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Showdown looms in US case over Va. gas royalties

September 7, 2013
Associated Press

RICHMOND, Va. (AP) — Lawsuits accusing two energy companies of cheating southwest Virginia landowners out of royalty payments for natural gas siphoned from coal seams are headed to a critical showdown that could dramatically expand the scope of the legal action.

U.S. District Judge James P. Jones will consider a recommendation Thursday from U.S. Magistrate Judge Pamela Meade Sargent that four lawsuits be certified as class actions representing thousands of property owners who have had the methane gas extracted from their land. Jones, who will hear arguments in Abingdon, is not expected to rule immediately.

The plaintiffs name EQT Production Co. and CNX Gas Co., Pittsburgh-area energy companies with thousands of natural gas wells in Appalachia.

The lead attorney for the land owners said he's confident Jones will rule for his clients based on Sargent's examination of the claims and her recommendation in June that the cases be certified as class actions.

"She wrote a thorough 70-page opinion," said Don Barrett, a Lexington, Miss., attorney who has successfully taken on tobacco companies. "It needs to be affirmed. It's an open-and-shut thing, we think."

CNX parent CONSOL Energy said it supports the "fair and efficient" distribution of royalties held in a state escrow account to property owners. EQT did not respond to requests from The Associated Press for comment, but it has disputed the landowners' claims in the past.

The lawsuits center on a form of natural gas — called the "miner's curse" because of its highly explosive potential in mining — that has sparked a gold rush in Virginia's coalfields. Once simply vented into the atmosphere, the coalbed methane gas is now being captured by thousands of wells in the state's southwest counties.

Patrick Baker, an Appalachian Law School professor who teaches oil and gas law, said the Virginia lawsuits are likely a harbinger of more to come as energy companies scramble to tap natural gas in shale formations from upstate New York south to West Virginia.

"You basically have places that were not oil and gas producing which are now producing huge amounts of oil and gas," Baker said. "As the dollars go up, so does the litigation."

The Virginia lawsuits involve different claims by property owners. Some landowners contend they were shortchanged by the energy companies.

"One of the big issues in these cases," Baker said, "is what the gas producers are allowed to subtract from the royalty as far as post-production costs such as transporting, processing. I think that's one of the big unsettled issues that have come out of this."

Another class involves disputed claims between property owners and the energy companies.

Under a 1990 state law, the claims have been put in an escrow account until a court can decide ownership. That account now totals approximately $27 million.

Attorneys for the landowners said the law subjects the landowners to "an involuntary lease" and established a below-market royalty rate.

In its statement, CONSOL said: "We have paid millions of dollars into the escrow fund, as directed by Virginia law in the case of conflicting ownership. CONSOL Energy continues to support efforts to release those funds."

The Virginia Supreme Court, in a 2004 ruling, found that the methane gas is a "distinct mineral estate" from coal, concluding that the landowners owned the rights to natural gas removed from their properties.

Barrett estimates that the number of landowners in the class actions could approach 10,000. He doesn't know exactly how much money is at stake for the plaintiffs, but added, "It's a lot more than what they put into escrow."

The energy companies do have to report to that state how much gas they've extracted.

Barrett also us seeking punitive damages.

If the cases go to court as class actions, Baker expects an accountant's nightmare sorting thousands of claims.

"It is the most fractionalized property interest that there is," he said. "These are extremely complicated cases."

Even if Jones deems the cases class actions, there is no guarantee they'll go to trial.

Barrett said he'll seek a summary judgment within days of Jones' finding and a full accounting by the energy companies for every well and landowner. He said he believes the companies won't be able to produce the records.

"Until the court forces them to do an accounting, we'll never know for sure," he said. "They've been pulling that gas from the ground for 25 years, and they've never accounted to anybody."

As for Baker, he suspects both sides might move to settle before trial.

"I think for both the parties, anytime you put it in a jury's hands, there's a lot of uncertainty and so there's a real incentive to settle," he said. "That's where I think a lot of these cases will wind up anyway."


Steve Szkotak can be reached on Twitter at



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