This excerpt taken from the REXX 10-K filed Mar 11, 2009.
PennTex Illinois and Rex OperatingH2S Class Action Litigation
PennTex Illinois and Rex Operating are defendants in a class action lawsuit that has been filed in the United States District Court for the Southern District of Illinois. This action was commenced on October 17, 2006, by plaintiffs Julia Leib and Lisa Thompson, individually and as putative class representatives on behalf of all persons and non-governmental entities that own property or reside on property located in the towns of Bridgeport and Petrolia, Illinois. The complaint asserts that the operation of oil wells that are controlled, owned or operated by PennTex Illinois and Rex Operating has resulted in serious contamination of the class area with H2S. The complaint asserts several causes of action, including violation of the Illinois Environmental Protection Act, negligence, private nuisance, trespass, and willful and wanton misconduct. The complaint was amended in March 2007 to add a claim for alleged violation of Section 7002(a)(1) of the Resource Conservation And Recovery Act. The complaint seeks, among other things, injunctive relief under the Illinois Environmental Protection Act and Illinois common law, compensatory and other damages, punitive damages, and attorneys fees and costs. In addition, the complaint seeks the creation of a court-supervised, defendant-financed fund to pay for medical monitoring for the plaintiffs and others in the class area. PennTex Illinois and Rex Operating have filed a joint answer to the amended complaint denying virtually all of the allegations in the amended complaint and asserting affirmative defenses thereto.
On December 20, 2006, the plaintiffs filed a motion for class certification requesting that the court certify the case as a class action. On January 26, 2007, the court issued a scheduling and discovery order establishing deadlines for completing discovery and briefing relating to the plaintiffs motion for class certification. The original order provided for an August 2007 deadline for the completion of pre-certification discovery and the filing of the last brief on class certification issues; however, in August 2007, and again in October 2007, the scheduling and discovery order was amended to extend these deadlines to January 2008. The parties to the lawsuit exchanged initial pretrial disclosures as required under the applicable rules, and each side served and responded to pre-deposition written discovery. In addition, the defendants deposed each of the named plaintiffs and each of the plaintiffs expert witnesses offered in support of the plaintiffs motion for class certification. The plaintiffs did not elect to depose the defendants expert witnesses offered in support of their opposition to class certification.
The plaintiffs filed an amended motion for class certification on January 22, 2008. PennTex Illinois and Rex Operating filed a joint motion opposing class certification on February 22, 2008, and various supplements were filed by both parties after that date. On December 19, 2008, the district court issued a preliminary ruling on
certification, indicating its conclusion that several of the class action prerequisites were met and that it was likely to certify a class to adjudicate two issues relating to the emission of H2S in the putative class area, while reserving all remaining issues for subsequent individual adjudications. The district court denied the plaintiffs motion to certify a class in reference to the plaintiffs medical monitoring claim. The district court requested that the plaintiffs submit a revised class definition consistent with its order, which was submitted by the plaintiffs on January 16, 2009. On January 28, 2009, the defendants filed an objection to the plaintiffs revised class definition and requested that the district court deny the plaintiffs motion for class certification.
On February 26, 2009, the district court issued an order approving the geographic scope of the plaintiffs revised class definition. In its order, the district court denied plaintiffs request to include all residents and landowners within the geographic area of the class owning property since October 17, 2006, the date the lawsuit was filed, and limited the class to only current property owners. To date, the district court has not set a date for the final pre-trial conference or a trial date. On March 11, 2009, PennTex Illinois and Rex Operating filed a petition for leave to appeal with the United States Court of Appeals for the Seventh Circuit to appeal the class certification order on an interlocutory basis.
We believe that there is no evidence that any H2S gas emissions from any of our facilities have caused any damage or injury to any person or property, and we intend to vigorously defend against the claims that have been asserted against PennTex Illinois and Rex Operating in this lawsuit. Because this lawsuit is in its initial stages, however, and because it is usually difficult to predict the outcome of litigation, we are unable to express an opinion with respect to the likelihood of an unfavorable outcome or to estimate the amount or the range of potential loss should the outcome be unfavorable to us.
Pursuant to the terms of a pollution liability policy with Federal Insurance Company, we have insurance coverage for possible damages relating to claims made in this lawsuit for up to $1,000,000. In addition, in accordance with the terms of the pollution liability policy, Federal Insurance Company has agreed to conduct our defense in this lawsuit at the insurers expense. Under the terms of a written agreement with us, Federal Insurance Company has agreed to pay a substantial portion of our costs and expenses relating to the defense of this lawsuit, including attorneys fees. Under the terms of our agreement, we are required to pay the costs and expenses relating to the defense in excess of the amounts payable by Federal Insurance Company.