Phillips Petroleum Co. v. Yarbrough (Opinion)

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State: Texas

Court: Supreme Court

Docket No: 12-0198,

Case Date: 06/21/2013

Plaintiff: Phillips Petroleum Co.

Defendant: Yarbrough (Opinion)

Preview:IN THE SUPREME COURT OF TEXAS
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NO . 12-0198
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PHILLIPS PETROLEUM COMPANY, GPM GAS CORPORATION, PHILLIPS GAS MARKETING COMPANY, PHILLIPS GAS COMPANY, AND GPM GAS TRADING COMPANY, PETITIONERS,
v.

ROYCE YARBROUGH, RESPONDENT
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ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE FOURTEENTH DISTRICT OF TEXAS
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~ consolidated for oral argument with ~
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NO . 12-0199
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IN RE CONOCOPHILLIPS COMPANY F/K/A PHILLIPS PETROLEUM COMPANY, DCP MIDSTREAM , LP F/K/A GPM GAS CORPORATION, CONOCOPHILLIPS GAS COMPANY F/K/A PHILLIPS GAS COMPANY, AND DCP MIDSTREAM MARKETING, LLC F/K/A GPM GAS TRADING COMPANY
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ON PETITION FOR WRIT OF MANDAMUS
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Argued January 10, 2013

JUSTICE LEHRMANN delivered the opinion of the Court.

For the second time, we address issues of class certification in this action involving alleged underpayment of oil and gas royalties. In 2008, we reviewed the trial court's certification of three subclasses of royalty owners, each asserting a single breach-of-lease claim. Bowden v. Phillips Petrol. Co., 247 S.W.3d 690 (Tex. 2008). After the court of appeals reversed the certification order as to all three subclasses, we affirmed in part and reversed and remanded in part on interlocutory appeal. Id. at 694. We affirmed as to the two subclasses that asserted claims for breach of the implied covenant to market. Id. at 702, 709. We reversed the decertification order as to the third subclass, which alleged breach of a uniform express royalty provision contained in gas royalty agreements (GRAs) that amended the class members' leases. Id. at 708. We also directed the trial court to conduct a res judicata analysis in determining whether certification was appropriate under former Rule 42(b)(4) of the Texas Rules of Civil Procedure.1 Id. at 698. On remand, Respondent Royce Yarbrough, class representative of the remaining subclass of royalty owners, amended her petition to allege that Phillips Petroleum Company and its affiliates (collectively, Phillips)2 breached the implied covenant to market, which in turn contributed to their underpayment of royalties under the GRAs. Phillips filed various motions seeking a ruling from the trial court that there was no class claim for breach of the implied covenant to market, arguing that

As noted in Bowden, former Rule 42(b)(4) is now codified as Rule 42(b)(3), and we will continue to refer to Rule 42(b)(3) as including the former (b)(4) paragraph. Bowden, 246 S.W .3d at 694 n.1. The named defendants in the operative petition are ConocoPhillips Company, successor by merger to Phillips Petroleum Company and Phillips Gas Marketing Company; DCP M idstream, LP, successor to GPM Gas Corporation; ConocoPhillips Gas Company, successor to Phillips Gas Company; and DCP Midstream Marketing, LLC, successor to GPM Gas Trading Company. For ease of reference, we will continue to refer to the defendants collectively as "Phillips," as we did in Bowden.
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a new certification motion and hearing were required to determine whether the claim was an appropriate class claim under Rule 42(b)(3). These motions were all denied. Phillips filed both a notice of interlocutory appeal and a petition for writ of mandamus in the court of appeals. That court dismissed the interlocutory appeal for lack of jurisdiction and denied the petition for writ of mandamus. Phillips then filed both a petition for review and a petition for writ of mandamus in this Court. We hold that the court of appeals erred in dismissing the interlocutory appeal for lack of jurisdiction, that the trial court abused its discretion in allowing the addition of a class claim for breach of the implied covenant to market without requiring Yarbrough to file an amended motion for class certification or holding a certification hearing, and that the trial court abused its discretion in failing to conduct a rigorous analysis of res judicata in contravention of our mandate in Bowden. Accordingly, we reverse the court of appeals' judgment and remand to the trial court for further proceedings consistent with this opinion. I. Factual and Procedural Background A. Pre-Bowden Proceedings3 This suit was filed as a putative class action on behalf of Texas royalty owners alleging Phillips underpaid oil and gas royalties. In September 2000, the trial court signed its first certification order, certifying three subclasses of royalty owners. Bowden, 247 S.W.3d at 694. On interlocutory appeal, the court of appeals reversed and remanded. Id. at 695. The royalty owners filed an amended certification motion, and in June 2002, following a hearing, the trial court entered

Our opinion in Bowden contains a lengthy description of the factual background leading up to that opinion. W e borrow from Bowden those portions that continue to be relevant in these proceedings.

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the certification order at issue in Bowden. Id. The trial court again certified three subclasses of royalty owners, each of whom asserted a single claim for relief. Id. Subclasses 1 and 3 asserted a claim for breach of the implied covenant to market,4 while Subclass 2 (the GRA class) alleged Phillips breached uniform provisions in the GRAs governing the calculation of royalty payments. Id. at 695

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