County royalty owners arm themselves for war
http://m.cleburnetimesreview.com/news/article_0111ca50-2ebe-11e4-b9...
The David and Goliath war by Johnson County land owners against Chesapeake Energy may well have gained a pair of new troops on Tuesday.
Albert and Vertis Gibbs, who are Chesapeake royalty owners, attended a Cleburne Conference Center presentation by the lawyer who is suing Chesapeake on behalf of about 3,000 area royalty owners.
“The big dogs started something,” Albert Gibbs said. “Now the little guy’s getting involved.”
About 60 lessors were on hand for the latest in the ongoing series of talks, designed to inform them of the issues, by Fort Worth attorney Dan McDonald.
“They have stolen hundreds of millions of dollars,” from Johnson and Tarrant County royalty owners who leased land to Chesapeake, McDonald said. “There is only one word to describe what they’ve done: stealing.”
McDonald is enlisting an army of plaintiffs who might not otherwise be able to hire a litigator; their individual claims are relatively small, and their potential judgments insignificant to Chesapeake....
However, a few new details emerged at the local meeting.
McDonald told the Cleburne crowd that District Judge William Bosworth will be handling the cases he’s filing here.
“They’re all consolidated,” McDonald said. “Judge Bill Bosworth is going to be the Chesapeake judge.”
Bosworth presides over the 413th District Court in Cleburne.
“Judge Bosworth is an excellent judge,” McDonald said. “I couldn’t be happier.”
McDonald, who has put together a sophisticated media campaign that includes a website devoted to the Chesapeake cases as well as billboards and a weekly 6 p.m. Wednesday royalty owners’ teleconference, told the crowd he’s hired an accountant with years of experience in the oil and gas industry to analyze clients’ royalty checks.
On the conference center wall McDonald presented a table of one royalty owner’s payments from Chesapeake and other operators over four years. According to the graphic, underpayments ranged from an average of 54 cents per 1,000 cubic feet of natural gas in April 2011 to $1.88 per 1,000 cubic feet in May 2011.
In September, Chesapeake and McDonald are set to have a hearing on the motion to begin trying the Johnson County cases next spring, but ultimately McDonald said he expects Chesapeake to settle.
The Fort Worth Star-Telegram last week reported that Chesapeake agreed to pay the city of Arlington $700,000 after officials there sued, alleging that the company did the same thing McDonald is charging it did to land owners here: deducted post-production costs it was not entitled to.
“Under the agreement, Chesapeake will no longer subtract post-production costs and the city’s royalty will be calculated based on the highest price received by Chesapeake when the gas is sold or the price established by a formula,” the Star-Telegram reported. “Arlington’s deal mirrors one that Chesapeake reached with Dallas/Fort Worth Airport in 2012 for $5 million. That deal also established a formula for royalty payments.
“Chesapeake also quietly settled with the Tarrant Regional Water District earlier this year when it agreed to pay the district $1.8 million for royalties on 100 leases from January 2008 through October 2011.”
McDonald’s firm is gearing up to handle the cases.
“We have added four lawyers and six new legal assistants to work on our Chesapeake litigation and we need much more space,” McDonald wrote in an email. “We have over 3,000 Chesapeake royalty owner clients. We expect to have at least 10,000 by the end of the year.”
Barbara Smith owns two acres of land at Bowman Springs Road in Arlington. Chesapeake has a lease on one acre and another company leases drills on the other.
She only recently heard about the lawsuits, but she’s going to send McDonald her Chesapeake paperwork.
“Chesapeake is paying me less than half what Vantage is paying for the same land,” she said. “I kept calling and they won’t do anything.”
Chesapeake declined to comment.
Taking aim on Chesapeake royalty underpayment
Views: 13754
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on -
tc, there has been a good deal of case law made concerning hedging. There are a number of other issues regarding deductions to royalty which have not been litigated but should be.
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Permalink Reply by Thomas C. McKowen, IV on
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Thanks for the information. I just checked and the Chastant case was affirmed by the US 5th Cir Court of Appeals on August 2, 2013.
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We are well aware of the Cimarex case and the unpublished 5th Circuit opinion upholding the WD of Louisiana's ruling. However, our case is clearly distinguishable and the facts are materially different than the Cimarex case. This issue will arise in a motion for summary judgment, so I cannot get into any great detail of our arguments. One thing I can say on this site is that representatives of Chesapeake have testified, under oath, that their hedging practices are not "purely financial" transactions. We've already obtained volumes of evidence that what CHK in hedging its natural gas production is very different than what was happening in Cimerex.
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Permalink Reply by Henry on -
I sat in on the teleconference of 2/25/2015. I will not repeat things that I have said earlier in my notes from teleconferences. I will only tell what is new since my last report...
Speaker tonight was Dan McDonald. "Make no mistake folks. Chesapeake is nothing but a bunch of crooks." He noted that CHK is now suing Aubrey. You can read about it in the Daily Oklahoman.
The issue of CHK using royalty owner's gas to make money in the futures market was discussed. McDonald;s point was that CHK used the gas of the royalty owners as collateral for those futures, without the permission of the royalty owners. He thinks royalty owners should be compensated for this. He did not say how much the compensation should be.
