# Appendix — Hilliard v. Shell Western E & P, Inc.

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_0966%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1998
- **Citation:** 525 U.S. 1048

## Text

APPENDIX A

96-1530

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

FILED
July 6, 1998
LEONARD GREEN, Clerk

KENNETH R. HILLIARD, ET AL.,
Plaintiffs-Appellees,

V.

SHELL WESTERN E & P, INC.,
ET AL.,
Defendant-Appellant.

i i i

ORDER
BEFORE: MERRITT, RYAN, and HILL,” Circuit Judges.

The court having received a petition for rehearing en
banc, and the petition having been circulated not only to the

' Hon. James C. Hill, Senior United States Circuit Judge for the

Eleventh Circuit Court of Appeals, sitting by designation.

la

original panel members but also to all other active” judges of
this court, and no judge of this court having requested a vote
on the suggestion for rehearing en banc, the petition for
rehearing has been referred to the original panel.

The panel has further reviewed the petition for
rehearing and concludes that the issues raised in the petition
were fully considered upon the original submission and
decision of the case. Accordingly, the petition is denied.

ENTERED BY ORDER OF THE COURT

/s/
Leonard Green, Clerk

2 Judge Nelson recused himself from participation in this ruling.

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SS

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

KENNETH R. HILLIARD and ) Case No. 96-1530
GREGORY D. STYLES, ) Trial Court No.
Trustee under Trust ) §:93-CV-21
Agreement dated May 5, 1979, )

Plaintiffs, ) Appeal from the

) United States District

vs. ) Court for the Western

) District of Michigan
SHELL WESTERN E & P, INC., )
a Delaware corporation, )
Defendant. )
/

MOTION OF PLAINTIFFS-APPELLEES
FOR REHEARING AND
FOR REHEARING EN BANC

The Plaintiff-Appellee Class moves this Court for
Rehearing in accordance with Rule 40, Federal Rules of
Appellate Procedure, and for Rehearing en Banc in
accordance with Rule 35, Federal Rules of Appellate
Procedure, of this Court’s May 22, 1998 Decision and Order
relating to this case. As grounds for this Motion, and in
support hereof, Plaintiff-Appellees state that this Court erred
in (1) making erroneous factual determinations unsupported
by the record, (2) finding that the res judicata doctrine applied
contrary to fact and law, and (3) determining that Plaintiffs

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are subject to the Act 6] fee in the absence of a legal or
constitutional bases to do so. In support of this motion,
Plaintiffs state as follows:

I. THIS COURT ERRONEOUSLY MADE
FACTUAL DETERMINATIONS WHICH WERE
NOT SUPPORTED BY THE RECORD

The May 22, 1998 Opinion of this Court contains
factual references that are both unsupported by and
contradictory to the record. These factual determinations are
pivotal to this case and have led this Court to incorrect
conclusions. These incorrect and unsupported factual
references are as follows.

A. On page 2 of the Opinion, this Court stated that
“The representatives of the current class were previously part
of another class which sued Shell Western, claiming that the
Act 48 deductions breached the parties’ lease.” This is
incorrect and unsupported because: (1) no certified class ever
existed to consider the Act 48 issue, (2) the Act 48 issue was
severed from the other issues in Brown v. Shell, (3) the Act
48 issue was conclusively decided before the Brown v. Shell
class was certified to consider the remaining issues in the
case, and (4) the Act 48 issue was never part of the Brown v.
Shell class settlement.

The original Brown v. Shell case was filed in 1981
seeking a class action. No class was certified until 1984.
Much happened during the intervening three years. By
stipulation of the parties (See Motion, Stipulation ard Order
attached as Composite Exhibit A), a First Amended

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Complaint was filed on February 6, 1981. (App™” 241-6).
That pleading only named 13 specific plaintiffs. On
December 16, 1981, Shell Western filed a Motion for Partial
Summary Judgment relating to the First Amended Complaint.
(App 253-8). That Motion dealt specifically and exclusively
with the Act 48 severance tax issue. The remaining issues
were left to be litigated between Shell Western and the
thirteen original plaintiffs. The State Circuit Court entered an
Order on the Partial Summary Judgment on April 6, 1982.
(App 273-4). By another Order dated April 6, 1982, the
Circuit Court severed Count I dealing with the Act 48
severance tax issue. (See for example text of App 188). The
Order, specifically relating only to the Act 48 severance tax
issue, was then appealed to the Michigan Court of Appeals,
which returned its opinion and order in Brown v. Shell, 128
Mich App 111, 339 NW2d 709 (1983). On March 20, 1984,
as part of an agreed settlement with Shell, the thirteen named
plaintiffs filed a Second Amended Complaint which did not
deal in any way with the Act 48 severance tax issue. (App
189-198, see also App 181-187). Thereafter, on March 29,
1984, the parties filed a Motion to Approve a Settlement.
(App 181-187). That Joint Motion specifically indicated in
paragraph 2, entitled “SUBJECT MATTER OF
SETTLEMENT,” that “[t]he proposed settlement shall have
no substantive effect on the [Act 48] severance tax issue”.
(App 183). The settlement on page 4 demonstrates that the
parties agreed to class certification, but, by virtue of the
remaining terms, the class certification dealt only with the
remaining issues in the case. Tax issues were not then and

3

“App” refers to the Joint Appendix previously filed by the
parties in this case.

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Motion Rehearing, No. 96-1530 - 6/3/98

never were any part of the Brown v. Shell class issues, and
that was by consent of Shell Western. On May 31, 1984, the
Circuit Court entered a consent Final Judgment on the
remaining issues in the case, which, pursuant to the
settlement, excluded any Act 48 severance tax issue. (App
479-486). Consequently, the Act 48 severance tax issue was
never litigated by or made part of the Brown v. Sheil class.
Even the notice to the Class Members expressly excluded the
Act 48 severance tax issue. (See Motion to Approve
Settlement at { C, p 5, App 181-187). Accordingly, to say
that the 864 current class members were part of “another
class which sued Shell Western, claiming that the Act 48
[severance tax] deductions breached the parties’ lease,” is
contrary to the record before this court. The Act 48
severance tax issue only involved thirteen parties, and was
fully decided years before the Brown v. Shell class was ever
certified, by consent, to cover the remaining issues.

B. On Page 3 of the Opinion, this Court
incorrectly states that “plaintiffs claim that Shell Western has
breached the same leases by deducting the Act 6] fee ...”
The lease forms are the same, but the breaches in the 13
Brown v. Shell leases in no way covered the 864 leases here.
(See also argument in II.D., infra).

c. On page 5 of the opinion, this Court writes
“Although the fact that Shell Western was deducing for Act 48
taxes is different from the fact that it was also deducting for
Act 61 fees, both assessments were deducted from plaintiffs’
royalties at the same time and both appeared on the same
statement of accounts ...” This is incorrect. This Court even
later recognizes on page 5 that Shell Western does not
“appear to have been entirely forthcoming with the

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information about these deductions ...”. The undisputed
letters attached to Plaintiffs’ complaint demonstrate that
Plaintiffs were not aware of the Act 61 deductions and that
those deductions were disguised as a tax” and not an Act 61
fee. (App 65-74). Further, the only “statement” that showed
an Act 6] charge was an “in-house” report by Shell Western
that was not distributed by Shell Western to the royalty
owners. A review of the statement provided to the royalty
owners (App 66) demonstrates that only a “tax” was
withheld, while the in-house report, not sent to the royalty
owners, breaks down the various categories and includes
specific categories for “severance tax” and “privilege tax.”
(App 507). The documents demonstrate that this Court’s
Statement indicating that the Act 61 fee “appeared” on the
royalty owners’ statement of accounts is incorrect, and that
mistake changes the character of the transaction.

D. On page 5 of the Order, the Court writes “the
plaintiffs have admitted that they discovered during the first
case the essential facts relevant to the present case.” The
Plaintiffs certainly did not admit this. This was argument by
Shell Western. The Honorable Judge Quist quickly dispensed
with this argument in his Opinions dated June 13, 1995 and
July 20, 1995. (App 500-501,513-516).

In summary, these are four pivotal points that are not
supported by the record and frankly, are contradictory to the
record. The true facts change the outcome of this case. It is
unfair to the litigants to make these “findings” without, at a
very minimum, a remand.

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II. © THIS COURT INCORRECTLY DECIDED THAT
RES JUDICATA BARRED PLAINTIFFS’
CLAIMS

A. This Court erred when it held that “the
plaintiffs knew or should have known what Shell was doing”
in deciding that Plaintiffs should have litigated the Act 61
issue at the same time as the Act 48 issue. Res judicata is not
available to Shell because Shell agreed early in the case in
Brown v. Shell to limit the scope of the court’s inquiry to the
Act 48 severance tax only. In Brown v. Shell, the parties
stipulated to an Order granting a Motion to Amend, which
Motion provided:

[Jjudicial economy makes advisable the
limiting of issues to be litigated to two, the
propriety of defendant charges imposed upon
plaintiffs for certain operations of the Kalkaska
gas plant and further, defendants imposition
upon plaintiffs of a portion of the Severance
Tax chargeable to individual wells. (Exhibit
A. Emphasis added).

Act 61 was not litigated in Brown v. Shell, and the
parties’ stipulation demonstrates that it could not have been
litigated, by Shell Western’s choice and agreement.
Therefore, as Judge Quist determined, Shell failed in its
burden to meet the requirements of the res judicata defense.
In addition, it would be patently unfair, and inconsistent with
the res judicata doctrine, to allow Shell to agree to limit the
scope of a cause of action and then use that prior, limited
cause of action to defeat subsequent, unrelated claims.

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B. This Court found that “the plaintiffs knew or
should have known what Shell was doing ,” which is contrary
to the record below. Prior to this lawsuit, Shell deducted the
Act 61 fee as part of the “taxes” noted on the statements sent
to Plaintiffs. When asked to explain what “taxes” were being
withheld (App 65), Shell represented that only severance taxes
were being withheld. (App 67). A severance act is the Act
48 tax. Only after further inquiry did Shell disclose the Act
6] deduction. (App 68-69). The results of Plaintiffs’ inquiry
precipitated the filing of this law suit. (App 73). Because
Shell concealed its deduction of the Act 61 fee, at a minimum,
a question of fact exists regarding whether the Act 61 issue
could have been litigated in the prior case. Judge Quist
specifically addressed this issue and found, in his
November 2, 1993, opinion that Shell had not met its burden
of proof on this issue. Shell has subsequently failed to file
any documentation that could alter this decision.

C. This Court also erred in deciding without
discussion that “/t/he representatives of the current class were
previously part of another class which sued Shelli Western,
claiming that the Act 48 deductions breached the parties’
lease,”. No certified class existed with respect to the Act 48
issue and proper class representation was not at issue before
Judge Quist. | Whether individual plaintiffs properly
represented a class in a prior cause of action is a
determination that may not be made from simply examining
the pleadings and briefs. Potter v. Wayne County, 46 Mich
App 174; 207 NW2d 448 (1973). Plaintiffs’ current claims
cannot be barred if their interests were not properly
represented in the prior case.

D. This Court also erred in holding that res

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judicata applied because “/tJ/he plaintiffs already litigated
Shell’s contractual royalty payment obligations once.” Judge
Ryan has previously concluded that when, as here, different
causes of action exist, res judicata cannot apply. In United
Black Firefighters Ass’n v. City of Akron, 976 F2d 999 (6th
Cir., 1992), Judge Ryan concurred with the opinion holding
that a union was not barred by res judicata from raising
certain objections to a 1990 racial discrimination case brought
by the same plaintiffs that had litigated a nearly identical
racial discrimination issue in 1986 and obtained a consent
decree. In finding that res judicata did not apply, this Court,
relying on United States Supreme Court precedent, held that
“the 1986 consent decree was concerned with remedying
alleged racial discrimination prior to 1986" while “[t]he
present consent decree is designed to remedy alleged racial
discrimination in connection with a 1990 promotional
examination and which occurred after the 1986 consent decree
became effective.” Id. at 1005. Even though the racial
discrimination was potentially the same in both cases, the fact
that the new discrimination constituted a new cause of action
precluded the application of res judicata. Similarly, here, a
new cause of action accrues each time Shell wrongfully
withholds a portion of a royalty payment. See Profit Sharing
Trust v. Bell River Joint Venture, 149 Mich App 327, 333;
386 NW2d 185 (1986). Consistent with precedent from the
United States Supreme Court, the Sixth Circuit Court of
Appeals, and Judge Ryan’s concurrence in United Black
Firefighters Ass’n, supra, the fact that a new cause of action
accrues with each wrongful royalty payment precludes the
application of res judicata.

5. Error requiring this Court to reconsider its
_Opinion is also evident from this Court’s reliance on

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Brownridge v. Michigan Mutual In Co, 115 Mich App 745;
321 NW2d 798 (1982). In that case, the plaintiff, who was
fired, lost her claim of sexual discrimination against her
employer, and then was barred from seeking damages for
being fired on the alternate theory that she refused to
participate in the employer’s redlining scheme. The plaintiff's
claim was barred because she was seeking redress for the
same breach,” the fact that she was fired, but alleged two
different legal theories. Here, Plaintiffs are not seeking
recovery for the same breach. The Act 48 tax is different
from the Act 6] fee in that: (1) each provision requires the
payment of a different amount, (2) Act 48 levies a tax for
reasons that are different from those supporting the Act 61
fee, and (3) the purposes behind the two acts differ. Shell
could improperly withhold the Act 48 tax without withholding
the Act 61 fee, and vice versa. This is not a case in which
Plaintiffs are seeking the same recovery on alternate legal
theories. Rather, the 13 original Plaintiffs first sought to stop
Shell from wrongfully withholding the Act 48 tax, and now
the entire class is seeking to bar Shell from wrongfully
withholding the Act 61 fee.

