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Business and Economy

Chesapeake-McClendon Suit Raises Hazy Corporate Law Issues, Could Drag On For Years

American Energy Partners, LP founder and CEO Aubrey McClendon, who co-founded Chesapeake Energy in 1989.
The Journal Record
American Energy Partners, LP founder and CEO Aubrey McClendon, who co-founded Chesapeake Energy in 1989.

One of the country’s major oil and natural gas producers, and a huge driver of Oklahoma City’s and the state’s economy, filed a lawsuit Tuesday alleging its founder and former CEO stole trade secrets during his final days at Chesapeake Energy Corporation.

Aubrey McClendon has been no stranger to the controversy. In 2012 the Chesapeake board of directors significantly curtailed his responsibility, before he eventually stepped down during the first half of 2013.

But he’s been busy over the past two years, and successful, doing many of the same things he did while at Chesapeake – namely raising money and buying land.

“He's raised probably more than $1.7 billion, he has a lot of acreage in the Utica Shale up in Ohio, and he's created several affiliates,” says Adam Brooks, the managing editor at The Journal Record. “The main company is American Energy Partners. There are several affiliates, a couple that have had IPOs, and he's also hired a lot of former Chesapeake workers.”

The Journal Record’s Sarah Terry-Cobo reports the lawsuit filed in Oklahoma County District Court doesn’t name McClendon as a defendant – rather, it targets AEP, several affiliates, and dozens of investors.

McClendon had personally invested in more than 16,000 wells Chesapeake drilled between its inception and 2013, a perk known as the Founder Well Participation Program. The program allowed McClendon to share in the profits and costs of each well the company drilled. Chesapeake announced Jan. 29, 2013, that McClendon would step down as CEO on April 1, 2013. As a part of his separation agreement, he was allowed to access information related to wells in which he had a joint interest, including accounting, geological, engineering, marketing, performance, operating, land, well and title data. McClendon wrote in a prepared statement that he was entitled to 20 terabytes of information about Chesapeake’s geology and lease information as the result of his employment and separation agreements. “It is a sad day to see Chesapeake stoop so low as to sue its co-founder for having information that was earned, paid for and provided through my contracts with Chesapeake,” McClendon wrote.

Brooks worked in corporate communications at Chesapeake from 2012-2013 when all this took place, and says the company’s information technology department kept close tabs on all of its employees.

“They were very clear that they monitored file transfers. I was asked, when I put some publications on a thumb drive to take home just for my safekeeping, about it,” Brooks says. “So, in the lawsuit, they allege that [McClendon] was using the blind CC function on email to send himself information. But I think he would've known that could be traced.”

University of Oklahoma law professor Brian McCall says there’s a lot of gray area in trade secret lawsuits, and McClendon wouldn’t just forget specific details about how Chesapeake operates simply because he no longer worked there.

“In energy companies, you learn how the industry functions,” McCall said. “As a human being, you can’t forget, you can’t erase that from memory.” In intellectual property cases, it can be difficult to get to the source of the trade secrets, McCall said. Even if McClendon sent a blind copy of an email to his personal account, nothing has been proven, McCall said. There are many possible explanations; for example, the email he sent to his personal account could have been easier to access when he was away from the office. McCall said he had not read the lawsuit, but that some parts of corporate law are very clear. If McClendon took very specific company information, such as data about a new oil field or a new play that belongs to a company, or tried to appropriate that opportunity from Chesapeake, it would be considered a breach of fiduciary duty, he said. Chesapeake must prove what McClendon did with the information after he allegedly copied it to his private email, McCall said.

Chesapeake hasn’t listed a dollar figure for damages they’re seeking in this lawsuit, and American Energy Partners launched a website where they posted McClendon’s separation agreement from Chesapeake. Brooks says this dispute could likely take years to resolve.

“Aubrey McClendon was able to put up that website really quickly after that lawsuit was filed with his defense, so I think they've been in talks before,” Brooks says. “But the tone that we heard from the companies makes it sound like they're both dug in and ready for a fight.”

The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.

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