Plaintiffs, alleged owners of an interest in coalbed methane gas (“CBM”), brought five related putative class actions against defendants, CBM producers, for alleged failure to pay royalties and for a declaration that owners of gas estates – not owners of coal estates – were the owners of CBM.  The district court granted plaintiffs’ class certification motions, and defendants appealed.  Finding that class certification was “manifestly improper,” the Fourth Circuit granted defendants’ 23(f) petition, vacated the district court’s certification orders, and remanded for further proceedings.

The Fourth Circuit reasoned that the proposed classes failed the ascertainability requirement because of the difficulties inherent in identifying the owners of CBM – including their successors in interest.  Plaintiffs tried to rely on defendants’ ownership schedules (some of which were at least twenty years old) and local land records, but the Circuit Court found these would require complicated, individualized review.

The Fourth Circuit also found that plaintiffs failed the commonality requirement.  Although the plaintiffs argued below that ownership of CBM could be established on a classwide basis based on their interpretation of Virginia law as providing that transfer of a coal estate cannot transfer rights to CBM, the district court failed to rule on whether plaintiffs’ interpretation of Virginia law was correct.  Further, the Fourth Circuit found that – contrary to plaintiffs’ argument – whether the rights to CBM transferred with the sale of coal estate likely required a deed-by-deed review to ascertain the parties’ intent.  Hence, the Fourth Circuit found that any finding of commonality was “premature.”

The classes alleging underpayment of royalties for CBM also failed the predominance requirement.  The court below relied on “numerous uniform practices related to the calculation and payment of CBM royalties” to establish common conduct, but the Fourth Circuit decided these practices had little to do with the validity of defendants’ royalty payment practices.  The Court thus remanded to the district court with instructions to conduct a more rigorous certification analysis.

EQT Prod. Co. v. Adair, No. 13-414, Slip op. (4th Cir. Aug. 19, 2014)