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Fout v. Eqt Production Company

United States District Court, N.D. West Virginia

April 2, 2018

JOHN FOUT, NANCY FOUT, J&N MANAGEMENT, LLC and J&N MANAGEMENT ENTERPRISES, LLC, Plaintiffs,
v.
EQT PRODUCTION COMPANY, a Pennsylvania corporation, Defendant.

          MEMORANDUM OPINION AND ORDER DENYING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

          FREDERICK P. STAMP, JR. UNITED STATES DISTRICT JUDGE

         I. Background

         This civil action concerns the royalty payments that the plaintiffs[1] believe the defendant, EQT Production Company, failed to pay them. The plaintiffs own an undivided interest in oil and natural gas in Wetzel County, West Virginia. The defendant and the plaintiffs entered into a lease agreement, under which the defendant would pay a flat-rate royalty payment in exchange for both development and production rights. In their complaint, the plaintiffs contend that the defendant has underpaid the plaintiffs and incorrectly applied certain deductions to their royalty payments. In addition to those actions, the plaintiffs also believe that the defendant failed to provide a “full and truthful accounting of the production from Plaintiffs' minerals and the manner in which [the] royalty [payment] was calculated.” ECF No. 1. The plaintiffs assert six counts in their complaint, which are as follows: (I) failure to properly account, (II) breach of contract, (III) breach of fiduciary duties, (IV) fraud, (V) negligent misrepresentation, and (VI) punitive damages.

         Previously, the defendant filed a partial motion to dismiss Counts III and IV (the claims for breach of fiduciary duties and fraud, respectively), which this Court granted in part and denied in part. As a result of that ruling, Count III was dismissed and Count IV still remained. The plaintiffs also filed an earlier motion for partial summary judgment, requesting judgment in their favor as to Count II. Because the certified questions in Leggett would be dispositive of Count II, the Court denied without prejudice the motion for partial summary judgment. Therefore, at that stage, Counts I, II, IV, V, and VI remained.

         The Supreme Court of Appeals of West Virginia then answered the Leggett certified question that was dispositive of Count II in this case. Leggett v. EQT Prod. Co., 800 S.E.2d 850 (W.Va.), cert. denied, 138 S.Ct. 472 (2017). That court held:

[R]oyalty payments pursuant to an oil or gas lease governed by West Virginia Code § 22-6-8(e) (1994) may be subject to pro-rata deduction or allocation of all reasonable post-production expenses actually incurred by the lessee. Therefore, an oil or gas lessee may utilize the “net-back” or “work-back” method to calculate royalties owed to a lessor pursuant to a lease governed by West Virginia Code § 22-6-8(e). The reasonableness of the post-production expenses is a question for the fact-finder.

Leggett, 800 S.E.2d at 868. Thus, the answer to the certified question resolved Count II in favor of the defendant because the defendant was permitted to deduct reasonable post-production expenses under the lease governed by the flat rate statute. The Court held a status conference after the Supreme Court of Appeals of West Virginia answered the Leggett certified question, and the parties agreed that the sole remaining issue is the reasonableness of the post-production expenses actually incurred by the lessee, which is a question for the fact-finder.

         The plaintiffs have now filed a partial motion for summary judgment and the defendant has filed a motion for summary for summary judgment. Both motions are fully briefed at this time and ripe for decision.

         II. Applicable Law

         Under Federal Rule of Civil Procedure 56, this Court must grant a party's motion for summary judgment if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” if it might affect the outcome of the case. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986). A dispute of material fact is “genuine” if the evidence “is such that a reasonable jury could return a verdict for the non-moving party.” Id. If the nonmoving party “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial, ” summary judgment must be granted against the plaintiff. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In reviewing the supported underlying facts, all inferences must be viewed in the light most favorable to the party opposing the motion. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

         The party seeking summary judgment bears the initial burden of showing the absence of any genuine issues of material fact. See Celotex, 477 U.S. at 322-23. “The burden then shifts to the nonmoving party to come forward with facts sufficient to create a triable issue of fact.” Temkin v. Frederick County Comm'rs, 945 F.2d 716, 718 (4th Cir. 1991), cert. denied, 502 U.S. 1095 (1992). However, “a party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986).

         III. Discussion

         Now before the Court are two pending motions for summary judgment, both of which have been fully briefed. Those motions include: (1) the plaintiffs' motion for partial summary judgment and (2) the defendant's motion for summary judgment. Following its review of the fully briefed motions, and the memoranda and exhibits submitted by the parties, this Court finds that, for the reasons set forth below, the plaintiffs' motion for partial summary judgment must be denied and the defendant's motion for summary judgment must be granted in part and denied in part. The motions for summary judgment are discussed, in turn, below.

         1. Plaintiffs' Motion for ...


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