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Chesapeake, Anadarko Fighting Pennsylvania AG's Royalties Lawsuit

Chesapeake Energy Corp. and Anadarko Petroleum Corp. want a far-reaching lawsuit filed by the Pennsylvania Attorney General's (AG) office to be moved from state to federal court. They accuse the state's top prosecutor of invoking federal law to recover restitution, civil penalties and court costs for thousands of landowners.

The companies filed the notice last week with the U.S. District Court for the Middle District of Pennsylvania requesting that the court assume jurisdiction in the case and that all proceedings in the Bradford County Court of Common Pleas, where the lawsuit was originally filed last December, be stayed.

AG Kathleen Kane filed the lawsuit against Chesapeake and some of its subsidiaries last year after an extensive investigation (see Shale DailyDec. 9, 2015). It accuses the company of unfairly deducting post-production costs from royalty checks to cover marketing costs, including compression, dehydration and transmission. The complaint has been amended twice.

The AG has asserted antitrust claims under Pennsylvania's Unfair Trade Practices and Consumer Protection Law. Anadarko was added to the lawsuit in the first amended complaint when the state accused the companies of allocating certain properties for the acquisition of leases that it claims resulted in lower bonus payments and royalties.

The defendants filed to dismiss the antitrust claims, arguing that Pennsylvania does not have a state antitrust statute like others do. The companies argued that instead of responding to their objections, the AG's office filed a second amended complaint in which it asserted that joint ventures between the companies violated the Sherman Act and the Federal Trade Commission Act.

The companies claim in their notice that it was the first time in state history that an attorney general has sought to assert antitrust claims in state court.

"It also bears emphasis that the the attorney general alleged violations of the Sherman Act and the Federal Trade Commission Act only after defendants made clear in their preliminary objections that there can be no state antitrust claim under Pennsylvania law," the companies wrote in their notice to remove the case from state court. "The attorney general's invocation of federal law requires that this case be heard in federal court."

AG spokesman Jeffrey Johnson said the office is in the process of preparing a motion to remand the case back to the Bradford County Court of Common Pleas, adding that it has 30 days from the time of the defendants’ filing to do so.

"Contrary to assertions made by the defendants, the Office of Attorney General has previously filed common law antitrust actions in state court," he said.

Chesapeake has been accused in various courts of underpaying royalties and has settled in some of those cases. The AG's office believes at least 4,000 Pennsylvania landowners could be involved in its case (see Shale DailyDec. 10, 2015). It has estimated that the companies could be forced to pay tens of millions of dollars in damages if the lawsuit is successful.

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