Court Opinion

ID: 4671112
Source: CourtListenerOpinion
Date Created: 2021-03-24 19:13:40.404485+00
Date Added: 2024-06-11T08:02:22.902004
License: Public Domain

[J-52A-2020] [MO: Mundy, J.]
                    IN THE SUPREME COURT OF PENNSYLVANIA
                                 MIDDLE DISTRICT

 COMMONWEALTH OF PENNSYLVANIA                     :   No. 81 MAP 2019
                                                  :
                                                  :   Appeal from the Order of the
               v.                                 :   Commonwealth Court at No. 58 CD
                                                  :   2018 dated March 15, 2019
                                                  :   Affirming in Part and Reversing in
 CHESAPEAKE ENERGY CORPORATION;                   :   Part the Order of the Bradford
 CHESAPEAKE APPALACHIA, L.L.C.;                   :   County Court of Common Pleas,
 CHESAPEAKE OPERATING, L.L.C.;                    :   Civil Division, at No. 2015IR0069
 CHESAPEAKE ENERGY MARKETING,                     :   dated December 15, 2017 and
 L.L.C.; ANADARKO PETROLEUM                       :   Remanding.
 CORPORATION; AND ANADARKO E&P                    :
 ONSHORE, L.L.C.                                  :   ARGUED: May 27, 2020
                                                  :
                                                  :
 APPEAL OF: ANADARKO PETROLEUM                    :
 CORPORATION; AND ANADARKO E&P                    :
 ONSHORE, L.L.C.                                  :

                                  DISSENTING OPINION

JUSTICE DOUGHERTY                                        DECIDED: March 24, 2021
       I conclude appellants Anadarko Petroleum Corporation and Anadarko E&P

Onshore LLC (Anadarko) were engaged in “trade or commerce” such that their conduct

may be actionable under Section 3 of the Unfair Trade Practices and Consumer

Protection Law, 73 P.S. §§201-1 - 201-10 (UTPCPL), and that antitrust violations can

give rise to UTPCPL claims to the extent they fall within the statute’s definitions of “unfair

methods of competition” or “unfair or deceptive acts or practices.” I would thus affirm the

decision of the Commonwealth Court.

                 I. The UTPCPL’s Definition of “Trade or Commerce”
        Anadarko is a natural gas exploration and production company that entered into

leases — via its agents or so-called “landmen”1 — with Pennsylvania landowners in the

Marcellus Shale region.      We are asked whether Anadarko engaged in “trade or

commerce” such that it may be held liable for violating Section 3 of the UTPCPL, which

prohibits: “[u]nfair methods of competition and unfair or deceptive acts or practices in the

conduct of any trade or commerce[.]” 73 P.S. §201-3. Section 2 of the statute defines

“trade” and “commerce” as “the advertising, offering for sale, sale or distribution of any

services and any 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.” Id. at §201-

2(3).

        I agree with the Majority’s conclusion the definition of “trade” and “commerce” is

limited to the conduct articulated in Section 2’s definition and that the Commonwealth

Court’s attempt to expand that definition based on our analysis in Danganan v. Guardian

Protection Servs., 179 A.3d 9 (Pa. 2018), was erroneous. See Majority Opinion, slip op.

at 19-24. I disagree, however, with the Majority’s ultimate holding that “Anadarko was not

conducting ‘trade or commerce’ for the purposes of the UTPCPL because it was not

engaged in ‘the advertising for sale, sale or distribution’ of anything; instead it was

purchasing oil and gas interests from landowners.” Id. at 24. In my view, Anadarko,

through the actions of its agents, was engaged in “trade or commerce” when it

affirmatively sought out landowners and offered for sale to them their natural gas

exploration and drilling services. Unlike the Majority, my interpretation is consistent with

1  The term “landman” apparently refers to Anadarko’s leasing agents, and is defined as
“an agent who works for an exploration and production company or who is contracted by
an exploration and production company or broker to negotiate with landowners to enter
into a lease for the exploration and production of natural gas.” Second Amended
Complaint, 5/3/2016, at ¶32. At times, I refer to landmen as Anadarko’s leasing agents.

