NiSource Inc. has lost an attempt to overturn a $270 million punitive damage award that tops off $134 million in compensatory damages for underpayment of royalties in West Virginia, but the company vows it will fight on. A Roane County, WV judge Thursday ruled against a motion to set aside the punitive damages portion of the jury verdict that was issued in January (see Daily GPI, Jan. 30).

The judgement came in a case filed in 2003 against Columbia Natural Resources (CNR), a former NiSource subsidiary which has since been sold to Chesapeake Energy. NiSource still has primary responsibility in the case, but Chesapeake also is named as a defendant.

There are still a few procedural steps at the trial court level, a spokesman said Thursday. Meanwhile, NiSource attorneys are reviewing the order to determine their pursuit of an appeal in the case of Tawney, et al. v. Columbia Natural Resources.

The current challenge was just aimed at the jury determination of punitive damages. “We continue to be convinced CNR operated in good faith and in a reasonable manner. Punitive damages are not merited in this case at any level,” said Karl Brack, NiSource communications vice president. While the interpretation of the contracts may be open to dispute, “there certainly is no basis for fraud accusations and no basis for punitive damages.”

The $400 million jury verdict issued Jan. 27 by the court in Spencer, WV favored the class action plaintiffs, natural gas royalty owners who allege that CNR underpaid royalties by deducting a portion of post-production costs incurred in order to gather and transport gas to interstate pipelines and by not paying market value for gas produced under all leases, even those providing for payment based on actual proceeds received for the gas.

A defense attorney claims the deduction of some post-production costs from the gas value before royalties are calculated is standard practice in the state, and all producers operating in West Virginia could be subject to the same charges.

The next step would likely be an appeal to the West Virginia Supreme Court.

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