In Re Lease Oil Antitrust Litigation

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

May 28, 2009

No. 08-40230

Charles R. Fulbruge III

Clerk

In the Matter of:

LEASE OIL ANTITRUST LITIGATION

********************

J. TOM POYNOR,

Movant-Appellee,

versus

CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP,

as Successor to DLB Oil & Gas, Inc., Hugoton Energy Corporation,

and Anson Corporation,

Movant-Appellant.

********************

THE MCMAHON FOUNDATION and J. TOM POYNOR,

Plaintiffs-Appellees,

versus

CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP,

as Successor to DLB Oil & Gas, Inc., Hugoton Energy Corporation,

and Anson Corporation,

Movant-Appellant.

********************

THE MCMAHON FOUNDATION; J. TOM POYNOR;

and MARY ALMA POWELL,

Plaintiffs-Appellees,

versus

CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP,

as Successor to DLB Oil & Gas, Inc., Hugoton Energy Corporation,

and Anson Corporation,

Movant-Appellant.

Appeal from the United States District Court

for the Southern District of Texas

Before SMITH, DENNIS, and PRADO, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

The State of Texas (“Texas”) appeals the denial of its motion to intervene.

We reverse and remand.

I. Facts and Procedural History

This appeal arises from a class action that has been ongoing for over a dec-

ade. The plaintiff class claimed that oil companies were not paying the fair mar-

ket value of oil at the well.1 A settlement was reached, and settlement checks

were distributed between October 1999 and September 2002. Because the case

1

The details of the underlying dispute are not relevant to the current appeal. The facts

and procedural history are recounted in In re Lease Oil Antitrust Litig. (No. II), 16 F. Supp.

2d 744, 745-47 (S.D. Tex. 1998).

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No. 08-40230

had been pending for so long before the funds were distributed, some members

of the plaintiff class could not be located. Among the unclaimed funds was

$4,638,283 owed to members whose last known addresses were in Texas.

The district court decided to use a cy pres distribution of the unclaimed

funds to a third party. 2 The recipient it chose was an air quality monitoring pro-

ject. Because all class members were involved in the oil industry, that environ-

mental project was deemed to benefit them. The cy pres plan was discussed dur-

ing telephonic hearings in March and December 2006 and March 2007.

Texas was not a party and therefore did not participate in the hearings.

Class counsel, however, understood that Texas was interested in the proceedings

and kept the Texas Attorney General’s office informed of the discussions. Class

counsel also told the district court about its communications with that office and

of Texas’s position on the cy pres plan.

Texas opposed any cy pres distribution from the beginning and indicated

to class counsel that it might intervene to prevent it. At the March 2006 hear-

ing, class counsel informed the court that she “did call the [Texas] Attorney Gen-

eral’s Office, and they made it clear that if there ends up being a significant

amount of [unclaimed] money, they might be willing to challenge a court order

that sends money anywhere other than to the States.” Nevertheless, the district

court approved the cy pres distribution in an order on December 12, 2007. In an-

ticipation of an appeal by Texas, the court set aside the Texas unclaimed funds

in a separate account and sent a copy of the order to the state.

On January 11, 2008, Texas filed a motion to intervene and a motion to re-

consider. The district court denied both. Texas then brought this appeal.

In attempting to intervene, Texas relies on state law that requires that

persons in possession of unclaimed property belonging to someone else must de-

2

The cy pres distribution included all unclaimed funds, including those owed to plain-

tiffs with last-known addresses in other states.

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No. 08-40230

liver it to the state comptroller. See T EX. P ROP. C ODE § 74.301 (Vernon 2007).

Property is considered unclaimed or abandoned if its owner cannot be located for

three years and the last-known address of the owner is in Texas. See id.

§§ 72.001, 72.101.

II. Issues on Appeal.

Texas argues that it should have been granted leave to intervene as of

right in the district court. The test on appeal for intervention as of right is a

four-part test, the first of which has four sub-parts. Federal Rule of Civil Proce-

dure 24(a) states,

On timely motion, the court must permit anyone to intervene who

. . . claims an interest relating to the property or transaction that is

the subject of the action, and is so situated that disposing of the ac-

tion may as a practical matter impair or impede the movant’s ability

to protect its interest, unless existing parties adequately represent

that interest.

