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Why the Oil Bust Could Lead to a Litigation Boom

Spencer Selvidge/Texas Tribune
Workers with Bee Cave Drilling install a jackhammer bit on the drilling rig while putting in a water well on a private lot in Spicewood, Texas on February 6, 2012.

Aubrey McClendon was a pioneer in the world of fracking who ushered in an American energy boom.  So it was big news when the former head of Chesapeake Energy was indicted on anti-trust charges last week.

When McClendon died in a fiery car wreck a day later, it sent shockwaves through the business world. Investigators are looking into the crash. But what of the charges that preceded it? 

McClendon’s indictment came in the midst of turmoil in the oil and gas sector, but it’s not uncommon for allegations of mismanagement to surface when an industry’s boom goes bust.

When a company or industry is making tons of money, it’s easier to hide corporate shenanigans.  After all, everybody’s getting a piece of the action. Mechele Dickerson teaches bankruptcy law at UT Austin and says, when the money goes away, bosses have a harder time protecting themselves. 

“[T]here’s a good chance that they’re going to be tossed out and no longer controlling the company and the new folks that come in no longer have an incentive to protect them," she says.

McClendon will never get his day in court, but his former company, Chesapeake Energy, had ousted him after allegations of mismanagement. The company was cooperating with the Department of Justice and settling other anti-trust charges in an effort to address what the company called “legacy issues.” 

"The other way that information tends to come out, if you have an industry that’s going down, is you end up in litigation," Dickerson says.

When times get tough, people start checking their receipts. That can lead to lawsuits. Dickerson says lawsuits air a lot of dirty laundry.

"Once the discovery process starts, then you suddenly have to unearth things, turn over things, or drag those skeletons out of the closet," she says.

That can happen on a large scale like when one huge company sues another huge company. It can also happen or on a smaller scale. Allen Vaught is an employment lawyer for the Dallas firm Baron and Bud. He says when a truck driver or roughneck has a job, they’re less likely to complain about workplace problems like unpaid overtime. Now, that's different.

"We’ve seen a lot more employees coming forward as they’ve lost jobs or experienced unfair treatment in the way they lost their assert their legal rights," Vaught says.

So we might expect more legal controversies, big and small, as the oil and gas downturn continues. 

Mose Buchele focuses on energy and environmental reporting at KUT. Got a tip? Email him at Follow him on Twitter @mosebuchele.
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