III. THE COURT’S ANALYSIS OF ACT 61 IS NOT
BASED ON MICHIGAN LAW

This Court erred in extending the scope of Act 61 by
finding that the Act 61 fee is levied in the same manner as the
Act 48 fee and, therefore, ordering that a Judgment be entered
in favor of Shell. This conclusion is wrong fcr the following
reasons: (1) Plaintiffs’ constitutional claims were not
addressed by Judge Quist in light of his ruling in favor of
Plaintiffs on non-constitutional grounds; thus those issues
must still be addressed; (2) the history of the two statutes

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demonstrates that Act 61 was not expanded as was Act 48; (3)
the express language of Act 61 incorporated Act 48 for
purposes of collection of the fee only, not for purposes of
levying the fee; (4) a court may not alter the definition of a
term in a statute; (5) Plaintiffs are not “owners” as defined by
Act 61 and thus cannot be subject to the Act 61 fee; and (6)
this Court’s ruling renders Act 61 unconstitutional.

A. This Court erred in applying the Act 48
definition of “producer” to Act 61. In Brown v. Shell, supra,
the Michigan Court of Appeals specifically referred to the Act
61 fee as a “separate privilege tax.” In so doing, the Court
made direct reference to an opinion of the Michigan Attorney
General in OAG 1963-1964, No. 4160, p. 118 (June 17,
1963), in which the Attorney General concluded that the
payment of the Act 48 severance tax and the Act 6] privilege
fee were the responsibility of producers of gas and oil, not of
the owners of royalty interests. The Attorney General’s
opinion is key to understanding why Act 61 does not apply to
Plaintiffs because in response to the Attorney General’s
Opinion, the Legislature, in 1965, amended only Act 48 to
add a definition of “producer” that included royalty owners.
Prior to this amendment, the Act 48 tax was levied on “each
corporation, association, or person engaged in the business of
severing from the soil, oil or gas. . .” Brown v. Shell, supra
at 115. Thus, the new definition and title extended the scope
of Act 48 so that owners of royalty interests were also
responsible for the tax. Brown, 128 Mich App at 116.
Nothing in the history of Act 61 reflects a similar
amendment in response to the Attorney General’s Opinion,
nor does any other basis exist for concluding that the
Legislature ever intended to expand the scope of Act 61 to
include royalty owners. Hence, this Court’s conclusion that

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the scope of Act 6] included royalty owners, by incorporating
Act 48, is not supported by any act of the Legislature. To the
contrary, the express language of Act 6] demonstrates that it
does not incorporated any of the taxing provisions of Act 48
The statute provides that a fee is “levied upon all oil and gas
produced in this state.” MCL 319.22(1) (Emphasis added).
The only purpose for the reference to Act 48 is for collection
of the fee: “The fee shall be collected . . .” by reference to
Act 48. Id. This method of collection is set forth in §3 of
Act 48, and simply provides that the Act 48 tax is withheld
and paid by the common carrier/purchaser instead of being
paid directly by the producer. The reference to Act 48 was
not meant to be used to levy the Act 6] fee on those not
contemplated within the Act 6] regulatory scheme, but was
meant to demonstrate the manner in which the Act 61] fee
would be collected. Under Act 61, royalty owners do not
“produce” oil and gas, rather “producers” of oil and gas
produce oil and gas. See MCL 319.2(g) and (h). Thus, a fee
levied on oil and gas produced can only be levied on those
who produce it: the producers. (See argument III.B., infra).
The Court properly recognized that “only Shell Western is a
“producer” under Act 61". (Op. p8)

B. This Court’s application of the definition of
“producer” in Act 48 to Act 61 also violates established
Michigan rules of statutory construction. While the Court
correctly recognized that “only Shell Western is a “producer”
under Act 61,” the Court ruled without citing legal authority
that the term “producer” as used in Act 48 must be read into
Act 61. As a result, this Court held that Plaintiff royalty
owners are “producers” for the purpose of Section 22 of Act
61 (Opinion Page 11). This holding is directly contrary to
Michigan law. The Michigan rule is that “where the

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legislature has defined a word or a term in an Act, a court is
bound by that definition.” Carr v. General Motors Corp.,
425 Mich 313; 389 NW 2d 686 (1986). In W.S-Butterfield’s
Theaters v. Department of Revenue, 353 Mich 35; 91 NW 2d
269 (1958), the Michigan Supreme Court stated that “we need
not, indeed must not, search a field for meanings where the
Act supplies its own.” Michigan’s rule is consistent with
other states’ laws. See 73 Am Jur 2d, Statutes § 226, Page
413, which provides:

[W]here a statute contains its own
definition of a term used therein, the term may
not be given the meaning in which it is
employed in another statute, although the two
may be in pari materia.

In Carr, supra, at 318 the Court held that:

A cardinal principle of statutory construction
is that where the Legislature has defined a word or
term in an act, a court is bound by that definition. We
reiterated this precept in Earlandson v. Genesee
County Employee's Retirement Commission, 337 Mich
195, 204; 59 NW 2d 389 (1953) quoting 50 Am Jur,
§§ 261, 262, pp 253-254):

It is within the legislative power to
define the sense in which words are employed
in the statute.

A statutory definition supersedes the

commonly accepted, dictionary, or judicial
definition. Where an act passed by the

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legislature embodies a definition it is binding
on the courts. (Emphasis added).

Because the Legislature chose not to levy the Act 61
fee in the same manner as the Act 48 tax, the Act 61
definition of “producer” must prevail.

\. The Court erroneously assumes that it is proper
to take a definition from one statute and impose it upon
another by incorporation or inference. In so doing, the Court
overlooked the fact that the definition of “producer” in Act 48
specifically provides that it is limited to that statute. The
statute provides that the term “producer”

as used in this Act means a person who
owns or is otherwise entitled to delivery of a
share in kind or a share of the monetary
proceeds from the sale of gas or oil as of the
time of its production or severance. MCL
205.312(2); MSA 7.362(2) (emphasis added).

By using the term “as used in this act,” the language
is confined solely to Act 48. A similar clause limiting the
definition of a word to a particular statute was examined by
the Michigan Supreme Court in Wrigley’s Stores Inc. v.
Board of Pharmacy, 336 Mich 583; 59 NW2d 8 (1953).
There the Court, in dismissing an allegation that a definition
of “drug” in one Act controlled the meaning of that term in
another Act held:

PA 1909, No 146, above referred to, in

setting forth its definition of the word drug,
gave that definition with the restriction, ‘the

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term “drug” as used in this Act,’ so that the
legislature must be understood to have limited
the definition as contained in Act 146 to the
things mentioned in that Act and not to have
intended that that definition in that Act should
be construed or used as explaining the meaning
of the word drug as contained in the pharmacy
act. Id. at 590. (emphasis added)

The term “producer,” whose definition is limited to Act 48,
cannot be expanded to Act 61.

D. This Court incorrectly found Plaintiffs to be
“owners” under Act 61. The Court therefore erroneously
concluded that Plaintiffs received a benefit under Act 61. The
Court properly defined the term “owner” under Act 6] as a
person who has the right to drill and produce from any pool.
(Op 8). The plaintiffs are merely royalty owners who have
leased their rights to drill and produce oil or gas from the
property to Shell. In Michigan, Plaintiffs have no right to
drill or produce the oil and gas: “The exclusive right to
explore for and reduce oil and gas to possession becomes
vested in a lessee under an oil and gas lease immediately upon
the execution thereof.” Michigan Consolidated Gas Co. v.
Muzeck, 4 Mich App 502, 507; 145 NW2d 266 (1966).

As discussed by the Michigan Supreme Court in Mobil
Oil Corp. v. Treasury, 422 Mich 473; 373 NW2d 730 (1985),
a decision joined in by Judge Ryan when he was a member of
that court:

Under the terms of the ”lease” the
operator-lessee is entitled to enter onto the

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surface of the property to explore for oil and
gas, to drill wells, to install pumping
equipment, and to extract oil or gas from the
property. To the extent that it does not
interfere with these activities of the lessee, the
landowner lessor is entitled to use the surface
of the property; however, he may not extract
oil or gas himself or transfer the right to do so
to another for the duration of the lease. Id. at
479 (emphasis added).

* * *

The answer is plain. The landowner,
lessor, in oil and gas leases of this type, is not
involved in production at all, but is merely a
passive recipient of income.” /d. at 498.

Plaintiffs-royalty owners are neither “producers” nor
“owners” under Act 61. Thus, the fee levied on “oil and gas
produced” in Michigan cz.inot apply to Plaintiffs. See also
Detroit Hilton Limited Partnership v. Dept’t of Treasury, 422
Mich 422; 373 NW2d 586 (1985), in which Judge Ryan,
writing for a unanimous Court, held that a mere lessor of real
property is not responsible for a tax imposed on the business
of the lessee.

E. The Court of Appeals’ conclusion as to the
meaning and scope of Act 61 renders it unconstitutional.
Further, by directing that judgment be entered without remand
for consideration, this Court effectively cut off issues raised
at the Trial Court which were considered moot merely
because Summary Judgment could be granted on non-

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constitutional grounds. (See Order of Trial Court dated
November 2, 1993). Under this Court’s interpretation, Act
61 is unconstitutional in the following ways:

a.

The failure of Act 61 to clearly and plainly
State that it is a tax imposed upon royalty
owners, and the fact that it does so by
reference to another statute, violates the Const.
1963, Art. 4 § 32, which requires that
“[e]very law which imposes, continues or
revives a tax shall distinctly state the tax.”

The failure of the title of Act 61 to make
reference to any obligation being imposed as a
fee or tax upon royalty owners violates the title
object clause of Const. 1963, Art. 4 §24.

As raised in the Plaintiffs’ complaint. imposing
the Act 61 fee on royalty owners, when that
act is meant to apply to only those in the
business of producing gas and oil, is a
violation of both Plaintiffs’ Michigan and
united States due process rights. Ceust 1963
Art. 1 §2; US Const Am 14. As set forth in
fll.D, supra, Plaintiffs are not in the business
of producing oil simply by being royalty
owners. Thus applying this business fee to
Plaintiffs violates their due process rights.
See, also, Frost v. Railroad Comm’n, 271 US
583; 70 Led 1101 (1926); Ohio Oil Co. v.
Wright-State Treasurer, 386 Ill 206; 53 NE2d
966 (1944).

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IV CONCLUSION

This Court should grant Plaintiffs’ request for
Rehearing, or Rehearing In Banc. This Court improperly
made findings of fact contrary to the record below. Res
judicata does not apply because Shell agreed that the prior
cause of action was limited to only the Act 48 issue, Shell
concealed the Act 6] charges, no record exists to support this
Court’s conclusion that Plaintiffs, as a class, were properly
represented in the prior cause of action, and because the Act
61 issue represents a new cause of action, separate and
distinct from the Act 48 issue. This Court’s ruling on the Act
6i issue is contrary to the Act itself and Michigan law. This
Court’s ruling renders Act 61 unconstitutional. This Court’s
ruling does not address Plaintiffs’ various constitutional
challenges raised below. Plaintiffs request that this Court
reverse its Opinion and Order and Affirm the District Court’s
rulings. At a minimum, sufficient questions of fact and law
exist regarding the issues raised by this Court in its Opinion
and Order such that this case must be remanded to the District
Court for further proceedings.

Dated: June 3, 1998 RHOADES, McKEE, BOER
GOODRICH & TITTA

By:/s/
Stephen A. Hilger (P44776)
David E. Bevins (P48955)
Attorneys for Plaintiffs

161 Ottawa Avenue, NW
Suite 600

Grand Rapids, MI 49503-2793
616-235-3500

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ROSI LAW OFFICES, P.C.
Philip R. Rosi (P31915)
Co-Counsel for Plaintiffs
3139 Logan Valley Road
Traverse City, MI 49684
(616) 941-5878

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CERTIFICATE OF SERVICE

I HEREBY CERTIFY that two true and correct copies
of the Brief of Plaintiff-Appellee was furnished this 3" day of
June 1998 to Scott A. Storey, 313 S. Washington Square,
Lansing, Michigan 48933 by depositing said in the United
States mail.

Dated: June 3, 1998 RHOADES, McKEE, BOER
GOODRICH & TITTA

By:/s/
Stephen A. Hilger (P44776)
David E. Bevins (P48955)
Attorneys for Plaintiffs

161 Ottawa Avenue, NW
Suite 600

Grand Rapids, MI 49503-2793
616-235-3500

ROSI LAW OFFICES, P.C.
Philip R. Rosi (P31915)
Co-Counsel for Plaintiffs
3139 Logan Valley Road
Traverse City, MI 49684
(616) 941-5878

TE Se ee

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APPENDIX C

NOT RECOMMENDED FOR PUBLICATION

No. 96-1530

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

FILED
May 22, 1998
LEONARD GREEN, Clerk
KENNETH R. HILLIARD; ) On Appeal from
GREGORY D. STYLES, ) the United States
Trustee under Trust Agreement ) District Court for
dated May 5, 1979, ) the Western
Plaintiffs-Appellees, ) District of Michigan

V.

SHELL WESTERN E & P, INC.,
Defendant-Appellant.

te, Tee? “ee Nee Ne’ Yow

BEFORE: MERRITT, RYAN, and HILL,” Circuit Judges.

RYAN, Circuit Judge. A word of explanation is in

' The Honorable James C. Hill, United States Circuit Judge for

the Eleventh Circuit, sitting by designation.

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Opinion - No. 96-1530, 5/22/98

order concerning the delay in rendering our opinion in this
case.

Because the issues brought to us on appeal are
exclusively questions of state law, we certified these issues to
the Michigan Supreme Court on October 22, 1997, asking
that it decide the questions. On February 26, 1998, we
received a one-sentence order from the Michigan Court
declining 5 to 2 our request to answer the questions certified.
No reason for the declination was given. We proceed
therefore to resoive these questions of Michigan law in this
unpublished opinion since what we say is not precedential.

This is a class action over which the district court
exercised supplemental jurisdiction after multiple RICO
claims, which were the predicate for federal jurisdiction, were
dismissed from the case. The plaintiffs are landowners who
contractually allowed defendant Shell Western to operate oil
and gas wells on their land. They allege that Shell Western
breached the parties’ contract by deducting a statutory
"privilege fee" from the plaintiffs’ royalties. The district court
granted summary judgment on the plaintiffs’ breach-of-
contract claim and awarded damages to the plaintiff class.
Shell Western appeals from the district court's Final Order,
which also rejected Shell Western’s’s affirmative defense that
res judicata barred the plaintiffs’ claim.