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our mandate to liberally construe the UTPCPL to achieve its objective of preventing unfair

and deceptive practices. See Commonwealth, by Creamer v. Monumental Props., Inc.,

329 A.2d 812, 817 (Pa. 1974).

       Before the UTPCPL was enacted, common law governed transactions between a

merchant and consumer and “largely presumed that a consumer and merchant stand at

arms-length in reaching their bargain, failing to recognize that the average consumer

relies in great part on a merchant’s advanced knowledge concerning the goods and

services at issue, and thus failed to protect against numerous unfair and deceptive

business practices arising from such reliance.” Meyer v. Cmty. Coll. of Beaver Cty., 93

A.3d 806, 811 (Pa. 2014). The General Assembly enacted the UTPCPL specifically to

eliminate “the unequal bargaining power of opposing forces in the marketplace” and

“place on more equal terms seller and consumer.” Monumental Props., 329 A.2d at 815-

16; see also Danganan, 179 A.3d at 16 (UTPCPL designed to address a wide range of

conduct “including equalizing the bargaining power of the seller and consumer, ensuring

the fairness of market transactions, and preventing deception and exploitation, all of

which harmonize with the statute’s broad underlying foundation of fraud prevention). The

statute is thus a remedial one designed to “benefit the public at large by eradicating,

among other things, ‘unfair or deceptive’ business practices.” Monumental Props., 329

A.2d at 815. Consistent with the statute’s remedial purpose, we must liberally construe

its terms “so as to ‘effect its object of preventing unfair or deceptive practices[.]’”

Danganan, 179 A.3d at 16, quoting Monumental Props., 329 A.2d at 817; see also

Monumental Props., 329 A.2d at 816 (“This Court emphatically stated in Verona v.

Schenley Farms Co., 167 A. 317, 320 (1933), ‘[a]s a statute for the prevention of fraud, it

must be liberally construed to effect the purpose[.]’”).

                             [J-52A-2020] [MO: Mundy, J.] - 3
       According to the Commonwealth’s complaint,2 Anadarko is engaged in the

business of “exploration, drilling, extraction, gathering, compression, transportation and

sale of natural gas.” Second Amended Complaint, 5/3/2016, at ¶30. In furtherance of

those objectives, Anadarko “deployed [l]andmen to obtain oil and gas leases from []

[l]andowners owning land over commercially viable Marcellus Shale gas play.” Id. at

¶¶271-72; see also id. at ¶¶70, 72 (Exploration and production companies “leveraged”

their access to “proprietary geological information to identify the commercially viable core

of the Marcellus Shale” and then identified the owners of parcels of land in that area to

secure lease agreements).      Anadarko “empowered” these landmen to make certain

representations and engage in “sales pitch[es]” that were designed to encourage

landowners to sign the leases.       Id. at ¶¶273-75.     Specifically, the landmen were

“deployed” throughout the region “knocking, often unannounced and unscheduled, on the

door of a [l]andowner’s house to pitch an oil and gas lease[.]” Id. at ¶283. According to

the complaint, these agents of Anadarko made the following representations:
       a. Stating that if anyone in the drilling unit were to sign the lease now, the money
          would be placed in escrow for future payment; otherwise, if anyone signed later,
          such person would lose out on the money or otherwise receive much less;
       b. Representing that all the neighbor properties were leased and the gas company
          would drill to capture the gas whether the landowner signed or not;
       c. Stating that if the landowner did not sign the lease that day, it would be the
          landowner’s last chance to sign and the gas company would extract the gas
          one way or another;
       d. Telling a landowner an attorney was not necessary when signing a lease
          because the landowner would get 12.5% royalty because that was the law in
          Pennsylvania;
       e. Telling a landowner, in response to a question about the possibility of the price
          per acre increasing, that the price per acre for signing bonus does not increase
          despite knowing that it may;

2 In this appeal from a decision sustaining preliminary objections in the nature of a
demurrer, we accept as true all well-pleaded material facts alleged in the complaint and
every inference fairly deducible therefrom. Ladd v. Real Estate Comm’n, 230 A.3d 1096,
1103 (Pa. 2020).

