Johnson, Oscar Smith and Vicki Johnson Brown v. Spindletop Exploration Company, Inc.--Appeal from County Court of Midland County

COURT OF APPEALS

EIGHTH DISTRICT OF TEXAS

EL PASO, TEXAS

OSCAR SMITH JOHNSON and VICKI )

JOHNSON BROWN, ) No. 08-02-00236-CV

)

Appellants, ) Appeal from the

)

v. ) County Court at Law

)

SPINDLETOP EXPLORATION COMPANY, ) of Midland County, Texas

INC., )

) (TC# CC-09754)

Appellee. )

MEMORANDUM OPINION

Appellants Oscar Smith Johnson and Vicki Johnson Brown appeal from an order granting summary judgment in favor of Appellee Spindletop Exploration Company, Inc. (ASpindletop@). On appeal, Appellants raise one issue: whether the trial court erred in granting Spindletop=s motion for summary judgment on limitations grounds. We reverse the trial court=s judgment and remand this cause to the trial court for further proceedings.

Spindletop has been in the business of acquiring oil and gas minerals, royalties, and overriding royalty interests since 1982. In 1988, Spindletop sent postcards to royalty owners residing in Freestone County Texas, including one to Mr. Johnson, expressing its interest in purchasing the royalty owner=s respective royalty and mineral interests. Mr. Johnson responded by sending Spindletop a letter dated March 15, 1988, in which he requested for Spindletop to make him an offer. He included copies of his 1987 tax forms, specifically a 1099 Form, indicating the amount of royalty he was receiving from EP Operating Company. On April 5, 1988, Spindletop responded by letter with a formal offer to Mr. Johnson=s letter.

The offer letter, written by Mr. Joseph V. Hughes, President of Spindletop, included a bank draft for the full purchase price of $5,650, which was to cover the properties on a list provided by Mr. Johnson. Mr. Hughes, testified in his deposition that the $5,650 price did not take into account any non-producing minerals owned by Mr. Johnson. In addition, from the 1099 Form which Johnson provided, Spindletop was not made aware of any non-producing minerals; it was also not made aware if Mr. Johnson owned any non-producing minerals at the time it submitted a formal offer to Mr. Johnson. It was not until after the transaction was closed that Spindletop engaged in the necessary steps to discover the legal description of the property and rights owned by Mr. Johnson.

The bank draft, enclosed in the offer letter, was made payable to Mr. Johnson and contained the following language: AThis draft is drawn to pay for Oil and Gas letter agreement of April 5, 1988 and covering all mineral, royalty & overriding royalty interests owned by the above payee.@ Mr. Johnson negotiated the draft, but claims not to have seen or read the above quoted language.

In a letter dated April 25, 1988, Mr. Johnson received duplicate copies of the Mineral and Royalty Transfer and Assignment of Overriding Royalty (AAssignment@), which he signed and returned to Spindletop. No copy was provided for Mr. Johnson=s own records. Spindletop then recorded the Assignment in Freestone County on May 12, 1988.

The Assignment, stated in pertinent part:

THAT, OSCAR SMITH JOHNSON . . . (hereinafter called AAssignor@), for and in consideration of Ten Dollars . . . and other good and valuable consideration, does by these presents . . . ASSIGN, and CONVEY unto SPINDLETOP . . . (hereinafter called AAssignee@) all of Assignor=s right, title and interest in and to the mineral interests, royalty interests and/or overriding royalty interests in, under and on the land described on Exhibit A attached hereto and made a part hereof.

Attached to the Assignment was a document titled Exhibit A which stated the following:

All of the oil, gas and mineral interests, royalty interests, and/or overriding royalty interests owned by OSCAR SMITH JOHNSON, . . . covering land located in the County of Freestone, State of Texas, including, but not limited to the following described land:

1. All interest in that 692.73 acres, more or less, known as the Teague Gas Unit 3, and located in the W.A. Elliott Survey Abstract 2.

2. All interest in that 664.67 acres, more or less, known as the Moody No. 1 Gas Unit, and located in the N. Peck Survey Abstract 820 and the B.W. Brewer Survey Abstract 92, recorded in Volume 617, Page 839 of the Freestone County records.

