Hooks v. Samson Lone Star, Ltd.

• Citation: 457 S.W.3d 52
• Decision Date: 30 January 2015
• Docket Number: No. 12–0920,12–0920
• Parties: Charles G. Hooks III, et al., Petitioners, v. Samson Lone Star, Limited Partnership, n/k/a Samson Lone Star LLC, Respondent
• Court: Texas Supreme Court

457 S.W.3d 52

Charles G. Hooks III, et al., Petitioners

v.Samson Lone Star, Limited Partnership, n/k/a Samson Lone Star LLC, Respondent

No. 12–0920

Supreme Court of Texas.

Argued September 17, 2014

OPINION DELIVERED: January 30, 2015

Rehearing Denied May 1, 2015

Dale Wainwright, Bracewell & Giuliani, LLP, Jason Derrick Price, Patton G. Lochridge, McGinnis Lochridge & Kilgore LLP, Marla Diane Broaddus, Shannon H. Ratliff, Ratliff Law Firm, P.L.L.C., Austin, TX, David M. Gunn, Erin Hilary Huber, Beck Redden L.L.P., Paul F. Simpson, McGinnis Lochridge, Houston, TX, for Petitioner.

Cynthia Keely Timms, Michael V. Powell, Locke Lord LLP, Dallas, TX, J. Matthew Marchak, M. C. Carrington, Mehaffy & Weber P.C. Beaumont, TX, Dick Watt, Watt Beckworth Thompson Henneman & Sullivan LLP, Houston, TX, for Respondent.

Opinion

JUSTICE DEVINE delivered the opinion of the Court.

In this oil and gas appeal, we consider whether a mineral owner's claims of fraud and breach of contract in the leasing and pooling of his mineral interests are, as a matter of law, barred by limitations. A jury determined that the mineral owner, in the exercise of reasonable diligence, discovered the fraud less than four years before filing suit, and the trial court accordingly concluded that the claims were not barred by limitations. The jury also found fraud and damages in the mineral owner's favor, and the trial court rendered judgment on the jury's verdict. The court of appeals, however, reversed most aspects of the mineral owner's judgment, concluding that the fraud should have been discovered, as a matter of law, more than four years before the mineral owner filed suit because the relevant information was available in the Texas Railroad Commission's public records. 389 S.W.3d 409, 429–30, 439–40 (Tex.App.–Houston [1st Dist.] 2012).

While we agree that public records may under certain circumstances establish a lack of diligence in the discovery of fraud as a matter of law, here the records themselves were tainted by fraud and thus provide no conclusive proof on the subject. Because we conclude that the mineral owner's diligence in discovering the underlying fraud was in this instance a question of fact for the jury, we reverse the court of appeals' judgment on this and other issues in part, affirm its judgment on other issues in part, and remand the cause to the court of appeals for review of a factual sufficiency of the evidence complaint and other issues not considered because of the court's ruling on limitations.

I. Background and Procedural History

Charles G. Hooks III (“Hooks”)¹ sued Samson Lone Star Limited Partnership, now known as Samson Lone Star, LLC (“Samson”), in 2006,² alleging, among other things, breach of contract and failure to pay royalties under Texas Natural Resources Code section 91.404. Later amendments to Hooks' petition included allegations of fraud, fraudulent inducement, and statutory fraud. These claims centered on three oil and gas leases that Hooks, the lessor, executed with Samson, the lessee, in 1999. Two leases were in Hardin County, Texas (the “Hardin County Leases”), and one was in Jefferson County, Texas (the “Jefferson County Lease”).

This appeal from a final judgment involves seven claims raised by Hooks. First, Hooks alleges that Samson fraudulently induced Hooks to amend the Jefferson County Lease to allow for pooling. Second, Hooks asserts that Samson breached the most-favored-nations clause in all three leases, failing to pay Hooks the same higher royalty that it paid to a nearby lessor. Third, Hooks contends that Samson breached the formation-production clause in each lease by calculating gas royalties based on proceeds instead of the volume of gas leaving the reservoir. Fourth, Hooks claims that Samson wrongly “unpooled” a unit into which the two Hardin County Leases were pooled, and seeks damages for royalties allegedly owed from this unit. Fifth, Hooks alleges that Samson breached certain offset provisions in the two Hardin County Leases. Sixth, pursuant to a pretrial stipulation, Hooks contends that Samson must reimburse Hooks for attorney's fees. And seventh, Hooks asserts that the proper post-judgment interest rate is 18%, rather than 5% as decided by the court of appeals.

Hooks prevailed on the majority of his claims in the trial court. The trial court granted summary judgment for Hooks on the most-favored-nations clause claims and “unpooling” claims, but granted summary judgment for Samson regarding Hooks' allegations that Samson breached the offset provisions of the Hardin County Leases. The jury returned a verdict for Hooks on the fraud and formation-production claims. The trial court's final judgment awarded Hooks more than $21 million in damages, ordered Samson to pay the stipulated attorney's fees, and applied a post-judgment interest rate of 18%. The court of appeals, however, reversed, holding that Hooks take nothing except for $52,257.22, a stipulated amount to reimburse Hooks for payment of ad valorem taxes. Id. at 440–41.