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      f. Showing landowners copies of spreadsheets called “royalty calculators,” which
         reflect how much money a landowner can expect to make in royalty payments
         each year over a twenty year period based on the number of acres in production
         and the price of gas, with no references to deductions; and
      g. Charging a landowner deductions for compression when such service was not
         being done.
Id. at ¶275. See also id. at ¶¶276, 294 (alleging Anadarko authorized Chesapeake

Energy Corporation to make similar “misrepresentations” to landowners pursuant to their

joint venture agreement).3

      The complaint further alleged the landmen presented landowners with oil and gas

leases that were prepared and authorized by Anadarko.           Id. at ¶¶282-83 (leases

presented by landmen to landowners at direction of Anadarko); id. at ¶¶285-86

(consumers lack sophistication regarding oil and gas leases and payment structures while

exploration and production companies are sophisticated and well-versed in drafting

“industry-specific oil and gas lease terms”). In some cases, landowners were able to

negotiate with landmen to obtain more favorable terms, but there were other terms in

Anadarko’s contracts that could prevent those concessions from taking effect. See id. at

¶100 (exploration and production companies gave permission to amend standard leases

“depending on the value of the land owned by the hard-bargaining landowner”); id. at

¶293 (Anadarko knew other language in the contract would negate any concessions

“giving [the landowner], who bargained hard for it, a hollow victory”). In the event the

parties reached an agreement, the landowner conveyed a fee simple determinable4 in the

3On June 28, 2020, Chesapeake Energy Corporation filed for Chapter 11 bankruptcy.
Chesapeake was subsequently severed from this appeal following a decision by the
United States Bankruptcy Court for the Southern District of Texas granting Chesapeake’s
emergency motion for entry of an order enforcing an automatic stay against the Attorney
General. See Order dated 8/26/2020 at 2 (per curiam).
4A fee simple determinable is an estate in fee that automatically reverts to the grantor
upon the occurrence of a specific event. T.W. Phillips Gas & Oil Co. v. Jedlicka, 42 A.3d
261, 267 (Pa. 2012).

                             [J-52A-2020] [MO: Mundy, J.] - 5
mineral estate for a term of years to Anadarko in exchange for a combination of royalty

and bonus payments. Id. at ¶283; see also id. at ¶77-78 (“fee simple determinable for

the mineral estate operates to sever the ownership of certain minerals from the ownership

of the surface of the land”).

       On these facts, which we accept as true at the preliminary objections stage, I would

hold there is at least a colorable claim that Anadarko engages in actionable “trade or

commerce” when it directs its agents to offer, negotiate and finalize leases with

Pennsylvania landowners with the express purpose of engaging in natural gas exploration

and drilling on their property. As stated, the UTPCPL defines “trade” and “commerce,” in

relevant part, as “the advertising, offering for sale, sale or distribution of any services.”

73 P.S. §201-2(3) (emphasis added).5 In my view, Anadarko’s very existence is to

perform a specialized service not otherwise available to most ordinary landowners, i.e.,

the exploration, development and production of oil and gas from beneath their land.

Through its agents, Anadarko utilizes proprietary information to target particular

landowners, authorizes unannounced solicitation of those landowners, and engages in

“sales pitch[es]” that induced landowners to sign the leases immediately, or risk losing

out on large pay-days, through use of one-sided, pre-approved leases. See Second

Amended Complaint, 5/3/2016, at ¶¶273-75, 282-83. In other words, Anadarko initiates

the contact, makes the offer of a lease, and largely controls the terms of that offer. Our

consideration of these allegations is colored by our mandate to construe the UTPCPL

5 The en banc panel below concluded Anadarko’s leases were “sales” under the UTPCPL
and thus did not consider whether the “leases constitute ‘trade or commerce’ because
they qualify as ‘distribution of services.’” Anadarko Petroleum Corp. v. Commonwealth,
206 A.3d 51, 58 n.12 (Pa. Cmwlth. 2019). I would affirm on the alternate basis that
Anadarko was engaged in “trade or commerce” when it offered its oil and gas production
services to Pennsylvania landowners. See Commonwealth v. Tighe, 224 A.3d 1268,
1279-80 (Pa. 2020) (“[T]his Court can affirm if the lower tribunal’s decision was correct
for any other reason supported by the record.”).

                                [J-52A-2020] [MO: Mundy, J.] - 6
liberally to “‘effect its object of preventing unfair or deceptive practices[.]’” Danganan, 179

A.3d at 16, quoting Monumental Props., 329 A.2d at 817.

       The Majority posits Anadarko is the buyer in these transactions because at the end

of the day, Anadarko purchases a fee simple estate in the natural gas. See Majority

Opinion, slip op. at 23-24. But, focusing on the transaction’s end result while largely

ignoring the purpose and method of Anadarko’s door-to-to sales tactics undermines the

remedial purpose of the UTPCPL.          See Monumental Props., 329 A.2d at 815-816

(UTPCPL is designed to “place on more equal terms seller and consumer”).                  The

transaction’s de jure outcome should not be allowed to obfuscate the de facto

circumstances of the deal.

