PA’s UTPCPL does not apply
Pennsylvania’s Unfair Trade Practices and Consumer Protection Law Does Not Apply to an Oil and Gas Company in a Typical Oil and Gas Lease Transaction
By Paul R. Yagelski, Esquire
In Commonwealth v. Chesapeake Energy Corp., No. 81 MAP 2019, 2021 Pa. LEXIS 1205 (Pa. March 24, 2021), the Pennsylvania Supreme Court held that the claims of the Pennsylvania Attorney General (“OAG”) under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) were not cognizable. Because the oil and gas companies, Anadarko Petroleum Corporation and Anadarko E&P Onshore, L.L.C. (collectively “Anadarko”), were not in the position of a seller for purposes of the UTPCPL, the UTPCPL did not apply.
Anadarko conducted natural gas exploration and production in the Marcellus Shale formation in northeastern Pennsylvania. To acquire oil and gas interests, Anadarko imported or contracted with “landmen” who in turn negotiated and entered into leases with Pennsylvania landowners to obtain their properties’ mineral estates.
In 2006, Anadarko entered into a joint venture with other companies engaged in natural gas exploration and production in the Marcellus Shale formation; specifically, Chesapeake Energy Corporation, Chesapeake Appalachia, L.L.C., Chesapeake Operating, L.L.C., and Chesapeake Energy Marketing, L.L.C. (collectively “Chesapeake”). This joint venture included an oral market allocation agreement whereby Anadarko and Chesapeake allocated the territories in which they acquired oil and gas leases amongst themselves. Additionally, each company had the option of partnering on the leases secured by the other company. Anadarko’s landmen did not disclose these agreements with Chesapeake to prospective lessors. The alleged effect of the Anadarko-Chesapeake joint venture was to eliminate competition in the negotiation of lease terms, including the signing bonus and royalty amounts provided in such transactions to landowners.
The OAG, acting as (parens patriae), filed suit against Anadarko and Chesapeake under the UTPCPL to restrain unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce declared unlawful by Section 3 of the UTPCPL. The OAG sought to recover for Pennsylvania landowners money wrongfully deducted from royalty checks as a result of the wrongful conduct of Defendants. Specifically, in its second and third counts against Anadarko (Counts IV and VI), the OAG alleged that Anadarko’s conduct in the joint venture and in its individual capacity was unlawful under UTPCPL Section 3 because it constituted unfair or deceptive acts or practices within the meaning of Section 2(4) of the UTPCPL, including subsections 2(4)(ii), (v), (vii), and (xxi).
Anadarko filed preliminary objections to the OAG’s Second Amended Complaint. Anadarko argued that the aforesaid counts were legally insufficient because the UTCPL applies only to sellers in consumer transactions and Anadarko did not sell anything to the landowner when it entered into an oil and gas lease. Instead, Anadarko explained that it purchased the landowners’ mineral rights and argued that the subsections of the UTCPL that the OAG cited in its Second Amended Complaint; i.e., 73 P.S. § 201-2(4)(ii), (v), (vii), (xxi), did not apply because it was not involved in the sale or lease of consumer goods or services.
On December 15, 2016, the trial court overruled Anadarko’s preliminary objections. The trial court concluded that the UTPCPL applied because Anadarko’s purchasing of oil and gas rights constituted trade and commerce as defined in the UTPCPL Section 2(3). The trial court concluded that Anadarko’s oil and gas leasing or the purchase of an oil and gas lease was a “distribution of services” and the purchase of an oil and gas lease constituted “any trade or commerce.” Thus, Anadarko’s purchase of oil and gas rights fell within trade and commerce as defined in UTPCPL Section 2(3).
In its opinion and accompanying orders denying Anadarko’s preliminary objections, the trial court sua sponte identified and certified for immediate interlocutory appeal, under 42 Pa. C.S. § 702(b):(1), the issue of whether the OAG may bring claims under the UTPCPL in this case. Anadarko filed a petition for permission to appeal on an interlocutory basis, which the Commonwealth Court granted and consolidated with Chesapeake’s appeal.
The Commonwealth Court, en banc, affirmed the trial court’s conclusion that the OAG’s UTPCPL claims, based on Anadarko’s conduct in securing oil and gas leases, were legally viable. The court reasoned that Anadarko’s conduct constituted “trade and commerce” under UTPCPL Section 2(3) because the leases were, in essence, sales.
After concluding that Anadarko was engaged in trade and commerce when it purchased mineral rights through leases, the Commonwealth Court then concluded that these lease transactions can give rise to a UTPCPL claim because Section 3 outlaws all “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” (quoting 73 P.S. § 201-3). Therefore, the Commonwealth Court concluded that the OAG stated cognizable UTPCPL claims against Anadarko and affirmed the trial court’s decision overruling Anadarko’s preliminary objections.
