In a case involving natural gas production royalties, a jury in Caddo County, Oklahoma has returned a complete defense verdict for Fort Worth-based Range Resources.
The unanimous verdict, issued last Monday, marks the first win in 21 years for a producer in a case tied to Oklahoma’s marketable product rule. The plaintiffs were asking $17.5 million from Ranger for what they were claiming involved fraud.
The rule requires the lessee (producer) under an oil and gas lease to bear all production and post-production expenses incurred until the gas is considered “marketable.”
“The marketable product rule has been very contentious,” said Fort Worth K&L Gates partner Jeff King, one of Range’s lead attorneys at trial. “It has led to multimillion-dollar settlements by various producers over the years. Our client felt they were right, and quite honestly, we felt this was probably the best set of facts that we were going to get to try one of these and seeing how the jury would react to it.”
Fellow Fort Worth K&L Gates partner Jamie Bryan, who served as Range’s other lead trial attorney, said she hopes this week’s verdict encourages other defendant producers to resist the fear of trying similar cases instead of “reaching a reasonable settlement.”
“There has not been a defense verdict like this in Oklahoma since 1998, so we hope it will give people a little more confidence to bring these types of cases all the way through to a verdict in Oklahoma,” Bryan said.
Oklahoma City lawyer Allan DeVore, who led the trial for the royalty owners, has yet to respond to a request for comment.
The royalty owners sued Range in December 2013 on claims that Range underpaid them for their mineral interests. Their legal argument was that natural gas is not a marketable product until it has gone through LNG processing.
They claimed they had been defrauded by Range, both as an operator and as a working interest owner, when they deducted from royalties such costs as marketing, gathering, compressing, dehydrating and other expenses incurred to create and sell NGLs. They claimed Range also withheld royalties on produced gas used off the leased premises or in the manufacture of products, as well as condensate that dropped out of the new raw gas stream.
In its defense, Range countered the gas became a marketable product once it was sold to an unrelated third party who buys gas in the ordinary course of its business. Range also argued it was required by its leases with each plaintiff to pay royalties from the proceeds Range actually received from those unrelated third-party sales, without deduction for costs to make that gas a marketable product to those third-party purchasers.
After deliberating for three hours and 15 minutes, the jury returned a verdict completely in favor of Range.
Though they did not get a chance to speak with the jury after, Bryan and King said they believed the testimony of Joy Gilmer, Range’s director of marketing, helped them win the case.
“I think our client’s representative being so forthright and willing to answer questions was a turning point with the jury,” Bryan said.
King said that there was an unusual twist in the litigation: the royalty owners’ fact witness was a plaintiff’s lawyer.
“He testified as a fact witness but proceeded to offer nothing but ‘expert’ opinion testimony,” King said. “The problem with doing that was that this particular witness was also an attorney on similar types of cases, so that opened him up to cross-examination about his prejudice.”
Since they did not talk to the jury, King clarified, “we do not know how impactful his testimony was or the cross was, but it’s just not something you see every day in a trial.”