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Chesapeake partly blames verdict for W.Va. exit

By Justin Anderson | Feb 26, 2009


CHARLESTON, W.Va. (Legal Newsline) -- Chesapeake Energy Corp. says a huge verdict against it in a Roane County case over natural gas royalties is one of the reasons the energy giant is moving the majority of its Charleston-based jobs.

The company announced Thursday that it will eliminate 215 of the 255 jobs here and relocate them to its headquarters in Oklahoma City. Part of the reason given was a corporate reorganization, which will be complete by June 30.

But Chesapeake's CEO, Aubrey K. McClendon, said the $404 million Roane County verdict against Chesapeake and NiSource in 2007 and the state Supreme Court's later refusal to review the case played a "significant" role in the decision.

McClendon, in a statement, thanked Gov. Joe Manchin for his support when Chesapeake started doing business in the state four years ago when it bought Columbia Natural Resources for $2.2 billion. McClendon said since that time, Chesapeake has invested $850 in the state.

"However, the reduction in our employee base in West Virginia became inevitable when we decided last year not to build our $40 million regional headquarters office complex in Charleston following the West Virginia Supreme Court's refusal to consider our appeal in the (Roane County) case," McClendon said.

"At that time, we realized that until West Virginia's judicial system provides fair and unbiased access to its courts for everyone, a prudent company must be very cautious in committing further resources in the state. Even though the state Supreme Court's decision was not the primary reason for the reorganization, it did play a significant role in our decision."

Steve Cohen, executive director of West Virginia Citizens Against Lawsuit Abuse, noted that West Virginia is one of only two states that don't provide for automatic appellate review.

"West Virginians need look no further for proof that our broken legal system costs West Virginians jobs," Cohen said. "Our legal system is a significant reason why Chesapeake Energy is employing hundreds of less people in the state today."

Manchin had filed a friend of the court brief connected with an appeal filed by DuPont over a $382 million class action settlement with residents of Harrison County.

Manchin, in the brief, opined that companies facing huge punitive damages penalties should get automatic review of their appeals. Many believe this opinion was rooted in the Roane County case.

But on Thursday, Manchin blamed Chesapeake's decision on the nation's failing economy.

"West Virginia is a still a great location for business, however, all companies -- large and small -- are doing everything they can to sustain themselves through this national recession, and this cutback by Chesapeake is that type of decision," Manchin said in a statement."I understand they want to maximize their efficiencies by moving some of these jobs back to their Oklahoma headquarters.

"We've worked hard and our state is in better financial condition because of it, but this economy is very challenging, and this news is heartbreaking for those who will lose those jobs and for our entire state."

Manchin this year called for a commission to study ways to improve the state's court system. His spokesman, Matt Turner, said Thursday that one of the commission's study topics could certainly be an intermediate appellate court.

Kanawha County Commission President Kent Carper said Chesapeake's blaming the Roane County verdict is just smoke and mirrors.

He said the company's announcement probably had more to do with mismanagement exacerbated by the national economy's collapse -- like what happened to Lehman Brothers and General Motors.

Carper said the lawsuit was filed before Chesapeake bought Columbia and alleged the company had set aside money to pay a verdict. He said the accusations in the lawsuit were egregious.

"Chesapeake broke their promise to the people of West Virginia," Carper said, referring to the company's announcement not to build an eastern headquarters in Charleston. "The lesson to be learned from this is that the Legislature needs to make companies like this pay their fair share of what they make by taking our natural resources."

A spokesman for the Washington-based American Tort Reform Association -- which puts out the annual "Judicial Hellhole" list that regularly cites West Virginia's civil courts among the least fair in the nation -- said Chesapeake's move should be a red flag to state leaders.

"Chesapeake's decision to take more good-paying jobs out of West Virginia, citing the unfair civil justice system there, ought to silence once and for all the propagandists who keep insisting that the state isn't a 'judicial hellhole,'" Darren McKinney said. "Like Holocaust deniers, the Mountain State's 'hellholes' deniers, from Darrell McGraw and Fran Hughes to law professor Elizabeth Thornburg and Allan Karlin at the state trial lawyers association, are all free to pretend there's nothing wrong.

"But the state's anemic economic growth and job creation are stealing the future of West Virginia's young people, and things aren't likely to improve until all state leaders concede they've got a major problem on their hands."

Chesapeake said it would provide severance packages and extensive employment outplacement services to affected employees.

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