The Texas Supreme Court ruled unanimously late last week in favor of BP America Production Co. (“BP”) in a closely-watched case involving two recurring issues: (1) the duty of royalty owners to bring actions in a timely fashion, and (2) the requisites of adverse possession when unleased co-tenants mistakenly believe their mineral interests are under lease.

The 8-0 decision in BP America Production Co. v. Marshall, written by Justice Debra H. Lehrmann, held that all claims brought against BP by royalty owners were barred by limitations. It therefore reversed the San Antonio Court of Appeals’ judgment for the plaintiffs, members of the Marshall family, and rendered judgment for BP.

Baker Botts L.L.P. represented BP America in this case.

In a dispute no longer involving BP or its opponents in this case, the Court reversed the lower court’s judgment that Wagner Oil Co. did not obtain a leasehold interest by adverse possession, assuming that the leasehold had expired before Wagner initially acquired it. It therefore also reversed the same lower court and rendered judgment for Wagner.

The Marshalls were owners of a South Texas royalty interest, having leased their mineral interests to BP’s predecessor (ARCO) in the 1970s. In 2001, intervening in a lawsuit first brought by other parties, the Marshalls alleged that BP’s lease had terminated in early 1981 and that BP had defrauded them by concealing the lease termination. The Marshalls contended that they could not receive co-tenancy payments from the current operators because those operators took title to the leasehold via adverse possession.

On the basis of a jury verdict in Zapata County, the district court awarded the Marshalls damages equal to the difference between the royalty interest they had actually received and the amount that they would have been due as unleased co-tenants from 1981 until trial. The court also ordered an accounting from which BP would have been required to pay the Marshalls’ co-tenancy interest for the life of the future production, even though BP—its only well having been a dry hole—did not and never had produced any minerals on the property.

On appeal, BP argued that there was no evidence of fraud, and alternatively that the statute of limitations had run in any event, and that the future accounting award was unsupportable under Texas law.

In reversing and rendering judgment, the Supreme Court based its decision for BP exclusively on the limitations argument. The Court agreed with BP that neither the discovery rule nor fraudulent concealment applied in this case, primarily because “reasonable diligence obliges owners of property interests to make themselves aware of pertinent information available in the public record” or to take other steps to safeguard property interests. In this case, the Marshalls could have determined well before limitations ran that the lease had in fact terminated by examining public filings in two offices of the Railroad Commission.

Three amici curiae submitted multiple briefs to the Supreme Court in this case: The Texas Oil and Gas Association; Kelly Hart & Hallman LLP; and the Texas Land and Mineral Owners Association.

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