Judge Tells Oil Company to Pay Up

PITTSBURGH (CN) - Pennsylvania landowners holding oil and gas leases with Energy Corp. of America can keep the $1.4 million awarded for unlawful deductions from their royalties, a federal judge ruled.

Energy Corp. renewed motions for judgment notwithstanding verdict after a jury ruled in early March for the landowners, who claimed that ECA and Eastern American Energy Corp. breached lease contracts by improperly deducting interstate transportation charges and marketing fees from oil and gas royalties.

Two classes of landowners were certified, one for each type of fee wrongfully deducted. The court before trial observed that the landowner leases were not identical but that "all generally provide that the plaintiffs are entitled to a royalty of one-eighth of the net proceeds received from the sale of gas."

The court granted pre-trial partial summary judgment to the class for interstate transportation charges deducted after ECA transferred gas titles to third-party purchasers at the five points where gas is received into the interstate pipeline system. The court ruled that under terms of its Gas Purchase/Sales Contract, "ECA retains title to the gas until it passes to third party purchasers at the five points where the gas is received into the interstate system. Thus the gas is 'sold' at these points and ECA cannot recover costs incurred thereafter."

But ECA was permitted to try to show at trial "that it incurred these costs while it still held title to the gas."

The court dismissed several claims before trial, including that ECA used wrong gas prices, took excessive or unauthorized expense deductions and underpaid royalties.

In February the court denied ECA's motion for summary judgment, claiming it was proper to deduct post-production marketing costs from royalties, finding that "the nature of the transactions ... is ambiguous" since the gas purchase/sales contract provides that ECA's marketing subsidiary "never holds title to the gas."

The jury was asked only to determine whether ECA breached leases from the conduct complained of by the class. It found for the class after the two-day trial on March 2-3, then the court awarded $911,922.16 plus prejudgment interest.

The court rejected ECA's post-trial motion claiming insufficient evidence. It found again there was enough evidence on all counts, that the class did not receive a one-eighth royalty of net proceeds, that subsidiary post-production costs were deducted on behalf of ECA, that ECA did not incur the transportation charges and marketing fees before titles were transferred to third-party purchasers, and paid smaller royalties than if the gas had been directly sold to an end user without using ECA's marketing subsidiary.

The court also dismissed ECA's request for a new trial, which claimed that plaintiffs' expert Julia Bodamer should not have been allowed to testify on where the title passed. Approaching the matter as a motion for reconsideration, U.S. Magistrate Judge Robert Mitchell wrote: "This Court will not 'rethink what [it has] already thought through rightly or wrongly." (Brackets in ruling.)

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