In a split decision, the 14th Court of Appeals has affirmed a trial court order dismissing a lawsuit for contamination of land from oil and gas operations. In Ali Mustafa and Ali Reza Lahijani v. Americo Energy Resources, LLC (No. 14-20-00202-CV), the majority held that the two-year statute of limitations barred the plaintiffs’ negligence cause of action against the operator for failing to prevent contamination of the property once the wells became inactive. The trial court likewise determined that plaintiffs’ breach of contract, declaratory judgment, and conversion claims were barred by the four-year statute of limitations, but the plaintiffs appealed only the ruling on the negligence claim.
The facts can be boiled down as follows. Plaintiffs bought the lessor’s mineral rights on several tracts of land in 2000 and 2004. Of the two wells on the property, one had ceased operating in marketable quantities and the other continued production until 2008. In 2016 plaintiffs inspected the property with a prospective business partner, who noticed soil discoloration around the saltwater tanks adjacent to one of the wells. No contamination had ever been reported at the site. Plaintiffs reported it to the Railroad Commission, which ordered Americo to treat the soil and remove debris. The following year, plaintiffs again contacted the TRC. Americo responded by hiring a company to treat the affected area. Soil samples sent to TRC were within regulatory limits. Plaintiffs hired an expert who opined that the property had contamination from oil and gas operations over time, but did not specify when the contamination occurred. Based on this opinion, plaintiffs sued Americo in October 2017.
Americo filed a motion for summary judgment based on limitations, arguing that the plainiffs’ negligence claim accrued on one of two alternative dates: after production ceased in 2008 or at the latest in February 2015, when Americo cleaned out the tanks and removed all oil products from the property. The trial court granted summary judgment and dismissed plaintiffs’ claims with prejudice. In their sole issue on appeal, plaintiffs argue that the trial court erred in finding that: “(1) the presence of equipment, debris, and soil discoloration do not prevent the application of the discovery rule; and (2) Americo met its burden of negating the existence of any factual dispute regarding its statute of limitations defense.”
The majority determined that this case is analogous to ExxonMobil Corp. v. Lazy R Ranch, LP, 511 S.W.3d 538 (Tex. 2017). In that case, plaintiffs alleged soil and groundwater contamination from surface spills as a result of Exxon’s operations on the property. SCOTX held that the discovery rule did not apply because “there was nothing inherent in the possibility of contamination that kept [plaintiff] from hiring [an expert to investigate possible contamination] sooner.” In this case, the summary judgment evidence clearly established that the tanks in question were cleaned on in February 2017, leaving a “noticeable area of stained soil.” Additionally, the tank bottoms stayed on the property and could easily be viewed. In their letter to the TRC, the plaintiffs had complained of spills on the property prior to 2016, but they never bothered to inspect the property between 2010 and 2016. When they did finally visit the property in 2016, the fact that the investor noticed soil discoloration indicated that if plaintiffs had visited the property at any time between the cessation of production in 2008 and 2016, they would likely have noticed it and investigated further. As the Exxon court noted, “the owner’s obligation of due diligence goes beyond mere passive visual observation; owners must inquire into the lessee’s activities.” That did not occur here. The discovery rule did not apply.
The dissent would hold that a genuine issue of material fact existed as to when the plaintiffs would have discovered the contamination if they had exercised due diligence. It distinguished the ExxonMobil case on the basis that the landowner in Exxon lived on the property and knew of spills on the property, enabling SCOTX to conclude no “inherently undiscoverable injury” that triggered the discovery rule. In this case, however, absentee landowners that visited the property 13 months after Americo had cleaned out the tanks should not be held to have failed in their duty of due diligence (the dissent appears to ignore the five years before that in which contamination would likely have been discovered if the owners had deigned to visit). The dissent also complained that Americo did not request or secure relevant findings from the trial court to sustain its plea of limitations and thus waived its defense.
Though the dissent argues that the majority opinion imposes a new duty on an absentee landlord, we don’t see that. If one owns land, it shouldn’t matter whether one lives on it or not—the duty to diligently protect one’s interests remains the same. The majority rightly emphasized the nine-year lag between cessation of production on the property and the lawsuit and the plaintiffs’ failure to visit the property during the relevant period in which contamination would reasonably have been discovered. The fact that the plaintiffs also pleaded breach of contract and other claims that were clearly barred by the four-year statute of limitations didn’t help, either. As the majority points out, the discovery rule is meant to be a narrow and rare exception to statutory limitations. Otherwise, limitations could be easily evaded as to defeat their purpose, as SCOTX has observed. The majority opinion simply says that the courts will not sit around waiting for claimants to file lawsuits based on facts, in this case, nearly a decade old. Time to move on.
