Oklahoma City’s Chaparral Energy has lost a federal court appeals in a legal fight in which a court ruled the company had underpaid royalty owners by deducting gas-treatment costs.
The 10th Circuit Court of Appeals upheld the Oklahoma City federal court ruling in a case brought by Naylor Farms in 2011. As the lawsuit pointed out, Naylor Farms had interests in some of the 2,500 wells operated in Oklahoma by Chaparral Energy and demanded more than $5 million in payments from the energy company.
The case was further complicated by the 2016 bankruptcy and reorganization by Chaparral Energy. At the time, Chaparral was involved in 13,700 leases in Oklahoma, Texas and Kansas and was making 6,000 payments a month totaling $4,400,000.
But in 2017, Judge Joe Heaton ruled it was a class-action lawsuit that involved 10,000 class members, 6,500 leases and 2,000 wells in Oklahoma.
Chaparral Energy appealed the judge’s class-action status ruling.
“After review, the Tenth Circuit concluded Chaparral failed to demonstrate the district court’s decision to certify the class fell outside “the bounds of rationally available choices given the facts and law involved in the matter at hand,” stated the appeals court decision.
At question was whether Chaparral Energy had violated Oklahoma law concerned the Implied Duty of Marketability. The IDM precluded from passing along to royalty owners any costs the lessees incur in making a product marketable.
