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.
Perhaps the significance of the A-G's action is that going forward, the lines will be more clearly drawn so that future Royalties to the landowner cannot be scammed away. As for what has happened so far, it's most likely that the landowners will receive but pennies on the stolen dollars, the law firms will make out well, and the corporations will have to restructure to avoid the crushing debts that they will be held for. No one will be held personally liable for anything, jail time is probably out of the question, and the heads of the corporations will try to be more clever next time. To the small guy (you & me) we will not be made whole, but possibly can look forward to less cheating and outright theft.
How do any settlements affect WV owners? Marion Co. in particular
If the Attorney General's suit is successful certain Lessor's will be made whole and without attorney fees. Hopefully Lessors that haven't already will now file a complaint with the AG, the more that come forward the stronger the case. The Demchak v Chesapeake settlement only applies to Pennsylvania leases, clearly one of the requirements.