Gas Royalty Payback Equals $3.4 Million

New York, NYA group of landowners in the southwestern part of Virginia has settled a natural gas royalties lawsuit with Chesapeake Appalachia for $3.4 million—the first in a series of lawsuits filed against natural gas producers accused of similarly underpaying.

"My client was pleased," says attorney David Stellings, referring to the lead plaintiff Sharon B. Healy, who brought the suit on behalf of herself and more than 1,800 other landowners in the same part of the state. "The amount we recovered is more than 95 percent of the potential compensatory damages that we could have gotten—so it is an excellent result."

The group had originally agreed to lease the natural gas rights to the Chesapeake defendants in exchange for regular royalty checks equal to approximately 12.5 percent of the profits. But in 2010, the same landowners filed a class action against the company, alleging that Chesapeake engaged in "self-dealing" and "fraudulent misconduct" that resulted in the landowners being short-changed by some $3.6 million during the lease period.

"All gas royalty-related cases need to look very carefully at the data records maintained by the defendant and figure out among other things whether the royalty payments were appropriate, whether the defendant may have taken inappropriate deductions and whether the prices the defendant provided for the gas were actually market prices or below market prices," says Stellings, an attorney with the New York firm of Lieff Cabraser.

In this case, the complaint alleged that Chesapeake Appalachia paid royalties "based on false or contrived rates prices, false volumes of gas measured" and "produced improper and illegal deductions of costs from the royalties."

Although the case settled, Chesapeake Appalachia, an Oklahoma-based natural gas producer, has admitted no wrongdoing.

Lieff Cabraser has five other class actions involving gas royalties pending in federal court. The Chesapeake suit is the smallest and the first suit to be dealt with.

"We currently have cases pending against CNX and the EQT Production Company. They are very big energy companies that produce a lot of natural gas including coal bed methane in that part of the country," says Stellings.

"They both produced much more gas than Chesapeake, during the relevant time period," says Stellings, who estimates the CNX and EQT Production Company production to be approximately 10 to 20 times more.

"The Chesapeake case involved certain gas royalty issues," says Stellings. "The other cases we still have pending against CNX involve some of the same issues and some involve additional claims that could make them even more valuable for the class members," says Stellings.

"In other words those have some additional claims that could increase their value—even more than increased portion of gas production involved," he adds.


David Stellings is a partner in the firm of Lieff Cabraser. He represents individuals and business in complex commercial and financial fraud litigation. He focuses on consumer fraud, financial fraud, antitrust law and breach of contract cases. He has recovered more than $1 billion for clients.