Commonwealth v. Chesapeake Energy Corp.

• Decision Date: 24 March 2021
• Docket Number: No. 81 MAP 2019,81 MAP 2019
• Citation: 247 A.3d 934
• Parties: COMMONWEALTH of Pennsylvania v. CHESAPEAKE ENERGY CORPORATION; Chesapeake Appalachia, L.L.C.; Chesapeake Operating, L.L.C. ; Chesapeake Energy Marketing, L.L.C. ; Anadarko Petroleum Corporation; and Anadarko E&P Onshore, L.L.C. Appeal of: Anadarko Petroleum Corporation; and Anadarko E&P Onshore, L.L.C.
• Court: Pennsylvania Supreme Court

247 A.3d 934

COMMONWEALTH of Pennsylvania

v.CHESAPEAKE ENERGY CORPORATION; Chesapeake Appalachia, L.L.C.; Chesapeake Operating, L.L.C. ; Chesapeake Energy Marketing, L.L.C. ; Anadarko Petroleum Corporation; and Anadarko E&P Onshore, L.L.C.

Appeal of: Anadarko Petroleum Corporation; and Anadarko E&P Onshore, L.L.C.

No. 81 MAP 2019

Supreme Court of Pennsylvania.

Argued: May 27, 2020

Decided: March 24, 2021

OPINION

JUSTICE MUNDY

In this appeal by allowance, we consider whether the Commonwealth, by the Office of Attorney General (OAG), may bring claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL), 73 P.S. §§ 201-1 — 201-9.3, on behalf of private landowners against a natural gas exploration and production company for its alleged deceptive, misleading, and unfair practices in obtaining natural gas leases from the landowners. We also consider whether the OAG may pursue antitrust remedies against a natural gas extractor under the UTPCPL. Because we conclude neither of the OAG's theories are cognizable under the UTPCPL, we affirm in part and reverse in part the order of the Commonwealth Court.

I. PENNSYLVANIA'S UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW

Enacted in 1968, the UTPCPL is Pennsylvania's consumer protection law.¹ "The UTPCPL was created to even the bargaining power between consumers and sellers in commercial transactions, and to promote that objective, it aims to protect the consumers of the Commonwealth against fraud and unfair or deceptive business practices." Commonwealth by Shapiro v. Golden Gate Nat'l Senior Care LLC , 648 Pa. 604, 194 A.3d 1010, 1023 (2018) ; see also Commonwealth, by Creamer v. Monumental Props., Inc. , 459 Pa. 450, 329 A.2d 812, 816-18 (1974) (noting the UTPCPL's "underlying foundation is fraud prevention," and it was based on the Federal Trade Commission Act, 15 U.S.C. §§ 41 - 58, and the Lanham Trademark Act, 15 U.S.C. §§ 1051 - 1127 ). As a remedial statute, "the UTPCPL is to be liberally construed to effectuate its objective of protecting the consumers of this Commonwealth from fraud and unfair or deceptive business practices." Ash v. Cont'l Ins. Co. , 593 Pa. 523, 932 A.2d 877, 881 (2007).

Turning to the UTPCPL's language and structure, Section 3 declares unlawful "unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce as defined by [Section 2(4)(i)-(xxi)] and regulations promulgated [by the Attorney General] under section 3.1[.]" 73 P.S. § 201-3. As alluded to in Section 3, Section 2(4) defines " ‘unfair methods of competition’ and ‘unfair or deceptive acts or practices’ " by providing a list of 20 specific actions that sellers are prohibited from engaging in, "which might be analogized to passing off, misappropriation, trademark infringement, disparagement, false advertising, fraud, breach of contract, and breach of warranty." Gabriel v. O'Hara , 368 Pa.Super. 383, 534 A.2d 488, 494 (1987) (footnotes omitted); 73 P.S. § 201-2(4)(i)-(xx). In addition to these 20 specific actions, Section 2(4)(xxi) contains a "catch-all" provision against "[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding." 73 P.S. § 201-2(4)(xxi).

Section 3 prohibits those "unfair methods of competition and unfair or deceptive acts or practices" in "trade or commerce." 73 P.S. § 201-3. In this case, we focus on Section 2(3), which defines the terms " ‘trade’ and ‘commerce’ " as "the advertising, offering for sale, sale or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situate, and includes any trade or commerce directly or indirectly affecting the people of this Commonwealth." 73 P.S. § 201-2(3).

To enforce Section 3, the UTPCPL provides,

Whenever the Attorney General or a District Attorney has reason to believe that any person is using or is about to use any method, act or practice declared by [Section 3] to be unlawful, and that proceedings would be in the public interest, he [or she] may bring an action in the name of the Commonwealth against such person to restrain by temporary or permanent injunction the use of such method, act or practice.

73 P.S. § 201-4. Additionally, the UTPCPL authorizes "any person who purchases or leases goods or services," and who is a victim of "a method, act or practice declared unlawful by section 3" to "bring a private action, to recover actual damages or one hundred dollars ($100), whichever is greater." 73 P.S. § 201-9.2. In such private actions, a court has the discretion to impose treble damages, costs, and attorney fees. Id.

