Does the PA Unfair Trade Practices Act Apply to Residential Oil and Gas Leases?

On March 15, 2019, the Commonwealth Court issued a decision detailing how and when the Attorney General of Pennsylvania can bring an action against oil and gas drillers regarding residential lease arrangements under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL).[1] Pennsylvania has no general state antitrust statute, however, sometimes the UTPCPL is used for antitrust violations. Oil and gas companies should be aware of the law at issue in this decision.

In the Anadarko case, the Attorney General of Pennsylvania filed suit against Anadarko Petroleum Corporation and Chesapeake Energy Corporation, among other named partners and subsidiaries, alleging that they had all used deceptive, misleading, and unfair practices to convince private landowners to lease subsurface mineral rights for the companies’ use. Specifically, the Attorney General alleged that the companies had agreed among themselves to split a portion of northeastern Pennsylvania so the two companies would not be competing with each other for bids on leases with the homeowners in that region. The leases would allow the oil and gas companies to mine the potential natural gas from Marcellus Shale deposits below the landowners’ properties in exchange for royalties and other payments while the leases were in effect. Since the leases were potentially highly profitable for the companies, the Attorney General, on behalf of the landowners, brought suit seeking to prevent the companies from underpaying the landowners for the value of the resources the companies would be taking.

Before the court could reach the merits of the case, however, it needed to determine if the Attorney General could maintain the suit since the issues involved were ones of first impression before the court. Initially, the court reviewed the purpose of the UTPCPL, recognizing that it is a remedial law designed to place consumers and sellers on relatively equal footing in these types of lease arrangements. The statute is aimed at fraud prevention by prohibiting unfair and deceptive business practices. Companies are thus enjoined from engaging in fraudulent or deceptive conduct that is likely to confuse consumers or create a misunderstanding. To remedy violations that occur, the statute authorizes private citizens, the Attorney General, and district attorneys to file a suit if they have reason to believe that a violation has occurred and that bringing the suit would be in the public’s best interest.

The UTPCPL enumerates 21 categories of unfair competition and deceptive acts or practices which may be committed during the course of a company’s trade or commerce. The Attorney General may add new categories through the administrative rulemaking process. The statute defines trade or commerce as advertising, selling, or distributing any service or property of any kind. The first issue before the court was whether oil and gas leases qualify as “trade or commerce” under the statute to enable the Attorney General to maintain an action against the companies for their alleged wrongful conduct. The court found that such leases do qualify under the UTPCPL. The judges reasoned that since Pennsylvania law treats property leases as the functional equivalent of property sales, albeit for a limited period of time, a residential lease conveying subsurface mineral rights could be treated as a sale of such rights, and the UTPCPL should accordingly apply. Therefore, any lease of subsurface mineral rights could fall under the UTPCPL, allowing the Attorney General to maintain an action to prevent fraudulent or deceptive conduct.

The second issue the court addressed was whether the Attorney General could maintain an action under the UTPCPL for the companies’ alleged antitrust violations. The court first recognized that the scope of the antitrust provisions under the UTPCPL is narrower than its federal antitrust law counterpart. On this score, the only antitrust provisions available for the Attorney General’s use are those activities specifically enumerated by the statute as “unfair methods of competition” or “unfair or deceptive acts or practices” or those which had been added by the Attorney General through the administrative rulemaking process. The court found that monopolistic behavior, joint ventures, or market sharing agreements had not yet been expressly defined as examples of “unfair methods of competition” or “unfair or deceptive acts or practices.” As such, these activities could not presently be deemed unlawful per se under the UTPCPL. Therefore, the Attorney General could not maintain the antitrust violation claim against the companies.

In concluding, the court found that the Attorney General could maintain a claim under the UTPCPL against the oil and gas companies for their fraudulent or deceptive conduct in securing residential leases, but could not pursue the antitrust claims through the UTPCPL because the antitrust activities alleged by the Attorney General did not qualify as “unfair methods of competition” or “unfair or deceptive acts or practices” under the UTPCPL. Even though the Attorney General may be unable to presently maintain such a claim under UTPCPL, companies are cautioned that the federal antitrust statutes are broader in scope and may still apply in the UTPCPL’s stead. Further, the Attorney General could promulgate additional rulemaking to bring these activities within the UTPCPL’s scope. Such a process would likely take several years, however, so for now, monopolistic behavior, joint ventures, and market sharing agreements do not give rise to an actionable UTPCPL antitrust violation. Oil and gas companies are nevertheless discouraged from engaging in such behavior.

With contribution from Sarah Rothermel, J.D. Widener Law Commonwealth.

[1] Anadarko Petroleum Corp. v. Commonwealth, 206 A.3d 51 (Pa. Commw. 2019).

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