Austin, TX (Law Firm Newswire) July 25, 2012 – The Texas Supreme Court recently issued its opinion in Shell v. Ross.
The ruling stated that an oil and gas company did not have to reimburse a royalty owner for incorrect payments, because the statute of limitations had lapsed. The decision overturned a jury verdict of $72,000 in favor of the royalty owner.
“This case is a wake-up call for all royalty owners,” said Gregory D. Jordan, an Austin oil and gas attorney. “Even though Ross was in the right, the court ruled that he waited too long to act even if he was allegedly misled by the oil company. I hope that all royalty owners will pay attention to this significant case,” noted Jordan.
Ralph Ross’s family first entered into a lease with Shell Oil Company in 1961, which required that Shell pay royalties on gas according to the “amount realized” by the company. However, from 1988 to 1994, the royalties Shell paid were based on an average price, rather than the amount the company actually received. In addition, from 1994 to 1997, the company paid royalties to Ross based on an internal figure that the company admitted it could not explain. The company’s sole defense was that the four-year-long statute of limitations had passed.
Ross filed suit against Shell in 2002, outside of Texas’ four-year-long statute of limitations for contract claims. The plaintiff sought to avoid the limitation through the fraudulent concealment doctrine, which provides in part, that the statute of limitations is tolled if the defendant has misled the plaintiff. A jury agreed that Shell had fraudulently concealed its underpayment of royalties and that Ross could not have discovered the underpayment through reasonable diligence until 2002. In overruling the jury’s decision, the Texas Supreme Court found that Ross could have discovered the underpayment through readily accessible public records, and should not have relied on a statement from Shell.
“Disputes over oil and gas royalty payments are common, and what this case shows is that royalty owners need to be vigilant,” said Jordan. “If a royalty owner has any question about the royalty payments he has been receiving, that royalty owner should consult with a qualified oil and gas attorney at that time. Further, it might be a good idea for royalty owners to have their royalty payments reviewed at least every three years to be sure that they are accurate.”
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