Corder v. Antero Resources Corporation

• Court: Court of Appeals for the Fourth Circuit
• Decided: January 5, 2023
• Docket: 21-1716
• Status: Published

Opinion

USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 1 of 39

PUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 21-1715

GERALD W. CORDER; MARLYN C. SIGMON; GARNET C. COTTRILL; RANDALL M. CORDER; JANET C. PACKARD; LORENA KRAFFT; CHERYL MORRIS; TRACY BRIDGE; ANGELA NICHOLSON; KEVIN MCCALL; BRIAN MCCALL,

Plaintiffs - Appellees,

v.

ANTERO RESOURCES CORPORATION, a Delaware corporation,

Defendant – Appellant.

---------------------------------

GAS AND OIL ASSOCIATION OF WV, INC.,

Amicus Supporting Appellant,

WEST VIRGINIA ROYALTY OWNERS’ ASSOCIATION; WEST VIRGINIA FARM BUREAU,

Amicus Supporting Appellee.

No. 21-1716

GERALD W. CORDER; MARLYN C. SIGMON; GARNET C. COTTRILL; RANDALL M. CORDER; JANET C. PACKARD; LORENA KRAFFT; CHERYL MORRIS; TRACY BRIDGE; ANGELA NICHOLSON; KEVIN MCCALL; BRIAN MCCALL,

Plaintiffs - Appellants, USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 2 of 39

Defendant – Appellee.

Appeal from the United States District Court for the Northern District of West Virginia, at Clarksburg. Irene M. Keeley, Senior District Judge. (1:18-cv-00030-IMK-MJA; 1:18-cv- 00031-IMK; 1:18-cv-00032-IMK; 1:18-cv-00033-IMK; 1:18-cv-00034-IMK; 1:18-cv-00035- IMK; 1:18-cv-00036-IMK; 1:18-cv-00037-IMK; 1:18-cv-00038-IMK; 1:18-cv-00039-IMK; 1:18-cv-00040-IMK)

Argued: September 15, 2022 Decided: January 5, 2023

Before GREGORY, Chief Judge, NIEMEYER, and THACKER, Circuit Judges.

Affirmed in part, vacated in part, and remanded by published opinion. Chief Judge Gregory wrote the opinion, in which Judge Niemeyer joined. Judge Thacker wrote a separate opinion, concurring in part and dissenting in part.

ARGUED: Elbert Lin, HUNTON ANDREWS KURTH, LLP, Richmond, Virginia, for Appellant/Cross-Appellee. Marvin Wayne Masters, THE MASTERS LAW FIRM LC, Charleston, West Virginia, for Appellee/Cross-Appellant. ON BRIEF: Erica N. Peterson, HUNTON ANDREWS KURTH, LLP, Washington, D.C.; W. Henry Lawrence, IV, Amy M. Smith, Shaina D. Massie, STEPTOE & JOHNSON PLLC, Bridgeport, West Virginia, for Appellant/Cross-Appellee. April D. Ferrebee, THE MASTERS LAW FIRM LC, Charleston, West Virginia, for Appellees/Cross-Appellants. William M. Herlihy, Don C.A. Parker, SPILMAN THOMAS & BATTLE, PLLC, Charleston, West Virginia, for Amicus Gas and Oil Association of WV, Inc. Howard M. Persinger, III, PERSINGER & PERSINGER, L.C., Charleston, West Virginia, for Amici West Virginia Royalty Owners’ Association and West Virginia Farm Bureau.

2 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 3 of 39

GREGORY, Chief Judge:

These consolidated cases involve a dispute between Antero Resources Corporation

(“Antero”) and a group of landowners (“Lessors”) over the payment of natural gas royalties

under several oil and gas leases. The leases permit Antero to extract and sell natural gas

owned by the Lessors in exchange for royalty payments. Antero appeals from the district

court’s summary judgment order, which held that Antero breached the terms of the leases

by deducting certain “post-production costs” from the royalties it paid Lessors and awarded

damages. Lessors cross-appeal the district court’s earlier dismissal of their fraud and

punitive damages claims against Antero.

We affirm the district court’s summary judgment order in part and vacate in part.

We conclude that some of the leases prohibit Antero from deducting any post-production

costs from Lessors’ royalties, but other leases—namely, those that contain a “Market

Enhancement Clause”—do authorize deductions in certain circumstances. Separately, we

affirm the dismissal of the fraud and punitive damages claims because Lessors did not

plead them with sufficient particularity.

I.

A.

Lessors own mineral interests on several tracts of land in Harrison County and

Doddridge County, West Virginia. Antero acquired the rights, under several different

leases, to operate wells on those tracts to produce and sell natural gas. This appeal concerns

3 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 4 of 39

lease agreements for seven different tracts. 1 All eleven Lessors have a continuing interest

in most of the seven tracts at issue.

Antero operates several wells on the tracts covered by the leases. The wells extract

the raw minerals, which then collect in a production unit, where they are separated into oil,

gas, and water. Meters measure the volume and chemical composition of the gas from

each well before it moves downstream. The gas then flows from gathering pipelines into

one of two larger pipelines: (1) the ETC Bobcat Pipeline, which is an interstate pipeline

that carries unprocessed gas to markets for sale, or (2) a pipeline that transfers unprocessed

gas to the Sherwood Gas Processing Plant, which is owned and operated by a company

called MarkWest Liberty Midstream & Resources. Gas transported to the Processing Plant

is processed into natural gas liquids (“NGLs”). The NGLs, which are known as “Y-Grade”

at this stage, may be sold at the Processing Plant or sent to MarkWest’s fractionation plant

in Pennsylvania. The fractionation plant converts the Y-Grade NGLs into more purified

products such as ethane, propane, and butane for sale at multiple locations. Manufacturing

Y-Grade NGLs at the Processing Plant also produces residue gas, which is mostly methane.

The residue gas may be transported and sold “in-basin” or transported and sold in more

distant “out-of-basin” markets.

In 2015, Antero and a subgroup of Lessors (“Settling Lessors”) entered a Confidential

Settlement Agreement and Release of All Claims (“Settlement Agreement”). The Settlement

1 The parties and the district court refer to the leases as “Lease 2” through “Lease 9,” which corresponds to the exhibit number where each one appears in Lessors’ Second Amended Complaint. See J.A. 772–850. Lease 8 is not at issue on appeal. 4 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 5 of 39

Agreement resolved a partition action Antero had brought against Settling Lessors in state

court, and, pursuant to the Agreement, Settling Lessors agreed to modify the terms of all but

one of the leases at issue in this case. 2 Thus, for six of the seven tracts, we must consider

both the terms of the original lease (as to the Lessors who were not parties to the Settlement

Agreement) and the modifications made in 2015 (as to the Settling Lessors). For the seventh

tract (Lease 9), we need only consider the terms of the original lease.

Each lease requires Antero to pay Lessors royalties based on their proportionate share

of the gas it extracts and sells. Generally speaking, royalties are measured as a fraction

(typically one-eighth) of the gas’s value or the proceeds from its sale. However, the specific

methods the leases use to calculate royalties vary. Lessors’ breach-of-contract claim centers

on whether the terms of each lease permit Antero to deduct certain “post-production” costs

from Lessors’ royalties. These comprise the expenses Antero incurs to process natural gas

into more refined products (such as NGLs) and transport those products for sale.