The four parts of the intervention test are therefore (1) timeliness, (2) an

interest relating to the action, (3) that the interest would be impaired or impeded

by the case, and (4) that the interest is not adequately represented by existing

parties. See Sierra Club v. Espy, 18 F.3d 1202, 1204-05 (5th Cir. 1994); 6 J AMES

W. M OORE ET AL., M OORE’S F EDERAL P RACTICE § 24.03[1][a], at 24-21 through 24-

22 (3d ed. 2008). The first part, timeliness, is governed by the four-part test in

Stallworth v. Monsanto Co., 558 F.2d 257 (5th Cir. 1977): (1) the length of time

between the would-be intervenor’s learning of his interest and his petition to in-

tervene, (2) the extent of prejudice to existing parties from allowing late inter-

vention, (3) the extent of prejudice to the would-be intervenor if the petition is

denied, and (4) any unusual circumstances. See id. at 263-66; accord Ruiz v. Es-

telle, 161 F.3d 814, 827-28 (5th Cir. 1998).

Although the right to intervene is in general an issue of law that we review

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No. 08-40230

de novo, Sierra Club, 18 F.3d at 1205, the determination of timeliness is “largely

committed to the discretion of the district court,” Stallworth, 558 F.2d at 263, so

we review that decision for abuse of discretion, id.; Sierra Club, 18 F.3d at 1205

n.2. The criteria are mandatory, but “[r]ule 24 is to be construed liberally, . . .

and doubts resolved in favor of the proposed intervenor.” 6 M OORE ET AL., supra,

§ 24.03[1][a], at 24-22 (citations omitted).

A. Timeliness.

1. Length of Time Since Learning of Interest in the Action.

The first timeliness factor is “[t]he length of time during which the would-

be intervenor actually knew or reasonably should have known of his interest in

the case before he petitioned for leave to intervene.” Stallworth, 558 F.2d at 264.

The timeliness clock does not start running until the putative intervenor also

knows that class counsel will not represent his interest. Sierra Club, 18 F.3d at

1206. The district court found that Texas had actual knowledge of its interest

in the case by March 2006 at the latest.

Texas argues that it was not aware of its interest until it received notice

of the December 12, 2007, order, which declared the existence of unclaimed

checks and created the cy pres distribution. Texas received formal notice of the

order on January 2, 2008, and filed its motion to intervene just nine days later.

There is ample evidence, however, that Texas was aware of its interest

quite some time earlier. Class counsel reported to the district court that it had

kept Texas informed of the possibility of a cy pres distribution. In several hear-

ings, the court noted Texas’s opposition to the idea and its possible intent to in-

tervene. The hearing transcripts show that Texas knew the case was pending.

Class counsel represented to the district court on at least three occasions that

it had been in touch with the Texas Attorney General’s office regarding the prog-

ress of the case.

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No. 08-40230

The transcripts also indicate that Texas knew its interests were not being

represented by class counsel. At the March 2006 hearing, class counsel reported

contacting the Texas Attorney General’s office about the unclaimed settlement

funds. Texas’s opinion was that the money should go to the state, not a cy pres

distribution. From the posture of class counsel, working toward the cy pres set-

tlement, Texas should have been aware that its interests were not being repre-

sented by any of the parties. The timeliness of the motion to intervene should

thus be measured from March 2006, almost two years before it was filed.

2. Prejudice to Existing Parties if Motion To Intervene Is Granted.

The second timeliness factor weighs the prejudice to other parties caused

by the delay in seeking intervention. Any potential prejudice caused by the in-

tervention itself is irrelevant, because it would have occurred regardless of

whether the intervention was timely. Stallworth, 558 F.2d at 265. The only

proper concern is how much more prejudice would come from Texas’s intervening

in January 2008 compared to its intervening in March 2006.

The impact on other parties is minimized by the nature of Texas’s interest

and by actions the district court took to segregate the funds in question. Texas

is not asking to reopen the underlying settlement agreement. No new negotia-

tions need to take place. Texas has no quarrel with the amount of the settle-

ment or the distribution of funds among class members.

It would have been more convenient for the district court to hear Texas’s

arguments about the unclaimed funds at the time the cy pres plan was being

developed, but the other parties are not disadvantaged by the delay. Inconve-

nience for the district court is not the same as prejudice to parties. “[I]nterfer-

e[nce] with orderly judicial processes . . . has nothing to do with timeliness” and

is not a relevant factor when analyzing intervention as of right. Stallworth, 558

F.2d at 266.

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No. 08-40230

The actions of the district court prevented prejudice to one party that

might otherwise have been disadvantaged by a late intervention. In a compan-

ion to this case, Chesapeake Energy Limited Partnership (“CELP”) is appealing

another aspect of the same settlement. Its appeal could not be brought until a

final order was issued in the main case.3 Reopening the case to allow Texas to

intervene could have delayed CELP’s appeal. The district court mitigated this

problem, however, by segregating the funds relevant to CELP’s appeal in a sepa-

rate account. Those funds are therefore not endangered by Texas’s intervention.

