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Energy & the Law

Truth and Illusion in the Fracking Debate

Posted in Energy Policy, Environmental Policy, Hydraulic Fracturing

“What is it like to live inside your head with Peter Pan and the Easter Bunny?” So asks the sister in “Bridges of Madison County” after the brother wonders if the Meryl Streep and Clint Eastwood characters had sex all those years ago.

And so it is from certain quarters in the hydraulic fracking debate who continue to insist, hysterically and despite the evidence, that the process is a threat to Civilization As We Know It. This post is a summary of several discussions.  Read the articles themselves for details.

Gas Flaring

According to Earthworks, gas flaring in the Bakken and Eagle Ford Shale is out of control and tons of greenhouse gases are being fired into the atmosphere; therefore, we should ban fracking. According to Energy in Depth, Earthworks fails to address that the flaring is significantly decreasing in the Bakken both in percentage of gas produced and actual volume, all as production increases. There is flaring because pipeline capacity hasn’t caught up with new gas production. Flaring will continue to go down as pipeline capacity comes on line. Does anyone seriously believe that the industry is not focused on finding a solution?

Methane Leaks

Speaking of inflammatory emissions, Bill McKibben points to methane leaks as one more reason to ban hydraulic fracturing, now and entirely. This is reported by the Energy Exchange, a publication of the Environmental Defense Fund. To its credit, the EDF disagrees, and also sees methane leaks as bad thing and lobbies for stronger, smart regulations.  Most people can go along with “smart”.

Lest you believe people like McKibben are not a menace to common sense and a safe, abundant and clean energy supply, Energy In Depth reveals the folly of his ideas and the bad “science” on which they are based. Among other points: Hydraulic fracturing has contributed the decrease in GHGs in the United States, a fact proclaimed by the IPCC, of all people, and surveys by McKibben and his colleague Ingraffea have been discredited by organizations such as the US IEA, MIT and other mainstreamers.

“Science” With a Political Agenda

And while we are on the topic of misleading “science”, the Hill published a reply by Isaac Orr of the Heartland Institute to an earlier piece by one Helen Slotttje, who wrote about the perils of fracking. (Preview: It’s Bush’s fault and FDR is on her side. I don’t have enough space here to unpack that point of view.)  Among her other errors is a report on the dangers of fracking by the Colorado School of Public Health that was repudiated by the Colorado Department of Health and Environment.

A musical interlude to accommodate the dark vision  of the likes of Earthworks.

How Much Are Your Trees Worth?

Posted in Construction, Litigation

In Texas, more than your dog. Gilbert Wheeler, Inc. v. Enbridge Pipelines (East Texas), L.P. is good news for landowners. The Texas Supreme recognized the intrinsic-value-of-trees exception to the general rule for damages to real property, so that landowners are compensated for the loss of the ornamental (esthetic) and utilitarian (shade) value that trees bring to the property.

What About Fideaux?

PETA might not approve, but an owner can only recover the objective economic value for the negligent loss of his canine, no matter how much you loved the cuddly little ball of fur. Sentimental value and the owner’s subjective emotions are not to be considered.

The Facts Drive The Law

Whether the law is good or bad depends on your perspective. Wheeler and Enbridge had an easement by which Enbridge would construct a pipeline across Wheeler’s 153 acre tract by boring underground in order to preserve the trees and a natural stream on the property. The FUBAR was created when Enbridge failed to tell the contractor about the plan. The contractor cut down several hundred feet of trees, bulldozed the ground, and channelized the stream that once “meandered through the woods”.

The court set out to “clarify an area of the law that has been muddled for decades”. Read the decision for the muddled history. The law now is this:

permanent injury:  It cannot be repaired, fixed or restored or even though the injury can be repaired, fixed or restored it is substantially certain that the injury will repeatedly, continually, and regularly recur such that future injury may be reasonably evaluated. Generally rule: If the injury is permanent, the owner is entitled to the loss of fair market value to the property as a whole.

temporary injury: It can be repaired, fixed or restored and any anticipated recurrence would be only occasional, irregular, intermittent and not reasonably predictable such that future injury could not be estimated with reasonable certainty.  General rule: If the damage is temporary the owner is entitled to costs of restoration.

