I feel that I must respond to the public relations blitz by Chesapeake Energy Corp. after the Roane County jury returned their verdict on January 27 in the Tawney et al vs CNR class action.
The verdict consisted of $134.3 million in compensatory damages owed to over 8,000 individual royalty holders in back payments over a period of 13 years and $270 million in punitive damages to punish and deter CNR, now a part of Chesapeake, from ever committing willful and wanton fraud against us in the future.
My father, Garrison Tawney, initiated this suit when he became suspicious of the amounts of royalty payments on our 1/8 of the total value of the gas he, my sister and I were leasing to CNR. At about the same time, two other local citizens became suspicious about the amounts their relatives were being paid for their leases to CNR.
All of this took place when market prices for gas were quite high. Our check statements indicated that we were being paid at rates at least three times less than the market rates.
In early 2001 my father asked a local attorney, retired Judge George Scott, to write to CNR to ask how these royalty payments were figured.
When CNR replied, without answering my father's questions to his satisfaction, we decided to ask the law firm of Carey, Scott, and Douglas to investigate further.
They investigated and found that CNR had been taking deductions for gathering and other post production charges since 1993, without authority, without showing this on our check statements, and without notifying us that they were doing this. In fact, they stated on each check stub with no exception that the amount deducted was $0.00.
Our lawyers also found that this was a problem shared in common by all other West Virginia mineral owners who were leasing their gas to CNR. Since this problem was so widespread, we decided to pursue this as a class action suit.
We all felt it was very important to stand up for over 8,000 of our relatives, friends and neighbors in Roane County as well as in West Virginia who trusted CNR to deal fairly with us when we leased our gas to them in return for only 1/8 of the total production.
The jury heard evidence taken from CNR's data base that CNR was reporting to the state that royalty owners were being paid according to a much higher volume and rate than they were reporting for the same well and time period to us on our checks, and actually concealing this from us.
They heard that CNR was taking gathering and other post production charges from our royalty checks without reporting it to us anywhere on our checks. They also heard evidence from CNR files that CNR was continuing to pay us royalty owners a lower rate for our gas based on a $400 million futures market deal, entered into without our knowledge, while at the same time the top CEG and CNR executives were giving themselves an approximately $155 million "Golden Parachute" severance package pursuant to the merger of NiSource and CNR/CEG.
This amount even included enough money to cover the taxes they would be required to pay. Rick Richard, the retiring CEO of CEG received about $24 million of this and CFO Mike O'Donnell, who is still with NiSource, also received about $5 million as did approximately 24 others to a lesser degree.
For those who think that the jury's award of punitive damages were too much, surely we can all agree that the punishment should fit the crime. If I robbed a bank of 100 million dollars, it wouldn't seem unreasonable to me that I would have to return all the money I took, plus pay at least twice that amount as my punishment for the crime.
The jury worked diligently to listen to the large number of witnesses and to sift through the huge amount of evidence presented by both sides during the three weeks of the trial. They performed their duty to the very best of their ability and followed the clear and detailed instructions of the court.
Up until the time my father died in September of 2004 at the age of almost 91, he was actively involved in the investigation of this case. He would have been very pleased by the verdict. All of the families of the royalty owners of CNR wells could have used these payments which were rightfully theirs.
Merely paying back the money that CNR illegally and willfully took for over a period of 13 years from more than 8,000 royalty owners, would not serve the purpose of punishing and deterring them from doing this again.
We feel that justice has been served by the punitive award which is just slightly more than twice what is owed to the more than 8,000 individuals, a good many of whom depend on these royalty payments for their medicine and food.
There is no reason for gas producers to feel that this decision will hurt the oil and gas business in West Virginia. Are they trying to tell us that they can't make a profit from their 7/8 of the production from these wells without cheating and defrauding us of part of our 1/8?
We think that the jury also made a statement with their verdict that "Yes, West Virginia is Open for Business, but West Virginians Expect it to be Honest Business." The good, hardworking folks of West Virginia deserve to be treated honestly and fairly by large companies as well as small.
My father, Garrison Tawney, would expect the same treatment.
Lela Anne Tawney Goff