We conclude that because the plaintiffs could have
brought their claim in a prior contract suit between these
parties, res judicata bars the current action. Moreover, we are
satisfied that the district court erred in holding that the
relevant Michigan statutes support the plaintiffs’ claim. Thus,
we shall reverse.

23a

Opinion - No. 96-1530, 5/22/98

I.
FACTUAL BACKGROUND

At the heart of this case are two Michigan
statutes—"Act 48," or Mich. Comp. Laws §205.301 et seq.,
and "Act 61," or Mich. Comp. Laws §319.1 et seq.—which
provide for a "tax" and a "fee," respectively, on the
production of oil and gas in the state. Shell Western has been
deducting a pro rata share of these expenses before paying
royalties to the plaintiffs. The representatives of the current
class were previously part of another class which sued Shell
Western, claiming that the Act 48 deductions breached the
parties’ lease. In this previous action, the Michigan Court of
Appeals upheld summary judgment for Shell, finding that
because the royalty owners were "producers" under the
statute, they were obligated to pay their pro rata share of the

tax. See Brown v., Shell Oil Co., 339 N.W.2d 709 (Mich. Ct.
App. 1983).

In the present action, the plaintiffs claim that Shell
Western has breached the same leases by deducting the Act 61
fee. Plaintiffs allege that, unlike the Act 48 severance tax, this
Act 61 fee must be paid by "operators" of wells, and not the
owners of the land or mineral rights. Shell Western maintains
that the plaintiffs knew or should have known that the Act 61
fee was being deducted from their royalties at the time they
filed the first action, and that, therefore, their failure to raise
that issue in the first suit between the parties precludes
litigating it in the second. Alternatively, Shell Western
contends that Act 61 operates "in the same manner, at the
same time, and subject to the provisions of [Act 48]."

Therefore, it argues, in light of the Brown v. Shell precedent

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Opinion - No. 96-1530, 5/22/98

which interpreted Act 48, plaintiffs are obligated to pay their
pro rata share of the Act 61 fee just as they are obligated to
pay part of the Act 48 tax.

The district court rejected both of these arguments,
and found instead that Act 61 required payment solely from
the operators of oil and gas wells. Thus, the court entered
summary judgment for the plaintiffs. This appeal followed.

IT.

A.

a Se a eo ae heen, »

The concerns behind the doctrine of res
judicata are economy of judicial resources and
finality of litigation. The doctrine of res
judicata applies not only to facts previously
litigated, but also to points of law necessarily
adjudicated in determining and deciding the
subject matter of the litigation. Michigan has
" ie rape
Saad onan ae Eee bh} lai “ 7

‘on laintiff could | )
but did not, as well as those questions that

were actually litigated. The doctrine of res
judicata applies equally to facts and law. The
test for determining whether two claims arise
out of the same transaction and are identical |
for res judicata purposes is whether the same :
facts or evidence are essential to the
maintenance of the two actions.

Jones vy. State )‘arm Mut. Auto. Ins. Co., 509 N.W.2d 829,

25a

Opinion - No. 96-1530, 5/22/98

834 (Mich. Ct. App. 1993)(emphasis added) (citations
omitted).

In 1982, the Michigan Court of Appeals ruled that a
woman who lost her suit against her employer for wrongful
discharge by reason of sexual discrimination could not later
bring another claim that she was wrongfully discharged for
her refusal to adopt certain illegal "redlining" practices. See
Brownridge v. Michigan Mut. Ins. Co., 321 N.W.2d 798
(Mich. Ct. App. 1982). In dismissing the plaintiff's second
claim, the court did not explicitly acknowledge that different
facts would be necessary to establish each claim. However, it
is obvious that distinctly different evidence would be offered
under each theory. For instance, the contested evidence in the
second case would address whether the defendant practiced
illegal redlining, whether it demanded such practices from its
employees, and whether the plaintiff's failure to comply led
to her dismissal. None of these facts would have been relevant
in determining whether the plaintiff had been dismissed
because of her gender. Thus, even though these essential facts
would be different in the second case, the court held that both
actions arose out of the same discharge from employment and
therefore the same "transaction" or "matter in issue." Id. at
799.

Similarly, the plaintiffs’ claims here are precluded
under the letter as well as the spirit of the res judicata
doctrine. The letter of the law requires a common
“transaction,” or identity of material "facts" or "evidence."
Although the fact that Shell Western was deducting for Act 48
taxes is different from the fact that it was also deducting for
Act 61 fees, both assessments were deducted from the
plaintiffs’ royalties at the same time and both appeared on the

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Opinion - No. 96-1530, 5/22/98

same statement of accounts. And, while it is true that evidence
regarding the plaintiffs’ obligation to pay a pro rata share of
the Act 61 fee would not necessarily have been relevant to
their obligation to pay the Act 48 severance tax, both would
have been equally relevant in proving Shell Western's alleged
breach of contract. Surely, a plaintiff who loses on his claim
that a car manufacturer is liable for injuries caused by
defective brakes cannot then sue under the theory that the
steering was also faulty.

The spirit of the law is to resolve multiple claims
where doing so would conserve judicial resources. Certainly,
this objective would have been better accomplished if the Act
61 claims had been resolved with the Act 48 claims. Although
it does not appear that the plaintiffs strategically chose to
ignore the Act 61 deductions in order to get a second bite at
the appie (nor does Shell Western appear to have been entirely
forthcoming with the information about these deductions),
nevertheless, the plaintiffs knew or should have known what
Sbeil was doing. The plaintiffs already litigated Shell’s
contractual royalty-payment obligations once. They were
required to include ali other royalty-related claims about
which they knew or should Aave known. With reasonable
diligence, the plaintiffs should have known about the Act 61
deductions. In fact, the plaintiffs have admitted that they
discovered during the first case the essential facts relevant to
the present case. Had they brought their Act 61 action earlier,
this issue could have been resolved long ago at much less
expense. Failing to do so then precludes the plaintiffs from
having a second c.:ance now.

Citing no authority, the district court held that res
judicata should not apply to class actions. However,

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Opinion - No. 96-1530, 5/22/98

Macomb County, 11
N.W.2d 242, 245-46 (Mich. 1943), demonstrates that
unnamed class members may be precluded from relitigating
claims brought by the class. Similarly, the U.S. Supreme
Court has clearly indicated that res judicata may bar a
member of a losing class from later filing suit on the same
claim. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797,
805 (1985). Courts rely on class representatives and class
counsel to adequately protect the rights of class members. We
must assume that the class representatives and counsel either
made a strategic decision in the first case not to raise the Act
61 issue, or unreasonably failed to discover it. In either case,
the failure is imputed to all class members.

B.

After rejecting Shell Western’s res judicata defense,
the district court went on to hold that Act 61 required the
defendant to pay the fee at issue here. Even if we were not
Satisfied that the claim preclusion aspect of Michigan res
judicata law bars the plaintiffs’ action, we would conclude
that plaintiffs’ case must fail on the merits.

Because the parties’ contract is silent as to who bears
the responsibility for the Act 61 fee, we look to the intent of
the Michigan Legislature, evidenced by the language of Acts
48 and 61, in determining who is required to pay. Section 22,
the fee-imposing portion of Act 61, provided, at the time
relevant to this suit:

For the purpose of monitoring, surveillance,
enforcement and administration of this act, a
fee not in excess of 1%, based on the gross

28a

Opinion - No. 96-1530, 5/22/98

cash market value is levied upon ail oil and gas
produced in this state. The fee shall be
collected by the revenue division of the
department of treasury in the same manner, at
the same time and subject to all the provisions
of the tax levied by [Act 48.]

Mich. Comp. Laws § 319.22(1) (1987). Act 61 provided no
other guidance as to how or from whom the fee was to be
collected.

Act 48, referenced above in Act 61, provided that
"[t]here is hereby levied upon each producer engaged in the
business of severing from the soil, oil or gas, a specific tax to
be known as the severance tax." Mich. Comp. Laws §
205.301 (1965) (emphasis added). Additionally, Act 48
required: "Each producer, when requested by the department,
shall file [a report showing the amount of oil and gas
produced the preceding month and the actual market value
thereof] in the form and manner required by the department."
Mich. Comp. Laws § 205.302(2). The Act 48 severance tax
constituted 2% of the gross cash market value of the total
production of the oil or gas during the preceding monthly
period" and must be paid by "each producer" at the time he
renders each monthly report. Brown, 339 N.W.2d-at 712
(quoting Mich. Comp. Laws § 205.303) (emphasis added).

Under Act 48, a "producer" is "a person who owns,
or is entitled to delivery of a share in kind or a share of the
monetary proceeds from the sale of, gas or oil as of the time
of its production or severance." Mich. Comp. Laws §
205.312(2) (emphasis added). Thus, under Act 48, both
parties are "producers." Under Act 61. however, a

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Opinion - No. 96-1530, 5/22/98

"producer" is "the operator, whether owner or not, of a well
or wells capable of producing oil or gas or both in paying
quantities." Mich. Comp. Laws § 319.2(h). Only Shell
Western’s is a "producer" under Act 61. Act 61 defines an
"owner" as "the person who has the right to drill into and
produce from any pool, and to appropriate the production
either for himself or for himself and another or others." Mich.
Comp. Laws § 319.2(g). Obviously, the plaintiffs are owners
under Act 61.

The question is, then, whether Act 48, which is
incorporated by reference into Act 61’s revenue provision,
brings with it its own definition of "producer" or whether Act
48 relies, in turn, on the Act 61 definition. Notably, the Act
61 fee section does not mention 'producers'; rather, its fee is
levied on "oil and gas produced." Moreover, whereas Act 48
is a revenue-generating statute the purposes of which were
served by addressing the obligations of owners of land and
operators of wells simultaneously by defining them as one
category, the non-revenue purposes of Act 61 require separate
categories. For instance, section 319.3 allows "producers" to
select six members of the advisory board to the supervisor of
wells. "Owners" do not select any members. Similarly,
section 319.13 requires the supervisor of wells to "afford the
owner of each property in a pool the opportunity to produce
his just and equitable share of the oil or gas in the pool."
(Emphasis added.) No such consideration is given to
"producers."

When the legislature wanted to ensure that royalty
owners and well operators each paid a pro rata share of the
Act 48 tax, it clearly defined producer to include such owners
and operators and used the defined term "producer" in the

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Opinion - No. 96-1530, 5/22/98

taxing provision. When the legislature wanted to distinguish
between “owners” and "producers" for purposes of regulating
oil and gas wells, it clearly defined such terms and used them
appropriately throughout the regulating statute. However,
instead of levying the Act 61 fee which pays for the
regulatory scheme on either the "producer" or the "owner,"
the legislature levied it on “oil and gas produced" and
required it to be collected "in the same manner, at the same
time, and subject to the provisions of [Act 48]."

The district court read Act 61, section 22, as
incorporating all the provisions of the Act 48 taxing statute,
except Act 48's definition of "producer." Instead, the court
held that Act 61's definition of "producer" should in turn be
incorporated into the Act 48 taxing scheme, even though that
word is used only in the regulatory provisions of Act 61, and
is not referred to in section 22, the revenue provision.

However, the fact that Act 61 contains absolutely no
guidance as to the collection of the fee except for the reliance
on Act 48 -- which is explicit in its allocation -- indicates that
the legislature intended to adopt all the taxing provisions of
Act 48. Similarly, section 22 of Act 61 seems to require the
adoption of all portions of the Act 48 tax scheme in order to
give effect to all its clauses. That is, section 22 states that the
fee is to be collected (1) "in the same manner," (2) "at the
same time," and (3) “subject to the provisions of [Act 48]."
Restated another way: (1) the Act 61 fee should be collected
through the same procedures and from the same entities as the
Act 48 tax; (2) the fee should be paid monthly along with the
severance tax; and (3) the definitions of Act 48 should be
applied to the revenue-generating provision of Act 61. It is
difficult to read these three clauses any other way and still

3la

Opinion - No. 96-1530, 5/22/98
give each meaning.

The plaintiffs rely heavily on the argued distinction
between a "tax" and a "fee." They claim that the Act 48 tax
is equivalent to and in place of property taxes and thus is
payable in part by the property owner, while the Act 61 tax is
essentially a fee for the privilege of operating a well and is
thus payable solely by the operator. The Michigan Court of
Appeals, in Bauer v. Department of Treasury, 512 N.W.2d
42, 43 (Mich. Ct. App. 1993), did hold that royalty owners
who paid a pro rata share of the severance tax were exempt
from personal income tax on those same royalties, in light of
Mich. Comp. Laws § 205.315 which states that "[tJhe
severance tax herein provided for shall be in lieu of all other
taxes, state or local, upon . . . the values created.”

The plaintiffs argue that, unlike the Act 48 tax, the Act
61 fee is by nature a license, occupation, or privilege fee.
Thus, it has no natural connection to the property owners, but
rather is directed solely at the party with the license or
privilege to extract oil and gas. The court in Brown v. Shell.
Supra, supported such a distinction in holding that the
Severance tax was not a business, licensing, privilege, or
occupational tax. See Brown, 339 N.W.2d at 713. The
negative inference of this holding could be that Act 61 does
impose a license, occupation, or privilege fee. However, Act
61 was never discussed in Brown. Additionally, the court of
appeals subsequently overruled itself and found that the
severance tax is not a property tax, but an excise tax. See
543 N.W.2d 359, 362
(Mich. Ct. App. 1995).

Moreover, the general thrust of Act 61 is to provide

32a

Opinion - No. 96-1530, 5/22/98

for a supervisor of wells to oversee the extraction of oil and
gas in Michigan. The fee imposed by section 22 provides
funds for this oversight, and any excess monies collected in a
year offset the appropriation for the next year. Mich. Comp.
Laws § 319.22(4). While the plaintiffs and the district court
imply that Act 61 is designed exclusively to regulate the
conduct of well operators such as Shell Western, the oversight
provided by the supervisor of wells includes significant efforts
to protect the "correlative" rights and interests of land
owners. See Mich. Comp. Laws § 319.13(1), 319.18b.

