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Cather v. EQT Production Co.

United States District Court, N.D. West Virginia, Clarksburg

May 17, 2019

WILLIAM L. CATHER, BRENDA L. CATHER, CHARLES H. CATHER, LINDA F. CATHER, EVERET P. BICE, JR. ELIZABETH BICE, ROBERT JUNIOR HEMPHILL, Trustee of Trust A Created Under the Hemphill Family Trust Dated October 17, 1995, as Amended, Plaintiffs,
v.
EQT PRODUCTION COMPANY, EQT GATHERING, LLC, EQT ENERGY, LLC, EQT MIDSTREAM SERVICES, LLC, EQT CORPORATION, and EQUITRANS, L.P., Defendants.

          MEMORANDUM OPINION AND ORDER DENYING PLAINTIFFS' RULE 60 MOTION FOR RELIEF OR, ALTERNATIVELY, RULE 15 MOTION FOR LEAVE TO AMEND COMPLAINT [ECF NO. 57]

          THOMAS S. KLEEH UNITED STATES DISTRICT JUDGE.

         Pending before the Court is Plaintiffs' Rule 60 Motion for Relief from Final Order or, Alternatively, Motion for Leave to Amend Complaint [ECF No. 57]. The Motion is fully briefed and ripe for consideration. For the reasons discussed below, the Court DENIES Plaintiffs' requests for relief under both Rule 60 and Rule 15.

         I. FACTUAL BACKGROUND

         The Plaintiffs in this action, William L. Cather, Brenda L. Cather, Charles H. Cather, Linda F. Cather, Everet P. Bice, Jr., Elizabeth Bice, and Robert Junior Hemphill, Trustee of Trust A Created Under the Hemphill Family Trust Dated October 17, 1995, as Amended (together, “Plaintiffs”), are owners of oil and natural gas mineral interests in Taylor County, West Virginia. They filed a Complaint on December 7, 2017, against EQT Production Company, EQT Gathering, LLC, EQT Midstream Services, LLC, EQT Corporation, and Equitrans, L.P. (together, “Defendants”), alleging that they did not pay Plaintiffs the agreed-upon royalties under the lease of Plaintiffs' oil and natural gas mineral interests. The following recitation of the facts is taken from the Complaint [ECF No. 1].

         The relevant lease of oil and gas mineral interests (the “Cather Lease” or the “Lease”) provides, in part, as follows:

The Lessee shall pay to the Lessor for each and every well drilled upon said land, which produces Natural Gas and/or Casinghead Gas in a quantity sufficient for the Lessee to convey to market, a money royalty computed at the rate of one-eighth (1/8) of the wholesale market value which is based on the average current price paid by the Lessee to independent operators in this general area . . . payment to be made on or before the 25th day of the month following that in which the gas has been delivered into the marketing pipe line . . . .

Compl. at ¶ 8.[1] The Cather Lease also provides that “the Lessee, at its option, may pay and discharge any taxes . . . levied, or assessed on or against the land or gas and/or oil in place under the above-described lands; and . . . may reimburse itself by applying to the discharge of any such . . . tax . . . any royalty . . . accruing hereunder.” ¶ 10.

         On or about March 2012, Defendants began producing oil, gas, and other hydrocarbons under the Cather Lease. ¶ 20. Plaintiffs allege that since that time, Defendants have been improperly taking significant deductions from the royalties owed to Plaintiffs and that Defendants have been issuing to Plaintiffs monthly statements that do not reveal the nature of, or the manner of calculation of, those deductions. ¶¶ 21-28, 33-34.

         Plaintiffs allege that Defendants have engaged in a “pattern and practice” of underpayment of royalties owed to Plaintiffs. ¶¶ 24, 28. They believe that Defendants have knowingly and intentionally calculated Plaintiffs' royalties based on “sham transactions” between various related EQT subsidiaries and/or affiliates; have improperly calculated royalties based on an “artificial price” created by non-arm's length transactions between the related entities; and have unlawfully deducted significant amounts from the royalties owed to Plaintiffs. ¶¶ 29-30.

         Specifically, Plaintiffs allege that EQT Production Company sells natural gas to another EQT entity at an artificial price, set by Defendants, that bears no relationship to the higher price for which Defendants later sell the gas to a non-EQT entity. ¶ 31. In support of these allegations, Plaintiffs rely, in part, on a March 2017 letter in which EQT Production admitted the following:

EQT Production Company sells the majority of the natural gas it produces at the wellhead to an affiliate, EQT Energy, LLC. While these sales are to a related entity, EQT Production Company contracts for an objective index price, less the necessary costs incurred to transport the gas to downstream markets. This pricing formula is designed to obtain the best available wellhead price for both EQT Production Company and its royalty owners.

¶ 32. Plaintiffs allege that Defendants' “scheme” was designed to, and does, decrease royalties paid to Plaintiffs and increase EQT's profit later when it sells the gas to a non-EQT entity in an arms-length transaction. ¶ 44.

         Plaintiffs originally asserted the following claims: Count IV (Alter Ego to Pierce the Corporate Veil); Count V (Fraud); Count VI (Civil Conspiracy to Commit Fraud); Count VII (Breach of Contract); Count VIII (Conversion); Count IX (Unconscionability and Breach of Duty of Fair Dealing); Count X (Violation of West Virginia Consumer Credit and Protection Act, Section 2); Count XI (Violation of West Virginia Consumer Credit and Protection Act, Section 6); Count XII (Interest Due to Plaintiffs on Improperly Withheld Royalty Payments); and Count XIII (Punitive Damages).

         II. PROCEDURAL HISTORY

         On February 1, 2018, Defendants filed a Motion for Partial Dismissal. ECF No. 15. Defendants moved to dismiss all counts and to dismiss Plaintiffs' request for attorney's fees. Id. On April 18, 2018, Judge Keeley held a Scheduling Conference and heard arguments on the Motion to Dismiss. ECF Nos. 26, 63. She announced on the record that she would grant in part and deny in part the Motion, and the following day, she issued a Summary Order in which she summarized the findings.[2] ECF No. 27. Judge Keeley dismissed the following claims: Count V (Fraud); Count VI (Civil Conspiracy to Commit Fraud); Count VIII (Conversion); Count IX (Unconscionability and Breach of Duty of Fair Dealing); Counts X and XI (Violations of the West Virginia Consumer Credit and Protection Act); and Count XIII (Punitive Damages). Id. She also dismissed Plaintiffs' request for attorney's fees. Id. Judge Keeley denied the dismissal of Counts IV (Alter Ego) and VII (Breach of Contract).

         Judge Keeley issued a Scheduling Order on July 17, 2018. ECF No. 36. On November 15, 2018, the final day for the parties to join parties or amend pleadings, Plaintiffs filed a motion under Rule 60 of the Federal Rules of Civil Procedure, requesting relief from Judge Keeley's Summary Order or, alternatively, leave to amend the Complaint via Rule 15.[3] ECF No. 57. The case was transferred to United States District Judge Thomas S. Kleeh on December 1, 2018. ECF No. 65. The pending Rule 60 or Rule 15 Motion is fully briefed and ripe for review.

         III. DISCUSSION

         A. Rule 60

         Rule 60(b) of the Federal Rules of Civil Procedure allows the Court to grant relief in certain circumstances from final orders, judgments, or proceedings. The United States Court of Appeals for the Fourth Circuit has written that “[i]n determining whether to exercise the power to relieve against a judgment under 60(b), the courts must engage in the delicate balancing of ‘the sanctity of final judgments, expressed in the doctrine of res judicata, and the incessant command of the ...


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