       It is clear that the business of oil and gas leases is unique in the larger commercial

context, and that such leases are “far from the simplest of property concepts.” T.W.

Phillips Gas & Oil Co. v. Jedlicka, 42 A.3d 261, 267 (Pa. 2012) (recognizing unique

characteristics of oil and gas leases). It is also clear, however, that the leases are

reciprocal — that is, they benefit both the oil and gas production company and the

landowner. Cf. id. at 268 (Oil and gas leases remain in effect for as long as oil or gas is

produced “in paying quantities”; that clause historically “was regarded as for the benefit

of the lessee, as a lessee would not want to be obligated to pay rent for premises which

have ceased to be productive, or for which the operating expenses exceed the income.

More recently, however . . . these clauses are relied on by landowners to terminate a

lease.”). Here, despite the fact that executed leases result in Anadarko owning a fee

simple determinable in the mineral estate, the very terms of the lease make clear

Anadarko is required to develop and produce oil for the landowners’ benefit. See Second

Amended Complaint, 5/3/2016, Exhibit Q (lease requires drilling to commence within the

primary term, i.e., the period of time before the lease vests into a fee simple determinable,

                             [J-52A-2020] [MO: Mundy, J.] - 7
or the lease expires and a fee simple interest is not acquired; should drilling commence,

the lease requires payments to landowner when wells are not producing). Anadarko may

technically be a “buyer” of oil and gas the landowner is “selling,” but the nature of this

marketplace involves what I consider to be hybrid transactions. Anadarko is not in the

position of a consumer who simply purchases an article of clothing in a department store,

and I would not read the UTPCPL so strictly that Anadarko’s conduct as described in the

complaint should escape the statute’s restrictions as a matter of law. See Monumental

Props., 329 A.2d at 826 (“To refuse to apply the [UTPCPL] to the leasing of residential

housing would needlessly insulate a great percentage of market transactions from the

[the statute’s] salutary antifraud provisions.”).

       Additionally, I am mindful of the significant power differential that often exists in

these transactions. See id. at 815-16 (UTPCPL designed to eliminate “the unequal

bargaining power of opposing forces in the marketplace” and “place on more equal terms

seller and consumer”). Anadarko and its amici argue the landowners are not powerless,

and actually retained significant leverage because they are able to bargain for changes

to the terms of the contracts and able to decline the contract entirely. See e.g., Marcellus

Shale Coalition Amicus Brief at 6 (oil and gas lease negotiations are “not the ‘David v.

Goliath’ scenario the Commonwealth paints” because landowner holds “considerable

bargaining power” by holding property the “potential lessee wishes to obtain and can

simply refuse to enter into the lease if the terms are not satisfactory”). But I disagree.

Anadarko’s superior knowledge of the market in the Marcellus Shale region along with its

sophistication in oil and gas lease agreements may consistently tip the scales in their

favor throughout the negotiation process. Moreover, producers have the advantage of

being insulated from trespass actions when they take gas from under the property of

owners who refuse to “play ball” — the producers need only obtain leases on the

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neighboring land. See, e.g., Briggs v. Southwestern Energy Prod. Co., 224 A.3d 334,

352 (Pa. 2020) (rule of capture remains in effect and natural gas developers who use

hydraulic fracturing “may rely on pressure differentials to drain oil and gas from under

another’s property . . . in the absence of a physical invasion”). I would therefore affirm

the Commonwealth Court’s holding that the claims set forth in the Second Amended

Complaint may be actionable under the UTPCPL.

                        II. Antitrust Claims Under The UTPCPL

       Because I conclude Anadarko’s conduct as described in the complaint may be

actionable under the UTPCPL, I would proceed to consider the second question we

accepted for review: “May the Commonwealth pursue antitrust remedies under the

[UTPCPL]?” Commonwealth v. Chesapeake Energy Corp., 218 A.3d 1205 (Pa. 2019)

(per curiam). My view of the issue largely aligns with the analysis of the panel below, and

I would thus affirm its holding with respect to this issue as well. See Anadarko, 206 A.3d

at 59-61 (monopolistic behaviors, e.g., joint ventures and market sharing agreements may

give rise to viable UTPCPL claim if “they fit within one of the categories of behavior

deemed, by rule or in the Law itself, ‘unfair methods of competition’ or ‘unfair or deceptive

acts or practices’”; Count IV of the Second Amended Complaint raises such a claim, but

Count III does not).

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