Creston H. Funk, Jr. and Annie Mae Funk Carrington v. Devon Louisiana Corp.--Appeal from 24th District Court of Goliad County

   NUMBER 13-04-261-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

  CORPUS CHRISTI  B EDINBURG

CRESTON H. FUNK, JR., AND ANNIE

MAE CARRINGTON, Appellants,

v.

DEVON LOUISIANA CORP., Appellee.

 On appeal from the 24th District Court

of Goliad County, Texas.

M E M O R A N D U M O P I N I O N

 Before Chief Justice Valdez and Justice Hinojosa and Rodriguez

   Opinion by Chief Justice Valdez

Appellants, Creston H. Funk, Jr., and Annie Mae Funk Carrington (Athe Funks@), appeal from a final take-nothing judgment rendered in favor of appellee, Devon Louisiana Corporation. In a related case, original appellants, Mercedes B. Whittington, et al., reached a settlement with Devon, and we accordingly granted an agreed motion to dismiss the appeals of the Whittingtons and corresponding parties. All issues between the Whittingtons as appellants and Devon as appellee were dismissed.[1]

Here, the Funks argue that summary judgment should not have been granted against them. We also address two cross-points raised by Devon and the Whittingtons as cross-appellees. We affirm the judgment of the trial court.

I. Standard of Review

We review the trial court's granting of a motion for summary judgment de novo. Natividad v. Alexsis, Inc., 875 S.W.2d 695, 699 (Tex. 1994); Tex. Commerce Bank Rio Grande Valley v. Correa, 28 S.W.3d 723, 726 (Tex. App.BCorpus Christi 2000, pet. denied). Appellee was required to establish that no genuine issue of material fact existed and that judgment should be granted as a matter of law. See Tex. R. Civ. P. 166a(c); Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548 (Tex. 1985). Where the only question presented to the trial court was a question of law and both sides moved for summary judgment, the appellate court should render the judgment that the trial court should have rendered. See Coastal Liquids Transp., L.P. v. Harris County Appraisal Dist., 46 S.W.3d 880, 883 (Tex. 2001); Jones v. Strauss, 745 S.W.2d 898, 900 (Tex. 1988); Cigna Lloyds Ins. Co. v. Bradleys' Elec., Inc., 33 S.W.3d 102, 104 (Tex. App.BCorpus Christi 2000, pet. denied); The Cadle Co. v. Butler, 951 S.W.2d 901, 905 (Tex. App.BCorpus Christi 1997, no writ).[2]

II. Background

In March 1977, the Funks entered into an oil, gas, and mineral lease with Kenneth English. English assigned the Funk lease to Texas Eastern Exploration Company. The lease contained a pooling provision granting the lessee the option to pool or combine the acreage with other land, lease, or leases in the immediate vicinity. In July 1983, Texas Eastern applied for a permit to drill on the Funk land and began drilling on August 14, 1983. On August 23, 1983, Texas Eastern entered into a mineral lease with the Whittingtons covering 673.8 acres of property adjacent to the Funk land. The Funk pooled unit (AFunk Unit@) was formed December 16, 1983, and consisted of 179.49 acres of the Funks= land and about 149 acres out of the Whittington tract. The Declaration of Unit was recorded in December 1984.

The Funks= underlying dispute arose in 1983 as the result of pooling pursuant to their oil and gas lease. They contend that the formation of the Funk Unit was done in bad faith and resulted in an improperly reduced share of royalties. Texas Eastern, the operator who originally pooled the unit in 1983, had ceased to be a viable legal entity and had transferred its interest to Samedan Oil Company in 1987, who in turn transferred the unit to New West Fuels, L.C. in 1993, who in turn transferred the unit to Weber Energy Corporation in 1994. In August 1996, Weber transferred its interest to Tesoro E & P Company, L.P. The following year the Funks signed a second ratification confirming their lease; an earlier ratification had been signed in 1993. The operational interests were again transferred, this time from Tesoro to EEX E & P, L.P. in January 2000, then to Cliffwood Oil & Gas Corporation in October 2000, later to Ocean Energy, Inc. in March 2001, and subsequently acquired by Devon. The Funks filed their lawsuit in Goliad County against Texas Eastern and the above successor lessees.[3] The lawsuit was not filed until November 13, 2000.

All parties, including the Funks, moved for summary judgment on multiple bases.

