The opinion of the court was delivered by: Curtin, District Judge.
Presently before the court are a pair of motions to remand,
which arise from two separate lawsuits: Jack and Roberta
Freeman, et al. v. Great Lakes Energy Partners, et al.,
00-CV-204 ("Freeman"), and Vivian Kershaw, et al. v. Columbia
Natural Resources, et al., 00-CV-246 "(Kershaw"). Both
actions were removed by the respective defendants to the Western
District in March 2000. The Clerk assigned Freeman to this
court, Item 1 (Freeman;); and by an order dated April 20,
2000, the Honorable William M. Skretny transferred Kershaw to
this court. Item 10 (Kershaw.)
Although these two actions are distinct in many respects, they
are broadly related in their factual background and by the fact
that the representative plaintiffs — the Freemans and Ms.
Kershaw — employ the same counsel: Paul Yesawich III and Patrick
Maxwell of Harris Beach & Wilcox, LLP. In addition, the two
actions resemble one another in that the Freemans and Ms.
Kershaw have moved this court to remand their respective actions
to the New York State Supreme Court of Chautauqua County. Item 5
(Freeman) and Item 6 (Kershaw). The court granted all
parties an opportunity to submit arguments on these motions to
remand and then, on June 21, 2000, heard oral argument.
Defendants in both Freeman and Kershaw are gas well
operators that have entered into various leasing arrangements
with members of the putative classes. The Freemans and Ms.
Kershaw are landowners who hold royalty interests in gas wells
operated by certain defendants. Item 5, ¶ 4 (Freeman) and Item
9, ¶¶ 3-4 (Kershaw). The majority of leases involved in these
two actions grant the landowners a standard royalty of 1/8 or
12.5%, of a gas well's annual revenue. Id. In many cases,
defendants drilled a single well that extended over several
contiguous properties. As a result, many members of the putative
classes actually split a 1/8 royalty with other
plaintiff-landowners. In fact, both the Freemans and Ms. Kershaw
submit that an average of three plaintiff-landowners hold an
interest in any given well. Item 5, ¶ 4 (Freeman) and Item 9,
¶ 4 (Kershaw).
(a) the number of Mcf's sold from a well in a year;
(b) the sale price of the gas; and
(c) the royalty percentage (1/8 or .125).
Thus, if a gas well produced 100 Mcfs in a year, at a price of
$1.00 per Mcf, and a royalty rate of .125 (or 1/8), a landowner
would be entitled to a royalty of $12.50. See Item 5, ¶ 5
(Freeman) and Item 9, ¶ 5 (Kershaw).
The Freemans and Ms. Kershaw claim that the Freeman
defendants and Kershaw defendants, respectively, conspired to
underpay the royalty interests that members of the putative
classes held in natural gas wells located in, among other
places, Chautauqua County, New York. Item 5, ¶ 6 (Freeman) and
Item 9, ¶ 6 (Kershaw).*fn2
I. Value of Claims: Plaintiffs' Positions
A. Claims for Compensatory Damages
At this point in the litigation, the issue of underpayment is
just an allegation. For the purposes of determining diversity
jurisdiction, the court looks to plaintiffs' allegations. The
Freemans allege that the Freeman defendants underpaid their
putative class by approximately $4.00 per Mcf. See Item 5, ¶ 7
(Freeman). For her part, Ms. Kershaw states that the Kershaw
defendants underpaid her class by approximately $3.78 per Mcf.
See Item 9, ¶ 8 (Kershaw).
The Freemans and Ms. Kershaw also state that, on average, New
York State natural gas wells produced approximately 3,089 Mcf's
annually from the years 1994 through 1998. See Item 5, ¶ 8 and
Exh. B (Freeman) and Item 9, ¶ 9 and Exh. B (Kershaw)
(citing report from New York State's Department of Environmental
Conservation ("NYS DEC"), Mineral Resources Division). Thus, in
order to calculate the probable claims of each plaintiff, both
the Freemans and Ms. Kershaw use the following formula:
(a) take the average production of a New York
State natural gas well (3,089 Mcf's);
(b) multiply by the estimated amount of
underpayment to the plaintiff class ($4.00 in
Freeman and $3.78 in Kershaw).
(c) multiply by the royalty interest of 1/8, or
(d) multiply by six, which represents the number
of years for which plaintiffs may recover once the
statute of limitations for fraud is applied; and
(e) divide by three, which represents the number
of plaintiff-landowners who typically held
interests in the same well.
B. Claims for Punitive Damages
In addition to their compensatory claims, both the Freemans
and Ms. Kershaw have asserted $100,000,000 claims for punitive
damages on behalf of their putative classes. See Item 5, ¶ 14
(Freeman) and Item 9, ¶¶ 16-17 (Kershaw). The Freemans
estimate that there are approximately 26,600 members of their
plaintiff class. Item 5, ¶ 16.*fn5 For her part, Ms. Kershaw
estimates that there are approximately 24,000 members of her
plaintiff class.*fn6 Thus, the Freemans allege that each
member of their plaintiff class would be entitled to
approximately $3,700 in punitive damages, Item 5, ¶ 17, and Ms.
Kershaw estimates that each member of her plaintiff class would
be entitled to approximately $4,167 in punitive damages. Item 9,
II. Value of Claims: Defendants' Positions
In opposition to the Freemans' estimates of the likely value
of individual claims, Freeman defendant Great Lakes Energy
Partners submits proof tending to show that certain unnamed
plaintiff class members could have claims well in excess of
$75,000. For example, statistics compiled by the N.Y.S. DEC's
Mineral Resources Division show that since 1982, some natural
gas wells in New York have produced close to 600,000 Mcfs. See
Item 18, pp. 6-7 and Exh. A. Thus, certain prospective members
of either putative class could be entitled to compensation of
approximately $300,000, if that person had held rights in such a
well since 1982. See supra n. 3 (dismissing plaintiffs'
attempt to apply statute of limitations defense prematurely). On
the other hand, if, as plaintiffs aver, three landowners shared
an interest in one such well, then there would be three claims
Similarly, the Kershaw defendants submit evidence tending to
demonstrate that Ms. Kershaw herself may have a claim in excess
of $75,000. See Item 19, Exh. 1 (Kershaw). First, Ms.
Rebekah Barnes, a Senior Prospect Engineer with defendant
Columbia Natural Resources, reports that Ms. Kershaw's lease is
connected with a well that has produced over 48,000 Mcfs of gas
between 1981 and 1993. If Ms. Kershaw's well has continued to
produce similar amounts of gas for the rest of the 1990s, Ms.
Kershaw would likely claim compensatory damages of approximately
$30,000. In addition, Ms. Barnes projects that the Kershaw well
will produce another 32,000 Mcfs in its lifetime. Item 19, Exh.
1. Thus, the value of Ms. Kershaw's
past damages, combined with the value of injunctive relief,
would be approximately $45,000, see Item 19, p. 6, which is
significantly more than the $7,200 Ms. Kershaw projects. Item 8,
¶ 6 (Kershaw).
Further, Ms. Barnes reports that at least seven members of the
Kershaw putative plaintiff class "would have received in
excess of $75,000 in additional royalty payments for the 6 year
period between 1994 through 1999 if the actual calculated
royalty volumes were multiplied by 3.78." Item 19, Exh. 1, ¶ 5
III. Court's Conclusion on Value of Claims
For the reasons explained herein, the court finds that the
likely value of a claim by an average member of the Freeman
class would be approximately $16,000, while the likely value of
a claim by an average ...