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CAUSE NO. 2015 47031
BREITBURN OPERATING, LP, IN THE DISTRICT COURT
successor interest to
QRE OPERATING, LLC
Plaintiff
ROGER D. PARSONS, IN HIS
CAPACITY AS TRUSTEE OF THE
LL&E ROYALTY TRUST,
Defendant OF HARRIS COUNTY, TEXAS
QRE OPERATING, LLC, QR
ENERGY, LP, BANK OF NEW
YORK MELLON TRUST
COMPANY, N.A., BREITBURN
ENERGY PARTNERS, LP,
BREITBURN MANAGEMENT
COMPANY, LLC, STIFEL,
NICOLAUS & COMPANY, INC.,
CONOCOPHILLIPS COMPANY,
AND MAVERICK NATURAL
RESOURCES, LLC,
‘Third Party Defendants. 133RD JUDICIAL DISTRICT COURT
PLAINTIFF AND THIRD PARTY DEFENDANTS’
TRADITIONAL MOTION FOR SUMMARY JUDGMENTON LIMITATIONS
TO THE HONORABLE
JUDGE JACLANEL McFARLAND:
Plaintiff Breitbum Operating LP (“BBOP”), successor interest
to QRE Operating,
L.L.C. and Third Party Defendants Breitbum Management Company, LLC, Breitbum Energy
Partners, LP, QR Energy, LP, and Maverick Natural Resources, LLC (collectively with BBOP
“Br tbum’”) file this Traditional Motion for Summary Judgment on Limitations In support
thereof, Breitbum would respectfully show the Court as follows:
INTRODUCTION
This is a case about accounting for the revenue and expenses associated with oil and gas
production from wells in the Jay Field, located in Florida and Alabama. Defendant Roger D.
Parsons, in his capacity as trustee of the LL&E Royalty Trust (“LL&E Trust” or the Trust”),
brings claims for breach of contract a related causes of action stemming from an alleged
failureby Breitbum to pay the Trust its share of Net Proceeds from that production, pursuantto
the Conveyance of Overriding Royalty Interests (the “Net Profits Conveyance”) that govems the
ghts and obligations of BBOPand the LL&E Partnership(a non party)as relatedto their interests
in Net Proceeds, or net profits, production from certain oil and gas wells in the Jay Field. The
related causes of action are not at issue as they remain stayed by the United States Bankruptcy
Court for the Southem Distr ct of New
Y ork.
The LL&E Trust s claim
at issue, breach
of contract, is govemedby a four-year statute of
limitations—yet the Tru seeks damages for alleged injuries that took place as far back as
December 2006, almost a decade before it filed its claims in this case The Trust - st filed its
counterclaims against Breitbum in this case on February 19, 2016. As such, any claims for any
payment of Net Proceeds that occurred prior to February 19, 2012 are outside
of the
limitations period and are clearly time-barred.
In addition to the limitations issues that plague the Trust’s claims prior to February 2012,
none of the parties in this case were responsible for operating the Jay Fieldand thus
performing the calculations the Trust bases its claims onuntil December 2012. Prior to that
time, Quantum Resources Management, LLC was the operator. The Trust dismissed its claims
against Quantum Resources Management, LLC on December3, 2018.
Notwithstanding
that issue, the Trust maintains that the discovery rule and the doctrineof
audulent concealment should permit it to recover damages for any failure to pay Net Proceeds
going back “over decades.” See Motion to Compel at 10. But neither the discovery rule nor the
doctrine of fraudulent concealment applies in this cThe Trust knew full well of its alleged
injuries at the time they occurred. Any argument to the contrary belies reality. The Trust
received regular reports from BBOP and the prior operators of the Jay Field that included the
amount of Net Proceeds, if any, due to be paid, as well as the amount of any expenses incurred,
and any amount withheld for future expenses. Furthermore, in addition to the reports it received
from Breitbum, the Trust affirmatively set forth these amountsthe amounts that form the basis
of its alleged injuriesin its public filings with the U.S. Securities and Exchange Commission.
(the SEC). And the Trust has audited Breitbum three separate occasions, with the first audit
occuming
as far back as 2010. It cannot now in good faith claim
it was not aware of its alleged
injuies. The Court should grant summary judgment in Breitbum’s favor on the Trust’s claims
relatedto non-payment of Net Proceeds that occurred prior to February 19, 2012.
SUMMARY JUDGMENT EVIDENCE
This motion relies upon the following evidence in addition to the parties’ pleadings:
EXHIBIT DESCRIPTION
Declaration of Joel Towner
Net Profits Conveyance
Monthly stribution Calculations
EXHIBIT | DESCRIPTION
June 2011 NPI Calculation Report
January 2012 NPI Calculation Report
SEC Documents
Audit Documents
October , 2011 Email Chain from Ste en Passalacqua
December 14, 2011 Email fromJamie Bartlett
Declaration of Kamille Reihle
FACTUAL BACKGROUND
BBOP owns the majority working interest and revenue interest in the Jay Field, which is
an oil and gas field located in Florida and Alabama. Ex. J, Decl. of K. Reihle, at {3.BBOP is
also the current operator of the Jay Fidd. Id’ BBOP’s predecessor, QRE Operating, LLC,
assumed the operatorship of the Jay Field on December 28, 2012. See Third Amended Answer,
Amended Counterclaim, and Amended Third Party Petition at 6. Prior
to that time, Quantum.
