NO. 09-0399
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  • 1. NO. 09-0399 IN THE SUPREME COURT OF TEXAS BP AMERICA PRODUCTION COMPANY, ATLANTIC RICHFIELD COMPANY, AND VASTAR RESOURCES, INC., PETITIONERS, vs. STANLEY G. MARSHALL, JR., ROBERT RAY MARSHALL, CATHERINE IRENE MARSHALL F/K/A CATHERINE I.M. HASHMI, AND MARGARET ANN MARSHALL F/K/A MARGARET A.M. JEFFUS, BY AND THROUGH DAVID JEFFUS, AS INDEPENDENT EXECUTOR OF THE ESTATE OF MARGARET MARSHALL, RESPONDENTS. ON APPEAL FROM THE FOURTH COURT OF APPEALS NO. 04-06-00478-CV AT SAN ANTONIO BP AMERICA PRODUCTION COMPANY, ATLANTIC RICHFIELD COMPANY, AND VASTAR RESOURCES, INC.’S REPLY TO PETITION FOR REVIEW James P. Pennington J. Gregory Copeland Thomas R. Phillips State Bar No. 15758520 State Bar No. 04798500 State Bar No. 00000102 LAW OFFICES OF JAMES BAKER BOTTS L.L.P. Evan A. Young PENNINGTON 910 Louisiana, One Shell Plaza State Bar. No. 24058192 815 Walker, Suite 250 Houston, Texas 77002-4995 Stacy Rogers Sharp Houston, Texas 77002-5220 Telephone: 713.229.1234 State Bar No. 24052109 Telephone: 713.225.8400 Facsimile: 713.229.1522 BAKER BOTTS L. L.P. Facsimile: 713.225.8488 98 San Jacinto Blvd, Ste. 1500 Austin, Texas 78701 Telephone: 512.322.2500 Facsimile: 512.322.2501
  • 2. TABLE OF CONTENTS Index of Authorities......................................................................................................... ii Introduction ..................................................................................................................... 1 Argument ........................................................................................................................ 2 I. The decision below confuses the discovery rule and fraudulent concealment, and improperly holds that the statute of limitations had been tolled.................................................................................................. 2 II. This Court should correct an erroneous accounting award against a party with no possession or control over the property at issue. ................... 5 A. BP properly raised the issue of whether an accounting was appropriate at every stage of the proceeding. ................................... 5 B. BP properly lodged its challenge to the accounting award in response to the court of appeals’ order on rehearing. ....................... 8 Certificate of Service ..................................................................................................... 10 i
  • 3. INDEX OF AUTHORITIES Page(s) CASES Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1 (Tex. 2008) .......................................................................................... 8 HECI Exploration Co. v. Neel, 982 S.W.2d 881 (Tex. 1999) ...................................................................................... 5 Kerlin v. Sauceda, 263 S.W.3d 920 (Tex. 2008) .................................................................................. 4, 5 KPMG Peat Marwick v. Harrison County Housing Financial Corp., 988 S.W.2d 746 (Tex. 1999) ...................................................................................... 4 Murphy v. Campbell, 964 S.W.2d 265 (Tex. 1997) .................................................................................. 2, 4 S.V. v. R.V., 933 S.W.2d 1 (Tex. 1996) .......................................................................................... 3 Salinas v. Gary Pools, Inc., 31 S.W.3d 333 (Tex. App.—San Antonio 2000, no pet.)............................................ 2 Schneider National Carriers, Inc. v. Bates, 147 S.W.3d 264 (Tex. 2004) ...................................................................................... 4 Underkofler v. Vanasek, 53 S.W.3d 343 (Tex. 2001) ........................................................................................ 4 Velsicol Chemical Corp. v. Winograd, 956 S.W.2d 529 (Tex. 1997) (per curiam).................................................................. 4 Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732 (Tex. 2001) ........................................................................................ 4 ii
