Exxon Corporation and Exxon Texas, Inc. v. Emerald Oil & Gas Company, No. 05-1076 (Tex. 3/27/2009), 05-1076.
| Decision Date | 27 March 2009 |
| Docket Number | No. 05-1076.,05-1076. |
| Parties | EXXON CORPORATION AND EXXON TEXAS, INC., Petitioners, v. EMERALD OIL & GAS COMPANY, L.C. AND LAURIE T. MIESCH, ET AL., Respondents. |
| Court | Texas Supreme Court |
Justice O'NEILL did not participate in the decision.
In this oil and gas dispute, royalty owners and an oil and gas lessee sued a previous lessee for alleged wrongful conduct in the development and subsequent abandonment of two oil and gas tracts near Refugio, Texas. The plaintiffs allege statutory and common law waste, negligence per se, negligent misrepresentation, tortious interference, breach of lease, and fraud. The trial court directed a verdict in favor of the previous lessee on some claims, and the remaining claims went to verdict. The jury found in favor of the royalty owners and awarded $18.6 million in damages. The court of appeals reversed the directed verdict and affirmed the jury verdict. 180 S.W.3d 299. We reverse and remand.1 Today, we also issue our opinion in Exxon Corp. v. Emerald Oil & Gas Co., the companion to this case. ___ S.W.3d ___ (Tex. 2009).
The royalty owners2 own several thousand acres of land in Refugio, Texas (O'Connor Lease). As early as the 1950s, Humble Oil and Refining Company, a predecessor of Exxon Corporation and Exxon Texas, Inc. (collectively Exxon), began acquiring mineral leases from the royalty owners. Exxon derived its interest from four separate mineral leases. The leases included an atypical fifty-percent royalty obligation and stringent disclosure, development, and surrender clauses.3 During the term of the agreement, Exxon drilled 121 wells and produced at least 15 million barrels of oil and more than 65 billion cubic feet of gas, resulting in the payment of more than $43 million in royalties.
In the early 1970s, Exxon attempted to renegotiate a lower royalty because profitability of the operations was declining. As early as 1987, the royalty owners requested that Exxon provide them information and documentation to support Exxon's position that the field was depleted and no longer profitable, as the royalty owners claimed was required by the Lease to discontinue operations. By 1990, the royalty owners knew Exxon intended to plug six active wells and demanded that Exxon abandon its plans to plug these wells. On August 30, 1990, they sent a letter advising Exxon "that in the event [Exxon] plug[s] and abandon[s] any wells which are producing or capable of producing minerals in paying quantities to [the royalty owners], Exxon will be sued under the terms of the lease and the common law, both for present breach of contract and anticipatory damages."
On September 12, 1990, the royalty owners demanded by letter that Exxon deliver "any and all information, data and documents pertaining or relating to the subject wells, including drilling, production, completion and re-completion data, well bore production or completion schematics or diagrams and flow line maps and surface facility diagrams or schematics." In the same letter, the royalty owners explained that "plugging and abandonment of the [six] referenced wells would commit waste and would be contrary to public policy and laws" and that the letter "shall also be considered as [a] formal demand not to plug the above referenced six wells." The royalty owners further informed Exxon that they had "located a group of oil and gas companies willing to accept the plugging obligation" and assignment of the O'Connor Lease.
Initially, Exxon refused to provide any information, claiming that the information was proprietary. Later, Exxon claimed the information was too difficult to locate and retrieve. Then, Exxon agreed to provide the royalty owners a "reading room" containing the requested information subject to a confidentiality agreement. The reading room included a large quantity of information, but it did not contain any interpretive data or the complete well logs. Exxon ultimately concluded that it could no longer profitably afford the O'Connor Lease unless the royalty owners agreed to reduce the royalty obligation. When negotiations to lower the royalty obligation failed, starting in 1989, Exxon began plugging and abandoning the wells. As required by law, after Exxon plugged each of the wells, it filed a plugging report with the Texas Railroad Commission. 7 Tex. Reg. 3991 (1982) (16 Tex. Admin. Code § 3.14(b)(1)), amended by 23 Tex. Reg. 9303 (1998) (current version at 16 Tex. Admin. Code § 3.14(b)(1)).4 By letter dated August 16, 1991, Exxon notified the royalty owners that it had completed its plugging operations.