The exception to the rules allows compensation for the landowner even if the destruction of trees results in no diminishment of the fair market value or so little diminishment that the loss is essentially nominal. Beware: The court has a history of carefully avoiding what it considers to be overcompensating the landowner.

Inside Baseball

This part is for lawyers. The court held that whether injury to property is temporary or permanent is a question of law for the court, although the jury must decide the facts on which the question of law is decided.

Wheeler actively opposed a jury question whether the injury was temporary or permanent. He believed that it didn’t matter in a breach of contract context, because he was seeking benefit-of-the-bargain damages.  The court agreed, but not quite for the same reason. Because the temporary vs. permanent distinction is a question of law, that jury question was not necessary. Because the court deemed the injury permanent, the trial court improperly instructed the jury to calculate damages based on the cost to restore the property. The jury awarded Wheeler $288,000 in damages for the intrinsic value of the trees that were destroyed. Because of the destruction of the trees had not diminished the value of the property (or at most, according to Enbridge, $3,000) diminution in the fair market value was either zero or negligible. Thus, the intrinsic-value exception was allowed.

A musical interlude the Wheelers might relate to (except for the “my ole man” part).

 

What Does “Sprawling Litigation” Look Like?

Posted in Land Titles, Lease Disputes

It looks like what you’d expect: a bunch of litigants spending lots of time at a courthouse in Goliad, Texas, with no end in sight. After much ”sprawl” in Harkins v. Northshore Energy it came down to the meaning of this property description (call it Tract 2): “Being 1,210 acres of land, more or less, out of 1,673 acres out of the … Survey, … , being the same land described in [the Export Lease]”.

To answer the question you have to ask, What does “being the same land described …” modify? the 1,210 acres or the 1,673 acres?  Both interpretations are reasonable, said the court.

The Northshore Option

Northshore had the exclusive right to acquire one or more leases on a portion of Harkins’ property described above.

With the objective of securing a lease on a 169.9 acre tract within Tract 2, Northshore paid Hawkins money but the parties never signed a formal lease. Nevertheless, Northshore spent $700,000 drilling and completing a successful well on the 169.9 acres.

Hawkins, on advice from his landman, came to believe that the well had been drilled on a 400.15 acre tract excluded from the Option Agreement.

Dynamic Arrives

Harkins gave Dynamic a seismic permit on the 1673.69 acres and a lease on the 400.15. The lease was based on the form that was part of the Option Agreement. With the smell of litigation in the air, Harkins assigned its causes of action against Northshore to Dynamic and Dynamic agreed to indemnify Harkins for liability arising out the Option Agreement.

The Litigation

Northshore sued Harkins and Dynamic to quiet title, contending that the Option Agreement contained a scriviner’s error in that the parties intended the agreement to cover the land on which the well was drilled. Northshore later changed its theory and contended that the 400.15 acre tract was in fact included in the Option Agreement. Northshore also accused Dynamic of tortious interference, “conscious and malicious geophysical trespass” and other claims. Not to be outdone, Harkins and Dynamic counterclaimed.

Everybody moved for summary judgment, each requesting relief on more legal issues than you care to read about in this short post.

The trial court ruled:

  • Dynamic did not have a right to conduct exploratory operations on either tract identified in the Option Agreement,
  • The lease from Harkins to Dynamic covering the 400.19 acres was removed as a cloud on Northshore’s title,
  • Harkins shall execute and return leases to Northshore on 570.941 acres and on 169.9 acres.

After all that hard work, the parties went to trial, where Northshore won a verdict for $709,000 in actual damages, $1,.148,000 in exemplary damages, and $400,000 in legal fees. To no one’s surprise, Dynamic appealed.

