A Pennsylvania appellate court handed the state attorney general’s (AG) office a victory last week, finding that it may move ahead with a wide-ranging lawsuit against Chesapeake Energy Corp. and Anadarko Petroleum Corp. for deceptive business practices.

A lower court in late 2017 had rejected most of the companies’ preliminary objections to dismiss the case, which the Pennsylvania Commonwealth Court partially affirmed last Friday. The state filed its lawsuit against Chesapeake and some subsidiaries in 2015. It accuses the companies of unfairly deducting post-production costs from royalty checks to cover marketing expenses in violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.

Since they had leased subsurface mineral rights, the producers argued that they were only buyers in the transactions and not sellers whose conduct was subject to the state law. The trial court rejected that argument. In a 6-1 ruling the Commonwealth Court agreed, finding that the AG’s case is justified because leasing constitutes the kind of trade and commerce covered by the state’s consumer protection law. 

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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 antitrust laws. However, the appellate court disagreed, finding that the companies’ joint venture and market sharing agreements were not in violation of the consumer protection law, partially reversing the lower court’s decision.

Chesapeake spokesman Gordon Pennoyer said while the company was satisfied with that aspect of the Commonwealth Court’s opinion, it plans to appeal to the Pennsylvania Supreme Court. He said the AG’s claims under the consumer protection law are novel.

“As stated in the dissent’s opinion, the majority’s decision is ‘judicial overreach’ because the AG has no statutory authority to bring this claim,” Pennoyer said. “Having already reached comprehensive settlements resolving the vast majority of Pennsylvania royalty claims, Chesapeake will continue to pursue resolution of this matter with the AG so that our royalty owners can enjoy the benefits of those settlements and choose their royalty formula going forward.”

Chesapeake and other operators have faced similar claims across the country, and the Oklahoma City-based producer has reached separate settlements with other landowners in the state. Last August, Chesapeake reached a tentative agreement for a $7.75 million settlement with about 10,000 landowners in the northeastern part of Pennsylvania.

Former AG Kathleen Kane brought the initial case against Chesapeake, which has operations in northeastern Pennsylvania. Anadarko has since exited the Appalachian Basin.

Current AG Josh Shapiro called the Commonwealth Court’s opinion a victory, saying that he’s “fighting for landowners who we charge have been ripped off, and my office will continue to pursue this case on behalf of Northeast Pennsylvanians.”