By James Haught
www.wvgazette.com
Tumult is occurring in out-of-state corporations that use West Virginia as a colony to extract its mineral wealth.
Chesapeake Energy Corp. of Oklahoma â which paid $2.2 billion in 2005 for large natural gas operations in the Mountain State and elsewhere â has been hit by a $400 million Roane County jury verdict because former owners systematically underpaid 10,000 West Virginia farmers and land corporations while pumping gas from their tracts.
Meanwhile, similar suits have been filed in federal court against two other out-of-state operators of West Virginia gas networks, Dominion Resources and Equitable Resources. It's "an industry issue now," a Chesapeake official said.
- advertisement -Because of the Roane County verdict, Chesapeake is threatening to cancel its much-welcomed plans for a regional headquarters in Charleston's NorthGate business park, and plans for a multimillion-dollar West Virginia drilling effort.
Marshall University professor Christopher Swindell wrote that this is a "schoolyard bully" tactic, adding that "monsters and mafiosi threaten when beaten."
Chesapeake issued a statement saying the courtroom loss shows "the hostile legal environment all businesses face in West Virginia." Chesapeake CEO Aubrey McClendon said in a television interview that West Virginia is "the no. 1 judicial hellhole in America."
He said the Mountain State has some judges who "appear to be willing to apply a Robin Hood style of justice against companies that have assets."
This echoes the familiar conservative complaint that liberal-minded trial lawyers and politicians stack the deck against corporations.
But wait â the judge in the Roane case is a conservative Republican, and the accusing lawyers include Republican former U.S. Attorney Mike Carey, Republican former state Supreme Court Justice George Scott and Republican Charleston council leader Tom Lane.
One of the complainants is longtime GOP politician Orton Jones. They aren't part of a left-wing effort.
When asked about this aspect, McClenden responded on TV: "Lord help us if we ever get before a liberal Democratic judge, I guess, if this is what your supposed friends on the conservative Republican side do to you."
Meanwhile, about 150 of the plaintiffs against Chesapeake are landholding business corporations such as Dingess-Rum Properties, Cotiga Land Co. and Horse Creek Coal Co. These firms certainly aren't conniving against corporations.
The Roane case began because retired teacher-farmer Garrison Tawney thought something was wrong with royalties from gas wells on his 300-acre farm. His lease promised him one-eighth of the value of gas at the wellhead, but he wasn't getting it.
He sued.
The suit accused gas distributing firms of using "fraud, deception, concealment, suppression and omission" to "intentionally mislead [landowners] into believing they were being paid all the royalty due them."
As the case swelled to more than 10,000 similar plaintiffs, evidence established that the former Columbia-NiSource-Triana system withheld millions of dollars for added costs before paying one-eighth to landowners.
The state Supreme Court was asked whether gas operating systems can deduct such costs. Last July, the high court strongly said no. A ruling written by conservative Justice Spike Maynard said one-eighth of wellhead gas value is the standard rate paid to landowners, and several West Virginia court rulings have made it "settled law" that extra costs can't be extracted from the payment. Maynard wrote that operators began adding such costs only in 1993.
A month ago, a Roane jury ruled that the former gas corporations had underpaid 10,440 West Virginia landholders $134 million in royalties. Jurors added double that sum, $270 million, as punitive damages. Out in Oklahoma, Chesapeake was left holding the bag for past conduct by corporations it bought.
This jolt had immediate impact. The gas industry rushed a bill into the Legislature, the Fair Production Royalty Payments Act, to undo the setback.
On Monday, Roane Circuit Judge Tom Evans is to hear post-trial motions asking him to set aside the $404 million verdict, or at least the $270 million punitive part.
If he doesn't, Chesapeake undoubtedly will appeal to the state Supreme Court and perhaps the U.S. Supreme Court.
This affair has far-reaching implications for gas-rich West Virginia. I can't guess the final outcome of all the litigation. As for Chesapeake, I hope the result is based on reasonable law, not on fears that a billion-dollar out-of-state corporation may halt its investment in West Virginia.
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