August, 2014 | The Law Offices of Gregory D. Jordan

Harrold Wright, Unsung Whistleblower, Uncovered Alleged Fraud in Royalty Payments, Sparking Wave of Lawsuits

Lawsuits filed by oil and gas lessors against producers, alleging underpayment of royalties, are becoming more common. The recent wave of lawsuits against Chesapeake Energy is just one example Both the federal government and lessors in Texas and other states have alleged that resource producers often use questionable accounting techniques, such as deducting post-production costs, to avoid paying the full amount of royalties due. 

For their part, oil and gas producers usually claim they are following the terms of their leases. However, many producers have agreed to higher payments in response to demands or lawsuits by lessors.

The current wave of lawsuits and other disputes may owe its origin in some part to one Texan who made a mission of uncovering alleged fraud in oil and gas royalty payments. In 1996, Harrold Eugene Wright filed lawsuits against some of the largest oil companies in the United States, claiming contract fraud. He battled the producers until his death in 2008.

Elizabeth Ann Wright, Harrold Wright’s stepdaughter, told Thomson Reuters that the man began his career as a “wildcatter,” prospecting for oil by digging wells in untested areas.  

Wright testified numerous times in Washington before the Senate Finance Committee; at one session, he claimed to have overheard an oil executive say that lessors were often unaware of what royalties they were owed, and that companies could pay whatever amount would satisfy them.

According to his stepdaughter, Wright took what he heard to heart. ExxonMobil had wells on land that Wright owned, and with his industry experience he was able to roughly calculate the royalties he was owed. He asked ExxonMobil for more money and was sent a check for $25,000. According to his stepdaughter, he then asked for more money and received another check. Wright was not placated but outraged at the scale of what he considered to be fraud.

In 1996, Wright sued over a dozen large oil and gas companies on behalf of the U.S. government under the Federal False Claims Act, which allows citizens to file such fraud actions and share in the recovery. Wright’s lawsuits alleged that producers were underpaying royalties to the government from wells on federal and tribal land. Several of the suits were settled for tens of millions of dollars.

Today, lessors who are considering filing underpayment disputes may wish to thank Wright for some of his pioneering efforts in this area.

Texas Company Sues BP, Alleging Breach of Contract

Fluor Corp., an Irving, Texas-based engineering firm, has filed a lawsuit in Harris County district court against BP for millions of dollars, claiming breach of contract.

The lawsuit claims that when a Fluor subsidiary agreed to help the oil giant clean up pollution in the Gulf of Mexico in 2010, BP agreed to protect it against legal expenses. Now, several lawsuits and claims related to the Deepwater Horizon spill have been filed against Plant Performance Services (at that time, Fluor’s logistics and personnel support subsidiary), but BP has refused to compensate the company for its legal expenses, according to the lawsuit.

Plant Performance Services was sold to Fuel Streamers Group in June 2011.

Many of the lawsuits against Plant Performance Services were filed by beach cleanup workers who said that they were exposed to hazardous materials and that the company misrepresented how long the work was expected to last. Fluor claims the contract with BP began on May 5, 2010, but beach cleanup work was canceled before workers expected to be let go.

In the lawsuit, Fluor claimed that it has already paid $2.1 million in claims and is seeking compensation from BP for past, present and future claims.

BP has spent over $14 billion on the Gulf Coast cleanup and is expected to face $18 billion in fines.

Texas District Court approves employment lawsuit settlement that extinguishes claims under state law

A federal court has ruled that a settlement of a collective action lawsuit filed under the Fair Labor Standards Act (FLSA) may include a release of any plaintiffs’ rights to overtime pay under state law.
Wells Fargo was the defendant in five different overtime pay lawsuits filed by former mortgage consultants, loan consultants and loan originators. The lawsuits were consolidated in multidistrict litigation in the District Court for the Southern District of Texas. Two of the lawsuits claimed nationwide collective status under the FLSA, while another brought claims under Washington state law only. The national claims were successfully mediated, and more than 4,000 employees opted in to the settlement. The settlement released all future claims to unpaid overtime (including state law claims).

The named plaintiffs in the claim under Washington state law, however, did not opt in and filed objections. The court denied their objections, along with a motion for reconsideration, holding that the plaintiffs lacked standing because they were not opt-in members of the collectives. The court also held that even if the plaintiffs had standing, they had not shown that the settlement was substantively unreasonable or unfair. 

The court noted that potentially valuable legal rights were given up in the settlement, and that plaintiffs were entitled to accept a certain sum in exchange for the sacrifice of uncertain potential future recovery. The court, therefore, granted the settlement final approval.

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