For instance, section 18b provides a penalty for a
"person who abandons a well without properly plugging the
well," but "[nJothing herein contained shall be construed as
imposing any liability upon the owner of land upon which a
well is located, umess he is the owner or part owner of the
well." More important!v, section 13 mandates that "[t]he rules
or orders of the supervisor shall, so far as it is practicable to
do so, afford the owner of each property in a pool the
opportunity to produce his just and equitable share of the oil
or gas in the pool." Thus, although the primary purpose of
Act 61 is almost certainly to regulate the conduct of oil and
gas companies, a significant amount of this regulation appears
to protect the rights of landowners. Additionally, it should be
noted that in 1987 the legislature deleted from section 22 the
word "privilege." If this change was not merely one of
clarification, it must mean that the legislature did not intend
a mere "privilege" fee.

In light of the above, we hold that the taxing portion
of Act 61 incorporates all of the Act 48 taxing mechanism,
including the Act 48 definition of "producer." Thus, the
plaintiffs are "producers" for purposes of section 22 and are

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Opinion - No. 96-1530, 5/22/98

required to pay a pro rata share of the Act 61 fee. Shell
Western has not breached the parties’ contract.

Ill.

Because the plaintiffs are precluded from relitigating
this breach of contract claim, and because it is meritless in
any event, summary judgment for the plaintiffs is
REVERSED, and this case is REMANDED for entry of
judgment for Shell Western. Obviously, this ruling moots
Shell Western’s remaining assignments of error.

34a

APPENDIX D

Michigan Supreme Court
Lansing, Michigan

Conrad L. Mallett, Jr.
Chief Justice

James H. Brickley
Michael F. Cavanagh -
Patricia J. Boyle
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Justices

ORDER
Entered: February 24, 1998

IN RE CERTIFIED QUESTION FROM
THE UNITED STATES COURT OF
APPEALS FOR THE SIXTH CIRCUIT

KENNETH R. HILLIARD and ) SC: 110862
GREGORY D. STYLES, ) CA-6: 96-1530

Plaintiffs-Appellees, )

)

V )
)

SHELL WESTERN E&P, INC., )
Defendant-Appellant. )

/

35a

On order of the Court, the questions certified by the United
States Court of Appeals for the Sixth Circuit are considered,
and the Court respectfully declines the request to answer the
certified questions.

Boyle and Kelly, JJ., would answer the certified questions.
H0219

I, CORBIN R. DAVIS, Clerk of the Michigan Supreme
Court, certify that the foregoing is a true and complete copy
of the order entered at the direction of the Court.

February 24,1998 /s/
Corbin R. Davis

36a

APPENDIX E

NOT RECOMMENDED FOR FULL-TEXT
PUBLICATION

No. 96-1530

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

FILED
October 22, 1997
LEONARD GREEN, Clerk

KENNETH R. HILLIARD,
GREGORY D. STYLES,
Plaintiffs-Appellees,

¥.

SHELL WESTERN E & P, INC.,

)
)
)
)
)
)
)
Defendant-Appellant. )

/

ORDER CERTIFYING QUESTIONS
TO THE SUPREME COURT OF MICHIGAN

BEFORE: MERRITT, RYAN, and HILL,” Circuit Judges.

The Honorable James C. Hill, United States Circuit Judge for
the Eleventh Circuit, sitting by designation.

37a

Order Certifying Questions - No. 96-1530, 10/22/97

This is a state-law class action originally filed in a
Michigan court and in due course removed to the United
States District Court for the Western District of Michigan.
The basis for removal was an issue of federal law involving
claims under the Racketeer Influenced and Corrupt
Organizations Act (RICO), 18 U.S.C. §§ 1961-68, which
have been dismissed from the case. The district court, in the
exercise of its supplemental jurisdiction, entered summary
judgment for the plaintiffs on issues of Michigan law and the
defendant has appealed to this court.

We are asked on appeal to decide questions that are
exclusively issues of state law regarding the proper
application of the Michigan common law of res judicata and
the interpretation of two Michigan statutes: Act No. 48 of the
Public Acts of 1929 as amended, MICH. COMP. LAWS
§ 205.301 et seq., and Act No. 61 of the Public Acts of 1939
as amended, MICH. COMP. LAWS § 319.1 et seq.

I.

Plaintiffs, Kenneth R. Hilliard and Gregory D. Styles,
trustees under a trust agreement, allege on behalf of Michigan
property owners that Shell Western E&P, Inc. has breached
contracts between the parties which allow Shell Western to
extract oil and gas from plaintiffs’ land in exchange for a
percentage of the proceeds. The breach, according to
plaintiffs, arises from Shell Western's deduction of certain
expenses before paying the plaintiffs their royalties. Shell
Western admits that it has been deducting from plaintiffs’
royalties portions of the fee levied under the authority of Act
No. 61 and the tax levied under the authority of Act No. 48,
but maintains that it is authorized by statute to do so. In

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Order Certifying Questions - No. 96-1530, 10/22/97

addition, Shell Western contends that plaintiffs could have,
and should have, raised this issue in a previous lawsuit,

Brown v. Shell Oil Co., 339 N.W.2d 709 (1983), in which
plaintiffs contested the deductions made under Act No. 48.

In Brown, representatives of the current class were
part of another class which sued Shell Western, claiming that
the Act No. 48 deductions breached the parties’ leases, which
were silent on the deductibility issue. The Michigan Court of
Appeals upheld summary judgment for Shell, finding that
because the royalty owners were "producers" under Act No.
48 they were obligated to pay their pro rata share of the tax.
Id. at 713.

In this case, plaintiffs claim that Shell Western has
breached the same leases by deducting the Act No. 61 fee.
Plaintiffs allege that unlike the Act No. 48 severance tax, this
fee must be paid by "operators" of wells, and not the owners
of the land or mineral rights. Shell Western contends that Act
No. 61 operates "in the same manner, at the same time, and
subject to the same provisions of [Act No. 48]." Therefore,
it argues, in light of the Brown precedent, which interpreted
Act No. 48, that plaintiffs are obligated to pay their pro rata
share of the Act No. 81 fee, just as they are obligated to pay
part of the Act No. 48 tax. Additionally, Shell Western notes
the great similarity between the two claims, and contends that
under Michigan claim-preclusion law, plaintiffs are precluded
from raising the issue now when they could have raised it
previously.

Il.

Resolution of the issues.raised in this case may well

39a

Order Certifying Questions - No. 96-1530, 10/22/97

have a significant impact on Michigan jurisprudence and upon
the public fisc. In our judgment, there is insufficient Michigan
decisional law to enable this court to determine how the
Supreme Court of Michigan would rule on either of the issues
presented. A correct interpretation of the Michigan law of res
judicata or claim preclusion has import for Michigan’s
jurisprudence far beyond this case.

In addition, significant sums of money are involved in
the outcome of the Act No. 61 fee issue. The jurisprudential
precedent that must necessarily be set here undoubtedly will
affect the relative burdens upon landowners and oil and gas
companies in Michigan, and necessarily will impact state
revenues.

In an instance such as this, where the state law is
unclear and the resolution of the issues before the court are so
significant, it is preferable, in the interests of comity and a
respect for our federalism, that this intermediate federal
appellate court yield the decisional ground to the Supreme
Court of Michigan for an, authoritative interpretation of the
applicable rules of state law.

Ill.

Therefore, pursuant to the provisions of Michigan
Court Rule 7.305(B), the United States Court of Appeals for
the Sixth Circuit certifies the following questions to the
Supreme Court of Michigan:

1. Whether, under the doctrine of res judicata, a
group of property owner lessors, who previously challenged
their lessee oil and gas driller's practice of deducting a pro

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Order Certifying Questions - No. 96-1530, 10/22/97

rata share of Act No. 48 taxes from landowners’ royalties,
and who knew or should have known that the tenant lessee
driller was at the same time deducting a share of the Act No.
61 fee, is precluded from now litigating the Act No. 61
deduction; and

2. Whether the correct interpretation of section 22
of Act No. 61, which imposes a fee on “oil and gas
produced," and which incorporates Act No. 48's provision for
collecting taxes from "producers" of gas and oil, also requires
incorporating Act No. 48's definition of "producer," or
whether Act No. 61's definition of "producer" should be
inserted into Act No. 48's collection scheme, despite the fact
that the term "producers" is not used in section 22 of Act No.
61.

Accordingly, IT IS ORDERED that the foregoing
questions be certified to the Supreme Court of Michigan and
forwarded to the Clerk of the Supreme Court under Michigan
Court Rule 7.305(B).

Nothing in this certification, including the particular
phrasing of the foregoing questions, is intended to limit the
Supreme Court of Michigan in its consideration of the issues
presented. The entire record in this case, together with copies
of the briefs of the parties, will be transmitted by the clerk of
this court to the Supreme Court of Michigan.

/s/
GILBSRT S. MERRITT,
Circuit Judge, Presiding

APPENDIX F

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FILED
March 20, 1996

Deputy Clerk
U.S. District Court

Western Dist. of Michigan

KENNETH R. HILLIARD and )

GREGORY D. STYLES, ) Case No. 5:93-CV-21

Trustee under Trust Agreement )

dated May 5, 1979, ) HON. GORDON J.
Plaintiffs, . ) QUIST

)

V.

SHELL WESTERN E & P, INC.,
a Delaware corporation,
Defendant.

—, Ne Nee Ne es Ne”

ORDER

The Court has ap; zoved the form of judgment attached
to this Order. The Clerk shall therefore enter the Final
Judgment as attached. Fed. R. Civ. P. 58.

—

42a

Order on Final Judgment - No. 5:93-CV-21, 3/20/96

IT IS SO ORDERED.

Dated: MAR 20 1996

/s/
GORDON J. QUIST
UNITED STATES DISTRICT JUDGE

Order on Final Judgment - No. 5:93-CV-21, 3/20/96

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FILED
March 20, 1996
Deputy Clerk
U.S. District Court
Western Dist. of Michigan

KENNETH R. HILLIARD and )

GREGORY D. STYLES, ) Case No. 5:93-CV-21

Trustee under Trust Agreement )

dated May 5, 1979, ) HON. GORDON J.
Plaintiffs, ) QUIST

)

V.

SHELL WESTERN E & P, INC.,
a Delaware corporation,
Defendant.

eee ee

FINAL JUDGMENT

This matter having come on to be heard pursuant to
diverse Motions, and the Court having entered an Order on
November 2, 1993:

2 Granting Plaintiffs' Motion for Partial
Summary Judgment on its Breach of Contract Claim:

yi Dismissing Plaintiffs' Constitutional Claims as

44a

Order on Final Judgment - No. 5:93-CV-21, 3/20/96
moot; and,

The Court having entered an Order on May 4, 1995,
dismissing Plaintiffs’ RICO Claims; and,

The Court having entered an Order on May 22, 1995,
allowing Plaintiffs to withdraw their Claims for Relief, Fraud,
and Accounting; and

The Court having entered an Order on December 8,
1993, as amended by Order dated March 28, 1995, certifying
as a Class the following:

All persons, firms, concerns, receivers, trustees,
personal representatives, agents, institutions, associations,
partnerships, corporations, companies, and persons acting
under declarations of trust who have, at any time from and
after the 12th day of January, 1987, been entitled to royalty
payments fromi Shell Western E&P, Inc. ("Shell"), attributed
to production of oil and gas from Michigan oil or gas wells
under leases with Shell and who had, during calendar years
1987 through 1993, $200 or more deducted from such
royalties for payment of the regulatory fee imposed pursuant
to Act 61 of the Michigan Public Acts of 1939, as amended.

and,

The Court having entered an Order on June 16, 1995,
approving Notice to the Class; and,

The Plaintiffs having provided Notice to the Class and
having provided appropriate Proof of Service to the Court of
such Notice; and,

45a

Order on Final Judgment - No. 5:93-CV-21, 3/20/96

The Court having received requests of the following
persons to not be included in the Class:

FREDERICK G. RIEGSEGGER
DONAVAN E. ANDERSON
TILLISSA G. ANDERSON
MARY BELLE COFFMAN
CARROL J. FOX
MARY ANN FOX
NORTH MICHIGAN GAS & OIL
MICHIGAN HOLDINGS INC (C/O SANDRA
SANDERS)
CONOCO INC
OMIMEX ENERGY INC
GWENDOLYN D. WEBB
GARY JEROME MARCLNKOWSKI
DONNA MARCENKOWSKI
KENNETH G. BAXTER
JOYCE E. BAXTER
MILTON C. MOSIER
INEZ H. MOSIER
MUSKEGON DEVELOPMENT COMPANY
WILLIAM C MYLER
MYLER BROTHERS
MARION R. STARK
SHRINERS HOSPITAL FOR’ CRIPPLED
CHILDREN
JONES CO, LTD; DELAFOSSE PROPERTIES,
LTD; JHJ EXPLORATION, LTD; AND TUCKER-
SCULLY INTERESTS, LTD
24. RONALD J. KOSI BOSKI
25. BYRON P. GALLAGHER
26. ETHEL J. GALLAGHER
=>
46a

ONIAWR WN =

i oll =p adil alll anol oll a =)
~V~ COSNAYVAYP& Ss:

Nm WM
N

N
”

Order on Final Judgment - No. 5:93-CV-21, 3/20/96

27. FIRST PRESBYTERIAN CHURCH OF MAPLE
RIDGE (C/O RUTH BRIGGS)

28. RUTH M. LOVE

29. JONES COMPANY, LTD

30. HARROLD M. RUPP

31. NORINE L. RUPP LIFE ESTATE

32. HAROLD W. MOON

33. | FLORENCE MARIE MOON

34. DAVID H. JANSMA

35. MILLER BROTHERS: CEMCO; MILLER
BROTHERS OIL CORP; MILLER OIL CORP;
MILLER ENERGY INC

36. MILDRED GHENT |

37. JUANITA BERRYHILL

38. ISABELLE K. MURPHY

39. WILLIAM L. MURPHY

40. GEORIANNA E. MCFAY

41. LOU ANN OLSEN

42. LEE OLSEN

43. JOSEPH S. PRIZY

44. SHARON L. MURPHY

45. ALICE MAE MURPHY

46. BARBARA J. CREG

47. FERRIS B. MURPHY (DECEASED)

48 FARM CREDIT SERVICES OF MICHIGAN'S
HEARTLAND, PCA

49. CHARLES R. WISE

50. BARBARA J. WISE

51 THERESA G. SCHIFF

52. WILFRED W. COLE

53. MARY JOE COLE

54. ROBERT G. WILDER

55. JOAN SEABROOK

Order on Final Judgment - No. 5:93-CV-21, 3/26/96

56.
57.
38.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.

