130 Rodessa Resources, Inc. v. Arcadia Exploration and Production Co.,

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
Rodessa Resources, Inc. v. Arcadia Exploration and Production Co., 5 S.W.3d 363 (Tex. App.—Texarkana 1999, no pet.h.), considers the date limitations will begin to run in cases involving fraud and fraudulent concealment. Arcadia was the operator of a well in which Louisiana Land and Exploration Company (“LLE”) held an overriding royalty interest with a contractual option to convert the overriding royalty to a working interest within 60 days after being notified that payout had occurred. Arcadia was contractually obligated to provide information in monthly statements to LLE that would reflect the current status of payout on the well.
 
Arcadia stopped sending the statements showing the payout balance in 1986, and it wrote to LLE that Arcadia believed LLE had no right to convert its override in the well. Within the next year, the well was recompleted, production increased 2000%, and payout of the well occurred in 1987. On March 17, 1989, two years after payout, LLE wrote Arcadia pointing out that Arcadia had not provided the requisite information about the status of payout on the well. Arcadia did not respond to the letter or to telephone calls. On May 10, 1994, five years after payout, LLE wrote Arcadia again, and again received no response. In June 1995, six years after payout, LLE prepared its own payout statement from the revenue information provided with the royalty checks, the operating expenses reflected in the statements LLE received until 1986, and the recompletion costs obtained by LLE from other working interest owners. LLE’s own calculations were within one month of the correct payout date. LLE and its successor sued Arcadia for breach of contract and fraud in 1995, six years after payout.
 
The jury found Arcadia breached its contract and committed fraud, and it awarded substantial damages. However, the jury also found that LLE, in the exercise of reasonable diligence, should have discovered Arcadia failed to provide written notice of payout on March 17, 1989, the first date LLE sent a letter to Arcadia requesting payout information on the well. As a result of the jury finding, the trial court concluded the entire action was barred by limitations and rendered a take nothing judgment in favor of Arcadia.
 
A person must bring suit on a cause of action for breach of contract or fraud no later than four years after the day the claim accrues. A cause of action accrues when a wrongful act causes some legal injury even if the fact of injury is not discovered until later and even if all resulting damages have not yet occurred. In some cases, the discovery rule may defer the accrual of the cause of action, if the cause of action is inherently undiscoverable and the damages are objectively verifiable. Unlike the discovery rule, which applies only if the wrongful act is inherently undiscoverable and the damages are objectively verifiable, the running of the statute of limitations in cases involving fraud and fraudulent concealment is tolled until the fraud is discovered or should have been discovered through the exercise of reasonable diligence.
 
A more precise issue would have inquired as to the date upon which LLE “in the exercise of reasonable diligence, should have discovered that Arcadia was concealing the cause of action by failing to provide written notice of the payout.” The issue as submitted was not precise, but it was adequate. The Court of Appeals held that there was sufficient evidence to support the jury finding that LLE should have discovered defendant’s failure to provide notice of payout in 1989, when LLE first wrote a letter requesting operating statements to Arcadia. Further, the evidence showed that LLE could have determined payout occurred much earlier based the information provided to LLE from Arcadia and other working interest owners. Even though LLE should have discovered Arcadia’s fraudulent concealment in 1989, suit was not filed until 1995, more than four years from the date LLE should have known of the fraudulent concealment. Thus, limitations barred all claims.
 
This case is significant for pointing out the distinctions between the application of the discovery rule and the deferral of the commencement of the running of limitations in cases involving fraud and fraudulent concealment. The discovery rule and the application of statutes of limitation continue to be hot topics in oil and gas cases because relationships tend to be long term, the issues are often complex, and the damages can often be significant.