Office of Attorney General lawsuit seeks millions in restitution from energy producer accused of deceptive practices in fracking industry 

HARRISBURG — Pennsylvania Attorney General Kathleen G. Kane's office today announced it has filed a lawsuit against Chesapeake Energy Corp., the country's second-largest producer of natural gas, and its affiliates amid allegations the companies underpaid landowners' royalties associated with fracking.

The lawsuit alleges that Chesapeake and other defendants engaged in deceptive conduct in securing fracking leases from Pennsylvania landowners. These alleged deceptive business practices occurred as part of a rush to lock up acreage in the Marcellus Shale region, the country's largest natural gas field that runs through much of the Commonwealth.

"This alleged conduct amounts to a 'bait-and-switch,'" Attorney General Kane said. "Pennsylvania landowners were deceived in thousands of transactions by a company accused of similar conduct in several other states. This lawsuit should serve as notice that we will not allow our residents to be exploited."

The lawsuit, which was filed in the Bradford County Court of Common Pleas, seeks restitution for thousands of consumers, civil penalties and legal costs. It was the result of an extensive investigation by the Office of Attorney General's Antitrust Section and Bureau of Consumer Protection. The investigation focused on counties in northern Pennsylvania.  

According to the lawsuit, the defendants obtained leases and promised lessors certain amounts of royalties, but then delivered something different in royalty payments after gas wells started producing and the defendants began making royalty payments to landowners. Additionally, the lawsuit alleges that landowners were told certain lease provisions prevented them from incurring charges for the extracting and marketing of natural gas. They said they were later told the leases permitted such charges.

As a result of the misrepresentations, Chesapeake and other defendants allegedly took deductions and, in some cases, made retroactive deductions of post-production expenses from royalty checks. These practices occurred despite landowners' claims that their leases contained the necessary language to prohibit such deductions.

The Office of Attorney General's investigation of this matter required a significant examination of the fracking industry to identify the unfair methods of competition and alleged deceptive acts or practices in violation of the Unfair Trade Practices and Consumer Protection Law.

Hundreds of landowners also played an integral role in the investigation by sharing information with the Office of Attorney General.

"This investigation would not have been possible without the cooperation of landowners who spoke with our staff," Attorney General Kane said.   

The lawsuit requests the court to order the defendants to:

  • Pay restitution to all persons who have suffered losses as a result of the defendants' conduct.

  • Pay civil penalties of $1,000 for each violation of the Unfair Trade Practices and Consumer Protection Law, and $3,000 for each violation involving a person 60 years old or older.

  • Permanently refrain from any practice that violates the Unfair Trade Practices and Consumer Protection Law.

In addition to Chesapeake Energy Corp., the other affiliates named as defendants in the lawsuit are Chesapeake Appalachia, LLC; Chesapeake Operating, Inc. and Chesapeake Energy Marketing, Inc. Williams Partners, LP, which owns and operates infrastructure used in the fracking industry, is also named as a defendant.

Pennsylvanians who feel they were victimized by these or other companies should file a complaint with the Office of Attorney General's Antitrust Section by calling 717-787-4530 or by submitting a complaint at www.attorneygeneral.gov.

The lawsuit was filed by Chief Deputy Attorney General Tracy Wertz, Senior Deputy Attorney General Joseph S. Betsko and Senior Deputy Attorney General Norman W. Marden, all of the office's Antitrust Section. The Antitrust Section is tasked with protecting the free enterprise system by detecting anti-competitive practices and taking legal action to stop them. Senior Deputy Attorney General John Abel, of the office's Bureau of Consumer Protection, also worked on the investigation.  

The Office of Attorney General is also filing an amicus curiae brief in the U.S. District Court for the Middle District of Pennsylvania advising the court of this lawsuit. The brief urges the court to reject the proposed settlement of the Demchak class action in its current form.

The office requests that the court modify the Demchak Settlement Agreement and Release to clarify that the class does not have standing to bring the claims asserted by the Office of Attorney General and therefore cannot release the office's claims through the settlement.

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Why $3000.00 cival penalties for someone over sixty?

Ohio attorney General ,TAKE NOTE! better yet ,TAKE ACTION!

You Go Bo!

I've also called the Ohio attorney General and they don't care. I told the person I spoke with that "Big oil must of have bought you too" she didn't like that.

