Pennsylvania sues energy company over land contracts

HARRISBURG -- Pennsylvania Attorney General Kathleen G. Kane's office 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,'" 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 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 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 a role in the investigation by sharing information with the attorney general's office.
"This investigation would not have been possible without the cooperation of landowners who spoke with our staff," 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.
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 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.