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The Commonwealth Court en banc has ruled 6-1 in a case of first impression that the Pennsylvania Attorney General's Office can sue natural gas operators under the state Unfair Trade Practices and Consumer Protection Law for alleged conduct related to subsurface mineral rights leases entered into with private landowners.

The majority also ruled in its March 15 precedential opinion that the office can bring a cause of action against lessees, under the UTPCPL, for alleged violations of antitrust law. However, the court said that in this specific case, only one of the two antitrust claims advanced by prosecutors was legally viable.

Pennsylvania Attorney General Josh Shapiro filed suit in the Bradford County Court of Common Pleas against Anadarko Petroleum Corp., Anadarko E&P Onshore, Chesapeake Energy Corp., Chesapeake Appalachia, Chesapeake Operating and Chesapeake Energy Marketing, alleging the defendants violated both the UTPCPL and Pennsylvania antitrust common law by using deceptive, misleading and unfair tactics, and committed antitrust violations, in their lease dealings with private landowners.

Shapiro's office alleged that Anadarko and Chesapeake agreed to split between them the portion of the Marcellus Shale formation that lies beneath northeast Pennsylvania, giving them exclusive areas in which they could seek leases without having to compete with each other.

The trial court denied the defendants' preliminary objections and the defendants appealed.

The Commonwealth Court majority, led by Judge Ellen Ceisler, rejected the defendants'  argument that the UTPCPL does not apply to them because they're not sellers in the context of a consumer transaction but are rather more akin to buyers.

“Here, under the terms of the at-issue leases, the private landowners effectively relinquish title to appellants for natural gas that is extracted from their land during the lease term, in exchange for some combination of up-front and royalty payments,” Ceisler said. “We fail to see how that is functionally different from a sale of property.”

Ceisler, joined by Judges Renee Cohn Jubelirer, Robert Simpson, P. Kevin Brobson, Patricia McCullough and Michael Wojcik, furthered reasoned that the defendants, “by virtue of leasing subsurface mineral rights, purchased time-limited rights to whatever natural gas is situated underneath the private landowners' properties.”

“Thus, these transactions are, in the context of the UTPCPL, 'trade' or 'commerce,'” Ceisler said.

Moving on to the issue of whether the Attorney General's Office could bring antitrust claims under the UTPCPL, Ceisler said the majority agreed with the defendants that “the UTPCPL is not designed to render all antitrust violations actionable and that the scope of actionable antitrust behavior under the UTPCPL is narrower than under federal antitrust law.”

“Given that neither the attorney general nor the General Assembly has thus far used their powers to expressly define monopolistic behavior, joint ventures, or market sharing agreements as examples of 'unfair methods of competition' or 'unfair or deceptive acts or practices,' we find that such activities are not per se unlawful for purposes of the UTPCPL,” Ceisler said. “Consequently, the only manner in which these activities can give rise to viable UTPCPL actions is if they fit within one of the categories of behavior deemed, by rule or in the law itself, 'unfair methods of competition' or 'unfair or deceptive acts or practices.'”

Ceisler said only one of the two antitrust claims alleged by Shapiro's office fit the bill.

In Count IV of its complaint, the office argued that the defendants acted unlawfully by providing landowners with misleading information or failing to disclose pertinent information about the fairness and competitiveness of the lease terms they offered.

“The attorney general's assertions in Count IV regarding appellants' allegedly disingenuous and misleading behavior brings that claim within the ambit of Section 2(4)(xxi) of the [UTPCPL], which defines '[u]nfair methods of competition' and 'unfair or deceptive acts or practices' as '[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding,'” Ceisler said. ”Hence, the trial court did not err by overruling appellants' demurrers to Count IV of the attorney general's second amended complaint.”

Ceisler said the trial court was wrong, however, to allow prosecutors to move forward on Count III, which alleged the defendants entered into an unlawful joint venture and market sharing agreements that violated the UTPCPL through “'impairment of choice and the competitive process.'”

Ceisler said the Attorney General's Office “essentially argues through Count III that appellants' joint venture and market sharing agreements intrinsically violated the UTPCPL.”

“As we have already explained, the plain terms of the UTPCPL do not support such a conclusion,” Ceisler said. “Rather, the attorney general's claim that the mere existence of these business dealings created 'impairment of choice and the competitive process' is insufficient and does not enable Count III to fit within any of the 21 categories of 'unfair methods of competition' or 'unfair or deceptive acts or practices' listed in Section 2(4) of the [UTPCPL]. Furthermore, the attorney general has thus far declined to deem joint ventures or market sharing agreements as 'unfair methods of competition' or 'unfair or deceptive acts or practices' under the UTPCPL through the administrative rulemaking process.”

Judge Anne Covey concurred with the majority with regard to Count III, but dissented with regard to the rest of its ruling, calling it “judicial overreach.”

Covey supported the defendants' argument that they were actually purchasers in the lease transactions.

“By imposing a consumer protection statute's restrictions, prohibitions and burdens on consumers, the majority's analysis and ruling is a gross misinterpretation and misapplication of the UTPCPL,” Covey said. ”Such ruling is inconsistent with the UTPCPL's statutory purpose, creates a never-intended or anticipated UTPCPL cause of action that is completely contrary to the General Assembly's intent, and creates a dangerous precedent.”

“I find it unconscionable that as the direct result of the majority's decision, appellants may be retroactively liable for engaging in conduct that was not considered to be violative of state law at the time such activities occurred,” Covey added.

Shapiro said in a statement that the majority's ruling “allows our action to move forward and address the misconduct by these companies against landowners in oil and gas leases under the Unfair Trade Practices and Consumer Protection Law.”

“I'm fighting for landowners who we charge have been ripped off, and my office will continue to pursue this case on behalf of northeast Pennsylvanians,” Shapiro said.

Chesapeake spokesman Gordon Pennoyer said in an email, “While we are pleased the court majority reversed the trial court's decision in part, we respectfully disagree with the majority's decision that the attorney general may proceed with its novel UTPCPL claim, and we intend to seek Pennsylvania Supreme Court review. As stated in the dissent's opinion, the majority's decision is 'judicial overreach' because the attorney general has no statutory authority to bring this claim. Having already reached comprehensive settlements resolving the vast majority of Pennsylvania royalty owner claims, Chesapeake will continue to pursue resolution of this matter with the attorney general so that our royalty owners can enjoy the benefits of those settlements and choose their royalty formula going forward.”

A representative for Anadarko did not respond to a request for comment.

(Copies of the 31-page opinion in Anadarko Petroleum v. Commonwealth, PICS No. 19-0332, are available at http://at.law.com/PICS.)