Ta.
73.

AILEEN P. STOCKING

PATRICK PETROLEUM COMPANY
LARRY M. BAHR

LOIS M. BAHR

EDWARD REVARD

ADRIAN REYNOLDS

DONNA M. SHAY

CATHERINE E. ISAACSON
ROBERT D. VROMAN

MAXINE L. SCHIMKE

KENNETH W. SCHIMKE
DOROTHY L. MEKARU

GARY A. WILLIAMS

KATHLEEN M. WILLIAMS
HARRY L. MUTCH

A. CLAIRE MUTCH c/o MARY W. MUTCH
ESTATE

GARY MARCENKOWSKI
TRAVERSE OIL COMPANY

The Court having noted that the following list contains

those class members to whom Notice submitted by first class
mail was returned undelivered, and the Court finding that no
aiternative form of service is reasonable; therefore the
following will also be excluded from the class:

1.

AMS ww

JACQUEILINE M. GILLARD TRUSTEE UNDER
TRUST #100 DATED APRIL 4, 1985

SALLY J. LIPPERT, DECEASED

GARY P. STEELE

LOUIS CHRISTIANSEN

JIMBETCO INC.

ROBERT L. NUGENT

48a

Order on Final Judgment - No. 5:93-CV-21, 3/20/96

NOW, THEREFORE, IT IS ORDERED AND
ADJUDGED that:

1. The Plaintiffs, as a Class, shall recover from
Defendant, Shell Western E&P, Inc. ("Shell"), the sum of
Seven Hundred Sixty-Six Thousand Six Hundred Twenty-Two
Dollars and 06/100 ($766,622.06), which represents the
amounts deducted by Shell from royalty payments to members
of the class for the Act 61 regulatory fees for the period of
January 13, 1987, to January 13, 1993. The Plaintiffs, as a
class, shall also recover all Act 61 regulatory fees deducted by
Shell between January 14, 1993, and the date of this Final
Judgment, and through payment in full.

2: The Plaintiffs, as a Class, shall recover pre-
complaint interest from Shell.

3. The Plaintiffs, as a Class, shall recover pre-
judgment interest from Shell, from January 14, 1993, up to
and including the date of entry of this Final Judgment.

4. All pre-complaint and pre-judgment interest
shall be calculated by taking the total amount due as of
December 31 of each year, and applying the floating
Michigan pre-judgment interest rate described in M.C.L.
600.6013 in effect as of December 31 of said year, applied
beginning from January 1 of the following calendar year, and
then in the same manner for such full years or portions of full
years thereafter until the date that this judgment is entered.’

1

By way of.example only, if the total principal owed as of
December 31, 1987, was $100, then the principal and pre-

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Order on Final Judgment - No. 5:93-CV-21, 3/20/96

5. This Final Judgment shall earn post-judgment
interest at the rate prescribed in 18 U.S.C. § 1961.

6. All interest due under this Final Judgment shall
be paid by Shell to the Common Fund based on the gross
recovery to the class. The precise amount of all post-filing
damages, pre-complaint interest, pre-judgment interest, and
post-judgment interest paid by Shell to the Common Fund and
subsequently distributed to the class members shall be
determined by this Court when it makes its Order of
Distribution to Class members after all appeals are final.

7. This Court grants Plaintiffs’ request for
declaratory relief. Shell's deduction of the Act 61 fee is a
breach of contract; the class members are not liable for any
portion of the Act 61 regulatory fee; and Shell is not entitled
to deduct any portion of the Act 61 regulatory fee from
royalty payments to class members.

complaint interest would be calculated by taking $100 multiplied by
the interest rate of 8.50%, which is the M.C.L. 600.6013 effective
interest rate as of December 31, 1987. Interest wouid begin running
on the $100 as of January 1, 1988. The new principal plus interest
would then be calculated at the end of each succeeding calendar
year beginning December 31, 1988, and the new interest rate
would be applied at the beginning of calendar year beginning
January 1, 1989, and so forth. The interest calculation would be
continued up 10 the date Final Judgment is entered. The following
interest rates shai! be used in the calculation cf pre-complaint and
pre-judgment interest, as of the beginning of these years: 1988 -
8.50%, 1989 - 9.21%, 1990 - 10.105%, 1991 9.535%, 1992 -
8.715%, 1993 - 7.68%, 1994 - 6.313%, 1995 - 7.128%, 1996 -
7.813%, and 1996 - 7.953%.

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Order on Final Judgment - No. 5:93-CV-21, 3/20/96

8. All amounts found to be owed under this Final
Judgment shall be paid by Shell into a Common Fund for the
benefit of class members. This Court retains jurisdiction to
make all necessary Orders relative to the distribution of that
Common Fund. The Common Fund shall be maintained by
Shell in the form of a segregated account at a financial
institution of its choice, and Shell shall provide quarterly
balance statements to Plaintiffs' counsel. Shell shall have the
option to post sufficient bond to be approved by this Court in
lieu of paying the amounts into a Common Fund.

9. This Court retains jurisdiction over this matter
to grant such further and proper relief that becomes
necessary, including but not limited to the award of attorneys
fees and expenses from the Common Fund and the
enforcement of the declaratory judgment under 28 U.S.C.
§ 2202.

Dated: 3/20/96 /s/
CLERK, U.S. DISTRICT COURT

Sla

APPENDIX G

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FILED
July 20, 1995
U.S. District Court
Western District of Mich.

KENNETH R. HILLIARD and )

GREGORY D. STYLES, ) Case No.
Trustee under Trust ) 5:93-CV-21
Agreement dated May 5, 1979, )
Plaintiffs, ) HON.
) GORDON J.
vs. ) QUIST

)
SHELL WESTERN E & P, INC..
a Delaware corporation,
Defendant.

OPINION AND ORDER DENYING SHELL'S
MOTION FOR RECONSIDERATION

Defendant, Shell Western E & P Inc. (Shell), has filed
a Motion for Reconsideration and for Relief From Order of
this Court, which Order is dated June 13, 1995. In the
Opinion and Order of June 13, 1995, this Court denied Shell's

ee ee

52a

ee ee Re ee

Opinion and Order - No. 5:93-CV-21, 7/20/95

motion to apply the doctrine of res judicata to bar the named
plaintiffs (who are the representatives of the class that this
Court has certified) from pursuing this action. Shell claims
the named plaintiffs were apprised that the "privilege fee" was
being deducted from their royalty checks even if the other
class members were not so apprised. Shell says that granting
the motion for partial res judicata for the named plaintiffs,
| only, would not destroy the class nature of this case and that
this Court did not pay enough attention to three of the
documents that Shell brought to this Court's attention.

As this Court said in its Opinion of june 13, 1995, the
first time that Shell raised the point of a limited application of
the res judicata argument was after the Court ruled on the
general application of res judicata and all substantive matters.
Shell was never prevented from raising the issue of limited
application of the doctrine in the alterative to the general
application, although there are probably good tactical reasons
for Shell's not having done so. The point is that by May 12,
1995, this case, one of the oldest on this Court's docket, had
been concluded except for some important details regarding
class notification. It was at this point that Shell sought, for the
first time, to have the class representatives dismissed, thereby
depriving the class of their class representatives. New class
representatives could possibly be appointed, but this would
cause delay.

More importantly, a review of the law and the record
does not lead this Court to change its earlier decision that

Michigan's "broad rule" does not apply in this case.
Michigan's "broad rule" has been defined as follows:

The plea of res judicata applies, except in

53a

q

Opinion and Order - No. 5:93-CV-21, 7/20/95

special cases, not only to points upon which
the court was actually required by the parties
to form an opinion and pronounce a judgment,
bet :

the litigation, and which the parties exercising
reasonable diligence, might have brought
forward at the time. i ,

Rogers v. Colonial Fed']
Savings & Loan Ass'n, 405 Mich. 607, 616 -

17 (1979) (emphasis in original).

Plaintiffs privilege fee claims before this Court are not
simply alternative theories of relief for the same set of
operative facts. Unlike Gose v. Monroe Auto Equipment Co..
409 Mich. 147 (1980) and Cj icati
of Detroit, 888 F.2d 1081, 1088-91 (6th Cir. 1989), for
example, the instant case does not involve a single right to
recover for a worker's injury (Gose) or a single transaction
which gave rise to contract claims and constitutional Claims
(City Communications). Rather, the instant case involves
entirely different, individual, and Ongoing breaches of
contract requiring construction of separate state statutes,
which breaches occurred both before and after the alleged
breaches asserted in state courts were litigated to conclusion
or settled. Only the deductibility of the severance tax was
litigated to conclusion before the state courts. The litigation
now before this Court does not deal with the severance tax.
Nor is this Court aware of any document which asserted that
the privilege fee issue was settled or was even discussed
during the settlement negotiations in the state court matter.

The documents to which Shell refers in its motion now

under consideration refer to the severance tax and the
“privilege tax." However, Exhibits D and J are documents

54a

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Opinion and Order - No. 5:93-CV-21, 7/20/95

which, in this Court's judgment, do not fairly apprise the
plaintiffs of the deductions to the extent that the privilege fee
was ever before the parties and considered as a claim to be
forgiven for all time. The response of Hubert W. Johnson to
the question of Mr. Dale A. Rhoades, attorney for plaintiffs
in Black v. Shell, likewise is not fair apprisal. This one
answer may show that Mr. Rhoades was asleep at the switch
in not following through on the answer and thereby expanding
on the details of the deduction of the privilege fee. But, it is
not unusual in a deposition to listen to answers with one ear
because the questioner is often concentrating on establishing
a particular point the questioner wishes to make.

It seems to this Court that if Shell had wanted or
thought that the issue of the privilege fee should be concluded
in the state court litigation, the settlement documents would
have clearly so indicated. The settlement covered many
specific items, but it did not cover the privilege fee. It does
not make sense that Shell, with its bank of outstanding
lawyers, would have tried to rely upon the doctrine of res
judicata if it thought that the privilege fee issue had been
settled. Shell either was absolutely sure that there would be no
question of the propriety of the deduction of the privilege fee,
purposefully kept a very low profile during the state court
litigation so that the plaintiffs would not pursue the deduction,
or, like the plaintiffs, simply missed the issue.

In conclusion, the plaintiffs' attorneys' potential
knowledge of bits and pieces of information regarding the
privilege fee did not give rise to an unreasonable lack of
diligence as to forever \bar the named plaintiffs from collecting
the full royalties under their leases.

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Opinion and Order - No. 5:93-CV-21, 7/20/95

For the foregoing reasons, Defendant's Motion For
Reconsideration (docket no. 111) is hereby DENIED.

IT IS SO ORDERED
Dated: JUL 20, 1995

/s/
GORDON J. QUIST
UNITED STATES DISTRICT JUDGE

56a

APPENDIX H

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FILED
June 13, 1995
U.S. District Court
Western District of Mich.

KENNETH R. HILLIARD and )

GREGORY D. STYLES, ) Case No.
Trustee under Trust ) 5:93-CV-21
Agreement dated May 5, 1979, )
Plaintiffs, ) HON.
) GORDON J.
vs. ) QUIST
)
SHELL WESTERN E & P, INC., )
a Delaware corporation, )
Defendant. )
/

OPINION AND ORDER DENYING SHELL’S
MOTION FOR LIMITED APPLICATION
OF RES JUDICATA

The defendant, Shell Western E&P, Inc., has moved
for Limited Application of Res Judicata, dismissing the claim
of the named plaintiffs (class representatives) in the state court

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Opinion and Order - No. 5:93-CV-21, 6/13/95

action of i This motion will be
denied for the following reasons:

1. Granting the motion would destroy the class
action nature of this case in that:

(a) This matter was certified as a class action
on December 8, 1993;

(b) There would no longer be questions of law
or fact common to the class;

(c) The claims of the class representatives
wow'd not be typical of the claims or defenses, of the
Ciass;

(d) The class representatives would no longer
have any incentive to fairly and adequately protect the
interests of the class because they would be barred
from any recovery in this case.

(¢) The issue of application of the doctrine of

res judicata solely to the class representatives in

i was not raised by Shell

until all substantive issues, including the res judicata
issue, were decided by this Court.

& This Court's review of the record in Brown v.
Shell_Oil Company, reveals that plaintiffs in that case,
including piaintiffs' class representatives, were not fairly
apprised of the fact that Shell was deducting the Act 61
"privilege fee" from the royalties due the lessors. This lack of
fair notice deprived the lessors of the Opportunity to bring the

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Opinion and Order - No. 5:93-CV-21, 6/13/95

claim for wrongful deduction of the Act 61 privilege fee to the
attention of the class members and the state court. Basically,
Shell's position is that “because you did not discover the
deduction in Brown y. Shell Oil company, we can stick you
with your naivete in the instant litigation." This Court is not
aware of any case that would support so broad an application
of res judicata.

THEREFORE, IT IS ORDERED that Shell's Motion
For Limited Application Of Res Judicata (docket no. 105) is
DENIED.

Dated: June 13, 1995

/s/
GORDON J. QUIST
UNITED STATES DISTRICT JUDGE

59a

APPENDIX I

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FILED
May 4, 1995
U.S. District Court
Western District of Mich.

