Rutherford v. Exxon Co., U.S.A.
| Decision Date | 28 September 1988 |
| Docket Number | No. 87-2789,87-2789 |
| Parties | Ivey Hugh RUTHERFORD, et al., Plaintiffs-Appellants, v. EXXON COMPANY, U.S.A., et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Erich W. Merrill, Memphis, Tenn., for plaintiffs-appellants.
Fulbright & Jaworski, David J. Beck, A. Frank Koury, Robert A. Burgoyne, J.B. Ruhl, Houston, Tex., for Exxon Co., U.S.A.
Michael W. Lattimore, Houston, Tex., for Amoco Production Co.
Donald Carroll, Tyler, Tex., for Fair Oil Co. and Herbert H. Fair.
Earl Sharp, Tyler & Fredonia, Longview, Tex., for Key Production Co.
F. Lee Lawrence, Tyler, Tex., for Bracken Oil Co.
William M. Huffman, Margaret I. Lyle, Marshall, Tex., for Dorothy Manziel, d/b/a Manziel Interests.
Jerry W. Ashby, Constance M. Walker, Houston, Tex., for Conoco, Inc.
Appeals from the United States District Court for the Eastern District of Texas.
Before CLARK, Chief Judge, GOLDBERG, and JONES, Circuit Judges.
Oil is a fugacious mineral. Should one seek it without vigilance and determination, it easily evades recovery, and may slip away from the prospecting sophisticate and the neophyte alike. Oil lies at the core of this case. It also offers lessons that flow to the periphery of our decision.
This diversity action comes to us from the Eastern District of Texas. It concerns unitized oil production, royalty interests and fraud claims. Most important, it concerns Texas statutes of limitations. Appellants, Ivey Hugh Rutherford, Julius C. Rutherford, Doris P. Rutherford and Helen Rutherford Lyons ("the Rutherfords"), own property and an oil and gas lease in the Hawkins Field Unit ("HFU") in Wood County, Texas. Exxon Company, U.S.A. ("Exxon"), the primary Appellee, is the Rutherfords' lessee, the largest working interest owner in HFU and the unit operator. The other Appellees--Conoco, Amoco Production Company, Dorothy Manziel (d/b/a Manziel Interests), Bracken Oil Company, Key Production Company and Herbert Fair ("the other Appellees")--are also interest owners in the Hawkins Field. 1 Appellants are unhappy with HFU's productivity. They point their fingers at Exxon.
On motions for summary judgment, the district court held that Appellants' fraud-based claims were time-barred under Texas law and dismissed the suit. The court granted Exxon's motion for partial summary judgment with respect to all fraud-based claims against Exxon and severed those claims pursuant to Fed.R.Civ.P. 54(b). The court then issued final orders on all the claims involved in this appeal. We therefore have jurisdiction pursuant to 28 U.S.C. Sec. 1291. After reviewing the record as a whole, we agree that it is unnecessary to determine whether Appellants' allegations are meritorious. In this case, time's incessancy has determined all that is before us.
Fraud claims form the basis of this suit. The Rutherfords sued for common law fraud and requested rescission of the unitization agreement to which they are parties. They allege that in 1974, Exxon fraudulently induced them to become a party to the HFU unitization agreement by misrepresenting the production benefits that the Rutherfords would gain from unitization. Unitization of oil-producing leases allows an operator to enhance the recovery of crude oil by using gas or water injection techniques across lease lines when a reservoir's natural energy declines.
Appellants argue emphatically, as part of their attempt to avoid the defense of limitations, that Exxon owed them the duty of a fiduciary because Exxon is their lessee and the unit operator, and because they and Exxon have a long-standing business relationship. Their parents granted an oil and gas lease in 1937 which was assigned to Exxon's predecessor, and Exxon has operated oil wells on Appellants' property for many years before the present dispute arose. Appellants now derive a royalty interest from the lease.
For some time before June, 1974, Exxon had considered unitization of the oil producing leases in the Hawkins Field as a means of boosting production. Discussions ensued between Exxon and the other working interest and royalty owners concerning the potential advantages of unitization.
Before June, 1974, Exxon mailed a brochure to the HFU royalty interest owners, including the Rutherfords. The brochure emphasized unitization's benefits, stating that unitization The brochure also stated that (emphasis in original). Appellants predicate their allegations on the brochure's representations.
The Rutherfords, and other interest and royalty owners in the Hawkins Field, signed the unitization agreement in June, 1974. The Texas Railroad Commission considered the proposed unitization and issued an order that made the Hawkins Field Unit effective on January 1, 1975. See Tex. Nat. Res. Code Ann. Sec. 101.013 (Vernon's 1978).
After unitization, and more than five years before the Rutherfords filed this suit, several key events occurred. In 1975, the Rutherfords noticed that Exxon was drilling more wells on their property than originally predicted. They asked an Exxon field employee for an explanation. The employee responded that it was necessary to drill the wells "in order to recover the oil." By 1978, the Rutherfords were aware that the amount of their monthly royalty checks had been declining. They were disturbed by the decline, and in addition to discussion among themselves, they asked an Exxon field employee to explain the circumstances. He responded that "production [was] dropping."
On February 8, 1980, still more than five years before this lawsuit was filed, Exxon directed a missive to the HFU royalty interest owners which the Rutherfords received and discussed. It stated in part that
The purpose of this letter is to inform you of our current outlook for future oil production from the Hawkins Field Unit.
On December 6, 1979, the Hawkins Field Technical Committee reviewed a comprehensive engineering and geologic study of the field's oil recovery. The study indicates a lower estimate of oil reserves and future oil production than had been estimated from the data previously available.
