Oil & Gas Royalty Spat Readies for Trial in PA

(CN) - Energy Corp. of America cannot shake claims that it shorted Pennsylvania landowners out of more than $1.4 million in royalties, a federal magistrate ruled.

The Monday decision by U.S. Magistrate Robert Mitchell means a trial is possible for the class of landowners led by David Pollock, seeking recovery of deductions for allegedly unlawful marketing fees and invalid interstate transportation charges.

As previously certified, the class includes two subdivisions made up of landowners who have oil and gas leases with either Energy Corp. of America or Eastern American Energy Corp., alleging that fees and charges were repeatedly unlawfully applied and taken out of owed royalty payments between November 2006 and March 2012.

Though lease provisions are not identical for every member of the class, the court decided that each lease generally provided that the plaintiffs are entitled to a royalty of one-eighth of the net proceeds received from the sale of gas.

The class has already secured partial summary judgment regarding deductions for interstate transportation charges that accrued after a title for gas was sold and transferred to third-party purchasers.

In that decision, the court decided that, once the gas passes to third party purchasers and is received into the interstate system, the gas is "sold" and "ECA cannot recover costs incurred thereafter."

The court has also dismissed various class claims against ECA, including claims that the company used wrong gas prices, took excessive or unauthorized expense deductions and underpaid royalties. The company failed, however, to show that marketing fees are an applicable post-productions cost.

In its latest bid for summary judgment, ECA argued that lease holders could not prove any actual damages occurred because there was no evidence that ECA took any deductions from plaintiff's royalties.

The energy company pointed to plaintiffs' expert testimony for proof, claiming the expert stated on record that ECA did not take any deductions for marketing and interstate transportations charges from plaintiffs' royalties on the sale of gas.

Magistrate Mitchell denied either side judgment on this point Monday, finding that enough material issues of fact exist "to conclude that damages were sustained."

"Viewing the evidence of record in its entirety, there is testimony that ECA takes deductions from plaintiffs' royalties with respect to interstate transportation charges and marketing charges," Mitchell wrote. "Accordingly, ECA's motion for summary judgment is denied."

The class's unsuccessful cross-motion had asked the court to "adopt [plaintiffs] 'rendition of the facts' over ECA's and award them a principal amount of $920,000."

On this point, the court found that issues of material facts preclude this judgment as well.

The ruling emphasizes the previous determination that gas is officially sold to third parties when the gas is received into the interstate pipeline system.

Since ECA could not deduct interstate transportation charges from plaintiffs' royalties, remaining issues require a determination of exactly how much ECA deducted from plaintiffs' royalties and exactly when the interstate-transportation charges were deducted.

Material-fact issues remain as well with regard to marketing deductions, who incurred the marketing charges, and whether the charges were deducted post-sale, the court found.

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