Okla. Royalty Owners: Tort Reform Bill Would Keep Most Out of Settlements

Oklahoma’s landscape is in constant motion with the activity of oil wells, their seesaw-like movements pumping oil and natural gas to the surface and fueling the state’s economy.

Oil wells are also a source of income for hundreds of thousands of Oklahomans who own royalty and mineral rights. And those who profit from their operation say legislation awaiting Gov. Brad Henry’s signature could affect their ability to recoup royalties withheld by unscrupulous producers.

The legislation concerns class-action lawsuits and is part of a massive civil justice measure that also caps non-economic damages, also known as pain and suffering, in negligence lawsuits, provides liability protection to educators and makes other changes in Oklahoma’s civil justice system.

Royalty owners are concerned about a small change the measure would make to require litigants to “opt in” to a class-action lawsuit to become eligible to recoup unpaid royalties.

Under existing law, class members are automatically included in a class-action lawsuit and must formally notify the court if they want to “opt out.” Supporters of the rule change say that means citizens can become involved in a class-action lawsuit without their knowledge or consent.

The change would make Oklahoma the only state in the nation with an “opt in” provision for class-action lawsuits. Royalty owners and the attorneys who represent them say it could dramatically affect their ability to take oil and gas producers to court when they improperly withhold royalty payments.

“These people are going to drive a stake through class-action lawsuits,” said Butch Whitten, a petroleum landman in Duncan who is also a royalty and mineral owner.

“The ultimate impact is that people will not be able to seek redress in the courts,” Whitten said.

“It’s a way to prevent people form going to the courthouse,” said Robert Barnes, an oil and gas attorney in Oklahoma City who has represented hundreds of royalty owners in class-action lawsuits against oil and gas producers.

Barnes said the measure is an attempt by large oil companies to head off lawsuits in which they could owe millions of dollars in unpaid royalties.

“There are probably many good oil companies that have absolutely nothing to hide,” Barnes said. “I don’t want to give the guys who cheat an unfair economic advantage over those who don’t.”

Royalty owners are urging Henry to veto the bill in letters and telephone calls. The bill was approved by the House and Senate largely along party lines, with Republicans voting for it and most Democrats voting against.

“We’ve been getting a lot of calls on tort reform and a lot of them have been royalty owners,” said Henry’s communications director, Paul Sund.

Supporters, including the Oklahoma Independent Petroleum Association and other oil and gas producers, claim that some lawyers are using legal loopholes to unfairly extract millions of dollars from oil and gas companies, who comprise Oklahoma’s largest industry.

They also said elderly royalty owners need to be protected from becoming unwitting members of a royalty class.

“They’re just not automatically in the lawsuit. I don’t think it’s unfair,” said Mike Terry, president of OIPA. “I think it’s a shame that certain royalty owner groups are more concerned about counting class-action lawsuits than they are the rig count.”

John Brock, chairman of Oklahomans for Lawsuit Reform, said the proposal will not affect a person’s ability to file a lawsuit and will not harm royalty owners.

“They just sign a document and check a box and that’s all there is to it,” Brock said.

But royalty owners said those arguments do not address the reality of how class-action lawsuits are waged against powerful oil and gas producers.

Homer Thompson of Cyril, who has three small producing wells and 600 acres of minerals in Caddo and Grady counties, said he received an out-of-court settlement in a class-action case a few years ago. The amount he received, about $3,000, was not large enough to take the company to court on his own.

“It would take me quite a bit of money to go through all this,” Thompson said. “The only way I could participate is in a class-action lawsuit.”

In addition, Thompson said few people offered an opportunity to “opt in” to a class-action lawsuit would agree because of their reluctance to become involved in lawsuits. He estimated that only 10 percent would return “opt-in” forms, meaning that a producer found liable for withholding royalty payments could keep most of it.

“Most mineral owners are busy. A lot of them don’t want to get involved in lawsuits,” he said. “The oil companies, if they cheated you, would get by with 90 percent.”

“There’s some nice oil companies. But there’s some boogers, too,” said Jackie Slatten of Turpin, who was among about 1,300 royalty owners in a class-action lawsuit that was tried in Guymon in 2001.

The case resulted in a $74 million jury verdict against oil producers, said Barnes, who represented the royalty owners. He spent $9 million preparing the case for trial over nine and one-half years.

“No royalty owner in their right mind would want that bill,” Slatten said.

Whitten said the size of judgments and out-of-court settlements by producers explains why they support the bill.

“You know the reason these verdicts are so big? Because they stole so much,” Whitten said. “I don’t understand why these companies fear the current system if they’re paying their royalties correctly.”