On this point, the leases fall into three general categories. The leases in the first

category—the original versions of Leases 3, 4, 5, 6, 7, and 9—are silent on the allocation

of post-production costs. These leases use one of a few different methods to calculate

royalties. One simply requires Antero to pay royalties equal to one-eighth of “the price

received by [Antero] from the sale” of gas. J.A. 830 (Lease 5). Antero characterizes the

remaining leases in this category as having “market value” royalty clauses. They require

Antero to pay a fraction of the “value” of gas, the “net amount realized by Lessee . . . from

2 Lease 9 is the only lease unaffected by the 2015 Settlement Agreement. 5 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 6 of 39

the sale” of gas, or the “gross proceeds received from the sale of [natural gas] at the

prevailing price for gas,” all of which are calculated “at the well” or “at the wellhead.” See

J.A. 823 (Lease 3); J.A. 825 (Lease 4); J.A. 834 (Lease 6); J.A. 840 (Lease 7); J.A. 849

(Lease 9). 3 These leases were originally executed in the late 1970s or early 1980s. At that

time, it was a common practice for gas to be sold directly at the wellhead. Antero, which

acquired an interest in most of the leases in 2012, does not claim that it sells any raw gas

at the well.

The second category is a subset of leases that were modified by the 2015 Settlement

Agreement. These leases potentially prohibit Antero from deducting any post-production

costs from Settling Lessors’ royalties. Specifically, Paragraph 14 of the Settlement

Agreement states that royalties for Leases 3 and 4 “shall be deemed gross royalties and

shall be calculated without any regard to any postproduction or market enhancement costs

claimed or incurred by Antero.” J.A. 1607. The parties dispute whether that language

actually applies.

The leases in the third and final category contain a “Market Enhancement Clause.”

The Market Enhancement Clause states that Antero must bear the costs it incurs to

“transform the product into marketable form,” but that it may deduct costs from royalties

3 Some of the leases separately require Antero to pay royalties for products manufactured from “casinghead gas,” based on the “net value at the factory” of those products. See J.A. 823, 825, 849–50. Casinghead gas is a type of gas collected in wells that also produce oil. See J.A. 1518. The parties do not discuss casinghead gas on appeal, so we will not address this lease language. 6 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 7 of 39

if they “result in enhancing the value of the marketable oil, gas or other products to receive

a better price.” J.A. 1622 (emphasis added). In full, the Clause states:

It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil, gas or other proceeds accruing to the Lessor under this lease or by state law shall be without deduction, directly or indirectly, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other products produced hereunder to transform the product into marketable form; however, any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as they are based on Lessee’s actual cost of such enhancements. However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee.

Id. The remainder of the leases modified by the 2015 Settlement Agreement contain the

Market Enhancement Clause. In addition, certain Lessors and Antero had modified Lease

2 in 2012 to include the Clause.

The parties dispute whether the leases, in their various forms, allow Antero to deduct

two particular types of post-production costs from Lessors’ royalties. The first, which

Antero refers to as “PRC2,” consists of expenses associated with processing, fractionating,

and transporting NGLs. The second post-production cost, which Antero refers to as

“TRN3,” consists of the costs Antero incurs to transport residue gas beyond the first

available “in-basin” market to a more distant “out-of-basin” market. 4 J.A. 1046.

4 During briefing on the motions for summary judgment, Antero also discussed a third cost, “COM3,” which represents costs of compressing gas at the Processing Plant. J.A. 1468. Because Antero does not discuss the COM3 costs on appeal, we do not address them here. 7 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 8 of 39

Antero uses a simple “work-back method” to factor these costs into the royalties it

pays Lessors. This method starts with the revenue the company obtains from selling the

gas products, subtracts the post-production costs, and then calculates each Lessor’s

proportionate share of the resulting amount. According to Antero, it deducts the PRC2 and

TRN3 costs only if they enhanced the return Lessors received. For instance, when Antero

sells NGLs, it deducts PRC2 costs only if the “Net Factory Value” (revenue minus costs)

of the NGLs exceeds the value of unprocessed gas.

The parties also dispute which natural gas products Antero has sold in recent years.

Antero claims it has sold only unprocessed gas from Lessors’ wells since August 2018, but

agrees that it processed and manufactured NGLs from gas extracted from Lessors’ wells

prior to that date. Lessors claim that Antero continued processing gas from their wells into

NGLs through at least August 2019.

B.

Lessors sought to resolve these disputes by filing suit against Antero in West

Virginia state court. They alleged that Antero breached the terms of the lease agreements,

breached its fiduciary duty, and made fraudulent representations and omissions, which

entitled Lessors to punitive damages. Antero removed the action to the U.S. District Court

based on diversity jurisdiction.

After some motions practice not relevant to this appeal, Lessors moved to amend its

complaint a second time, and Antero moved to dismiss all claims. The district court

granted Lessors leave to file a Second Amended Complaint but dismissed the fiduciary

duty, fraud, and punitive damages claims. It held that (1) the Second Amended Complaint

8 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 9 of 39

did not allege fraud with sufficient particularity; (2) the fraud claims were barred by West

Virginia’s “gist of the action” doctrine, which requires that the alleged fraud be

independent of a contractual relationship; and (3) Lessors did not allege an independent

tort that could support an award of punitive damages. In addition, the court dismissed three

Antero affiliates initially named as defendants.

Antero next filed a motion for judgment on the pleadings, based on a “payment and

release” clause contained in the Settlement Agreement. Relying on that clause, the district

court entered judgment for Antero for any breach-of-contract claims by Settling Lessors

that arose before the parties signed the Settlement Agreement in 2015. The court allowed

all remaining breach-of-contract claims to move forward.

Following discovery, Antero and Lessors filed cross-motions for summary

judgment. Antero sought summary judgment as to all the leases on the grounds that, as a

matter of West Virginia law, the leases authorize it to deduct post-production costs using

the work-back method. Lessors sought summary judgment only for the leases modified by

the Settlement Agreement.

The district court denied Antero’s motion and granted Lessors’ motion in part.

When evaluating the leases, the court applied Estate of Tawney v. Columbia Natural

Resources, LLC, 633 S.E.2d 22 (W. Va. 2006), which held that a lessee may deduct post-

production costs from royalties only if the lease meets certain heightened specificity

requirements. In particular, the lease must (1) “expressly provide that the lessor shall bear

some part of the costs incurred between the wellhead and the point of sale”; (2) “identify

with particularity the specific deductions the lessee intends to take from the lessor’s

9 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 10 of 39

royalty”; and (3) “indicate the method of calculating the amount to be deducted from the

royalty for such post-production costs.” Id. at 24.

The district court held that the leases that are silent on the allocation of post-

production costs do not satisfy Tawney’s requirements, and thus do not permit Antero to

deduct any post-production costs. Next, the court determined that all leases modified by

the Settlement Agreement—including Leases 3 and 4—adopted the Market Enhancement

Clause. However, it concluded that the Clause’s language is too ambiguous to satisfy

Tawney’s second requirement. For the leases with the Clause, the court granted summary

judgment to Lessors on the question of breach but held that genuine disputes of material

fact remained as to damages.

With the parties’ consent, the district court subsequently issued a “final and

appealable” judgment that resolved all legal issues for the remaining leases and granted

summary judgment to Lessors as to all but one. 5 J.A. 2051–56. In lieu of conducting a

trial on damages, the district court instructed that “the sum of $100,000 against Antero

shall be treated as if it were the jury’s verdict against Antero in the trial.” J.A. 2055.

Antero timely filed a notice of appeal from the district court’s judgment, and Lessors

timely filed a notice of appeal from the earlier order dismissing their fraud and punitive

damages claims.

5 The district court granted summary judgment to Antero as to Lease 8, the one “flat- rate” lease. Lessors do not challenge that decision on appeal. 10 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 11 of 39

II.

