Suessenbach Family Ltd. v. Access Midstream Partners, L.P., CIVIL ACTION NO. 3:14-1197
| Decision Date | 31 March 2015 |
| Docket Number | CIVIL ACTION NO. 3:14-1197 |
| Court | U.S. District Court — Middle District of Pennsylvania |
| Parties | THE SUESSENBACH FAMILY LIMITED PARTNERSHIP, JAMES S. SUESSENBACH, individually and on behalf of himself and all others similarly situated, and GINA M. SUESSENBACH, individually and on behalf of all others similarly situated, Plaintiffs v. ACCESS MIDSTREAM PARTNERS, L.P., and CHESAPEAKE ENERGY CORPORATION, Defendants |
(JUDGE MANNION)
Pending before the court are a motion to dismiss the plaintiffs' complaint filed on behalf of Chesapeake Energy Corporation, ("Chesapeake Energy"), (Doc. 23), and a motion to dismiss the plaintiffs' complaint filed on behalf of Access Midstream Partners, L.P., ("Access Midstream"), (Doc. 26). Based upon the court's review of the motions and related materials, the motions will be denied in large part, with the only exception being the plaintiffs' claim of honest services fraud alleged as a predicate offense in support of their RICO claim.
By way of relevant background, on June 20, 2014, the plaintiffs,individually and behalf of all others similarly situated, brought the instant action against Chesapeake Energy and Access Midstream, in which they assert the following causes of action: violations of the Racketeer Influenced and Corrupt Organizations Act, ("RICO"), 18 U.S.C. §§1961-1968; conspiracy to violate the RICO Act, 18 U.S.C. §1962(d); unjust enrichment; conversion; and civil conspiracy. (Doc. 1).
On August 26, 2014, Chesapeake Energy filed a motion to dismiss the plaintiffs' complaint pursuant to Fed.R.Civ.P. 12(b)(6), (Doc. 23), along with a supporting brief, (Doc. 24). That same day, Access Midstream filed a motion to dismiss the plaintiffs' complaint pursuant to Fed.R.Civ.P. 12(b)(6), (Doc. 26), along with a supporting brief, (Doc. 27). The plaintiffs filed a combined brief responsive to the defendants' motions to dismiss on October 3, 2014. (Doc. 41). On October 30, 2014, Access Midstream and Chesapeake Energy filed their reply briefs, (Doc. 44, Doc. 45, respectively).
The defendants' motion to dismiss is 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 thecomplaint 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 (2007) (). The facts alleged must be sufficient to "raise a right to relief above the speculative level." Twombly, 550 U.S. at 544. 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'lCollegiate 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).
The following allegations are taken directly from the plaintiffs' complaint. As set forth above, the court accepts any factual allegations as true for purposes of the instant motions to dismiss. Induced hydraulic fracturing, commonly known as hydrofracking or fracking, is a technique used to release petroleum, natural gas (including shale gas, tight gas, and coal seam gas), or other substances for extraction. The technique creates fractures from a wellbore drilled into reservoir rock formations.
Fracking enables the production of natural gas and oil from rockformations below the earth's surface, generally 5,000 to 20,000 feet. At such depth, there may not be sufficient permeability or reservoir pressure to allow natural gas and oil to flow from the rock into the wellbore at economic rates. Given the extremely low natural permeability of shale, creating fractures in the rock is critical to extract gas from shale reservoirs.
Large deposits of natural gas have been discovered in various shale deposits throughout the United States, including in Pennsylvania, and several oil and gas exploration and development companies have been actively accessing these deposits due to the development of fracking technology that allows the deposits to be exploited. The Marcellus Shale formation located in and beyond Pennsylvania is one of the largest natural gas reserves in the world. Plaintiffs' lands are located in the Marcellus Shale.
Gaining access to the deposits in the shale regions, including the Marcellus Shale, typically involves purchasing or leasing land or mineral rights in the vicinity of suspected deposits and attempting to develop profitable wells. Once a natural gas deposit is reached, 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 interstatetransmission pipeline, are sometimes referred to as "gathering." Access Midstream operates between the lessors at the wellhead and the interstate pipeline system.
Processing can also include certain services to make gas suitable for entry into the interstate pipeline system, such as dehydration when the natural gas has a high water content. Access Midstream as indicated, however, "[i]n general, the natural gas in the northern Marcellus Shale is lean and typically requires little to no treatment to remove contaminants."
While federal rules limit fees that can be charged on the interstate pipelines to prevent gouging, drilling companies levy fees on local pipelines, known as gathering lines. However, even where such fees are deducted, they must be reasonable and actual.
On August 3, 2010, Chesapeake Energy formed Access Midstream and began spinning off its midstream assets, which included its natural gas gathering and intrastate pipeline operations, through a series of sales to Access Midstream in order to fund its ongoing operations. During this time, Chesapeake Energy was using its subsidiaries to artificially inflate deductions charged to lessors.
In December 2011, Chesapeake Energy completed the sale of Appalachia Midstream Services, L.L.C., ("AMS"), a wholly owned subsidiary of Chesapeake Midstream, and AMS's Marcellus Shale midstream assets for $865 million in total consideration. In February 2012, Chesapeake Energyannounced its intent to sell additional midstream assets, and on December 20, 2012, Chesapeake Energy completed the sale of its subsidiary Chesapeake Midstream Operating, L.L.C., ("CMO"), to Access Midstream, including CMO's Marcellus Shale midstream assets, for $2.16 billion in total consideration.
When Chesapeake Energy sought to spinoff its gathering operations, it turned to J. Michael Stice, the President and Chief Operating Officer of Chesapeake Midstream and Senior Vice President of Natural Gas Projects for Chesapeake Energy from November 2008 through December 2012, to run the operation. Mr. Stice then became the Chief Executive Officer of Access Midstream following its acquisition of the CMO midstream assets. Domenic J. Dell'Osso, Jr., was the Executive Vice President and Chief Financial Officer of Chesapeake Energy since November 2010 and Chief Financial Officer of Chesapeake Midstream from August 2008 to November 2010. Both Stice and Dell'Osso have served as directors of Access Midstream's general partner, Access Midstream Partners GP, L.L.C., since July 2012 and July 2011, respectively.
According to an article published by ProPublica1, an independent non-profit organization, post-spinoff agreements between Chesapeake Energy and Access Midstream guarantee that Chesapeake Energy and certain of its subsidiaries and affiliates get a rebate of...
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