  • 4. INTRODUCTION The court of appeals committed two clear errors. First, it failed to apply this Court’s requirements before tolling the statute of limitations. The court confused the standards for tolling based on the discovery rule and for fraud or fraudulent concealment, and allowed the Marshalls to avoid the statute of limitations without considering whether they had exercised reasonable diligence to discover the wrong. Second, the court upheld a judgment requiring BP to account in perpetuity to the Marshalls for production from wells that BP does not possess or control. The court based its decision in part on the wholly unprecedented precept that BP committed a “‘trespass’ by receipt of revenue.” The Marshalls’ response fails to engage BP’s legal arguments on the merits. Instead, it asks the Court to overlook these blatant errors on the grounds that (1) BP is challenging a limitations holding that the court of appeals never made, and (2) BP itself requested the very accounting award at issue. Neither assertion withstands scrutiny. The court’s erroneous reasoning in its limitations holding shows such confusion as to justify this Court’s correction. And BP consistently challenged the accounting award against it before the trial court and the court of appeals, reurging its challenges after the court of appeals introduced new error on rehearing. BP asked for a net accounting only as an alternative, in an attempt to diminish the adverse impact of the judgment awarding a cost- free accounting. The errors described in BP’s Petition are of great significance to the jurisprudence of the state and are fully preserved for this Court’s consideration. 1
  • 5. ARGUMENT I. The decision below confuses the discovery rule and fraudulent concealment, and improperly holds that the statute of limitations had been tolled. The Marshalls’ primary argument is that BP’s petition, by referring to fraudulent concealment, “is attacking the court of appeals for a holding on fraudulent concealment that the court never made.” (Resp. at 2.) Although the Marshalls repeat some variant of this statement over and over again, it falls short of the mark. This is because the Marshalls rely on the court’s statement that “[w]e need not address BP America’s claim that the Marshalls did not prove fraudulent concealment.” (Id. at 5 (quoting 288 S.W.3d at 452).) But this conclusion merely emphasizes the court of appeals’ ongoing confusion about the standards governing tolling statutes of limitations. The entire paragraph says: The discovery rule defers accrual of certain causes of action until the plaintiff knew, or exercising reasonable diligence, should have known of the wrongful act causing injury.” Salinas v. Gary Pools, Inc., 31 S.W.3d 333, 336 (Tex. App.—San Antonio 2000, no pet.). The discovery rule applies only to a limited category of cases, including cases involving fraud or fraudulent concealment. Id. (citing Murphy v. Campbell, 964 S.W.2d 265, 270 (Tex. 1997)). Accordingly, BP America’s argument based on whether the nature of the injury is inherently discoverable and the injury itself is objectively verifiable is inapplicable. Because BP America does not challenge the jury’s finding relating to the date of discovery,[1] which is within the applicable limitations period, we overrule this portion of issue three. We need not address BP America’s claim that the Marshalls did not prove fraudulent concealment because the application of the discovery rule alone is sufficient to defeat BP America [sic] limitations defense. Op. on Reh’g, 288 S.W.3d 430, 452 (emphasis added). The genesis of the court of 1 BP did expressly challenge the jury’s finding regarding the date of the Marshalls’ discovery. In BP’s initial appellate brief, BP argued that “the Marshalls knew or should have learned of facts giving rise to their claims more than four (4) years before they filed suit” and claimed that the trial court erred in not disregarding the jury’s findings on that point. (BP Br. at 40–41; see id. at xxi.) 2
