“Requiring lessees to pay royalties on unsold gas is illogical and inequitable.”
How later courts described this case
- “Requiring lessees to pay royalties on unsold gas is illogical and inequitable.”
- Dkt. No. 296 at 9-13
Written by the judges who cited it.
The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
JACKLIN ROMEO,
Individually and on behalf
of others similarly situated;
SUSAN S. RINE,
Individually and on behalf
of others similarly situated;
DEBRA SNYDER MILLER,
Individually and on behalf
of others similarly situated,
Plaintiffs,
v. CIVIL ACTION NO. 1:17CV88
(Judge Keeley)
ANTERO RESOURCES CORPORATION,
Defendant.
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT WITNESS
TESTIMONY OF KRIS TERRY [DKT. NO. 296]
Pending before the Court is the motion of the Plaintiffs
Jacklin Romeo (“Romeo”), Susan Rine (“Rine”), and Debra Miller
(“Miller”) (collectively, “the Plaintiffs”), to exclude the
testimony of Kris Terry (“Terry”), who has been disclosed as an
expert witness by the Defendant, Antero Resources Corporation
(“Antero”) (Dkt. No. 296). For the reasons that follow, the Court
GRANTS-IN-PART and DENIES-IN-PART the motion.
I. BACKGROUND
The Plaintiffs own oil and natural gas interests in leases
assigned to Antero. On May 15, 2017, they filed a class action
complaint asserting a single breach of contract claim related to
ROMEO ET AL V. ANTERO 1:17CV88
MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
Antero’s alleged failure to pay them a full 1/8th royalty payment
for their natural gas interests. Gas produced under the leases at
issue (the “Class Leases”), consists of “wet gas” (saturated with
liquid hydrocarbons and water) that must be treated and processed
to obtain marketable “residue gas.” Likewise, this gas contains
valuable liquid hydrocarbon components (ethane, butane, isobutane,
propane, and natural gas) (“NGLs”) that must be extracted and
fractionated prior to sale.
The Plaintiffs contend that, because no royalty provision in
the leases at issue expressly permits such deductions, West
Virginia law imposes a duty on Antero to calculate royalties based
on the price it receives from third parties for the residue gas and
NGLs, without deductions. The Plaintiffs assert that, despite this
duty, Antero has deducted various post-production costs for residue
gas and NGLs from their royalty payments.
II. LEGAL STANDARD
Federal Rule of Evidence 702 governs the admissibility of
expert witness testimony. An expert must be “qualified . . . by
knowledge, skill, experience, training, or education.” Fed. R.
Evid. 702. “In assessing a proffered expert’s qualifications, the
district court must consider the proposed expert’s full range of
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
experience and training, not just his professional qualifications.”
Good v. Am. Water Works Co., Inc., 310 F.R.D. 274, 282 (S.D.W. Va.
2015) (cleaned up) (citations omitted). Once qualified, an expert’s
testimony is admissible if
(a) the expert's scientific, technical, or
other specialized knowledge will help the
trier of fact to understand the evidence or to
determine a fact in issue; (b) the testimony
is based on sufficient facts or data; (c) the
testimony is the product of reliable
principles and methods; and (d) the expert has
reliably applied the principles and methods to
the facts of the case.
Fed. R. Evid. 702.
As the gatekeeper in the case, a court should admit the
proposed expert testimony only if it is reliable and relevant, so
that it helps the jury in understanding the issues or evidence.
Westberry v. Gislaved Gummi AB, 178 F.3d 257, 260 (4th Cir. 1999);
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 591
(1993). The proponent of the expert testimony bears the burden of
establishing its admissibility by a preponderance of the evidence.
Cooper v. Smith & Nephew, Inc., 259 F.3d 194, 199 (4th Cir. 2001);
Daubert, 509 U.S. at 592 n. 10.
“While expert witnesses may testify as to the ultimate matter
at issue, Fed. R. Evid. 704(a), this refers to testimony on
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
ultimate facts; testimony on ultimate questions of law, i.e., legal
opinions or conclusions, is not favored.” Sun Yung Lee v.
Clarendon, 453 F. App'x 270, 278 (4th Cir. 2011) (citing Anderson
v. Suiters, 499 F.3d 1228, 1237 (10th Cir. 2007).
