Face Challenges Confidently

125 Intratex Gas Co. v. Beeson

Friday, September 4th, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Intratex Gas Co. v. Beeson, 960 S.W.2d 389 (Tex. App. – Houston [1st Dist.] 1998, pet. denied), upholds an order certifying a class action brought to enforce an alleged private cause of action arising under Rule 34 of the Statewide Conservation Rules of the Texas Railroad Commission (known as the Market Demand Rule). The Market Demand Rule states: “A first purchaser shall not discriminate between different wells from which it purchases in the same field, nor shall it discriminate unjustly or unreasonably between separate fields.” Plaintiffs alleged that Intratex did not purchase gas ratably from the wells of more than 900 producers by selectively producing increases in demand from wells that had a weighted average cost of gas below the current spot market price and by increasing takes from certain wells immediately after exercising a downward price redetermination on those wells.  The class was defined as:

All persons who were producers of natural gas sold to the defendant between January 1, 1978 and December 31, 1988 whose natural gas was taken by the defendant in quantities less than their ratable proportions.

Intratex argued that the definition of the class required an improper conclusion on the merits of plaintiffs’ claims. The Court noted that although trial courts have enjoyed a wide range of discretion in determining whether to maintain a lawsuit as a class action, a trial court may not consider the substantive merits of the class in making such a determination. However, in upholding the certification, the court held that it was the act of not taking ratably, not the reasons for the undertaking or whether there was proof of a compensable injury, that defined the class by reference to the objective conduct of Intratex. The Court was apparently persuaded that the class was objectively defined in relation to Intratex’s act of not taking, and it was undisputed that the identity of the producers could be obtained from Intratex’s own records and from the Texas Railroad Commission records, so that the class could always later be decertified or the class definition modified.
The significance of this case is that if the alleged private cause of action is upheld, the procedural tool of a class action will permit many small producers to consolidate their claims into one large lawsuit. From the producers’ perspective, this may provide a viable tool for enforcing a Statewide Rule through a private cause of action. From the purchasers’ perspective, this may increase the risk of being second-guessed on marketing decisions.