Back to the Beginning

Read the opinion for the court’s analysis of “… being the same land as …”. Of the myriad of rules to guide a court when construing property descriptions, several applied here. The court concluded that the description was ambiguous and remanded the entire case to the trial court to, essentially, start over. Everything after the summary judgment was for naught.

The Takeaway

In retrospect, which is where we are now, the scrivener could have simplified the description. A period after “Texas” and then “The 1,210/1,673 acres being the same land described in the Export Lease.” might have fixed the problem.

I wish the court had explained why Northshore drilled a well without a lease.

Newsworthy posts are about judgments and verdicts, winners and losers. That’s what we trial lawyers enjoy doing if that’s what our client wants. There’s another way. Here is an ode to settlement.

North Dakota Good Faith Purchasers: At What Point is Notice Relevant?

Posted in Land Titles, Title Issues

 Co-author Katie R. English.

The Question

In order to be a good faith purchaser, a party must not have actual or constructive notice of another’s rights. Northern Oil and Gas v. Creighton asked, When should the determination of whether a party has notice be made, A: At the time the second lease is recorded, or B: When the second lessee acquires his rights? Answer: B, when the lease becomes an enforceable contract.

The Timeline

  • 10/2004: The Gundersons grant an oil and gas lease to Holt covering Section 25: S2SE4.
  • 11/2004: Holt records his lease.
  • 2/2005: Holt assigns his WI to Murex Petroleum.
  • 11/25/2007: Apparently enthralled by the notions of free enterprise and unfettered capitalism, Gundersons grant a lease to Creighton covering Section 25: N2SE4.
  • 12/20/2007: Holt records an affidavit stating that the description in the Holt lease should be N2SE4, instead of S2SE4.
  • 1/30/2008: Creighton records his lease.

Northern, successor to Creighton, sued Murex to quiet title to the leasehold estate in the N2SE4. Murex countersued and moved for summary judgment seeking reformation of the Holt lease under N.D.C.C. § 32-04-17. Reformation of a contract in cases of mutual mistake is allowed under that statute “if it can be done without prejudice to rights acquired by third persons in good faith and for value.”

The Trial Court

The court said Creighton had constructive notice of Holt’s claim from the Holt affidavit before he recorded the Creighton lease and therefore could not be a good faith purchaser. Accordingly, the only fact to determine in order to reform the Holt Lease was whether there was a mutual mistake. The parties then stipulated that there was a mutual mistake in the Holt lease and that the Gundersons intended to lease the disputed property to Holt. The trial court ordered the Holt lease be reformed based on the parties’ stipulation and entered a judgment quieting title to the oil and gas leasehold estate in Murex.

It’s Not Over Till It’s Over

 The North Dakota Supreme Court reversed. The trial court must determine whether Creighton had constructive notice when he acquired the Creighton lease (i.e., when it became an enforceable contract), not when it was recorded. The court found a factual dispute on that issue.  Therefore, the trial court erred in concluding as a matter of law that Creighton was not a good faith purchaser.

Takeaways

  • Correctly describe the property you are paying good money to lease.
  • More important: Check your work. Or ask someone who actually likes to dive into those details to do it for you.
  • Even more important: Record your lease promptly. Don’t put it in a drawer and wait around for God-know-what event to record it.
  • There are reasons to violate the last rule, but sloth isn’t one of them.
  • We don’t know Creighton, and we aren’t saying he didn’t have a good reason to delay.

Bob Crewe RIP. Don’t get it? Try this one.

Subcontractors Score a Victory in Federal Court

Posted in Contract Disputes, Title Issues

Les Miles encouraging the Tigers to read Energy and the Law

By: Martin P. Averill

On August 27, in In re Heritage Consolidated, L.L.C., the Fifth Circuit Court of Appeals granted subcontractor’s lien rights to two oil and gas drilling contractors. The Court reversed a district court ruling which upheld a summary judgment issued by a bankruptcy court denying liens to the two drilling contractors. The case was briefed and argued by Gray Reed’s own Michael Bishop and Martin Averill.