II. FACTUAL AND PROCEDURAL HISTORY

Anadarko Petroleum Corporation and Anadarko E&P Onshore, L.L.C. (Anadarko) conducted natural gas exploration and production in the Marcellus Shale formation in the northeastern Pennsylvania counties of Bradford, Centre, Clinton, Lycoming, Potter, Sullivan, Tioga, and Wyoming. Second Amended Complaint, 5/3/16, at ¶¶ 261-262.² To acquire oil and gas interests, Anadarko employed or contracted with "landmen," who in turn negotiated and entered into leases with Pennsylvania landowners to obtain their properties' mineral estates. Id. at ¶¶ 72, 269. In a typical oil and gas lease, a landowner conveys the mineral estate for a term of years to an exploration and production company in exchange for signing bonus payments, royalties from the sale of oil and gas extracted from the land, and, at times, protections of surface rights. Id. at ¶¶ 28-30, 72, 74. Further, the landmen had the ability to alter the standard pre-printed lease form to address a landowner's demands through various addenda or even by editing the lease document on a laptop word processing program. Id. at ¶¶ 80-104; see also, e.g. , id. at 100 ("[t]he exploration and production companies gave such permission depending on the value of the land owned by the hard-bargaining landowner"). Although these agreements were referred to as "leases," the landowner conveyed a fee simple to the mineral estate for a term of years, which severed the ownership of certain minerals from ownership of the property's surface. Id. ¶¶ 77-78; Snyder Bros., Inc. v. Peoples Nat. Gas Co. , 450 Pa.Super. 371, 676 A.2d 1226, 1230 (1996) ("the interest granted to lessee is a fee simple determinable; the lessor retains a reversionary interest."); see also Shedden v. Anadarko E. & P. Co., L.P. , 635 Pa. 381, 136 A.3d 485, 490 (2016) ("[a]n oil and gas lease is in the nature of a contract, and, thus, is controlled by principles of contract law.").

In 2006, Anadarko entered into a joint venture with other companies engaged in natural gas exploration and production in the Marcellus Shale formation, Chesapeake Energy Corporation, Chesapeake Appalachia, L.L.C., Chesapeake Operating, L.L.C., and Chesapeake Energy Marketing, L.L.C. (Chesapeake). Second Amended Complaint, 5/3/16, ¶ 206. This joint venture included an oral market allocation agreement whereby Anadarko and Chesapeake allotted the territories in which they acquired oil and gas leases amongst themselves. Id. at ¶ 211. Specifically, Anadarko allocated to Chesapeake the counties of Bradford, Sullivan, Tioga, and Wyoming. Id. at ¶ 212. In return, Chesapeake allocated Clinton, Lycoming, and Potter Counties to Anadarko. Id. ¶ 213. Additionally, each company had the option of partnering on the leases secured by the other company. Id. at ¶ 214. Anadarko's landmen did not disclose these agreements with Chesapeake to prospective lessors. Id. at ¶ 216. The alleged effect of the Anadarko-Chesapeake joint venture was to eliminate competition in the negotiation of lease terms, including the signing bonus and royalty amounts to landowners. Id. at ¶¶ 217-19.

The OAG, acting as parens patriae ,³ filed this lawsuit against Anadarko and Chesapeake⁴ pursuant to the UTPCPL "to restrain unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce declared unlawful by Section 3 of the UTPCPL." Id. at 1-2.⁵ The OAG sought "to recover for Pennsylvania Landowners money wrongfully deducted from royalty checks as a result of the wrongful conduct of Defendants[.]" Id. at ¶ 1. Specifically, in its first count against Anadarko (Count III), the OAG averred that the joint venture and market allocation agreements Anadarko entered into with Chesapeake were unlawful under UTPCPL Section 3 because they "impaired the competitive process which deprived Pennsylvania Landowners from receiving an acreage signing bonus and royalty which would have been competitive and fair absent the agreement to allocate territories." Id. at ¶ 225. In its second and third counts against Anadarko (Counts IV and VI), the OAG alleged Anadarko's conduct in the joint venture and in its individual capacity were unlawful under UTPCPL Section 3 because it "constituted unfair or deceptive acts or practices within the meaning of Section 2(4) of the UTPCPL, including" subsections 2(4)(ii), (v), (vii), and (xxi). Id. at ¶¶ 245, 309.

Anadarko filed preliminary objections to the second amended complaint. Relevant to this appeal, Anadarko argued that the three counts in the OAG's complaint were legally insufficient because the UTPCPL applies only to sellers in consumer transactions, and Anadarko did not sell anything to the landowner when it entered into an oil and gas lease. Anadarko's First Amended Consolidated Preliminary Objections, 10/5/16, at ¶¶ 31-41. Instead, Anadarko explained it purchased the landowner's mineral rights. Id. at ¶ 40; see also id. at ¶¶ 43-44 (arguing the subsections of the UTPCPL the OAG cited in its complaint, 73 P.S. § 201-2(4)(ii), (v), (vii), (xxi), did not apply because they involved the sale or lease of consumer goods or services). Additionally, Anadarko asserted that the OAG's allegations of an "oral market allocation agreement" in Count IV are not cognizable...