We first address Lessors’ breach-of-contract claims. While this appeal involves

several different lease agreements with varying royalty provisions, the claims boil down to

two questions: (1) whether each lease is subject to Tawney; and (2) if so, whether the

lease’s royalty provisions satisfy the Tawney requirements and permit Antero to deduct

post-production costs.

We conclude that all the leases are subject to Tawney. The leases that are silent on

the allocation of post-production costs fail to satisfy the Tawney requirements and therefore

do not permit Antero to deduct post-production costs from Lessors’ royalties. In addition,

two leases modified by the Settlement Agreement—Leases 3 and 4—expressly prohibit

Antero from deducting any post-production costs from Settling Lessors’ royalties. Finally,

the modified leases that include the Market Enhancement Clause do authorize Antero to

make deductions, but only after the specific product Antero sells becomes marketable.

Because some but not all of the leases permit deductions, we affirm the district court’s

judgment in part and vacate in part.

We review the district court’s ruling on cross-motions for summary judgment de

novo. Libertarian Party of Va. v. Judd, 718 F.3d 308, 312 (4th Cir. 2013). In cases

involving breach-of-contract claims, we “review de novo the district court’s contract

interpretation underlying its summary judgment ruling.” Young v. Equinor USA Onshore

Props., Inc., 982 F.3d 201, 205–06 (4th Cir. 2020). Because this action falls under our

diversity jurisdiction, we apply West Virginia contract law on settled issues and “if

11 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 12 of 39

necessary, predict how the state’s highest court would rule on an unsettled issue.”

McFarland v. Wells Fargo Bank, N.A., 810 F.3d 273, 279 (4th Cir. 2016).

The leases in the first category are silent on the allocation of post-production costs.

Antero concedes that one of these leases (Lease 5) must satisfy the Tawney requirements.

Lease 5 calls for royalties based on “the price received by the Lessee from the sale” of gas.

J.A. 830. The remaining leases in this category calculate royalties “at the well” or “at the

wellhead,” based on the “value” of the gas, the “net amount realized by Lessee . . . from

the sale,” of gas, or the “gross proceeds received from the sale of [natural gas] at the

prevailing price for gas.” J.A. 772–73, 823, 825, 834, 840, 849. Antero classifies these as

“market value” royalty provisions and argues that such provisions need not satisfy Tawney.

According to Antero, Tawney applies only to leases that calculate royalties based on the

“proceeds” from the sale of gas, like Lease 5. If Tawney does not apply, Antero contends,

then the leases permit it to deduct post-production costs because it can calculate the

“value,” “net amount,” or “gross proceeds” from gas “at the well” by using the work-back

method of deducting post-production costs from the sale price.

The Supreme Court of Appeals of West Virginia (“West Virginia Supreme Court”)

has not addressed every type of royalty provision that these leases contain. But based on

existing West Virginia precedents, we conclude that Tawney does apply to these leases.

1.

The West Virginia Supreme Court first established the presumption that the lessee

bears post-production costs in Wellman v. Energy Resources, Inc., 557 S.E.2d 254 (W. Va.

12 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 13 of 39

2001). When it articulated that presumption, the court referred specifically to “proceeds”

leases. In a syllabus point, it stated that “[i]f an oil and gas lease provides for a royalty

based on proceeds received by the lessee, unless the lease provides otherwise, the lessee

must bear all costs incurred in exploring for, producing, marketing, and transporting the

product to the point of sale.” Id. at 256 (emphasis added); see Tawney, 633 S.E.2d at 24

(explaining that West Virginia’s constitution requires that “new points of law . . . be

articulated through syllabus points”). The court explained that this presumption was

“consistent with the long-established expectation of lessors in this State, that they would

receive one-eighth of the sale price received by the lessor.” Wellman, 557 S.E.2d at 265.

In a footnote, the court “excluded from [its] discussion” leases that “call for the payment

of royalties based on the value of oil or gas produced, and sold directly,” noting that “there

are possibly different issues” with such leases. Id. at 264 n.3 (emphasis added). Thus,

Wellman left open the question whether the presumption also applies to leases that calculate

royalties based on a metric other than sales proceeds, such as market value. 6

Antero argues that the West Virginia Supreme Court’s 2006 decision in Tawney did

not extend the Wellman presumption to “market value” leases and instead simply spelled

6 The lease at issue in Wellman called for royalties based on “proceeds” from the “sale of gas as such at the mouth of the well where gas . . . is found.” Id. at 265. However, the Wellman court did not actually determine whether that language shifted any post- production costs to the lessors. Instead, it held that the lessee had failed to introduce evidence showing that it actually incurred the costs or that the costs were reasonable, which provided an alternative ground for affirming the district court’s judgment in favor of the lessors. Id. 13 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 14 of 39

out the requirements “proceeds” leases must meet to overcome the presumption. But

Tawney is not so limited.

In Tawney, a group of lessors brought a class action challenging the lessee’s right

to deduct post-production costs under numerous oil and gas leases. See 633 S.E.2d at 24–

25. Many of the leases called for royalties to be calculated “at the well” or “at the

wellhead.” Id. at 25. Some paired terms like “gross proceeds” or “market price” with the

“at the wellhead” language, and others prescribed royalties in “an amount equal to 1/8 of

the price, net of all costs beyond the wellhead.” Id. at 28–29. The leases did not

specifically address the allocation of post-production costs. Applying the new three-part

test, the West Virginia Supreme Court held that this lease language did not allow the lessee

to deduct post-production costs from royalties. Id. at 29–30.

Contrary to Antero’s argument, the West Virginia Supreme Court’s analysis in

Tawney was not limited to “proceeds” leases. To be sure, the court started by reiterating

the Wellman presumption—and its reference to royalties “based on proceeds received by

the lessee.” Id. at 23. But the analysis that followed applies with equal force to leases that

calculate royalties based on the “value” of gas at the wellhead. The court focused on the

ambiguities inherent in the “at the wellhead”-type language, regardless of whether that

language is connected to “proceeds” terms or “value” terms:

While the language arguably indicates that the royalty is to be calculated at the well or the gas is to be valued at the well, the language does not indicate how or by what method the royalty is to be calculated or the gas is to be valued. For example, notably absent are any specific provisions pertaining to the marketing, transportation, or processing of the gas.

14 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 15 of 39

Id. at 28 (emphasis added in part and omitted in part). Later in the opinion, the court twice

emphasized that “language in an oil and gas lease that provides that the lessor’s 1/8 royalty

. . . is to be calculated ‘at the well,’ ‘at the wellhead’ or similar language” is ambiguous

and “not effective” to permit the lessee to deduct post-production costs. Id. at 30. And

when it articulated the three requirements, the court made no mention of “proceeds” leases.

See id. at 24, 30.

Further, the royalty provisions at issue in Tawney closely resemble some of the

leases at issue in the present case. For one, the court held that leases which called for

royalties based on “gross proceeds” “at the wellhead” were ambiguous, as that language

“could be read to create an inherent conflict due to the fact that the lessees generally do not

receive proceeds for the gas at the wellhead.” Id. at 28–29. Similarly, the court held that

the phrase “market price at the wellhead” is ambiguous because “it contemplates the actual

sale of gas at the physical location of the wellhead, although the gas generally is not sold

at the wellhead.” Id. at 29. Those provisions are essentially identical to the provisions in

Leases 6 and 7, which call for royalties based on “the gross proceeds received from the

sale of [natural gas] at the prevailing price for gas sold at the well.” J.A. 834, 840

(emphasis added). Tawney instructs that such language is inherently ambiguous because

Antero does not actually sell gas at the wellhead.