III. DISCUSSION
A. Terry’s Proposed Testimony
Kris Terry, Antero’s proposed expert, is the President of Kris
Terry & Associates, Inc., a consulting firm that advises businesses
in the oil and gas industry. Antero retained her to offer relevant
opinions in this case on the history and operations of the oil and
gas industry. Based on her “Expert Merits Report” (Dkt. No. 296-1),
she proposes to testify on the usage and meaning of industry terms,
industry customs and practices, and how the industry’s terms,
customs, and practices apply to Antero’s calculation of royalty
payments pursuant to the provisions of the Class Leases. She also
intends to opine on “industry contractual and property arrangements
for leasing minerals, as well as the production, transportation,
processing, and marketing of natural gas and NGLs.” Finally, she
will offer her opinion on whether Antero breached the terms of the
Plaintiffs’ leases.
Terry’s report first provides a general description of the
4
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
physical flow of natural gas, the historical development of the
industry, and the process of selling natural gas and NGLs. It then
specifically examines the Class Leases, the class definition, and
the various provisions in the oil and gas leases that impact
Antero’s royalty calculations. It also discusses how Antero’s
marketing strategy differs for each well depending upon its
location, the gas quality, and the availability of marketing
outlets.
In Terry’s opinion, the individual valuations required by this
marketing strategy preclude any uniform answers to the common
questions the Court has identified.1 She also criticizes the
opinions offered by the Plaintiffs’ expert witness, Donald Phend
1
There are four common questions of law and fact that pertain
to the Class Members. These include:
(1) Do Wellman and Tawney apply to both market value and
proceeds leases?
(2) If so, do the leases at issue, as modified by any
subsequent modifications (if any), have the specific language
required by Wellman and Tawney that would allow Antero to
deduct post-production expenses from Plaintiffs’ royalty
payments.
(3) If not, did Antero unlawfully deduct post-production
expenses from the Plaintiffs’ royalty payments?
(4) If so, how did Antero calculate these deductions?
(Dkt. No. 152 at 32).
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
("Phend"). Terry’s report concludes with the following opinions,
offered to a reasonable degree of certainty:
1. Whether Antero breached a Class Lease cannot be
determined on a class-wide basis because the Class
Leases contain modifications that impose different
obligations upon Antero at different times;
2. Antero’s methodology for calculating royalties on a
lease by lease, month by month, well by well basis
exceeds the best practices in the industry and
results in royalty payments that are greater than
required by the Class Leases and more generous than
the industry standard;
3. Phend has not calculated class-wide damages using
relevant information or in a reliable manner under
industry standards;
4. Whether the Plaintiffs or other Class Members have
enforceable leases cannot be determined on a class-
wide basis because of the various title issues
arising under each lease individually; and
5. Whether the Plaintiffs and Class Members complied
with their lease obligations cannot be determined
on a class-wide basis because the provisions
outlining the Class Members’ obligations vary among
the Class Leases.
B. The Plaintiffs’ Motion to Exclude
The Plaintiffs seek to exclude all of Terry’s proposed
opinions for three reasons. First, they contend that her opinions
regarding “the extent of Antero’s royalty payment obligations under
the applicable Class royalty provisions” should be excluded because
they constitute inadmissible contract interpretations that conflict
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
with West Virginia law. See Energy Dev. Corp. v. Moss, 214 W. Va.
577 S.E.3d 135, 143 (2003). Second, they argue that Terry’s
opinions regarding the propriety of class certification conflict
with the Court’s prior Order of March 23, 2020, which preliminarily
granted class certification (Dkt. No. 152). Finally, they argue
that Terry is not qualified to criticize Phend’s calculation of the
Class Members’ damages, and, even if qualified, her opinions lack
a proper foundation and are erroneous as a matter of law. The Court
will address each of these arguments in turn.
C. Terry’s Proposed Testimony Regarding Antero’s Royalty Payment
Obligations
The Plaintiffs seek to exclude Terry’s opinions regarding the
extent of Antero’s obligations under the royalty provisions of the
Class Leases. Specifically, they argue that her opinion, that
Antero is not obligated to pay royalties based on the prices it
receives on its sale of residue gas and NGLs at the point of sale,
violates the holdings in Tawney v. Columbia Natural Resources, 219
W. Va. 266 (2004); and Wellman v. Energy Resources, Inc., 210 W.
Va. 200 (2001) (Dkt. No. 296 at 9-13).
