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Schell v. OXY USA Inc.

United States Court of Appeals, Tenth Circuit

December 14, 2015

DAVID SCHELL; DONNA SCHELL; RON OLIVER, individually, and as representative parties on behalf of surface owners, Plaintiffs-Appellees/Cross-Appellants
v.
OXY USA INC., Defendant-Appellant/Cross-Appellee

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[Copyrighted Material Omitted]

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APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS. (D.C. No. 6:07-CV-01258-JTM-KMH).

Marie R. Yeates, Vinson & Elkins LLP, Houston, Texas (Michael A. Heidler and Conor P. McEvily, Vinson & Elkins LLP, Houston, Texas; Lisa T. Silvestri, GableGotwals, Tulsa, Oklahoma; and Stanford J. Smith, Jr. and Marcia A. Wood, Martin, Pringle, Oliver, Wallace & Bauer, Wichita, Kansas, with her on the briefs), for Defendant-Appellant/Cross-Appellee.

Rex A. Sharp, Gunderson Sharp, LLP, Prairie Village, Kansas (Barbara C. Frankland, Gunderson Sharp, LLP, Prairie Village, Kansas; and Lee Thompson, Thompson Law Firm, Wichita, Kansas, with him on the briefs), for Plaintiffs-Appellees/Cross-Appellants.

Before BRISCOE, HARTZ, and HOLMES, Circuit Judges.

OPINION

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HOLMES, Circuit Judge.

Appellant and Cross-Appellee OXY USA Inc. (" OXY" ), the defendant in the district court, appeals from the grant of summary judgment to Appellees and Cross-Appellants--a class of plaintiffs represented by David Schell, Donna Schell, and Ron Oliver--on the question of whether their oil and gas leases required OXY to make " free gas" useable for domestic purposes. OXY also appeals from the district court's certification of plaintiffs' class and the denial of a motion to decertify, and the

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district court's order to quash the deposition of an absent class member.

Plaintiffs cross-appeal from the district court's denial of their motion for attorneys' fees, litigation expenses, and an incentive award. Importantly, plaintiffs also move to dismiss the appeal as moot. OXY opposes dismissal for mootness, but argues that if we find mootness, we should vacate the district court's decision.

We hold that OXY's sale of the oil and gas leases at issue here mooted its appeal; therefore, we grant the plaintiffs' motion to dismiss. Nevertheless, we conclude that the cross-appeal has not been mooted by this sale, and exercising our jurisdiction under 28 U.S.C. § 1291, we affirm the district court's judgment as to the denial of attorneys' fees, litigation expenses, and an incentive award.

I

This case is before us after seven years of litigation culminated in a summary judgment granting declaratory relief to the plaintiff class. Because we do not ultimately reach the merits of this dispute, we are brief in our recounting of the factual and legal background.

The plaintiff class, appellees and cross-appellants here, consists of approximately 2200 surface

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owners of Kansas land burdened by oil and gas leases held or operated by OXY, the appellant and cross-appellee. The leases were executed separately over a century, from 1906 to 2007, but approximately seventy-five percent of the leases were executed in the 1930s and 1940s. The leases contained a " free gas" clause. They did not necessarily contain identical free gas clauses but the clauses all, in substance, purported to grant the lessor access to free gas for domestic use. All of the plaintiffs who have used free gas obtain their gas from a tap connected directly to a wellhead line. In addition, some members of the plaintiff class--including about half of the current users of free gas--have received royalty payments from OXY based on the production of gas on their land.

As gas wells reach the end of their productive life, they often experience decreases in pressure and increases in hydrogen sulfide (" H2S" ), a dangerous chemical compound. In August 2007, OXY sent letters warning free gas users that their gas may become unsafe to use, either because of high hydrogen sulfide content or low pressure at the wellhead. These letters urged the lessors to convert their houses to an alternative energy source.

On August 31, 2007, leaseholders David Schell, Donna Schell, Howard Pickens,[1] and Ron Oliver filed this action on behalf of themselves and others similarly situated, seeking a permanent injunction, a declaratory judgment, and actual damages based on alleged breaches of mineral leases entered into with OXY for failure to supply free usable gas. The declaratory relief sought was:

Pursuant to [28] U.S.C. [] § 2201, the plaintiff class is entitled to a declaration of the rights under the Free Gas Covenant: namely that OXY is required to provide useable gas pursuant to the terms of the Free Gas Covenant without interruption by virtue of conduct designed to interrupt, interfere with, or disconnect Class members' residences from the use of free gas.

Aplt. App. at 795 (Am. Compl.). The district court certified a class of " all surface owners of Kansas land burdened by oil and gas leases held or operated by OXY USA, Inc. which contain a free gas clause." Id. at 546 (Mem. & Order). Plaintiffs subsequently amended their complaint to eliminate their claim for actual damages. Plaintiffs and OXY then filed cross-motions for summary judgment.

The district court denied OXY's motion for summary judgment and granted the plaintiffs' motion for summary judgment. The district court granted the plaintiffs declaratory relief requiring OXY to provide free useable gas under the contract; however, the district court denied the plaintiffs' motion for a permanent injunction because it found that OXY had continued to provide useable house gas under the contract at all times.

Because the district court found that the free gas clauses were ambiguous and interpreted them according to principles of Kansas law, OXY moved to vacate the judgment to permit it to discover extrinsic evidence of the clauses' meaning. The district court agreed and vacated its judgment. However, after extending the time for discovery, the district court quashed OXY's only deposition request and found that OXY was unable to produce any relevant evidence of the parties' intent. The court further found that it was unlikely any relevant evidence existed. The district court subsequently granted plaintiffs' resubmitted motion for summary judgment.[2] It also denied plaintiffs' motion for attorneys' fees, expenses, and incentive awards. OXY filed this appeal, and the plaintiffs cross-appealed.

After the appeal and cross-appeal were filed, but before the parties' briefs were due, OXY sold all of its interests in the Kansas leases to Merit Hugoton, L.P. (" Merit" ). The plaintiff class filed a motion to dismiss the appeal as moot based on this sale. We permitted the appeal to proceed to briefing and oral argument. One week after oral argument, Merit filed a motion to intervene as an appellant and cross-appellee. After considering the parties' responses, we denied the motion.

II

A

We conclude that this appeal is moot. OXY has sold all of its interests in the leases; therefore, its conduct cannot be affected by a declaratory judgment concerning these same oil and gas leases. Accordingly, we grant the motion of the plaintiff class to dismiss this appeal.

" Mootness is a threshold issue because the existence of a live case or controversy is a constitutional prerequisite to federal court jurisdiction." Rio Grande Silvery Minnow v. Bureau of Reclamation, 601 F.3d 1096, 1109 (10th Cir. 2010) (quoting Disability Law Ctr. v. Millcreek Health Ctr., 428 F.3d 992, 996 (10th Cir. 2005)); accord Ind v. Colo. Dep't of Corr., 801 F.3d 1209, 1213 (10th Cir. 2015). If a case is moot, we have no subject-matter jurisdiction. See, e.g., Unified Sch. Dist. No. 259 v. Disability Rights Ctr. of Kan., 491 F.3d 1143, 1146-47 (10th Cir. 2007).

More specifically, " [c]onstitutional mootness doctrine is grounded in the Article III requirement that federal courts may only decide actual ongoing cases or controversies." Id. at 1147 (quoting Seneca-Cayuga Tribe of Okla. v. Nat'l Indian Gaming Comm'n, 327 F.3d 1019, 1028 (10th Cir. 2003)). ...


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