This class action alleges that CNX Gas Company and Noble Energy, Inc. fraudulently entered into lease agreements with the owners of oil and gas mineral rights in the state which provided for flat-fee post production expense deductions from royalty payments owed.
The plaintiffs in this action are the owners of a mineral interest containing approximately 69,129 acres of oil and gas mineral rights located in West District, Marshall County, West Virginia. On September 9, 2009, they entered into an Oil, Gas and Coalbed Methane Gas Lease Agreement with defendant CNX Gas Company ("CNX"). In 2011, CNX assigned 50% of its interest in the lease to defendant Noble Energy, Inc. Both defendants have made royalty payments to the plaintiffs pursuant to the lease agreement.
According to the terms of the lease, the royalty payments owed to the plaintiffs are 15% of the sales price received by CNX/Noble for deep formation oil and gas "less an amount equal to $1.20 per MMBtu" related to various post-production functions and expenses incurred. Further, the plaintiffs would be entitled to receive 12.5% of the sales price received by CNX/Noble for shallow oil and gas and coalbed methane gas, less the same $1.20 per MMBtu flat-rate deduction for post-production expenses. The language of the lease stated that the parties agreed that the flat-fee deduction for expenses "will be presumed to be actually incurred and reasonable."
Plaintiffs now argue that the lease provisions incorporating flat-fee post-production cost deductions from royalty payments are in violation of West Virginia law, that the expenses deducted were excessive and not actually incurred, that the inclusion by CNX of a flat-rate provision in the lease agreement was fraudulent and deceptive and that the defendants' conduct with regard to the lease agreement was knowing, willful, intentional and malicious.
As a result of the defendants' conduct, plaintiffs allege that CNX/Noble have been unjustly enriched in the form of the significant expense amounts illegally subtracted from royalty payments pursuant to the deceptive lease clause. They also argue that the defendants engaged in fraudulent conduct with regard to the lease because they knew or had a duty to know that the flat-rate clause was violative of West Virginia Law. The plaintiffs assert that they justifiably relied on the defendant's representations regarding the legality of the clause and sustained financial damages as a result.
The complaint seeks a declaratory judgment stating that flat-rate post-production cost clauses must be terminated from all existing mineral rights leases with CNX and Noble Energy and that all costs illegally taken from the plaintiffs and other similarly situated class members be reimbursed. Plaintiffs also seek punitive and compensatory damages, prejudgment and postjudgment interest and reasonable attorney fees and costs associated with filing suit.
This class action lawsuit was filed on November 9, 2015. We will continue to monitor the docket in 2016 and provide updates as necessary.