Chesapeake to pay $7.5 million to settle post-production cost suit
The second largest natural gas producer in the nation agreed to pay $7.5 million to settle a class action lawsuit that alleged it improperly charged thousands of Pennsylvania leaseholders post-production fees, an attorney representing the plaintiffs said Friday.
Attorney Michelle O'Brien of the O'Brien Law Group, Moosic, said the settlement, reached Friday with Chesapeake Energy Corp.'s subsidiary Chesapeake Appalachia LLC, will benefit several thousand leaseholders who alleged they were wrongly charged fees related to process used to refine and transport natural gas extracted from Marcellus Shale.
"We have reached a settlement and are very excited about it," O'Brien said. "We think it's an excellent resolution for the class."
Jim Gipson, spokesman for Chesapeake, said the firm is pleased to have reached a "fair and reasonable agreement."
O'Brien, lead counsel, joined with several other law firms along the East Coast to negotiate the settlement, which was more than a year in the making. The lawsuit, filed in federal court, named 14 plaintiffs from Susquehanna, Northampton, Lehigh, Lancaster and Montgomery counties in Pennsylvania, and Cortland County in New York, as representatives of the class.
According to the suit, Chesapeake deducted post-production fees from royalties paid the leaseholders, despite terms in the leases that preclude them from doing so. The suit further alleged the fees that were charged were in excess of the actual and reasonable costs the company incurred, and that the firm improperly based royalties on the market value of the gas before it had been refined, which was lower than the value once it was in marketable condition.
Under the terms of the settlement, leaseholders still must pay some post-production fees, but their share has been reduced to 72.5 percent of the cost, according to a copy of the agreement. Leaseholders must still pay 100 percent of cost related to the transportation of the natural gas through pipelines.
The propriety of post-production costs has been a hotly contested matter, with leaseholders calling for legislation to address the issue.
State Sen. Gene Yaw, R-23, Williamsport, called on the courts, not the Legislature, to resolve the disputes. In a press release, he said he was pleased to learn of the Chesapeake settlement.
"The Legislature cannot alter the existing contracts of thousands of leaseholders," Yaw said. "I believe there is a way we can protect those landowners, and not interfere with current contract language."
The class action suit named as the plaintiffs: William Burke II and his wife, Clara, William Burke III, Edward Burke, Donald and Karen Fuller and Joseph and Billie Demchak, all of Meshoppen; James and Barbara Burger, Allentown; Randy Hemerly, Nazareth; Lamar King, Narvon; Linda Schlick, Schwenksville and Janet Young, Cuyler, N.Y.
Attorneys on Friday filed a motion seeking court approval of the proposed settlement. The proposal says the settlement is the most efficient way to resolve the dispute and will save leaseholders the expense and time of having to file individual lawsuits against the company. The proposal will be reviewed by a federal judge, who will decide to approve or deny it.
As with all class actions suits, leaseholders will have the option to take part in the settlement, or they can opt out. Additional information on how to sign up for the settlement will be released soon, O'Brien said.
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