CELP’s claims can be addressed independently.

Even if CELP’s appeal would have been delayed by Texas’s late interven-

tion, that delay would have been short. The district court has already considered

the claims Texas plans to make, so reconsidering them in light of any new argu-

ments Texas brings in person could not have taken much time.

3. Prejudice to Texas if Its Motion To Intervene Is Denied.

By intervening, Texas is attempting to protect its interest in the Texas

unclaimed funds involved in the cy pres settlement. To determine whether Tex-

as would be prejudiced by being denied intervention, we examine what opportu-

nities it would have to claim those funds if it cannot intervene.

If the motion is denied, Texas’s opportunity to appeal would be quite limit-

ed. Non-parties are generally not permitted to appeal a ruling in which they did

not participate. See Marino v. Ortiz, 484 U.S. 301, 304 (1988). Texas could have

tried to appeal as a non-party under Castillo v. Cameron County, Texas, 238 F.3d

339, 349-51 (5th Cir. 2001), but it would have had to rely on a vague balancing

test to overcome the general presumption against non-party appeals. Moving to

intervene as of right was a much more certain way of proceeding.

3

See McMahon Found. v. Amerada Hess Corp., 98 F. App’x 267, 271 (5th Cir. 2004)

(dismissing CELP’s earlier appeal for want of jurisdiction based on the lack of a final order).

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No. 08-40230

Texas also might have pursued its interest by suing the settlement

administrator in state court to compel delivery of the unclaimed funds. See T EX.

P ROP. C ODE § 74.709 (Vernon 2007). If Texas won such a suit, however, it would

create a legal morass. The settlement administrator would be presented with

conflicting federal and state orders regarding the same property. Texas might

be unable to enforce its state court order. Intervening in the existing federal

lawsuit is the most efficient, and most certain, way for Texas to pursue its claim.

Denying that intervention would certainly cause prejudice to Texas.

4. Unusual Circumstances.

Although it is rare for intervention to be granted after a final order has

been entered, see Edwards v. City of Houston, 78 F.3d 983, 1001 (5th Cir. 1996)

(en banc), it is sometimes permitted. Post-judgment intervention usually causes

unjustifiable prejudice to other parties, but this case is one of those rare instanc-

es in which post-judgment intervention is timely and proper.

Texas waited two years after it became aware of its interest in the suit and

should have acted sooner. The lack of real prejudice to existing parties from in-

tervention, and the significant prejudice to Texas if intervention is not allowed,

overcome the fact of the delay, however. Additionally, the structure of the final

order, with funds set aside to allow Texas to appeal without injuring other par-

ties, weighs heavily in favor of intervention. The district court abused its discre-

tion by finding Texas’s motion to intervene untimely.

B. Additional Intervention Factors.

In addition to timeliness, Texas must demonstrate an interest that will be

impaired or impeded if Texas cannot intervene and that is not adequately repre-

sented by the existing parties. To support intervention as of right, Texas must

show that it has “a direct, substantial, legally protectable interest in the action,

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No. 08-40230

meaning ‘that the interest be one which the substantive law recognizes as be-

longing to or being owned by the applicant.” Cajun Elect. Power Coop. v. Gulf

States Utils., Inc., 940 F.2d 117, 119 (5th Cir. 1991) (quoting New Orleans Pub.

Serv., Inc. v. United Gas Pipe Line Co., 732 F.2d 452 (5th Cir. 1984) (en banc)

(“NOPSI”)). Texas asserts two interests. First, it claims that it stands in the

shoes of the owners of the unclaimed property and protects their interests under

state law. Second, it claims an interest in the investment income that can be

earned on the property until it is claimed. Texas argues that neither of these

interests is adequately represented by class counsel.

We reject Texas’s first purported interest. Texas does not a represent the

property owners. State law does not create a custodial trust relationship be-

tween them and the state. See Clark v. Strayhorn, 184 S.W.3d 906, 912-13 (Tex.

AppSSAustin 2006, pet. denied). The state is not required to pay interest earned

from the property to the original owners. See id. It must surrender only the ori-

ginal value of the property when the owner claims it. This relationship does not

allow Texas to “stand in the shoes” of the property owners, because Texas is not

representing the interests that the property owners would claim for themselves

and may indeed have conflicting interests.4

Even if Texas were permitted to represent the interests of unclaimed prop-

erty owners, it would still not satisfy the final prong of the intervention test un-

der this theory, because class counsel has been charged with representing the

interests of the absent property owners. When class counsel has been properly

appointed, the state cannot intervene under the guise of representing owners of

unclaimed property. See Paterson v. Texas, 308 F.3d 448, 451 (5th Cir. 2002).

