On Wednesday, the Tenth Circuit, in Abraham v. BP America Production Company, reversed a $13 million jury verdict against the defendant in a royalty dispute because irrelevant and prejudicial evidence was admitted. The decision, by Judge Paul Kelly, contains an important reminder that a party cannot introduce improper evidence and stress it to the jury, and then later argue that the error was harmless.
The plaintiff royalty owners brought a class action against BP America, alleging that the company underpaid royalties on natural gas in New Mexico’s San Juan Basin. Two kinds of royalty agreements were at issue. The first was a “market-value” lease, in which the royalty is based on the market value of unprocessed natural gas at the time it comes out of the ground at the well. The second kind is known as a “same-as-fed” lease, in which the royalty is calculated at the same rate as royalties to the federal government.
The plaintiffs claimed that BP America improperly calculated the “market-value” royalties, and as part of their case they offered evidence that ConocoPhillips — another major natural gas producer in the San Juan Basin — had been paying its “market-value” leases on a presumably more generous “same-as-fed” basis, which did not require ConocoPhillips to calculate the market value of the gas at the well.
BP America filed a motion in limine to exclude this evidence, arguing that ConocoPhillips’ “same-as-fed” practices were irrelevant to the proper calculation of the market value of natural gas at the well. The motion was denied, and at trial, the plaintiffs introduced evidence of ConocoPhillips’ methods, and stressed them in opening and closing statements, arguing that BP America should have imitated the more generous practice employed by ConocoPhillips.
The Tenth Circuit held that evidence of ConocoPhillips’ practices, which did not require it to calculate the market value of gas, were irrelevant in a case where the issue was whether BP America had properly calculated the market value of the natural gas on which it owed royalties to plaintiffs.
Judge Kelly’s opinion also holds that this evidence was not harmless, despite the presence of a limiting instruction, because the plaintiffs took evidence from a ConocoPhillips representative, referred to ConocoPhillips’ practices repeatedly in opening and closing statements, and argued that ConocoPhillips’ practices were “right” and “fair.” The Tenth Circuit reversed and remanded for a new trial.
Abraham is a reminder of an important aspect of harmless error review, which is that if you introduce irrelevant and prejudicial evidence at trial, and invite the jury to rely on it, then you will likely not convince an appellate court later on that the improper evidence was harmless. As attorneys it is important for us to zealously represent our clients, but we must also be careful not to inject error into a case.