According to Antero, by offering opinions regarding its
obligations under the royalty provisions in the Class Leases, Terry
is not attempting to interpret Antero’s legal obligations under
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
those leases but rather to aid the jury’s understanding of natural
gas marketing, and of terms and conditions that are unique to the
oil and gas industry (Dkt. No. 304-2 at 5-15).
i. Class Lease Royalty Provisions (Paragraphs 28 and 29 of
Terry’s Expert Report)
According to Terry, the royalty provisions in the Class Leases
allow Antero to pay royalties based on the “wellhead value” of the
natural gas. The Plaintiffs argue that this interpretation
conflicts with the Court’s preliminary determination that Wellman
and Tawney apply to the Class Leases. They contend that, pursuant
to the holding in Tawney, under the relevant language in the Class
Leases Antero must bear all costs up to the “point of sale” (Dkt.
No. 296-1 at 9-10).
Antero urges the Court to admit Terry’s testimony about the
royalty provisions in the Class Leases because she defines industry
terms of art that a jury needs to understand (Dkt. No. 304-2 at 7-
8). Antero also reiterates its contention that the holdings of
Wellman and Tawney do not apply to the royalty provisions in the
Class Leases, and that, until the Court does determine whether
Wellman and Tawney are applicable, Terry’s opinions regarding its
obligations under the leases remain viable. Antero further argues
that, even if the holdings in Wellman and Tawney do control the
8
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
outcome of this case, Terry’s opinions are admissible because they
will aid the trier of fact in “understanding natural gas marketing
and complex industry terms.” Id. at 8-9.
Under West Virginia law, “contract law principles apply
equally to the interpretation of leases.” Energy Dev. Corp, 214 W.
Va. at 591; K&D Holdings, LLC v. Equitrans, L.P., 812 F.3d 333, 339
(4th Cir. 2015). Whether a contract is ambiguous is a question of
law reserved to the Court. Syl. Pt. 1, Berkeley Cty. Pub. Serv.
Dist. v. Vitro Corp. of Am., 152 W. Va. 252 (1968). While ambiguous
contracts must be construed before they may be applied, contracts
that are plain and unambiguous are not subject to judicial
construction and “will be applied and enforced according to the
[parties’] intent.” Syl. Pt. 3, Tawney, (quoting Syl. Point 1,
Cotiga Development Co. v. United Fuel Gas Co., 147 W.Va. 484
(1962)). Therefore, it is generally improper for the Court to rely
on expert testimony interpreting the terms of an unambiguous
contract. Forest Creek Assoc. v. McLean Savs. and Loan Assoc., 831
F.2d 1238, 1242 (4th Cir. 1987).
Here, the interpretation of the royalty provisions in the
Class Leases is a question of law and Terry’s opinions regarding
Antero’s obligations to pay royalties pursuant to these provisions
9
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
are inadmissible. Syl. Point 1, Cotiga, 147 W.Va. 484. As those
royalty provisions are not ambiguous, there is no need for Terry to
opine on the parties’ obligations under those provisions. The Court
therefore excludes Terry’s opinions regarding Antero’s obligations
to pay royalties solely on the wellhead value of the Class Members’
natural gas.
Nevertheless, to the extent Terry intends to explain terms of
art in the oil and gas industry, and to describe certain customs
and usage within that industry, such testimony will aid the jury’s
understanding of a complex industry and is admissible. Although the
Plaintiffs argue that several of Terry’s opinions are contrary to
the holdings in Wellman and Tawney, general testimony about
operational aspects of the oil and gas industry should not tread on
the ultimate legal question of Antero’s duties under the Class
Leases. Clarendon, 453 F. App'x at 278 (citing Anderson, 499 F.3d
at 1237.
This ruling is not limited solely to Paragraphs 28 and 29 of
Terry’s expert report, but applies equally to any other attempt by
Terry to offer her opinion on the legal impact of Wellman and
Tawney on Antero’s obligations under the royalty provisions of the
Class Leases.
