Landowners file RICO suit against drilling companies for alleged underpaid royalties

By Jim Boyle | Feb 24, 2015

SCRANTON- More than 90 families located in Bradford, Sullivan and Wyoming counties

claim they have been underpaid royalty fees for the use of their land through an alleged conspiracy between one of the largest producers of natural gas and its subsidiary that gathered the gas at the wellheads and prepared it for transport along third party pipelines, according to a group lawsuit filed in the U.S. District Court for the Middle District of Pennsylvania.

The complaint filed Feb. 19 says that Chesapeake Energy Corporation and Williams Partners, LP, formerly known as Access Midstream Partners, L.P., have conspired to restrain trade in the market for gas gathering services in and around Bradford County, in violation of federal antitrust laws.

Plaintiffs collectively allege that Chesapeake Energy and Williams Partners engaged in a scheme and transactions to help Chesapeake solve financial problems associated with the massive amount of debt that it incurred in acquiring oil and gas leases, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO).

According to the complaint, the transactions between Chesapeake Energy and Williams Partners have artificially inflated the costs of gas gathering services by eliminating competition in the market, resulting in a $5 billion financial windfall for Chesapeake Energy, and in the ongoing underpayment of royalties to landowners and other royalty interest owners, as a result of the improper deduction of the artificially inflated costs.

The lawsuit also includes claims for breach of contract, and for an accounting and declaratory relief, against Chesapeake Appalachia, Anadarko E&P Company LP, Statoil USA Onshore Properties, Inc., and Mitsui E&P USA LLC, based on their alleged underpayment of royalties as a result of the improper deduction of gathering and other post-production costs.

Attorneys representing the landowners claim that the gathering pipeline system in most of Bradford County, and in parts of Sullivan, Susquehanna and Wyoming Counties are mostly owned and controlled by the same companies responsible for paying royalties on the gas transported through those pipelines, resulting in a conflict of interest.

“The terms of the transaction by which Chesapeake sold its interests to Williams Partners only made the problem worse,” said Thomas McNamara, one of the attorneys for the plaintiffs.

The plaintiffs are represented by attorneys from Griffin, Dawsey, DePaola & Jones, P.C., in Towanda, and the Law Offices of Taunya Knolles Rosenbloom in Athens, with McNamara, of Indik & McNamara, P.C.

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