The Supreme Court granted Anadarko’s Petition for Allowance of Appeal. On appeal it considered, inter alia, whether the claims by the Commonwealth brought on behalf of private landowners against natural gas extractors, alleging that the extractors used deceptive, misleading, and unfair tactics in securing natural gas leases from landowners, are cognizable under the UTPCPL.
In addressing this issue, the Supreme Court noted that the UTPCPL clearly regulates the conduct of sellers and does not provide a remedy for sellers to exercise against buyers. Section 3 of the UTPCPL declares unlawful unfair methods of competition and unfair or deceptive acts or practices in the conduct of trade or commerce. 73 P.S. § 201-3.To resolve the appeal, the Supreme Court focused on UTPCPL’s Section 2(3) definition of trade and commerce, which provides:
“Trade” and “Commerce” means the advertising, offering for sale, sale or distribution of any services and property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situate, and includes any trade or commerce directly or indirectly affecting the people of this Commonwealth.
73 P.S. § 201-2(3).
Reading Section 3 in light of this definition, the Supreme Court noted that the UTPCPL prohibits unfair and deceptive practices in the conduct of “advertising, offering for sale, sale or distribution” of goods. 73 P.S. § 201-2(3). Thus, the legislature chose to define trade and commerce as only acts of selling for purposes of the UTPCPL, even though the ordinary meaning of those terms signifies both buying and selling goods. Accord 73 P.S. § 201-2(4) (defining unfair and deceptive acts as sellers’ conduct). The Supreme Court could not disregard this policy choice of the legislature. The Commonwealth Court erred in disregarding this specialized legislative definition of trade and commerce and in substituting the dictionary definition of those terms. Because the legislature first defined trade and commerce and then used the terms again, the Commonwealth Court could not disregard the legislature’s definition in favor of a dictionary definition.
Applying the plain language of UTPCPL Section 2(3) definition of trade and commerce to the case, the Supreme Court concluded that the OAG’s UTPCPL claims against Anadarko were not legally cognizable. In the oil and gas lease transactions at issue, Anadarko was in a position of a buyer, purchasing rights to the landowners’ mineral estates. In turn, the landowners were in a position of the seller, conveying their rights in exchange for signing bonuses, royalty payments and other considerations. While the OAG’s Second Amended Complaint alleged that Anadarko engaged in unfair and deceptive conduct in these transactions, Anadarko was not conducting “trade or commerce” for the purposes of the UTPCPL because it was not engaged in “the advertising, offering for sale, sale or distribution of anything; instead, it was purchasing oil and gas interests from landowners. In fact, both the Commonwealth Court and the OAG recognized that Anadarko was in the position of a buyer/consumer in the oil and gas lease transactions. Section 3 of the UTPCPL simply does not regulate the buyer’s conduct in commercial transactions. In short, the Pennsylvania Supreme Court concluded that Anadarko was not in the position of a seller for purposes of the UTPCPL and this resolved the case.
The Supreme Court then went further and held that because the OAG’s claims were not cognizable under Section 3 of the UTPCPL, it was not persuaded by the OAG’s contention that it could nonetheless bring enforcement actions against any person pursuant to UTPCPL Section 4. Section 4 plainly provides that the OAG has standing to bring an action only if that person “is using or is about to use any method, act or practice declared by section 3 of this act to be unlawful.” 73 P.S. § 201-4. Thus, Section 4 does not alter the Section 3 UTPCPL cause of action, or create an independent cause of action, when the Commonwealth brings the action. Because the Court concluded that the OAG’s averments in its Second Amended Complaint did not plead a violation of Section 3, the OAG could not bring a claim under Section 4. Accordingly, the OAG’s UTPCPL claims against Anadarko were legally insufficient.
As the Supreme Court concluded that Anadarko, an oil and gas company, was not a seller for purposes of Pennsylvania’s UTPCPL in an oil and gas lease transaction, this should forestall any future actions against oil and gas companies under the UTPCPL. Pursuant to the Supreme Court’s decision, in a typical oil and gas lease transaction wherein the landowner is leasing its oil and gas to an oil and gas company, the UTPCPL does not apply to such a transaction as an oil and gas company is not a seller in such a transaction.
 Parens patriae is a doctrine by which a government has standing to prosecute a lawsuit on behalf of a citizen or on behalf of someone who is under a legal disability to prosecute the suit.
 On June 28, 2020, Chesapeake filed a Chapter 11 bankruptcy case in the United States Bankruptcy Court for the Southern District of Texas. On August 26, 2020, the Pa. Supreme Court issued an order taking notice of the bankruptcy court’s decision that the automatic stay applied to Chesapeake’s appeal in the Pa Supreme Court and severed Chesapeake from the appeal. Accordingly, the Pa. Supreme Court only considered the appeal of Anadarko.