On Petition for Review from the Court of Appeals for the First District of Texas
The petitioner company entered into a mineral lease with an individual and her husband (Reuss Lease). Several years later, the petitioner contributed parts of the land covered by the Reuss Lease to two pooled units, the Houston Unit and the Lasater Unit. In addition to the two wells the petitioner drilled on land covered by the Reuss Lease (Lease Wells), both the Houston Unit and the Lasater Unit contained a producing well located on land not covered by the Reuss Lease (Unit Wells). The petitioner paid royalty to the respondents on both the Lease Wells and the Unit Wells. The Reusses’ son, administered the Reuss Lease and became trustee of the trust that held the lease when an individual died. The respondent was a lawyer who had done oil and gas work, and thus understood the oil and gas industry. The respondent assigned all rights in the Reuss Lease to his son. The petitioner did not pay the respondents based on third-party sale prices as required by the Reuss Lease. For a certain period, the petitioner paid royalty based on a so-called “arbitrary price” for the Lease Wells. At trial, the petitioner could not explain how or why it used that price instead of the third-party sales price, and admited that it made a mistake. For a certain period, the petitioner used a weighted-average method calculation for the Unit Wells, averaging the third-party sales prices of the petitioner and other operators for sales from the Lasater and Houston Units. The respondents sued the petitioner for breach of contract, unjust enrichment, and fraud. The jury found for the respondents on the fraudulent concealment issue for both the Lease Wells and the Unit Wells. The respondents were awarded actual damages of $72,532.09 plus prejudgment interest, attorney’s fees, and court costs. The appellate court affirmed, holding that the petitioner the knowingly underpaid royalty and that the fraudulent concealment doctrine tolled the statute of limitations. The Texas Supreme Court noted that the fraudulent concealment doctrine did not apply to extend limitations as a matter of law when the royalty underpayments could have been discovered from readily accessible and publicly available information before the limitations period expired. When, as in that case, the information was publicly available and readily accessible to the royalty owner during the applicable time period, a royalty owner who failed to take action did not use reasonable diligence as a matter of law. It had long been the law that the discovery rule did not apply to defer the accrual of royalty owners’ claims for underpayments when the injury could have been discovered through the exercise of due diligence. Thus, because the parties did not dispute that the pertinent information was readily accessible and publicly available, the royalty owner’s claims were time-barred as a matter of law. Accordingly, the appellate court's judgment was reversed.