[00:00:01] Speaker 02: Our next case this morning is Klein versus Sinoco. [00:00:06] Speaker 02: Case number is 23-7090. [00:00:09] Speaker 02: Ms. [00:00:12] Speaker 02: Murphy, you may proceed. [00:00:14] Speaker 03: Thank you. [00:00:15] Speaker 03: Good morning, Your Honors, and may it please the Court, Erin Murphy, on behalf of Sinoco, and I'm going to endeavor to save three minutes of my time for rebuttal. [00:00:23] Speaker 03: Under Oklahoma's Production Revenue Standards Act, [00:00:26] Speaker 03: Both whether and how much interest someone is entitled to for a failure to timely pay oil sale proceeds turns on whether and when they secured marketable title. [00:00:36] Speaker 03: If someone doesn't have marketable title, then they're not entitled to proceeds at all, let alone to any interest for the failure to timely pay them. [00:00:43] Speaker 03: And even if someone does have marketable title, how much interest they're owed for a late payment depends on when they acquired it. [00:00:50] Speaker 03: Those principles pose two fatal problems with the $180 million class action judgment that was entered here. [00:00:57] Speaker 03: First, for roughly two-thirds of the judgment, is owing to proceeds that were not paid to any actual owner with marketable title, but were instead just a sheeted to an unclaimed property fund after Sunoco couldn't identify or locate anybody who had marketable title to the particular well interest at issue. [00:01:17] Speaker 03: And there's no evidence in this record at all as to whether anyone has marketable title as to those particular well interests. [00:01:25] Speaker 02: What about the testimony of Sinocco's representative? [00:01:29] Speaker 02: Is it Mr. Colleen? [00:01:31] Speaker 02: Am I saying that right? [00:01:32] Speaker 02: I think that's right. [00:01:33] Speaker 02: Didn't he say that, and I'm quoting, there's no issue about whether these people have a right to be paid their principal proceeds? [00:01:40] Speaker 03: I think the best understanding there is he was talking about the people who got paid proceeds payments because there are no people associated necessarily with the... Well, there are people. [00:01:50] Speaker 02: They just haven't been identified. [00:01:52] Speaker 02: There are people. [00:01:54] Speaker 02: Theoretically. [00:01:55] Speaker 02: What do you mean theoretically? [00:01:56] Speaker 02: Somebody is entitled [00:01:58] Speaker 02: So to exclude humans from the picture doesn't really make much sense, does it? [00:02:03] Speaker 03: Well actually to be clear, there's not someone who's necessarily entitled. [00:02:07] Speaker 03: Because the way the PRSA works, which is different than your ordinary types of statutes with ownership, is it's not enough that you own the well interest in the sense of I'm the person if I went and perfected my title I could. [00:02:20] Speaker 03: You are not entitled to payment under the PRSA unless you actually have marketable title. [00:02:26] Speaker 03: at any given time. [00:02:27] Speaker 02: Well, that comes back to the question, though. [00:02:29] Speaker 02: It seems like your representative said everyone had marketable title. [00:02:32] Speaker 03: I think if you look at that testimony in context, he was talking about the people that Sunoco had paid. [00:02:37] Speaker 03: And there are people in this class that Sunoco had paid. [00:02:39] Speaker 03: Roughly one-third of the judgment is owing to people that we did pay. [00:02:42] Speaker 02: Did the district court make any finding on this? [00:02:45] Speaker 02: There was a trial. [00:02:46] Speaker 02: I mean, that was a trial testimony. [00:02:47] Speaker 03: The court made no finding about whether anyone had marketable title. [00:02:50] Speaker 03: It just said it was our burden to prove. [00:02:53] Speaker 02: Well, didn't it make a finding by virtue of making the award? [00:02:56] Speaker 02: He heard that the judge heard the testimony and said they're entitled to this award. [00:03:01] Speaker 02: He did not make a finding that every class member ever... Isn't the finding implicit in the award? [00:03:07] Speaker 03: To the extent there's an implicit finding, it's incorrect. [00:03:10] Speaker 02: Is it clearly erroneous? [00:03:11] Speaker 03: It's clearly erroneous and legally incorrect. [00:03:13] Speaker 02: Why is it clearly erroneous? [00:03:14] Speaker 03: It's clearly erroneous because as to these unclaimed property funds, the ones that were just asheated to unclaimed property, the only basis that Mr. Klein offers for saying that the evidence in the records sustained that they had marketable title is the bare fact that we asheated the funds to unclaimed property. [00:03:31] Speaker 02: Who has the burden on marketable title? [00:03:33] Speaker 03: So it depends, I mean, we think it's always on the plaintiff, but the one point on which I don't think that Mr. Klein disagrees with us is that the plaintiff has the burden on the question of whether you have marketable title at all, whether you're entitled to the proceeds. [00:03:47] Speaker 03: And that's really key here because as to the one third, [00:03:50] Speaker 03: They can say, look, you paid them, so you must have agreed they had marketable title. [00:03:55] Speaker 03: But you can't say that as to the two-thirds because we didn't actually pay proceeds to anybody. [00:04:00] Speaker 03: We assuaded them to unclaimed property because we didn't know if there was someone who had marketable title. [00:04:06] Speaker 03: And so when he says, [00:04:07] Speaker 03: You can infer that everyone had marketable title because we paid everybody. [00:04:12] Speaker 03: That's just flatly, flatly wrong. [00:04:14] Speaker 03: We did not pay an actual owner for the two-thirds of the judge. [00:04:18] Speaker 02: The representative of