Even with extensive field work to maintain maximum production, decline in production rate began earlier than originally predicted. The field's production has declined faster than capacity can be added by drilling or by workovers of existing wells. In our opinion, production from the field will continue to decline at a rate of 15 to 20 per cent per year. This decline rate is an estimate based on data available at this time. As with any estimate of this nature, it may change as additional production history is obtained.
These events did not fade quickly from the Rutherford memory. In 1982, more than two years but fewer than four years before this suit was filed, Appellants asked their attorney "why Exxon was drilling so many wells on [their] land." Appellants' Brief at 13. "After questioning [Appellants] closely ... [he told them] that, in his opinion, Exxon was drilling so many wells because the oil under [their] property was in separate pockets that would not be affected by secondary recovery; that it was his opinion that the Hawkins Field was not a continuous field, but was a highly fragmented field made up of numerous separate pockets of oil." Id. at 13-14. It is relatively efficient to extract oil from a continuous reservoir. More extensive production efforts are required when scattered oil pockets dominate a field.
In March, 1983, the Rutherfords filed suit in federal district court. They alleged that Exxon had fraudulently induced them to sign the unitization agreement by stating that the Hawkins Field was a continuous reservoir, and that unitization would therefore benefit them significantly when it actually would not. Apparently, Appellants believe that their land is particularly oil-rich, and that unitization allowed Exxon access to their treasure at their expense. We note as an aside, however, that we have difficulty discerning from the record Exxon's incentive to defraud the Rutherfords.
The district court, pursuant to the Rutherfords' motion on the day of trial, allowed them to dismiss their suit voluntarily, without prejudice, provided, among other things, that they would pay Exxon fifty thousand dollars if they refiled their fraud claims. This suit was filed in Texas state court on November 7, 1985. The case was removed to federal court pursuant to 28 U.S.C. Sec. 1441. The Rutherfords have reasserted their fraud claim in tort (naming the other Appellees in addition to Exxon) and have added a request for rescission of the unitization agreement based on Exxon's alleged fraudulent representations. Appellants' allegations center on Exxon's conduct. Because the claims against the other Appellees are subordinate to the Exxon-related claims, and because we find that all claims involved in this appeal are time-barred in any event, we refer only to the allegations against Exxon for the sake of simplicity.
The district court dismissed the Rutherfords' claims as time-barred. The only issue before us is whether the district court properly...
To continue reading
Request your trial
-
Marriott Bros. v. Gage
...trust of Gage cannot convert what would otherwise be arms-length dealing into a fiduciary relationship. Rutherford v. Exxon Company, U.S.A., 855 F.2d 1141, 1145-46 (5th Cir. 1988); Gearhart Industries, above, 592 F.Supp. at 223; Thigpen v. Locke, 363 S.W. 2d 247, 253 (Tex.1963). Nor does th......
-
JM Huber Corp. v. Positive Action Tool of Ohio
...that there was a friendship is insufficient under Texas law to establish a confidential relationship. Rutherford v. Exxon Co. U.S.A., 855 F.2d 1141, 1146 (5th Cir. 1988). Furthermore, the Court held that the long-term business relationships between the parties, which included many contract ......
-
National Western Life v. Merrill Lynch, Pierce
...to excite such inquiry as would have been made in the exercise of reasonable diligence.'" Id. at 53 (citing Rutherford v. Exxon Co., U.S.A., 855 F.2d 1141, 1145 (5th Cir.1988)). The concept of inquiry notice has some nuances which require elaboration. As the court noted in Jensen, the "stan......
-
Simpson v. Putnam County Nat. Bank of Carmel
...that would have meant that his RICO claims were time-barred. See Maduakolam, 866 F.2d at 56; see also Rutherford v. Exxon Co., U.S.A., 855 F.2d 1141, 1148 n. 3 (5th Cir.1988) (clearly time-barred appeal was not sufficiently egregious circumstance to impose sanctions under Fed. R.App. P. 38)......
-
CHAPTER 14 SPECIAL ROYALTY LITIGATION ISSUES: FRAUD, FIDUCIARY RELATIONSHIPS, AND PUNITIVE DAMAGES
...Inc., 886 P.2d 652, 659 n. 23 (Colo. 1994); Waechter v. Amoco Prod. Co., 537 P.2d 228, 248 (Kan. 1975); Rutherford v. Exxon Co. U.S.A., 855 F.2d 1141, 1145-56 (5th Cir. 1988) (Texas law); Amoco Prod. Co. v. Heimann, 904 F.2d 1405, 1412 (10th Cir. 1990) (New Mexico law); Craig v. Champlin Pe......
-
CHAPTER 10 PRIVATE LANDOWNER ROYALTIES ON OIL — THEORY AND REALITY
...dismissed as moot, 760 S.W.2d 960 (Tex. 1988). [114] 683 S.W.2d at 29. [115] Slip Opinion, p. 4-5. Accord, Rutherford v. Exxon Co. USA, 855 F.2d 1141 (5th Cir. 1988). See also, Cambridge Oil Co. v. Huggins, 765 S.W.2d 540 (Tex. Civ. App. 1989), rejecting a claim of fiduciary duty between le......
-
CHAPTER 2 GAS MARKETING ROYALTY ISSUES IN THE 1990s
...dismissed as moot, 760 S.W.2d 960 (Tex. 1988). [114] 683 S.W.2d at 29. [115] Slip Opinion, p. 4-5. Accord, Rutherford v. Exxon Co. USA, 855 F.2d 1141 (5th Cir. 1988). See also Cambridge Oil Co. v. Huggins, 765 S.W.2d 540 (Tex. Civ. App. 1989), rejecting a claim of fiduciary duty between les......