Judge slams down settlement over oil and gas antitrust accusations

Gas companies go back to the table with Justice Department

The cash settlement reached between the Department of Justice and local gas operators Gunnison Energy Corporation and SG Interests Ltd. was denied by a District Court after further review. The two companies allegedly violated antitrust laws by cooperating with each other during a 2005 oil and gas lease sale.

In a review filed December 12, U.S. District Court Senior Judge Richard Matsch was so shocked with the language GEC used to defend its decision to pay a $275,000 settlement instead of fighting the allegations of collusion in court, he included the company’s comments as Exhibit A.
“GEC filed a statement responding to the public comments in a manner that demonstrates that this defendant considers this antitrust action to be meritless and the settlement to be nothing more than a payment to be rid of this nuisance,” the judge wrote. “The unrepentant arrogance of this defendant is so self-evident that a copy of the statement is attached as Exhibit A. It is not in the public interest to approve a final judgment that permits a defendant to leave its civil action in such a smirking, self-righteous attitude.”
Gunnison Energy Corporation president Brad Robinson said of the ruling, “First, we had no intention of appearing arrogant or otherwise not respectful of the settlement process and are sorry the judge perceived our comments that way. Going forward, we will work with the Department of Justice to see whether or not a new settlement in the public interest can be achieved.”
Judge Matsch was responding to a legal complaint the Antitrust Division of the Department of Justice filed against GEC and SG Interests in February after the two companies allegedly agreed not to compete against one another prior to a 2005 lease sale.
The two companies actually signed a memorandum of understanding laying out the arrangement, which stipulated SG as the bidder that would assign a 50 percent interest in the leases to GEC after the sale, garnering the companies four new leases.
As a result, the DOJ said, the companies walked away from the sale paying $94,000, or just $25 an acre, for mineral leases that could have gone for much more in a truly competitive auction. According to the DOJ, the companies violated the Sherman Act in colluding to limit competition and the False Claims Act by lying to the government about GEC’s intention not to bid.
In an agreement to avoid going to court over the matter, the DOJ—along with Anthony Gale, the former vice-president of oil and gas development at GEC who signed the memorandum of understanding and then blew the whistle on the two companies—settled for $550,000, or seven times the initial bid amount.
Of that amount, however, Gale and his attorney walked away with $180,000 from the settlement, which made many of the 72 people who wrote comments to the DOJ question if the resulting $390,000 settlement was adequate.
Additionally, Judge Matsch points out that in his complaint, Gale alleges that GEC didn’t compete with SG Interests on 22 lease sales between February 2005 and November 2006, while the settlement covers allegations of wrongdoing in just four lease sales in February and May 2005.
The judge also noted that many of the people who commented on the DOJ settlement felt the judgment was a “slap on the wrist” for the two companies and wouldn’t dissuade either from future collusion.
In addition to the concerns about the inequity in the settlement, several of the people who commented pointed to the government’s case against Tim DeChristopher, who was charged with two counts of interfering with an oil and gas auction in Salt Lake City in 2008.
For his actions, DeCristopher was convicted on both counts by a jury and sentenced to 24 months in prison. Shortly after, the Department of Justice decided against a criminal penalty in the case against GEC and SG Interests, opting for a modest civil penalty instead, even as the two companies interfered with an oil and gas auction in their own right.
“The commenters are troubled by that perceived disparity,” Judge Matsch said, but acknowledged that the decision to pursue criminal penalties is up to the antitrust agency and not the court.
In conclusion, the judge said, there’s nothing to suggest the settlement would be a deterrent to the companies to colluding on future auctions or to other companies from doing the same, “particularly as GEC considers ‘joint bidding’ to be common in the industry,” he wrote.
“The settlement of this civil action for nothing more than the nuisance value of this litigation is not in the public interest,” he said, denying the settlement agreement and the Motion for Entry of Final Judgment.
The Department of Justice will now have to reconsider its settlement and re-open negotiations surrounding the case. No timeline for that action has been set.