The Court held that a service provider may be both a mineral contractor and a mineral subcontractor on the same project. The provider is a mineral contractor as to any ownership interest of the party with whom it contracted, and a mineral subcontractor as to the ownership interests of non-contracting working interest owners. Previously this issue had never been expressly decided by any court applying Texas law. However, “twin” bankruptcy cases in In re Mid-Am. Petroleum, Inc., 83 B.R. 933, 935 (Bankr. N.D. Texas 1988) had held to that effect by granting contractor status in one case and subcontractor status in the second case against the working interest owners. The Fifth Circuit adopted the same approach in this case.

The Court also rejected an argument that an operator may only be a mineral contractor if the operator itself performs physical labor on the project in question. For this proposition, the bankrupt owner relied on a 1928 case concerning passive “lease watching” from a neighboring property, which the court held was not “labor” within the meaning of the statute. The Heritage opinion does not address this point expressly, but it was a primary argument by the bankrupt owner in its briefing to the Court.

The Court also reiterated settled Texas law that contracts entered into after completion of the work, to which the drillers were not parties, had no effect on the drillers’ legal rights. The Court rejected application of the “relation-back” doctrine to limit the drillers’ rights because their contracting party—the operator—later acquired a 1% ownership interest in the underlying lease. According to the Court, this doctrine applies only if the later-acquired title expands the interest to which the lien attaches. It cannot diminish it.

 

 

 

 

 

 

Freedom to Contract Prevails in New Mexico

Posted in Lease Disputes

Co-author  Alexandra Crawley                                            

Is freedom to contract a good thing for everybody?  First Baptist Church of Roswell v. Yates Petroleum Corp. says yes, and confirms that the public policy in New Mexico is freedom to contract. In this case, it was to avoid the Proceeds Payment Act requirement for payment of interest on well proceeds once a legal determination is made that a payee is entitled to the funds.

The Contract and the Statute

Yates refused to pay interest on unpaid royalties pursuant to a division order signed by the royalty owners authorizing payment without interest if a delay resulted from a question about their marketable title.

The royalty owners asserted their right to interest on the proceeds notwithstanding the division order. The district court agreed, finding that the division order violated Section 70-10-4 of the Act, declaring the agreement void, and requiring Yates to pay interest on proceeds paid after statutory deadlines. The court relied on what it said was the plain meaning of the statute.

The New Mexico Supreme Court had ruled under a 1985 version of the Act that in division orders which contractually waive interest payments no interest was owed. That version read, “which deposit shall earn interest.” In 1991 the Legislature amended the section to say “the payee is entitled to be paid the principal plus statutory interest.”

The Court’s View

The appellate court in Yates disagreed, with this rationale:

  • Both the 1985 and the 1991 statutes had mandatory interest terms.
  • There is the strong public policy of freedom to contract
  • Nothing in the plain language of the statute explicitly articulates a fundamental public policy that payment of interest is of such importance that its payment cannot be waived.
  • Modification of a statute to provide for a benefit does not establish the Legislature intended that the policy in the statute will, in all cases, outweigh the parties’ right to contractually modify or waive the benefit.
  • When the Act was first passed, the Legislature granted a contractual right to alter the date payment is due, meaning they also granted freedom to determine when interest commences.
  • When the Legislature amended the Act in 1991, it did not prohibit division orders from waiving interest while a title question was unresolved. Presumably, that means the revision is consistent with both the prior case and the prior legislation.
  • Allowing the parties to contractually waive interest did not manifestly injure the public, especially considering that generally, the failure to accrue interest is attributable to the interest holder’s delay in proving marketable title, and not any action of the payor.

Takeaway and Three Queries

Many division orders have this waiver. Most payors are loath to allow the royalty owner, in his unfavorable bargaining position, to redact it.