Tawney did not address the “value at the well” terminology that some of the leases

in this case contain. But the West Virginia Supreme Court’s reasoning also applies to such

language. See Tawney, 633 S.E.2d at 28 (“While the language arguably indicates that . . .

the gas is to be valued at the well, the language does not indicate how or by what method

15 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 16 of 39

. . . the gas is to be valued.”) (emphasis omitted). Absent any guidance for calculating the

“value at the well,” that language remains ambiguous. It could refer to the downstream

sale price minus post-production costs, but it just as easily could refer to the prevailing

price of gas sold at the wellhead. In fact, the latter is probably the better reading, given

that the leases were drafted at a time when it was common to sell gas directly at the

wellhead.

In addition, the broader rationale behind the Tawney requirements militates in favor

of applying them to the “value at the well” leases. The West Virginia Supreme Court has

explained that both Wellman and Tawney are consistent with the “marketable product rule,”

which provides that a lessee generally has a “duty, either express, or under an implied

covenant, to market the oil or gas produced.” Id. at 27 (quoting Wellman, 557 S.E.2d at

263–64). Tawney makes clear that parties must use specific, unambiguous language to

adopt a contrary rule.

Recent precedent confirms that Tawney remains good law. Just this year, the West

Virginia Supreme Court expressly reaffirmed the decision. SWN Prod. Co. v. Kellam, 875

S.E.2d 216 (W. Va. 2022). Prior to Kellam, the court had sharply criticized Wellman and

Tawney, which created temporary doubts about their viability. See Leggett v. EQT Prod.

Co., 800 S.E.2d 850 (W. Va. 2017). In Leggett, it declined to apply Wellman and Tawney

to “flat-rate” oil and gas leases, which are governed by West Virginia Code § 22-6-8. See

id. at 853. The statute required flat-rate leases to calculate royalties based on “the total

amount paid to or received by or allowed to [the lessee] at the wellhead.” Id. (quoting W.

Va. Code § 22-6-8 (1994)). The court held that the statute permitted lessees to deduct

16 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 17 of 39

reasonable post-production expenses using the work-back method, even though its “at the

wellhead” language was very similar to the language Tawney deemed inadequate. Id. at

861. While the Leggett court declined to overrule Wellman or Tawney, it questioned “the

faulty legs upon which this precedent and its iteration of the marketable product rule

purports to stand,” and suggested that the decisions resulted in an improper windfall for

lessors. Id. at 862–63. 7

But in Kellam, the court dismissed Leggett’s criticism of Wellman and Tawney as

“a somewhat indulgent frolic,” emphasizing that it “was mere obiter dicta and of no

authoritative value.” Kellam, 875 S.E.2d at 225–26. The Kellam court confirmed that

Tawney and Wellman “are the result of a reasonable and justifiable interpretation of this

State’s common law.” Id. at 226. Thus, Leggett’s endorsement of the work-back method

for flat-rate leases with “at the wellhead” language (which the West Virginia legislature

has since overruled) has no bearing on the interpretation of the freely negotiated leases in

this appeal. And in affirming Tawney, the Kellam court never suggested that the decision

applies only to leases that calculate leases based on “proceeds.” 8

7 Following the Leggett decision, the West Virginia legislature amended the flat- rate lease statute to specifically require that royalty payments be “free from any deductions for post-production expenses.” W. Va. Code § 22-6-8(e) (2021). The amendment effectively overruled Leggett. 8 Antero also cites Cabot Oil & Gas Corp. v. Beaver Coal Co., Ltd., No. 16-0905, 2017 WL 5192490 (W. Va. Nov. 9, 2017). There, the West Virginia Supreme Court noted in dicta that Wellman “has never been reversed and continues to be the basis for the law in this state on the deduction of post-production costs.” Id. at *7 n.16. Nothing in that observation forecloses the possibility that the court would apply the Tawney requirements to more than just “proceeds” leases (which Wellman itself did not foreclose). 17 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 18 of 39

No other West Virginia precedent gives us reason to doubt that Tawney applies here.

In its efforts to persuade us otherwise, Antero relies heavily on Imperial Colliery Co. v. Oxy

USA Inc., 912 F.2d 696 (4th Cir. 1990). There, this Court applied West Virginia law to

interpret a lease that required the lessee to pay “one eighth (1/8) of the current wholesale

market value at the well for all gas produced,” with “wholesale market value” defined as

“the prevailing purchase price currently paid at the well.” Id. at 699. Imperial Colliery did

not involve a dispute over post-production cost deductions; the parties simply contested

whether the lease required the lessee to pay royalties based on the fair market value of the

gas or on the actual proceeds from sales. Id. at 700. The district court held that the lease

called for royalties based on the market value of gas, and we affirmed. In the opinion, we

observed that the fact “there was no available wellhead price does not necessarily preclude

computation of the gas’ [sic] wellhead price,” and that a lessee might calculate that value by

“deducting compression and gathering expenses” from the downstream sales price (i.e., the

work-back method). Id. at 701.

Antero latches onto that observation. Because the “wholesale market value at the

well” language closely resembles the “value at the well” language in certain leases here,

Antero argues that Imperial Colliery controls and allows it to use the work-back method to

deduct post-production costs from royalties under those leases. But because Imperial

Colliery predated Wellman and Tawney, it has no bearing on our analysis of the scope of

those decisions. Neither Wellman, Tawney, nor Kellam cited Imperial Colliery as

persuasive authority.

18 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 19 of 39

Nor does this Court’s decision in Young v. Equinor USA Onshore Properties, Inc.

help Antero. The lease in Young expressly authorized the lessee to deduct post-production

costs, listed specific types of deductible costs, and permitted the lessee to use the work-

back method to calculate royalties. 982 F.3d at 203–04. The lessor argued that the lease

did not describe the method of calculating the amount of deductions in enough detail to

satisfy Tawney’s third requirement. Id. at 207. We disagreed. We decided Young soon

after the Leggett decision, and we noted that Leggett’s “criticism of [Tawney] and its

endorsement of the work-back method inform[ed] our analysis.” Id. But our analysis in

Young focused solely on Tawney’s third requirement, which we held “may be satisfied by

a simple formula” and does not require “an Einsteinian proof for calculating post-

production costs.” Id. at 208. Nothing in Young excuses “market value” leases from having

to satisfy Tawney’s three requirements, particularly now that the West Virginia Supreme

Court has reaffirmed that Tawney remains good law.

We conclude that Tawney applies to the leases that calculate royalties “at the well,”

including those that look to the “value of the gas.” Therefore, Antero may deduct post-

production costs from royalties only if the leases meet Tawney’s three requirements. None

of the leases in this category satisfies even one of them. The leases do not “expressly

provide that the lessor shall bear some part of [post-production] costs,” let alone “identify

with particularity the specific deductions the lessee intends to take” or “the method of

calculating the amount to be deducted.” Tawney, 633 S.E.2d at 24.

19 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 20 of 39

2.

Antero offers one other reason the leases that are silent on the allocation of post-

production costs permit it to deduct such costs. According to Antero, Wellman and Tawney

apply only until oil or gas first becomes marketable, not through the point of sale. Once

gas reaches the point of marketability, Antero contends, the presumption that the lessee

bears post-production costs no longer applies, and, under Imperial Colliery, the leases

allow Antero to use the work-back method to deduct costs.

But this argument cannot easily be squared with current West Virginia law. Both

Wellman and Tawney plainly state that the presumption applies through the “point of sale.”

Tawney, 633 S.E.2d at 23; Wellman, 557 S.E.2d at 256. Further, the Tawney court

repeatedly used “point of sale” language when it set out the three heightened specificity

requirements. See 633 S.E.2d at 24, 28, 30.

