Gas companies agree to pay $380M to settle Roane royalty case

By Chris Dickerson | Oct 24, 2008

CHARLESTON -- Two natural gas companies have agreed to pay $380 million to settle a headline-grabbing Roane County class-action lawsuit over royalty payments.

The settlement by NiSource Inc. and Chesapeake Energy Corp. already has received preliminary approval from Roane Circuit Judge Thomas Evans. NiSource announced the plan in a press release Friday.

NiSource said final approval could come in about a month. Its share of the settlement would be $338.8 million.

NiSource had appealed the verdict to the U.S. Supreme Court after the state Supreme Court refused to hear it. The announced settlement also would end the appeal process.

The original $404 million verdict was the third largest in the United States in 2007, according to an annual list compiled by Verdict Search, a sister product of the National Law Journal. It was one of three West Virginia verdicts in the top seven last year.

The Roane County jury originally 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."

Earlier this year, Chesapeake Energy announced that it would not build a $35 million state-of-the-art headquarters for its Eastern operations in Charleston, citing the state Supreme Court's refusal to hear the appeal.

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