Query:  Why must the producer pay interest when a title defect, in any case we can think of, is not his doing?  One answer: He is collecting interest on money that isn’t his. It belongs to the royalty owner. The court didn’t see it that way.

Query: What will the legislature do next in this statutory tug-of-war?

Query: Is it just our imagination, or is this ruling bad for royalty owners?  This musical interlude can help:  A cover song by the World’s Greatest Rock and Roll Band that is way better that our last one. Here is the incomparable original and the reinvention.

In Wyoming, a Higher Burden for Chemical Disclosure Exemption?

Posted in Hydraulic Fracturing, Regulations

Co-author Sandra Mazan

In Powder River Basin Resource Council v. Wyoming Oil and Gas Conservation Commission, the Wyoming Supreme Court held that the Wyoming Oil and Gas Conservation Commission has the burden of justifying the use of trade secrets exemption from revealing the contents of hydraulic fracturing chemicals. The court also required the WOGCC, when deciding what a “trade secret” is, to apply the definition under the federal Freedom of Information Act.

The Background

In 2010, Wyoming was the first state to require reporting of chemicals used in fracking. However, a company can petition for a “trade secret” exemption from the law to shield itself from public disclosure of frac fluid ingredients. The state’s 2010 fracking chemical disclosure rule requires full disclosure of the ingredients under the Wyoming Public Records Act. WOGCC has granted more than a hundred such exemptions. Environmental and landowner groups challenged the WOGCC’s justification for granting those exemptions. The district court ruled for the WOGCC, upholding the agency’s decision that information be withheld and deferring determination of what constitutes a trade secret to the WOGCC. The plaintiffs appealed.

The Decision

The Supreme Court reversed. Under the Wyoming Public Records Act, the district court must independently determine the merits of the exemption rather than to rely on the WOGC’s determination. The district court must individually examine the information requests and apply the definition of “trade secrets” found in the FOIA, which includes a “secret, commercially valuable plan, formula, process, or devise that is used for the making, preparing, compounding, or processing of trade commodities and that can be said to be the end product of either innovation or substantial effort.” The Court also placed the burden on the WOGC to justify its use of trade secrets exemptions. The case was remanded and the district court was ordered to review the exemptions in light of the ruling.

The Implications

Although the Court did not decide the question of whether individual chemicals can constitute trade secrets, the definition of “trade secrets” to be applied in such determinations is narrower than the one previously applied by WOGCC. It requires that there be a “direct relationship between the trade secret and the productive process.” As such, it may result in a higher burden on companies that request trade secret protection. It is uncertain, however, whether this will lead to additional protections or have any impact on hydraulic fracturing operations in Wyoming.

Our musical interlude brings us as close to Wyoming as we could find, geographically at least.

CO2 is Good

Posted in Lease Disputes, Royalty Disputes

… in the right places.

Co-author Mark Bohon

In French vs. Occidental Permian, Ltd. the Texas Supreme Court held that costs associated with injection of carbon dioxide into a reservoir in a tertiary recovery operation were properly deducted from royalties.

This case reflects court’s awareness of improvements in oil recovery created by new technology, in this case CO2 injection for tertiary recovery.

Objects in This Mirror Are Smaller Than They Appear

Royalty cases depend on the language of the lease. Don’t take one result too far. What you can take to the bank is the Texas public policy in favor of secondary recovery of minerals.

Will Johnny Football ever be far from us? An early example of this policy in action is Railroad Commission of Texas v. Manziel, 361 S.W. 361 (Tex. 1962).

The Leases

The Fuller Lease royalty on gas, including casinghead gas was equal to “the market value at the well of … 1/8th of gas so sold or used”. The Cogdell Lease royalty was “1/4th of the net proceeds from the sale” of “gasoline or other products manufactured and sold” from casinghead gas “after deducting the cost of manufacturing the same.” The provisions were from lease forms in common use the time – the late 1940’s.

