Companies aggressively avoiding payment

The letter published in the March 10 issue by Roger Sheppard on oil and gas royalty payments is very good. I agree with most of it. However, I think that the problems involved are more serious than he indicates.

The major problem with the Sheppard letter is his statement that the suit awards he refers to are viewed by the companies as simply a cost of doing business. This implies that these things don’t worry them much. This underestimates the aggressiveness of their hostility to royalty owner and other contract parties’ rights to collect commercial debts against them. They view any such payments as simply donations and think that they have the prerogative to act arbitrarily and at will.

A good piece of evidence to this is EQT’s pleadings over the WV Legislature’s flat rate royalty statute in their case against Austin Caperton in his official capacity at the WVDEP. In this case, they were claiming that the 1982 statute, which made new permits on old wells having a flat rate for gas royalties (usually $300/yr.) conditional on raising the royalty rate to at least 1/8, was a rank injustice, undermining the sanctity of contracts, and not giving credit to the superior insights of the corporate bureaucracy in seeing that there would be unforeseen technological advances, which the royalty owner contributed nothing to. They sought to have the $300 (or whatever) flat rate royalties negotiated a century ago re-instated for today’s Marcellus wells.

As part of the Kay vs. EQT settlement (the $53 million settlement Sheppard refers to), they have apparently backed off this demand. But the fact that they pursued this at all speaks volumes as to their mentality. Especially in the conditions of 100 years ago, when oil company lawyers were writing contracts for many farmers who may have been semi-literate, the relationship was such that the company was basically dictating the terms.

But this is a specific instance of more general dictatorial intentions. Since the early 1980s, there has been a drive, spearheaded by the money center banks and major corporate interests generally, to impose “arbitration law” on contractual disputes at the expense of Seventh Amendment guaranteed jury trial rights. Arbitration law was brought in in the 1920s by Congress as a part of Admiralty Law — a type of martial law — to govern disputes at sea. But starting in 1983, the U.S. Supreme Court started promoting the application of arbitration law to domestic U.S. contract disputes, at first in the federal system. More recently there has been a drive to impose it on the state systems. Arbitration means closed door agreements made by lawyers, in which all the bias is in favor of the big repeat clients of lawyers who are usually major companies. Usually fraud or other punitive damage awards are excluded. This drive has not been completely successful, which is why some cases still get through to trial or good settlements. But if the EQTs of the world had their way, there would be no Constitutional jury trial rights against them. The public needs to be forewarned of this danger.

Thorn C. Robert