Bp Am. Prod. Co. v. Marshall

• Decision Date: 01 July 2011
• Docket Number: No. 09–0399.,09–0399.
• Parties: BP AMERICA PRODUCTION COMPANY, Atlantic Richfield Company and Vastar Resources, Inc., Petitioners,v.Stanley G. MARSHALL, Jr., Robert Ray Marshall, Catherine Irene Marshall f/k/a Catherine I.M. Hashmi, and Margaret Ann Marshall f/k/a Margaret A.M. Jeffus, by and through David Jeffus, as Independent Executor of the Estate of Margaret Marshall, Respondents.
• Court: Texas Supreme Court

342 S.W.3d 59

54 Tex. Sup. Ct. J. 978

54 Tex. Sup. Ct. J. 1391

BP AMERICA PRODUCTION COMPANY, Atlantic Richfield Company and Vastar Resources, Inc., Petitioners,

v.Stanley G. MARSHALL, Jr., Robert Ray Marshall, Catherine Irene Marshall f/k/a Catherine I.M. Hashmi, and Margaret Ann Marshall f/k/a Margaret A.M. Jeffus, by and through David Jeffus, as Independent Executor of the Estate of Margaret Marshall, Respondents.

No. 09–0399.

Supreme Court of Texas.

Argued Dec. 7, 2010.Decided May 13, 2011.Rehearing Denied July 1, 2011.

Charles G. King, King & Pennington, L.L.P., James P. Pennington, Law Offices of James Pennington, J. Gregory Copeland, Jennifer Hope Naylor Kingaard, Baker Botts L.L.P., Houston, Thomas R. Phillips, Stacy Rogers Sharp, Evan Andrew Young, Baker Botts L.L.P., Austin, for BP America Production Company.James K. Jones Jr., Edward Frederick Maddox, Jones, Gonzalez & Maddox, An Association, Laredo, Timothy Patton, Timothy Patton, PC, San Antonio, for Stanley G. Marshall, Jr.Pamela Stanton Baron, Michael E. McElroy, John Michael Quinlan, McElroy Sullivan & Miller, L.L.P., Austin, Arnulfo Gonzalez, Law Offices of Arnulfo Gonzalez, Laredo, for Wagner Oil Company.David M. Gunn, Beck, Redden & Secrest, L.L.P., Austin, Richard G. Morales Jr., Ricardo E. Morales, Marisela Rangel, Person Whitworth Borchers & Morales LLP, Laredo, Erin H. Huber, Beck, Redden & Secrest, L.L.P., Houston, for Vaquillas Ranch Co., Ltd.Everard A. Marseglia Jr., Liskow & Lewis, A PLC, Houston, for Amicus Curiae The Texas Oil & Gas Association.Dee J. Kelly, Kelly Hart & Hallman LLP, Fort Worth, for Amicus Curiae Kelly Hart & Hallman LLP.Mary A. Keeney, Graves Dougherty Hearon & Moody, P.C., Austin, for Amicus Curiae Texas Land and Mineral Owners Assoc'n.Justice LEHRMANN delivered the opinion of the Court.

This case involves two related oil and gas mineral lease disputes that were jointly tried. One of the disputes is between petitioners BP America Production Co., Atlantic Richfield Co., and Vastar Resources, Inc. (collectively “BP”), the lessee and operator, and respondents the Marshall family, Stanley, Robert, Catherine, and Margaret Marshall, the lessors. The other is a dispute between BP's successors-in-interest, petitioners Wagner Oil Co. f/k/a Duer Wagner & Co., Jacque Oil & Gas Limited, Duer Wagner, Jr., Duer Wagner III, Bryan C. Wagner, James D. Finley, Dennis D. Corkran, David J. Andrews, H.E. Patterson, Brent Talbot, Scott Briggs, and Gysle R. Shellum (collectively “Wagner”), and another lessor, respondents Vaquillas Ranch Co., Ltd., Vaquillas Unproven Minerals, Ltd., and Vaquillas Proven Minerals, Ltd. (“Vaquillas”) ¹. We are asked to determine whether limitations barred the Marshalls' fraud claim against BP, and whether Vaquillas lost title by adverse possession after Wagner succeeded to BP's interests, took over the operations, and produced and paid Vaquillas royalties for nearly twenty years.

Based in part upon jury findings that BP had made fraudulent representations about its good-faith efforts to develop a well on the Marshall lease that the Marshalls could not have discovered before limitations expired, the trial court rendered judgment for the Marshalls. It also rendered judgment for Wagner that Wagner had acquired the Marshall and Vaquillas leases by adverse possession. The court of appeals affirmed the judgment against BP in most respects, and reversed the trial court's judgment for Wagner. 288 S.W.3d 430, 438. We reverse the court of appeals' judgment and render judgment for Wagner and BP. We hold that because the Marshalls' injury was not inherently undiscoverable and BP's fraudulent representations about its good faith efforts to develop the well could have been discovered with reasonable diligence before limitations expired, neither the discovery rule nor fraudulent concealment extended limitations. Accordingly, the Marshalls' fraud claims against BP were time-barred. We further hold that by paying a clearly labeled royalty to Vaquillas, Wagner sufficiently asserted its intent to oust Vaquillas to acquire the lease by adverse possession.

