Chesapeake Energy drops effort to move royalty lawsuits to Houston

Chesapeake Energy has dropped an effort to move the first 10 royalty lawsuits to Houston.
Chesapeake Energy has dropped an effort to move the first 10 royalty lawsuits to Houston. Star-Telegram archives

Chesapeake Energy is dropping its request to move trials over allegations that it cheated North Texas landowners out of royalties to Houston, as long as there is limited difficulty selecting juries in the first two cases.

Chesapeake attorneys discussed dropping their change-of-venue request during a hearing Monday in Tarrant County civil court where they asked that more than 30 documents be permanently sealed, saying they include trade secrets.

Last month, the Oklahoma City-based energy explorer asked Judge Dana Womack to consider moving the first 10 trials to Houston, saying a media blitz by Fort Worth attorney Dan McDonald had poisoned the jury pool and would make it virtually impossible to get a fair trial.

McDonald has filed more than 400 lawsuits against Chesapeake — he represents more than 22,000 plaintiffs — alleging the company improperly subtracted post-production costs from royalty checks through sham sales to affiliated companies. Most of the lawsuits stem from leases in Tarrant and Johnson counties.

The first of the trials is scheduled for April 25 in Fort Worth, with one to be held each month in a different Tarrant County court until January 2017.

We think a Tarrant County jury will be good and fair and can hear these cases,

attorney Vincent Circelli

In tentatively agreeing to drop its change of venue request, Chesapeake stipulated that eight of the cases out of Johnson County remain in Tarrant County, where there is a bigger jury pool. But the company reserved its right to move all of the cases to Houston if a jury can’t be picked after questioning three potential jury panels in the first two cases.

In Johnson County, all three state district judges stepped down from hearing the cases because they either held mineral interests subject to Chesapeake leases, were included in one of the lawsuits filed by McDonald or had too many close friends or relatives involved in the cases.

Deborah Hankinson, the lead attorney for Chesapeake, declined to comment on the agreement following Monday’s hearing.

“We think a Tarrant County jury will be good and fair and can hear these cases,” said Vincent Circelli, one of the attorneys working with McDonald.

The lawsuits accuse Chesapeake of “self-dealing” by shipping gas to market through affiliate companies and then deducting costs. Some landowners say they shouldn’t be paying post-production costs at all. Chesapeake argues in court documents that it has complied with lease terms and denies using “fraudulent transactions.”

Womack took under advisement Chesapeake’s request to permanently seal more than 30 documents — the evidence took up two white file boxes — that Hankinson said contained confidential financial information, including how it priced its natural gas from the wells through hedging.

Hedging allows an energy company to lock in a price for selling a commodity like oil or natural gas and protect it from the volatility of the market. Chesapeake contends in court documents that its “customized structure” gives it a financial advantage over its competitors.

Chesapeake also pointed out that some of the confidential financial information is routinely blocked from public view in the standard contract used by the North American Energy Standards Board, a trade industry group. Court papers also stated it doesn’t have to report some of this information to regulating agencies.

Circelli said he was glad to see that Chesapeake reduced its original request to seal more than 300 documents, but that the information should still be made public. He pointed out in an interview that some of the documents are contracts made years ago and are no longer competitive in nature.

“I’m glad to see that we’re down to two boxes instead of 20,” Circelli said.

Womack is one of two Tarrant County judges overseeing the initial stages of the lawsuits against Chesapeake, which have been granted multidistrict litigation status. Under that system, one judge hears pretrial motions to provide consistent court rulings and reduce court costs.

Womack was appointed to hear the cases filed by McDonald. State District Judge David Evans was appointed the multidistrict judge for about 30 cases filed against Chesapeake over similar claims by other attorneys.

Max B. Baker: 817-390-7714, @MaxbakerBB