Mr. Johnson claims that the recorded Exhibit A, which conveyed all of his property interest found in Freestone County to Spindletop, was not attached to the Assignment at the time he signed the agreement. In his deposition, Mr. Hughes stated that he did not remember whether Exhibit A was attached to the assignment prepared for Mr. Johnson.

In 1998, Mr. Johnson learned that Anadarko Petroleum Corporation (AAnadarko@) had recently started drilling oil and gas wells on his property, known as High Unit. He inquired as to why he was not receiving royalty payments and was notified by Anadarko that he did not own any interest in the minerals. Shortly after, Mr. Johnson hired an attorney who submitted a letter dated August 18, 1998, requesting that Spindletop change the Assignment. On February 1, 1999, Mr. Johnson hired another attorney who sent Spindletop a letter requesting corrections be made to the Assignment.

In response to Mr. Johnson=s attorney=s letters, Spindletop filed a declaratory judgment on February 23, 1999, contending Athat the Assignment speaks for itself, that it conveys the interest therein described and that any attempt by [Mr. Johnson] to reform or change any aspect of the Assignment has been long since barred by the Four Year Statute of Limitations, ' 16.051, Tex.Civ.Prac.&Rem.Code.@

On April 9, 1999, Mr. Johnson filed an original answer denying all the allegations contained in Spindletop=s original petition. On April 19, 1999, Mr. Johnson filed his first amended original answer which contained a general denial and a motion to change venue.

On August 6, 1999, Spindletop filed its first motion for summary judgment based on the statute of limitations. Spindletop submitted as summary judgment evidence an affidavit of Joseph V. Hughes, Jr., a copy of the bank draft, and a copy of the Assignment including AExhibit A.@

A second amended original answer was filed by Mr. Johnson, in which he stated that the dispute centered on the tortious conduct of Spindletop in procuring the conveyance instrument. This answer included fraud, fraud in inducement, and misrepresentation as affirmative defenses. Mr. Johnson asserted that he had Anegotiated an oral agreement to transfer interest in certain mineral estates.@ Spindletop then drafted an instrument that conveyed Anot only the subject mineral estate interest, as had been negotiated by the parties, but all of [Mr. Johnson=s] mineral estate in the county.@ In addition, Mr. Johnson claimed that Spindletop engaged in a pattern or practice of defrauding interest owners by attaching to the conveyance an exhibit covering far greater mineral interests than was negotiated. Mr. Johnson pled the discovery rule and stated that the cause of action accrued in 1998, when he became aware of Spindletop=s tortious conduct.

On September 9, 1999, Mr. Johnson filed a response to Spindletop=s motion for summary judgment. Once again, Mr. Johnson asserted that the dispute between the parties did not concern the terms of the agreement, but rather whether or not the instrument was procured by fraudulent means. As summary judgment evidence, Mr. Johnson=s affidavit was included, in which he expressly denied that he ever consented to the attachment of form of the exhibit to the Assignment and that it directly violated the express terms of their oral agreement. He also stated that he did not discover the exhibit containing the catch-all language until 1998.

On October 26, 1999, the trial court granted the summary judgment motion stating that Mr. Johnson was barred by limitations from rescinding, reforming, contesting, or any other way challenging the validity of the Assignment. Mr. Johnson appealed the trial court=s summary judgment to this Court. Johnson v. Spindletop Exploration Co., Inc., No. 08-99-00454-CV, 2000WL 1557283 (Tex.App.--El Paso Oct. 19, 2000, no pet.)(unpublished)(ASpindletop I@). In that appeal, this Court reversed and remanded finding that Spindletop failed to carry its burden of conclusively establishing that the statute of limitations barred Mr. Johnson=s cause of action. Id. at 3

On January 22, 2002, Mr. Johnson filed a third amended original answer and a first amended counterclaim, in which he alleged fraud, fraud in inducement, fraudulent concealment, mistake, tortious interference, breach of contract, fraud in real estate, and sought a declaratory judgment, reformation and/or rescission, and damages.

Ms. Vicki Johnson Brown, Mr. Johnson=s daughter, filed a petition in intervention on January 23, 2002, stating that Mr. Johnson had conveyed to her certain mineral interests located in Freestone County to which Spindletop is claiming ownership. Ms. Brown adopted all factual allegations and claims for relief found in Mr. Johnson=s third amended original answer.

