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Richards v. EQT Production Co.

United States District Court, N.D. West Virginia

August 29, 2019

ARNOLD K. RICHARDS and MARY L. RICHARDS, Plaintiffs,
v.
EQT PRODUCTION COMPANY, Defendant.

         MEMORANDUM OPINION AND ORDER DENYING DEFENDANT'S MOTION FOR JUDGMENT AS A MATTER OF LAW, FOR NEW TRIAL, AND FOR AMENDMENT OF THE COURT'S JUDGMENT ORDERS [DKT. NO. 149], GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR PREJUDGMENT INTEREST [DKT. NO. 147], AND GRANTING DEFENDANT'S UNOPPOSED MOTION FOR STAY OF EXECUTION ON JUDGMENTS FOR THIRTY DAYS [DKT. NO. 151]

          IRENE M. KEELEY, UNITED STATES DISTRICT JUDGE.

         This case involves a breach of contract claim related to royalty payments for natural gas interests. The plaintiffs, Arnold and Mary Richards (“the Richardses”), are owners of mineral interests in Ritchie County, West Virginia. In their complaint, the Richardses alleged that the defendant, EQT Production Company (“EQT Production”), had breached the express terms of the relevant oil and natural gas leases by improperly calculating royalties and making improper deductions, including wrongful deductions for severance taxes. EQT Production denied these allegations, contending that its royalty payments to the Richardses were in compliance with the lease terms and West Virginia law. Following the Court's denial of EQT Production's motion for summary judgment, the case proceeded to trial by jury.

         At trial, and after the Richardses' case-in-chief, EQT Production moved for a directed verdict in its favor as to whether the Richards had met their burden to establish the market price of the natural gas at the relevant valuation point and to establish that EQT Production had breached the relevant lease terms by failing to pay royalties based on the market value of the gas (Dkt. No. 123). Viewing the evidence in the light most favorable to the Richardses, and finding that the jury would have a legally sufficient evidentiary basis to find in the Richardses' favor on their breach of contract claim, the Court denied EQT Production's motion for a directed verdict (Dkt. No. 124). At the close of all the evidence, EQT Production renewed its motion for a directed verdict on the Richardses' breach of contract claim on the same grounds (Dkt. No. 125), which the Court denied (Dkt. No. 126).

         Also at the close of the evidence, the Richardses moved for a directed verdict in their favor as to whether EQT Production had impermissibly deducted severance taxes from the their royalties under the relevant lease terms. Following the argument of the parties, and after careful consideration, the Court granted the Richardses' motion for a directed verdict as to the apportionment of severance taxes and ordered that they be awarded $42, 540.83 (Dkt. Nos. 127; 128).

         The jury subsequently returned a verdict in favor of the Richardses on their breach of contract claim, answering “Yes” to the question of whether EQT Production had “breached the terms of the Leases by failing to pay the Richardses the full amount of royalties due” and awarding them damages in the amount of $191, 998.61 (Dkt. No. 134). Thereafter, the Court entered judgment orders in favor of the Richardses on the directed verdict and the jury's verdict (Dkt. Nos. 137; 138).

         Now pending is EQT Production's Motion for Judgment as a Matter of Law, For New Trial, and For Amendment of the Court's Judgment Orders (Dkt. No. 149). EQT Production moves for judgment as a matter of law pursuant to Fed.R.Civ.P. 50 and 60, or for a new trial pursuant to Fed.R.Civ.P. 59, on the Richardses' breach of contract claim. It also requests a new trial under Rules 59 and 60 on the issue of EQT Production's apportionment of severance taxes to the Richardses. Id. at 1. Also pending is the Richardses' motion for prejudgment interest on both verdicts (Dkt. No. 147). The motions are fully briefed and ripe for decision.

         I. RELEVANT FACTS IN EVIDENCE [1]

         The Richardses are owners of mineral interests in Ritchie County, West Virginia, and are lessors to the oil and gas leases at issue (collectively, “the Leases”) (Dkt. No. 110 at ¶ 3). EQT Production, the sole lessee to the Leases, has the right to develop and produce natural gas from the leasehold estates. Id. at ¶ 2. Since at least the early 1950s, various lessees, including EQT Production, have produced natural gas from several vertical wells located on the Lease premises.

