Pennsylvania Attorney General Files Civil Suit Against Chesapeake Alleging Violation Of The Unfair Trade Practices Act

December 14, 2015

On December 9, 2015, the Pennsylvania Attorney General’s (“AG”) office filed a civil complaint against Chesapeake Energy Corp., Chesapeake Appalachia, LLC, Chesapeake Operating, Inc., Chesapeake Energy Marketing, Inc., and Williams Partners, LP. The suit was filed in the Bradford County Court of Common Pleas. A copy of the complaint is available here.

The AG’s lawsuit is based on Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. The AG alleges that Chesapeake engaged in a “bait and switch” scheme involving a market enhancement clause and similar royalty provisions in the leases. The complaint alleges that the market enhancement clause was offered “as an inducement” to Pennsylvania landowners to secure leases of oil and gas rights in the Marcellus Shale in northeast Pennsylvania. The AG further alleges that Chesapeake Energy entered gathering agreements with its midstream unit and then divested its midstream assets. The AG alleges that those transactions “artificially inflated” post production costs to the landowners.

The AG also alleges that the Chesapeake Energy entered transition services agreements and received “a premium in excess of the actual cost of Midstream Services purportedly borne by both the Chesapeake Defendants and Pennsylvania Landowners as allocated by royalty interest; thus, resulting in a scheme of artificially-deflated royalty payments to Pennsylvania Landowners, who are to share in revenue realized related to the sale of gas.”

The complaint seeks restitution, statutory damages, and injunctive relief.

This article was written by Trent Echard, chair of Strassburger McKenna Gutnick & Gefsky’s Oil & Gas Practice Group in Pittsburgh at techard@smgglaw.com or at (412) 281-5423.