Sunoco makes a statement at trial under oath. [00:04:23] Speaker 02: and now you're telling us on appeal that it was wrong. [00:04:27] Speaker 03: I think you have to look at the statement in context. [00:04:29] Speaker 02: I understand that and we will, but is that what you're saying? [00:04:32] Speaker 02: That the statement was wrong. [00:04:34] Speaker 03: To the extent he was saying that we have determined that everybody in this class has marketable title, that is wrong. [00:04:42] Speaker 03: It is not correct and it's why I don't think you can read his statement to say that. [00:04:46] Speaker 03: I mean, as this court probably remembers from the last time we were here on appeal, [00:04:52] Speaker 03: Thousands of folks in this class where there's literally nobody, there's no name identified at all. [00:05:00] Speaker 03: So we certainly couldn't go up there on the stand and testify. [00:05:03] Speaker 03: We're confident that an unknown stranger has marketable title. [00:05:08] Speaker 03: We don't even know who's claiming marketable title. [00:05:10] Speaker 04: But we now have a designation for them in the sense that the unclaimed state funds are their agent or their representative. [00:05:18] Speaker 04: They stand in for them. [00:05:20] Speaker 03: The problem is that we don't know if there's somebody who has marketable title and is entitled to that. [00:05:28] Speaker 03: You cannot be entitled to any interest or proceeds if you don't have marketable title. [00:05:33] Speaker 03: And again, I think we all agree on that. [00:05:35] Speaker 03: You cannot be entitled to the proceeds that are sitting in unclaimed property if you don't have marketable title. [00:05:41] Speaker 03: And so there's money sitting there, but there's no way in this record to know if there's an actual person who's entitled to it. [00:05:48] Speaker 03: because there was no effort on the class's part to prove that these unclaimed property funds [00:05:56] Speaker 03: are actually the property of somebody with marketable title. [00:05:59] Speaker 03: And what they say in their brief when we made this argument, they said just, well, you paid it to unclaimed property, so you must think someone owns it. [00:06:08] Speaker 03: And that's just wrong as a matter of how the PRSA works. [00:06:11] Speaker 03: We have no choice but to pay it to unclaimed property. [00:06:14] Speaker 03: There's not an option under the PRSA if you don't think somebody has marketable title, you don't get to keep the proceeds. [00:06:21] Speaker 03: Subsection A of 570.10 says you have to, if you are holding proceeds, you have to segregate them and continue to hold them in case someone comes along with marketable title. [00:06:32] Speaker 03: And what we do and everybody does in the industry is at a certain point, you know, you say we've gotten to the point where [00:06:38] Speaker 03: These seem to be abandoned and so the state basically takes on the responsibility of holding them in case someone comes along. [00:06:46] Speaker 02: That's the industry practice, is that what you're telling us? [00:06:50] Speaker 03: That's everybody's, yes, and that's not disputed and nobody says that's wrong. [00:06:53] Speaker 02: But does the PRSA instruct Sunoco to, as you put it, as she [00:07:01] Speaker 02: the proceeds. [00:07:02] Speaker 03: It instructs us to segregate them. [00:07:04] Speaker 02: Yeah, but segregate could simply mean that they keep it on their own books. [00:07:09] Speaker 03: We could hold it in perpetuity, but nobody has ever suggested that you need to do that because. [00:07:15] Speaker 02: Well, why not? [00:07:16] Speaker 03: Because at a certain point it doesn't matter. [00:07:18] Speaker 02: Statute doesn't require you to send it to the unclean property. [00:07:22] Speaker 03: And I guess what I'd say is that I'm not really sure why it would make any difference, whether we held them or we sent them to unclean property. [00:07:28] Speaker 02: I understand. [00:07:29] Speaker 02: Could we just back up for one second? [00:07:31] Speaker 02: I want to set the table a little bit more. [00:07:36] Speaker 02: You're making broad arguments, too, about class certification, standing, and damages. [00:07:44] Speaker 02: And I take it that the argument about marketable title maybe goes both to class certification and damages. [00:07:51] Speaker 02: Is that correct? [00:07:52] Speaker 03: Yes, and it also goes to liability in a sense. [00:07:55] Speaker 03: So it goes to a lot of different issues. [00:07:57] Speaker 02: It goes to a lot of things. [00:07:58] Speaker 02: Yes. [00:07:58] Speaker 02: All right. [00:07:59] Speaker 02: But I have a question about the class certification. [00:08:02] Speaker 02: Your brief seems to read a bit as almost an all or nothing argument. [00:08:10] Speaker 02: Either the classification was proper or it wasn't. [00:08:16] Speaker 02: would you argue that there could be some middle ground? [00:08:19] Speaker 02: I mean, you're talking about these two-thirds of the class who are unidentified [00:08:23] Speaker 02: What about the identified members? [00:08:25] Speaker 02: Is that still a valid class? [00:08:26] Speaker 03: Sure. [00:08:27] Speaker 03: So I don't think it is, but I also will start by saying, I do think that there's a distinct issue such that this court could reach the conclusion that the two-thirds is out, but think there's a different analysis for the one-third. [00:08:41] Speaker 03: Because the two-thirds really is this separate problem of we don't know who they are, we don't know if they ever had marketable title. [00:08:48] Speaker 03: That's different. [00:08:49] Speaker 03: As to the one-third, [00:08:50] Speaker 03: At a minimum, we will agree that as to the one third, the fact that we paid them is sufficient evidence that they likely