September 20, 2017

Judge Denies Motion to Dismiss Racketeering Suit Against Chesapeake Energy

Lawsuit alleges the company conspired with subsidiaries it formed to overcharge leaseholders
By Terrie Morgan-Besecker, Scranton Times-Tribune, April 2, 2015

A federal judge has denied Chesapeake Energy Corp.’s motion to dismiss a class action lawsuit that alleges the company conspired with subsidiaries it formed to overcharge leaseholders by artificially inflating the cost to gather natural gas extracted from Marcellus Shale drilling.

U.S. District Judge Malachy Mannion on Tuesday ruled the Suessenbach Family Limited Partnership had presented sufficient evidence at this state of the litigation to proceed with its lawsuit against Chesapeake and its subsidiary, Access Midstream Partners.

The lawsuit, filed in June 2014 by attorney Robert Schaub of Wilkes-Barre, alleges Chesapeake formed Access Midstream in August 2010 to gather and transport natural gas from its drilling operations. The companies then conspired to have Access Midstream charge Chesapeake fees far above industry standards, which were passed on to leaseholders. Access Midstream then rebated a portion of the inflated fees to Chesapeake.

The suit sought damages on several counts, including unjust enrichment, conversion and civil violations of the of the Racketeer Influence and Corrupt Organizations Act. The racketeering count was based on allegations the companies’ actions constituted an ongoing fraud perpetrated against leaseholders.

Chesapeake and Access Midstream sought to dismiss the racketeering case and other counts, but Judge Mannion denied the motion. The judge did dismiss one count of honest services fraud, finding that count could not stand because officials with the companies had no fiduciary duty to shareholders.

The Suessenbach case is among at least three class action lawsuits filed in Pennsylvania that allege racketeering violations. Other similar suits were filed by the A&B Campbell Family LLC Trust in and James L. Brown, both of Wyalusing. Those cases are pending.

A separate class action lawsuit filed on behalf of Demchak Partners, which does not include racketeering allegations, is currently before a federal judge, who must determine whether to approve a proposed $11 million settlement. Attorneys previously said the Demchak case, which focuses on allegations Chesapeake improperly deducted post production costs from leaseholders, will not impact the other class action lawsuits.