I. BACKGROUND

At the time of the dispute, fifty percent of the minerals under 17,712 acres in the Slator Ranch were owned by Tenneco and later assigned to Wagner; the other fifty percent were owned by a number of individuals and entities, including the Marshalls and the Vaquillas companies. The Marshalls owned approximately 1/16 and Vaquillas owned approximately 1/4 of the minerals. In the 1970s, BP ² obtained oil and gas leases on the Slator Ranch from Tenneco, Vaquillas, the Marshalls, and other mineral owners not party to this dispute. Their leases had a standard sixty-day savings clause providing that the lease would continue past the expiration date so long as BP was engaged in good-faith drilling or reworking operations designed to produce paying quantities of oil or gas with no cessation of operations for more than sixty days.

The primary terms of the Marshalls' and Vaquillas's leases were set to expire on July 11, 1980. Two weeks before the expiration date, BP drilled a well, the J.O. Walker No. 1. BP continued to work on the J.O. Walker No. 1 for the rest of the year, testing several zones in the well. Seeing no production from the well after the lease expiration date, Stanley Marshall, a member of the Marshall family, contacted BP and was informed that the lease was kept alive by continuing operations. A few days later, H.F. Young, the BP landman who spoke with Marshall, sent him a three-page letter purporting to document BP's continuous operations. BP listed a number of activities conducted on J.O. Walker No. 1, implying that good-faith efforts were continuing to invoke the sixty-day savings clause and retain the lease. The Marshalls, satisfied with BP's response, did not investigate further. During the same period, Vaquillas representatives likewise inquired into the status of its lease, and received a copy of the same letter from Young.

On March 25, 1981, BP entered into a series of agreements with Sanchez–O'Brien Oil & Gas Corporation by which Sanchez–O'Brien eventually became the operator on a portion of the Slator Ranch. The same day, BP decided to permanently plug and abandon the J.O. Walker No. 1 as unproductive. Sanchez–O'Brien drilled its first, undisputedly productive, well in April 1981. Then, in August 1994, Sanchez–O'Brien transferred its portion of the lease through a series of assignments to Fina Oil & Chemical Co., and ultimately to Wagner.

It is undisputed that there have been continuous operations on the lease from the day Sanchez–O'Brien began operations to the present. At the time it obtained assignment of the Marshalls' and Vaquillas's leases from BP, Wagner was already operating in other portions of the Slator Ranch and held leases to fifty percent of the minerals. Wagner regularly paid royalties upon obtaining the assignment.

In 1997, Vaquillas sued its lessee Wagner, BP, and other entities alleging breach of implied covenants to reasonably develop and market hydrocarbons under the lease. During the course of discovery, Vaquillas's experts came to believe that its original lease with BP, Wagner's predecessor-in-interest, terminated in early January 1981 because BP had abandoned any real efforts to rework the well and would not have expected it to produce in paying quantities when it continued operations in February and March. Since drilling on the Sanchez–O'Brien well did not commence until April 13, 1981, more that sixty days later, Vaquillas asserted that the title to the leasehold reverted back to Vaquillas. Vaquillas amended the lawsuit to seek a declaration of title to the mineral interest, contending that Wagner did not have title to the lease because the lease expired before BP transferred its interest in the leasehold to Wagner.

In 2001, the Marshalls intervened in the suit against BP and Wagner, similarly alleging that their lease had terminated in 1981 and adding that BP had defrauded them by purposefully concealing facts and circumstances demonstrating that the lease had already terminated. Vaquillas settled its claims against BP and proceeded to trial only against Wagner. The Marshalls conceded that Wagner's possession of the Marshall and Vaquillas leaseholds during the ten years following the alleged lapse in operations constituted adverse possession and proceeded to trial only on their fraud claims against BP. They contended that because BP fraudulently concealed that the lease had expired, the four-year statute of limitations for fraud claims should be extended to the time they could have reasonably discovered the fraud—June 2000, when BP released internal documents on the J.O. Walker No. 1. The Marshalls argued BP knew by the lease expiration date that the well was incapable of production and continued operations in bad faith until it could sell the lease to Sanchez-O'Brien.

At trial, the jury found in favor of the Marshalls and against BP, and the court rendered judgment on the verdict. The Marshalls were granted: (1) a declaration that the Marshall lease with BP had terminated; (2) a declaration that BP's property interest had terminated and reverted to the Marshalls; (3) a court-ordered accounting and a transfer of an overriding royalty interest; (4) past compensatory damages of $1,127,749.00 for each Marshall family member based upon the jury's fraud finding; (5) attorney's fees; and (6) prejudgment and post-judgment interest. In the dispute between Vaquillas and Wagner, the jury found that: (1) Wagner had adversely possessed the leasehold; (2) Wagner was a bona fide purchaser; and (3) the failure of Vaquillas to timely file suit against Wagner was not excused. The trial court rendered judgment for Wagner against the Vaquillas Companies and granted a directed verdict for Wagner against the Marshalls, ruling that Wagner had adversely possessed the mineral interest covered by its lease as to the...