10
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DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
ii. Market Enhancement Clause Modifications (Paragraphs 26
and 74 of Terry’s Expert Report)
The Plaintiffs seek to exclude the following opinions that
Terry offers on the market enhancement modification clause found in
two of the Class Leases: (1) that gas may be a marketable product
at the wellhead; (2) that Antero is expressly permitted to deduct
post-production costs; and (3) that Antero may deduct the cost of
transporting the already marketable product to the point of sale
(Dkt. No. 296-1 at 10). According to the Plaintiffs, such testimony
encompasses inadmissible contract interpretations in conflict with
the holding in Tawney. Id. For the same reason, they contend
Terry’s opinion, that some Class Members have modified their leases
to specifically permit the deduction of post-production costs in
limited circumstances, is inadmissible. Id.
Antero asserts that, because Terry’s opinions describe the
purpose of market enhancement clauses and the “various marketing
circumstances that otherwise affect the market enhancement clauses
and transportation costs at issue in this action,” her opinions
will aid the jury’s understanding of a complex industry (Dkt. No.
304-2 at 10). It further asserts that Terry’s extensive knowledge
of present-day marketing conditions would aid the jury because such
11
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
considerations were not addressed in Wellman or Tawney, which
considered only the costs of delivering natural gas to one
particular point of sale in the stream of commerce.
Terry’s opinions in this area undoubtedly would aid the jury
in understanding what a market enhancement clause is, as well as
how such a clause operates in the industry. The Court therefore
will allow her to explain how natural gas is marketed, and to
discuss the general operation of market enhancement clauses in the
industry. But opinions about whether such a clause modifies the
Class Leases so as to permit Antero to deduct post-production costs
constitute inadmissible legal conclusions. Therefore, Terry may not
opine about the legal effect, if any, of the market enhancement
clause on Antero’s royalty payment obligations under the modified
Class Leases, and whether those Class Leases, as modified or in
their original form, comply with the holdings in Wellman and
Tawney.
iii. Modification Types (Paragraph 27 of Terry’s Expert
Report)
The Plaintiffs seek to exclude Terry’s opinion that several
Class Members executed modification agreements with Antero that
amend or replace the original royalty provisions in the Class
Leases, and that the L4 and L6 documents are examples of these
12
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
valid modification agreements. (Dkt. No. 296-1 at 10). They argue
that the L4 and L6 documents referenced by Terry are not
modifications to any Class Lease, but rather are separate lease
agreements with royalty provisions that fall outside the Class
definition.
In Antero’s view, the L4 and L6 documents are valid
modifications to certain royalty provisions in the Class Leases
permitting the deduction of post-production expenses, and Terry’s
explanation of the various types of modifications will aid the
jury’s understanding2 (Dkt. No. 304-2 at 10).
Terry’s opinions as to how leases generally are modified, and
in which scenarios Antero might seek such modifications, would aid
the jury’s understanding of how oil and gas leases may be amended
by the parties over time. However, her opinions as to whether the
L4 or L6 documents in fact modify the Class Leases, and what
Antero’s royalty payment obligations are under these documents,
whether in their original form or as allegedly modified, amount to
2
Antero also contends that L4 and L6 documents were included in its
document production because they alter a Class Lease, but “to the
extent Plaintiffs argue that such lease documents should be removed
from the certified class, Antero does not object” ( Dkt. No. 304-2
at n.11).
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
inadmissible legal conclusions on central questions of law in this
case.
iv. Gasoline Royalties (Paragraph 30 of Terry’s Expert
Report)
The Plaintiffs seek to exclude Terry’s opinion that several of
the Class Leases, including Romeo’s 1984 lease, contain a provision
regarding the amount of royalties a Class Members is to receive for
NGLs, specifically gasoline (Dkt. No. 296-1 at 11). Although
Terry’s report acknowledges that the gasoline provision in such
leases was excluded from the Class definition, she contends the
provision remains “instructive to understand the basis on which
Antero has calculated the value of extracted NGLs” (Dkt. No. 296-2
at ¶ 30). Particularly, Terry opines that the gasoline provision
illustrates why the Class Members’ royalties on NGLs cannot be
uniformly calculated, given that each individual well calculation
depends on the formulation of hydrocarbons in each well. Id.
