April 16, 2016 - 11:51 AM EDT
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Chesapeake Energy avoids pending trials with settlements

April 16--FORT WORTH -- Later this month, Fort Worth attorney Dan McDonald and Chesapeake Energy were scheduled to square off in court in the first of 10 trials to determine whether the company cheated thousands of property owners out of millions of dollars in natural gas royalties.

But Chesapeake and McDonald, who has made a cottage industry out of suing the Oklahoma City-based energy giant, recently agreed to settle cases set for trial in April and May, postponing any courtroom battle until June, unless the two sides reach more out-of-court deals.

The first trial, set for April 25, concerned leases held by William Wright in Tarrant County. The second trial, scheduled for May 23, was about royalty payments to Bettye Haynie for her leases in Johnson County.

"The Wright and Haynie cases have been resolved to the satisfaction of all parties," McDonald said about his negotiations with Chesapeake, declining further comment. McDonald has filed more than 400 lawsuits and represents more than 22,000 plaintiffs against Chesapeake.

Gordon Pennoyer, a spokesman for Chesapeake in Oklahoma City, gave virtually the same response. Another eight cases are set for trial starting in June and stretching into January.

Resolving the first two cases without a trial follows Chesapeake's agreement to settle a lawsuit with the Fort Worth school district earlier this year for $1 million in past-due royalty payments. The deal also included a procedure for setting natural gas prices on which future checks will be calculated.

Pressure to settle could be building against Chesapeake Energy. Total E&P USA, which owns 25 percent of Chesapeake's Barnett Shale holdings, last month separted from its partner and settled with the city of Fort Worth for $6 million.

Chesapeake also has been making deals in other cases brought by large landowners, businesses and government institutions making similar accusations.

But pressure to settle even more could be building against Chesapeake. Total E&P USA, which owns 25 percent of Chesapeake's Barnett Shale holdings, last month separated from its partner and settled with the city of Fort Worth for $6 million. The city's lawsuit against Chesapeake is still pending in court.

Since each case is different, it's hard to say if the settlement of the McDonald cases will lead to more of the same, said Ralph Duggins, an attorney who represents the city of Fort Worth and the Fort Worth school district.

"It is hard to say without knowing the terms. I'm pleased for the parties that Dan and George [Parker Young] were able to work out a satisfactory resolution of their claims," Duggins said. Young is an attorney working with McDonald on his mass tort cases against Chesapeake.

Lynne Liberato, a Houston attorney who wrote a Texas Bar Journal article on multidistrict litigation, said, "The surest way to settlement is a trial date."

"So, as the cases in multidistrict litigation are handled more expeditiously and become ready to try, they will often settle on the courthouse steps," said Liberato, a former president of the State Bar of Texas.

In his lawsuits, McDonald is seeking to prove that Chesapeake deducted higher-than-necessary post-production costs from royalty checks. He contends the company used sham sales to affiliates to transport and market the natural gas to increase what it earned.

Chesapeake has said it did what was allowed within the terms of the leases. It argued that the weighted average sale price it based the royalty payments on was fair and denied using "fraudulent transactions." In the cases it has settled, Chesapeake does not admit any wrongdoing.

Still, McDonald's populist message struck a cord with the small, rooftop leaseholders he sought out. In a no-holds-barred campaign using billboards, websites, community meetings -- and even koozies -- McDonald signed up thousands of clients.

To manage the flood of cases, Chesapeake persuaded the courts to grant the lawsuits multidistrict litigation status, funneling them through a district judge for pretrial motions. In this instance there were so many cases the courts established two multidistrict courts for the Chesapeake cases: one was for just the McDonald cases, the second one handled the cases filed by other attorneys.

I hope with the announcement of the restructuring and extensions of the company's global debt is an indication ... the company recognizes the criticality of resolving these claims ..., Ralph Duggins, attorney representing the city of Fort Worth

Working under multidistrict litigation, which helps companies facing legal challenges on various fronts, Chesapeake cut down on costs and got consistent rulings from the courts.

While Duggins declined to speculate if Chesapeake will settle more cases with McDonald, he wondered if the company's recent restructuring of its debt may be playing a role. Chesapeake recently amended agreements with lenders to maintain a $4 billion line of credit.

"I hope the announcement of the restructuring and extensions of the company's global debt is an indication ... the company recognizes the criticality of resolving these claims," Duggins said.

Max B. Baker: 817-390-7714, @MaxbakerBB

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(c)2016 the Fort Worth Star-Telegram

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Source: Equities.com News (April 16, 2016 - 11:51 AM EDT)

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