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Chesapeake Royalties Lawsuit Remanded to Ohio District Court

A federal appeals court in Cincinnati has remanded back to a Youngstown, OH, district court a class action lawsuit against Chesapeake Energy Corp., which holds leases from predecessor operators that allegedly underpaid natural gas royalties to Ohio landowners for more than a decade.

In a 23-page opinion issued Wednesday, U.S. Court of Appeals Judge Richard Allen Griffin remanded back to the U.S. District Court in Youngstown, OH and said it had erred when it dismissed a class action lawsuit two years ago in part on the grounds that Ohio's four-year statute of limitations had expired (Lutz et al v. Chesapeake Appalachia LLC et al, Nos. 10-4538 and 11-3034).

Chesapeake didn't own the leases in question until 2005, but the underpayments were allegedly begun at least 12 years before then.

The leases under scrutiny were signed beginning in 1985 with Columbia Natural Resources Inc. (CNR), a division of Columbia Energy Group (CEG), for properties in Mahoning and Trumbull counties. According to court documents, the plaintiffs allege that CNR began underpaying gas royalties beginning in at least 1993, and then attempted to conceal the underpayments. The plaintiffs also allege that CNR and its successors defrauded them of full royalty payments over a six-year period, from 2000 to 2006.

NiSource Inc. acquired CEG and CNR in 2000 and later sold CNR to Tirana Energy Holdings LLC in 2003. Chesapeake in turn acquired CNR from Tirana in 2005, and it then effectively became the successor lessee on the leases that the predecessor companies held.

"Viewing the complaint in a light most favorable to plaintiffs and taking their well-pled allegations as true, we conclude that the district court erred when it held that [the] defendants' actions in making monthly royalty underpayments over the course of many years were an inseparable continuation of the original breaches that allegedly began in 1993 and 2000 and that [the] plaintiffs' claims were barred in their entirety," Griffin wrote. "These detailed factual allegations, which include specific dates and an identification of what facts were misrepresented, are sufficient to allege that defendants wrongfully concealed their actions."

Griffin noted that the plaintiffs "could have made their fraudulent concealment argument more prominent in their opposition to [the] defendants' motion to dismiss, but they nonetheless presented the argument, and the district court failed to consider it."

"This is a good day for the Ohio landowners in this case," said lead plaintiffs' attorney Robert Sanders. He told NGI's Shale Daily on Wednesday, "We are optimistic" that the plaintiffs "will eventually be paid the full royalties due them."

Chesapeake is represented by McGuire Woods LLP attorneys Jonathan Blank, Philip Goldstein and Yvette Harmon.

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