Two intriguing factors are present in the Texas Supreme Court’s decision to review Hooks v. Samson Lone Star, LP.  It is out of the ordinary for this court to consider a court of  appeals reversal of a large jury verdict. And the discovery rule is again in play in response to a statute of limitations defense. The practical question: How much investigation will the court require of a lessor to discover if he has been lied to?

The Background

Hooks the lessor sued Samson the lessee for fraud and breach of an oil and gas lease. After a summary judgment and jury trial, Hooks garnered a $20 million judgment, which the court of appeal took away on the basis that Hooks waited too long to bring his suit.

The Lie

The lease required Samson to drill a well, pay royalties, or release a portion of the lease if a well was drilled within 1,350 feet of the lease line. Samson directionally drilled a well that bottomed closer than that. Samson’s landman falsified a plat that he not only gave to Mr. Hooks but also filed with the Railroad Commission, showing the bottom hole to be 1,400 feet off the lease line. Hooks was fooled, at least for a while. In the face of Samson’s defense that the plat could be read two ways (and thus it was not really a lie?) several of Samson’s own witnesses agreed that the plat could be read only one way.

The court of appeals, relying on HECI v. Neal, 982 SW 2d 881 (Tex. 1997),  reversed.  Hooks should have investigated Railroad Commission records, where he would have found a Schlumberger directional survey showing that the bottom hole was 1281 feet from the lease line, thus catching Samson in its lie. The premise was that the Railroad Commission records placed Hooks on constructive notice of the fraud. He failed to use reasonable diligence in protecting his interests. Had he done so he would have timely discovered the fraud. 

What Could it Mean?

• Will the Supreme Court retreat from its brutal application of the discovery rule to plaintiffs who fail to examine public records to protect their interests?
• Will a court of appeals be allowed to apply the law in a way that substitutes its view of the facts for the jury’s?
• How the rule is applied sometimes begs the question: What if the lessor doesn’t suspect a lie?  Is there ever a point at which a lessor may just take his lessee’s word for something? Must he never believe anything his lessee says?  Is an investigation of everything a lessee says always required?
• Rhetorical question: Should the audacity of the lessee’s lie diminish the lessor’s duty to investigate? In its briefing I never quite hear the lessee say “We didn’t do it”.
• Personal question: After the jury has heard the evidence and rendered its verdict, must I still refer to everything as “alleged”?

This musical interlude is dedicated to the Samson landman.