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Oil And Gas Companies And Pennsylvania’s Unfair Trade Practices And Consumer Protection Law

By Paul R. Yagelski, Esquire

Do Oil and Gas Companies Fall Within the Unfair Trade Practices And Consumer Protection Law (UTPCPL)?

On March 15, 2019, the Commonwealth Court of Pennsylvania held that the Pennsylvania Commonwealth through its Attorney General stated legally viable claims against certain oil and gas lessees under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), 73 P.S. § 201-1, et seq., based upon the lessees’ allegedly unfair conduct in obtaining subsurface mineral leases.

Pennsylvania’s Attorney General filed suit against Anadarko Petroleum Corporation and Anadarko E&P Onshore, LLC (“Anadarko”) as well as Chesapeake Energy Corporation, Chesapeake Appalachia, LLC, Chesapeake Operating, LLC and Chesapeake Energy Marketing, LLC (“Chesapeake”).  In the Complaint, the Attorney General alleged that under the UTPCPL, Anadarko and Chesapeake acted unlawfully by using deceptive, misleading and unfair tactics in their efforts to secure subsurface mineral rights leases from private landowners.  These leases allowed Anadarko and Chesapeake to extract natural gas from the Marcellus Shale formations underneath the private landowners’ properties in exchange for royalties and other types of payments.

The Attorney General alleged that Anadarko and Cheapeake agreed to split the portion of “northeast Pennsylvania within the Marcellus Shale gas play” between them, so that Anadarko and Chesapeake would each effectively have exclusive areas in which to seek mineral rights leases without the fear that the other would tender competing offers to private landowners who were prospective lessors.

The Court of Common Pleas of Bradford County, Pennsylvania ruled that the Commonwealth could pursue claims against the lessees under the UTPCPL.  Anadarko and Chesapeake took interlocutory appeals.  One of the questions on their appeal was whether a cause of action may be brought under UTPCPL for alleged wrongful conduct by lessees in oil and gas lease transactions.

The UTPCPL was created to even the bargaining power between consumers and sellers in commercial transactions and to promote this objective, it aims to protect the consumers of the Commonwealth against fraud and unfair deceptive business practices.  As a remedial statute, it is to be construed liberally to effectuate that goal.  Commonwealth v. Golden State Nat’l Senior Care LLC, 194 A.3d 1010, 1023 (Pa. (2018).  The legislature enacted the UTPCPL to account for the fundamental inequality between the buyer and the seller and to protect consumers from exploitive merchants.  Meyer v. Community College of Beaver County, 625 Pa. 563, 93 A.3d 806 (2014).  The UTPCPL was designed to equalize the market position and strength of the consumer vis-à-vis the seller.  A perception of unfairness led the legislature to regulate market transactions more closely.  The mischief to be remedied was the use of unfair or deceptive acts or practices by sellers.  Id. at 820.

The Commonwealth Court found that Anadarko’s and Chesapeake’s conduct in relationship to the leases constituted “trade” and “commerce” as those terms are understood in the context of the Act.  The Court also found that per the statutory language of the UTPCPL and Pennsylvania case law, oil and gas leases were, in essence, sales.  Private landowners effectively relinquished title to Anadarko and Chesapeake for natural gas that is extracted from their land during the lease term in exchange for some combination of up-front and royalty payments.  Anadarko and Chesapeake, by virtue of leasing subsurface mineral rights, purchased time-limited rights to whatever natural gas is situated underneath the private landowners’ properties.  Thus, the Commonwealth Court held these transactions were, in the context of the UTPCPL, “trade” or “commerce.”

Having decided that Anadarko’s and Chesapeake’s leases qualified under the UTPCPL as “trade” or “commerce,” the Court then addressed whether Anadrako’s and Chesapeake’s activity gave rise to an action under the UTPCPL by the Attorney General.  The Commonwealth Court found that it did.  The Commonwealth Court held that the phrase “in the conduct” under the UTPCPL when read in the full context of the language used in Section 3 of the UTPCPL pertains to all “[u]nfair methods of competition and unfair or deceptive acts or practices” connected to the UTPCPL-defined “trade” or “commerce,” regardless of who is committing these unlawful acts.

While the UTPCPL places a restriction on the ability of private parties to file suit, the Act creates no such impediment for the Attorney General.  Instead, under the Act,  the Attorney General is imbued with express authority to file suit against “any person,” whenever the Attorney General determines that such a person is using or is about to use any method, act or practice declared by the UTPCPL, 73 P.S. § 201-3, to be unlawful and that proceedings would be in the public interest.  73 P.S. § 201-4.

The Court did not determine whether private persons can bring an action against oil and gas companies under the UTPCPL.

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