North Fork gas drillers fined by feds for collusion

“It raises questions…”

Gunnison County’s two biggest natural gas producers settled a $550,000 federal antitrust lawsuit last week, alleging the two companies cooperated in submitting winning bids for leases to land in the North Fork Valley.

The U.S. Department of Justice came to the agreement with Gunnison Energy Corporation and SG Interests on Wednesday, February 15 after filing an antitrust complaint in U.S. District Court claiming the companies violated the False Claims Act by agreeing not to compete in bidding for four Bureau of Land Management (BLM) administered natural gas leases in Gunnison County.
According to a Justice Department press release, the “action marks the first time the Department of Justice [DOJ] has challenged an anticompetitive bidding agreement for mineral rights leases.”
GEC president Brad Robinson said the agreement with SG was executed openly and reviewed by lawyers from both companies before being signed. “This bidding agreement was entered into with the intention of complying with all applicable bidding rules. The bidding agreement was vetted with both GEC’s lawyers and SG’s lawyers,” Robinson said. “We believe that our agreement and bids met the appropriate legal requirements. However, the DOJ believes differently and GEC decided to settle the allegations to avoid the legal costs associated with a protracted DOJ investigation.”
SG Interest did not respond to a request for comment.
The Justice Department said in the release it offered the proposed settlement to resolve the lawsuit at the same time as they entered the complaint, claiming the two companies had “restrained trade in violation of Section 1 of the Sherman Act.”
According to the complaint, GEC and SG Interests were “separately developing natural gas resources in Western Colorado. In 2005, GEC and SGI entered into a written agreement under which they agreed that only SGI would bid at the auctions and then assign an interest in the acquired leases to GEC.”
The United States started its investigation after a whistleblower lawsuit was filed under special provisions of the False Claims Act that allow for private parties to sue on behalf of the United States. They also give the government time to investigate to decide whether to take over prosecution of the allegations or allow the whistleblower to proceed. The whistleblower is entitled to receive a portion of any recovery.
“As a result of the agreement between GEC and SGI, the United States received less revenue from the sale of the four leases than it would have had SGI and GEC competed at the auctions,” the press release says. “The proposed settlement provides that GEC and SGI each pay $275,000 to the United States to resolve the antitrust violations.”
High Country Citizens’ Alliance public lands director Matt Reed said, “It seems to me that it’s proof of collusion to defraud the American public, to defraud the federal government. It makes me question that if [GEC and SGI] are going to be less than honest in a federal lease sale, how can the public trust them when they say they’ll be good environmental stewards and try to protect water quality and air quality?” He adds, “It certainly raises some questions.”
According to the complaint, “At the conclusion of an auction, each successful bidder must submit a lease bid form, which constitutes a legally binding lease offer for the amount of the winning bid. By signing the form, the bidder also certifies that it is qualified to bid and that the bid was ‘arrived at independently’ and ‘tendered without collusion with any other bidder for the purpose of restricting competition.’”
While the fine does represent a substantial rebuke of the two gas companies, Reed points out that last year, climate activist Tim DeChristopher was sentenced to two years in prison for similarly disrupting a gas lease sale in Utah and faced fines of up to $750,000, despite having just $10,000 in fines levied against him.
The $275,000 payments from both SG Interests and GEC will also resolve civil claims that the United States has under the False Claims Act against the two companies for making false statements to the government in connection with the agreement not to compete. The U.S. Attorney’s Office for the District of Colorado has entered into separate settlement agreements with the companies to resolve these claims, the press release said.
At the same time the settlement was being handed down, SG Interests asked Gunnison County officials on Thursday, February 16 for a “time-out” from their mutual litigation related to the county’s regulation of gas-related operations. District Judge Steven Patrick had scheduled a status conference for the two parties to discuss the lawsuit after ruling largely in the county’s favor last fall.
At a meeting on Tuesday, February 21, county attorney David Baumgarten called an executive session to discuss the stalled litigation with the board of county commissioners.
“A week ago Thursday we were scheduled to have a status conference,” Baumgarten said. “That morning the attorneys for SG and SG’s vice president for land Robbie Guinn and others came to my office to see if we could take time out to have a fruitful settlement discussion. It doesn’t advantage or disadvantage anyone.” The two parties agreed to meet again on March 29.
Fallout from the settlement is even threatening to reach politicians, with campaign finance watchdog group Public Campaign calling on Congressman Scott Tipton to return thousands of dollars in contributions he received from the executives of SG Interests.
The group said in a statement, “Tipton has close ties to SG Interests and has faced criticism for taking contributions from company donors while simultaneously working to address a local dispute between landowners and the company. He received $8,100 from donors at SG Interests based in Houston in 2011 and has taken $15,300 from company donors since 2009, according to Public Campaign analysis of data from the Federal Election Commission.”
People can comment on the proposed settlement within 60 days of its publication in the Federal Register. Comments should be sent to William H. Stallings, Chief, Transportation, Energy and Agriculture Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 8000, Washington, DC 20530.