That said, the West Virginia Supreme Court has cast some doubt on whether the

lessee actually is responsible for costs through the point of sale. In Leggett, it suggested

that Wellman and Tawney did not resolve the question. See 800 S.E.2d at 856 n.7 (stating

that Wellman and Tawney “muddied the point to which costs must be borne by the lessee

by making reference to the ‘point of sale’ in [their] syllabus points”). The Leggett court

criticized the “point of sale” approach, contending that it “results in an even bigger windfall

for lessors than the ‘marketable product’ approach” because the lessor “will receive a

royalty valued upon the gas in its processed state at the point of sale after the gas has had

value added to it solely at the lessee’s expense.” Id. at 862–63 (quoting Brian S. Wheeler,

20 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 21 of 39

Deducting Post-Production Costs When Calculating Royalty: What Does the Lease

Provide?, 8 Appalachian J.L. 27–28 (2008)).

And while the Kellam opinion suggests we should take the Leggett court’s criticism

of the “point of sale” approach with a grain of salt, it did not definitively resolve this

question. Despite repeating the same “point of sale” language from Wellman and Tawney,

875 S.E.2d at 218, the Kellam court did not assess the “point of sale” approach in any

depth. Rather, it declined to reexamine “our interpretation of the implied covenant of

marketability” because the covenant was “not implicated” by the lease at issue, which

addressed how post-production costs were allocated. Id. at 226. And at one point, the

Kellam court characterized the marketable product rule as narrower than the “point of sale”

approach. It observed that Wellman and Tawney “firmly cemented West Virginia as a

‘marketable product rule’ state, meaning that the lessee bears all post-production costs

incurred until the product is first rendered marketable, unless otherwise indicated in the

subject lease.” Id. at 221 (emphasis added).

Ultimately, though, we cannot ignore the express “point of sale” language in the

syllabus points in Wellman, Tawney, and Kellam. Because the West Virginia Supreme

Court has not adopted a contrary rule, we conclude that the Tawney requirements apply

through the point of sale.

The leases that are silent on the allocation of post-production costs fail to satisfy

any of Tawney’s three requirements. As such, they do not authorize Antero to deduct the

PRC2 or TRN3 costs from Lessors’ royalties. We therefore hold that the district court

correctly granted summary judgment to Lessors as to those leases.

21 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 22 of 39

C.

We next consider whether the 2015 Settlement Agreement modified certain leases

to prohibit Antero from deducting any post-production costs from Settling Lessors’

royalties. We conclude that it did.

This question hinges on the interplay between a few different parts of the Settlement

Agreement. Paragraph 14 states that gas royalties for the leases identified in Paragraph 12

and 13 “shall be deemed gross royalties and shall be calculated without regard to any

postproduction or market enhancement costs claimed or incurred by Antero.” J.A. 1607.

Paragraphs 12 and 13 identify the tracts covered by Leases 3 and 4 and adopt earlier

modifications certain parties made to those two leases in 2012. J.A. 1606–07.

The district court held that Paragraph 14 is superseded by Paragraph 11. Paragraph

11 states that Settling Lessors “agree to execute leases and lease modifications, and

memoranda as necessary as detailed in ‘Exhibit A,’ the forms of which leases and lease

modifications are attached hereto as ‘Exhibit C’ and ‘Exhibit D,’ for all the properties

identified on the [Master Property List].” J.A. 1606. Exhibit A is the Master Property List

(“MPL”). J.A. 1613–14. The Market Enhancement Clause is included within Exhibit D.

J.A. 1622.

The MPL identifies the changes the Settlement Agreement made to each lease it

covered. It includes Leases 3 and 4, identified as the 50.82-acre tract (Lease 3) and the

54.18-acre tract (Lease 4). J.A. 1614; see J.A. 728–32, 1606–07. Critically, the MPL

entries for those two leases are different than the entries for most other leases. The entries

for Leases 3 and 4 state they were “Affirmed Herein” (by Settling Lessors) or “Already

22 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 23 of 39

Signed” (by the particular Settling Lessor who executed the 2012 lease modifications that

Paragraphs 12 and 13 adopted). J.A. 1614.

By contrast, the MPL uses different language—“Lease,” “Lease Mod.,” or “Amend

Lease”—to identify the changes made to leases that are not specifically addressed in the

body of the Settlement Agreement. J.A. 1613–14. By instead describing Leases 3 and 4

as “Affirmed Herein” or “Already Signed,” the MPL shows that the Settlement Agreement

itself modifies those two leases. 9 Paragraphs 12, 13, and 14 of the Agreement set out those

modifications. Thus, the modified versions of Leases 3 and 4 adopted Paragraph 14’s

prohibition on any deductions for post-production costs, and nothing in Paragraph 11—or

the Market Enhancement Clause itself—supersedes that.

Finally, Lessors attempt to claim that every lease covered by the Settlement

Agreement incorporate Paragraph 14’s prohibition on post-production cost deductions.

But that plainly conflicts with Paragraph 14 itself, which makes clear that it applies only

to Leases 3 and 4. See J.A. 1607.

In short, Antero and the Settling Lessors did not agree to amend every lease to

include the Market Enhancement Clause. Rather, they agreed to modifications “as detailed

in” the MPL, and the MPL shows that Leases 3 and 4 were modified in the body of the

Settlement Agreement (including Paragraph 14). As such, the modified versions of Leases

3 and 4 prohibit Antero from deducting any post-production costs from Settling Lessors’

9 The MPL uses the same “Affirmed Herein” language to refer to certain Lessors’ interests in other leases that are addressed in the body of the Settlement Agreement. See J.A. 1608, 1614. 23 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 24 of 39

royalties. Although we disagree with the district court’s reasoning, it correctly concluded

that Settling Lessors are entitled to summary judgment as to Leases 3 and 4.

D.

That leaves the leases with the Market Enhancement Clause. As noted above, that

Clause requires Antero to cover the costs it incurs to “transform the product into marketable

form,” but permits Antero to deduct costs from royalties if they “result in enhancing the

value of the marketable oil, gas or other products to receive a better price.” J.A. 1622.

Antero agrees these leases are subject to Tawney, at least through the point of marketability.

The parties’ sole dispute is whether the Market Enhancement Clause satisfies Tawney’s

second requirement—which requires a lease to “identify with particularity the specific

deductions the lessee intends to take”—or is otherwise ambiguous. Tawney, 633 S.E.2d at

24. Antero contends that the Clause unambiguously allows it to deduct costs after

unprocessed gas first becomes marketable, which would allow it to deduct the PRC2 and

TRN3 costs (both of which arise after that point). The district court disagreed, holding that

the Clause fails to satisfy Tawney’s second requirement because it does not clearly identify

“the products from which” Antero may deduct post-production costs. J.A. 2006.

We conclude that the Market Enhancement Clause has an unambiguous meaning,

but not the one Antero suggests. Rather, the Clause unambiguously provides that Antero

may deduct costs that enhance the value of the product it sells, but only after that particular

product becomes marketable.

As a starting point, the term “marketable form” is unambiguous. By its plain

meaning, a product is “marketable” when it is “able or fit to be sold or marketed.”

24 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 25 of 39

Marketable, The New Oxford American Dictionary 1038 (2d ed. 2005); see also

Marketable, Black’s Law Dictionary (11th ed. 2019) (defining “marketable” as “[o]f

commercially acceptable quality; fit for sale and in demand by buyers”). Lessors urge us

to instead treat “marketable form” as synonymous with the point of sale. That would not

only defy the plain meaning of the term “marketable,” but also would conflict with the

Market Enhancement Clause itself, which recognizes that a product may reach a

“marketable form” before the point of sale. J.A. 1622 (allowing deductions for “costs

which result in enhancing the value of the marketable oil, gas or other products to receive

a better price”) (emphasis added).

