Texas Supreme Court reviews Landowners’ Duty to Investigate Texas Railroad Commission Filings
The Texas Supreme Court will review whether the statute of limitations expired on landowners’ claims against their operator. How the Texas Supreme Court rules may have significant future implications on a landowner’s duty to investigate records filed with the Texas Railroad Commission.
In Samson Lone Star v. Hooks, the location of the bottom hole of a well affected the obligations of Samson and the royalties Samson owed to its lessor, the Hooks. As the lessee, Samson problematically drilled a directional well bottomed within a “buffer zone” established in the Hooks’ lease (an area Samson was not supposed to cross). Samson did not have the right to pool under its current lease and looked for ways to fix its problem. Samson and its landmen began making misrepresentations to the Hooks. Eventually Sampson came to the Hooks asking them for the authority to pool. The Hooks did have questions regarding the location of the well to be pooled but researched no further than a phone call with Samsom (Samson misrepresented the location to the Hooks). The Hooks decided to execute the agreement to pool and Samson’s problem was solved.
After the expiration of the statute of limitations, the Hooks sued Samson for breach of contract, fraud, fraudulent concealment, statutory fraud, negligent misrepresentation, failure to properly pay royalties, statutory negligence and common law negligence per se. The trial court awarded the Hooks $21 million dollars. However, on appeal, the First District in Houston reversed, in part, holding the Hooks’ fraud claims were only tolled under the discovery rule until the information in question was filed with the Texas Railroad Commission.
In fact, Samson had filed a proposed survey plat and a completed directional survey showing the location of the well with the Texas Railroad Commission. According to the Court of Appeals, had the Hooks exercised reasonable diligence, they should have known the location of the bottom hole when the directional survey was filed with the Texas Railroad Commission. The Court also indicated that the landowners had a duty to inquire about Texas Railroad Commission filings when a subsequent pooling agreement was proposed.
In this case, the Court of Appeals determined that Samson’s false representations regarding the location of the well failed to toll the running of the stature of limitations because Samson filed reports indicating the correct location with the Texas Railroad Commission. The Texas Supreme Court’s decision should instruct Texas landowners how proactive they need to be in reviewing filings with the Texas Railroad Commission.