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Pa. court clears attorney general's case over Chesapeake's royalty payments

An appeals court sided with the Pennsylvania attorney general in a lawsuit alleging that Chesapeake Energy Corp. cheated landowners out of monthly royalty checks from their leased land.

The Commonwealth Court of Pennsylvania ruled March 15 that the attorney general can bring a cause of action against the company for alleged violations of the state's antitrust common law and consumer protection law, even though the landowners were technically sellers and not consumers in the deal, as the attorney general "is imbued with the express authority to file suit against 'any person,' whenever ... [such] proceedings would be in the public interest," the ruling said.

The attorney general also claimed that Chesapeake and Anadarko Petroleum Corp. split portions of northeastern Pennsylvania in the Marcellus Shale play between them, which resulted in the companies having exclusive areas to get leases from without the need to give competing offers to potential leasing landowners. The court rejected this allegation, saying the claim is insufficient and cannot be defined as an unfair or deceptive practice. (Anadarko Petroleum Corp. et al v. Commonwealth of Pennsylvania et al; Chesapeake Energy Corp. et al v. Commonwealth of Pennsylvania)

The office of the attorney general filed the case in 2015, alleging that Chesapeake violated both the Unfair Trade Practices and Consumer Protection Law and the antitrust law by using deceptive and misleading tactics to secure subsurface mineral rights leases from the landowners.

In August 2018, Chesapeake agreed to end a four-year federal class-action battle over natural gas royalties with Pennsylvania leaseholders for $7.75 million but may walk away from the settlement if the attorney general does not drop the lawsuit. The leaseholders claimed that Chesapeake and a then-affiliated midstream company inflated the costs for gathering and transporting gas to market. Chesapeake denied that claim, saying its payment practices were proper and met Pennsylvania's legal requirements.