Unfair Trade Practices and Consumer Protection Law (UTPCPL): Commonwealth’s ability to sue oil and gas lessees on behalf of landowners for deceptive practices and antitrust

Commonwealth v. Chesapeake Energy Corp., et al, 206 A.3d 51 (Pa. Cmwlth. 2019), allocatur granted Oct. 30, 2019, appeal dockets 81 MAP 2019 and 82 MAP 2019.

The Pennsylvania Supreme Court granted allocatur to consider two issues of first impression under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL): (1) whether the Attorney General can bring a cause of action against lessees pursuant to the UTPCPL, due to allegedly wrongful conduct perpetrated by the lessees in the context of leasing subsurface mineral rights from private landowners and (2) whether the Attorney General can bring a cause of action against those lessees for alleged violations of antitrust law.

Pennsylvania’s Attorney General sued under the UTPCPL and Pennsylvania antitrust common law alleging that Chesapeake Energy Corporation, Anadarko Petroleum Corporation and other oil and gas lessees (Chesapeake or lessees) used deceptive, misleading, and unfair tactics to secure subsurface mineral rights leases from private landowners. The suit accused Chesapeake, which held exclusive rights to a portion of northeastern Pennsylvania’s Marcellus Shale gas play, of agreeing to split the area with other lessees and hinder competing offers through joint venture and market sharing agreements, as well as by giving private landowners incomplete and misleading information that was materially relevant to the mineral rights leases. Under these leases, the private landowners received royalties and other types of payments for the lessees’ ability to extract natural gas from the Marcellus Shale formations underneath their properties.

In preliminary objections, Chesapeake et al. argued (1) because they had leased subsurface mineral rights, they were effectively buyers in the transactions, and that their conduct was thus not actionable under the terms of the UTPCPL, which could only be applied to address the allegedly deceptive or unfair conduct of sellers in the context of a consumer transaction and (2)  that antitrust claims could not be made under the UTPCPL, as this law was not designed to be an antitrust statute. The trial court held (1) that the Attorney General could bring suit because the lessees were conducting trade or commerce, as those terms were defined in the UTPCPL, and (2) the UTPCPL permitted the Attorney General to pursue antitrust claims as well. The trial court sua sponte certified the issues for interlocutory appeal, recognizing that they are “questions of first impression in which different interpretations of the law were being debated.” Slip Op. at 4.

Commonwealth Court first summarized the relevant portions of the UTPCPL:

Per the UTPCPL’s express language, the General Assembly has “declared unlawful” 21 separate categories of “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce[,]” as well as any acts or practices designated as such by the Attorney General through the administrative rulemaking process. Section 3 of the UTPCPL, 73 P.S. § 201-3; see Sections 2(4) and 3.1 of the UTPCPL, 73 P.S. §§ 201-2(4), 201-3.1.6.

Of relevance here is the subsection that prohibits “[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.” Section 2(xxi) of the UTPCPL, 73 P.S. § 201-2(xxi).

The Law 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.” Section 2(3) of the UTPCPL, 73 P.S. § 201-2(3). In addition, the UTPCPL authorizes actions by private parties and imbues the Attorney General, as well as district attorneys throughout this Commonwealth, with the power to file suit if they “[have] reason to believe that any person is using or is about to use any method, act or practice declared by [73 P.S. § 201-3] to be unlawful, and that proceedings would be in the public interest[.]”

Slip Op. at 5-6.

Commonwealth Court found that the lease transactions satisfied the statutory definition of “trade” or “commerce” as the mineral right leases are functionally equivalent to a property sale. Slip Op. at 8-9. The court also found that the phrase “in the conduct” pertains to all unfair methods of competition, acts, or practices and is the type of activity that can give rise to action by the Attorney General under the UTPCPL, specifically since the UTPCPL does not place any restrictions on the Attorney General to file suit like it does private parties and is given express authority to file suit against “any person.” Slip Op. at 11-12. Commonwealth Court thus affirmed trial court’s finding that the Attorney General was permitted to file an action under the UTPCPL based on the leases with private landowners, reasoning:

Tying this all together, the Attorney General has asserted that Appellants, which are UTPCPL-classified “persons,” have operated deceptively, misleadingly, and unfairly “in the conduct of any trade or commerce” (i.e., the leasing of subsurface mineral rights from private landowners). Second Amended Complaint at 1-4,29-78, 82-105; 73 P.S. § 201-3; see 73 P.S. § 201-2(4)(xxi) (defining “’[u]nfair methods of competition’” and ‘unfair or deceptive acts or practices’[,]” in relevant part, as “[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding”). Therefore, the Attorney General has stated legally viable claims against Appellants. For these reasons, we hold that the Trial Court properly overruled Appellants’ demurrers that their behavior in securing these leases was not actionable under the UTPCPL.

Slip Op. at 12-13.

However, Commonwealth Court reversed the trial court’s ruling that the Attorney General may bring an action under the UTPCPL for antitrust violations based on the joint venture and market sharing agreements. The court reasoned that “the UTPCPL is not designated to render all antitrust violations actionable and that the scope of actionable antitrust behavior under the UTPCPL is narrower than under federal antitrust law,” Slip Op. at 14, Chesapeake et al.’s conduct,the court ruled, did not per se  violate the UTPCPL, which is limited to activities deemed“unfair competition” or “unfair or deceptive acts or practices.” Slip Op. at 14-15.

Having found that joint ventures or market sharing agreements were not per se “unfair competition” or “unfair or deceptive acts or practices” nor activities made unlawful under the UTPCPL via the administrative rulemaking process, Commonwealth Court further held that the Attorney General failed to state a viable UTPCPL-based antitrust claim. However, Commonwealth Court agreed with the trial court that claims based on Chesapeake’s alleged misleading and deceptive behavior were directly within Section 2(4)(xxi) of the UTPCPL’s prohibition against “[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.”

Judge Covey, in dissent, opined that the Attorney General did not state a legally viable claim under the UTPCPL against the lessees. Reasoning that the Majority’s analysis of “trade” and “commerce” manipulated the language of the UTPCPL and ignored the legislative purpose by relying on the dictionary definition over the General Assembly’s intent, which effectively overstepped its authority and directly conflicted with the General Assembly’s purpose to protect consumers, she explained:

By imposing a consumer protection statute’s restrictions, prohibitions, and burdens on consumers, the Majority’s analysis and ruling is a gross misinterpretation and misapplication of the UTPCPL. Such ruling is inconsistent with the UTPCPL’s statutory purpose, creates a never-intended or anticipated UTPCPL cause of action that is completely contrary to the General Assembly’s intent and creates a dangerous precedent.

Dissent Slip Op. at AEC-8.

Judge Covey further criticized the Majority’s conclusion that the lessees’ behavior was unlawful under Section 2(4)(xxi) of the UTPCPL as “judicial overreach” where the General Assembly has not enacted a state antitrust statute, concluding:

I find it unconscionable that as the direct result of the Majority’s decision, Appellants may be retroactively liable for engaging in conduct that was not considered to be violative of state law at the time such activities occurred. For these reasons, I would also hold that the trial court erred by overruling Appellants’ demurrers to Count IV of the Attorney General’s Second Amended Complaint.

Dissent Slip Op. at AEC-10-11.

The Supreme Court granted allocatur to determine:

(1) Are 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, cognizable under the Unfair Trade Practices and Consumer Protection Law?

(2) May the Commonwealth pursue antitrust remedies under the Unfair Trade Practices and Consumer Protection Law?