did have marketable title when we paid them. [00:09:01] Speaker 03: And so that's what differentiates them from the two-thirds. [00:09:05] Speaker 03: Where we think there's still a certification problem, even if Mr. Klein had confined the class to the one-third as we urged him and the district court to do, is you'd still have the question of when marketable title was acquired, because that's what determines whether you get 6% interest or 12% interest or some combination of the two. [00:09:24] Speaker 03: And as to the one third, we don't have evidence in this record and we think that it couldn't have been provided consistent with Rule 23B to analyze that question because the answer is different for everybody. [00:09:37] Speaker 03: It depends on their records, the history of that wealth. [00:09:40] Speaker 03: And what the district court said is you should have been able to come in and present all that evidence on [00:09:46] Speaker 03: you know, tell us the answer quickly and you should have had a spreadsheet. [00:09:50] Speaker 03: Now first off, I don't think that's really a reasonable, feasible thing to require in a class context to say, you know, defendant, it's your job to basically come in with an individualized case for tens of thousands of class members to make the class's life easier. [00:10:06] Speaker 03: But even if we had had that spreadsheet that told you exactly what everybody, you know, when we thought they got marketable title, all that would have been [00:10:15] Speaker 03: is our evidence on that question. [00:10:18] Speaker 03: And to be an adequate class member, Mr. Klein would have had to investigate whether we were right any time we said somebody was entitled to less than 12%. [00:10:27] Speaker 03: He would have had to go look at the files, and if he didn't think we were right, put on a case and say, hey, you know, you thought they didn't have this document, I talked to the class member, they actually did have this document, or you were looking at the wrong name, or whatever it may be. [00:10:40] Speaker 03: And so really, the only way that you ever could have tried to do this on just a spreadsheet basis [00:10:47] Speaker 03: would have been to deprive class members of their rights to try on an individualized basis 12 versus six. [00:10:54] Speaker 03: Now the district court instead flipped the burden and said this is your problem and basically deprived us of the ability to try to prove six instead of 12. [00:11:02] Speaker 03: But at the end of the day the real problem was this was just not going to work even as to the one third because you have to know when someone got marketable title and the answer to that question is different for every class member. [00:11:16] Speaker 03: And so I do think that there are totally independent additional problems as to the two thirds. [00:11:24] Speaker 03: You have an ascertainability problem. [00:11:26] Speaker 03: The ascertainability problem is itself an individualized determination problem because to figure out who the actual person who's the class member bound by this judgment is, you'd need to go figure out who has marketable title to those proceeds that are sitting in unfamed property. [00:11:42] Speaker 03: So that to me, you could say, look, we're going to start with the two-thirds, and that's an independent problem, and then separately examine the one-third. [00:11:51] Speaker 03: But I think the right answer is that you'd end up at the conclusion that this class just didn't work for anybody because marketable title was such a pervasive issue as to all aspects, as to liability, as to damages, and that you just couldn't get around that. [00:12:09] Speaker 04: The first and predominant liability issue, of course, is whether you were required to pay it without a request, and that sort of predominates everything. [00:12:16] Speaker 03: It really doesn't, because we never dispute it. [00:12:20] Speaker 03: We actually think what we did was okay, but we never asserted that it was a defense, a liability defense in this case, that someone hadn't asked for their interest. [00:12:30] Speaker 03: But that was the reason that you hadn't paid any of these class members. [00:12:34] Speaker 03: That was the reason for the class. [00:12:35] Speaker 03: That's right. [00:12:36] Speaker 03: But it didn't advance the litigation to resolve that question because we weren't asserting it as a defense. [00:12:41] Speaker 03: And it didn't answer the question at all. [00:12:43] Speaker 02: But the district court actually had to address it. [00:12:46] Speaker 02: It did address it. [00:12:47] Speaker 02: and it was a predominant issue and whether he challenged it or not, it had to be addressed. [00:12:52] Speaker 03: In fact, our first argument in response to their motion for summary judgment was you don't have to answer this issue because it's irrelevant. [00:12:59] Speaker 03: Our contention is it was irrelevant and did not need to be answered at all because it didn't address, it didn't resolve liability for huge chunks of the class. [00:13:07] Speaker 03: It didn't resolve it with the true thirds. [00:13:09] Speaker 03: It didn't resolve it for people who had indemnification agreements where they waived the right to interest and we didn't assert it as a defense. [00:13:15] Speaker 03: So it just is a complete red herring. [00:13:18] Speaker 03: We argued in our opposition, this is seeking an advisory opinion on something that's irrelevant to their motion for summary judgment on this question. [00:13:27] Speaker 03: I see I'm well into my rebuttal time, so if I may reserve a little bit of it, I appreciate it. [00:13:32] Speaker 03: Thank you. [00:13:44] Speaker 01: May it please the court. [00:13:46] Speaker 01: This case is a paradigm class action. [00:13:49] Speaker 01: It involves a class of 53,000 