Fifth Circuit Rules in Favor of Chesapeake in Texas Lawsuit

The Fifth Circuit Court of Appeals has sent back to Texas Federal Court a proposed class action lawsuit against Oklahoma City-based Chesapeake Energy Corporation which was accused of trespassing on foreclosed oil and gas leases. It could be considered something of a small victory for Chesapeake in the legal battle.

The original suit was filed Nov. 19, 2014 in Texas state court by Arbuckle Mountain Ranch of Texas, Inc. Chesapeake managed to get the case removed to federal court but in August of last year, the federal court granted Arbuckle’s motion to remand the case to Texas state court.

Chesapeake operates producing wells in Johnson and Tarrant Counties and had obtained oil and gas leases on commercial and residential property in downtown Fort Worth and adjacent locations.

The lawsuit claimed that some of those property owners lost their property through foreclosure. Arbuckle Mountain Ranch stepped in and claimed to be the post-foreclosure owners of the disputed oil and gas interests.

Arbuckle sought to make it a class-action lawsuit involving between 3,000 and 5,000 members across the U.S. The company claimed the oil and gas leases held by Chesapeake “automatically terminated upon foreclosure and the defendants’ (Chesapeake) continued operation of these wellheads constituted trespass and conversion,” according to the ruling from the Fifth Circuit Court of Appeals.

At the heart of the legal issue is what’s called CAFA or Class Action Fairness Act. Under the definition, federal jurisdiction over class actions can be allowed including under the “local controversy exception.” A Texas federal court agreed with Arbuckle that since most of the property owners were in Texas, the case should be heard in a state court. Under CAFA, a federal court can decline to exercise jurisdiction over a class action in which greater than two-thirds of the members of the class are citizens of the State in which the action was originally filed.

The Fifth Circuit ruled Arbuckle could not present evidence about the owners who purchased mineral interests afer the property foreclosures but have since sold or otherwise relinquished their interests.

“During a deposition of Arbuckle’s class-citizenship expert witness, the witness conceded that he had not examined the citizenship of interim owners,” ruled the judges.


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