On March 1, 2002, Spindletop filed a second summary judgment motion claiming that Mr. Johnson=s and Ms. Brown=s (AAppellants@) claims are barred by the statute of limitations. As in its prior motion, Spindletop submitted Mr. Hughes= affidavit, and attached a copy of the Assignment and Exhibit A as summary judgment evidence. Spindletop also submitted as additional evidence Mr. Johnson=s deposition taken January 18, 2002, and Mr. Hughes= deposition taken January 18, 2002. The difference between the first and second summary judgment motions was Spindletop=s assertion that as of 1989, Mr. Johnson stopped receiving ad valorem tax notices and royalty payments for five producing properties he claims not to have intended to convey to Spindletop. Spindletop contended that Mr. Johnson therefore was put on notice, and, in the exercise of reasonable diligence, should have inquired as to why he was not being taxed, or receiving royalty payments on the properties he claimed to own. By doing so, Mr. Johnson would have discovered that the Assignment conveyed all his property found in Freestone County to Spindletop.

The trial court granted Spindletop=s motion for summary judgment on May 7, 2002. The trial court held that there was no genuine issue of fact that Appellants, through reasonable diligence, should have discovered the catch-all language in the Assignment by the end of 1988 or 1989, and that therefore, Appellants= claims are barred by the statute of limitations. Appellants now bring this appeal.

On appeal, Appellants contend that the trial court erred in granting summary judgment because Spindletop failed to meet its burden of conclusively proving when the cause of action accrued, and to negate the discovery rule. Appellants assert that Spindletop did not prove as a matter of law that there is no genuine issue of material fact as to when he discovered, or in the exercise of due diligence should have discovered the nature of his injury. Furthermore, Appellants argue that the evidence showed that there was a question of fact.

STANDARD OF REVIEW

The standard of reviewing a summary judgment under Tex.R.Civ.P. 166a(c) is whether the successful movant at the trial level carried its burden of showing that there is no genuine issue of material fact and that judgment should be granted as a matter of law. KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999); Booker v. Real Homes, Inc., 103 S.W.3d 487, 491 (Tex.App.--San Antonio 2003, pet. denied). In reviewing the evidence, we take as true all evidence favorable to the nonmovant, and we make all reasonable inferences and resolve any doubts, in the nonmovant=s favor. KPMG, 988 S.W.2d at 748; Nixon v. Mr. Property Mgmt. Co., Inc., 690 S.W.2d 546, 549 (Tex. 1985); Duran v. Furr=s Supermarkets, Inc., 921 S.W.2d 778, 784 (Tex.App.--El Paso 1996, writ denied). For a plaintiff to be entitled to summary judgment when the defendant has asserted a counterclaim, the plaintiff must prove, as a matter of law, each element of its cause of action and disprove at least one element of each of the defendant=s counterclaims. Schafer v. Federal Servs. Corp., 875 S.W.2d 455, 456 (Tex.App.--Houston [1st Dist.] 1994, no writ.).

A defendant moving for summary judgment on the affirmative defense of limitations has the burden to conclusively establish that defense. KPMG, 988 S.W.2d at 748; Walton v. Phillips Petroleum Co., 65 S.W.3d 262, 271 (Tex.App.--El Paso 2001, pet. denied). The defendant must (1) conclusively prove when the cause of action accrued, and (2) negate the discovery rule, if it applies and has been pled or otherwise raised. KPMG, 988 S.W.2d at 748; Walton, 65 S.W.3d at 271. In order to negate the discovery rule, the defendant must 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 his injury. KPMG, 988 S.W.2d at 748.

Spindletop argues that Appellants= cause of action must have accrued at least by May 12, 1988, when Exhibit A containing the geographic grant was attached to the Assignment and recorded in Freestone County. The legal injury was sustained by Appellants in 1989, when Mr. Johnson stopped receiving royalty payments on five producing properties he claims he did not intend to convey to Spindletop. While Appellants do not dispute that the legal injury accrued when the Assignment containing the catch-all language was recorded, Appellants do contend that the transfer of all the property owned by Mr. Johnson in Freestone County to Spindletop was done so by a fraudulent conveyance. As we understand the dispute at hand, Appellants allege the harm was the fraudulent transfer of all the property owned by Mr. Johnson in Freestone County, not merely the non-payment of royalties for certain producing properties. Spindletop=s summary judgment evidence fails to address the alleged engagement in fraud.