II. Fraud and Limitations

Hooks' fraud claims relate to the Jefferson County Lease. This lease, which prohibited pooling, contained “offset obligations” providing that if a gas well were completed within 1,320 feet of Hooks' lease line but was not unitized with Hooks' acreage, then Samson would either drill an offset well, pay Hooks compensatory royalties, or release the offset acreage. In 2000, Samson drilled a well that bottomed about 1,186 feet from Hooks' lease, within the 1,320–foot protected zone. But, instead of complying with the original offset obligations, Samson asked Hooks to amend the Jefferson County Lease in 2001 to pool into a unit associated with the new well. In connection with this request, Samson provided Hooks with a plat that incorrectly placed the well's bottom hole outside of the protected zone. A plat with the same false information had already been filed with the Railroad Commission. Older Railroad Commission records, however, contained a directional survey and an attached plat³ that correctly placed the bottom hole within the 1,320–foot boundary.⁴ Other preliminary Railroad Commission filings demonstrated that Samson originally intended the well to bottom within 1,320 feet of Hooks' lease.

Hooks brought his fraud claims in 2007, alleging that Samson deprived Hooks of compensatory royalties by misrepresenting the well's bottom-hole location and fraudulently inducing Hooks to amend the lease and pool. A jury found that Samson committed fraud and statutory fraud, awarding more than $20 million in damages on these claims, and the trial court rendered judgment on the jury's verdict. The court of appeals, however, reversed, holding that the four-year statute of limitations for fraud barred the claims. Id. at 428–29 (citing Tex. Civ. Prac. & Rem. Code § 16.004(a)(4) ).

Hooks argues that the court of appeals erred because the statute of limitations did not begin to run until Hooks “knew or should have known of facts that in the exercise of reasonable diligence would have led to the discovery of the wrongful act.” Exxon Corp. v. Emerald Oil & Gas Co., 348 S.W.3d 194, 216 (Tex.2011) (quoting Little v. Smith, 943 S.W.2d 414, 420 (Tex.1997) ). The jury found that, in the exercise of reasonable diligence, Hooks should have discovered Samson's fraud by 2007. Samson responds that, as a matter of law, reasonable diligence would have discovered the true location of the well's bottom hole in 2000 or 2001. Samson points to this Court's decisions in BP America Production Co. v. Marshall, 342 S.W.3d 59 (Tex.2011), and Shell Oil Co. v. Ross, 356 S.W.3d 924 (Tex.2011), where reasonable diligence required sophisticated lessors to acquaint themselves with “readily accessible and publicly available information” from Railroad Commission records. Ross, 356 S.W.3d at 929 ; see Marshall, 342 S.W.3d at 68–69. According to Samson, the directional survey and its associated plat, as well as filings showing the original proposed location of the well's bottom hole, should have been discovered by the exercise of reasonable diligence by 2001 at the latest, meaning that Hooks' fraud claims are barred by limitations.

We have long held that “fraud prevents the running of the statute of limitations until it is discovered, or by the exercise of reasonable diligence might have been discovered.” Ruebeck v. Hunt, 142 Tex. 167,176 S.W.2d 738, 739 (1943).⁵ Generally, “[c]auses of action accrue and statutes of limitation begin to run when facts come into existence that authorize a claimant to seek a judicial remedy,” Emerald Oil, 348 S.W.3d at 202, but “a person cannot be permitted to avoid liability for his actions by deceitfully concealing wrongdoing until limitations has run,” S.V. v. R.V., 933 S.W.2d 1, 6 (Tex.1996). Because “fraud vitiates whatever it touches,” Borderlon v. Peck, 661 S.W.2d 907, 909 (Tex.1983), limitations does not start to run until the fraud is discovered or the exercise of reasonable diligence would discover it, Marshall, 342 S.W.3d at 69.

The same rule applies to claims of fraudulent inducement. Fraudulent inducement is a subspecies of fraud; “with a fraudulent inducement claim, the elements of fraud must be established as they relate to an agreement between the parties.” Haase v. Glazner, 62 S.W.3d 795, 798–99 (Tex.2001). Accordingly, the same principle applies: limitations does not start to run until the fraud with respect to the contract is discovered or the exercise of reasonable diligence would discover it.

And just when would reasonable diligence discover the wrong? And who decides?⁶ Although “the date a cause of action accrues is normally a question of law,” Etan Indus., Inc. v. Lehmann, 359 S.W.3d 620, 623 (Tex.2011) (per curiam), reasonable diligence is an issue of fact, Estate of Stonecipher v. Estate of Butts, 591 S.W.2d 806, 809 (Tex.1979).⁷ Nevertheless, in some circumstances, we can still determine as a matter of law that reasonable diligence would have uncovered the...