The Funks claimed the pooled unit was either improperly formed in December 1983 or that it terminated in January 1996, despite their signed ratification agreements from both 1993 and 1997. The Funks also claimed, inter alia, Tesoro fraudulently induced them to sign the 1997 ratification. Eventually, the trial court granted the defendants= motions for summary judgment and denied the Funks= partial motion for summary judgment. The trial court carved out the Funks= claims against Tesoro for oil royalties from November 13, 1996 through April 1997. These latter claims against Tesoro were settled and dismissed on the same day the final judgment was entered. The Funks= appeal against Devon is the remaining claim for our consideration.

 III. The Funks= Contentions

The Funks argue in their first issue that the court erred by granting summary judgment against them because there were material fact questions regarding the validity and existence of the Funk Unit. They also contend the trial court erred because the appellees did not meet their burden on conclusively proving all elements of their affirmative defense of limitations. Finally, the Funks argue there are material fact issues of fraud (inducement or concealment) concerning the ratification of the Funk Unit.

IV. Analysis

We first address the Funks= second issue on appeal regarding the affirmative defense of limitations, as we find it to be dispositive.

Sixteen years and eleven months after the Funk Unit was formed, the Funks claimed for the first time the unit was formed in bad faith resulting in a reduced share of royalties. They also raised many other arguments, including non-compliance with the pooling clauses, the termination of the Whittington lease, mandatory pooling language in the Whittington lease, lapse, estoppel, laches, and waiver. However, it is readily apparent that all contract and royalty claims accruing before November 13, 1996, absent an exception, are time barred. See Tex. Civ. Prac. & Rem. Code Ann. ' 16.051 (Vernon 1997). The Funks argue that summary judgment should not have been granted based upon the relevant four year statute of limitations because the discovery rule applies. Specifically, the Funks contend that they prevail on both the Ainherently undiscoverable@ inquiry and the Aobjectively verifiable@ elements of the discovery rule. Thus, they argue their claims did not accrue until November 1998.

The Funks partially acknowledge our holding in Hay v. Shell Oil Co., 986 S.W.2d 772, 776 (Tex. App.BCorpus Christi 1999, pet. denied), in which we stated the following: (1) the four-year statute of limitations applies to actions for the recovery of royalty payments; (2) an action accrues when a wrongful act causes some legal injury; (3) in limited instances, the discovery rule will toll the limitations period; and (4) the discovery rule applies to a category of cases when the injury complained of is inherently undiscoverable and is objectively verifiable. Id. at 776-77. In Hay, we also observed, as is relevant here, that when productive property is pooled with non-productive land, the act causing the legal injury occurred at the time of pooling, not thereafter. Id. at 776. Thus, the Funks= legal injury occurred in 1983, at the time of the pooling. The Funks correctly point out that our Hay decision was based in part upon unchallenged expert testimony; nonetheless, our ultimate conclusions are relevant and applicable here.

An injury is inherently undiscoverable if it is, by its nature, unlikely to be discovered within the prescribed limitations period despite due diligence. S.V. v. R.V., 933 S.W.2d 1, 7 (Tex. 1996). "Inherently undiscoverable" does not mean that a particular plaintiff did not discover his or her particular injury within the applicable limitations period. Id. Rather, the determination of whether an injury is inherently undiscoverable is undertaken on a categorical basis in order to bring predictability and consistency. See Apex Towing Co. v. Tolin, 41 S.W.3d 118, 122 (Tex. 2001) (citing S.V., 933 S.W.2d at 6); see also HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex.1998). Accordingly, the question here is not whether the Funks detected the alleged improper pooling and resulting underpayment within the limitations period. Rather, the categorical question is whether theirs is "the type of injury that generally is discoverable by the exercise of reasonable diligence." HECI, 982 S.W.2d at 886.

Devon aptly observes that the Funks= own expert cited at length to records of the Railroad Commission in attempting to establish the allegation of bad faith pooling.[4] Further, as Devon pointed out in its summary judgment motion, the Funks admitted by deposition testimony that they had documents in their own files and that the Railroad Commission files were available to assist them with the management of their mineral interests. Moreover, the Funks knew or should have known of the pooling of their property, which caused the diminished royalties in 1984, when they received their checks, or at the latest by 1985 when they signed division orders.

ARoyalty owners cannot be oblivious to the existence of other operators in the area or the existence of a common reservoir.@ Id. We conclude that they also cannot be oblivious to available public records and other available information indicating the non-existence of a common reservoir.

