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Pennsylvania AG Pushes to Keep Chesapeake Royalties Lawsuit in State Court

The Pennsylvania Attorney General's (AG) office has pushed back against Chesapeake Energy Corp. and Anadarko Petroleum Corp.'s efforts to have a far-reaching royalties lawsuit be decided by a federal, rather than a state court, arguing it has the right to prosecute antitrust violations and protect the state's landowners.

In a brief supporting its motion to remand the case back to the Bradford County Court of Common Pleas, the AG called the defendants' attempt to remove the case to the U.S. District Court for the Middle District of Pennsylvania "frivolous dilatory," essentially accusing the companies of stall tactics, adding that the effort is both "procedurally and substantively infirm."

AG Kathleen Kane filed the lawsuit against Chesapeake and some of its subsidiaries in the Bradford County court last year (see Shale DailyDec. 9, 2015). It accuses the companies of unfairly deducting post-production costs from royalty checks to cover marketing costs. The complaint has been amended twice and the AG has asserted antitrust claims under Pennsylvania's Unfair Trade Practices and Consumer Protection law.

Anadarko was later added to the lawsuit when the state accused the companies of allocating certain properties for the acquisition of leases that it claims resulted in lower bonus payments and violated the Sherman Act and Federal Trade Commission Act.

In a notice filed last month to move the case to federal court, the companies accused the state of invoking federal law to recover restitution, civil penalties and court costs for thousands of landowners (see Shale DailyJune 2). They claimed that it was the first time in state history that an AG has sought to assert antitrust claims in state court and argued that Pennsylvania does not have a state antitrust statute like others do. But the AG claimed at the time that it had previously filed common law antitrust actions in state courts.

The office maintained that argument in its brief, saying the defendants "deceived and misled Pennsylvania landowners," adding that its civil action represents an exercise in police power to prevent violations of the Unfair Trade Practices and Consumer Protection law. The AG argues that it is "expressly authorized" to prosecute state antitrust law and cited several cases in which it has done so.

According to the lawsuit, Chesapeake obtained leases and promised landowners certain royalty amounts, but underpaid them once wells started to produce, which the company has argued is allowed under state law to cover costs such as compression, dehydration and transmission. The lawsuit also alleges that landowners were told certain lease provisions prevented them from incurring charges to extract and market natural gas. Landowners, according to the complaint, were later told the leases permitted such charges.

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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