Recently the Texas Supreme Court remanded a ruling made by the Court of Appeals of Texas in Houston that dealt with offset drilling obligations, the Texas statute of limitations, and some misinformation. What happened was this: a landowner named Charles Hooks signed a lease with Samson Lone Star, LLC, which required either an offset well, release the lease compensatory royalty payments to Hooks if a well was drilled within 1,320 feet of his lease and not unitized with Hook’s acreage. In 2000, Samson drilled a well that bottomed at 1,186 feet from Hooks’ lease. In 2001, instead of complying with the lease terms, Samson asked Hooks to pool part of his acreage with the well. Samson showed Hooks a plat that showed the location of the well at 1,400 feet from Hooks lease. This same plat was filed with the Railroad Commission, even though older Railroad Commission records showed that the bottom hole was indeed within 1,320 feet from Hooks’ lease.

In 2006, Hooks sued Samson for other breaches of the lease, and in doing so, discovered that the well in question was not located where Samson represented. Hooks added claims of fraud, and sought compensatory royalty. Hooks’ problem, though, was that a claim of fraud must be brought within four years, or it is generally barred by the Texas statute of limitations.

At trial, Hooks prevailed, and the jury awarded more than 20 million dollars in damages. On appeal, however, the appeals court reversed the award, holding that the four-year statute of limitations barred Hooks’ claims. The court of appeals, in reversing the decision, held that:

the Texas Supreme Court makes 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. This burden the Court imposes upon lessors is severe. It is now a 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. If, as is often the case, these records are technical in nature and require expert review to ferret out the truth, it is the lessor’s job to hire experts out of its own pocket to perform such a review. If a lessor fails to take these steps, then it will have failed in exercising reasonable diligence to protect its mineral interests and, if the lessee’s fraud is successful for longer than the limitations period, the lessor’s claims will be barred by limitations.

Hooks appealed to the Texas Supreme Court, arguing that 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.” The jury found that Hooks should have discovered the fraud when he actually did, in 2007. The court of appeals agree with Samson, who argued that older records filed with the Railroad Commission “should have been discovered by the exercise of reasonable diligence by 2001 at the latest.” This, Hooks’ fraud claims were barred by limitations.

The Texas Supreme Court noted that they “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. […] 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’, […] but ‘a person cannot be permitted to avoid liability for his actions by deceitfully concealing wrongdoing until limitations has run.’” They found, after reviewing their previous decisions, that “[t[he present case does not fall into any of the categories where we can determine, as a matter of law, that reasonable diligence would have timely uncovered the fraud.” In other words, they could not say that “Hooks should have discovered the accurate information when the more recent filing falsely conveyed that the well had been completed outside the protected zone.” As a result, the Supreme Court remanded the case back to the court of appeals, and stated:

We hold that when the defendant’s fraudulent misrepresentations extend to the Railroad Commission record itself, earlier inconsistent filings cannot be used to establish, as a matter of law, that reasonable diligence was not exercised. Under these circumstances, reasonable diligence remains a fact question. The factfinder, no doubt, may consider the failure to examine older records when determining whether reasonable diligence was exercised, but their availability is not enough to establish that reasonable diligence was not exercised as a matter of law.

On remand, the court of appeals upheld the jury’s verdict and the judgment, yet found the damages excessive.