FRACKING INDUSTRY?  Who writes these articles?  A little research might help make them better.  Regardless, good news for landowners.

Patrick, Elder abuse! When law was written 60 was "old". LOL

Ok, here is a bit of info I learned just this week.   I attended a presentation by the Belmont and Monroe Ohio extension offices on the pros and cons of selling minerals and selling royalties.  No mineral buyers or representatives were present.   Extension personnel and a lawyer did the presentation.  Of course some other questions were asked. 

Now the following is my retelling of what was stated and obviously I am not a lawyer.   The  advice was people/neighbors in a unit need to work closely together and if they feel something is wrong with the royalties, deductions etc  have an audit done.   Then CPAs begin to compare notes, see patterns and start talking to other people who can do something about it, namely the Attorney General's office.

The following is my opinion from what was said evidence has to be gathered and a pattern of fraud, theft, deception whatever the problem is needs to be seen.  So folks of southeast Ohio and eastern Ohio love your neighbors, work together and don't allow the  "good ole boys and gals" to win.  Talk with other units who have the same oil and gas company as your lease. Work together to make a giant squeaky wheel that will get greased well!

This is very good news, long overdue.  It is good news for Chesapeake Lessors, of course.

But more important for many of us, it is great news in that it sends a signal to other gas companies operating in PA that lying and cheating, as widely practiced by Chesapeake, will not simply be tolerated.

Tolerance by government, for such corporate behavior, can all too easily be interpreted as encouragement to engage in that behavior.  And that is not a good thing for landowners.  So it's wonderful that Chesapeake is receiving some push back from the PA Attorney General.  Let's hope other gas companies are paying attention . . and you can bet they are!!  

Very well said Frank. For Ohio mineral owners... this was a long process and it will take some organization and persistence to be heard. Don't give up, you need to organize and educate those affected, help them feel empowered to act. NARO PA (National Association of Royalty Owners, PA Chapter) has a strong network of members in the Northeast that meet several times year for just that, education and valuable networking. We have encouraged members and other to take an active role in managing their mineral assets, they won't always prevail but they will never prevail if they sit helplessly by and do nothing. Take your leases and royalty checks to the capitol, show your elected officials what is happening, file complaints with the AG.  

Thank you, Jackie.  Following your lead, for whatever help it might be to distressed Ohio landowners:

An important part of the spearhead leading to this most recent action against Chesapeake came not at the local level, and not at the state level, but at the county level.  Bradford County is the second largest county in the Commonwealth of Pennsylvania, only slightly smaller in land area than the State of Rhode Island.  It also is the county with the most intense natural gas development.  These things came together and proved helpful, as follows:

All the anger, from so many cheated landowners, was focused like a laser beam on just three individuals, the Bradford County Commissioners.  They acted unanimously with a formal request to the PA Attorney General to investigate Chesapeake.

Because I live in Pennsylvania, I do not know Ohio very well.  But I suspect the counties there are smaller.  This diffuses dissatisfaction across many more county leaders than was the case in Bradford County, PA.  That's not good for landowners, but it is a fact of life.  If, in Ohio, a number of producing counties could somehow be brought together, could be united and speak with a single voice, to act in concert with a demand for justice, perhaps something akin to what happened in Pennsylvania could be accomplished.

Short of that, I'm afraid the gas company's "divide and conquer" strategy will continue to bear fruit.

All the landmen and executives have gotten their pays, commissions, and bonuses, and no one will be held personally responsible. Companies dont break the law, people do. CHK will probably just appeal over and over again, dragging it out forever, or might just go belly up and restart under another name. One thing I've learned about crooks, is that they're always ready to launch a new scheme. I hope they put some real teeth in this judgement and go after the parties that authorized the "creative accounting".
Anyone else wondering if Chesapeake ends up going bankrupt before this shakedown finalizes? Short sale anyone?

Also it's usually a tell that the writer is either ignorant or anti drilling when they refer to everything as fracking but that's besides the fracking point.

Also Ron Hale must be happier than the grinch the day his heart grew 3 sizes!

Chesapeake is everything that's wrong with oil and gas development with their practices and makes an industry with enough enemies as is more enemies. I'm hoping they get bought out by someone else so we never have to hear about them again (Ron Hale).

Happy Holidays!

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