Operation of the Unit

In the operation of the fieldwide unit, there was a cost for removal of CO2 reinjected into the oil reservoir and returned to the surface in casinghead gas produced with the oil. This was a cost of manufacturing the natural gas liquids and residue gas. Under a Unitization Agreement the lessee had the right and discretion to reinject or process the casinghead gas.

The purpose of the unit was secondary and tertiary recovery operations, which included injecting water. and later in the life of the unit CO2, to increase pressure in the reservoir and ultimately enhance oil recovery. Occidental began a CO2 flood, without which oil production would no longer have been economically viable and more than half the oil in the reservoir would have been left in the ground. The wells also produced water and casinghead gas. The CO2 produced with the casinghead gas was reinjected, along with purchased CO2. Casinghead gas was transported in pipelines from the production wells to the injection wells and pumped back into the reservoir. All of the casinghead gas could have been reinjected rather than adding additional CO2, but the casinghead gas was only 85% CO2, and ideally the injection stream should be more highly concentrated. Occidental processed the gas to remove the CO2 and extract the NGLs. This was the cost at issue.

The trial court awarded French $10,074,262.33 in underpaid royalties.  The court of appeals reversed. See my December 2013 post for a more detailed rendition of the court of appeal opinion, which was mostly about expert testimony.

The Result – Hooray for Tertiary Recovery

The CO2 flood was critical to continued oil production. The casinghead gas stream was more than 85% CO2. Separating the CO2 from the casinghead gas was not necessary for the continued oil production, which was the purpose of the CO2 flood, but it was economically beneficial. The Unitization Agreement gave Occidental the right to reinject the entire production of casinghead gas. Instead of injecting, they decided to process the gas to obtain a more concentrated stream of CO2 for reinjection and to extract the NGLs to be marketed. This benefitted the royalty owners, and thus they were obligated to share in the costs in these market value leases.

After all is said and done, this is what the royalty owners are left with.

 

Treachery of the Untrustworthy Trustee

Posted in Contract Disputes, Title Issues

Co-author Brooke Sizer

J-W Operating Co. v. Olsen is another Louisiana concursus (“It’s not my money, Your Honor; let them fight over it”).

The Trust

In 2006, Fred Houston created the Fred L. Houston Trust and placed into it the Tenneco lease, which had been producing since 1974. Ms. Williams was the trustee. The trust instrument declared the trust “… irrevocable and may not be revoked at any time under any circumstances,” including “any action to modify or negate Settlor’s intended effect of protecting the properties and assets transferred to the Trust.”  This language established it as a spendthrift trust.  Houston was both the income and principal beneficiary. Upon his death, “his interest in the trust shall vest in his estate (his heirs or legatees) free of trust.”

The Treachery

All you need to know about the treachery is that the following transaction was orchestrated by Ms. Williams and she personally benefitted from it:

Noble House offered to buy the trust’s interest in the Tenneco lease. In April, Houston signed, in his personal capacity, an assignment of the royalty interest in the Tenneco lease to Noble House. The assignment made no mention of the trust. That same day Noble House promised to assign to Ms. Williams “50% of the interest purchased as soon as the new division orders are complete.” The assignment to Ms. Williams was executed on August 8. Noble House assigned its remaining interest to its president Olsen a year later. Houston died and his executor notified J-W Operating that the trust, and now the succession, claimed the Tenneco lease.

The Assignment: Really Null or Just Maybe Null?  

Was the assignment to Noble House …

An absolute nullity? A contract is absolutely null when it violates a rule of public order, as when the object of a contract is illicit or immoral. A contract that is absolutely null may not be confirmed.

A relative nullity? A contract is relatively null when it violates a rule intended for the protection of private parties, as when a party lacked capacity or did not give free consent at the time the contract was made. A contract that is only relatively null may be confirmed.

Olsen and Williams argued relative nullity that was cured by subsequent acquisition. Houston might not have had title to the lease at the time of the assignment, but ownership vested in his estate upon his death—curing the relative nullity and conveying after-acquired title.