According to the Plaintiffs, Terry’s opinion on this issue is
irrelevant because the gasoline provision does not modify Antero’s
royalty payment obligations to the Class Members under the royalty
provisions of the Class Leases (Dkt. No. 296-1 at 11). Furthermore,
they contend that the gasoline royalty provision is not included in
the Class Definition and Antero is using Terry’s opinions in an
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
attempt to resurrect its prior argument that this provision was
improperly excluded from the Class Definition. Id. Finally, they
argue that Terry’s opinion on the gasoline royalty provisions
conflicts with Tawney’s holding, because no gasoline provision
would negate Antero’s obligation to pay natural gas royalties based
upon the price received at the point of sale. Id.
Antero contends that the Plaintiffs have mischaracterized
Terry’s opinion on the gasoline royalty provisions. It asserts that
Terry’s opinion merely aims to help the trier of fact understand
the basis for Antero’s calculation of the value of extracted NGLs,
such as gasoline, and to explain that leases generally pay
royalties on the net value at the factory for the products
extracted at a processing plant. Id.
As the Plaintiffs correctly point out, Terry’s opinions
regarding the gasoline royalty provisions in the Class Leases are
irrelevant to any issue in this case. The Court has already
excluded the gasoline royalty provisions from the Class Definition,
and the Plaintiffs do not intend to argue that Antero breached the
NGL royalty provisions in the Class Leases. Accordingly, Terry’s
testimony is not relevant and would not aid the trier of fact in
deciding any of the issues in the case.
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v. House Gas Provisions (Paragraph 31 of Terry’s Expert
Report)3
The Plaintiffs seek to exclude Terry’s opinion that some of
the Class Leases contain “house gas” provisions that alter Antero’s
royalty payment obligations (Dkt. No. 296-1 at 12). But Terry’s
opinions regarding whether such provisions alter Antero’s
obligations clearly attempt to interpret the parties’ contract and
are inadmissible. Furthermore, the house gas provisions are
irrelevant to determining Antero’s obligations under the Class
Leases or its alleged breach of such obligations.
vi. Factors Influencing Natural Gas Processing and Sale
The Plaintiffs seek to exclude opinions Terry offers
throughout her report that Antero’s royalty payment obligations are
affected by several factors, including whether the natural gas has
been processed and where it is sold (Dkt. No. 296-1 at 12).
Specifically, they object to Terry’s opinion that when Antero sells
processed gas at a point of sale located outside West Virginia it
is permitted to deduct the cost of transporting the gas to that
3
In their motion to exclude, the Plaintiffs refer to Terry’s house
gas opinions in Paragraph 26. However, Terry’s discussion of house
gas is contained in Paragraph 31 of her expert report (Dkt. No.
296-2 at 10).
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point of sale. Id. The Plaintiffs again respond that these opinions
conflict with the holdings in Wellman and Tawney.
Antero counters that Terry’s explanation of how the value of
natural gas changes based on whether it is processed and where it
is sold will aid the trier of fact in understanding the unique
marketing challenges Antero faces in such instances. Moreover, it
contends Terry’s testimony is necessary to aid the jury in
understanding the difference between the manner in which the term
“point of sale” is being used by the Plaintiffs and how it is
commonly used in the industry.
Terry’s expert testimony describing how Antero processes
natural gas, chooses which natural gas to process, extracts NGLs,
calculates processing costs, sells natural gas in both its
processed and raw forms, gathers and transports natural gas to
various points of sale, and calculates transportation costs would
aid the jury’s understanding of the operation of the natural gas
industry. Likewise, her opinions on the marketing conditions Antero
faces at various points of sale located within West Virginia and
beyond, the varying chemical formulations of the Plaintiffs’
natural gas, the point of sale as it has historically been
understood in the industry, and what a “market” has generally been
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understood to mean in the industry also will aid the jury’s
understanding of the relevant market.
