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Chesapeake Loses Bid to Change Venue; PA Royalties Lawsuit Remanded to State Court

A federal judge has decided that the Pennsylvania Attorney General's (AG) royalties lawsuit against Chesapeake Energy Corp. and Anadarko Petroleum Corp. should be heard by a state court.

Chief Judge Christopher Conner of the U.S. District Court for the Middle District of Pennsylvania ruled in favor of the AG's office, ordering on Monday that the case be remanded back to the Bradford County Court of Common Pleas, where it was originally filed.

In a notice filed in May 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 Daily, June 2). The companies argued that the state does not have an antitrust statute like others do.

But Conner found that the complaint does not raise the kind of issue that would conflict with the federal-state balance. He said the companies failed to show that federal jurisdiction is proper and noted that the state disavows any federal claims in its lawsuit and instead brought the action properly under state law. The AG’s office filed a motion in June to remand the case back to the Bradford County court (see Shale Daily, June 20).

The state filed its lawsuit against Chesapeake and some of its subsidiaries last year (see Shale Daily, Dec. 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 the Federal Trade Commission Act.

Chesapeake has argued that state law allows it to recover post-production costs such as those for compression, dehydration and transmission.

In separate news, AG Kathleen Kane was convicted Monday of felony perjury charges for orchestrating a grand jury leak coverup. Information was passed to a state newspaper in what prosecutors called an abuse of power. She resigned on Tuesday. It's unclear how that decision could affect the royalties lawsuit or other cases she has pursued while in office.

The AG's office has said thousands could be involved in its case against the companies. It has estimated that they could be forced to pay tens of millions of dollars in damages if the lawsuit is successful.

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