royalty interest owners to whom Sunoco simply failed to pay the full amount that it owed them. [00:14:00] Speaker 01: It paid them their principal proceeds. [00:14:02] Speaker 01: It did not pay them the interest it owed. [00:14:04] Speaker 01: The only thing that this case requires is for Sunoco to pay the remaining amount that is due. [00:14:12] Speaker 01: The class involved [00:14:14] Speaker 01: a common liability question that was decided on summary judgment in one stroke and is not even contested on appeal here. [00:14:21] Speaker 01: And a bench trial on damages was conducted that revealed that there were in fact no individualized issues affecting damages. [00:14:29] Speaker 01: And so the suggestion by Sanoco that either you have to conduct [00:14:34] Speaker 01: 53,000 individual trials on damages, or even worse, Sunoco gets to keep millions of dollars of money that it acknowledges it is not entitled to hold is just implausible. [00:14:46] Speaker 01: The rhetoric that you see in the Sunoco brief and the argument you've heard this morning does not match the record. [00:14:52] Speaker 01: And the court asked about the findings of the district court, and I want to make this point explicit. [00:14:57] Speaker 01: Sunoco is simply failing to grapple with the standard of review and failing to acknowledge the district court's factual findings. [00:15:04] Speaker 01: And I want to call your attention to three key findings that were made by the district court. [00:15:09] Speaker 01: First, Sunoco denies that most of these class members are identifiable. [00:15:15] Speaker 01: But in fact, at page 436 of the appendix, the district court found, and I quote, for most payments to unclaimed property funds, Sunoco knew the identity of the owner. [00:15:25] Speaker 01: That finding is well supported, is not clearly erroneous. [00:15:28] Speaker 00: Council, can I stop you there? [00:15:29] Speaker 00: Of course you can. [00:15:29] Speaker 00: I want to make sure I understand this delta here between [00:15:32] Speaker 00: the one-thirds, two-thirds. [00:15:34] Speaker 00: So my understanding is, Sunoco had paid the underlying royalties, and these are known persons, and I think you're referring to that there and that finding of facts. [00:15:42] Speaker 00: Yes, that's correct, Your Honor. [00:15:43] Speaker 00: So the two-thirds, they know who the people are. [00:15:46] Speaker 00: They're disputed just whether or not those people have marketable title. [00:15:49] Speaker 00: Is that where the delta is? [00:15:50] Speaker 01: Your Honor, they know who the vast majority of those people are. [00:15:54] Speaker 01: There is a small subset of that group, which is referred to as the undivided account, which the court dealt with in the prior appeal here, [00:16:02] Speaker 01: where they don't know the identity. [00:16:04] Speaker 01: But with respect to everyone other than that small subset, and that represents only $8 million of the total amount of the damages, they know the identities of those class members. [00:16:15] Speaker 01: They may not have perfect address information, they may not have received a signed division order, and therefore they've put the payments into suspense, but they know the identities of those individuals. [00:16:26] Speaker 01: And I will call your attention not only to the district court's finding at page 436, [00:16:30] Speaker 01: But look at the testimony at pages 817 to 26 of the appendix where examples are given from the database. [00:16:41] Speaker 01: Oklahoma City Board of Education is one of the class members. [00:16:45] Speaker 01: St. [00:16:45] Speaker 01: Anthony Hospital in Oklahoma City is one of the class members. [00:16:48] Speaker 01: A Caldwell Family Trust is one of the class members. [00:16:51] Speaker 01: That's true for all of these class members. [00:16:53] Speaker 01: 90% of the class accept those undivided accounts. [00:16:56] Speaker 01: And that's why the court said in its prior opinion in this case that [00:17:01] Speaker 01: Individual damage awards were known for most class members. [00:17:05] Speaker 01: The only, quote, unidentifiable class members were those in the undivided accounts, which the district court has now resolved with its amended plan of allocation with a procedure that will allow those individuals to claim their funds. [00:17:17] Speaker 01: And so this is a fundamental fallacy of the Sunoco position, that these are somehow unidentified class members. [00:17:23] Speaker 01: They're not. [00:17:24] Speaker 01: They're known by name. [00:17:25] Speaker 01: They're known, in many instances, by address. [00:17:28] Speaker 01: For one reason or another, Sunoco just determined... [00:17:31] Speaker 02: that one category. [00:17:32] Speaker 01: Except for that small category. [00:17:33] Speaker 02: Okay, well let me ask you about that one category. [00:17:38] Speaker 02: Didn't the district court err by failing to consider how Klein could show that an owner in that category could be identified? [00:17:48] Speaker 01: No, Your Honor, because the question of identifiability, and I might ask for clarification, if the court's [00:17:54] Speaker 01: interested in the ascertainability aspect of class certification as opposed to another dimension, my answer would be different. [00:18:01] Speaker 01: But for purposes of ascertainability, which I think is the applicable legal question here, the question is whether the class is defined by objective measures that will make it objectively possible to determine who is in the class. [00:18:15] Speaker 01: And this class definition defines the class as [00:18:19] Speaker 01: anyone who received untimely proceeds payments, whether directly or to unclaimed property funds. [00:18:25] Speaker 01: These owners who are represented in the undivided accounts received