Ky. court overturns $24 million royalty verdict

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Associated Press

Posted on January 26, 2013 at 12:01 PM

Updated Saturday, Jan 26 at 12:02 PM

LOUISVILLE, Ky. (AP) — The Kentucky Court of Appeals on Friday overturned a $24.7 million jury verdict against Texas-based Atmos Energy stemming from a lawsuit by landowners who claimed they didn't get their rightful royalties from an oil and gas project.

A unanimous three-judge panel dismissed most of the claims brought by the landowners, including allegations that Atmos Energy of Dallas failed to pay promised royalties for drilling on their lands. The court ordered a new trial for the estate of one landowner.

Judge Joy A. Moore, writing for the court, concluded that the landowners failed to make a case against Atmos Energy on several fronts. The landowners argued that they did not receive royalties from the gas and oil produced on their lands. Moore noted that, under Kentucky law, landowners have no claim to own oil and gas found under their property once a lease is signed — the product belongs to the person who signed the lease to drill.

"Therefore, landowners had no ownership rights in the gas removed from their property and, to the extent that their conversion claim relates to that gas, their claim against Atmos fails as a matter of law," wrote Moore, who was joined by judges Donna L. Dixon and Glenn Acree.

An Edmonson County jury in 2010 awarded about $7.7 million to the landowners, and the rest to a company owned by Robert Thorpe, which acted as a third-party producer in the project.

The jury initially awarded $31.35 million, but post-trial motions knocked $7 million off the final judgment.

The case stems from a series of gas rights deals signed by the landowners in southern Kentucky. The landowners initially signed royalty contracts with two attorneys and an entity known as Park City. Park City later reached an agreement with Atmos Energy, which did the drilling and distributed the money.

Atmos overestimated the amount of gas in the fields, which produced for about a year in 2008 and 2009, but not nearly in the quantities projected by the company.

On appeal, Atmos argued that there were issues with jury selection and the admission of evidence or at least it deserved a reduction in the amount of damages. The landowners also appealed, saying they were entitled to a greater amount of punitive damages.

Moore found that the landowners argued they did not receive the royalty specified in their oil and gas leases because of the relationship between Atmos Energy and Resource Energy Technologies, one of the companies handling the drilling and sold oil and gas to an arm of Atmos Energy.

When the promised royalties didn't come through, the landowners sued for fraud.

"However, even if Atmos or RET were obligated to pay the landowners their royalties pursuant to those leases, where a person promises to perform an act in the future — such as paying royalties — and fails to do so, that failure is a breach of contract, not a fraudulent or deceitful act," Moore wrote.

Atmos has a related federal lawsuit against Resource Energy Technologies, which filed for bankruptcy protection in 2009. The suit, which claims misrepresentation and unjust enrichment by Resource Energy and Park City's owners, is set for trial in 2014.

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Follow Associated Press reporter Brett Barrouquere on Twitter: http://twitter.com/BBarrouquereAP

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