Article Tools

Font size
Share This

Photo: N/A, License: N/A, Created: 2015:11:16 20:07:19

STAFF PHOTO/JEFF HORVATH Attorney Thomas McNamara explains the options available to lease-holders who have experienced “unfair” royalty deductions.

Large crowds packed the Black Walnut American Legion on Monday night for a town-hall meeting held by the lawyers representing the Marcellus Royalty Action, a group-action suit hoping to recover what they call “unreasonable and arbitrary post-production deductions from natural gas royalty payments.”

The three attorneys, Thomas S. McNamara of Philadelphia, Taunya Knolles Rosenbloom of Athens, and Christopher D. Jones of Towanda, made it clear that they were not “offering legal advice,” but were instead providing information concerning lease-holder options.

Part of the conversation revolved around the class-action Demchak Settlement reached last year between Chesapeake and Chesapeake lease-holders with a “market enhancement clause” in their lease.

Anyone with a Chesapeake lease containing such a clause is part of the settlement class, and has until Dec. 17 to opt-out of the settlement, which they must do by writing a letter addressed to the Lead Class Council requesting to be discluded.

According to McNamara, accepting the settlement means that the leaseholder will be repaid 55 percent of post-production expenses that were deducted from royalty payments prior to June 1, 2014. That percentage drops to 34% from June 1, 2014, through the date of the settlement.

Moreover, the Demchak settlement places a cap on future royalty deductions at 66 percent. This means that Chesapeake can still take deductions from royalty checks, but only at two-thirds the rate of what they had taken previously.

Finally, by accepting the Demchak settlement a lease-holder forfeits his right to pursue any other legal settlement concerning the deductions.

“You are essentially agreeing to an amendment to your lease where you agree to the extraction costs going forward,” McNamara said.

Those who reject the Demchak settlement will retain the right to pursue future litigation, including the group action case the Marcellus Royalty Action will be filing.

McNamara and his colleagues introduced their case to the audience, but were adamant that they weren’t coercing anybody to join.

The brunt of their argument is that Chesapeake has a monopoly on the gas gathering systems in Wyoming, Sullivan, Lackawanna, and Susquehanna counties.

According to McNamara, Chesapeake’s “sister company,” Access Midstream, “would set the price for gas gathering, which they would inflate.”

Allegedly, this created a non-competitive playing field where Access Midstream would set high prices for gathering, and Chesapeake would pass of those costs on lease-holders by deducting them from royalty payments.

“They [Chesapeake] are paying their affiliated gathering company, a sister company, to pull the gas, and then they are marking up the price,” McNamara said. “The result of this monopoly is artificially inflated and otherwise improper gathering and transportation fees passed onto the lease-holder.”

Consequently, the Marcellus Legacy Action plans on bringing both anti-trust and RICO claims to court, alleging that Chesapeake engaged in the “abuse of monopoly power, the restraint of trade, and a pattern of racketeering activity.”

McNamara also alleged that the company violated the “applied covenant of good faith and fair dealing,” a violation of Pennsylvania Law.

Through the suit, they hope to recover money that has already been unfairly deducted from lease holders, and hopefully stop unfair deductions in the future.

Currently the Marcellus Royalty Action Represents 250 lease-holders, with 22,000 acres of land. The law firms will only be paid if payments are recovered, and will charge 33 percent if settled before trial, and 40 percent is the case is won in court.

Claims will be broken up into like groups by like-type leases, but the settlement or winnings will be divided according to the amount of producing acreage that respective litigants own.

Any settlement reached will be non-binding, and litigants will retain the right to walk away if they are dissatisfied.

Anyone interested in joining the Marcellus Royalty Action’s group suit will have to reject the Demchak settlement, and are encouraged to make contact as soon as possible.

They focus of the case will be on Chesapeake, but McNamara said they will “pursue all responsible parties,” including other gas companies.

More information can be found at