Brown v. Access Midstream Partners, L.P.

Decision Date30 September 2015
Docket NumberCIVIL ACTION NO. 3:14–0591
Citation141 F.Supp.3d 323
Parties James L. Brown, on behalf of himself and all others similarly situated, Plaintiffs v. Access Midstream Partners, L.P., Chesapeake Energy Corp., and Domenic J. Dell'Osso, Jr., Defendants
CourtU.S. District Court — Middle District of Pennsylvania

Michael D. Donovan, Noah Axler, Donovan Axler, LLC, Berwyn, PA, Robert E. McCann, Todd J. Jacobs, McCann & Wall, LLC, Patrick Howard, Saltz, Mongeluzzi, Barrett & Bendesky, P.C., Philadelphia, PA, for Plaintiffs.

Dylan J. Steinberg, Alan C. Promer, Jason A. Levine, John S. Summers, Hangley Aronchick Segal Pudlin & Schiller, Kathryn E. Deal, Seamus C. Duffy, Drinker Biddle & Reath LLP, Philadelphia, PA, Christopher B. Woods, Crowe & Dunlevy, Michael J. Gibbens, Susan E. Huntsman, Victor E. Morgan, Crowe & Dunlevy, Tulsa, OK, Mack J. Morgan, III, Crowe & Dunlevy, Oklahoma City, OK, Daniel T. Donovan, Peter A. Farrell, Ragan Naresh, Kirkland & Ellis LLP, Washington, DC, Daniel T. Brier, Myers Brier & Kelly, LLP, Patrick J. Brier, Stevens & Lee, Scranton, PA, for Defendants.

MEMORANDUM

MALACHY E. MANNION

, United States District Judge

Pending before the court are: (1) a motion to dismiss the plaintiffs' amended complaint filed on behalf of defendant Access Midstream Partners, L.P., ("Access Midstream"), (Doc. 68); (2) a motion to dismiss the plaintiffs' amended complaint filed on behalf of defendant Chesapeake Energy Corporation, ("Chesapeake Energy"), (Doc. 70); and (3) a motion to dismiss the plaintiffs' amended complaint filed on behalf of defendant Domenic J. Dell'Osso, Jr., ("Mr.Dell'Osso"), (Doc. 72).

I. PROCEDURAL HISTORY

On March 28, 2014, the plaintiff James L. Brown filed the instant action on behalf of himself and all others similarly situated. (Doc. 1). An amended complaint was filed on August 22, 2014, which was brought by James L. Brown and Alice R. Brown on behalf of themselves and on behalf of all others similarly situated. (Doc. 57).

On September 19, 2014, defendant Access Midstream, defendant Chesapeake Energy and defendant Dell'Osso filed motions to dismiss the plaintiffs' amended complaint, (Doc. 68, Doc. 70, Doc. 72, respectively). Accompanying the motions to dismiss were supporting briefs, (Doc. 69, Doc. 71, Doc. 73). The plaintiffs filed briefs opposing each of the defendants' motions to dismiss on October 17, 2014. (Doc. 75, Doc. 76, Doc. 77). On November 14, 2014, the defendants each filed their reply briefs. (Doc. 82, Doc. 83, Doc. 84).

II. STANDARD OF REVIEW

The defendants' motions to dismiss are brought pursuant to the provisions of Fed. R. Civ. P. 12(b)(6)

. This rule provides for the dismissal of a complaint, in whole or in part, if the plaintiff fails to state a claim upon which relief can be granted. The moving party bears the burden of showing that no claim has been stated, Hedges v. United States, 404 F.3d 744, 750 (3d Cir.2005), and dismissal is appropriate only if, accepting all of the facts alleged in the complaint as true, the plaintiff has failed to plead "enough facts to state a claim to relief that is plausible on its face," Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (abrogating "no set of facts" language found in Conley v. Gibson, 355 U.S. 41, 45–46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ). The facts alleged must be sufficient to "raise a right to relief above the speculative level." Twombly , 550 U.S. at 544, 127 S.Ct. 1955. This requirement "calls for enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of" necessary elements of the plaintiff's cause of action. Id . Furthermore, in order to satisfy federal pleading requirements, the plaintiff must "provide the grounds of his entitlement to relief," which "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir.2008) (brackets and quotations marks omitted) (quoting Twombly, 550 U.S. 544, 127 S.Ct. at 1964–65 ).

In considering a motion to dismiss, the court generally relies on the complaint, attached exhibits, and matters of public record. See Sands v. McCormick, 502 F.3d 263 (3d Cir.2007)

. The court may also consider "undisputedly authentic document[s] that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the [attached] documents." Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir.1993). Moreover, "documents whose contents are alleged in the complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered." Pryor v. Nat'l Collegiate Athletic Ass'n, 288 F.3d 548, 560 (3d Cir.2002)

. However, the court may not rely on other parts of the record in determining a motion to dismiss. See Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994).