  • 6. appeals’ error can be traced to the bolded text above. The court treats fraudulent concealment as a subset of the discovery rule, assumes that the discovery rule therefore applies, and—because the “date of discovery” was less than four years before the suit was filed—concludes that the limitations period was tolled. This mish-mash of Texas law is demonstrably incorrect. Although fraudulent concealment and the discovery rule both serve to toll the limitations period, the two are entirely separate. This Court’s precedent explains how and why the discovery rule is different from fraudulent concealment. In 1996, the Court attempted to put the confusion to rest in S.V. v. R.V., 933 S.W.2d 1 (Tex. 1996). It acknowledged its own inconsistent use of the phrase “discovery rule”: “We have sometimes used the phrase to refer generally to all instances in which accrual is deferred, including fraud and fraudulent concealment.” Id. at 4. Then, it clarified the rule: Strictly speaking, the cases in which we have deferred accrual of causes of action for limitations purposes fall into two categories: those involving fraud and fraudulent concealment, and all others. The deferral of accrual in the latter cases is properly referred to as the discovery rule. We observe the distinction between the two categories because each is characterized by different substantive and procedural rules. Id. (emphases added; citations omitted). Thus, at least since S.V., the distinction has been clear, along with this “general principle”: “[A]ccrual of a cause of action is deferred in cases of fraud or in which the wrongdoing is fraudulently concealed, and in discovery rule cases in which the alleged wrongful act and resulting injury were inherently undiscoverable at the time they occurred but may be objectively verified.” Id. at 6. Since S.V., this Court has repeatedly emphasized the distinction between the 3
  • 7. discovery rule and fraudulent concealment. See, e.g., Velsicol Chem. Corp. v. Winograd, 956 S.W.2d 529, 532 (Tex. 1997) (per curiam); KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 750 (Tex. 1999); Underkofler v. Vanasek, 53 S.W.3d 343, 346 (Tex. 2001); Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 736 (Tex. 2001); Schneider Nat’l Carriers, Inc. v. Bates, 147 S.W.3d 264, 291 n.138 (Tex. 2004); Kerlin v. Sauceda, 263 S.W.3d 920, 925–26 (Tex. 2008). But these cases did not stop the Fourth Court from misstating and misapplying the law, to BP’s detriment.2 The Marshalls’ argument rests on capitalizing on the court’s confusion, rather than trying to clarify it. Far from demonstrating that review should be denied, the quoted paragraph demonstrates why review is essential. The court of appeals effectively found that a case with findings of fraud automatically implicated the discovery rule, but without any analysis of whether “the plaintiff . . . could have discovered [the wrong] through the exercise of reasonable diligence.” Kerlin, 263 S.W.3d at 925. As BP’s petition for review explained, and full merits briefing will clarify, as a matter of law the discovery rule does not apply to such cases; and while fraudulent concealment can toll such cases, the facts here—over which the court of appeals passed without a glance when considering limitations—will not permit tolling under this Court’s precedents. (See Pet. at 7–11 (describing how the Marshalls should have been set on 2 Citing Murphy v. Campbell, 964 S.W.2d 265, 270 (Tex. 1997) (“[t]his exception, which we call the discovery rule’, applies in cases of fraud and fraudulent concealment”), the Marshalls defend the judgment by saying that “all the court did was cite Murphy for the innocuous principle that the discovery rule applies in fraud cases.” (Resp. at 6.) This out-of-context example is quite lonely when arrayed against all the authority quoted above (including Velsicol, decided the same day as Murphy). It proves little beyond the unremarkable point that both doctrines might apply in some cases. If anything, this reference to Murphy is an additional reason to grant BP’s petition, and provide the clarity that—apparently unique among appellate courts, see Pet. at 7 n.4—the Fourth Court requires. 4
  • 8. inquiry notice under this Court’s cases).) The Marshalls’ arguments to the contrary—that some of the materials that would have demonstrated that the Upper Wilcox was not producing were confusing, or perhaps were not thorough enough (see Resp. at 8–10)— are particularly weak given that the court of appeals’ formulation of the legal issue would not even allow those facts to be evaluated. Though the Marshalls admit that the publicly available records would be sufficient for someone to have “reached a conclusion” about the Marshalls’ interests that would put them on notice (id. at 10), they downplay their own responsibilities to monitor those interests. But this Court has made clear that finality and repose require those who have legal interests to diligently oversee them, and has enforced this rule in situations where plaintiffs were far