Damages in gas royalties suit might be trimmed

By Chris Dickerson | Mar 8, 2007

SPENCER – The judge in the $405 million Roane County class-action gas royalties suit might trim the punitive damages awarded in the case.

At a March 5 hearing, Roane Circuit Judge Thomas Evans agreed with the gas companies' claim that the jury wrongly formulated punitive damages at least by about 30 percent. But he balked when the gas companies argued for even more reductions to the damages.

"I'm not sure I'm going to change the rulings I made throughout the case," Evans said, according to the Charleston Gazette. "I had concluded as a matter of law that the evidence supported a finding of willful, wanton misconduct and criminal indifference to a civil obligation."

In late January, a Roane County jury imposed about $134.3 million in compensatory damages and $270 million in punitive damages against defendants in the case of Tawney, et al. v. Columbia Natural Resources. CNR is a former NiSource Inc. subsidiary, which was sold in 2003. NiSource, Columbia Energy Group and Chesapeake Appalachia LLC were named as defendants in the lawsuit. Oklahoma City-based Chesapeake Energy bought Columbia Natural Resources of Charleston in November 2005 for $2.2 billion.

The plaintiffs in the case, natural gas royalty owners, filed the lawsuit in early 2003 alleging that CNR underpaid royalties by deducting a portion of post-production costs incurred to gather and transport gas to interstate pipelines and by not paying market value for gas produced under all leases, even those providing for payment based on actual proceeds received for the gas. Plaintiffs sought the alleged royalty underpayment and punitive damages.

The defendants believe CNR operated in good faith and that there is no valid basis for any award of punitive damages, "let alone the unwarranted and unreasonable levels granted in this case."

During the March 5 hearing, Evans indictated he might reduce the punitive damages because they were based on the wrongful payment of "flat-rate" royalties to the rights owners. Flat-rate royalties are set payments not tied to well production.

If the flat-rate royalties are taken away, the compensatory damages would be reduced to $92 million, according to NiSource attorney Ancil Ramey. That would take the punitive damages down to $188, based on the 2-to-1 ratio used by the jury.

NiSource and Chesapeake officials have said they'll appeal the verdict if Evans doesn't make significant changes to it.

"If allowed to stand, the verdict would have far-reaching negative implications for all gas producers in West Virginia and would reinforce the hostile legal environment all businesses face in West Virginia," Chesapeake Energy said in a statement after the verdict was reached. "A judgment has not yet been entered in the case. Important motions must be filed and considered by the trial court before judgment is entered. When judgment is entered, Chesapeake will analyze the judgment and decide the proper course of action including any appeal."

Attorneys on both sides of the case did not return calls seeking comment on the March 5 hearing.

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