070 Harrison v. Bass Enterprises 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.
 
Harrison v. Bass Enterprises Production Co., 888 S.W.2d 532 (Tex. App.–Corpus Christi, no writ), considers the duty owed by lessee to a nonparticipating royalty owner for wrongful payment of royalty, the application of the statue of limitations, and the “Discovery Rule.” Bass drilled a well, pooled the lease and never paid Harrison anything. Harrison was a nonparticipating royalty owner in the wellsite tract. When Harrison made a claim, Bass paid Harrison his undiluted share of the royalty for the past four years. Harrison sued to recover for royalties prior to that time. Bass relied on the four year statue of limitations.
 
Held: Harrison’s claim was barred by limitations and the Discovery Rule did not apply. The Discovery Rule is a common law concept which holds that the statue of limitations does not begin to run until the cause of action is “discovered” (know or should have been know) by the plaintiff. The Discovery Rule has been applied in certain types of cases, but it is always raised by plaintiffs in every case when the statue of limitations is a defense. No case in Texas has explicitly applied the discovery Rule to a case in which a nonparticipating royalty owner sought to recover unpaid royalty from the lessee, and the Texas Supreme Court has recently held that the Supreme Court must explicitly adopt the Discovery Rule before it is applicable to a specific cause of action. Although the Corpus Christi court implied that the Discovery Rule should not apply in this type of case, it also went on to find that Harrison had actual knowledge of production from a “smoking gun” memo in Harrison’s own file. Harrison also argued that the running of the statue of limitations should be stopped by Bass’s fraudulent concealment of the wrongful payments. The court held that there was no proof of a relationship of trust between Harrison and Bass that would have created a duty on Bass’s part to disclose the existence of a cause of action. Moreover, the same “smoking gun” memo was enough to put Harrison on notice and to end the tolling effect of any fraudulent concealment.
 
The significant of the case is that a lessee who knowingly pays royalty to the wrong party is probably not liable for wrongful payments made more than four years before suit is filed. The implication is that the Discovery Rule would not apply in other breach of contract cases brought by lessors.