Pre-trial offer $131 million below verdict

By David Hedges, Publisher

Defendants in a class action lawsuit could have saved themselves more than $130 million if they had accepted a settlement offer made before the trial.

In a verdict handed down after a three-week trial in January, Chesapeake Energy, successor to Columbia Natural Resources, and NiSource, were ordered to pay some $404 million. That verdict included more than $134 million in compensatory damages and another $270 million in punitive damages.

The suit involved the underpayment of royalties on oil and gas wells to more than 10,000 royalty owners.

According to details of pre-trial negotiations that became public in a Monday hearing, attorneys who filed the suit said they had offered to settle for $273 million, some $131 million less than the jury's verdict.

At the same pre-trial negotiations, attorneys representing Chesapeake and NiSource offered to settle for only $30 million.

Those negotiations lasted several hours and included Michael O'Donnell, executive vice president and chief financial officer of NiSource.

Attorney Marvin Masters, one of the lawyers who filed the class-action lawsuit on behalf of the royalty owners, detailed the pre-trial discussions for Judge Tom Evans in a hearing Monday afternoon, which came after defense attorneys failed to have the hearing closed to the public (see related story).

Evans is considering motions by the lawyers for Chesapeake and NiSource who are asking that the punitive damages be reduced.

Evans wanted to hear about pre-trial discussions to see if negotiations were conducted in good faith.

Prior to discussions that took place just before the trial began, Masters said there had been three attempts to mediate the dispute, all in 2006.

At the first attempt, in May of that year, Masters said the plaintiffs asked for $485 million, while the defense was only willing to offer $6 million.

In August the plaintiffs reduced their request to $470 million, while the defense upped their offer to $10 million.

In November, at the final of the three mediation efforts, the plaintiffs put forth a settlement offer of $393 million, while the defense offered $17.5 million.

Defense attorney Tim Miller wanted to submit additional documents at Monday's hearing for Evans to consider, but only if the documents could be sealed from public view. Evans said he would review any documents, but they would be open to the public. Miller decided against offering the documents at the hearing.

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