Face Challenges Confidently

574 Ranchero Esperanza, Ltd. v. Marathon Oil Co., 488 S.W.3d 354 (Tex. App.—El Paso 2015, no pet.)

Monday, November 7th, 2016

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

Ranchero Esperanza, Ltd. v. Marathon Oil Co., 488 S.W.3d 354 (Tex. App.—El Paso 2015, no pet.) (Saltwater surface damages)analyzed the related issues of standing, accrual of the cause of action, limitations, and the discovery rule in a case involving salt water surface damages caused by negligence in plugging a well. In 1989, Marathon plugged and abandoned Well 812. In 1999, Marathon ceased operating and sold the property. In 2004, Ranchero Esperanza bought the surface estate and an undivided one-half interest in the Trinity Aquifer beneath the land. On July 20, 2008, a subsequent operator discovered salt water flowing from Well 812, apparently because the plug in Well 812 had failed and the salt water was migrating from a nearby injection well. On July 27, 2008, Ranchero Esperanza had actual knowledge of the leak. On July 28, 2010, Ranchero Esperanza filed suit asserting claims for negligence, trespass, and nuisance.

On appeal of summary judgment, the issues were: (1) whether Ranchero Esperanza had standing to sue Marathon and (2) if so, whether Ranchero Esperanza’s claims were barred by the statute of limitations. In response to the limitations defense, Ranchero Esperanza invoked the discovery rule. The court began the analysis by addressing Ranchero Esperanza’s standing, which is jurisdictional. There is a “well established” principle that injury to land is a personal right belonging to the landowner at the time of injury, and such claims do not pass to subsequent purchasers absent an express assignment of the claim. If the cause of action accrued prior to Ranchero Esperanza’s purchase in 2004, Ranchero Esperanza would lack standing because it received no assignment of claims. The time when a cause of action accrues is ordinarily a question of law, and it accrues when the injury first occurs. Marathon argued that the injury accrued in 1989 when the well was negligently plugged, and Ranchero Esperanza argued that leaking salt water in 2008 was the point of accrual. There are many cases analyzing when the cause of action accrues in relation to the time the defendant acted, which are difficult to parse, but this court concluded that the one consistency is that there must be some injury, however slight. The Court decided that the claims accrued in July 2008 when the surface damages first occurred.

The parties stipulated that all of the claims were subject to a two year statute of limitations. Suit was filed approximately two years and a week after the cause of action accrued (when the subsequent operator first discovered the salt water leak). However, Ranchero Esperanza did not have any actual knowledge of the leak until about a week after the leak began. Ranchero Esperanza invoked the discovery rule to toll the running of the statute of limitations for that week. To negate the discovery rule, Marathon had to prove, as a matter of law, that there is “no genuine issue of material fact about when the plaintiff discovered, or in the exercise of reasonable diligence, should have discovered the nature of its injury.” Generally, the discovery rule only applies to situations where the injury is “inherently undiscoverable” and the evidence of the injury is “objectively verifiable.” The Court held that the nature of the injury, i.e., surface damage due to leaking salt water, is not inherently undiscoverable. “Inherently undiscoverable” is a legal question decided on a categorical basis rather than case specific, so surface damages arising from salt water emerging from an oil well is not inherently undiscoverable. The discovery rule does not apply to this category of claims. Marathon met its burden as a matter of law that the statute of limitations had expired prior to Ranchero Esperanza bringing its claims.

The significance of the case is the holding that a cause of action for a defective plug does not accrue until the plug fails, which could be many years after the well is abandoned. A cause of action for salt water surface damages accrues when the plug fails, and that is inherently discoverable when salt water emerges from the well.