This case arises out of an oil and gas royalty dispute between Flat River Farms and MRC Energy Company. Plaintiffs produced a one-page expert report prepared by George E. McGovern III, CPA, a certified public accountant (“CPA”). Based on his expert report, McGovern was tasked with determining if Plaintiffs’ royalties as determined by the Lease were underpaid. The report contains the following conclusions:
- MRC received consistently lower payments for well production than industry standards.
- MRC was not charged for expenses related to gas preparation.
- The operator’s payment method doesn’t adhere to GAAP standards.
- The operator transferred production ownership to a third-party at below-market cost. A third-party marketer then prepared the product for sale.
- The gas’s monetary value to MRC and royalty payments were discounted to cover expenses and lease burdens
The Court addressed two motions relating to McGovern filed by Defendant MRC Energy Company (“MRC”). McGovern is Plaintiffs’ expert witness. The first motion is a Daubert motion to exclude the testimony of McGovern. More specifically, MRC seeks to exclude or limit at trial any opinion testimony from McGovern on the element of damages. MRC contends that McGovern’s expert testimony is not based on sufficient facts or data, his testimony is not the product of reliable principles or methods, and he has not reliably applied the principles and methods to the facts of this case. MRC submits that his testimony would only serve to confuse the trier of fact.
The second motion is a motion in limine to exclude McGovern’s expert testimony and report on the grounds that McGovern is unqualified to provide an expert opinion in this case and his testimony is not the product of reliable principles and methods.
Accounting Expert Witness
George E. McGovern III has been a Certified Public Accountant since 1972. He worked for international accounting firm Touche Ross (now Deloitte Touche) and was a full time accounting professor at Centenary College for eight years. He has qualified as an expert in oil and gas accounting, and testified as such in numerous cases across multiple jurisdictions.
Discussion by the Court
McGovern could not explain the basis of his conclusion
During his deposition, McGovern was unable to explain his opinions in conjunction with actual evidence or analysis. He could not recall the prevailing industry rate for the respective time period and did not recollect the documents or information he had or that he used to establish the prevailing industry rate. He also could not explain the basis of his conclusion that MRC was paid at a price that was consistently lower than the prevailing and industry standard price for the respective time period.
MRC contended that McGovern was unqualified to provide an expert opinion in the case
To begin with, McGovern admitted that he had not prepared for the deposition. Based on the contents of the report and McGovern’s deposition testimony, MRC contended that McGovern was unqualified to provide an expert opinion in the case and that his report was not based on any reliable facts or data. MRC submitted that McGovern was unqualified to provide an opinion regarding the various methods of allocating and recouping expenses, and the various methods in which non-operating working interest owners were assessed costs, directly or indirectly, in the oil and gas production process. Besides, MRC maintained that McGovern’s trial testimony would not be the product of reliable principles and methods, and that he had not reliably applied the principles and methods to the facts of the case.
The Court agrees that portions of McGovern’s opinions are not sufficiently grounded in any actual evidence or analysis, thereby rendering them void of the necessary indicia of reliability. Without more reliable methodology and factual support for his analysis, McGovern’s opinion that the per unit monetary value of the gas received by MRC, and upon which it paid royalties to Plaintiffs, does not reflect the true price, but rather a discounted price to account for the deduction of expenses and other lease
burdens is inadmissible and would not be helpful to the jury. Rule 702 requires this Court to exercise its role as a gatekeeper and exclude such unreliable expert opinion. McGovern can provide no testimony regarding money, numbers or claimed damages as it relates to the instant matter. Notwithstanding, he is qualified as a CPA to opine on generally accepted accounting principles (“GAAP”) applicable to oil and gas royalty payments. Additionally, assuming the proper foundation is laid, McGovern may be able to opine generally on allocation of production and recouping expenses.
Held
In conclusion, the Court granted in part and denied in part MRC’s motions to exclude McGovern’s expert testimony.
Key Takeaway:
MRC contended that McGovern’s testimony is not based on sufficient facts or data and he is unqualified to provide an expert opinion in this case. The Court held that McGovern can provide no testimony regarding money, numbers or claimed damages as it relates to the instant matter. Notwithstanding, he is qualified as a CPA to opine on generally accepted accounting principles (“GAAP”) applicable to oil and gas royalty payments.
Case Details:
| Case Caption: | Flat River Farms L L C Et Al V. M R C Energy Co |
| Docket Number: | 5:19cv1249 |
| Court: | United States District Court, Louisiana Western |
| Order Date: | July 30, 2024 |
Leave a Reply