The smallest of the half-dozen class-action lawsuit over natural gas royalties was settled Wednesday June 22, 2011 for $3.4 million, to be split among some 1,850 landowners.

The settlement is the first resolution in the sprawling, ongoing fights in U.S. District Court over gas pumped out from under Southwest Virginia landowners and, according to the plaintiffs, never appropriately accounted for.

The lawsuit alleges that Chesapeake Appalachia, a subsidiary of the nation’s second-largest producer of natural gas, underpaid gas royalties to landowners for a decade, eventually resulting in a loss of just less than $3.6 million. The agreement makes up for 95 percent of that loss.

David Stellings, one of 15 lawyers representing the landowners, described the settlement as a “terrific, remarkably high recovery.”

The company admitted no wrongdoing in the agreement.

“We’re pleased to have reached the settlement we did,” said Mike Banas, spokesman for Chesapeake.

The suit, filed in May 2010, involves landowners who voluntarily leased their gas to Chesapeake for one-eighth of the profits and received quarterly royalty checks.

In 1993, the plaintiffs claim, the company began unfairly deducting the various costs of doing business – transporting, cleaning and marketing the gas – from the royalty payments, then lied on check stubs so the landowners wouldn’t know that they’d been shortchanged. Later, in 1999 and 2000, the company began selling its gas to affiliates at below-market prices.

The company, though, argued that if it had done those things, it had been doing them for 17 years, far surpassing Virginia’s statute of limitations for such claims.

The case was the first of six filed in federal court. Its march toward a jury trial halted in December, when the sides began negotiating the agreement.

Although the settlement recoups 95 percent of what plaintiffs believe they were swindled, it provides for no punitive damages.

In the Southwest Virginia natural gas business, Chesapeake is a “very small player,” according to the plaintiffs. Of the 7,288 wells operating in 2009, only 322 were operated by Chesapeake, a subsidiary of Oklahoma-based Chesapeake Energy Corp.

EQT Production Co., with 2,977 wells, and CNX Gas Co., with 3,461, are the busiest in Southwest Virginia.

Three of the five class actions that remain pending list CNX as the defendant. The remaining two are against EQT. Each could be 10 to 20 times as large as the Chesapeake settlement, Stellings said Wednesday.

The team of attorneys representing the plaintiffs will mail a notice of the proposed settlement to class members within 45 days. The letter details their options: they can either do nothing and receive a check; opt out and retain their right to sue individually; or write the court an official objection.

Attorneys’ fees, typically a third of the settlement figure, and expenses will be deducted from the $3.4 million, which will then be divided among the landowners involved based on their percentage of the total royalties paid. For example, if Chesapeake had paid $100 in total royalties to Southwest Virginia landowners and John Smith received 10 percent, or $10, Smith would be entitled to 10 percent of the settlement.

The parties will reconvene on Oct. 4 to finalize the agreement.