Oil and Gas Lawyer Blog
On January 30, the Supreme Court issued its opinion in Hooks v. Samson Lone Star, Limited Partnership, No. 12-0920. In doing so, it kept alive a $21 million verdict against Samson and limited its prior holdings barring suits by mineral owners based on the statute of limitations.
The principal claim the Hooks made against Samson alleged breach of a lease provision intended to protect the Hooks’ lease against drainage from wells on adjacent lands. The lease provided that, if a gas well is drilled within 1,320 feet of the lease, Samson must either drill an offset well, release sufficient acreage for an offset well to be drilled, or pay “compensatory royalty” – the amount of royalty the Hooks would be entitled to if the well on adjacent lands had been drilled on their lease.
In 2000, Samson permitted a well on lands adjacent to the Hooks lease, and it approached the Hooks asking permission to pool portions of the Hooks land with that well. Mr. Hooks asked Samson how close the well would be to the Hooks lease boundary. Samson sent him a plat showing that the location of the well would be 1,400 feet from the lease. Based on this, the Hooks agreed to the pooling.
In 2007, in connection with related litigation, the Hooks discovered that the adjacent well in fact was located within 1,320 feet of the Hooks lease, and the Hooks sued Samson for misrepresenting the well’s location and inducing them to agree to the pooling. They sought damages under the lease compensatory royalty clause – the royalty they would have received had the offending well been located on the Hooks’ lease. They argued that the four-year statute of limitations applicable to their claim should not apply because Samson had fraudulently induced them to believe that the well was 1,400 feet from their lease. The jury found that the Hooks should not have discovered the true facts until less than four years before bringing suit. It awarded more than $20 million damages to the Hooks.
On appeal, the Houston First Court of Appeals reversed. It said it was required by earlier Supreme Court precedent to throw out the Hooks’ claim based on the statute of limitations. Records filed by Samson at the Railroad Commission showed the true location of the offending Samson well, and the Hooks were on notice of that public record. One justice, concurring, agreed that the court was bound by an earlier case, BP v. Marshall, to reverse:
In that case, the Texas Supreme Court makes clear that no lies on the part of a lessee, however self-serving and egregious, are sufficient to toll limitations, as long as it is technically possible for the lessor to have discovered the lie by resort to the Railroad Commission records. This burden the Court imposes upon lessors is severe. It is now a lessor’s duty to presume that any statement made by its lessee is false and to ransack the esoteric and oft-changing records at the Railroad Commission to discover the truth or falsity of its lessee’s statements. If, as is often the case, these records are technical in nature and require expert review to ferret out the truth, it is the lessor’s job to hire experts out of its own pocket to perform such a review. If a lessor fails to take these steps, then it will have failed in exercising reasonable diligence to protect its mineral interests and, if the lessee’s fraud is successful for longer than the limitations period, the lessor’s claims will be barred by limitations.
The Supreme Court, however, distinguished its earlier rulings in BP v. Marshall and Shell v. Ross. Samson had filed conflicting records at the RRC, one of which showed the offending well location more than 1,400 feet from the Hooks lease.
We hold that when the defendant’s fraudulent misrepresentations extend to the Railroad Commission record itself, earlier inconsistent filings cannot be used to establish, as a matter of law, that reasonable diligence was not exercised. Under these circumstances, reasonable diligence remains a fact question. The factfinder, no doubt, may consider the failure to examine older records when determining whether reasonable diligence was exercised, but their availability is not enough to establish that reasonable diligence was not exercised as a matter of law.
In other words, the Supreme Court said that it could not reverse the jury’s finding that the Hooks were excused by Samson’s fraud from bringing the claim earlier, because there was “some evidence” to support the jury’s conclusion.
In Texas, the Supreme Court’s jurisdiction over jury verdicts is limited. It cannot reverse a jury finding unless it finds that there is “no evidence” to support the finding. Lawyers refer to this as “legal sufficiency” of the evidence. But an intermediate court of appeals also has jurisdiction to reverse a jury verdict if it finds that the verdict was “against the great weight and preponderance of the evidence.” Lawyers refer to this as “factual sufficiency” of the evidence. Samson had also argued to the Houston court of appeals that the evidence was not “factually sufficient” to support the jury’s finding on Samson’s fraudulent conduct in concealing the true location of the well. So the Supreme Court sent the case back to the Houston court for it to consider whether the evidence on when the Hooks should have, with reasonable diligence, discovered the true location of the well was “factually sufficient” to support the verdict. The Hooks still have to win their case on remand to keep their judgment.
The Supreme Court’s distinguishing of this case from its earlier rulings in BP v. Marshall and Shell v. Ross creates a fine line, and to a lay person it may be difficult to discern a difference between BP’s and Shell’s misconduct and Samson’s. Nevertheless, the Supreme Court considered that, when the fraudulent documents are actually in the public record, a mineral owner may be entitled to rely on them, even if those fraudulent documents are contradicted by other public records.