Black Hawk Oil Co. v. Exxon Corp.

Citations: 1998 OK 70; 969 P.2d 337Docket: 88,868, 88,881

Court: Supreme Court of Oklahoma; December 17, 1998; Oklahoma; State Supreme Court

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Black Hawk Oil Company and Louis Dreyfus Natural Gas Corp. are petitioners against multiple defendants, including Exxon Corporation and Texaco, in a case consolidated for appeal. The dispute arises from contracts related to the Dover-Hennessey Gas Products Plant, operational since 1961, initially managed by Humble Oil Company and later by Exxon. The Plant processes natural gas, extracting valuable by-products such as propane and butane. To facilitate this extraction, gas must be compressed, leading to the production of slop oil—a mixture of oil and water—during the transmission process. The operator of the Plant collected and sold this slop oil but did not share the proceeds with the gas producers, which forms the crux of the litigation. The case reflects complex contractual relationships and disputes over revenue sharing related to the by-products generated from gas processing.

On May 17, 1993, Black Hawk Oil Company initiated a class action lawsuit against Exxon Corporation, Oryx Energy Company, and others, seeking damages for breach of contract and tort related to unpaid slop oil collected by plant operators. The plaintiffs allege that contracts mandated payment for slop oil and claim fraud due to the defendants' failure to include slop oil in monthly account statements. The financial stakes involve millions of dollars. Black Hawk's predecessor, Torch Energy Advisors, Inc., discovered the accounting issue via an audit by Petroleum Management Systems, Inc. in 1989. Torch later transferred its interests to Black Hawk, which sold its properties by October 1992.

The case involves five types of contracts between producers and plant operators, with four relevant to this action, all drafted by Exxon's predecessor. After a five-day hearing in early 1996, the trial court certified a class on January 8, 1997, comprising all entities that sold natural gas to Exxon under specific contracts, excluding those with well head purchase contracts. 

Exxon and Oryx appealed the certification, which was consolidated on February 14, 1997. The main issue was whether the trial court abused its discretion in certifying the class. The court affirmed the certification, noting that the appellants must demonstrate an abuse of discretion to succeed on appeal. The trial court retains the authority to modify or revoke the certification if necessary as the case progresses.

To certify a class action under 2023, plaintiffs must demonstrate compliance with four primary requirements outlined in Subsections 1 through 4 of 2023.A, along with one of three additional criteria in 2023.B. The trial court determined that all necessary requirements for class certification were satisfied. 

The four requirements include: (1) numerosity—where the class size is so large that joining all members is impractical; (2) commonality—there are legal or factual questions common to the class; (3) typicality—the claims of the class representatives are typical of the class claims; and (4) representation—the representatives can adequately protect the interests of the class. The trial court found these elements were met.

In particular, Subsection 1 established numerosity, with evidence that Exxon sent gas statements to 168 producers across more than twenty states, involving approximately 646 contracts, making joinder impractical. Exxon and Oryx contested this finding, arguing it was speculative, referencing the Marcial case, which is distinguished from the current situation where all class members are involved in clear contract types. Even if the 63 Plant owners were excluded, nearly 200 members would remain, satisfying the numerosity requirement.

Oryx also claimed that some producers lacking valid claims due to assignments from Plant owners should not be included, but the court noted that merit inquiries are inappropriate at the class certification stage.

Sufficient evidence supports the trial court's findings of commonality, typicality, and predominance regarding Black Hawk's and Louis Dreyfus's claims, aligning with class action requirements under rules 2023.A and 2023.B.3. Despite Oryx's arguments, the contracts analyzed share nearly identical language concerning payment accounting to producers. Notably, an Exxon letter from March 16, 1990, confirms that similar contract types should allocate proceeds from scrubber oil consistently among stakeholders. Differences in contract language are deemed insufficient to necessitate individual interpretations of over 600 contracts at this stage.

Exxon and Oryx assert that Black Hawk and Louis Dreyfus are not proper class representatives due to alleged lack of standing and fraud claims. However, the trial court found that both entities could adequately represent the class, supported by testimonies from their general counsels regarding their commitment to the case. Black Hawk, despite its assignment of rights to a successor, maintains its standing, arguing that the standing doctrine is inapplicable here, and that the relevant issue is the real party in interest. The court agrees, emphasizing that the focus should be on whether the judgment would protect the defendants from additional liabilities, which neither Exxon nor Oryx contests.

Exxon and Oryx argue against class certification for Black Hawk, citing Kauffman v. Dreyfus Fund, Inc., which ruled that a class could not be certified when plaintiffs lacked a cause of action against most defendants. However, the court finds Kauffman inapplicable here, as the current case involves similar contracts linking the defendants, akin to Alaniz v. California Processors, Inc., where the court allowed class certification due to a collective bargaining agreement uniting the defendants. The trial court's representation requirement finding is supported by the record.

