Chesapeake Energy wants settlement with Fort Worth school district kept secret

When the Fort Worth school district sued Chesapeake Energy two years ago, it accused the company of using sham arrangements and outright fraud to subtract an untold amount of money from its royalty payments.

The lawsuit stressed that the missing cash was being taken from an entity that does its business in an “open, ethical and honorable manner” as it serves more than 80,000 students from kindergarten to high school. Chesapeake, it seemed to be saying, was almost taking the money from school children themselves.

Chesapeake — now facing more than 450 lawsuits representing thousands of property owners in North Texas seeking millions of dollars in similar claims — settled that suit last month without admitting that it did anything wrong.

But the terms of the settlement, which traditionally would be revealed to taxpayers, are wrapped in a cloak of secrecy through a confidential agreement between Chesapeake and the district, one that Chesapeake is asking the Texas Attorney General to uphold.

Chesapeake contends releasing the settlement’s details would be harmful because its “competitors” — in this instance the other plaintiffs suing them, not a rival company — could use the information in their own litigation.

Open government advocates contend the public has a right to know what kind of deal elected officials made on the taxpayers’ behalf and are disturbed by what they say is a growing trend by companies in Texas to shield details of contracts and legal settlements with the state and local governments.

It looks like a slippery slope. I don’t think it’s good for the people’s business. It is not a good thing, Gerald Pruitt, Fort Worth Deputy City Attorney

They point to a Texas Supreme Court decision from 2015 that appears to make it easier for companies to block the public from reviewing agreements with cities, counties and school districts. One attorney said a legal fight over the settlement could keep it locked out of sight for years.

“Generally, the citizens need to know if they made a good settlement,” said Scott McCown, a former state district judge and professor at the University of Texas in Austin law school. “You’ve got a governmental entity settling a lawsuit and you want the voters to be able to decide if management behaved appropriately.”

The city of Fort Worth, which itself is suing Chesapeake for at least $33.5 million in damages in its own royalty lawsuit, wants details of the settlement released, as does the Star-Telegram.

Deputy City Attorney Gerald Pruitt said that if the Attorney General ultimately decides to keep the settlement secret, it would be a significant change in the public’s ability to act as a watchdog over local government. Currently, he said, the city posts all of its settlements with the city secretary for public review.

“It looks like a slippery slope. I don’t think it’s good for the people’s business. It is not a good thing,” he said.

Gordon Pennoyer, a spokesman for Chesapeake in Oklahoma City, declined to comment on the issue, referring the Star-Telegram to documents his company has filed with the attorney general’s office.

Ralph Duggins, who is representing both the school district and the city in their lawsuits against Chesapeake, said he could not discuss the matter, citing the confidentiality agreement. The district, however, took no position with the attorney general on whether to release the documents, records show.

Fort Worth School Board President Jacinto “Cinto” Ramos Jr. said the board agreed to the confidentiality agreement on the advice of counsel. The board is also following protocol in seeking advice from the state on whether the information should be released.

Chesapeake is defending itself in hundreds of lawsuits in North Texas concerning royalty payments. Two Tarrant County judges are hearing pretrial motions in an effort to streamline the legal process.

State District Judge Dana Womack is hearing the cases filed by Fort Worth attorney Dan McDonald. Many of them are described as “Mom and Pop” or “rooftop” cases involving smaller acreage. The first trial of one of those cases is set for April. Chesapeake, in a request seeking to move the first 10 trials to Houston because of pre-trial publicity, says those include 435 lawsuits and over 22,000 plaintiffs.

State District Judge David Evans is overseeing about 30 of what are often described as “high-value” lawsuits filed by public institutions, foundations and large landowners. These lawsuits had similar claims but were filed by attorneys other than McDonald. Chesapeake has settled about half of the lawsuits, mostly with private entities. Attorneys involved, because of confidentiality agreements, won’t talk about the details.

While the confidential information in this instance is specific to the district, disclosure of such information will reveal Chesapeake’s approach to the confidential settlement. Peter Vermillion, Chesapeake Energy

The district’s lawsuit against Chesapeake included at least 30 leases going back to 2006 and covering at least 1,000 acres. The district accused Chesapeake of working with affiliated partners to enter into non-arm’s length agreements that imposed costs on the district it was not suppose to bear, cutting into its royalties. Chesapeake has argued the procedures it used to drill, market and sell the natural gas complied with the lease terms.

Attorneys and others familiar with the Chesapeake lawsuits say the company is seeking confidentiality not only for how much is being paid out, but other settlement considerations such as how leases will be handled in the future. It is information that other litigants might find useful, they say.

Chesapeake agrees. In a letter to the Attorney General’s office on Feb. 16, it argued that other litigants would like to see the “monetary amounts paid” along with the “negotiated terms of a lease amendment” and use it as ammunition in their lawsuits.

“While the confidential information in this instance is specific to the district, disclosure of such information will reveal Chesapeake’s approach to the confidential settlement and give other plaintiffs an unfair advantage,” Peter Vermillion, managing attorney for exploration and production for Chesapeake, said in an affidavit.

Until recently, settlements like this were routinely made public when requested under the Public Information Act. While the private party was informed of the request, the public agency decided whether to release it or ask the attorney general for an opinion if it thought an exception applied.

Among the information that could be withheld was a trade secret and some types of commercial or financial information. The attorney general’s office, and the courts, have historically said that exceptions exist to protect the interests of the governmental body, not the private party.

If this interpretation is accepted by the attorney general, it ‘could lead to the sealing of almost any litigation settlement to which a government body is a party,’ Tom Williams, attorney for the Star-Telegram

But in June, the Texas Supreme Court ruled otherwise. In a case involving Boeing and the Port Authority of San Antonio, the justices said airplane manufacturer had a right to block the release of some lease information after the company said making the details public could help its opponents compete for government contracts.

Ruling 7-1 for Boeing, the high court overruled decisions by two lower courts and the attorney general, all of which said the information should be released.

Open government advocates say the Boeing decision has made it easier for companies to control public information, adding that this approach to sealing documents has been a “very winning argument” with the attorney general’s office in recent months.

“This is going to open up a Pandora’s Box of companies trying to control public information requests,” said Kelley Shannon, executive director of the Freedom of Information Foundation of Texas. “I think this ruling is going to allow all kinds of government information to be made secret. It is not a good situation,” she said.

Tom Williams, an attorney representing the Star-Telegram, wrote in a letter to the attorney general that Chesapeake is suggesting an “unprecedented interpretation of the Public Information Act,” and that it is “utterly illogical” that the other parties suing Chesapeake are their “competitors.”

“Chesapeake has urged upon your office an unprecedented interpretation of the Public Information Act which, if accepted by you office and applied in the future, could lead to the concealing of almost any litigation settlement agreement to which a government body is a party,” Williams wrote.

In its brief, the city of Fort Worth agrees. It rejects Chesapeake calling the plaintiffs competitors, saying they are “not attempting to compete with Chesapeake in a contest to win a prize.” Fort Worth also argues disclosures like this are the cost of doing business with the government. It also suggest that the school district can privately share the information with them.

“In other words, a government body cannot, through an agreement or contract, overrule or repeal provisions of the Public Information Act,” Assistant City Attorney Richard McCracken wrote.

Bill Aleshire, an Austin attorney who works with the Freedom of Information Foundation of Texas, said even if the attorney general agrees the information should be released, the fight may not end there. Chesapeake could then sue the attorney general, and with a trial and appeals, the information could be blocked from public review for years.

“Boeing is the favored flag for any private company … and they’ll throw it down real quick. They recognized it as a pretty profound change,” he said.

Staff writer Yamil Berard contributed to this report.