less capable than Mr. Marshall (who actually visited the very place where relevant records were kept). See, e.g., Kerlin, 263 S.W.3d at 925; HECI Exploration Co. v. Neel, 982 S.W.2d 881, 887–88 (Tex. 1999). Allowing the court of appeals’ judgment on fraud to stand would have two deleterious consequences: (1) courts within the Fourth Appellate District, and perhaps across Texas, will be led into serious error concerning the tolling of limitations, and (2) an unmerited multi-million dollar recovery will stand only because of complete confusion about this Court’s standards. Neither result is acceptable. II. This Court should correct an erroneous accounting award against a party with no possession or control over the property at issue. A. BP properly raised the issue of whether an accounting was appropriate at every stage of the proceeding. As BP’s Petition for Review explained, no Texas court has upheld an accounting order against a party with no possessory interest in the property, no control over mineral 5
  • 9. production, no control over the costs that are incurred by the operator, and no records from which it can account for revenues or costs. The Marshalls make no effort to address this plain error in the trial court’s judgment. Without citing a single legal authority from any jurisdiction to support an accounting award against BP, they ask this Court to ignore the issue. They quote from BP’s alternative argument at the court below to claim that BP actually requested an accounting against it. (Resp. at 13.) In fact, at each stage of the proceeding, BP has consistently challenged the trial court’s award of a future accounting. In the trial court, BP repeatedly objected to the Marshalls’ postjudgment request for an accounting, pointing out that BP was not the operator on the land. BP argued that “[i]f the Marshall Lease terminated, the Marshalls would be entitled to an accounting as an unleased cotenant from the operators of the wells on the Slator Ranch, not from BP (which never operated any of the producing wells on the Slator Ranch).” (BP’s Objs. to Marshalls’ Proposed J., 4 CR 876.)3 BP also challenged the future-accounting award before the court of appeals. BP’s initial brief explained that because BP did not have a possessory interest in the lease at the time of trial (BP Br. at xvii), the trial court erred “in awarding past damages and ordering a future accounting by BP to the Marshalls for production from the EOG Acreage[.]” (Id. at xviii.); see also id. at xxi. BP argued that “[t]here is no . . . legal basis to support the trial court’s award of . . . future accounting attributable to the interests in 3 The record is replete with BP’s argument to this effect. (E.g., id. at 882 (objecting to accounting award because as a result of lease termination BP will have nothing to “account” for to the Marshalls);3 BP’s Objs. to Vaquillas’ Proposed J., 4 CR 902 (same, and arguing accounting “purports to require BP to account to the Marshalls for proceeds received by another cotenant of the Marshalls (EOG)”); see also 18 RR 45 (“[T]here is no case out there under Texas law that allows an accounting to be made against a party as to an interest he’s not getting . . . .”); 16 RR 166–67; 18 RR 38.) 6
  • 10. the Marshall Lease claimed by EOG” (id. at 11) and that the trial court ignored “controlling Texas law with regard to the future accounting . . . .” (Id. at 44.) Finally, as the Marshalls concede, BP challenged the Marshalls’ failure to prove any injury that was causally related to the fraud, thus calling into question the entire remedy: both past damages and future accounting. (See id. at 14–16.) BP reinforced its challenges to the accounting in its reply, arguing that it was an improper target for an accounting award under the Marshalls’ bad-faith trespass theory. In an issue entitled, “The Future Accounting Ordered by the Trial Court is Contrary to Texas Law,” BP pointed out that it could not be considered a “trespasser” on the land because the Wagners and EOG, not BP, were operating and receiving the income for the wells. (BP Reply Br. at 15, 17.) BP again objected to the future accounting in its first motion for rehearing, specifically complaining that the order requires “an accounting from the wrong person.” (BP 1st Mot. Reh’g at 7 (emphasis in original); see id. at 8 (“[I]t is the producing cotenant that owes the duty to account to the