Groves v. Roy G. Hildreth & Son, Inc., No. 2:08–cv–00820, 2011 WL 4382708 (S.D.W. Va. Sept. 20, 2011).

In this class action settlement a District Court in West Virginia reminded us that CAFA requires each defendant participating in a proposed class settlement to provide appropriate state officials with information about the settlement, including, inter alia, a copy of the complaint, notice of any judicial hearings, any notification to class members, and any final judgments on the settlement. 

The plaintiffs filed a class action complaint in the Circuit Court of Roane County, West Virginia, alleging that the defendants, Roy G. Hildreth and Son, Inc., Kimco, Megan Oil & Gas Company, Inc., Krakrow Corporation, GMH Gas Company, Inc., and Roy G. Hildreth, entered into natural gas leases with the plaintiffs and failed to properly pay the royalties due under these leases. The plaintiffs asserted claims for breach of contract, breach of fiduciary duty, fraudulent concealment, and violations of West Virginia Code §§ 22–6–8 and 46A–6–101 et seq., and sought compensatory damages, punitive damages, restitution, costs, and attorney’s fees.

The defendants removed the action to the federal court pursuant to CAFA as well as the jurisdictional provisions of the Natural Gas Act, 15 U.S.C. § 717 et seq. 

Later, the District Court denied the plaintiffs’ request to remand the case, finding that the defendants had sufficiently alleged subject matter jurisdiction under CAFA.

Following this, the parties settled the case, and filed the settlement agreement in the Court. The settlement agreement calculates settlement payments based upon each Class Member’s “pro-rata share of the volumetric production of gas from the wells in which they had a royalty interest during the class period.” The distribution to each Class Member will be determined by allocating the total settlement fund to each Class Member’s pro-rata share of the volumetric production. 

The Class Members will be paid out of a Settlement Fund established as a Qualified Settlement Fund within the meaning of § 468B of the Internal Revenue Code of 1986, as amended, and all rules and regulations thereunder. The defendants agreed to contribute a sum of $210,500 to the Settlement Fund. The agreement provided that the interest of any class members who cannot be located shall be paid into a cy pres account. 

Accordingly, the Court conditionally certified a temporary settlement class, and preliminarily approved the class action settlement, setting forth deadlines for notice to class members, objections, exclusion requests, and the final approval of the settlement. Subsequently, the parties filed a joint motion for final approval of class action settlement. Accordingly, the Court held a fairness hearing under Fed. R. Civ. P. 23(e), and approved the final settlement agreement.

At the fairness hearing, the Court verified whether the parties complied with the notice requirements of law. First, the Court noted that in the context of a class action, the due process requirements of the Fifth Amendment require reasonable notice combined with an opportunity to be heard and withdraw from the class. Rule 23 also requires that the notice must be “the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.” 

The rule further provides that the notice inform potential class members of the nature of the action, that class members may make an appearance through counsel, that class members may exclude themselves from the settlement, and that the class judgment will have a binding effect on class members who are not excluded. Because individual notices to all the 3,547 were mailed, the Court found that notice provided was reasonable, adequate, and the best notice practicable under the circumstances and satisfied the requirement as set out in Rule 23.

Next, the Court noted that CAFA, 28 U.S.C. § 1715, requires each defendant participating in a proposed class settlement to provide appropriate state officials with information about the settlement, including, inter alia, a copy of the complaint, notice of any judicial hearings, any notification to class members, and any final judgments on the settlement. The defendants sent notice packets to the appropriate State and Federal officials on June 21, 2011, and the parties therefore requested the Court to withhold entry of the Final Order approving the settlement until after the 90 days expired as required for notice pursuant to § 1715(d). 

The parties represented that neither state nor federal agencies’ property would be affected by this class action settlement and that delaying entry of the Final Order for 90 days would not adversely affect the time necessary to administer the claims. Because more than 90 days passed since service was perfected and as there had been no adverse comments from any of the aforesaid state or federal officials, the Court found that compliance with CAFA was satisfactory.

Accordingly, the court certified the settlement class and approved the final settlement agreement upon finding that the settlement was fair, reasonable and adequate for the purposes of Rule 23(e).