But her opinions regarding whether these factors alter
Antero’s royalty payment obligations under the Class Leases, and
what the parties intended the term “point of sale” to mean in the
Class Leases are inadmissible, as they amount to her interpretation
of the terms in the Class Leases. Further, Terry may not opine on
whether these factors preclude the Court’s ability to address the
common questions uniformly. Finally, Terry’s opinion that Antero is
permitted to deduct transportation costs for processed gas sold in
distant markets goes to an ultimate issue in the case and therefore
is inadmissible.
vii. Determining Royalties Based on Industry Custom and
Practice
The Plaintiffs seek to exclude Terry’s opinion that Antero’s
royalty payment obligations under the Class Leases should be
determined based upon “industry custom and practice” (Dkt. No. 296
at 12). The issue in this case is not Antero’s compliance with
industry standards in making royalty payments to the Class Members,
but whether it has complied with the royalty provisions in the
Class Leases in light of Wellman and Tawney‘s dictates. Therefore,
Terry’s opinions about whether Antero’s royalty calculations meet
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or exceed industry standards are irrelevant. And any testimony that
the holdings in Wellman and Tawney do not apply to Antero’s royalty
payment obligations in this case is an inadmissible opinion.
viii. Point of Sale (Paragraphs 60 and 73 of Terry’s Expert
Report)
Finally, the Plaintiffs seek to exclude Terry’s opinion that
their expert, Phend, has incorrectly calculated the Class Members’
damages using the price Antero received at the actual “point of
sale” rather than at a hypothetical “point of sale” (Dkt. No. 304-2
at 14-15). While Terry’s testimony about how natural gas is bought
and sold in the industry would aid the jury’s general understanding
of oil and gas industry practices, her opinion regarding the
relevant “point of sale” under the Class Leases is an inadmissible
legal opinion.
D. Terry’s Proposed Testimony Regarding Class Certification
The Plaintiffs also seek to exclude Terry’s opinions regarding
the propriety of trying this case as a class action because they
conflict with this Court’s prior certification Order. Id.
Alternatively, they argue that Terry’s class certification opinions
should be excluded because they rely on the contention that Antero
does not have a common royalty payment obligation under the Class
Leases. Id. Pointing to the fact that a court may alter or amend
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its order certifying a class prior to the final judgment under
Federal Rule of Civil Procedure 23(c)(1)(C), Antero argues that
Terry’s opinions on class certification would help the Court
reevaluate the soundness of its prior decision (Dkt. No. 304-2 at
20-22).
While cognizant that it retains the discretion to alter or
amend its previous class certification Order, the Court
nevertheless concludes that any opinion Terry holds on this issue
would not be helpful.
E. Terry’s Proposed Testimony Regarding Phend’s Damages
Calculations
Finally, the Plaintiffs challenge Terry’s critique of their
expert’s calculation of the Class Members’ damages.
i. Terry’s qualifications
The Plaintiffs seek to exclude Terry’s opinion on damages
because she is not an accountant and has never practiced in the
field of accounting (Dkt. No. 296 at 15-16). This argument is
unpersuasive. “The text of Rule 702 expressly contemplates that an
expert may be qualified on the basis of experience.” Fed. R. Evid.
702, advisory committee note to 2000 amendments. In weighing
Terry’s qualifications, the Court must consider the “full range” of
her experience, “not just [her] professional qualifications.” Good,
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WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
310 F.R.D. at 282.
Although the Plaintiffs’ observation that Terry has no formal
training in accounting is accurate, she does possess over thirty
(30) years of industry experience in marketing and valuing natural
gas, as well as calculating royalty payments (Dkt. No. 304-2 at
15). Not only is all of this experience relevant to the issues in
this case, it is worth noting that she also has been accepted by
other courts as an expert on these issues and previously has
critiqued Phend’s expert opinions in similar cases. Id. at 15-16.
Nor is accounting expertise necessary to assess Phend’s
calculations because he does not rely on any specialized accounting
principles in rendering his opinion. Rather, he employs “basic
arithmetic functions performed by Microsoft Excel.” Id. at 16-17.
Therefore, given Terry’s knowledge and decades of experience in
valuing gas and calculating royalty payments, she is qualified to
criticize Phend’s calculations. Any lack of specialized accounting
experience goes to the weight of her testimony rather than its
admissibility.
ii. Calculation Based on Volume of Gas Sold (Paragraph 71 of
Terry’s Expert Report)
The Plaintiffs next argue that Terry’s opinion that Phend was
required to calculate the Class Members’ damages based on the
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volume of gas sold rather than the volume of gas at the wellhead is
erroneous. They contend that Antero failed to provide sufficient
data for Phend to calculate the Class Members’ damages based on the
volume of gas sold (Dkt. No. 296 at 16). In its response, Antero
asserts that Phend’s calculation misstates the alleged damages
because it is not required to pay royalties on unsold quantities of
gas, and the Plaintiffs did not request data regarding the volumes
of gas sold from the Plaintiffs’ wells (Dkt. No. 304-2 at 17-18).
