Chesapeake Energy 1999 Annual Report Download - page 27

On August 24, 1999, the District Court entered an order granting in part and denying in part defendants'
motion to dismiss the action. The court dismissed plaintiffs' claims against the Company under Section 15 of the
Securities Act of 1933 alleging that Chesapeake was a "controlling person" of Bayard. The Court denied that portion
of defendants' motion seeking dismissal of plaintiffs' claims under Sections 11 and I 2(a)(2) of the Securities Act of
1933 and Section 408 of the Oklahoma Securities Act. Of these, only the Section 11 claim and the Section 408 claim
are asserted against the Company. The court has also entered an order setting September 15, 2000 as the cutoff for
merits discovery, November 1, 2000 for the filing of any dispositive motions and February 1, 2001 as the trial date.
The Company believes that it has meritorious defenses to these claims and intends to defend this action
vigorously. No estimate of loss or range of estimate of loss, if any, can be made at this time. Bayard, which was
acquired by Nabors Industries, Inc. in April 1999, has been reimbursing the Company for its costs of defense as
incurred.
Patent Litigation. In Union Paqfic Resources Company v. Chesapeake, et al., filed in October 1996 in the
U.S. District Court for the Northern District of Texas, Fort Worth Division, UPRC asserted that the Company had
infringed IJPRC's patent covering a "geosteering" method utilized in drilling horizontal wells. Following a trial to
the court in June 1999, the court ruled on September 21, 1999 that the patent was invalid. Because the patent was
declared invalid, the court held that the Company could not have infringed the patent, dismissed all of UPRC's
claims with prejudice and assessed court costs against UPRC. The court concluded that the UPRC patent was invalid
for failure to definitively describe the patented method in the patent claims and for failure to provide sufficient
disclosure in the patent to enable one of ordinary skill in the art to practice the patented method. Appeals of the
judgment by both the Company and UPRC are pending in the Federal Circuit Court of Appeals. Management is
unable to predict the outcome of these appeals but believes the invalidity of the patent will be upheld on appeal. The
Company has appealed the trial court's ruling denying the Company's request for attorneys' fees.
West Panhandle Field Cessation Cases. A subsidiary of the Company, Chesapeake Panhandle Limited
Partnership ("CP") (f/k/a MC Panhandle, Inc.), and two subsidiaries of Kinder Morgan, Inc. are defendants in 13
lawsuits filed between June 1997 and January 1999 by royalty owners seeking the cancellation of oil and gas leases
in the West Panhandle Field in Texas. MC Panhandle, Inc., which the Company acquired in April 1998, has owned
the leases since January 1, 1997. The co-defendants are prior lessees.
Plaintiffs claim the leases terminated upon the cessation of production for various periods primarily during
the 1 960s. In addition, plaintiffs seek to recover conversion damages, exemplary damages, attorneys' fees and
interest. Defendants assert that any cessation of production was excused and have pled affirmative defenses of
limitations, waiver, temporary éstoppel, laches and title by adverse possession. Four of the 13 cases have been tried;
two are scheduled to be tried in May and June 2000; and trial dates have not been set for the other cases.
Following are the cases pending or tried in the District Court of Moore County, Texas, 69th Judicial
District:
Lois Law, et al. v. NGPL, et al., No. 97-70, filed December 22, 1997, jury trial in June 1999, verdict for
Company and co-defendants. The jury found plaintiffs' claims were barred by adverse possession, laches and
revivor. On January 19, 2000, the court granted plaintiffs' motion for judgment notwithstanding verdict and entered
judgment in favor of plaintiffs. In addition to quieting title to the lease (including existing gas wells and all attached
equipment) in plaintiffs, the court awarded actual damages against CP in the amount of $716,400 and exemplary
damages in the amount of $25,000. The court further awarded, jointly and severally from all defendants, $160,000
in attorneys' fees and interest and court costs. CP and the other defendants have filed a motion to reconsider, a
motion for new trial, and a notice of appeal.
Joseph H. Pool, et aL v. NGPL, et al., No. 98-30, first filed December 17, 1997, refiled May 11, 1998, jury
trial in June 1999, verdict for Company and co-defendants. The jury found plaintiffs' claims were barred by laches
and adverse possession. On September 28, 1999, the court granted plaintiffs' motion for judgment notwithstanding
verdict and entered judgment in favor of plaintiffs. In addition to quieting title to the lease (including existing gas
wells and all attached equipment) in plaintiffs, the court awarded actual damages as of June 28, 1999 of $545,000
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