Two more gas suits filed in Southwest Virginia federal court

Two lawsuits filed Monday in federal court accuse the largest natural-gas companies that operate in Virginia of underpaying royalties to Southwest Virginia mineral owners who have leased their gas rights.

The nearly identical suits, filed in Abingdon, Va., charge that Consol Energy, its natural-gas producing subsidiary, CNX, and EQT Corp., have improperly paid royalties by selling gas at below-market-value prices and deducting costs to get the gas from the wellhead to market.

Lawyers for the plaintiffs are requesting that the lawsuits proceed as class actions on behalf of mineral owners who have leased their gas rights to CNX or EQT and have received royalty payments. The amount of damages sought remains unclear, the lawsuits note, and “can only be determined adequately through an accounting and investigation” of the financial records and practices of both Pittsburgh-area companies.

Larry Moffett, a Mississippi lawyer representing the plaintiffs, was reluctant to quantify the amount of damages his clients are seeking, but said in a phone interview Monday, “Millions of dollars is likely to be at issue here.”

Asked for comment, a Consol spokeswoman e-mailed, “This case was just filed and we have not had a chance to review it, so we cannot comment.”

An EQT spokesman did not respond to a request for comment Monday afternoon.

A key claim in the lawsuits filed Monday is that EQT and CNX have an “implied duty” in the leases to sell gas in a “marketable condition” – suitable for transport on an interstate pipeline – and that people who lease their gas should not have to bear these costs.

Gas producers routinely deduct costs associated with getting the gas from the wellhead to the first point of sale. They argue it is only fair for gas owners to share in these expenses because the treatment enhances the value of their resource.

“What the industry will say is, ‘We’re enhancing the value of the product,’ ” Moffett said, predicting counter arguments. “What they’re really doing is making it marketable. And what we’re saying is that’s their duty.”

Moffett and his associates also argue that CNX and EQT have failed to sell gas at a marketable quality, and that the companies have short-changed royalty recipients by selling their gas to other companies with which they’re affiliated.

The lead plaintiff in the case against CNX is the sole proprietor of an independent grocery store in Texas named John Sheffield, who inherited from his grandmother a mineral interest in about 3,000 acres in Buchanan County. Sheffield was briefly the plaintiff in a lawsuit that challenged the constitutionality of the Virginia Gas and Oil Act, which was withdrawn in January.

The lead plaintiffs in the suit against EQT are three descendants of a Dickenson County man named William Baker, who bequeathed an estate of about 1,000 acres.

The proposed classes in the lawsuits would not include landowners who have leased their gas, but whose royalties have been diverted by the Virginia Gas and Oil Board into escrow accounts. Such people “have an additional claim beyond what the other class members could assert,” Moffett said, leaving open the possibility that they might be added as a sub-class, or become plaintiffs in a separate suit.

In late April, EQT settled a class action complaint that alleged the company improperly deducted costs from royalty payments. A federal judge in West Virginia approved a $25 million payout.

Moffett said his case “will involve some of those same types of issues,” but declined to draw more detailed comparisons between the cases.

The lawsuits filed Monday come less than two weeks after the same team of plaintiffs lawyers – including law firms in Mississippi, Nashville and New York – accused CNX and EQT of stealing gas belonging to Southwest Virginia landowners, and attacked the state law that sanctioned the companies’ actions.

The earlier lawsuits, brought on behalf of landowners who own all minerals under their properties except coal, and whose rights have been involuntarily leased by the Virginia Gas and Oil Board, seek damages that run into the billions of dollars, according to lawyers for the plaintiffs.

Moffett said his team is filing multiple lawsuits to “break out the different circumstances that might have resulted in the underpayment of royalties owed to people up there.” He added, “There will be some more coming.”

dgilbert@bristolnews.com | (276) 645-2558