         The Leases include the following royalty provision:

In Consideration of the Premises the said party of the second part, covenants and agrees: 1st-to deliver to the credit of the Lessors, their heirs or assigns, free of cost, in the pipe line to which the Lessee may connect the wells ... the equal one-eighth (1/8) part of all oil produced and saved from the leased premises; and second, to pay ... one-eighth (1/8) of the value at the well market price of the gas from each and every gas well drilled on said premises, the product from which is marketed and used sold off the premises, said gas to be measured at by a meter set on the farm.

Dkt. Nos. 51-1; 51-2; 51-3 (strikeout in original) (emphasis added) (the “Royalty Provision”). Since 1954, pursuant to the Royalty Provision, the Richardses have received a one-eighth royalty for natural gas produced from the vertical wells on the Lease premises. And, although the Leases were amended in 2014 to allow for pooling and unitization for horizontal drilling, the Royalty Provisions have not been modified. See Dkt. No. 110 at ¶ 4.

         Pursuant to the amendments, in late 2016, EQT Production drilled six (6) horizontal wells on “Pullman 96, ” a well pad located on a tract adjacent to the Lease premises. Id. at ¶ 8.

         These wells produce natural gas from the leasehold estates, which EQT Production sells to an affiliate, EQT Energy, LLC (“EQT Energy”).[2] Natural gas produced from the pooled acreage passes through meters located at or near the wellheads where, pursuant to a Base Contract for Sale and Purchase of Natural Gas (“Gas Sales Contract”), EQT Energy takes custody of the gas. Id. at ¶¶ 7, 9. EQT Energy then delivers and sells the gas to third-party purchasers on the open market.

         Notably, the Gas Sales Contract establishes a pricing formula whereby EQT Energy pays EQT Production an amount equal to the first of the month “index price” applicable to the interstate pipeline system into which the gas is delivered, less gathering and compression related charges. The interstate pipeline into which gas from the Lease premises is delivered is the Texas Eastern Transmission (“TETCO”) M2 interstate pipeline system. Id. at ¶ 6. The index price applicable to the TETCO M2 system is not determined by EQT Production or any other EQT entity. Rather, the TETCO M2 index price is a published market price, which reflects the value of natural gas sold in the relevant geographical region.

         To arrive at the price for the point where the gas is sold to EQT Energy (i.e., at or near the wellheads), EQT Production utilizes a “net-back” or “work-back” method, whereby certain post-production expenses of gathering and compressing the gas to the downstream interstate pipeline market at TETCO M2 are deducted from the downstream TETCO M2 index price on a per unit basis. The Richardses' royalty payments are then calculated based on the price where the gas is sold to EQT Energy - at or near the wellhead.

         The post-production expenses deducted from the TETCO M2 index price are reflected as “owner deducts” in the monthly remittance statements provided to the Richardses. The remittance statements also reflect that EQT Production allocates to the Richardses a one-eighth share of privilege taxes owed to the State of West Virginia for engaging in the business of severing natural gas for sale.

         II. STANDARDS OF REVIEW

         A. Renewed Motion for Judgment as a Matter of Law

         Federal Rule of Civil Procedure 50(b) permits a trial court to “direct the entry of judgment as a matter of law” upon post-trial renewal of a motion for judgment as a matter of law. Fed.R.Civ.P. 50(b). Judgment as a matter of law is appropriate when, “without weighing the credibility of the evidence, there can be but one reasonable conclusion as to the proper judgment.” U.S. ex rel. DRC, Inc. v. Custer Battles, LLC, 562 F.3d 295, 305 (4th Cir. 2009) (citation omitted). The movant is entitled to judgment pursuant to Rule 50(b) “if the nonmoving party failed to make a showing on an essential element of his case with respect to which he had the burden of proof.” Russell v. Absolute Collection Servs., Inc., 763 F.3d 385, 392 (4th Cir. 2014) (citation omitted). The Court reviews “the evidence in the light most favorable to the nonmoving party” in making this determination. Myrick v. Prime Ins. Syndicate, Inc., 395 F.3d 485, 490 (4th Cir. 2005).

         B. Motion to Alter ...


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