Court ruling erodes Marcellus cheating case
The Pennsylvania Supreme Court ruled Wednesday that the attorney general cannot use the state’s consumer protection law to make claims on behalf of landowners with natural gas drilling leases, dealing a blow to the state’s remaining case alleging Marcellus Shale companies misled and underpaid property owners.
In a 6-1 decision, the court reversed a lower court ruling and said the Pennsylvania Unfair Trade Practices and Consumer Protection Law only protects buyers, not sellers, that have been harmed in a transaction. In an oil and gas lease agreement, the landowner is the seller, the court said.
The attorney general’s office had largely relied on the consumer protection law in seeking to recover lost royalty payments and damages for landowners whom state lawyers said had been cheated by deceptive business tactics by Chesapeake Energy Corp. and Anadarko Petroleum Corp.
Attorney General Josh Shapiro settled the case with Chesapeake earlier this month for $5.6 million in landowner payments and legal costs after the Oklahoma-based natural gas company filed for bankruptcy. The remaining case applies only to Anadarko, which is accused of misleading landowners about how their royalties would be calculated and colluding with Chesapeake to keep bonus and
royalty payments low by agreeing not to compete for leases in northeastern Pennsylvania.
Anadarko was acquired in 2019 by Texas-based Occidental Petroleum Corp., which declined to comment on the ruling.
In the majority opinion, Justice Sallie Updyke Mundy wrote that the Supreme Court found the state’s consumer protection law “clearly regulates the conduct of sellers, and it does not provide a remedy for sellers to exercise against buyers.”
Because of that, the court concluded, the attorney general’s office cannot bring claims under the consumer protection law on behalf of private landowners who allege they were deceived into signing unfavorable gas leases.
The lower Commonwealth Court had backed the attorney general’s novel reading of the law, saying that the state Legislature had intended for the consumer protection law to be interpreted liberally to benefit the public and to root out deceptive business practices regardless of whether the companies were considered buyers or sellers.
Lawyers for both landowners and gas companies had said the attorney general’s case was risky because it largely hinged on the untested theory. An attorney for Chesapeake said in 2017 that a rejection of the attorney general’s reading
of the law — like the one the Supreme Court handed down Wednesday — would mean “a complete collapse”
of the state’s case.
The attorney general’s office made a separate claim based on antitrust common law that the companies unreasonably restrained trade through their agreement to divvy up northeastern counties. That claim was not part of the appeal and was not considered by the court.
The attorney general’s office said in a statement that it is “committed to standing up for landowners who are cheated and we will continue this fight on our remaining antitrust count.”
“We are reviewing this opinion and have plans to engage legislators on this matter to update Pennsylvania laws to better protect those misled by corporations like this one,” the office said.