Exxon Corp. v. Miesch
| Decision Date | 29 November 2005 |
| Docket Number | No. 13-00-104-CV.,13-00-104-CV. |
| Citation | 180 S.W.3d 299 |
| Parties | EXXON CORPORATION, et al., Appellants, v. Laurie T. MIESCH, et al., Appellees. |
| Court | Texas Supreme Court |
Byron C. Keeling, Holman & Keeling, Jack O'Neill, Clements, O'Neill, Pierce, Nickens & Wilson, Jack Balagia, Jr., Houston, David Philip Wilson, John Andrew Cowan, Darren Lee Brown, Beaumont, Patton G. Lochridge, Karen L. Watkins, W. Timothy George, McGinnis, Lochridge & Kilgore, Austin, for appellants.
Michael James Krueger, Kingsville, William J. Joseph, Candace Beth Kaiser Eindorf, Fibich, Hampton & Garth, Hartley Hampton, Fibich, Hampton, Leebron & Garth, Maria Teresa Arguindegui, Law Office of Maria Teresa Arguindegui, William Hardy Young, Gallagher, Young, Lewis Hampton & Downey, Alice Oliver-Parrott, Burrow & Parrott, LLP, Eileen O'Neill, Ware Jackson Lee Chambers, Houston, David Philip Wilson, Beaumont, for appellees.
Before Chief Justice VALDEZ and Justices HINOJOSA and CASTILLO.
This appeal follows a jury trial in an oil and gas case. Emerald Oil & Gas, L.C. ("Emerald"), a subsequent lessee, and intervening royalty interest owners1 brought suit against Exxon Corp. and Exxon Texas, Inc., as successor in interest to Humble Oil & Refining Co. ("Exxon"), for wrongful conduct in the development and abandonment of oil and gas wells in the Mary Ellen O'Connor Field, near Refugio, Texas. The trial court granted Exxon's motion for directed verdict and entered a take-nothing judgment against Emerald.2 The jury found in favor of the royalty interest owners on their causes of action against Exxon for waste and breach of contract and awarded the intervenors both actual and punitive damages. The trial court entered judgment in accordance with the verdict. All parties have appealed. The judgment is affirmed in part and reversed in part.
Exxon leased the mineral interests on several thousand acres, the Mary Ellen O'Connor Field, near Refugio, Texas. Exxon's interest in the property spanned four decades beginning in the 1950's and was derived from four separate leases.3 The leases are atypical of many oil and gas leases in some respects. They include, for instance, an unusually high fifty percent royalty obligation and stringent surrender clauses.
Beginning in the early 1970s, Exxon attempted to negotiate a reduction in its fifty percent royalty obligation on the field. Exxon owned an interest in a contiguous tract operated by Quintana, and its royalty obligation on that tract was substantially lower and thus more favorable for Exxon. Exxon told the royalty interest owners that the Mary Ellen O'Connor Field was no longer economical to operate, although Exxon continued production on the adjacent tract operated by Quintana.
In considering Exxon's request for a reduction in royalty interest, the royalty owners requested that Exxon provide them information and documentation regarding the productivity of the field. Under the terms of the leases, the lessors were entitled to "full information" covering all operations, including logs, reports, analyses, data, and information concerning oil and gas potentialities for the field.
Exxon initially refused to provide the royalty interest owners information on grounds that it was proprietary, then that the information would be too difficult to locate and retrieve, and finally, that the information would be made available only if a confidentiality agreement were signed. Nevertheless, Exxon ultimately provided the royalty interest owners a "reading room" containing documentation on the field. The reading room, however, did not contain all information on the field: Exxon did not include any interpretive data and did not include all of the well logs for the field. Some data on the field was not produced until discovery in the instant lawsuit, and some data, including calculations made by Exxon employee Joel Wylie regarding the productivity of the field and some of the well logs, was missing even at the time of trial.
The royalty interest owners suggested several options in renegotiating the terms of the lease. One of the options was a lower royalty obligation that would increase if productivity on the field increased. Exxon refused. After the failure of additional negotiations, the royalty interest owners began looking for a new lessee for the field. Exxon initially refused to allow another operator to take over the lease without a release. All negotiations ultimately proved unsuccessful. Accordingly, Exxon plugged and abandoned the wells.
