Chesapeake Energy 2014 Annual Report Download - page 100

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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4. Contingencies and Commitments
Contingencies
Litigation and Regulatory Proceedings
The Company is involved in a number of litigation and regulatory proceedings (including those described below).
Many of these proceedings are in early stages, and many of them seek or may seek damages and penalties, the
amount of which is indeterminate. We estimate and provide for potential losses that may arise out of litigation and
regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. Significant
judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total
estimated liability in respect of litigation and regulatory proceedings is determined on a case-by-case basis and
represents an estimate of probable losses after considering, among other factors, the progress of each case or
proceeding, our experience and the experience of others in similar cases or proceedings, and the opinions and views
of legal counsel. We account for legal defense costs in the period the costs are incurred.
July 2008 Common Stock Offering Litigation. On February 25, 2009, a putative class action was filed in the U.S.
District Court for the Southern District of New York against the Company and certain of its officers and directors along
with certain underwriters of the Company’s July 2008 common stock offering. The plaintiff filed an amended complaint
on September 11, 2009 alleging that the registration statement for the offering contained material misstatements and
omissions and seeking damages under Sections 11, 12 and 15 of the Securities Act of 1933 of an unspecified amount
and rescission. The action was transferred to the U.S. District Court for the Western District of Oklahoma on October
13, 2009. Chesapeake and the officer and director defendants moved for summary judgment on grounds of loss
causation and materiality on December 28, 2011, and the motion was granted as to all claims as a matter of law on
March 29, 2013. On appeal, the U.S. Court of Appeals for the Tenth Circuit affirmed the dismissal on August 8, 2014
and denied the plaintiffs’ petition for rehearing on November 12, 2014.
Shareholder Derivative Litigation. A derivative action relating to the July 2008 offering was filed in the U.S. District
Court for the Western District of Oklahoma on September 6, 2011. The case was thereafter stayed by stipulation
between the parties, and on November 20, 2014, the parties entered a stipulation to have the case voluntarily dismissed.
On January 16, 2015, pursuant to Court order, the Company provided notice to shareholders of the voluntary dismissal
and allowed eligible shareholders to intervene.
A federal consolidated derivative action and an Oklahoma state court derivative action have been stayed since
2012 pending resolution of a related, previously reported putative federal securities class action. The shareholder
derivative actions allege breaches of fiduciary duty, among other things, related to the former CEO’s personal financial
practices and purported conflicts of interest, and the Company’s accounting for volumetric production payments. With
the dismissal of the federal securities class action now affirmed, the parties have stipulated to continue the stay of the
Oklahoma state court derivative action while the plaintiffs pursue their claims in the federal consolidated derivative
action. The plaintiffs filed a consolidated derivative complaint on October 31, 2014 and an amended consolidated
derivative complaint on February 12, 2015. Chesapeake filed its motion to dismiss on February 23, 2015.
Regulatory Proceedings. The Company has received, from the U.S. Department of Justice (DOJ) and certain
state governmental agencies and authorities, subpoenas and demands for documents, information and testimony in
connection with investigations into possible violations of federal and state antitrust laws relating to our purchase and
lease of oil and gas rights in various states. The Company also has received DOJ and state subpoenas seeking
information on the Company’s royalty payment practices. Chesapeake has engaged in discussions with the DOJ and
state representatives and continues to respond to such subpoenas and demands.
On March 5, 2014, the Attorney General of the State of Michigan filed a criminal complaint against Chesapeake
in Michigan state court alleging misdemeanor antitrust violations and attempted antitrust violations under state law
arising out of the Company’s leasing activities in Michigan during 2010. On July 9, 2014, following a preliminary hearing
on the complaint, as amended, the 89th District Court for Cheboygan County, Michigan ruled that one count alleging
a bid-rigging conspiracy between Chesapeake and Encana Oil & Gas USA, Inc. regarding the October 2010 state
lease auction would proceed to trial and dismissed claims alleging a second antitrust violation and an attempted antitrust
violation. A trial date of April 15, 2015 has been set for this case. The Michigan Attorney General filed a second criminal
complaint against Chesapeake in the same court on June 5, 2014 which, as amended, alleges that Chesapeake’s
conduct in canceling lease offers to Michigan landowners in 2010 violated the state’s criminal enterprises and false