CHK served McDonald Law Firm with a temporary restraining order. The hearing was cancelled due to snow, and is currently scheduled for March 4 in Oklahoma. McDonald's response is on the web site royaltyripoff.com.
Henry here.... I took a brief look at the response, and it appears the reason for the restraining order is that CHK argues that McDonald's law suit is undermining the proposed settlements in several class action suits. I've discussed these suits before here. The proposed settlements are, according to McDonald, pathetic. Of course, CHK would love for people to take the settlement. McDonald has been telling people that they won't get much if they go with the class action suits, and they might be better off going with him. And CHK wants to shut him up.
McDonald will be in northeastern PA during the week of March 9. You can get details on the web site. He will discuss the class action suits during these meetings.
McDonald said they have made "enormous progress" in the discovery process and are almost finished. They are ready to prepare for trial.
To date, they have over 10,000 clients.
henry here again... That's all I know. I'll keep listening in every few weeks.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Thanks for the update, Henry. If you get a chance, ask how many LA mineral lessors have signed up and when the McDonald Firm plans to file in LA.
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Permalink Reply by Henry on
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booger,
I did not listen in last week. I will try to listen in this week -- the teleconferences are every Wednesday. I spoke with someone from McDonald Law Firm the other day, to find out if they are ready to file any Louisiana cases. They said they are working on it, but did not have any firm timeframe by which they would start filing in Louisiana.
I know that Dan McDonald has been in Pennsylvania trying to get more people to sign up. My personal guess is that they are really focusing their efforts up there, at the moment, because they want people to opt out of CHK's proposed settlement in a PA class-action suit. The suit offers a pennies-on-the-dollar payment, and it is structured so that if the royalty owners do not actively opt out, they are considered to be in. In other words, if the royalty owner does nothing, he/she is locked into the settlement of htat case. Once a royalty owner accepts that settlement (by the process of not actively opting out), the royalty owner cannot join McDonald's suit.
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Permalink Reply by Henry on
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I just finished listening to the teleconference tonight, 3/25/2015. I will report only what is new:
McDonald Law Firm will be all over Pennsylvania during the last week of April. They have 2-3 meetings per day scheduled at various locations. Go to royaltyripoff.com to see the details.
They have now filed 100 suits, and have almost 15,000 plaintiffs. Suits are filed according to pooling units. Some suits have 1 - 2 plaintiffs. Others have 400 plaintiffs.
They are suing for breach of contract, fraud, and conspiracy. People constantly ask them why they don't use the RICO laws to go after CHK. The reason is that RICO is a federal law, and they want to keep this in the state courts.
Based upon what they've learned by going over the financial documents they got through discovery, they believe CHK has charged everyone 2-3 times the legal amount for transportation, processing, and gathering.
henry here.... I spoke with someone from the McDonald Law Firm the other day, to see if they had filed any suits in Louisiana. They have not, so far. They could not give me a date by which the first Louisiana case might be filed.
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Permalink Reply by Henry on
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Here is more info regarding this effort.... Nearly 2000 Louisiana royalty owners have now signed up. Most clients will have their cases filed by the end of April. However, these cases will NOT be filed in Louisiana -- they will be filed in either TX or OK because "there are significant strategic and procedural advantages" to filing in one of those states, relative to LA.
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Permalink Reply by Henry on
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Here are my notes from the teleconference of 4/22/2015:
The speaker was Dan McDonald. He said that, "Chesapeake is the worst example of a corporate thief that I've encountered in 35 years of law practice."
He explained a bit more on the issue of CHK using the royalty owners' gas for hedging. He says that based upon the lease contract, CHK should have to pay a royalty on all profits made from using the royalty owners' gas in hedges.
He has a rule of thumb that applies to most royalty owners.... Whatever CHK has paid you, that is about half of what they really owe you.
On the issue of the 39% contingency fee.... He says that, "Chesapeake has a legal obligation to pay your attorney fees." He says that in all states, if someone breaks a contract, then they must pay the attorney fees for the other party who sues them to make them perform. He said they have made it clear to Chesapeake that, "There will be no settlements without Chesapeake's agreement to pay attorney fees."
In Louisiana, Freeport, Plains, and others are also part of this, as a result of their partnerships with CHK.
They are up to nearly 20,000 clients. Litigation is going "extremely well." They expect results quickly.
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Permalink Reply by Henry on
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I listened in to the teleconference tonight, May 13, 2015. The speaker was Lyndsey Segars, an attorney at the McDonald Law Firm. As usual, I will only write up what is new...
The first Haynesville Shale law suit has been filed. It was filed in Harris County, TX and the trial date is April 2016.
McDonald Law Firm estimates there are $5B in overcharges by CHK for transportation, marketing, etc. over the last several years.
There are 20 thousand plaintiffs to date. Experienced expert witnesses have been hired. McDonald Law Firm has 10's of thousands of pages of financial info, memos, emails, etc. They have deposed several key people from CHK, and have more to go.
That's it.
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