Further, we note that multiple courts have held that the discovery rule does not apply in analogous contexts. See Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734-35 (Tex. 2001) (claims arising from excessive gathering and compression fees are not inherently undiscoverable); Shivers v. Texaco Exploration & Prod., Inc., 965 S.W.2d 727, 735 (Tex. App.BTexarkana 1998, writ denied) (failure to apprize royalty owner of tax laws regarding royalties from tight formation wells was not inherently undiscoverable); Rogers v. Ricane Enters., Inc., 930 S.W.2d 157, 169 (Tex. App.BAmarillo 1996, writ denied) (discovery rule did not apply to claims for conversion of oil and gas where wells were openly located on property and production documents were a matter of public record); Koch Oil Co. v. Wilber, 895 S.W.2d 854, 863 (Tex. App.BBeaumont 1995, writ denied) (holding that discovery rule did not apply to claim for failure to pay royalty because available information should have put plaintiff on inquiry); Harrison v. Bass Enter. Prod. Co., 888 S.W.2d 532, 538 (Tex. App.BCorpus Christi 1994, no pet.) (holding that discovery rule did not apply to nonpayment of royalty). We overrule this issue.[5]

We now turn to the Funks= argument concerning fraudulent inducement and fraudulent concealment. They argue that they were fraudulently induced to sign a ratification of the Funk Unit. They argue specifically that Tesoro was aware of cessation of gas production from the Funk No. 1 Well, which in turn terminated the Whittington lease and the existence of the Funk Unit. This tort, they contend, would give rise to a claim for exemplary damages in addition to their breach of contract damages. However, appellants fail to make appropriate citations to the record in support of these claims. See Tex. R. App. P. 38.1(f) & (h). Furthermore, these arguments lack foundation as Tesoro contends the lease did not terminate and the summary judgment proof includes the Whittingtons= affidavit swearing that their lease did not terminate. In addition, appellants settled all claims with Tesoro regarding the relevant time period, which necessarily includes the events surrounding the March 16, 1997, ratification of the pooling agreement by the Funks. Thus, this claim of fraudulent inducement is precluded by the settlement.

In the same issue, the Funks contend there was fraudulent concealment.[6] They argue that Tesoro=s representatives never informed them of the changed status of the Funk No. 1 Well from a gas well to an oil well and that a map shown by Tesoro did not reveal a fault line separating the reservoir under the Whittington acreage from the Funks= property.

Fraudulent concealment is an equitable doctrine that provides an affirmative defense to the plea of limitations. Hay, 986 S.W.2d at 778. To defeat summary judgment based on fraudulent concealment, the non movant must establish the following: (1) an underlying tort; (2) the movant's knowledge of the tort; (3) the movant's use of deception to conceal the tort; and (4) the non movant's reasonable reliance on the tort. Id. The gravamen of the fraudulent concealment defense is the defendant's active suppression of the truth or its failure to disclose the truth when it is under a duty to speak. Id. While the Funks did address these matters in their summary judgment response, they failed to present some evidence as to each element of this affirmative defense to limitations. For example, they argued to the trial court that Tesoro=s chief landman testified that he did not know the well to be an oil well Awhen in fact Tesoro knew the Funk No. 1 well was an oil well.@ No proof is offered for the bald assertion. In any event, one cannot fraudulently conceal facts of which one has no actual knowledge. Id. Because the Funks did not raise a material fact issue on fraudulent concealment, we overrule this issue.

 V. Devon=s Cross-Point

By cross-point, Devon argues the trial court erred by granting special exceptions to its request for declaratory action and thereby denying its right to declare the Funk Unit valid. Assuming, arguendo, Devon is correct, there is no harm because the final judgment granted Devon=s requested relief. The April 12, 2004, judgment recites: AOrdered, and Declared that the Funk Unit established by Declaration of Unit dated December 16, 1983, recorded in Volume 262, page 190, Deed Records of Goliad County, Texas, has not terminated and is a valid and existing unit.@ We therefore decline to address this argument as unnecessary. Tex. R. App. P. 44.1(a)(1).