“The class members are represented by class representatives, who satisfied the

district court that they met the representation requirements of federal law and

4

See, e.g., Clark, 184 S.W.3d at 908 (appellants suing state for interest on unclaimed

property).

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No. 08-40230

that the settlement was fair. The class representatives, not the State, are by

federal law the parties authorized to prosecute and settle the claims of the class

members.” Id.5

Texas does have its own interest in the litigation, however. Texas law as-

signs the interest accrued from unclaimed property to the state, which thus has

a financial interest in the investment income generated by the funds until the

principal is claimed by the owners. That interest is not directly related to the

underlying dispute but is sufficiently related to the litigation. Texas presents

a substantial interest in a fund that is being distributed in the settlement of the

underlying action.6 An interest solely related to the terms of a settlement can

support intervention.7 Additionally, Texas’s claims relate to the distribution of

unclaimed settlement funds, which is an issue that must be decided in the action

regardless of whether it intervenes. This distinguishes the present situation

from interventions that would add new issues to an existing case.8

“[A]n economic interest alone is insufficient” to intervene. NOPSI, 732

F.2d at 466. In NOPSI, the city and several other customers of an electric com-

pany moved to intervene in a rate dispute between two electric companies, on

the theory that the rates charged between the companies would affect the rates

5

State law apparently allows the state to intervene in a state class action to represent

the interests of unclaimed property owners under this theory. See State v. Snell, 950 S.W.2d

108 (Tex. App.SSEl Paso 1997, no writ). State law, however, is not relevant to the question

whether this theory justifies intervention as of right under the federal rules.

6

See 6 MOORE ET AL ., supra, § 24.03[2][a], at 24-26 (“Motions to intervene in which the

proposed intervenor advances a clear property interest present the easiest cases for interven-

tion.”).

7

See Ford v. City of Huntsville, 242 F.3d 235, 239-41 (5th Cir. 2001) (deciding that

newspaper may intervene to challenge confidentiality agreement between settling parties).

8

See, e.g., Howse v. Canada Goose I, 641 F.2d 317 (5th Cir. Unit B Apr. 1981) (stating

that shipyard cannot intervene with contract claim in suit for unpaid wages involving vessel

docked at the shipyard).

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No. 08-40230

ultimately paid by consumers. Id. at 460-61. We held that “an economic interest

alone is insufficient, as a legally protectable interest is required for intervention

under Rule 24(a)(2), and such intervention is improper where the intervenor

does not itself possess the only substantive legal right it seeks to assert in the

action.” Id. at 466.

Unlike the putative intervenor in NOPSI, Texas does have a legally pro-

tectable interest: a property right in interest from the unclaimed funds that is

recognized under state law. See T EX. P ROP. C ODE § 74.709 (Vernon 2007). Tex-

as’s situation is therefore distinguishable from the unsupported economic inter-

est in NOPSI.

There is no question that Texas’s interest will be impaired or impeded if

it is not permitted to intervene. Barring intervention, the funds will be distrib-

uted to the air quality monitoring project, and the state will not be able to claim

the interest. The possibility of bringing a state action to compel the settlement

administrator to turn over the unclaimed property, as described above, does not

change the analysis. The cy pres distribution order creates a strong possibility

of a practical harm to Texas’s property interest, which is sufficient to show im-

pairment. See 6 M OORE’S F EDERAL P RACTICE, supra, § 24.03[3][a], at 24-41

through 24-42.

Lastly, Texas must show that its interest is not adequately represented by

existing parties. That determination is also straightforward. Class counsel was

appointed to represent the interests of the plaintiff class, including the owners

of unclaimed property. The interests of the class members may be served indir-

ectly by giving unclaimed funds to a charity project that benefits their industry.

The interests of the state in holding those funds and receiving interest, however,

is quite different.

In summary, Texas has met the requirements for intervention as of right.

Its motion was timely, and it presented an interest in the litigationSSthe proper-

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No. 08-40230

ty interest in investment income from unclaimed settlement funds—that is dir-

ect and substantial, would be impaired absent intervention, and is not represent-

ed by any of the existing parties. We therefore REVERSE the denial of interven-

tion and REMAND for further proceedings.

12