Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Chesapeake Energy to pay $25M to settle Michigan bid rigging, racketeering charges, (Apr 27, 2015)

By Linda O’Brien, J.D., LL.M.

The State of Michigan has reached a $25 million settlement of civil bid rigging and racketeering charges it brought against Oklahoma-based energy company Chesapeake Energy Corporation, according to an April 24 announcement by Michigan Attorney General and Michigan Department of Natural Resources (DNR) Director Keith Creagh.

The settlement resolves allegations the company conspired with Calgary-based Encana Oil & Gas to avoid bidding wars against each other in Michigan public auctions for oil and gas leases that caused lease prices to plummet in October 2010. The settlement also addresses complaints that Chesapeake defrauded hundreds of private citizens by fraudulently cancelling their oil and gas leases in 2010. Schuette previously reached a $5 million settlement agreement with Encana in May 2014.

Public auctions of state-held oil and gas leases are held twice yearly, once in May and once in October, by the DNR. During the DNR's May 2010 auction, both Chesapeake and Encana purchased natural gas leases in Michigan. In 2012, a news agency uncovered a possible conspiracy between the two companies' executives, who discussed an agreement following the May 2010 auction to allocate Michigan counties where each company would be an exclusive bidder for both public and private leases.

In the five month period following the state's May 2010 auction, this alleged conspiracy may have been a key driver behind the state-held land lease price in Michigan going from $1,510 per acre in May 2010 to less than $40 an acre at the October 2010 auction and for private leasing to cease.

Schuette’s Corporate Oversight Division filed charges against Chesapeake Energy Corporation and Encana Oil and Gas USA in March 2014 for their alleged collaboration in 2010 to avoid bidding against each other in Michigan public auctions and private negotiations for oil and gas leases that caused prices to drop dramatically. The charges included one count of an antitrust violation and one count of an attempted antitrust violation under the Sherman Act.

In June 2014, Schuette charged a separate criminal case against Chesapeake, including felony charges of racketeering and fraud for allegedly victimizing private landowners across Northern Michigan. Schuette alleged that Chesapeake obtained uncompensated land options from these landowners by false pretenses and prevented competitors from leasing the land.

Civil settlement. The settlement includes the following terms: (1) a $25 million victims’ compensation fund will be established and every victim listed in the state’s Racketeering complaint will be paid back 100% of their losses and attorney fees; (2) the victims who have pursued private settlements with Chesapeake, which resulted in Chesapeake paying more than $19 million, will have the opportunity to have their cases reopened to recoup additional losses not already compensated for; (3) the company will pay $5 million to the State of Michigan; and (4) victims who have not yet come forward in the last four years will have 120 more days to file a claim and will be paid back 100% of their valid losses.

Plea. In addition to agreeing to the civil settlement, the company pleaded no contest to one count of attempted antitrust violations, a misdemeanor and one count of false pretenses, a misdemeanor, before Judge Scott Pavlich in Cheboygan Circuit Court. The state agreed to an 11-month delayed sentence on both charges. If Chesapeake abides by the terms of the settlement, the criminal case would be dismissed after 11 months.

“This is a victory for Michigan taxpayers and a victory for all the Michigan land-owners who took deep hits to their pocketbooks following the October 2010 private land auction,” said Attorney General Schuette. “This settlement will achieve recovery for every one of the more than 700 affected victims who come forward and make a valid claim.”

Companies: Chesapeake Energy Corporation; Encana Oil and Gas USA

News: Antitrust MichiganNews