Charles G. Hooks, III v. Samson Lone Star, Limited Partnership, N/K/A Samson Lone Star Llc
457 S.W.3d 52
| Tex. | 2015Background
- Charles G. Hooks III (and related parties) sued Samson Lone Star over three 1999 oil-and-gas leases (two in Hardin County, one in Jefferson County), claiming fraud, fraudulent inducement, breach of lease provisions (most-favored-nations, formation-production, offset), improper “unpooling,” and unpaid royalties.
- Central fraud claim: Samson supplied a plat that mislocated a well’s bottom hole outside Hooks’ 1,320-foot protected zone and induced Hooks to amend the Jefferson County Lease to allow pooling; an earlier Railroad Commission directional survey and plat showed the well actually bottomed inside the protected zone.
- Trial: jury found fraud and awarded > $20 million; trial court entered judgment for Hooks, including stipulated attorney’s fees and 18% post-judgment interest.
- Court of appeals reversed most of the judgment, holding Hooks’ fraud claims time-barred because, as a matter of law, reasonably diligent investigation of Railroad Commission records would have revealed the fraud.
- Supreme Court of Texas: reversed in part and affirmed in part — held that when the public record itself is tainted by the defendant’s fraudulent filing, whether reasonable diligence would have discovered the fraud is a fact question for the jury; resolved several contract-interpretation issues and remanded others to the court of appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Whether Hooks’ fraud/fraudulent-inducement claims are barred by the 4-year statute of limitations | Hooks: limitations tolled until fraud discovered; jury found discovery within 4 years | Samson: public Railroad Commission filings (directional survey and earlier filings) made the fraud discoverable as a matter of law by 2000–2001 | When the defendant’s fraud taints more recent public filings, earlier inconsistent public records cannot, as a matter of law, defeat reasonable-diligence at trial; reasonable diligence is a fact question here — remand for factual issues. |
| 2) Whether Samson breached the most-favored-nations (MFN) clause by granting the State a higher royalty via a pooling agreement | Hooks: State’s pooling allocation effectively increased State royalty on its tract (to ~28.29%), triggering MFN protection | Samson: MFN applies only to royalties "payable under" another lease, not to pooling-allocation adjustments | MFN clause applies; pooling allocation that increases the State’s effective royalty counts as a royalty "payable under" the lease — breach held for Hooks. |
| 3) Meaning of formation-production clause (whether royalties must be calculated on formation production rather than proceeds—and whether condensate is double‑royaltied) | Hooks: royalties must be based on formation-production volume; condensate should be paid as condensate and again as gas-equivalent (double) | Samson: clause requires conversion of condensate to gas equivalent so total royalties match reported formation production; not double payment | Court rejects double-royalty theory; formation-production clause requires conversion of condensate to gas-equivalent to align royalty base with reported formation production; evidentiary damages for lost/unsold gas not proven — formation-production claims affirmed for Samson. |
| 4) Whether Hooks can recover royalties from an earlier pooled unit after Samson amended/renamed the unit ("unpooling") | Hooks: Samson effectively unpooled and owes royalties from original Blackstone A-1 unit | Samson: Hooks ratified amendment by accepting notice and royalty checks for the amended Joyce Du Jay unit | Court affirms: Hooks received notice, accepted royalties on the amended unit, and did not challenge it — ratification prevents recovery from the earlier unit. |
| 5) Breach of Hardin County offset provisions and limitations on recurring compensatory royalties | Hooks: offset-compensatory royalties are recurring; damages within 4 years collectible | Samson: offset clause provided alternatives (drill, release, or pay) so non-recurring election could bar recurring damages | Court holds that Samson’s failure to timely elect the non-recurring alternatives created an implied election of recurring compensatory royalties; damages within 4 years before suit are not barred — remanded for merits. |
Key Cases Cited
- BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59 (Tex. 2011) (reasonable-diligence discovery may be decided as a matter of law when public technical records plainly reveal fraud)
- Shell Oil Co. v. Ross, 356 S.W.3d 924 (Tex. 2011) (claimants with industry sophistication must consult readily accessible public records; such records can bar fraudulent‑concealment tolling as a matter of law)
- Exxon/ Emerald Oil & Gas Co. v. Emerald Oil & Gas Co., 348 S.W.3d 194 (Tex. 2011) (fraud/discovery rule and when reasonable diligence begins to run)
- Borderlon v. Peck, 661 S.W.2d 907 (Tex. 1983) ("fraud vitiates whatever it touches" — equitable doctrine of fraudulent concealment)
- Montgomery v. Rittersbacher, 424 S.W.2d 210 (Tex. 1968) (pooling effects and allocation of production/royalties among unit owners)