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NiSource Pays $338 Million in Royalty Class Action Case

December 15, 2008
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A West Virginia circuit court has issued a final approval for a class action settlement with royalty owners under which NiSource Inc. will pay $338.8 million for underpayment of royalties by its former E&P subsidiary Columbia Natural Resources (CNR) [Tawney, et al. v. Columbia Natural Resources]. The subsidiary was sold to Chesapeake Energy in 2005, but NiSource retained primary responsibility in the case.

The case was settled for $380 million, down from the original verdict by a Roane County, WV, Circuit Court of $404 million. Chesapeake's share of the settlement is approximately $41 million. In late October the court had granted preliminary approval for the establishment of a $380 million settlement fund. The order approving the final settlement motion was issued Nov. 22.

A West Virginia jury in January 2007 awarded the $404 million verdict to a group of natural gas royalty owners. The lawsuit claimed that CNR deducted a portion of post-production costs incurred to gather and transport gas to interstate pipelines and that CNR did not pay market value for the gas produced under all the leases, even those providing for payment based on actual proceeds received for the gas (see NGI, July 2, 2007).

The trial jury awarded the plaintiffs $134.3 million in compensatory damages and $270 million in punitive damages, and West Virginia's Supreme Court of Appeals refused to hear the company's request to review the verdict (see NGI, May 26). Merrillville, IN-based NiSource originally had said it would appeal the decision to the U.S. Supreme Court. However, the settlement was recognized by the court on Oct. 24.

NiSource had a reserve set aside for the judgment. A spokesman said the details of the payments to the group are now being worked out.

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