KENNETH R. HILLIARD and )

GREGORY D. STYLES. ) Case No.
Trustee under Trust ) 5:93-CV-21
Agreement dated May 5, 1979, )
Plaintiffs, ) HON.
) GORDON J.
vs. ) QUIST

SHELL WESTERN E & P. INC.,
a Delaware corporation,

>
ee ee

for violation of subsection 1962(b) of the federal Racketeer
Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.
§ 1962(b), over which this Court would have jurisdiction

Opinion and Order - No. 5:93-CV-21, 5/4/95

pursuant to 18 U.S.C. § 1964(c). The plaintiffs have been
certified as a class of holders of royalty interests as lessors of
mineral rights leased to defendant Shell Western E&P, Inc.
(Shell). Plaintiffs claim that Shell has wrongfully deducted
from their royalty payments a 1% pro rata share of the
regulatory fee imposed by Act 61 of the Michigan Public Acts
of 1939, as amended. M.C.L.A. 319.1 et seq., M.S.A.
13.139 (Act 61).

Previously, this Court held that the deduction of the
Act 61 privilege fee from the royalty payments was a breach
of contract. This Court also held, on the basis of the record
before it at that time, that the res judicata defense of Shell was
not ripe, and was, therefore, denied. This Court also held
that, unlike subsection 1962(c) of RICO, subsection 1962(b)
does not require a "person" that is separate and distinct from
the "enterprise". However, this Court said in its earlier
Opinion, _ This is not to say that the plaintiff bes stated or can
prove a RICO violation."

Shell has now filed new motions for summary
judgment based upon the doctrine of res judicata and for
failure of Count V to state a claim under RICO subsection
1962 (b). Plaintiffs previously moved to strike Shell's
collateral estoppel/res judicata defenses. Plaintiffs' motion
was denied without prejudice but will be addressed in this

Opinion.

The facts upon which this decision rests are more fully
set forth in this Court's Opinion of November 2, 1993.

STANDARDS FOR DECISION

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Opinion and Order - No. 5:93-CV-21, 5/4/95

The summary judgment standards on the res judicata
issue are also set forth in the Opinion of November 2, 1993.

The RICO action may be dismissed if Count V fails to
state a claim upon which relief can be granted. Fed. R. Civ.
P 12(b)(6). The moving party has the burden of proving that
no Claim exists. All factual allegations in the complaint must
be presumed to be true and reasonable inferences must be
made in favor of the non-moving party. 2A James W. Moore,
Moore's Federal Practice { 12.07[2.5] (2d ed. 1991).
Dismissal is proper "only if it is clear that no relief could be
granted under any set of facts that could be proved consistent
with the allegations." Hi ing, 467 U.S.
69, 73, 104 S. Ct. 2229, 2232 (1984). Dismissal is also
proper if the complaint fails to allege an clement necessary for
relief or "if an affirmative defense or other bar to relief is
apparent from the face of the complaint, such as the official
immunity of the defendant... .” 2A James W. Moore,

Moore's Federal Practice, ¢ 12.07[2.5] (2d ed. 1991).
RES JUDICATA

Shell claims that the decision and settlement of the
prior actions of Brown v.. Shell, No. 81-885 8-CK in the
Grand Traverse County Circuit Court, and Black v. Shell,
No. G82-833CA(7)’, in the Western District of Michigan bar,
by the doctrine of res judicata (more recently called, claim
preclusion), plaintiff’ s current claims for wrongful deduction
of the Act 61 privilege fee. Shell, in the first instance,
contends that the plaintiffs’ suit in Brown "constituted an all

* The Black case was voluntarily dismissed.

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Opinion and Order - No. 5:93-CV-21, 5/4/95

encompassing challenge to Shell's calculation of royalty
payments and included the claim that inappropriate deductions
were made from royalty checks." Shell Res Judicata Brief at
4. This statement is not correct as to the deductions of the Act
61 privilege fee which is the subject of the instant case. The
record in Brown does contain a reference to the Act 61
privilege fee in plaintiffs’ brief in opposition to Shell's motion
to dismiss the severance tax aspect of Brown, but that
reference is in the context of explaining the act 48 severance
tax. The Michigan Court of Appeals certainly did not rule on
the deductibility of the Act 61 privilege fee from the royalties.
Brown v. Shell Oil Co., 128 Mich. App. 111 (1983), appeal
denied, 424 Mich. 867 (1986), cert. denied, 479 U.S. 824,
107 S. Ct. 97 (1986). The record, taken in the light most
favorable to Shell, simply does not support any reasonable
conclusion that the parties in Brown, that is Shell and the
class members in Brown, or the plaintiffs’ attorneys, were
considering the Act 61 privilege fee when Brown was being
litigated.

To the contrary, the record in Brown supports the
position that the deduction of Act 61 privilege fee was not
being litigated in Brown. Brown had two aspects - a litigation
to conclusion aspect and a settlement aspect. The deductibility
by Shell of the Act 48 severance taxes was litigated to
conclusion. As stated, there is no court decision on the
deductibility of the Act 61 privilege fee. The plaintiffs’ other
claims against Shell in Brown and Black were settled. The
notice to the Brown class members of the terms of the
settlement set forth the plaintiffs' claims as follows:

A. Plaintiffs claim royalty owners are entitled to
be paid royalties based upon the value of products

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Opinion and Order - No. 5:93-CV-21, 5/4/95

which are manufactured at the Kalkaska Gas Plant and
are attributable to their lease. Alternatively, plaintiffs
claim that the difference between the total value of
those plant products and the value actually credited to
the lease is excessive.

B. Plaintiffs claim Shell is not authorized to
deduct from royalties costs for dehydration,
compression, and sour-gas treatment.

c. Piaintiffs claim Shell is not authorized to
withhold from royalty payments amounts necessary to
pay pro-rata share of the Michigan Oil and Gas
Severance Tax. Plaintiffs' severance tax Claims are not
affected by the settlement agreement explained below.

D. Plaintiffs claim Shell breached the oil and gas
leases and they should be canceled.

On the issue of whether the court decision in Brown resolved
the deductibility of the Act 61 privilege fee, it is important
that in paragraph C of this notice the parties, which prepared
the notice, and the court, which approved of the notice
specifically mention the severance tax, which was part of the
litigated aspect of the case, and only the severance tax, as not
being part of the settlement. Thereby, the parties agreed that
the Act 61 privilege fee was not part of the Brown litigation
over the deductibility of the Act 48 severance taxes.

Nor is the deductibility of the Act 61 privilege fee part
of the settlement. The Act 61 privilege fee is not mentioned
in the pleadings, settlement documents or notice to the class
members. The specific mention of the items that were settled

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Opinion and Order - No. 5:93-CV-21, 5/4/95

without mentioning the Act 61 privilege fee shows that the
Act 61 privilege fee was not settled. In fact, plaintiffs’
attorneys still contend that they did not even know that the
Act 61 privilege fees were being deducted when Brown was
settled.

If Shell is to succeed in its res judicata argument, it
must do so by application of Michigan's "broad rule" to the
facts of this case. As this Court pointed out in its prior
opinion, under Michigan law the doctrine of res judicata is
used “to bar both claims actually litigated by parties in prior
actions and claims that could have been, but were not
litigated.” City Communications, Inc, v, City of Detroit, 888
F.2d 1081, 1089 (6th Cir. 1989). There is no Michigan
decision of which either party or the Court is aware which
holds that Michigan's broad res judicata rule applies or does
not apply in a class action situation.

This Court concludes that Michigan's broad rule
should not be applied in the context of a class action such as
the action now before this Court. This Court agrees that
Michigan's broad rule is generally a good rule for the orderly
resolution of disputes between parties. However, where class
actions are involved, this Court believes that protection of the
class members should override the finality that Michigan's
broad rule would afford. Both the state and federal rules for
class actions provide a range of protections for the class
members. For example, the class representatives must fairly
and adequately protect the interests of the class. The class
members in Brown were given notice of the nature of the
claim being asserted on their behalf. They were also given
notice of the terms of the settlement. No notice to the class
members informed them that their claims for wrongful

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Opinion and Order - No. 5:93-CV-21, 5/4/95

deduction of the Act 61 privilege fee were at issue in the
litigation or were being settled. An individual class member
could well have objected to the proposed settlement if. the
member knew that a claim for wrongful deduction of the Act
61 privilege fee was being settled. If there had been such an
objection, perhaps the state circuit judge, in performing his
duty to the class, would not have approved the settlement.
Certainly, (in hindsight) the class representatives could not
have been adequate representatives of the class if they
unknowingly disposed of Act 61 privilege fee claims. In
short, this Court believes that a class action settlement should
not bar all claims that could have been litigated between the
parties but only those claims that were actually litigated.
Otherwise, the notices, representatives and courts upon which
individual class members rightfully rely would be
meaningless.

For these reasons, Shell's motion for s
judgment on the grounds of res judicata will be denied. For
these same reasons, plaintiffs' motion to strike Shell's
collateral estoppel/res judicata affirmative defenses will be

granted.
RICO

In order to state a claim under the Racketeer
Influenced and Corrupt Organizations Act ("RICO") 18
U.S.C. § 1964(c), a plaintiff must allege (1) an injury to
plaintiff's business or property as a result of (2) defendant's
violation of one or more provisions of 18 U.S.C. § 1962.

i 473 U.S. 479, 495, 105
S. Ct. 3275, 3284 (1985). Section 1962 has four subsections -
§ 1962 (a)- (d). 18 U, S.C. § 1962 (a), prohibits any person

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Opinion and Order - No. 5:93-CV-21, 5/4/95

from using investment income derived from a pattern of
racketeering activity in any interstate enterprise. 18 U.S.C.
§ 1962(b), the subsection upon which plaintiffs are relying in
the instant case, states as follows:

(b) It shall be unlawful for any person
through a pattern of racketeering activity or through
collection of an unlawful debt to acquire or maintain,
directly or indirectly, any interest in or control of any
enterprise which is engaged in, or the activities of
which affect interstate of foreign commerce.

18 U.S.C. § 1962 (c), makes it unlawful, for "any person
employed by or associated with" an interstate "enterprise" to
conduct the affairs of the enterprise through a pattern of
racketeering activity. 18 U.S.C. § 1962(d), makes it unlawful
to conspire to violate the previous subsections of 1962. As
"chapter headings," § 1962(a) may be called the "investment"
section; § 1962 (b) may be called the “acquisition or control"
section; § 1962(c) may be called the "conducting" section;
and § 1962(d) may be called the “conspiracy” section.

Because the plaintiffs rely upon § 1962(b) in an
attempt to state a RICO claim in this case, this Court will
analyze the pleading elements of that particular subsection.
This Court believes that one of the clearest descriptions of the

requirements of S 1962(b) is found in Lightning Lube. Inc. v.
Witco Corp., 4 F.3d 1153, 1190 (3d Cir. 1993):

In order to recover under this section, a plaintiff must
show injury from the defendant's acquisition or
control of an interest in a RICO enterprise, in addition
to injury from the predicate acts. "Such an injury may

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Opinion and Order - No. 5:93-CV-21, 5/4/95

be shown, for example, where the owner of an
enterprise infiltrated by the defendant as a result of
racketeering activities is injured by the defendant's
acquisition or control of his enterprise." In addition,
the plaintiff must establish that the interest or control
of the RICO enterprise by the person is as a result of
racketeering. It is not enough for the plaintiff merely
to show that a person engaged in racketeering has an
otherwise legitimate interest in an enterprise. Rather,
it must be established firmly that there is a nexus
between the interest and the alleged racketeering
activities.

4 F.3d at 1190 (Citations omitted) (emphasis added). In
Lighting Lube, the United States Court of Appeals for the
Third Circuit affirmed the district court's dismissal of the
§ 1962(b) claim because the plaintiff failed to allege how the

“acquisition of interest” and “control” of the " enterprise by
defendant injured plaintiff:

As stated above, a well-pled complaint under
section 1962(b), just as with section 1962(a), requires
the assertion of an injury independent from that caused
by the pattern of racketeering. Here, Lightning Lube
alleges in terms of a section 1962(b) injury that the
employees of Witco are engaged in a pattern of
racketeering. RICO Case Statement at 73. Such an
allegation clearly is insufficient because it merely
parrots the same injury that section 1962 (c) is meant
to remedy and fails to explain what additional injury
resulted from the person's interest or control of the
enterprise.

Opinion and Order - No. 5:93-CV-21, 5/4/95

Id. at 1191. The classic example of a § 1962(b) injury is
where the owner of a legitimate business is injured by
infiltration of the business by racketeering activity such as
loan sharking or extortion. F/V Robins Nest, Inc. v. Atlantic

Marine Diesel. Inc., Nos. 92-3900, 1994 WL 594592,
(D.N.J. Oct. 14, 1994). Several other cases describe the

independent injury requirement of § 1962(b). E.g., Danielsen

y. Burnside-Ott Aviation Training Center Inc., 941 F.2d
1220, 1231 (D.C. Cir. 1991).; Banks v. Wolk, 918 F.2d 418

(3rd Cir. 1990); Greenburg v. Tomlin, 816 F. Supp. 1039
(E.D. Pa. 1993).

In this particular case, the plaintiffs allege that Shell
engaged in a series of predicate acts of mail fraud by mailing
royalty checks and other documents to plaintiffs without ever
disclosing to plaintiffs that defendants were deducting the Act
61 privilege fee. Thus, plaintiffs do not allege that Shell's
mail fraud caused Shell to gain or maintain control of an
enterprise to plaintiffs’ injury. If plaintiffs had made such
allegations, they would not make sense. For example, as
stated in Brown v. Siegel, No. 94-1829, 1995 WL 66860, at
*4 (E.D. Pa. Feb. 13, 1995):

[I]t is also counter intuitive to assert that an
enterprise . . . could gain or maintain control
of itself through a pattern of racketeering
activity.