The executor argued absolute nullity, citing the doctrine of “trust indestructibility.” The assignment violated the core concept of the trust: the beneficiary cannot alienate trust property.

The court agreed with the executor. The Noble House assignment violated a rule of public order, protecting the settlor’s intent as set forth in the trust document. Louisiana has a strong public policy “in effectuating and protecting the settlor’s intent as set forth in the trust document.” The settlor of a trust is limited to modifying the terms of the trust after its creation only to the extent that he expresses in the trust document.

It was clear that Houston intended to protect the properties transferred to the trust, including the Tenneco lease. The Noble House assignment and the assignments to Williams and Olsen were absolute nullities.

Bonus: An Insider’s Look at the Structure of the Deal

More than just a little bit of chanky-chank and a video, here is a rare glimpse of the negotiations between Ms. Williams and Mr. Olsen.

Rumsfeld, Morrison and the Discovery Rule in Texas

Posted in Land Titles, Title Issues

As Donald Rumsfeld teaches, knowledge can be divided into three categories:

  • Known knowns; things that we know that we know;
  • known unknowns; that is to say, we know there are some things we do not know; and
  • unknown unknowns; the ones we don’t know we don’t know.

Another philosopher, Slavoj Zizek, adds a fourth, for parents vis-a-vis the whereabouts of their children after midnight: “The unknown known; that which we intentionally refuse to acknowledge that we know.”

Which category fits the plaintiffs in Tipton v. Brock? You decide, but here is the lesson: If you don’t bother to read your deed, you stand little chance of knowing anything.

In August 1999, Brock and Tipton signed a Farm and Ranch Contract by which Tipton would acquire 519 acres in Montague County. (Lots of Brocks were parties to the contracts and the suit. I refer to them as one for convenience.) All mineral rights were to be retained by Brock Two months later, the parties executed a Warranty Deed transferring the land,

“LESS, SAVE AND EXCEPT all oil gas and other minerals found in … the above-described tract of land heretofore reserved by predecessors.”

In 2009, Brock sued for reformation of the Warranty Deed based on mutual mistake. Tipton asserted the four-year limitations statute and that the discovery rule did not apply. the jury rendered a verdict for Brock, even though testimony at the trial was that some of them didn’t read the deed, and those who did had what appear (to me, anyway) to be lame reasons why they didn’t understand it for what it was.

The Rules

The Supreme Court of Texas has several things to say on this subject:

  • A cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a claimant to seek a judicial remedy.
  • The discovery rule is an exception, and defers accrual of a cause of action until the claimant knows or, by exercising reasonable diligence, should know of the facts giving rise to the claim.
  • The rule applies when the injury is both inherently undiscoverable and objectively verifiable.
  • The injury is inherently undiscoverable if it is a type of injury that is not generally discoverable by the exercise of reasonable diligence.

Fair or Unfair?

Based on the jury verdict, the plaintiffs had a good case that just wasn’t brought timely. Some would call the limitations defense a “loophole”.  But one doesn’t have to be president of the AAPL to conclude that the sellers didn’t exercise diligence when executing the deed.

 For the Lawyers

Jury question No. 7 asked: “By what date did Plaintiff either know or, in exercise of reasonable diligence, should have discovered the original Warranty Deed did not reserve the mineral interests to Plaintiff?” The jury answered “7-8-08”.

The court ruled that Tipton, loser at trial and appellant, was not obligated to lodge an objection or request to that instruction because “inherently undiscoverable” and “objectively verifiable” are legal issues to be decided by the court and not by a jury. Although the jury could have determined when Brock discovered or should have discovered the cause of their injury and whether they exercised due diligence in discovering their cause of injury, it was up to the court, and not the jury, to resolve the question of whether the discovery rule applied.

Why did they wait so long to sue? The opinion gives some clues, but they should have listened to Van Morrison.