Poplar Creek Development Co. v. Chesapeake Appalachia, L.L.C.
636 F.3d 235
| 6th Cir. | 2011Background
- Consolidated appeals concern Kentucky oil and gas leases and royalty calculations for post-production costs.
- Poplar Creek action: alleged breach of contract, implied covenant to market, and declaratory relief against Chesapeake.
- Thacker action: class action by Kentucky lessors against Chesapeake, NiSource, and Energy Group; settlement approved.
- Dispute centers on whether post-production costs are deductible from royalty payments, i.e., at-the-well vs marketable-product rules.
- District court ruled in favor of Chesapeake; six-circuit review affirmed the at-the-well doctrine and deductions.
- Poplar Creek Objectors challenged the Thacker settlement, but the court upheld the settlement after affirming Poplar Creek on the merits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Meaning of wholesale market value at the well and post-production deductions | Poplar Creek endorses marketable-product rule subtracting post-production costs. | Chesapeake advocates at-the-well rule deducting post-production costs. | At-the-well rule adopted; post-production costs deductible. |
| Do LaFitte, Warfield, Cumberland Pipe Line govern interpretation here | Poplar Creek urges departure from prior Kentucky precedent. | Chesapeake relies on LaFitte/Warfield/Cumberland to justify at-the-well approach. | LaFitte/Warfield/Cumberland support at-the-well interpretation. |
| Was the Thacker settlement fair and adequate given the Poplar Creek ruling? | Objectors argue settlement is unfair because it allows continued deductions. | Settlement is reasonable given litigation risk and likely success. | Settlement approved; no abuse of discretion. |
Key Cases Cited
- Warfield Natural Gas Co. v. Allen, 261 Ky. 840, 88 S.W.2d 989 (Ky. 1935) (market value at time of sale and place of market matter for royalties)
- Reed v. Hackworth, Ky., 287 S.W.2d 912 (Ky. 1956) (if lease silent, royalties based on market value at the well)
- Cumberland Pipe Line Co. v. Commonwealth, 228 Ky. 453, 15 S.W.2d 280 (Ky. 1929) (market value at the well; allow deduction for transportation to market)
- Rains v. Kentucky Oil Co., 200 Ky. 480, 255 S.W. 121 (Ky. 1923) (open-end lease; market value at the well as default rule)