositive
sale in this case—the ECA-EMCO sale.
There is evidence that ECA did not incur transportation costs because the third-
party buyers paid a surcharge of fifty cents per each unit of gas sold, which Farkosh
agreed was “the cost of having the gas delivered at the point on the interstate system that
8
Even if we view ECA’s argument that these are not properly deemed deductions,
but rather costs taken from the sale price from ECA to EMCO, as something more than a
semantic argument, it is, at root, an argument that the jury misinterpreted the evidence
presented. But the jury is the ultimate finder of fact, and “the court may not weigh the
evidence, determine the credibility of witnesses, or substitute its version of the facts for
the jury’s version.” Lightning Lube, Inc., 4 F.3d at 1166.
9
the buyer wants it delivered to.”9 (J.A. 1672.) If the third-party buyer paid the
transportation costs, the jury could reasonably find that it was a breach of the leases to
require Appellees to contribute to costs of transportation that had already been paid.
Similarly, there is evidence to support the jury’s conclusion that the marketing
costs were improperly deducted from Appellees’ royalties. By ECA’s own testimony, it
sold its gas exclusively to its affiliate, EMCO. Manifestly, there were no marketing costs
involved in that transaction; rather, marketing played a part only in establishing a
transaction between EMCO and its third-party buyers. It was not unreasonable for the
jury to conclude, on the basis of the two-step transactions at issue, that the marketing
costs incurred in the second transaction could not properly be “reflected” in royalties paid
from the first transaction, or the ECA-EMCO transaction.
In light of this evidence, we conclude that the jury’s verdict finds support in the
record and our inquiry ends with affirmance of the District Court’s denial of ECA’s
motion for judgment as a matter of law.10
B. Motion for a New Trial/Motion for Reconsideration
9
ECA contends that it is error to look beyond the leases and the ECA-EMCO
agreement to the EMCO-third-party contracts. We find this argument meritless: As
Appellees noted at oral argument, all third-party funds went into an account owned and
controlled by ECA, and the leases speak to the net proceeds “received” by ECA.
10
Because we have found more than “that minimum quantity of evidence” needed
to support the jury’s verdict that the costs were improperly deducted from Appellees’
royalties on the theory that they were never incurred by ECA in the course of the first
transaction, we need not reach Appellees’ second theory of impropriety, namely that the
costs were incurred only after title to the gas had passed. Further, neither party bases its
prayer for relief or defense of its verdict on a determination of when and where title
passed.
10
As a threshold matter, we note that the District Court properly determined that,
because it had “previously held that Julia Bodamer was sufficiently qualified to present
expert testimony regarding the oil and gas industry and any attempt to distinguish her
testimony could be done on cross examination,” and because “ECA move[d] for a new
trial by arguing that this Court should not have permitted . . . Bodamer to testify as an
expert as to where title passed,” it should treat the motion “as one for reconsideration.”
(J.A. 15.) As this Court has noted, “[t]he purpose of a motion for reconsideration . . . is
to correct manifest errors of law or fact or to present newly discovered evidence.” Max’s
Seafood Cafe ex rel. Lou-Ann, Inc. v. Quinteros, 176 F.3d 669, 677 (3d Cir. 1999)
(quoting Harsco Corp. v. Zlotnicki, 779 F.2d 906, 909 (3d Cir. 1985)). Since ECA’s
motion, in fact, sought correction of, and remedy for, an alleged “manifest error[] of
law,” the District Court properly construed its motion as a motion for reconsideration.
The District Court did not abuse its discretion in denying that motion. “A proper
Rule 59(e) motion . . . must rely on one of three grounds: (1) an intervening change in
controlling law; (2) the availability of new evidence; or (3) the need to correct clear error
of law or prevent manifest injustice.” Lazaridis v. Wehmer, 591 F.3d 666, 669 (3d Cir.
2010). Indeed, “a motion for reconsideration under the Federal Rules [of Civil
Procedure] is not properly founded on a request that the Court ‘rethink what [it] had
already thought through—rightly or wrongly.’” Youghiogheny & Ohio Coal Co. v.
Milliken, 200 F.3d 942, 954 (6th Cir. 1999) (quoting Glendon Energy Co. v. Borough of
Glendon, 836 F. Supp. 1109, 1122 (E.D. Pa. 1993)).
11
ECA does not offer any new law, evidence, or argument that, because overlooked,
reveals a “clear error of law” or potential for “manifest injustice.” Rather, ECA contends
that “the district court erroneously admitted expert testimony from Plaintiff’s expert
Bodamer on the issue of passage of title.” (Appellant Br. 52; see also Reply Br. 18.) At
the Daubert hearing, counsel for ECA argued about Bodamer’s ability to testify to the
passage of title. Then, during an in camera conference held when ECA wished to enter
an objection to Bodamer’s testimony, including her testimony as to title, the District
Court determined that it “would let her testify to” where title passed, but asked the parties
to agree as to numbers rather than leaving those issues to Bodamer’s testimony. (J.A.
1730.) This issue was fully aired before and during trial. The District Court did not
abuse its discretion in declining to revisit its determination to allow circumscribed
testimony by Bodamer on the issue of title.11
IV. CONCLUSION
11
ECA makes much of the District Court’s remark that “fact witnesses . . . have
told us where title passes and I don’t think she is in a position to do that” (J.A. 1722),
followed by its statement that it had rethought the issue and determined that “to not
permit her to [testify as to the areas specified at the Daubert conference] sort of cuts the
floor out from under [Appellees]” and decision to allow Bodamer to “testify as to
anything except the accounting practices of the affiliate company.” (J.A. 1728.)
Although ECA stresses that this apparent change-of-heart was error, it is clear from the
very passages on which ECA’s argument relies that the District Court considered in full
the claim of error presented in ECA’s motion for reconsideration, lending support to,
rather than impugning, its decision to deny that motion.
12
Because we find that the record contained sufficient evidence to support the jury’s
verdict, and because we find that the District Court did not abuse its discretion in denying
ECA’s motion for reconsideration, we affirm the judgment of the District Court.
13