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Federal Class Action Cases Certified in Virginia Royalty Dispute
A federal judge last Monday certified five separate class action cases against EQT Corp. and Consol Energy Corp. that could potentially add up to 15,000 plaintiffs in Southwest Virginia alleging that the companies cheated them out of millions of dollars in royalty payments (see Daily GPI, Sept. 18). In dispute are past payments for coalbed methane (CBM) gas production in the far western corner of the state dating back 23 years.
The lawsuits involve $30 million of disputed company royalty payments into a commonwealth-run escrow account and other claims that allege a significant shortchanging by the two companies: Appalachian natural gas producer (EQT) and Appalachian coal and gas producer (Consol). The escrow account is controlled by the Virginia Oil and Gas Board.
Pittsburgh, PA-based Consol told NGI it disagreed with the federal judge’s decision and will continue to “support and encourage fair, efficient distribution of escrowed royalty proceeds.” It is considering its legal options.
An EQT spokesperson said her company disagrees with U.S. District Judge for the Western District of Virginia James P. Jones’ decision not to adopt Magistrate’s recommendation on the issue of post-production deductions, and it doesn’t believe claims can be resolved on a class-wide basis. “We intend to appeal the ruling to the 4th Circuit Court of Appeals,” she said.
Calling the judge’s action “huge” because he certified all five cases, a lead attorney for the plaintiffs, Mississippi-based Don Barrett, told NGI Thursday that the plaintiffs will seek a summary judgment from the court to force the company to make an accounting of production and costs in their Southwest Virginia operations dating back to 1990. That filing will be made in the next week, Barrett said.
“That is a really big step,” he said, adding that he doesn’t think the two energy producers, which he characterized as “arrogant” in their business dealings with landowners in the far western part of Virginia, will be able to do a proper accounting. “The court has ruled that they have a fiduciary obligation to all these people they’ve taken leases from.” He alleges that the companies have not had proper oversight in Southwest Virginia during the past 25 years from that state’s oil/gas board.
Asserting that the companies need a settlement and he would be willing to entertain one, Barrett said he expects between 10,000-15,000 landowners to join the class action lawsuits. To date, he said, the companies have never expressed any interest in settlement talks. He also thinks the eventual royalty payments will far exceed the $30 million now in escrow.
“The $30 million is pocket change for what these [companies] have taken from the ground.”
On Sept. 12, Judge Jones heard three hours of oral arguments on the five cases, voicing some frustration over the three-year impasse in the cases. He said he would have hoped there had been more of an attempt to settle the disputes.
A central point in the case is who owned the gas: the companies, or the individual property owners. The landowners’ have argued that they do based on a 2004 Virginia Supreme Court ruling they allege supports their case.
For each of the given lawsuits, Jones denied the companies objections and granted the motion for class certification, citing the definition of the class under federal civil rules.
Throughout the three-year-old cases, the companies have said they don’t oppose the release of the escrow funds to “rightful, lawful owners” as determined by Virginia law. They contend that the commonwealth law requires CBM operators to put royalty payments into the escrow account when there is a conflict in ownership.
The landowners had sold their coal interests years ago, but not their CBM interests. The landowners allege that the companies violated Virginia’s Gas and Oil Act of 1990 (see Daily GPI, March 16, 2011; July 12, 2010; June 30, 2010; June 21, 2010).
In November 2010, Magistrate Judge Pamela Meade Sargent denied a motion by the companies to have the cases dismissed. In June 2013, Sargent recommended that four of the five cases be awarded class action status.
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