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Broader Chesapeake Settlement Derailed by Pennsylvania AG's Lawsuit

A proposed $17 million class action settlement between Chesapeake Energy Corp. and more than 15,000 Pennsylvania landowners that has been in the works for nearly three years could be delayed again by a similar lawsuit filed in December by the state Attorney General (AG).

Late last month, shortly after AG Kathleen Kane's office filed a wide-ranging complaint against Chesapeake and some of its affiliates for deceptive marketing practices, attorneys for the plaintiffs and Chesapeake asked a federal judge to postpone the settlement approval hearing that had been scheduled for Feb. 2, citing the AG's overlapping claims.

Originally reached in August 2013 for $7.5 million between Chesapeake and a little more than a dozen landowners, the settlement class has swelled to more than 15,000 potential members that were expected to receive portions of an estimated $17 million, said attorney Michelle O'Brien last month, who represents the lead plaintiff, Demchak Partners LLP (see Shale DailyDec. 8, 2015Sept. 4, 2013). Like the AG’s complaint, the Demchak lawsuit alleged that Chesapeake unfairly deducted post-production fees from royalties to cover marketing costs, including compression, dehydration and transmission.

The AG's lawsuit seeks restitution for thousands of consumers, legal costs and civil penalties for violations of the Unfair Trade Practices and Consumer Protection Law (see Shale Daily, Dec. 10, 2015Dec. 9, 2015). It filed a brief in the Demchak case asking the U.S. District Court for the Middle District of Pennsylvania to reject the proposed settlement. The office requested that the settlement be modified to clarify that the class does not have standing to bring claims asserted by the state so that the AG's claims are not released through the Demchak case.

More specifically, the brief said the state has asserted violations of the Unfair Trade Practices and Consumer Protection Law that the class members cannot individually bring due to lack of standing. While it does not object to any other terms of the proposed settlement, including the value, the state has requested a "carve-out" of its claims from the release language so they're not thrown out should the settlement be approved. It has urged the court to reject the settlement unless it is modified.

Both the plaintiffs and Chesapeake agreed to postpone the Feb. 2 hearing, and late last month a federal judge approved their request. Both parties are due back in court on Feb. 16 to reschedule the final hearing and offer a status update.

Under the terms of the Demchak settlement, eligible parties must reply to exclude themselves from proceedings, object or file comments. If they do nothing, they would remain class members under the terms of the settlement, risking their ability to sue the company in the future and other court costs would be deducted from any award they receive. The case docket shows that several parties have already filed objections to the settlement or opted out.

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