proceeds payments. [00:18:31] Speaker 01: Proceeds payments were made to the unclaimed property funds with the information that is knowable about those owners. [00:18:39] Speaker 01: And now the amended plan of allocation assures that the interest will be paid in exactly the same way. [00:18:44] Speaker 01: So NOPA had enough information to pay them the proceeds that owe them. [00:18:48] Speaker 01: That's enough to pay them the interest in the same way. [00:18:51] Speaker 01: So when they make a claim to unclaimed property and prove that they're entitled to that particular interest, they will be able to recover the full amount of their damages. [00:18:59] Speaker 04: That's all that's necessary for identifiability. [00:19:02] Speaker 04: And what do they do? [00:19:05] Speaker 04: They prove marketability is what you're saying? [00:19:07] Speaker 01: Well, Your Honor, with respect to marketability, I think... What do they have to do to come to the fund and claim their... They have to prove entitlement in the sense that they have to prove [00:19:17] Speaker 01: They are the individual who has the right to claim a particular payment. [00:19:24] Speaker 01: So in the district court's plan of allocation, these undivided accounts are associated not with particular [00:19:31] Speaker 01: owners, but with particular payments that are identified by a will and a date of payments, for example. [00:19:38] Speaker 01: And so an owner would need to show, I have an interest in this well, I had the interest in that well as of the date this payment was made. [00:19:46] Speaker 01: That would be sufficient to claim the unclaimed property. [00:19:49] Speaker 01: But that's all about how you claim unclaimed property. [00:19:51] Speaker 01: That has nothing to do with Article 3. [00:19:53] Speaker 01: It has nothing to do with Rule 23. [00:19:55] Speaker 01: It has nothing to do with marketable title. [00:19:58] Speaker 01: The district court found, as a matter of fact, [00:20:01] Speaker 01: that these class members have marketable title. [00:20:03] Speaker 01: And I want to make a couple of points. [00:20:05] Speaker 01: In fact, let me make three points about this marketable title debate. [00:20:09] Speaker 01: The first is we should not overlook the fact that this is nothing more than an argument about individualized damages with respect to a small subset of the class. [00:20:19] Speaker 01: And the court repeatedly holds, and I'd call attention to your Naylor-Firms opinion and your Minicall decision, that class certification can be appropriate even where there need to be some individualized [00:20:31] Speaker 01: determinations about damages. [00:20:33] Speaker 01: The notion that liability was not really contested and was not the predominant issue here is just fanciful. [00:20:40] Speaker 01: Liability was contested throughout this litigation. [00:20:43] Speaker 01: They tried to say it's advisory because when they were caught on their scheme, they tried to moot it by saying we won't defend on that issue. [00:20:52] Speaker 01: That's why they say it was an advisory issue because they're trying to just moot the question. [00:20:56] Speaker 04: At what point did they say they wouldn't defend on the issue? [00:21:00] Speaker 01: They take the position in the opposition to summary judgment after having tried to moot Mr. Klein's claim by tendering a voluntary payment to him, that somehow this is advisory because they don't defend against the argument that a demand was necessary. [00:21:15] Speaker 01: And then if you read that brief, you'll see they go on to write several pages of defending their argument as to why a demand was necessary. [00:21:21] Speaker 01: So the notion that liability was not the predominant issue is fanciful. [00:21:25] Speaker 01: Once you establish that proposition, Naylor Farms and Menacol, that line of authority, [00:21:29] Speaker 01: makes it easy to affirm even if you credit everything counsel says. [00:21:33] Speaker 01: Second point about marketable title. [00:21:36] Speaker 01: This issue affects a fraction of the class. [00:21:40] Speaker 01: The only indication that was ever raised in the evidence in this case by Sanoco to suggest there could be a question about marketable title related to the Sanoco suspense codes. [00:21:53] Speaker 01: Those suspense codes affect only 8% of the class members [00:21:59] Speaker 01: Even if Sunoco were correct that every one of those suspense codes proved a lack of marketable title, it would reduce the total damage award by only $5.8 million. [00:22:09] Speaker 01: This is the tail wagging the dog. [00:22:11] Speaker 01: It is exactly the kind of issue for which Naylor Farms and Menacol established. [00:22:15] Speaker 01: You don't decertify a class. [00:22:17] Speaker 01: The third point, though, is the point that I was making, Judge, in response to your question, and it is that all of these owners have been found by the district court to have marketable titles. [00:22:27] Speaker 01: because they were paid their proceeds. [00:22:30] Speaker 01: And that finding is founded on this court's decision in Quinlan. [00:22:34] Speaker 01: Because in Quinlan, this court recognized that while owners have the burden in the first instance to show that they're entitled to receive proceeds, where proceeds have been paid, that supports an inference that there is no question about their entitlement to proceeds. [00:22:51] Speaker 01: The district court made exactly that finding. [00:22:54] Speaker 01: And I want to call your attention to two aspects of that finding. [00:22:57] Speaker 01: At page 429, Judge Matheson, this is the finding to which you alluded where the court noted that Mr. Culling agreed that Sanoco had already sent every class member a check for proceeds and that there is no issue about whether