Landowners in Virginia are suing Consol Energy Inc. and its CNX Gas Corp.; and EQT Corp. and its EQT Production Co., alleging that coalbed methane (CBM) is being unlawfully produced from their lands. The lawsuits challenge the constitutionality of provisions of Virginia's Gas and Oil Act and could yield billions in compensatory and punitive damages, a plaintiffs' lawyer told NGI.
"They've been...more or less taking somebody's property without compensating them," attorney Peter Glubiak said. "There are lots of twists and turns, but that's the basic premise...that they're taking someone's property and they're not paying for it."
The companies said the lawsuits lack merit and will be fought.
The lawsuits, filed in U.S. District Court for the Western District of Virginia, seek class action status and a jury trial. Plaintiffs could number in the thousands as there are about 6,000 wells drilled in the seven-county gas region of southwest Virginia. "Each of those wells probably has a couple of potential claimants," Glubiak said. "Some of these people at the end of the day may be due a couple hundred dollars. Some people are due hundreds of thousands of dollars or millions."
If the plaintiffs are successful, the payoff will be in the billions of dollars, he said. Mounting such an ambitious class action would not have been possible without the dream team of plaintiffs lawyers assembled by "king of torts" lawyer Don Barrett of Mississippi, a high-profile litigator against tobacco companies, Glubiak said.
"For years defendants have produced CBM from the class members' lands based on defendants' (false) assertion that Consol's coal ownership or leasehold rights provided defendants with the right to produce and sell or use the CBM, thereby taking undue and/or unlawful advantage of certain provisions of the Virginia Gas and Oil Act...that permit the production of CBM in the face of 'conflicting claims' of CBM ownership," the complaint against Consol says. In the lawsuit against EQT, the plaintiffs charge that the company is unlawfully producing CBM via its coal ownership or leasehold rights obtained from coal owners.
Among other things, the lawsuits target Virginia's forced pooling provisions, which are intended to spur development by allowing the pooling of interests in the gas commodity. Issues involved in the lawsuits were the subject of a 2009 series of articles by the Bristol (Virginia) Herald Courier that won the 2010 Pulitzer Prize for public service journalism.
In the cases the two plaintiffs -- landowners Walter Short against Consol and Robert Adair against EQT -- claim that they were subject to involuntary lease of their CBM rights at a royalty rate of one-eighth of net proceeds, which "is a below-market rate and constitutionally deficient," according to the complaint. "Such 'royalties' were not even paid, however, to the class members but were instead deposited into an escrow account and are being held by the Virginia Gas and Oil Board pending judicial resolution of the 'conflicting claims' of CBM ownership."
The plaintiffs are seeking the release of the money being held in escrow. And they also want the other seven-eighths of proceeds from the sale of CBM.
"The provision...of the 1990 Gas Act that sets one-eighth as the royalty rate for deemed leases and/or the provisions of the pooling orders issued by the Virginia Gas and Oil Board mandating a '[one-eighth] net proceeds' royalty rate for deemed leases, are an unconstitutional taking in violation of the Fifth and Fourteenth Amendments to the United States Constitution, and in violation of Article I, Section 11 of the Virginia Constitution..." the plaintiffs claim.
Glubiak said the challenge to the Virginia statute is unprecedented. "There have been suits nibbling around the edges, but to our knowledge the allegation that we've made -- 'It's our gas; you took it; you didn't have a right to take it; you owe us all the money' -- is new ground," he said.
Consol spokesman Joseph Cerenzia told NGI the lawsuit against his company lacks merit and Consol will fight it. EQT Spokesman Kevin West said his company would file a motion to dismiss as the plaintiffs don't have a claim. "Apparently they're unhappy with the [Virginia] statute," West said. "The statute has had the result that the General Assembly intended. In seeking pooling we were doing what the statute gives us a right to do."
Glubiak said he expects about a year's worth of pretrial motions as the producers try to stymie the lawsuits. "This stuff gets complicated and particularly in federal court you can get knocked out of the box before you blink if you don't do it right," he admitted.
Consol and EQT are being targeted, Glubiak said, because they account for about 90% of the production in the region. The companies can look forward to more lawsuits, he said, six to eight targeting different issues. The next lawsuit will include plaintiffs that have been force pooled, and while they have been paid royalties -- rather than having them go into escrow -- they are not being paid what they should be paid, he said.
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