In 1993, after Exxon's lease terminated, the royalty owners entered into a lease agreement with Pace West Production, Ltd. (Pace), later known as Emerald Oil & Gas Co., L.P. (Emerald)5, for one-third of the acreage in the O'Connor Lease. In deciding whether to lease the land, Emerald reviewed Exxon's public filings related to the field, including the oil well plugging reports (W-3 forms) that Exxon filed with the Railroad Commission. The filings indicated that Exxon properly plugged the wells. However, Emerald encountered problems upon trying to reenter the plugged wells, including wellbores plugged with cut casing6 and other "junk,"7 wellbores containing environmental contaminants, and plugs in locations other than those listed on the reports. Emerald sent the royalty owners a written status report on June 8, 1994, explaining that it "encountered junk in hole" and that Exxon had cut the casing in some wells. On January 24, 1995, Emerald met with the royalty owners and explained more about the extent of the damage to the wells due to Exxon's plugging techniques.
In January 1995, Emerald obtained Exxon's internal well records on the O'Connor Lease from Quintana, Exxon's partner on the adjoining tract, also leased by Exxon. Exxon's internal records differed substantially from the Railroad Commission filings regarding its plugging of the wells in the O'Connor Lease. Concluding that Exxon intentionally sabotaged the field, Emerald sued Exxon in July 1996, claiming (1) breach of a duty to plug the wells properly, (2) breach of a duty to avoid committing waste, (3) negligence per se in violating several sections of the Natural Resources Code and Commission Regulations, (4) tortious interference with economic opportunity, (5) negligent misrepresentation, and (6) fraud. In August and September 1996, the royalty owners intervened and alleged similar claims. In October 1999, the royalty owners amended their petitions, adding claims for breach of contract for Exxon's failure to comply with development clauses in the lease.
Prior to trial, the trial court granted Exxon's motion for summary judgment and severed Emerald's claims for breach of a duty to plug the wells properly, breach of a duty to avoid committing waste, and negligence per se, reasoning that Exxon owed no duty to Emerald as a subsequent lessee. Emerald appealed the trial court's summary judgment ruling and severance order. The court of appeals reversed and remanded the claims to the trial court. Emerald Oil & Gas, L.C. v. Exxon Corp., 228 S.W.3d 166 (Tex. App.—Corpus Christi 2005), rev'd ____ S.W.3d ____ (Tex. 2009). Exxon appealed that judgment to this Court in cause number 05-0729.
At trial, Exxon obtained a directed verdict on Emerald's remaining claims and all of the royalty owners' claims except common law and statutory waste and breach of lease. The jury found in favor of the royalty owners on the causes of action for waste and breach of lease, awarding $5 million in actual damages for waste, $10 million in punitive damages for waste, and $3.6 million in damages for breach of lease. The trial court rendered judgment in accordance with the verdict. All parties appealed. The court of appeals affirmed the judgment in favor of the royalty owners, reversed the directed verdict against Emerald, and remanded Emerald's claims for a new trial. 180 S.W.3d 299. We granted Exxon's petition for review.
The parties agree that a two-year statute of limitations applies to their claims for statutory and common law waste, negligence per se, negligent misrepresentation, and tortious interference.8 TEX. CIV. PRAC. & REM. CODE § 16.003(a). However, Emerald and the royalty owners argue that Exxon's conduct tolled the statute of limitations or delayed accrual of their claims. At trial, the jury found that the royalty owners discovered, or should have discovered in the exercise of reasonable diligence, the waste committed by Exxon on January 24, 1995, the date that Emerald's representatives met with the royalty owners and informed them, in the words of the court of appeals, "about the full extent of damage to the wells and the numerous discrepancies" in Exxon's plugging reports. 180 S.W.3d at 316. The court of appeals determined that the statute of limitations tolled until that date and affirmed the judgment on that issue. Id. at 316-17. Exxon argues that the court of appeals improperly tolled the two-year statute of limitations until Emerald and the royalty owners discovered the full extent of the damage, instead of the date Exxon completed plugging the wells.9 Emerald and the royalty owners do not dispute that, unless accrual of the cause of action is deferred or the statute of limitations tolled, the two-year statute of limitations bars all of their claims except fraud, which has a four-year statute of limitations. See TEX. CIV. PRAC. & REM. CODE § 16.004.
Although Emerald and the royalty owners argue that the statute of limitations on their claims has tolled under...
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