110 Shivers v. Texaco Exploration and Production, Inc.

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
Shivers v. Texaco Exploration and Production, Inc., 965 S.W.2d 727 (Tex. App.—Texarkana 1998, pet. denied) is a “discovery rule” case. Under 26 U.S.C.A. §29(a)(c) (West Supp. 1997), the Internal Revenue Code granted a “Section 29 Tight Sands” tax credit. Shivers was a royalty owner in a property eligible for the tax credit. When Shivers actually became aware of his eligibility, he filed amended returns for the three prior years to the current year permitted by the tax code. He then sued Texaco for damages attributable to all of the prior years for which he could not file amended tax returns.
 
Texaco prevailed on its motion for summary judgment, which it urged on multiple grounds in the trial court. On appeal, the Court upheld the summary judgment based upon the statute of limitations and did not rule on Texaco’s fundamental challenge of no duty to inform Shivers of the availability of the tax credit. Shivers attempted to rely on the “discovery rule” to avoid the limitations bar asserted by Texaco. If the “discovery rule” applied, the running of the statute of limitations would not commence until Shiver had discovered the facts giving rise to his claims. For the discovery rule to apply, a Court must find that (1) the injury was inherently undiscoverable, and (2) the evidence of the injury was objectively verifiable.
 
The principal issue was whether Shivers’ injury was “inherently undiscoverable.” To be “inherently undiscoverable” an injury did not need to be impossible to discover, but it had to be unlikely to be discovered within the prescribed limitations period despite due diligence. Texaco argued that through reasonable diligence, Shivers could have and should have discovered the information necessary to claim the tax credit when the claim accrued. To compute and claim a Section 29 tax credit, a royalty owner needed to know the following facts:
 

1. that the well produced gas from a formation which had been determined by the Federal Energy Regulatory Commission (“FERC”) as being a “tight formation”;
2. that the well had been certified as a “tight formation” by the Texas Railroad Commission (“TRC”);
3. that the leasehold was dedicated or committed to interstate commerce on or before April 20, 1977; and
4. the average annual B.T.U. of the gas for the tax year

 
In concluding that the Shivers claim was not inherently undiscoverable and that a diligent lessor would have filed suit within the statute of limitations, the Appellate Court relied very heavily upon the presumption that taxpayers are charged with knowledge of the tax code and that publications in the Federal Register and in the public records of the TRC amount to constructive notice.
 
The Texas Supreme Court limited the Shivers holding slightly in HECI Exploration Company v. Neel, 982 S.W.2d 881, 887 (Tex. 1998) by ruling that TRC records are not constructive notice simply because they are matters of public record except when the TRC records concern application of the discovery rule. Shivers is significant from the perspective of an oil and gas company because a royalty owner is now charged with constructive notice of TRC records for discovery rule purposes. From the perspective of a royalty owner, constructive notice of TRC records creates another obstacle for a royalty owner attempting to use the discovery rule to preserve a claim otherwise barred by limitations.