Plaintiffs simply claim that the allegedly fraudulent
scheme itself caused them injury. In fact, at oral argument,
plaintiffs conceded that they have not alleged an injury arising
from acquiring or maintaining control which is separate and
distinct from the alleged predicate acts. They point out,

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Opinion and Order - No. 5:93-CV-21, 5/4/95

however, that RICO must be liberally construed. Pub. L. 91-
452, § 904(a), 84 Stat. 922, 947 (1970); Sedima, 473 U.S. at
498, 105 S. Ct. at 3286. Plaintiffs then argue that because the
predicate acts are mail fraud and Congress did not create a
private remedy for mail fraud, this Court should imply that
RICO created a private remedy for mail fraud.

As defendant points out, there are adequate remedies for fraud
in state common law. Furthermore, there is a significant
difference between construing a statute liberally and
legislating from the bench. As the Supreme Court said in

— U.S. _, 113 S. Ct. 1163, 1172
(1993), the liberal construction provision of RICO

is not an invitation to apply RICO to new
purposes that Congress never intended. Nor
does the clause help us to determine what
purposes Congress had in mind. Those must
be gleaned from the statute through the normal
means of interpretation.

If Congress had wished to create a private remedy for
mail fraud, it could have done so. The RICO statute,
however, is not intended to create federal, private remedies
for everything that Congress has made a federal crime.
Rather, § 1964(c) of RICO only provides a private right of
action against those who commit any of the activities
prohibited in § 1962.

Plaintiffs have not stated a claim under 18 U.S.C. §
1964(c). Therefore, defendant's motion to dismiss Count V of
the Complaint will be granted, and plaintiffs' RICO claim will
be dismissed.

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Opinion and Order - No. 5:93-CV-21, 5/4/95

A separate Order consistent with this Opinion will
be entered.

Dated: May 4, 1995
/s/

GORDON J. QUIST
UNITED STATES DISTRICT JUDGE

Tila

Opinion and Order - No. 5:93-CV-21, 5/4/95

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FILED
May 4, 1995

U.S. District Court
Western Dist. of Mich.

KENNETH R. HILLIARD and

GREGORY D. STYLES,

Trustee under Trust

Agreement dated May 5, 1979,
Plaintiffs,

vs.
SHELL WESTERN E & P, INC.,

a Delaware corporation,
Defendant.

)

) Case No.

) 5:93-CV-21
)

) HON.

) GORDON J.
) QUIST

)

)
)
)
/

ORDER

In accordance with Opinion issued on this date,

IT IS HEREBY ORDERED that plaintiffs’ Motion to
strike affirmative defenses of collateral estoppel/res judicata

(docket no. 59) is GRANTED.

IT IS FURTHER ORDERED that defendant's Motion for
summary judgment on the grounds of res judicata (docket no.

74) is DENIED.

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Opinion and Order - No. 5:93-CV-21, 5/4/95

IT IS FURTHER ORDERED that defendant's Motion
for partial summary judgment to dismiss count V of the
complaint (docket no. 75) is GRANTED as to the RICO claim
and plaintiffs’ RICO claim is DISMISSED.

IT IS FURTHER ORDERED that defendant's motion
to dismiss de minimis claims (docket no. 76) is now moot
pursuant to the Order docketed as number 91.

Dated: May 4, 1995
/s/_

GORDON J. QUIST
UNITED STATES DISTRICT JUDGE

73a

APPENDIX J

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FILED
November 2, 1993
U.S. DISTRICT COURT
WESTERN DIST OF MICH
BY/s/

KENNETH R. HILLIARD and )
GREGORY D. STYLES, ) Case No. 5:93-CV-21
Trustee under Trust Agreement )

dated May 5, 1979, ) HON. GORDON J.
Plaintiffs, ) QUIST

Vv.

SHELL WESTERN E & P, INC.,
a Delaware corporation,
Defendant.

ORDER
In accordance with the Opinion issued on this date,
IT IS HEREBY ORDERED that plaintiffs’ motion for partial
summary judgment on its breach of contract claim (docket
#13) is GRANTED.

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Order and Opinon - No. 5:93-CV-21, 11/2/93

IT IS FURTHER ORDERED that defendant's motion for
dismissal or summary judgment (docket #12) is GRANTED
IN PART AND DENIED IN PART. On the claims of breach
of contract, fraud, and RICO, defendant's motion is
DENIED. On plaintiffs' accounting claim, defendant's
unopposed summary judgment motion is GRANTED.

IT IS FURTHER ORDERED that plaintiffs’
constitutional claim is DISMISSED AS MOOT.

IT IS FURTHER ORDERED that plaintiffs submit a
Supplemental brief on class certification no later, than
November 22, 1993.

Dated: November 2 1993
/s/

GORDON J. QUIST
UNITED STATES DISTRICT JUDGE

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Order and Opinion - No. 5:93-CV-21, 11/2/93

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FILED
November 2, 1993
U.S. DISTRICT COURT

WESTERN DIST OF MICH
BY/s/
KENNETH R. HILLIARD and )
GREGORY D. STYLES, ) Case No. 5:93-CV-21
Trustee under Trust Agreement )
dated May 5, 1979, ) HON. GORDON J.
Plaintiffs, ) QUIST

) ~_

¥.

SHELL WESTERN E & P, INC.,
a Delaware corporation,
Defendant.

a, Nee Ne Se Se Se”

OPINION

Plaintiffs are holders of royalty interests as lessors of
mineral rights in oil wells leased to defendant Shell Western
E&P, Inc. (Shell). They claim that Shell has wrongfully
deducted from their royalty payments a 1% pro rata share of
the regulatory fee imposed under the Michigan Supervisor of
Wells Act, Act 61 of the Michigan Public Acts of 1939, as
amended, M.C.L.A. 319.1 et seg., M.S.A. 13.139 (Act 61).
Shell acknowledges that it has deducted the fee, but denies

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Order and Opinion - No. 5:93-CV-21, 11/2/93

that it has acted wrongfully.
Defendant' s Positi

Shell moved for summary judgment on all counts of
plaintiffs' Complaint. With respect to Count I, which alleges
that Shell has breached its contracts by deducting the fee,
Shell argues that it acted within its rights on the authority of

Brown v. Shell Oil Co., 128 Mich. App. 111, 339 N.W.2d
709 (1983), appeal denied, 424 Mich. 867 (1986), cert.
denied, 479 U.S. 824, 107 S. Ct. 97 (1986). Brown v. Shell
held that royalty payments were subject to severance taxes on
oil and gas assessed pursuant to another Michigan statute, Act
48 of the Michigan Public Acts of 1929 as amended, M.C.L.A.
205.301-205.315, M.S.A. 7.351-7.365 (Act 48). Shell also
alleges that Count I is barred by res judicata because plaintiffs’
claim includes the same parties and a claim arising out of the
same circumstances as the first case, which claim cou! _ have
been raised in the earlier case.

On Count II, which requests that the Court declare Act
61 unconstitutional if it is read to require payment by lessors,
Shell maintains that the issue is not ripe for constitutional
adjudicaticn because it is pled as alternative relief. Shell also
seeks to disraiss Count II on the grounds that plaintiffs have
sued the wrong party and must bring the constitutional claim
against the taxing body and not against Shell.

In Count III, plaintiff; claim that Shell's repeated
deduction of the Act 61 fee under the guise of a "severance tax"
constituted fraud. Shell argues that judgment should be entered
against plaintiffs on the fraud claim because there has been no
material misrepresentation and no intent to deceive. It also
maintains that this claim should be dismissed because plaintiffs

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Order and Opinion - No. 5:93-CV-21, 11/2/93

failed to plead sufficien: facts to show a specific intent to
deceive and failed to plead reliance or damages as a result of
reliance.

Count IV requests an accounting. Shell argues that
plaintiff has not pled sufficient facts to justify the equitable
remedy of an accounting and that the availability of discovery
makes an accounting unnecessary.

With respect to Count V, a RICO claim, Shell argues
that plaintiffs have failed to state a claim for mail fraud for the
same reasons they failed to state a general claim for fraud. Shell
also maintains that plaintiffs have failed to allege damages to
business or property as a result of the alleged fraud. In a
supplemental motion, Shell seeks dismissal on the grounds that
plaintiffs failed to allege the existence of a "person" separate
and distinct from an "enterprise" as required by 18 U.S.C. S
1962(b) and failed to allege the elements of mail fraud with
sufficient particularity.

Plaintiffs’ Positi

Plaintiffs moved for summary judgment only on Count
I, on the issue of the legality of deducting the Act 61 fee from
their royalty payments. They argue that the payment is a
regulatory fee which Shell is not authorized to deduct in the
absence of lease language permitting such a deduction.

In response to Shell's motion, plaintiffs assert that their
claim is not blocked by res judicata because Brown v. Shell,
supra, addressed a different type of fee or tax and thus dealt
with a different issue. Plaintiffs maintain that the constitutional
challenge in Count II is valid because a reading in favor of
Shell-would: violate the Michigan Constitution. On Counts III

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Order and Opinion - No. 5:93-CV-21, 11/2/93

and V, the fraud and RICO counts, plaintiffs argue that there
are questions of fact that bar summary judgment. They do not
disagree with defendant that the equitable relief of an
accounting requested in Count IV is unnecessary in this
instance.

DISCUSSION
Standard for Summary Judgment

Summary judgment is appropriate if there is no genuine
issue as to any material fact and the moving party is entitled to
a judgment as a matter of law. Fed. R. Civ. P. 56. The rule
requires that the disputed facts be material. Material facts are
facts which are defined by substantive law and are necessary to
apply the law. A dispute over trivial facts which are not
necessary in order to apply the substantive law does not prevent
the granting of a motion for summary judgment. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510
(1986). The rule also requires the dispute to be genuine. A
dispute is genuine if a reasonable jury could return judgment
for the nonmoving party. Id. This standard requires the non-
moving party to present more than a scintilla of evidence to
defeat the motion. The summary judgment standard mirrors the
standard for a directed verdict. The only difference between the
two is procedural. Summary judgment is made based on
documentary evidence before trial, and directed verdict is made
based on evidence submitted at trial. 477 U.S. at 250-51, 106
S. Ct. at 2511.

A moving party who does not have the burden of proof
at trial may properly support a motion for summary judgment
by showing the court that there is no evidence to support the

non-moving party's case. Celotex Corp. v. Catrett, 477 U.S.

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Order and Opinion - No. 5:93-CV-21, 11/2/93

317, 324-25, 106 S. Ct. 2548, 2553-54 (1986). If the motion is
so supported, the party opposing the motion must then
demonstrate with "concrete evidence" that there is a genuine
issue of material fact for trial. Id.; Frank vy. D'Ambrosi, Nos.
91-3529, 91-3385, 91-3529, _ F.3d _ "(6th Cir. September 22,
1993) 1993 WL 366352, *4. The court must draw all inferences
in a light most favorable to the non-moving party, but the court
may grant summary judgment when "the record taken as a
whole could not lead a rational trier of fact to find for the non-
moving party." Agristor Financial Corp. v. Van Sickle, 967

F.2d 233, 236 (6th Cir. 1992) (quoting Matsushita Electric
» 475 U.S. 574, 587, 106 S.

Ct. 1348, 1356 (1986)).
Standard for Dismissal

An action may be dismissed if the complaint fails to
state a claim upon which relief can be granted. Fed. R. Civ. P.
12(b)(6). The moving party has the burden of proving that no
claim exists. All factual allegations in the complaint must be
presumed to be true and reasonable inferences must be made in
favor of the non-moving party. 2A James W. Moore, Moore's
Federal Practice, § 12.0712.5] (2d ed. 1991). Dismissal is
proper “only if it is clear that no relief could be granted under
any set of facts that could be proved consistent with the
allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104
S. Ct. 2229, 2232 (1984). Dismissal is also proper if the
complaint fails to allege an element necessary for relief or "if
an affirmative defense or other bar to relief is apparent from the
face of the complaint, such as the official immunity of the

defendant... "2A James W. Moore, Moore's Federal practice,

| 12.0712.5] (2d ed. 1991).

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Order and Opinion - No. 5:93-CV-21, 11/2/93
Statutory Interpretation

The fee statute at issue in this litigation, Act 61 of the
Michigan Public Acts of 1939, as amended, provides as
follows:

319.22. Fee for monitoring, surveillance,
enforcement, and administration of
act

Sec. 22. (1) For the purposes of monitoring,
surveillance, and administration of this act, a fee not
in excess of 1%, based upon the gross cash market
value is levied upon oil and gas produced in this state.
The fee shall be collected by the revenue division of
the department of treasury in the same manner, at the
same time, and subject to the provisions of the tax
levied by Act No. 48 of the Public Acts of 1929,
being sections 205.301 to 205.317 of the Michigan
Compiled Laws.

M.C.L.A. 319.22, M.S.A. 13.139(22).

Act 45, to which Act 61 refers, provides:
205.301. Severance tax on oil or gas
Sec. 1. There is hereby levied upon each
producer engaged in the business of severing from the
soil, oil or gas, a specific tax to be known as the

severance tax.

M.C.L.A. 205.301, M.S.A. 7.351.

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Order and Opinion - No. 5:93-CV-21, 11/2/93

In both instances, payment is collected from
producers, but there is a marked difference in how "producer"
is defined. Act 48 defines "producer" as "a person who owns,
or is entitled, to delivery of a share in kind or a share of the
monetary proceeds from the sale of, gas or oil as of the time
of its production or severance." M.C.L.A. 205.312, M.S.A.
7.362. In contrast, Act 61 defines "producer" as "the
operator, whether owner or not, of a well or wells capable of
producing oil or gas or both in paying quantities." M.C.L.A.
319.2(h), M.S.A. 13.139(2)(h).

The Michigan Attorney General analyzed both Acts in
1963. At that time, the Act 61 heading still referred to a
"privilege tax" rather than a "fee" and the definition of
"producer" in Act 48 had not yet been amended to include
those holding a royalty interest. Addressing the question of
whether the State of Michigan was liable for payment of a pro
rata share of the Act 61 fee and the Act 48 tax, the Michigan
Attorney General ruled that the state was not liable because,
as a lessor, it was not a "producer" and because imposition of
a tax on the state requires positive legislative action. O.A.G.
1963-1964 No. 4160 (June 17, 1963).