Under West Virginia law, lessees are not required to pay
royalties on unsold or lost gas volumes. See W.W. McDonald Land Co.
v. EQT Prod. Co., 983 F. Supp. 2d 790, 802 (S.D.W. Va. 2014)
(“Requiring lessees to pay royalties on unsold gas is illogical and
inequitable.”). Consequently, the Plaintiffs are not entitled to
receive royalty payments without deductions for an amount of gas
larger than the volume actually sold by Antero. Terry’s critique of
Phend’s calculation therefore is admissible.
Nevertheless, in the time since Antero first disclosed Terry’s
report the Plaintiffs presumably have requested the relevant data
regarding the volume of gas actually sold by Antero (Dkt. No. 304-2
at 18) (“Regardless of the data Antero may or may not have produced
in discovery regarding volumes of gas, which, at the time of
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MEMORANDUM OPINION AND ORDER GRANTING-IN-PART AND
DENYING-IN-PART PLAINTIFFS’ MOTION TO EXCLUDE THE EXPERT
WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
[Terry’s] report, Plaintiffs had not requested....”). And, assuming
Antero will produce or already has produced accurate data pursuant
to such a request, Phend has or will amend his damages calculation
using the volume of gas actually sold by Antero, likely making this
dispute between the parties moot.
iii. Ad Valorem Taxes (Paragraph 75 of Terry’s Expert Report)
The Plaintiffs argue that Terry should not be permitted to
opine on Phend’s inclusion of Antero’s ad valorem tax deductions in
his damages calculation, because whether ad valorem taxes are post-
production costs is a question of law to be decided by the Court
(Dkt. No. 296-1 at 16). Antero, however, contends that Terry’s
explanation of terms such as “post-production costs” and “ad
valorem taxes” would aid the jury’s understanding of the
specialized oil and gas industry (Dkt. No. 304-2 at 18). The Court
will allow testimony explaining industry terms and describing how
taxes typically are assessed in the oil and gas industry, but
excludes any opinions as to whether, under West Virginia law, ad
valorem taxes are properly considered post-production costs.
iv. Overstatement of Damages (Paragraph 76 of Terry’s Expert
Report)
The Plaintiffs seek to exclude as speculative Terry’s opinion
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that Phend overstated the Class Members’ damages (Dkt. No. 296-1 at
16). Terry’s opinions, however, are based on Phend’s deposition
testimony (Dkt. No. 304-2 at 18-19) and, therefore, are not
speculative.
v. Market Value of Natural Gas at the Well or Net Factory
Value of NGLs (Paragraph 77 of Terry’s Expert Report)
The Plaintiffs seek to exclude Terry’s criticism of Phend’s
exclusion of information that will aid the jury in calculating the
market value of natural gas at the well or the net factory value of
the extracted NGLs (Dkt. No. 296-1 at 17). Terry’s opinion that
such information is necessary to calculate damages is inadmissible
because it seeks to identify the intended point of natural gas
valuation under the Class Leases, an issue relating to the
applicability of Wellman and Tawney to the Class Leases. If Wellman
and Tawney apply, Antero is obligated to pay natural gas royalties
based on the price received at the point of sale, not on the market
value of natural gas at the well, or on the net factory value
received for the extracted NGLs.
vi. Forecast of Damages between February 2020 and Trial
(Paragraph 78 of Terry’s Expert Report)
The Plaintiffs seek to exclude Terry’s criticism of Phend’s
projection of the amount of the Class Members’ damages accrued
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between February 2020 and the trial date. They contend that Terry
did not review Antero’s updated accounting data to determine the
accuracy or inaccuracy of Phend’s projections. They also assert
that Phend will rely on these projections only until Antero
supplements its production of Class Member royalty accounting data
(Dkt. No. 296-1 at 16). Antero, however, contends that Terry had no
need to review recent accounting data to determine the accuracy of
Phend’s projections because, in his deposition, Phend admitted his
projected damages calculation for the disputed months was not “done
in conjunction with an engineer” and likely would not meet the
standards upon which Certified Public Accountants would rely (Dkt.
