Chesapeake Energy’s Legal Troubles Worsen

Houston, TX (Law Firm Newswire) July 28, 2014 – An appeals court upheld a judgment against an oil and gas giant that backed out of a deal to buy Texas leaseholds.

Chesapeake Energy lost its appeal of a $121 million judgment in a lawsuit filed by Preston Exploration and two other parties, who said they had finalized a deal to sell over 500 leaseholds to the company. In continuing bad news for Chesapeake, a Texas school district and newspaper filed separate lawsuits against the company, alleging underpayment of royalties.

Houston attorney Richard LaGarde, who is not involved in the lawsuits, gave a rundown of Chesapeake’s mounting legal woes.

“The loss on appeal may be the end of a long legal battle for Chesapeake,” LaGarde said. “The three plaintiffs said the company backed out of a done deal after natural gas prices plunged.”

Previously, Chesapeake had persuaded a federal judge in Houston that the contracts for sale had not been finalized before the company called off the deal. But landowners successfully appealed that ruling, and in 2012, won a nine-figure judgment in a new trial. Chesapeake then appealed that ruling on the grounds that Preston Exploration did not have legal title to some $9 million worth of leases. The appeals court rejected the argument, saying Preston had “satisfied all conditions” of the deals.

Just weeks later, two new lawsuits were filed against the company in as many days.

The first came from the Fort Worth school district, which claims that Chesapeake improperly deducted its own expenses from royalties paid to the district.

“The lawsuit says that Chesapeake promised the district cost-free royalties while negotiating the leases, but then started charging for costs,” LaGarde explained.

The second was filed by the Fort Worth Star-Telegram. The newspaper also claims Chesapeake underpaid royalties, alleging improper deduction of expenses on one lease and a failure to pay any royalties on a second.

“It’s too early to tell the strength of these new lawsuits, but even without them, Chesapeake is in a lot of trouble,” LaGarde said.

Chesapeake Energy, based in Oklahoma City, is the second-largest natural gas producer in the U.S. It also faces pending lawsuits from the cities of Fort Worth and Arlington, the Arlington school district, and two separate groups of Forth Worth residents.

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