those people have a right to be paid their principal proceeds. [00:23:14] Speaker 01: That is true for every well-interested owner in this class. [00:23:18] Speaker 01: Whether they call them known or unknown, identified or unidentified, divided or undivided, that fact is true for all of them. [00:23:26] Speaker 01: And consequently... And that's by inference we're going to get there as to the folks that are... That is the inference that the district court as the fact-finder drew from the fact that payments had been made. [00:23:37] Speaker 04: But the payment was essentially forced. [00:23:39] Speaker 04: I mean... Well, they have a right... To the fund. [00:23:43] Speaker 01: They have a right to withhold proceeds payments for so long as they believe that there is not [00:23:51] Speaker 01: as showing of marketable title. [00:23:53] Speaker 01: And so if Sunoco believes that marketable title is not established, it's not simply a matter that is not obligated to pay interest. [00:24:01] Speaker 01: it's not obligated to pay the proceeds. [00:24:03] Speaker 01: And so in Quinlan, what this court said is where you have paid the proceeds, you can infer that there's not a dispute about the title. [00:24:10] Speaker 01: And I would note that the Oklahoma Supreme Court earlier this year in the base decision followed that same kind of rationale. [00:24:17] Speaker 01: That was a case where the court said there's really no dispute here about title because Devon was paying proceeds to these owners. [00:24:24] Speaker 01: And here's the factual finding that I think matters with respect to that. [00:24:27] Speaker 01: This appears at page 473 [00:24:29] Speaker 01: It's when Judge Gibney is explaining why his original finding was sound. [00:24:33] Speaker 01: And he says, and I quote, Sonoco's contention that its payment of proceeds does not demonstrate legal entitlement defies logic. [00:24:41] Speaker 01: The court finds implausible that Sonoco paid people money that it did not owe them, especially considering the company's policy of withholding interest payments from their rightful owners [00:24:52] Speaker 01: in contravention of clear Oklahoma law. [00:24:55] Speaker 01: That was a factual determination that is not clearly erroneous. [00:24:59] Speaker 00: Counsel, can I pivot to damages? [00:25:01] Speaker 00: Of course, Your Honor. [00:25:02] Speaker 00: Punitive damages in particular. [00:25:04] Speaker 00: Yes. [00:25:04] Speaker 00: So the Oklahoma Supreme Court has said PRSA claims are based on a breach of contract. [00:25:10] Speaker 00: As I recall, you pled two claims, a breach of contract and a fraud, which is a tort claim that you did not prevail on. [00:25:17] Speaker 00: So can you help me understand where, based upon Oklahoma statute saying that there are no punitive damages for a breach of contract, where you have a right to punitive damages in that award? [00:25:27] Speaker 01: Absolutely, Your Honor. [00:25:27] Speaker 01: I welcome the opportunity to answer this question because we pleaded a PRSA claim and we pleaded a fraud claim. [00:25:34] Speaker 01: As the court recognizes, we did not prevail on the fraud claim. [00:25:38] Speaker 01: But the PRSA claim is not an obligation arising from contract. [00:25:42] Speaker 01: It is an obligation that arises [00:25:44] Speaker 01: from the statute independently. [00:25:46] Speaker 01: It's what the Oklahoma Attorney General calls a unique substantive right. [00:25:50] Speaker 01: But did Oklahoma Supreme Court and Purcell, and then recently reaffirmed, say otherwise? [00:25:55] Speaker 01: In the context of the statute of limitations, not within the context of applying this provision of the Oklahoma statute about obligations that arise from contract. [00:26:04] Speaker 01: And there's two important distinctions to be made there. [00:26:07] Speaker 01: First, and I anticipated we might have this conversation, and so I brought Purcell with me to the podium. [00:26:13] Speaker 01: In Purcell, the final passage of the Oklahoma Supreme Court's decision specifically roots its rationale in the fact that there is a lease obligation between the plaintiff and the defendant in that case, the lessor and the lessee. [00:26:27] Speaker 01: That is why the Oklahoma Supreme Court said this obligation arises from contract. [00:26:31] Speaker 01: And I'll quote here from the final page of the opinion. [00:26:35] Speaker 01: Courts have looked to whether the existence of an agreement is a necessary element of the claim when determining whether the claim is a new substantive liability under a statute. [00:26:44] Speaker 01: There, the court said it's ex contractu because there was a lease between those parties. [00:26:50] Speaker 01: But there is no contract between Sunoco and any of these royalty owners. [00:26:54] Speaker 01: Remember, Sunoco is a first purchaser. [00:26:57] Speaker 01: They do not have the lease. [00:26:58] Speaker 01: They have no privity. [00:27:00] Speaker 01: And I'll call your attention in the record to page 863 and page 1114, where Sunoco's own witnesses acknowledge they have no contract. [00:27:10] Speaker 01: with these royalty owners. [00:27:12] Speaker 01: Therefore, their obligation to pay interest in no way arises out of any contract. [00:27:17] Speaker 01: It arises solely out of the PRSA. [00:27:20] Speaker 01: Second answer, Your Honor, to that question is that Purcell, even if it were applicable, is not really the right line of authority because the Oklahoma Supreme Court in dealing with this question of whether an obligation arises out of contract has said since the Hall-Jones oil case in 1969 that there are cases [00:27:39] Speaker 01: where the contract is the mere incident that creates the relation that gives rise to a tort. [00:27:46] Speaker 01: Here, the failure to pay PRSA