No. 296-1 at 16).
Phend’s projections of accrued damages for the months between
February 2020 and the trial may not meet accounting industry
standards, but since he does not intend to present these
projections as such or rely on them at trial, this issue is moot.
As Terry’s report concedes, Phend will replace his projections with
a calculation of actual damages as trial approaches and after he
receives the required supplemental Class Member royalty accounting
data from Antero (Dkt. No. 296-2).
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vii. Potential Disputes Between Current and Former Royalty
Owners (Paragraphs 79. 80, 81, and 82 of Terry’s Expert
Report)
Finally, the Plaintiffs seek to exclude Terry’s opinion that
Phend failed to provide a methodology to resolve potential disputes
between current and former royalty owners that may arise in
determining which owners may be entitled to damages for Antero’s
alleged underpayment during the class period (Dkt. No. 296-1 at
17). According to the Plaintiffs, Phend calculated each Class
Member’s damages based on Antero’s royalty accounting data, which
includes Antero’s deductions for each Class Member during the class
time period. Id. at 16-17.
Tellingly, nothing suggests that Antero misstated the
deductions for each class member. Id. But Antero maintains that,
while Phend’s damages calculation accounts for individual Class
Member damages, it is does not divide those alleged damages between
current and former royalty owners during the class time period
(Dkt. No. 304-2 at 20).
Any opinions offered by Terry containing legal conclusions
intended to undermine class certification will not aid the jury’s
understanding and therefore are inadmissible. However, opinions
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WITNESS TESTIMONY OF KRIS TERRY [DKT. NO. 296]
describing how and why oil and gas ownership interests are
transferred, the types of transfers common in the industry, and how
Antero determines which owners should receive royalty payment would
aid the jury’s understanding of the natural gas industry and are
admissible.
The Plaintiffs further seek to exclude Terry’s observation
that Plaintiffs Rine and Miller, failed to notify Antero of their
inherited oil and gas interests, and that Antero therefore would
have continued to pay royalties to their predecessors-in-interest
(Dkt. No. 296 at 18). As the Plaintiffs assert, however, this
information is irrelevant because Antero did not produce any gas
from a well owned by either Rine or Miller until after their
interests had been verified.
IV. CONCLUSION
For the reasons discussed, Terry is qualified to testify and
offer opinions as follows:
1. She may explain industry terms of art and their
custom and usage within the oil and gas industry;
2. She may explain how natural gas is marketed, what a
market enhancement clause is, and the purpose of
such a clause in the natural gas industry;
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3. She may explain how natural gas leases generally
are modified and in which scenarios Antero may seek
such modifications;
4. She may explain how Antero processes natural gas,
chooses which natural gas to process, extracts
NGLs, sells natural gas in both its processed and
raw forms, gathers and transports natural gas to
various points of sale, and that processing and
transportation costs are incurred;
5. She may discuss the marketing conditions faced by
Antero at various points of sale located within
West Virginia and beyond, the varying chemical
formulations of the Plaintiffs' natural gas, and
what a "market" has generally been understood to
mean in the industry;
6. She may explain how natural gas is bought and sold
in the industry;
7. She may explain how taxes are assessed in the oil
and gas industry;
8. She may opine that Phend was required to calculate
the Class Members' damages based on the volume of
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gas sold rather than the volume of gas at the
wellhead; and
9. She may explain how and why oil and gas ownership
interests are transferred, the types of transfers
common in the industry, and how Antero determines
which owners will receive royalties.
But Terry may not offer opinions on Antero’s duty to pay royalties
under the Class Leases, whether the holdings in Wellman and Tawney
apply to the Class Leases’ royalty provisions, or whether the
standards established in Wellman and Tawney for permissible
deductions of post-production costs from royalty payments have been
satisfied. Nor may she offer her opinion on the appropriateness of
the Court’s Preliminary Order of Class Certification.
The Plaintiffs’ Motion to Exclude (Dkt. No. 296) is therefore
GRANTED-IN-PART and DENIED-IN-PART.
It is so ORDERED.
The Clerk SHALL transmit copies of this Memorandum Opinion and
Order to counsel of record.
DATED: January 21, 2021.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
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