The statute of limitations on a cause of action based upon fraud does not begin to run until the fraud is discovered, or until the plaintiff acquires such knowledge as would lead to its discovery if reasonable diligence were exercised. Lightfoot v. Weissgarber, 763 S.W.2d 624, 626 (Tex.App.--San Antonio 1989, writ denied). The statute of limitations for causes of action based upon fraud is governed by the discovery rule. Id. at 626.

Previously, in Spindletop I, we reversed the trial court order granting Spindletop=s first summary judgment motion and stated the following:

[I]t was Spindletop=s burden to show that the discovery rule did not apply here. Spindletop=s summary judgment evidence does not make such a showing. To do so, Spindletop would need to show that attaching >Exhibit A= to the assignment and filing both of record did not result in an inherently undiscoverable injury.

Johnson, 2000 WL 1557283 at 3.

An injury is inherently undiscoverable if a party using due diligence would not ordinarily learn of the negligent act or omission. Houston Endowment Inc. v. Atlantic Richfield Co., 972 S.W.2d 156, 159 (Tex.App.--Houston [14th Dist.] 1998, no pet.).

Spindletop argues that the evidence shows that in 1989, Mr. Johnson was aware that he was no longer receiving royalty payments and ad valorem tax notices on the five producing properties he claims not to have intended to convey to Spindletop, negates the discovery rule. Spindletop asserts that if Mr. Johnson had exercised reasonable diligence at that time he ceased receiving oil and gas royalty payments and ad valorem tax notices on five producing properties he claims he did not intend to convey to Spindletop, the nature of Appellants injury would have been discovered in 1989.

In reviewing the evidence, we find the issue of whether Appellants discovered or in the exercise of due diligence should have discovered the catch-all language in the Assignment conveying all of Mr. Johnson=s property rights and interests to be a question of fact. The question of whether one has exercised reasonable diligence to discover an injury is a question of fact, unless the evidence is such that reasonable minds may not differ as to its effect. Hassell v. Missouri Pacific Railroad Co., 880 S.W.2d 39, 43 (Tex.App.--Tyler 1994, writ denied.); see also Vance v. Bell, 797 S.W.2d 403, 405 (Tex.App.--Austin 1990, no writ), citing Ruebeck v. Hunt,142 Tex. 167, 176 S.W.2d 738 (1944)(Awhether one has exercised due diligence in discovering fraud is ordinarily a fact question.@); Childs v. Haussecker, 974 S.W.2d 31, 44 (Tex. 1998) (Commencement of the limitations period may be determined as a matter of law if reasonable minds could not differ about the conclusion to be drawn from the facts in the record. Inquiries involving the discovery rule usually entail questions for the trier of facts.).

The evidence does show that Mr. Johnson stopped receiving royalty payments and tax notices for five of his producing properties, and he testified in his deposition that he could have inquired as to why he was not receiving either royalty payments or tax notices by contacting the oil companies or going down to the tax office, but he chose not to. Yet, Mr. Johnson had no reason to believe all of his properties had been conveyed to Spindletop since he only intended to convey two of his properties, and he also had a history of not paying taxes. We conclude that reasonable minds may differ as to the effect of this evidence. See Hassel, 880 S.W.2d at 43.

In examining the evidence submitted by Spindletop, we find that it has failed to sustain its burden to negate the discovery rule and to establish that no genuine issue of material fact exists concerning when Appellants discovered or in the exercises of reasonable diligence should have discovered the catch-all language in the Assignment in 1989. The summary judgment evidence does not conclusively establish as a matter of law that Mr. Johnson was aware of his injury in 1989. Based on these finding, we conclude that the trial court=s grant of summary judgment cannot be affirmed on limitations grounds. We therefore sustain Issue One.

We reverse and remand the trial court=s judgment for further proceedings.

October 30, 2003

DAVID WELLINGTON CHEW, Justice

Before Panel No. 1

Larsen, McClure, and Chew, JJ.