interest is a statutory tort. [00:27:50] Speaker 01: It's an obligation imposed [00:27:52] Speaker 01: on the first purchaser by statute, it does not arise from the contract. [00:27:56] Speaker 01: So it falls within that line of authority that the contract is just the incident that gives rise to the relation. [00:28:02] Speaker 00: But you would have been on more solid ground had you pled a tortious interference with the contract, right? [00:28:07] Speaker 00: But you didn't do that. [00:28:08] Speaker 00: So don't we have to look at what your underlying claim was when we evaluate it? [00:28:12] Speaker 01: Well, Your Honor, I don't think it would be a tortious interference claim because that's a claim against a third party. [00:28:17] Speaker 01: And here we have a first party claim. [00:28:18] Speaker 01: We have a statutory right [00:28:20] Speaker 01: against Sunoco to be paid the 12% interest. [00:28:24] Speaker 01: And so it's not a tortious interference claim. [00:28:26] Speaker 01: It is, in my view, a statutory tort where the Oklahoma legislature has imposed, again, what the attorney general calls this unique substantive right. [00:28:35] Speaker 02: But again, of course, Your Honor. [00:28:38] Speaker 02: And this is a follow-on to Judge Federico's question. [00:28:41] Speaker 02: To what extent on punitive damages are you relying on the provisions of the Energy Litigation Reform Act? [00:28:50] Speaker 01: Your Honor, the question with respect to the Energy Litigation Reform Act is whether this claim involves a recovery of proceeds. [00:28:59] Speaker 01: The Energy Litigation Reform Act says it is the exclusive remedy for a claim concerning the failure to pay proceeds. [00:29:08] Speaker 01: In our view, because proceeds and interests are bound up together, and as the District Court rationalized [00:29:14] Speaker 01: You haven't fulfilled your obligation to pay the proceeds of the due until you have made the royalty owner whole, and that is paying the full obligation, proceeds, and interest. [00:29:24] Speaker 01: That brings this case under the Energy Litigation Reform Act. [00:29:27] Speaker 01: And I'd call your attention in that respect to the Oklahoma Supreme Court decision in the Landis case, which established the proposition that a partial payment against an obligation is applied first against interest, then against proceeds, which means their incomplete payments [00:29:44] Speaker 01: have always left a balance due of proceeds, you'll notice in the reply brief there's no answer to Landis. [00:29:50] Speaker 01: But if the court takes a different view and concludes interest is not proceeds for purposes of the ELRA, then we're just not under that statute, which means we're under the ordinary Oklahoma punitive damages statute for which liability is amply established. [00:30:06] Speaker 01: Thank you, counsel. [00:30:07] Speaker 04: Oh, another question. [00:30:07] Speaker 04: Of course, your honor. [00:30:09] Speaker 04: I'm wondering about the extra statutory prejudgment interest. [00:30:15] Speaker 04: And you're relying, as I understand it, on a district court opinion cockerel to say that that's appropriate under the statute. [00:30:22] Speaker 01: The compound interest, right. [00:30:24] Speaker 01: Your honor, I think the cockerel reasoning is correct. [00:30:28] Speaker 01: If the court will permit me, I'd like to get a little explanation of why I believe that reasoning is correct. [00:30:35] Speaker 01: A little. [00:30:38] Speaker 01: Your Honor, I think the key here, and I'll try and make this very succinct, the language that's in dispute is what the phrase until the day paid means in this statute. [00:30:48] Speaker 01: Sanoco says it means until the day the proceeds are paid. [00:30:52] Speaker 01: And if you look at their reply brief, you'll see they are constantly interlineating the word proceeds into that language. [00:30:58] Speaker 04: Well, that's because the statute is pretty specific about. [00:31:01] Speaker 04: I think not though, Your Honor. [00:31:03] Speaker 04: You pay that portion of the proceeds not timely paid shall earn interest. [00:31:09] Speaker 04: It's specific. [00:31:10] Speaker 01: But the question is what the final phrase, until the day paid, is modifying. [00:31:15] Speaker 01: And this whole phrase, and Sunoco makes this point in the reply brief, but draws the wrong conclusion. [00:31:20] Speaker 01: This whole phrase compounded annually. [00:31:23] Speaker 01: calculated from the end of the month in which production is sold until the day paid. [00:31:27] Speaker 01: This was all added to the statute in 1993. [00:31:31] Speaker 01: It is not modifying the payment of principal. [00:31:35] Speaker 01: It is explaining the compounding annually. [00:31:37] Speaker 01: It's the rule of the last antecedent. [00:31:40] Speaker 01: The phrase until the day paid is relating to [00:31:44] Speaker 01: the amount that is compounded annually, which makes sense. [00:31:47] Speaker 01: That's the whole definition of compound interest. [00:31:49] Speaker 01: The Sunoco reading would completely nullify the definition of compound interest. [00:31:54] Speaker 01: Thank you, your honor. [00:31:55] Speaker 01: Thank you. [00:32:03] Speaker 02: Let's make this three minutes instead of give you a little more time because going over there. [00:32:09] Speaker 03: Thank you, I appreciate it. [00:32:10] Speaker 03: Just a few points. [00:32:12] Speaker 03: kind of liability and damages and all of that. [00:32:16] Speaker 03: I think I heard Mr. Klein's counsel concede that the basis for saying there was marketable title here is just an inference drawn from payment. [00:32:23] Speaker 03: That may work for the one third, at least at the moment of payment, it just doesn't work for the two thirds. [00:32:29] Speaker 03: Because the inference you draw from payment that from paying is sheeting to unclaimed property is simply compliance with the PRSA. [00:32:37] Speaker 03: I really don't know what it is that he thinks we should have done. [00:32:39] Speaker 03: Apparently he thinks we should have just pocketed the money. [00:32:42] Speaker 03: when we thought nobody had marketable title, which just would have violated the PRSA in a different way, since we are not allowed to do that. [00:32:50] Speaker 03: We have to continue to segregate it. [00:32:51] Speaker 03: So you cannot draw an inference from the mere fact that we asheeded funds over to state unclaimed property and said, [00:32:58] Speaker 03: We're not sure. [00:32:59] Speaker 03: Maybe this person owns them. [00:33:00] Speaker 03: We're not sure. [00:33:01] Speaker 03: Maybe they don't. [00:33:02] Speaker 03: Maybe we have no idea who owns them. [00:33:03] Speaker 03: You cannot take that as a concession that anyone has marketable title. [00:33:07] Speaker 03: If anything, it's powerful evidence that someone doesn't, because when people had marketable title, we paid them. [00:33:13] Speaker 03: We paid people 99% of the time, not only on time, but a month early. [00:33:18] Speaker 03: So if we thought someone had marketable title, [00:33:20] Speaker 03: We wanted to pay them. [00:33:21] Speaker 03: We didn't want to be paying them interest. [00:33:23] Speaker 03: We're sending money to unclaimed property because we couldn't figure that out. [00:33:27] Speaker 03: And I think I just heard that Mr. Klein agreed, there is no evidence in this record from which you could find marketable title other than the mere fact that we asheeded funds to unclaimed property. [00:33:37] Speaker 03: So that just doesn't work when it comes to the two thirds. [00:33:40] Speaker 03: And that's not just even a matter of damages. [00:33:43] Speaker 03: That's a matter of liability. [00:33:44] Speaker 03: I also heard him agree. [00:33:46] Speaker 03: You can't collect any interest if you didn't even have marketable title at all. [00:33:51] Speaker 03: So we don't have any evidence that that chunk of the class had standing, that there's liability as to them because we don't know if they're the right people. [00:34:00] Speaker 03: That a parent owner's name might be the wrong name and someone else entirely has marketable title or nobody has it. [00:34:07] Speaker 03: I'll just say a few quick words on interest and punitive damages on interest. [00:34:11] Speaker 03: I think what Your Honor was suggesting is exactly right, that grammatically, the until the date paid has to modify a noun. [00:34:18] Speaker 03: And the only thing in the statute is that portion, not timely pay, that portion. [00:34:24] Speaker 03: The words that come earlier are making clear that's the portion of proceeds. [00:34:27] Speaker 03: So there's just no work for that language to do unless it's cutting it off once the proceeds are paid, which of course has been a hotly disputed issue for decades. [00:34:36] Speaker 04: Do you agree that that would somehow nullify compound interest as counsel says? [00:34:40] Speaker 03: I don't think it would because it compounds during the period you haven't paid proceeds. [00:34:44] Speaker 03: And we never disputed that. [00:34:45] Speaker 03: So if we don't pay someone proceeds for two years, it's going to be compounding during that period. [00:34:50] Speaker 03: And they're going to get that interest on, you know, essentially interest on interest then, but it's going to cut off once we pay proceeds. [00:34:56] Speaker 04: Would they have needed the addendum for that though? [00:34:59] Speaker 03: I think the reason you sort of needed to add that, you didn't need it for that because everyone always thought the statute did that. [00:35:05] Speaker 03: The attorney general thought that back in 1989. [00:35:07] Speaker 03: This language came along in 1992. [00:35:10] Speaker 03: So the best understanding is it was actually trying to curtail what the attorney general had thought the statute did and say, no, no, it doesn't compound indefinitely. [00:35:19] Speaker 03: It cuts off on the day that the proceeds are paid. [00:35:24] Speaker 03: unless you wanted me to answer any questions about punitive damages. [00:35:26] Speaker 02: I didn't have a chance to do that. [00:35:27] Speaker 02: You said you wanted to say something about punitive damages. [00:35:30] Speaker 03: Why don't you go ahead and say it? [00:35:30] Speaker 03: Yeah, I just wanted to say, so I don't think there's any principled basis to say that this is a contract claim for purposes of statute of limitations, but not somehow when it comes to punitive damages. [00:35:41] Speaker 03: And if you look at those cases, it's not just base, it's also going back to the Krug case and the Purcell case. [00:35:48] Speaker 03: The court is repeatedly saying the claim itself is a contractual claim, not [00:35:52] Speaker 03: in the particular facts at hand in any given case. [00:35:55] Speaker 03: They're saying the right to proceeds always arises at some level from a lease or a contract or whatever it is. [00:36:01] Speaker 03: And that's why this is a contractual claim. [00:36:03] Speaker 03: So the only theory you can get there under is the Reform Act. [00:36:07] Speaker 03: And under the Reform Act, you need individualized evidence that you knew who was entitled to money and didn't give it to them. [00:36:12] Speaker 03: And boy, you can't say that for this whole class when we still don't even know who some of the members of this class are. [00:36:18] Speaker 03: Thank you, Your Honors. [00:36:19] Speaker 02: Thank you, Counsel. [00:36:20] Speaker 02: Thanks both of you for the arguments this morning. [00:36:22] Speaker 02: The case will be submitted and counsel are excused.