The Market Enhancement Clause is also unambiguous as to the “product” that must

reach a “marketable form” before Antero may begin deducting post-production costs. The

first part of the Clause states that “all oil, gas or other proceeds accruing to the Lessor . . .

shall be without deduction, directly or indirectly, for the cost of producing, gathering,

storing, separating, treating, dehydrating, compressing, processing, transporting, and

marketing the oil, gas and other products produced hereunder to transform the product into

marketable form.” Id. (emphasis added).

In this context, the plain meaning of “product” refers to the particular form of natural

gas that Antero sells. Black’s Law Dictionary, for example, defines “product” as

“[s]omething that is distributed commercially for use or consumption and that is usu[ally]

(1) tangible personal property, (2) the result of fabrication or processing, and (3) an item

that has passed through a chain of commercial distribution before ultimate use or

consumption.” Product, Black’s Law Dictionary (11th ed. 2019). Thus, the Clause focuses

25 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 26 of 39

on whether the form of gas Antero sells—and on which it must pay royalties—is

marketable at the time Antero incurs a cost. 10 Had Antero instead wished to make the

marketability of “unprocessed gas” the reference point, it should have said so. See Energy

Dev. Corp. v. Moss, 591 S.E.2d 135, 137 (W. Va. 2003) (“The general rule as to oil and

gas leases is that such contracts will generally be liberally construed in favor of the lessor,

and strictly as against the lessee.”).

This meaning is further confirmed by the nearby phrase “oil, gas, and other

products.” To make sense of the sentence, “products” must modify “oil” and “gas,” not

just “other.” That is, the Clause is referring to “oil products, gas products, and other

products.” The Clause is not concerned with when “gas” first reaches a marketable form,

but rather when the particular gas “product” sold does. The fact that the phrase refers to

plural “products” is also significant. It recognizes that Antero may produce and sell many

different types of products derived from natural gas. Antero’s preferred reading departs

from the text because it would make only a singular product—unprocessed gas—relevant.

The second part of the Clause does not introduce any ambiguity. In relevant part, it

states that “any such costs which result in enhancing the value of the marketable oil, gas or

other products to receive a better price may be deducted” from royalties. J.A. 1622. When

determining whether a contract is ambiguous, we must consider “the whole instrument”

and, if possible, “give meaning to every word, phrase, and clause and also render all its

10 The parties’ dispute mostly centers on whether NGLs, which the Market Enhancement Clause does not expressly mention, qualify as an “other product” or as “gas.” But that misses the point. Even if NGLs are a form of “gas” rather than an “other product,” the Clause is concerned with when the particular gas product sold reaches a marketable form. 26 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 27 of 39

provisions consistent and harmonious.” Antero Res. Corp. v. Directional One Servs. Inc.

USA, 873 S.E.2d 832, 842 (W. Va. 2022) (quoting Henderson Dev. Co. v. United Fuel, 3

S.E.2d 217, 217 (W. Va. 1939)). Here, as above, we read the Clause to refer to “oil

products, gas products, or other products.”

In addition, Antero’s preferred reading risks making certain parts of the Market

Enhancement Clause superfluous. The first part of the Clause contemplates that

“processing” costs will not be deductible in some circumstances. But if the proper

reference point is the marketability of unprocessed gas, “processing” costs will always be

deductible. That creates serious tension with the rule that an interpreter must “give

meaning to every word” in a contract. Id.

Antero suggests our reading would conflict with the marketable product rule and

remove any financial incentives for Antero to enhance the value of gas. But while

“[e]vidence of usage or custom may be considered in the construction of language of a

written instrument which is uncertain or ambiguous,” it “may not be considered to alter the

legal effect of or to engraft stipulations upon language which is clear and unambiguous.”

Cotiga Dev. Co. v. United Fuel Gas Co., 128 S.E.2d 626, 629 (W. Va. 1962). Because the

Clause is unambiguous, we need not go any further. See id. at 628 (“It is not the right or

province of a court to alter . . . the clear meaning and intent of the parties as expressed in

unambiguous language in their written contract or to make a new or different contract for

them.”). At any rate, we are not persuaded that our decision will eliminate incentives for

Antero to enhance the value of gas products. For example, the Clause permits Antero to

27 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 28 of 39

deduct the costs of transporting already sellable products to a market where they will

receive a higher price.

Finally, in our dissenting colleague’s view, the Market Enhancement Clause fails

Tawney’s second prong because it does not “identify with particularity the specific

deductions the lessee intends to take from the lessor’s royalty.” Post at 37 (quoting

Tawney, 633 S.E.2d at 24). Respectfully, we do not agree that Tawney reaches that far. In

Kellam, the West Virginia Supreme Court declined to establish a “hard and fast rule” for

determining when a lease satisfies Tawney’s second prong, instead explaining that “the

question is tied directly to the specific language of the lease and, if ambiguous, the parties’

intent in contracting.” 875 S.E.2d at 227. By consenting to the Market Enhancement

Clause, Settling Lessors agreed that Antero may deduct an enumerated list of post-

production costs from royalties if certain unambiguous conditions are met. Where, as here,

the parties’ intent to share specific post-production costs in specific circumstances is “clear

from the lease terms,” id. at 223, we do not believe that Tawney requires more.

In sum, the Market Enhancement Clause satisfies Tawney and has a plain,

unambiguous meaning: when Antero pays royalties from the sale of a particular product, it

may deduct actual and reasonable costs it incurred after that product became fit for sale, as

long as those costs enhanced the value of the product. Because the district court instead

treated the Clause as ambiguous, we vacate that portion of the judgment and remand for

further proceedings. On remand, the finder of fact will need to determine which products

28 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 29 of 39

Antero sold during the relevant time frame, when those products became marketable, and

whether Antero incurred the PRC2 and TRN3 costs before or after that point. 11

III.

With the breach-of-contract issue resolved, we turn to the dismissal of Lessors’

fraud and punitive damages claims. In their Second Amended Complaint, Lessors alleged

that the named defendants made affirmative misrepresentations regarding the gas collected

from the wells and the deductions Antero took from royalties, and that the defendants

“failed to report to [Lessors] that they were extracting and selling liquids from [Lessors’]

natural gas.” J.A. 760. On appeal, Lessors challenge only the dismissal of the latter claim,

which they characterize as a claim of fraud by omission or concealment. Because the

complaint fails to state that claim with particularity, we affirm.

We “review de novo a district court’s decision to grant a motion to dismiss.”

Edmonson v. Eagle Nat’l Bank, 922 F.3d 535, 545 (4th Cir. 2019). When doing so, we

“accept the factual allegations of the complaint as true and construe them in the light most

favorable to the nonmoving party.” Rockville Cars, LLC v. City of Rockville, 891 F.3d 141,

145 (4th Cir. 2018). To survive a motion to dismiss, a complaint must contain sufficient

11 The uncontested facts indicate that Y-Grade NGLs and residue gas first become marketable when they are separated at the Sherwood Gas Processing Plant. See J.A. 1046. The TRN3 costs arise after that point and therefore would be deductible from residue gas royalties under the Market Enhancement Clause. By contrast, the record is not entirely clear on the scope of the PRC2 costs. See J.A. 1494. 29 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 30 of 39

facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009).