Additionally, Exxon's assertion that Black Hawk and Louis Dreyfus lack fraud claims due to an inability to prove reliance on alleged misrepresentations is deemed insufficient to deny class certification. While inability to prove reliance could affect the merits of their claims, such details should not influence the certification decision. Defendants can raise non-reliance as a defense during the trial, but it is inappropriate for consideration at the class certification stage. Ultimately, plaintiffs must prove all fraud elements, including reliance, at trial.

Defendants' reliance on Bunch v. Kmart Corp. is found to be inappropriate as the circumstances differ significantly. In Bunch, the court reversed the trial court’s class certification due to a lack of common questions of law or fact among class members, who alleged oral misrepresentations regarding automobile repairs. In contrast, the current case involves uniform claims that defendants failed to account for slop oil in monthly accountings despite having collected and sold it. The necessity for individual reliance does not preclude class treatment when standardized written misrepresentations are involved, making Bunch distinguishable.

Black Hawk is pursuing claims on behalf of itself and its former parent company, Black Hawk Holding Company, covering the period from 1984 to 1993. Black Hawk held title to the properties in question for part of this timeframe, providing sufficient grounds to support class certification. Defendants argue that a contract with Petroleum Management Systems, which conducted an audit revealing nonpayment for slop oil, warrants reversal of the class certification. This original contract stipulated that Petroleum Management Systems would receive a percentage of retroactive payments from its audit findings, and Black Hawk was represented by Sneed, Lang, Adams, Barnes in these dealings.

Subsequently, the contract was modified, with Petroleum Management Systems waiving its right to a percentage of the recovery, and Black Hawk agreeing to lead the class certification effort. Black Hawk also committed to seek a court-approved fee for Petroleum Management Systems from any judgment awarded to plaintiffs. The court finds no elements in the contract or its negotiation that undermine class certification. The assertion that Black Hawk or its attorneys breached fiduciary duties to the class is unsubstantiated, as seeking class certification aligns with acting in the class's interest.

Potential conflicts arising from Black Hawk’s agreement to seek a fee for Petroleum Management Systems will only become relevant if a judgment is entered, and any such conflict is deemed peripheral to the primary issue of defendants' liability for slop oil payments.

Louis Dreyfus is not a party to the contract between Black Hawk and Petroleum Management Systems, allowing it to potentially contest Black Hawk's fee claim without affecting class certification at this stage. Disagreements among class members about relief do not hinder certification regarding liability, as established in relevant case law. The defendants' assertion that the contract justifies reversing the trial court's class certification is unsubstantiated. Exxon's counterclaim against Louis Dreyfus for $25 related to natural gas usage does not impede class certification, as allowing such counterclaims to derail certification would undermine the process. The existence of a minor counterclaim is unlikely to affect Louis Dreyfus’s capacity to represent the class in a substantial lawsuit. 

The record indicates that the trial court's decision to certify the class was within its discretion, as Black Hawk and Louis Dreyfus are positioned to effectively advocate for the class’s interests. The uniformity of the contracts involved and their relation to the defendants' actions suggest that class certification could lead to significant judicial efficiency. Consequently, the trial court's order certifying the class is upheld, with the Court of Civil Appeals' opinion vacated. The court also notes that the trial court retains the authority to modify its certification if necessary.

The court determines that common legal or factual questions among class members outweigh individual issues, establishing that a class action is the most effective means for resolving the dispute. Key considerations include: the interest of class members in pursuing separate actions, existing litigation related to the controversy, the benefits of concentrating litigation in one forum, and potential management challenges of a class action.

Following the initiation of a class action, the court must promptly assess whether it will be maintained, with the option to issue conditional or amendable orders. The court is responsible for notifying class members, ensuring that the best practicable notice is given, particularly individual notices to identifiable members. Notices must inform members of their right to opt out, the implications of the judgment for non-excluders, and the option to participate via counsel. If the class exceeds 500 identifiable members, individual notices are limited to 500, with broader notice methods employed for others.

Members not receiving individual notice can exclude themselves until liability is determined, and initiating an individual action serves as a request for exclusion. The judgment in a class action will specify all members, detailing those who received notice and did not opt out. The court may also allow for class actions to focus on specific issues or create subclasses as needed. In managing class actions, the court is empowered to issue appropriate orders.

Key procedural measures include: 

1. Establishing guidelines to streamline proceedings and prevent repetitive or complicated evidence and arguments.
2. Mandating the provision of notice to class members, as directed by the court, regarding any significant actions, judgments, or opportunities to participate in the case.
3. Setting conditions for representative parties or intervenors.
4. Requiring amendments to pleadings to remove claims regarding the representation of absent individuals, allowing the case to proceed accordingly.
5. Addressing similar procedural issues.

These orders may be combined with those under Section 16 and can be modified as necessary. 

Additionally, any dismissal or compromise of a class action requires court approval, and notice of such actions must be provided to all class members as per court directives. An aggrieved party may appeal a court order on class action certification to the Supreme Court without waiting for the case's final resolution.