Emerald became interested in leasing a portion of the tract originally leased by Exxon. Emerald examined the economic viability of assuming operations on the property by reviewing Exxon's public filings on the field with the Texas Railroad Commission. In so doing, Emerald reviewed the Texas Railroad Commission Form W-3 Plugging Reports, which specify the methodology used to plug and abandon the wells. Emerald ultimately leased a portion of the field originally held by Exxon.
Upon acquiring the lease and starting the reentry process, Emerald encountered numerous unexpected obstacles in its redevelopment of the field. Emerald discovered tubing, refuse, and junk in some of the wellbores. Emerald also discovered cut casing,4 unidentified plugs, or plugs located at intervals differing from those identified on the Form W-3s, and other obstructions in the wells. Various wells contained tank bottoms or other environmental contaminants. Ultimately, Tommy Lynch of Emerald estimated that eighty to ninety percent of the Form W-3s failed to accurately describe the plugging methodology utilized for the wells and failed to accurately describe the physical status of the wells.
Emerald retained several different experts in the field of reentering plugged wells to assist it in the reentry process. Nevertheless, the problems were not isolated and the wells were uniformly difficult and disproportionately expensive, or impossible, to reenter. Emerald also requested, but failed to receive, the well records directly from Exxon. Emerald ultimately obtained several of Exxon's well logs for the field from Quintana. The plugging procedures delineated in these well logs differed in salient respects from those described in Exxon's public filings regarding the same wells. After reviewing these documents, speaking with its experts, and talking with several individuals who had performed some of the plugging at Exxon's direction, Emerald concluded that Exxon had engaged in a deliberate pattern of sabotaging the wells in the Mary Ellen O'Connor Field to prevent reentry, while continuing to profit from operations on the contiguous tract. Emerald and the royalty owners brought suit against Exxon for, inter alia, common law waste, statutory waste, negligence per se, and tortious interference. Based on field analyses produced by Exxon during discovery, the royalty owners further brought suit against Exxon for breach of contract by failing to fully develop the field.
The jury found against Exxon and in favor of the royalty owners on all issues submitted. The jury found that Exxon committed waste on property or production in which the royalty owners owned an interest, and that, in plugging the wells, Exxon failed to act as a reasonably prudent operator would have under the same or similar facts and circumstances. The jury found that the intervenors discovered or, in the exercise of due diligence, should have discovered the waste on January 24, 1995. The jury awarded the intervenors $5,000,000 for the cost to drill new wells, the value of the minerals that could not be recovered, and the loss of bonus payments. The jury also found that Exxon acted with malice and awarded the intervenors $10,000,000 in exemplary damages.
The jury further found that Exxon failed to comply with the development provision in the leases that required Exxon to "prosecute diligently a continuous drilling and development program until said tract is fully developed for oil and gas," and that Exxon fraudulently concealed its failure to develop the field. The jury found that the intervenors knew, or in the exercise of reasonable diligence, should have known that Exxon fraudulently concealed its failure to fully develop under the leases in February of 1999. The jury awarded the intervenors $3,600,000 for Exxon's breach of contract, as the amount that the intervenors "would have received for the minerals produced had Exxon fully developed the Oil and Gas Leases less the costs of operation and production and any royalty received from Emerald Oil & Gas L.C."
The trial court rendered judgment on the verdict and awarded the intervenors $8,600,000 in actual damages, $10,000,000 in punitive damages, and $2,795,000 in prejudgment interest. Exxon appeals this judgment by eleven issues and numerous subissues.
In several issues, Exxon contends that the statute of limitations bars the intervenors' waste claim. In its first issue, Exxon argues that limitations bars the intervenors from recovering on their waste claim because they filed suit against Exxon more than two years after Exxon completed its plugging operations. In its second issue, Exxon contends that the trial court erred in allowing the intervenors to rely on the discovery rule to delay the running of limitations on their "otherwise time-barred" waste claim. In subissues, Exxon argues that the discovery rule is inapplicable (a) when the intervenors have taken the position that their waste claim is merely for temporary injury to real property; (b) when, in a typical waste case,...
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