Under Federal Rule of Civil Procedure 9(b), “a party must state with particularity

the circumstances constituting fraud.” Fed. R. Civ. P. 9(b); Edmonson, 922 F.3d at 553.

This requires the plaintiff to allege “the time, place, and contents of the false

representations, as well as the identity of the person making the misrepresentation and what

he obtained thereby.” Edmonson, 922 F.3d at 553. However, “a court should hesitate to

dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been

made aware of the particular circumstances for which [it] will have to prepare a defense at

trial, and (2) that plaintiff has substantial prediscovery evidence of those facts.” Id.

(citations omitted).

Lessors ask us to adopt a relaxed Rule 9(b) standard for allegations of fraud by

omission or concealment, given that critical facts related to such allegations are uniquely

within the defendant’s knowledge and control. The Fourth Circuit has not yet addressed

this issue, but several of our sister circuits do relax the Rule 9(b) standard when certain

facts are peculiarly within the defendant’s knowledge. In such cases, they have explained,

“allegations based on information and belief may suffice, so long as the allegations are

accompanied by a statement of facts upon which the belief is founded.” Nayab v. Capital

One Bank (USA), N.A., 942 F.3d 480, 493–94 (9th Cir. 2019) (quotation marks omitted);

see United States ex rel. Russell Epic Healthcare Mgmt. Grp., 193 F.3d 304, 308 (5th Cir.

1999), abrogated on other grounds by United States ex rel. Eisenstein v. City of New York,

556 U.S. 928 (2009); Emery v. Am. Gen. Fin., Inc., 134 F.3d 1321, 1323 (7th Cir. 1998);

30 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 31 of 39

In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1418 (3d Cir. 1997); Kowal v.

MCI Commc’ns Corp., 16 F.3d 1271, 1279 n.3 (D.C. Cir. 1994); Scheidt v. Klein, 956 F.2d

963, 967 (10th Cir. 1992); Devaney v. Chester, 813 F.2d 566, 569 (2d Cir. 1987).

We agree with that approach. In cases involving alleged fraud by omission or

concealment, it is well-nigh impossible for plaintiffs to plead all the necessary facts with

particularity, given that those facts will often be in the sole possession of the defendant.

Applying the ordinary Rule 9(b) standard in such cases would “create a Catch-22 situation

in which a complaint is dismissed because of the plaintiff’s inability to obtain essential

information without pretrial discovery.” Emery, 134 F.3d at 1323. When alleging fraud

by omission or concealment, plaintiffs may partly rely on information and belief without

running afoul of Rule 9(b). However, they must state the factual allegations that make

their belief plausible. We stress that this relaxed standard “does not eliminate the

particularity requirement.” Devaney, 813 F.2d at 569.

Even under a relaxed Rule 9(b) standard, Lessors’ fraud allegations are not

adequate.

To begin, Lessors offered very few facts that identify when Antero allegedly

withheld royalties. They stated the date Antero first became a party to each lease, see, e.g.,

J.A. 727–28, and that Antero was a party to the leases “prior to and during the times

complained of herein,” J.A. 752. These facts establish only that the alleged fraud took

place after Antero had acquired interests in the leases. Lessors also alleged that the

defendants “provided plaintiffs with statements alleging disclosure of specifics” regarding

31 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 32 of 39

the amount of gas extracted, the revenue Antero received, and the deductions taken from

royalties, and that the defendants “concealed, suppressed, and omitted material facts . . . in

connection with the bases for charging plaintiffs for specific services . . . associated with

the calculation of plaintiffs’ royalties and deductions therefrom.” J.A. 757. Taken

together, these factual allegations support a reasonable inference that the alleged fraud

occurred when the defendants made royalty payments and/or gave Lessors an accounting

of the gas extracted from their land. Finally, Exhibit 10 to the Second Amended Complaint

contains several one-page excerpts of royalty payments Antero made to each Lessor, which

include gas sales dates ranging from 2013 to 2017. J.A. 851–61.

This is not enough. Taken as true, the allegations establish that the fraud occurred

at some point after Antero acquired the leases and that “defendants” omitted or concealed

material information from some royalty statements or other information sent to Lessors.

But that hardly makes Antero “aware of the particular circumstances for which [it] will

have to prepare a defense at trial.” Edmonson, 922 F.3d at 553. Take, for instance, the fact

that certain Lessors were parties to the 2015 Settlement Agreement, which contained a

payment and release clause that the district court held barred any claims by the Settling

Lessors that predated the Agreement. From the complaint, Antero could not know whether

those Lessors were alleging fraud through the date of the complaint or only through the

date of the 2015 Agreement. One cannot expect Lessors to allege each specific statement

from which information was withheld, but at the very least, Rule 9(b) requires them to

allege a particular starting point or explain why they lack sufficient information to do so.

They did not do that here.

32 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 33 of 39

In addition, the Second Amended Complaint does not adequately identify Antero as

the individual defendant who committed the fraudulent omissions or concealment. In

Juntti v. Prudential-Bache Securities, Inc., this Court affirmed the dismissal of a fraud

claim against multiple defendants where the complaint referred generally to the actions of

“defendants.” 993 F.2d 228 (Table), 1993 WL 138523, at *2 (4th Cir. 1993) (per curiam).

We explained the complaint was inadequate because it “impermissibl[y] aggregat[ed]

defendants without specifically alleging which defendant was responsible for which act.”

Id.; see also DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir.

1987) (“Where multiple defendants are asked to respond to allegations of fraud, the

complaint should inform each defendant of the nature of his alleged participation in the

fraud.”). “It is not sufficient to argue that each count [of fraud] . . . incorporates the factual

allegations of the Complaint, which specify each defendant’s individual conduct,” because

“[t]he burden rests on plaintiffs to enable a particular defendant to determine with what it

is charged.” Juntti, 1993 WL 138523, at *2 (cleaned up).

Here, the Second Amended Complaint suffers from the same deficiencies as the

complaint in Juntti. The paragraphs in the fraud count refer generally to “defendants.” See

J.A. 760 (“Defendants . . . failed to report to plaintiffs that they were extracting and selling

liquids from plaintiffs’ natural gas, thereby denying plaintiffs the rents and royalties to

which they were due.” (emphasis added)). While the fraud count incorporates the factual

allegations that precede it, and some (but not all) of those allegations do refer to Antero

individually, Juntti held that was not enough. See Juntti, 1993 WL 138523, at *2.

33 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 34 of 39

To be sure, Juntti involved allegations of affirmative misrepresentations, and in

some cases, a plaintiff alleging fraud by omission or concealment might not have enough

information to allege which individual defendant(s) withheld information. But here,

Lessors failed to identify a specific defendant even where it was possible to do so. In

particular, they presumably knew which individual defendant(s) sent information about the

volumes and sales of gas extracted and royalty payments made. For example, the royalty

payment excerpts included in Exhibit D specifically identify “Antero Resources

Corporation” as the sender. See J.A. 851. Even under a relaxed pleading standard, Lessors

had no excuse for neglecting to identify, in the fraud count itself, which individual

defendants “failed to report . . . that they were extracting and selling liquids from plaintiffs’

natural gas.” J.A. 760. The fraud count leaves open the possibility that Lessors “meant to

charge only some defendants but that all defendants would have considered themselves so

charged.” Juntti, 1993 WL 138523, at *2. For this reason, we conclude that the allegations

did not identify the individual defendants with enough particularity. 12

12 The district court also held that Lessors’ fraud claim was barred by West Virginia’s “gist of the action” doctrine, which requires that alleged fraud be independent of a contractual relationship. See Gaddy Eng’g Co. v. Bowles Rice McDavid Graff & Love, LLP, 746 S.E.2d 568, 577 (W. Va. 2013) (explaining that the “gist of the action” doctrine bars tort actions where “the alleged duties breached were grounded in the contract itself”). Because Lessors failed to plead fraud with particularity, we do not need to resolve that question. At any rate, the district court’s analysis seems well-supported. In the Second Amended Complaint, Lessors identified only one specific duty that was not grounded in the contract: the “duty to account for” the volume and sales of gas extracted from Lessors’ properties. J.A. 757. Lessors do not cite any authority, either from West Virginia or other jurisdictions, that clearly identifies a non-contractual duty to account. See Swearingen v. Steers, 38 S.E. 510, 511 (W. Va. 1901) (describing a “duty to keep and render a strict account of the output [of mining operations],” but in a case where the litigants were parties to a contractual agreement). 34 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 35 of 39

