The Chesapeake Energy Corporation recently asked New Orleans appeals judges to reverse a 2011 ruling that ordered the company to pay $19.7 million dollars to a lease owner. A U.S. district court originally ruled in favor of the defendant, indicating that Chesapeake was in breach of contract for cancelling an energy rights agreement with Peak Energy.
Lawyers for Peak Energy argue that Chesapeake's appeal is nothing more than an attempt to misinterpret the contract in order to escape from the ordered payment.
Peak Energy further argues that the two companies already had established which locations would be purchased pursuant to the contract, and that the district court judge had correctly decided the case in his ruling.
However, Chesapeake offers a different perspective. They argue that they had not, in fact, offered a valid contract, but only a letter of intent that did not go into detail about the leases to be purchased. Accordingly, this would mean that their offer was non-binding, and should not have been upheld as a valid contract.
In addition to this, they are also requesting that the company be released from its obligation to pay a $12,000 difference in the per-acre cost from when the offer was made and then revoked.
There is speculation that the company revoked its offer to buy land in the face of evidence showing a continued decrease in gas prices. Some who are suing the company also contend that the company backed out of deals when it became apparent that it might not be able to generate as much profit as originally intended from the purchases.
At this point, both parties are awaiting a decision from the appeals court. The hope is that the judges will fairly examine the contract and arguments presented by both parties in order to come to a conclusion that accurately reflects the facts of the case.
As this case proves, interpreting the specifics of a contract can be a very complex task. If a contract is constructed ambiguously, it is understandable that it may become contested at a later date. Whenever concerns are raised over a party's obligation to uphold a contract, it is important to make sure the rights of all involved parties are respected when working to resolve a business dispute in court.
Source: Bloomberg Businessweek, "Chesapeake Energy Seeks to Void Order to Buy Energy Rights," Margaret Cronin Fisk and Allen Johnson Jr., July 10, 2012