Hooks v. Samson: A Bold Prediction on Overcoming the Discovery Rule

January 19, 2015
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Mineral owners across the state of Texas collectively hold their breath in anticipation of the Texas Supreme Court’s decision in Hooks v. Samson Lone Star, Ltd.[1] The case arises from a dispute over oil and gas leases in Jefferson County and Hardin County, Texas.[2] The mineral owner, Charles Hooks, who happens to be an oil and gas attorney, leased property in Jefferson County to Samson Lone Star (“Samson”).[3] The lease contained a “buffer-zone” provision whereby the lessee would be required to take one of three actions if a gas well were completed within 1,320 feet from the leased premises: drill an offset well, pay compensatory royalties, or release the offset acreage.[4]

In April 2000, Samson began drilling a well–the Black Stone Mineral No. 1 (BSM)–on a tract adjacent to Hooks’s lease.[5] Although the drillsite was outside the buffer zone, the well was directionally drilled so that the bottom was within 1,320 feet from the leased property—unbeknownst to Hooks.[6] In February 2001, Samson sent Hooks a letter offering to pool 50 acres covered by Hooks’s lease into the BSM well.[7] Hooks contacted Samson’s landman to find out about the well’s location. The landman sent Hooks a copy of the reconfigured plat filed with the Railroad Commission of Texas (“Railroad Commission”) in December 2000, which contained ambiguous notations about the bottom-hole location. These notations created confusion regarding whether the BSM unit fell within the buffer zone.[8] Hooks agreed to the proposed pooling, and Samson sent him the royalty checks. Hooks, however, eventually discovered that the well bottomed inside the lease’s buffer zone and filed suit against Samson in May 2007 for fraud. Hooks alleged that Samson made false representations concerning the location of the well’s bottom to avoid paying compensatory royalties.[9]

At trial, the jury awarded Hooks a $21 million judgment, finding that Hooks could not have discovered the fraud claims until April 2007.[10] The Court of Appeals reversed, reasoning that the applicable statute of limitations barred Hooks’s claims, because Hooks knew or should have known that the BSM well bottomed within his lease’s buffer zone at the moment Samson first proposed pooling.[11] Hooks appealed to the Texas Supreme Court.

Considering what is at stake—the perpetuation of excessively harsh application of the discovery rule to plaintiffs who fail to examine public records—the Texas Supreme Court’s pending decision in this case is particularly unnerving for mineral owners. The burning question remains: what will the court do? At first glance, the mineral owner’s chances of obtaining a victory appear rather slim. Over the last several years, the court has strictly tapered the circumstances under which plaintiffs may invoke the discovery rule or claim fraudulent misrepresentation to toll limitations on a claim.

For instance, in Exxon Corp v. Emerald Oil & Gas Co., the Texas Supreme Court reversed an $18 million judgment against Exxon because the mineral owners’ claims were barred by the statute of limitations, despite the jury finding that the plaintiffs had filed their claim within four years after they knew or should have known of Exxon’s fraudulent conduct.[12] Additionally, in BP Am. Prod. Co. v. Marshall, the court overruled a jury verdict in favor of mineral owners, holding that their claim was barred by statute of limitations even though the jury had found that the lessee had fraudulently hidden the facts, and the lessors had no reason to discover the true facts until less than two years prior to filling suit.[13]

However, it would be imprudent to assume that the court will once again adhere to its rulings in the above-mentioned cases. Justice Sharp’s concurring opinion for the Court of Appeals in Hooks makes a compelling argument that may indeed sway the Texas Supreme Court when it considers Hooks. Though he rather reluctantly agrees with the decision in Hooks, he does so strictly based on the precedent set in BP Am. Prod. Co. v. Marshall.[14] There, the court made it “clear that no lies on the part of a lessee, however self-serving and egregious, are sufficient to toll limitations, as long as it is technically possible for the lessor to have discovered the lie by resort to the Railroad Commission records.”[15]

With very little reservation, Justice Sharp staunchly declares the burden imposed on lessors to be far too severe.[16] He asserts that it has become the “lessor’s duty to presume that any statement made by its lessee is false and to ransack the esoteric and oft-changing records at the Railroad Commission to discover the truth or falsity of its lessee’s statements.”[17] Furthermore, “[i]f, as is often the case, these records are technical in nature and require expert review to ferret out the truth, it is [now] the lessor’s job to hire experts out of its own pocket to perform such a review.”[18]

It remains to be seen if these arguments will be sufficient to push the Texas Supreme Court to rule in favor of the mineral owner. However, one thing is for certain: mere happenstance did not prompt the court to grant review for this case. While case law might forecast a different result, the bold prediction here is that the Texas Supreme Court will finally determine it has placed an unreasonably heavy burden on lessors, and ultimately reverse the Court of Appeals judgment in favor of Hooks.

 

[1] See Samson Lone Star, Ltd. P’ship v. Hooks, 389 S.W.3d 409 (Tex. App.—Houston [1st Dist.] 2012, pet. filed).

[2] Id. at 415

[3] Id. at 416, 419.

[4] Id. at 416-17.

[5] Id. at 417.

[6] Id.

[7] Id. at 419.

[8] Id.

[9] Id. at 421, 425.

[10] Id. at 426.

[11] Id. at 429.

[12] Exxon Corp v. Emerald Oil & Gas Co., 348 S.W.3d 194, 209 (Tex. 2011).

[13] BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 69 (Tex. 2011).

[14]389 S.W.3d at 441.

[15] Id. (emphasis added).

[16] Id.

[17] Id.

[18] Id. at 441-42.

Soden Abraham is a second-year student at The University of Texas School of Law. Prior to attending UT Law, Soden received a Bachelor of Arts in Government and a Minor in German from The University of Texas at Austin.