~ After the Attorney General issued his opinion, the
Michigan legislature amended the definition of "producer" to
include lessor in Act 48 and exempted the state from the tax.
The Michigan Court of Appeals subsequently analyzed Act
48, as amended, in Brown v. Shell Oil Co., 128 Mich. App.
111, 339 N.W.2d 709 (1983), appeal denied, 424 Mich. 867
(1986), cert. denied, 479 U.S. 824, 107 S. Ct. 97 (1986), a
case brought by holders of royalty interests as lessors of
mineral rights in oil wells leased to Shell Oil Company. The
Michigan Court of Appeals held that it was legitimate for

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Order and Opinion - No. 5:93-CV-21, 11/2/93

Shell to assess a pro rata share of the Act 48 severance tax
against the lessors because the amended statute included them
within the definition of producers. The court distinguished
between a gross production tax, such as Act 48, which is
levied in place of property tax, and a license, privilege, or
occupation tax, and explained that "because the severance tax
is in lieu of other related property taxes, it is assessable
against royalty holders as well as lessees who are actually
engaged in the business of severing the oil or gas from the
soil." 128 Mich. App. at 119, 339 N.W.2d at 713.

Plaintiffs urge this Court to follow the Attorney
General's Opinion and hold that it is unlawful to pass along
the Act 61 fee absent a contractual provision. An Attorney
General Opinion is not a binding interpretation of law that this
Court must follow. Traverse City School District v. Attorney
General, 384 Mich. 390, 185 N.W.2d 9, 17 (1971).
Moreover, the Attorney General's Opinion rested on the
general exemption of state property from taxation absent
positive legislation. Thus, his analysis that a pro rata share
should not be assessed because the state, as lessor, was not a
producer can be characterized as dicta.

Shell argues that judgment should be entered in its
favor on the basis of the Brown v. Shell, decision, which held
that Act 48 taxes could be assessed against the lessors. Shell
notes that the Act 61 fee is te “be collected by the revenue
division of the department of treasury in the same manner, at
the same time, and subject to the provisions of the tax levied
by Act No. 48 of the Public Acts of 1929." In its first brief,
it argues that the tax is levied on “producers” and that
plaintiffs must be considered producers pursuant to Act 48
and Brown v. Shell. The Act 61 definition of producers

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Order and Opinion - No. 5:93-CV-21, 11/2/93

differs from the Act 48 definition, however, and does not
include lessors. It defines producers as well operators.
M.C.L.A. 319.2 (h), M.S.A. 13.139(2) (h). Plaintiffs, as
lessors, are not operators in connection with the production of
oil and gas. Mobil Oil Corp. v. Dep't of Treasury, 121 Mich.
App. 293, 328 N.W.2d 367 (1982), aff'd, 422 Mich. 473,
373 N.W.2d 730 (1985). The Act 61 reference to Act 48
cannot be read to somehow amend Act 61's definition of
producers. Thus, Shell's argument that the Act 61 assessments
it has made against the lessors are required by statute fails.

Shell also argues that the Act 61 fee should be assessed
against lessors because it is levied on "oil and gas produced"
and a share of the oil and gas belongs to plaintiffs under the
leases, which provide for payment in kind or at market value. '
Shell also argues that market value or "proceeds" that

The royalty payment provision of the leases attached to the
Complaint as Exhibits 1 and 2 state:

4. The lessee shall pay lessor, as royalty, one-eighth of the
proceeds from the sale of the gas, as such, produced from gas wells
on leased premises, and where not sold shall pay Fifty Dollars
($50.00) per annum as royalty from each such well, and such well
shall be held to be a producing well under paragraph numbered two
hereof. The lessor to have gas free of charge from any gas well on
the leased premises for stoves and inside lights in the principal
dwelling house on said land by making his own connections with,
the well, the use of said gas to *> at the lessor's sole risk and
expense. The lessee shall pay to lessor for gas produced from any
oil well and used by the lessee for the manufacture of gasoline or
any other product, as royalty, one-eighth of the market value of
such gas at the mouth of the well. If said gas is sold by the lessee,
then as royalty one-eighth of the proceeds of the sale thereof.

84a

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Order and Opinion - No. 5:93-CV-21, 11/2/93

plaintiffs are paid under the lease are after-tax proceeds.
While this conclusory statement is valid for the Act 48
severance tax pursuant to Brown v. Shell, the distinction the
Brown court made between taxes imposed in lieu of property
taxes and license or privilege fees blocks its application to Act
61 fees.

Act 61 imposes a regulatory fee rather than a tax. The
purpose of the Act is to regulate wells for the prevention of
waste. M.C.L.A. 319.1, M.S.A. 13.139(1). Section 22,
which imposes the fee, states that it is "[flor the purpose of
monitoring, surveillance, enforcement and administration of
this act." M.C.L.A. 319.22, M.S.A. 13.139(22).
Expenditure of the monies collected is limited to that
purpose.” In contrast, Act 48 provides: "The severance tax
herein provided for shall be in lieu of all other taxes, state or
local, upon the oil or gas, the property rights attached thereto

> Act 61, section 22, provides:

(3) The proceeds of the fee provided for in this section shall be
credited to tho general fund and appropriated by the legislature
toward the cost of monitoring, surveillance, enforcement, and
administration of this act.

(4) An unexpended fee collected during the current or any
previous fiscal year, or unexpended appropriation, shall be carried
over and deducted from the following year's appropriation in
determining an amount to be certified by the director of the

department of management and budget to the department of
treasury for computing the annual fee provided for in this act.
M.C.L.A. 319.22, M.S.A. 13.139(22).

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Order and Opinion - No. 5:93-CV-21, 11/2/93

or inherent therein, or the values created thereby; upon all
leases or the rights to develop and operate any lands in this
state for oil or gas, the values created thereby and the
property rights attached to or inherent therein." M.C.L.A.
205.315, M.S.A. 7.365.

As the Brown vy. Shell court suggested by drawing a
distinction between severance and privilege taxes and holding

that the severance tax was assessable against royalty holders
"because the tax is in lieu of other related property taxes," it
is inappropriate to assess a regulatory fee like that assessed
under Act 61 against the lessor, absent an agreement in the
lease that the lessor will pay a share of the fee.

Defendant admits that the leases attached to the
Complaint as Exhibits 1 and 2 are copies of leases held by
plaintiffs Styles and Hilliard. The provision of those leases
regarding payments, which is quoted in footnote 1, provides
that lessors will be paid a percentage of the gross proceeds of
the gas and oil sold. There is no provision allowing a
deduction for a payment that is not the responsibility of the
lessors. Thus, with respect to the leases cited in the
Complaint, Shell's deduction of the Act 61 fee is a breach of
contract.

For the reasons stated above, plaintiffs’ motion for
partial summary judgment is granted and Shell's motion as to
Count I is denied. In light of the Court's decision on Count I,
plaintiffs’ constitutional claim, Count II, is moot. Defendant's
res judicata argument must, however, be addressed because
it has the potential of requiring dismissal of the contract claim
prior to reaching judgment on the merits.

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Order and Opinion - No. 5:93-CV-21, 11/2/93
Res Judicata

The res judicata issue is whether Brown v. Shell bars
portions of this action. Under Michigan law, the doctrine of
res judicata is used "to bar both claims actually litigated by
parties in prior actions and claims that could have been, but
were not, litigated." City Communications. Inc. v. City of
Detroit, 888 F.2d 1081, 1089 (6th Cir. 1989) (citing Gose v.
Monroe Auto Equip, Co., 409 Mich. 147, 162-63, 294

N.W.2d 165, 167 (1980)). In City Communications,
plaintiff's First Amendment claim was barred on the grounds

that plaintiff had been afforded the opportunity to amend its
complaint to add constitutional claims in a previous action and
had failed to do so. 888 F.2d at 1088-91. .

In response to Shell's allegation that plaintiffs’ contract
claim is barred by res judicata, plaintiffs argue only that their
claims are not barred because the instant claims differ from
the claims raised in Brown y. Shell. Plaintiffs do not dispute
that the parties are the same. In addition, plaintiffs make no
assertion that the claims could not have been brought as a part
of Brown vy. Shell. On the other hand, Shell has provided no
evidence that plaintiffs were afforded a full opportunity to
bring their claims regarding Act 61. In the instant complaint,
plaintiffs allege that they did not know of the additional
deduction until 1989. Thus, it appears that plaintiffs were not
aware, at the time they brought the Brown v. Shell action,
that the tax deduction Shell was taking from their royalties
included the Act 61 fee in addition to the Act 48 severance
tax. Even if plaintiffs had or could have became aware of the
dual nature of the deduction during the pendency of Brown v.
Shell, that case was determined on summary judgment and
there is no evidence that plaintiffs would have been afforded

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Order and Opinion - No. 5:93-CV-21, 11/2/93

a chance to amend their complaint to include the Act 61
claims.

On the basis of the current record, the res judicata
claim is denied. It does not appear that the Act 61 claims were
ripe for adjudication or that plaintiffs had the opportunity to
bring, them before the court in the Brown v. Shell litigation.

RICO AND FRAUD
Fraud Claim

Shell argues that Count V, the RICO claim, should be
dismissed because plaintiffs have not pled the elements of mail
fraud with sufficient particularity. It also argues that the fraud
claim, Count III, should be dismissed or that summary
judgment should be granted because plaintiffs have offered no
evidentiary support for their fraud claim. The elements of
actionable fraud under Michigan law are as follows:

The general rule is that to constitute actionable
fraud it must appear: (1) That defendant made
a material representation; (2) that it was false;
(3) that when he made it he knew that it was
false, or made it recklessly, without any
knowledge of its truth, and as a positive
assertion; (4) that he made it with the intention
that it should be acted upon by plaintiff; (5)
that plaintiff acted in reliance upon it; and (6)
that he thereby suffered injury.

Hi-Way Motor Co. v. International Harvester Co., 398
Mich. 330, 336, 247 N.W.2d 813, 816 (1976) (quoted in

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Order and Opinion - No. 5:93-CV-21, 11/2/93

Schwartz v. Electronic Data Systems. Inc., 913 F.2d 279, 285
(6th Cir. 1990)).

In the Complaint, plaintiffs allege that since at least
1983, Shell made it a practice to withhold Act 61 regulatory
fees from plaintiffs' royalty payments and to conceal the
withholding by identifying it as a "tax." Plaintiffs also allege
that Shell knew the regulatory fee was not an obligation of
plaintiffs and was not an authorized withholding. In addition.
plaintiffs allege that Shell used the mails to transmit the check
stub advices and other data that disguised the Act 61
regulatory fee deduction as a tax and attach examples of the
documents to their Complaint. These allegations are sufficient
to state a cause of action in fraud, including mail fraud.
"{Al mailing that is incident to an essential part of the
scheme" satisfies the mailing element of the mail fraud

offense. Schmuck v. United States, 489 U.S. 705, 712, 109
S. Ct. 1443, 1448 (1989) (citation omitted).

Shell also argues that the facts do not support
plaintiffs’ fraud claim. It maintains that it did not engage in
misrepresentation or intentional deception by deducting the
Act 61 fee as a tax, but, instead, used the language used in the
Attorney General's Opinion and the term originally used in
the statute, which described the Act 61 fee as a "privilege
tax." Shell attached to its summary judgment motion
examples of instances when the State of Michigan referred to
the Act 61 fee as a tax, but does not attach an affidavit linking
these documents with any action Shell took or failed to take.

Plaintiffs likewise refer in their summary judgment
briefs to documents attached to pleading but do not include
affidavits. Their response to Shell's motion for summary

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Order and Opinion - No. 5:93-CV-21, 11/2/93

judgment refers to the letters attached to plaintiffs' Complaint,
which document the inquiry counsel made in 1989. (See
Complaint, Exhibits 3, 4, 5, 6). Defendant, in its answer to
the Complaint, did not deny the genuineness or authenticity of
the letters but instead responded that the documents speak for
themselves. These letters show that the Act 61 fee was
withheld as a "tax" and that plaintiffs were informed of that
fact in 1989. On the basis of plaintiffs’ response to
defendant's summary judgment motion and the documents
they cite, it appears that there are questions of fact regarding
whether there were intentional misrepresentations and
reliance. Shell thus is not entitled to judgment on the fraud
claim or on the RICO claim on the grounds that there is no
fraud.

Shell also seeks to defeat the RICO claim by arguing
that plaintiffs have failed to allege damages to business or
property as a result of the alleged fraud. It claims that
plaintiffs "must allege a separate and traceable injury
‘stemming directly from the Defendants’ alleged use or
investment of their [allegedly] illegally obtained income in the
[RICO] enterprise.'" Defendant's Motion for Judgment on the
Pleadings at 7 (quoting Arioli jal- iti
Inc., 811 F. Supp. 303 (E.D. Mich. 1993)). The rule stated
in Arioli pertains, however, only to RICO claims based on 18
U.S.C. § 1962(a). In this instance, plaintiffs’ claims are based
on 18 U.S.C. § 1962(b). Plaintiffs allege as damages that, as
a result of the fraudulent deduction, they were "wrongfully
deprived of substantial funds." Complaint, ¢ 83. This
pleading is sufficient to state damages to business or property,
since an injury under RICO need not be "separate from the
harm from the predicate acts."

Co., Inc., 473 U.S. 479, 495, 105 S. Ct. 3275, 3284 (1985).

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Order and Opinion - No. 5:93-CV-21, 11/2/93

During oral argument on the contract construction
issue, I raised the issue of whether Count V properly alleged
a RICO violation because it did not allege the "person" -
"enterprise" distinction that is required by 18 U.S.C. S 1962.
The parties have now briefed the point.

As the Court of Appeals for the Fifth Circuit has explained:

[I]n plain English, the subsections [of Section 1962 of the
RICO statute] state:

(a) a person who has received income from a pattern
of racketeering cannot invest that income in an
enterprise.

(b) a p

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_0966%3A2. Public record. Not legal advice.