WV justice slams natural gas royalty ruling as ‘legal sophistry’

Justice Robin Davis

West Virginia Supreme Court Justice Robin Jean Davis on Tuesday said the court’s four other members “used legal sophistry” to overturn a six-month-old decision and allow natural gas drillers to deduct post-production costs from the royalties paid to some types of mineral owners.

“The majority opinion is simply wrong,” Davis wrote in a nine-page dissenting opinion in “Leggett v. EQT,” a hotly contested case that has generated controversy within the industry and in political circles.

The majority opinion, made public Friday afternoon, just before the three-day Memorial Day weekend, ruled that EQT Corp. could deduct such costs — for things like gathering, transporting or treating gas after it is extracted — when checks are sent to mineral royalty owners covered by a state law meant to update and reform decades-old natural gas industry payment practices in West Virginia.

Davis said in her dissent that the statute in question is ambiguous and, therefore, in need of some court interpretation, and that the law clearly does not contain “any provisions” that address the issue of deducting post-production expenses.

“I will not belabor the point,” Davis wrote. “It is clear to anyone reading the statute that you cannot discern a legislative intent to allow a deduction for post-production expenses. The new majority opinion has used legal sophistry to fool only itself.”

In the case, Chief Justice Allen H. Loughry II wrote the 47-page majority opinion, in which he was joined by Justices Menis E. Ketchum II and Beth Walker. Justice Margaret Workman sided with the majority, but wrote a concurring opinion.

The court ruled Friday after an unusual decision to rehear the case, a decision which came after last year’s election, in which Walker defeated Justice Brent Benjamin, who had written that earlier court opinion.

Walker’s involvement in the case generated controversy because her husband had owned significant stock in a long list of natural gas and other energy companies that would be affected by the court’s decision. In the new ruling, Workman also went from ruling with what was then a 3-2 majority opposed to allowing post-production costs to being with the majority that was in favor of allowing such deductions.

Last year’s ruling found that West Virginia’s 1982 law to update old “flat-rate” leases requires that companies like EQT not deduct from royalties they pay to mineral owners any expenses for gathering, transporting or treating gas after it is extracted from the ground. The court had ruled a decade ago, in a case called “Tawney v. Columbia Natural Resources,” that deducting these sorts of post-production costs from royalties was illegal, unless doing so was specifically outlined in the lease.

Davis said in her dissent that the stated legislative purpose of that law was clearly “to provide oil and gas owners with the maximum possible royalty payments.”

“The statute was not intended as a mechanism to reduce royalty payments or to fill the coffers of companies who develop oil and gas interests,” Davis wrote. “This is the intent only of the new majority opinion.”

Davis also said the new majority had not relied on any real legal or factual error in the original majority’s decision when it decided to rehear the case.

“All that the new majority opinion has done is to provide self-serving reasons as to why it would resolve the issue presented differently,” Davis wrote. “In the final analysis, all that the new majority opinion has done is to conclude that the operative language in the dispositive statute was not ambiguous whereas the original majority opinion reached the opposite view of the statute. This difference of opinion is not a basis for rehearing. Ultimately, this is simply an impermissible request by the respondents asking the court to change its mind.”

Davis also noted that lawmakers had declined to pass legislation this year that would have removed any implications previous court rulings that said post-production costs could not be deducted from other types of gas leasing arrangements might have on the types of leases involved in the Leggett case and the state’s flat-rate leasing statute.

“The Legislature chose not to remove that implication because the implication was correct,” Davis wrote. “However, the new majority has done what the Legislature refused to do. The new majority has rewritten the statute to say what it was never intended to say.”

Reach Ken Ward Jr. at kward@wvgazettemail.com, 304-348-1702 or follow @kenwardjr on Twitter.

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