By: Ronald L. Hicks, Jr., Justin N. Leonelli, and Joseph A. Carroll
Following a recent decision from the Pennsylvania Commonwealth Court, oil and gas operators now face exposure to potential lawsuits under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). While the UTPCPL has traditionally applied only to consumer transactions, the Pennsylvania Commonwealth Court recently expanded the statute’s application to oil and gas lease arrangements. This decision has far-reaching implications for companies in the oil and gas industry, particularly those involved in oil and gas lease transactions.
In Anadarko Petroleum Corporation v. Commonwealth of Pennsylvania, the natural gas companies argued that the UTPCPL should not apply to their alleged misconduct because lease transactions do not qualify as regulated conduct under the UTPCPL. Specifically, the gas companies reasoned that, because they simply leased mineral rights from landowners, they were not “selling” anything to consumers. At most, the natural gas companies argued that they were “buyers” and were therefore exempt from the UTPCPL.
However, the Pennsylvania Commonwealth Court disagreed, broadly interpreting the UTPCPL to classify gas leases as “sales.” The Court said that the Attorney General and, by extension, county district attorneys are authorized to file suit against oil and gas lessees under the UTPCPL. Significantly, however, the Court did not conclude that private individuals can bring UTPCPL claims against oil and gas operators, and the statutory language cited by the majority opinion would suggest that they cannot. But, the Commonwealth Court did not resolve the question of whether private UTPCPL claims can be pursued.
Based on the Anadarko case, any misleading statements, misrepresentations, or other unfair trade practices during the negotiation of oil and gas leases can form the basis for UTPCPL claims. Further, companies found to be liable under the UTPCPL can be subject to punitive damages, forfeiture of profits, civil fines, costs, and attorney fees.
The Commonwealth Court’s decision was not unanimous, with Judge Covey arguing that the decision was “judicial overreach” and leads to the “unconscionable” result that oil and gas operators “may be retroactively liable for engaging in conduct that was not considered to be violative of state law at the time such activities occurred.” The natural gas companies in Anadarko filed an appeal to the Pennsylvania Supreme Court on April 15, 2019. However, unless the Pennsylvania Supreme Court decides to take the case and reverses the Commonwealth Court, Anadarko will remain the controlling law in Pennsylvania. Accordingly, oil and gas operators should be prepared to defend against future UTPCPL claims and would be wise to require training for all employees or agents who conduct lease negotiations to assure that they do not run afoul of the UTPCPL.
For more information about this case please contact Ron Hicks, Justin Leonelli, Joe Carroll, or any other Meyer, Unkovic & Scott Energy, Utilities & Mineral Rights attorney with whom you may have worked. Contact information is included below.
This material is for informational purposes only. It is not and should not be solely relied on as legal advice in dealing with any specific situation.