Generally, the court should grant leave to amend a complaint before dismissing it as merely deficient. See, e.g., Fletcher–Harlee Corp. v. Pote Concrete Contractors, Inc., 482 F.3d 247, 252 (3d Cir.2007)

; Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir.2002) ; Shane v. Fauver, 213 F.3d 113, 116–17 (3d Cir.2000). "Dismissal without leave to amend is justified only on the grounds of bad faith, undue delay, prejudice, or futility." Alston v. Parker, 363 F.3d 229, 236 (3d Cir.2004).

III. DISCUSSION

A. Plaintiffs' Allegations1

The following allegations are taken directly from the plaintiffs' amended complaint. As set forth above, the court accepts any factual allegations as true for purposes of the instant motions to dismiss. The plaintiffs are Pennsylvania residents who own land in Pennsylvania's Marcellus basin. On or about June 20, 2007, plaintiff James Brown entered into a "Paid–Up Oil & Gas Lease" with Chesapeake Appalachia, LLC, ("Chesapeake Appalachia").2 On that same day, plaintiff Alice Brown also entered into a "Paid–Up Oil & Gas Lease" with Chesapeake Appalachia.

According to the amended complaint, Chesapeake Energy is a NYSE-traded company and is one of the largest natural gas producers in the United States. Natural gas is generally located in sub-surface deposits and is extracted either through drilling or hydraulic fracturing, ("fracking"). Once a natural gas deposit is reached through these processes, a wellhead is placed on the deposit. After a wellhead is in place, natural gas can be moved from the well through gathering pipes and ultimately transported through an intrastate transmission pipeline. Intrastate transmission pipelines connect to major interstate transmission pipelines which transport natural gas throughout the United States. The transport and processing steps which follow removal of natural gas from the wellhead but precede entry of the gas into an interstate transmission pipeline are sometimes referred to by industry participants in a collective fashion as "gathering."

The Marcellus basin in Pennsylvania contains large natural gas deposits. Chesapeake Energy, among other companies, has conducted extensive natural gas drilling and fracking operations in the basin over the past decade. In order to facilitate Chesapeake Energy's drilling and fracking operations in the Marcellus basin, its subsidiary, Chesapeake Appalachia, entered into agreements to lease land from Pennsylvania residents. These lease agreements, such as the ones entered into by the plaintiffs, give Chesapeake Appalachia the right to extract oil and natural gas from lessors' lands and to transport and sell the oil and gas.

Due to major capital expenditures and lower natural gas prices, the plaintiffs allege that Chesapeake Energy found itself in severe financial difficulty at the beginning of 2012. In February 2012, Chesapeake Energy announced its intent to sell certain "midstream assets," which included its natural gas gathering and intrastate pipeline operations in the Marcellus basin. These midstream assets were held by its subsidiary, Chesapeake Midstream Operating, LLC, ("CMO"). On December 20, 2012, Chesapeake Energy completed the sale of CMO to Access Midstream, which is a publicly traded Master Limited Partnership and was originally formed by Chesapeake Energy. Access Midstream paid Chesapeake Energy $2.16 billion to acquire CMO and its midstream assets. In return for this payment, Access Midstream got not only Chesapeake Energy's midstream assets, it also got gas gathering agreements with certain Chesapeake Energy subsidiaries, including Chesapeake Appalachia. Chesapeake Energy and Access Midstream sought confidential treatment of the gas gathering agreements from the SEC and have not otherwise made the agreements public. Certain terms of the agreements have, however, been described in public disclosures by Chesapeake Energy and Access Midstream, as well as in a report issued by ProPublica .3

Pursuant to the agreements, Chesapeake Energy's subsidiaries agreed to pay Access Midstream for natural gas gathering and transportation services, including intrastate transport. The agreement between Access Midstream and Chesapeake Appalachia covered Chesapeake Energy's operations in the Marcellus basin, ("Marcellus Agreement"). Under the Marcellus Agreement, Chesapeake Appalachia's payments to Access Midstream for gas gathering and transportation services were referred to as the "Marcellus fee." Access Midstream characterizes the Marcellus fee as a "cost-of-service based fee." However, the plaintiffs contend that the Marcellus fee is not based on Access Midstream's costs of service but is, instead, an inflated fee meant to provide Access Midstream with a guaranteed, above-market return as an incentive and consideration for the $2.16 billion payment made to Chesapeake Energy. The Marcellus Agreement has a 15–year term and provides that, "[e]ffective on January 1, 2014 and January 1st of each year thereafter for a period of 15 years from July 1, 2012," the...

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