other cotenants for their proportionate share of the oil and gas it produces and sells.”); id. at 12–13.)4 BP reiterated the point in its reply to its first motion for rehearing. (Reply to 1st Mot. for Reh’g at 7.) Purely in the alternative, BP requested that any accounting at least be on a net, not gross, basis. The Marshalls’ excerpts from BP’s appellate brief are selectively pulled from BP’s Subissue 6, which contended that, “[i]f this Court determines that any of the Marshalls are entitled to a future accounting, they are only entitled to a [cost-free] 4 Despite BP’s extensive briefing in its first motion for rehearing asserting that BP was an improper target of a future accounting award, the Marshalls’ response to the first motion for rehearing never protested that this argument was a new one or that it contradicted BP’s previous briefing. (See Resp. to 1st Mot. for Reh’g at 7–9.) 7
  • 11. accounting.” (BP Br. at 45 (emphasis added); see also BP Reply Br. at 16.). An alternative argument certainly is no concession that the accounting award was appropriate in the first place. BP has properly preserved its challenge to the deficient accounting order, and this Court should correct such an unprecedented and impracticable judgment. B. BP properly lodged its challenge to the accounting award in response to the court of appeals’ order on rehearing. The Court should not leave this erroneous decision intact, and should review the accounting award even if it believes that BP initially raised the specific argument most relevant to the future accounting in its second motion for rehearing. It was, after all, the court of appeals’ opinion on rehearing that created a legal concept never before recognized in the law of Texas or anywhere else: “‘trespass’ based on receipt of revenue.” Op. on Reh’g, 288 S.W.3d at 455. Under this rationale, the court affirmed the future accounting award based in part on a trespass that purportedly occurred without a physical invasion to the property. But this Court clearly requires that trespass to a mineral interest include the trespasser’s physical entry. See Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W.3d 1, 9–13 (Tex. 2008). In short, no precedent—from Texas or elsewhere—supports a “‘trespass’ based on receipt of revenue.” BP’s second motion for rehearing properly complained of the new error injected into this case by the language in the court’s amended opinion. Because of the widespread ramifications that the court of appeals’ errors may have on the oil patch in South Texas and beyond (Pet. at 14–15), this Court should order full briefing, grant review, and reverse the judgment below. 8
  • 12. Respectfully submitted, BAKER BOTTS L.L.P. By: Thomas R. Phillips State Bar No. 00000102 Evan A. Young State Bar. No. 24058192 Stacy Rogers Sharp State Bar No. 24052109 98 San Jacinto Blvd., Suite 1500 Austin, Texas 78701 Telephone: 512.322.2500 Facsimile: 512.322.2501 J. Gregory Copeland State Bar No. 04798500 910 Louisiana, One Shell Plaza Houston, Texas 77002-4995 Telephone: 713.229.1234 Facsimile: 713.229.1522 James P. Pennington State Bar No. 15758520 LAW OFFICES OF JAMES PENNINGTON 815 Walker, Suite 250 Houston, Texas 77002-5220 Telephone: 713.225.8400 Facsimile: 713.225.8488 ATTORNEYS FOR BP AMERICA PRODUCTION COMPANY, ATLANTIC RICHFIELD COMPANY AND VASTAR RESOURCES, INC. 9
  • 13. CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of BP America Production Company, Atlantic Richfield Company and Vastar Resources, Inc.’s Reply To Petition for Review has been served upon the following counsel of record on the ___ day of November 2009 by certified mail, return receipt requested: James K. Jones, Jr. Pamela Stanton Baron Edward F. Maddox ATTORNEY AT LAW JONES & GONZALEZ, P.C. P.O. Box 5573 5601 San Dario, Suite 5 Austin, Texas 78763 Laredo, Texas 78041 Richard G. Morales, Jr. Timothy Patton Ricardo E. Morales TIMOTHY PATTON, P.C. Marisela Rangel 11 Lynn Batts Lane, Suite 120 PERSON, WHITWORTH, BORCHERS San Antonio, Texas 78218 & MORALES, LLP 602 E. Calton Road David M. Gunn Laredo, Texas 78040 Erin H. Huber BECK, REDDEN & SECREST, L.L.P. Michael E. McElroy 1221 McKinney Street, Suite 4500 John M. Quinlin Houston, Texas 77010-2010 MCELROY, SULLIVAN & MILLER, L.L.P. Post Office Box 12127 Arnulfo Gonzalez, Jr. Austin, Texas 78711-2127 ATTORNEY AT LAW Post Office Box 3308 Laredo, Texas 78044 Stacy Rogers Sharp 10