Devon further complains through a cross-point that the trial court did not award it attorneys= fees as requested. The Declaratory Judgments Act does not require an award of attorneys= fees to the prevailing party. Rather, it provides that the court "may" award attorneys= fees. Tex. Civ. Prac. & Rem. Code Ann. ' 37.009 (Vernon 1997). The statute thus affords the trial court a measure of discretion in deciding whether to award attorneys= fees. Bocquet v. Herring, 972 S.W.2d 19, 20 (Tex. 1998) (citing Comm=rs Court v. Agan, 940 S.W.2d 77, 81 (Tex.1997); Barshop v. Medina County Underground Water Cons. Dist., 925 S.W.2d 618, 637 38 (Tex.1996); Tex. Educ. Agency v. Leeper, 893 S.W.2d 432, 444 46 (Tex.1994); Edgewood Indep. Sch. Dist. v. Kirby, 777 S.W.2d 391, 398 99 (Tex.1989); Duncan v. Pogue, 759 S.W.2d 435, 435 36 (Tex.1988); Oake v. Collin County, 692 S.W.2d 454, 455 56 (Tex.1985)). Devon fails to demonstrate how the denial of attorneys= fees in this case was an abuse of discretion. See City of Houston v. Texan Land & Cattle Co., 138 S.W.3d 382, 392 (Tex. App.BHouston [14th Dist.] 2004, no pet.); Everest Exploration, Inc. v. URI, Inc., 131 S.W.3d 138, 145 (Tex. App.BSan Antonio 2004, no pet.).[7] This issue is overruled.

 VI. The Whittingtons= Cross-Point

Finally, there is the matter of the Whittingtons= cross-point. In it, they initially argued that they should have been awarded interest and attorneys= fees. These claims were settled and a dismissal was entered as to these matters. The Whittingtons further argue what they denominate an Aalternative@ point which we address here. In this alternative point, they suggest Devon has an obligation to pay royalties to them even if the Funk Unit is invalid because their lease is valid in any event. Devon argues that this alternative issue presents a hypothetical issue that we should not entertain. We agree.

As already noted, the final judgment of the trial court recites that the Funk Unit is a valid and existing unit. Further, the judgment provides that all funds deposited with the registry of the Court, plus interest, are to be paid to the Whittingtons. According to the final judgment, this payment is without prejudice to any party for an accounting, audit or claim for amounts owed Devon or the Whittingtons under the Whittington lease. These matters were dismissed by the trial court without prejudice, except as otherwise granted by the judgment. Thus, we see no reason to further entertain this alternative or hypothetical issue, as it was not fully addressed below.[8] See Camarena v. Tex. Employment Comm'n, 754 S.W.2d 149, 151 (Tex. 1988) (noting that it is axiomatic that appellate courts do not decide cases in which no controversy exists between the parties) (citing City of West University Place v. Martin, 132 Tex. 354, 123 S.W.2d 638 (1939)).

VII. Conclusion

The judgment of the trial court is affirmed.

Rogelio Valdez,

Chief Justice

Memorandum Opinion delivered and filed

this 13th day of October, 2005.

[1] See Whittington v. Devon Louisiana Corp., Nos. 13-04-261-CV & 13-04-671-CV, 2005 Tex. App. LEXIS 58 (Tex. App.BCorpus Christi January 6, 2005, no pet.) (per curiam).

[2]While some of the parties also filed no-evidence motions for summary judgment, the Funks correctly assert that the rule allowing for no-evidence summary judgment motions does not apply to affirmative defenses raised by the moving party. Tex. R. Civ. P. 166(a)(i); Pustejovshk v. Rapid-American Corp., 35 S.W.3d. 643, 646 (Tex. 2000) (movant for summary judgment on affirmative defense of limitations must conclusively establish elements of that defense).

[3] According to the Funks, Texas Eastern was dismissed due to corporate dissolution. Additionally, New West and Samedan were dismissed pursuant to a settlement.

[4] Well logs and structure maps were conceded to be on file with the Railroad Commission as early as January 1986 and perhaps before.

[5] Appellants would have us engraft or imply a further limitations exception because of the good faith requirement in the lease. We decline to conclude that this good faith requirement would create such an exception. See Harrison v. Bass Enter. Prod. Co., 888 S.W.2d 532, 537 (Tex. App.BCorpus Christi 1994, no pet.) (holding that there was no fiduciary or special relationship between an operator and a lessee that would give rise to a duty on the part of the operator to disclose the existence of a cause of action the royalty owner had against it).

[6] There is arguably a period before November 13, 1996, to which this contention may have been applicable as a defense to the statute of limitations.

[7] Devon also failed to offer or secure a bill of exceptions on the matter of attorneys= fees.

[8] For the same reasons, we deny the Whittingtons= motion to file the confidential settlement agreement.