Because Lessors did not sufficiently plead a fraud claim, the district court correctly

dismissed their punitive damages claim. “Generally, absent an independent, intentional

tort committed by the defendant, punitive damages are not available in an action for breach

of contract.” Berry v. Nationwide Mut. Fire Ins. Co., 381 S.E.2d 367, 374 (W. Va. 1989).

While there are some limited exceptions to this rule, see id., none applies here.

IV.

For the foregoing reasons, we affirm the district court’s summary judgment order in

part, vacate in part, and remand for further proceedings consistent with this opinion.

Specifically, we affirm summary judgment as to (1) the leases that are silent on the allocation

of post-production costs and (2) the two leases modified by the Settlement Agreement to

prohibit any deductions, and vacate as to the leases that contain the Market Enhancement

Clause. We affirm the dismissal of Lessors’ fraud and punitive damages claims.

AFFIRMED IN PART, VACATED IN PART, AND REMANDED

35 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 36 of 39

THACKER, Circuit Judge, concurring in part and dissenting in part:

With respect for my colleagues in the majority, while I concur, in part, I also dissent,

in part. I would affirm the judgments and reasoning of the district court across the board.

Corder v. Antero Res. Corp., No. 1:18-cv-30, 2021 WL 1912383, at *1 (N.D. W.Va.

May 12, 2021).

In my view, as to the award of partial summary judgment to Appellees and the denial

of summary judgment to Appellant, the district court did not err in holding that the language

in the leases relied upon by Appellant is insufficient to allow it to deduct any portion of the

costs that it incurred between the wellhead and the point of sale from Appellees’ royalty

payments. Because West Virginia jurisprudence does not suggest that Estate of Tawney v.

Columbia Natural Resources, LLC, 633 S.E.2d 22 (W. Va. 2006) is limited to proceeds

leases, I agree with the majority that the district court properly determined that the leases

at issue are subject to the heightened specificity requirements established in Tawney. Ante

at 11. Tawney mandates that to allocate some of the post-production costs to the lessor,

the language in the lease must:

(1) expressly provide that the lessor shall bear some part of the post-production costs between the wellhead and the point of sale; (2) identify with particularity the specific deductions the lessee intends to take from the lessor’s royalty (usually 1/8); and (3) indicate the method of calculating the amount to be deducted from the royalty for such post-production costs.

Tawney, 633 S.E.2d at 24 (emphasis supplied). As the majority opinion points out, “[t]he

parties’ sole dispute is whether the Market Enhancement Clause satisfies Tawney’s second

36 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 37 of 39

requirement—which requires a lease to identify with particularity the specific deductions

the lessee intends to take—or is otherwise ambiguous.” Ante at 24.

I disagree with the majority’s conclusion, however, that the district court erred in

finding that the terms “marketable form” and “other products,” as used in the Market

Enhancement Clause, are ambiguous. On this point, the district court determined that the

Market Enhancement Clause does not satisfy Tawney’s second prong “because it does not

identify with particularity the costs that [Appellant] may deduct from [the Settling

Appellees’] royalty payments.” Corder, 2021 WL 1912383, at *10. In reaching this

conclusion, the district court held that the term “marketable form” is ambiguous because

the Market Enhancement Clause does not make clear “what efforts must be undertaken to

get oil, gas, and other products into their marketable form.” Id. As for the term “other

products,” the district court found that this term is ambiguous because it is unclear

“[w]hether the parties intended to include NGLs as ‘other products’ within the Market

Enhancement Clause for which [Appellant] bears the manufacturing costs, or intended to

exclude NGLs as ‘other products’ and thereby require [the Settling Appellees] to share the

cost of extracting and fractionating NGLs.” Id. at *9. I agree with the district court.

For their part, the majority relies upon dictionary definitions of the words

“marketable” and “product” in support of the conclusion that “marketable form”

unambiguously means the point in which the product can be marketed or sold, Ante at 24–

25, and that “other products” simply refers to the particular form of natural gas that

Appellant sells. See id. at 25. In my view, the majority’s interpretation of the Market

Enhancement Clause is misguided for two reasons. First, the suggested dictionary

37 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 38 of 39

definitions do not shed any light on when the product becomes marketable nor do they

provide any insight as to which products the parties intended to include in the category of

“other products,” for which Appellant is required to bear the costs associated with

transforming into their marketable form. Second, the majority’s interpretation of the

Market Enhancement Clause is contrary to the spirit of Tawney, as such interpretation

would relieve Appellant of its obligation to specifically identify the costs that it seeks to

deduct from Appellees’ royalty payments. In discussing the Tawney test, the Supreme

Court of Appeals of West Virginia recently noted that the Tawney court “observed that

parties to oil and gas leases are well within their rights to contract for the sharing of post-

production costs if they so choose, but the intent to do so must be clear from the lease

terms.” SWN Prod. Co. v. Kellam, 875 S.E.2d 216, 223 (W. Va. 2022) (emphasis supplied).

That intent is not clear here.

True, the Market Enhancement Clause “requires [Appellant] to cover the costs it

incurs to transform the product into marketable form, but permits [Appellant] to deduct

costs from royalties if they result in enhancing the value of the marketable oil, gas or other

products to receive a better price.” Ante at 24 (citation omitted). But this does not establish

that the Market Enhancement Clause complies with Tawney’s requirement to specifically

identify the post-production costs that the parties clearly intended to share because the

Market Enhancement Clause “fails to indicate when [Appellant’s] efforts become

enhancing rather than transforming.” Corder, 2021 WL 1912383, at *9. As a result, the

lack of clarity as to the what the parties intended to include as deductible post-production

costs precludes a finding that the Market Enhance Clause satisfies Tawney’s second prong.

38 USCA4 Appeal: 21-1716 Doc: 52 Filed: 01/05/2023 Pg: 39 of 39

In sum, the district court’s reading of the Market Enhancement Clause is supported

by the well-settled principle that pursuant to West Virginia law, “the [Settling Appellees]

were entitled to know the specific costs [Appellant] could deduct from their royalty

payments.” Corder, 2021 WL 1912383, at *11. Because Appellant failed to state the costs

that it intended to deduct from the Settling Appellees’ royalty payments with specificity, I

would affirm the district court’s grant of summary judgment in favor of Appellees.

The district court likewise did not err in dismissing Appellees’ fraud and punitive

damages claims. On these points, I concur with the majority that the district court correctly

dismissed Appellees’ fraud and punitive damages claims because Appellees failed to

particularly allege a fraud claim and “absent an independent, intentional tort committed by

the defendant, punitive damages are not available in an action for breach of contract.”

Berry v. Nationwide Mut. Fire Ins. Co., 381 S.E.2d 367, 374 (W. Va. 1989).

Accordingly, I respectfully dissent, in part and concur, in part.