Landowners say gas companies duped them
Dozens of landowners in Western Pennsylvania are angry about gas leases they signed years ago for as little as $3 an acre now that $3,000 an acre is a typical price, but legal experts say they face an uphill battle if they decide to sue.
Industry lawyer Kevin L. Colosimo comes across a new lease lawsuit or the threat of one every week, saying at least dozens may be brewing. More than 100 landowners in Lawrence County have organized, saying they were duped into signing bargain-basement leases on the eve of the region's gas rush, and they could claim they were defrauded in a lawsuit aimed at sweetening their deals, several group members said.
"The fraud issue is a big issue -- it really, really is," said Carl J. Pernicone, a New York lawyer who wrote an article this year assessing various drilling-related lawsuits that company lawyers should prepare for. "The leasehold issue is certainly a big bone of contention. ... So I think that is absolutely a potential area that could be subject to litigation. (That's) right on target."
Land agents and drilling companies have said they did nothing improper in their dealings, and legal experts said landowners have big challenges to undo contracts or force a renegotiation of deals they signed. Fraud can be difficult to prove, and multibillion-dollar drilling companies often want to protect profitable land deals such as these, lawyers said.
"They're always going to be tough to win," said David C. Zimmaro, who is representing landowners in Beaver County for the law firm Marcellus Lease Lawyers LLC, Downtown. "How is the little guy going to take on Goliath? ... That's a real question, and sometimes these companies bank on that."
Many complaints come from northwest of Pittsburgh, where one case moved to federal court this week. Kevin and Connie McRoberts, and 16 neighboring landowners in Darlington in Beaver County say they were deceived into signing leases that Chesapeake Energy Corp. now holds.
UNFAIR PRACTICE ALLEGED
Their seven-count complaint alleges unfair business practices. They claim "landmen" -- agents who represent oil and gas companies in negotiations with property owners -- made claims they couldn't follow through on, lied about how landowner signatures were being used and threatened that drilling companies would take gas without paying if the landowners didn't sign.
Colosimo, who represents the co-defendants, Ohio-based O&G Investment Holdings LLC and two of its officers, said they deny all claims and contend that the leases are "100 percent valid." Officials at Chesapeake, the nation's second-largest gas producer, declined interview requests but said in an emailed statement that they believe the case won't trigger other cases.
However, legal experts said the McRobertses might have a strong case. The landowners say they haven't received money from the deal, including the type of up-front payment that, under Pennsylvania law, essentially buys drillers the right to delay drilling. If that claim is true -- Colosimo denies it is -- the McRobertses can claim breach-of-contract in addition to fraud because the leaseholders hadn't drilled going into the final month of a seven-year contract, experts said.
McRoberts lawyer James J. Brink called the leases "the worst ... we've ever seen, bar none." To have a real chance at invalidating a lease, landowners must have a claim like the McRobertses' group -- that they weren't just deceived, but that the drillers failed to fulfill the written terms of the deal, experts said. Other cases probably would be too hard to bring, making a slew of lawsuits from unhappy landowners unlikely, Brink said.
"They got bad bargains but valid leases," said Steven C. Townsend, Brink's partner at ShaleAdvice LLC, Downtown. "And we're not litigating bad bargains."
CREDIBILITY IN NUMBERS
But a groundswell of claims from many landowners could add to plaintiffs' credibility in court, especially if the McRoberts case gains traction, Zimmaro said.
"If you get 30 people whose stories are all the same, you're more likely to believe misrepresentations were made," said Patricia E. Farrell, who represents landowners for the Downtown firm Meyer, Unkovic & Scott LLP.
In Lawrence County, 125 people have joined a group of landowners organized by Lana Boyer, 52, a travel agent from New Beaver. Boyer and other group members said land agents exploited the landowners' ignorance at the least; at worst, they say, the agents lied to pressure landowners into signing industry-friendly deals.
Don and Pat Bable of Lawrence County say a landman showed up at their Pulaski home in 2007 with a simple pitch: Your neighbors have signed gas leases with a drilling company; sign your own for $3 an acre or drillers will take your gas for nothing; sign it now or lose your chance. The Bables said that within an hour -- and without legal consultation -- they signed a deal that netted them $129 a year and state-minimum royalties for their gas, much less than the $100,000 deals signed around the state as the gas rush exploded.
"He explained, and I took him at his word," said Pat Bable, 59, a retiree. "I feel like I was duped, and I want a do-over."
The leases all were signed by the Ohio-based group Central Appalachian Petroleum. One of its officers, David A. Kapp, who signed and notarized the Bables' lease, declined several requests for interviews. In an email, he said all the group's claims were false and declined further comment.
@body-text:One of his former land agents, Raymond Mazzanti of New Castle, said Kapp and his associates are nice people, offering fair deals in an area of little interest at the time. Mazzanti said he never lied to people, nor did he see Kapp or other agents lying.
"There was no pressure whatsoever. But I can see what they're doing, because there's such big money now," Mazzanti said of Boyer's group. "What I would wish for these people is that Shell would go back to them right now and just renew their contracts and just give them the money. But, you see, it's not my money. If you see somebody getting this much money, and you were one of the faithful people who signed up with them originally, wouldn't you think you deserved the money? I think they deserve the money."
Royal Dutch Shell plc now controls those leases after they were transferred in several business deals, including the company's $4.7 billion acquisition of East Resources Inc. The company has declined to renegotiate, Boyer said. It plans to abide by the current terms of the lease, a spokeswoman said in a two-paragraph statement.
"Operators acquired those leases at the going rate for that date in time," spokeswoman Kimberly Windon wrote. "Pricing changes over time, as the market for changes dictate."</