Resources Management, LLC was the operator. Id.Quantum Resources Management, LLC is
not a party to this action; the Trust nomsuited its claims against Quantum Resources
Management, LLC on December 3, 2018. See LL&E Trust’s December 3, 2018 Notice of Non
Suit
Non party LL&E Partnership has a net profits interest (“NPI”) in a portion of the net
proceeds (“Net Proceeds”) of certain leases located in the Jay Field, pursuant to the Net Profits
Conveyance. See Ex. B, Net Profits Conveyance. The LL&E Trust owns a 99% interest in the
LLGE Partnership.
Pursuant to the Net Profits Conveyance, BBOP is responsible for calculating the amount
of Net Proceeds payable to the LL&E Partnership and distributing any such amount. Id.
Additionally, pursuant to a formula set forth in the Net Profits Conveyance, BBOP may withhold
certain funds from the Net Proceeds each month to pay for future Special Costs, which are
certain expected future capital expenditures and plugging and abandonment costs. Id.at rt.
VIII(e).The amou nt of money that may be deducted from the Net Proceeds pursuant
to this
calculation is called the Special Costs Escrow Accountid.
Since September
2010, money has been deducted every month from the Net Proceeds to
be distributed for the Special Costs Escrow Account, as is permitted via the terms of the Net
Profits Conveyance Ex. J, Decl. of K. Reihle, at 8; Ex. D, June 2011 NPI Calculation Report;
Ex. E, January 2012 NPI Calculation ReportAs a result the last payment of Net Proceeds was
to the LLGE Partnership (and thus, the LL&E Royalty Trust) in January 2008. Id. Since
that time, there have simply been no Net Proceeds to pay out. Id.
(or the prior operators) and the Trust have engaged in constant communication
regarding these calculations and the amounts withheld via the Special Costs Escrow Account
since 2007. See, eg., Ex. C, Monthly Distribution Calculations; Ex. D, June 2011 NPI
Calculation Report; Ex. E, January 2012 NPI Calculation Report; Ex. H, October 2011 Email;
Ex. I, December 2011 Email ven though no Net Proceeds have been due to be distributed,
BBOP and accounting persomn for the previous operators have regularly produced reports
detailing the Net Proceeds calculation, as well as the amount of the Special Costs Escrow
Account. See Ex. J, Decl. of K. Reihle, at (15-6; Ex. C, Monthly Distribution Calculations; Ex.
D, June 2011 NPI Calculation Report; Ex. E, January 2012 NPI Calculation Report These
reports
were provided to the Trust. Id.
Some of these reports re monthly distribution calculations, which explained to the
Trust the amount of money set to be distributed t the LL&E Partnership
in a given month. See
Ex. C, Monthly Distribution Calculations. These reports, and the emails that accompanied them,
expressly stated how much money was due to be paid to the LL&E Partnership
in a given month,
if any. Id. For example, the monthly distribution calculation for September 2009, which was
providedto the Trust on November
23, 2009, made clear
that no distribution
would be made that
month:
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Id.at 307.
Other reports provided
a detailed breakdown of the NPI calculation. See, e.g. Ex. D, June
2011 NPI Calculation Report; Ex. E, January 2012 NPI Calculation ReportFor example,
June 2011, Breitbum sent the Trust an NPI calculation report that included information for the
months January 2007 (when the interest was acquired) through March 2011. Ex. D, June 2011
NPI Calculation Report. The report included detailed amounts supporting the calculation of Net
oceeds, Gross Proceeds, Special Costs, and the amount withheld via the Special Costs Escrow
Account for each of those months. Id.
Similarly, on January 19, 2012, Breitbum sent the Trust a detailed report providing the
NPI calculation for the months of January 2009 through November 2011. Ex. E, January 2012
NPI Calculation Report. It also included detailed amounts supporting the calculation of Net
Proceeds, Gross Proceeds, Special Costs, and the amount withheld via the Special Costs Escrow
Account for those months. Id. Thus, by January 19, 2012, the Trust had been provided with the
data supporting the Net Proceeds calculations, as well as the calculations for the Special Costs
Escrow Account, for the entirety of the time BBOP (and its predecessor) had owned its interest
intheJay Fidd.
In addition to the reports received by e Trust during the 20072012 time period the
Trust and Breitbum (or prior operators) communicated regularly regarding the Trust’s concems
about the payment of Ne roceeds and the calculation of Special Costs. See, eg., Ex. H,
October 2011 Email; Ex. I, December 2011 Email For example, in October 2011, S teven
Passalacqua, a KPMG associate who worked with the Trust in reviewing its interest in the Jay
Fidd, re ed outto discuss
the Trust s concems:
Id. at3. Accounting personnel from Quantum entities worked intemally to respond to the
Trust's inquiries. See id.at 1-3.
In December 2011, the parties
met to discuss these very issues. Ex. I, December 2011
Email (discussing a meeting to take place December 19, 2011). An agenda for the meeting
includes a list of questions directly related to the claims the Trust brings in this case, including:
“Why has the estimated abandonment costs increased over the years?” and “What
are decision.
points to escrow money versus distribute proceeds?” Id.at 2.
Furthemore,
the Trust conducted an audit of all of ’s predecessor's books and.
records related to the Jay Field on three separate occasions x. J, Decl. of K. Reihle, at 117; Ex.
, Audit Documents. These audits covered the period from July 2007 through December 2012
Id. During these audits, the Trust’s independent
auditors reviewed
the calculations related
to the
NPI and the Special Costs Escrow Account. See Ex. G, Audit Documents, at 3 (explaining that
Martindale Consultants, the independent auditor, reviewed the monthly Trust Distribution
calculations for July 2007 through December 2008” for the first audit).
he Trust used these audits to negotiate several complaints
it had with various expenses
and revenue amounts. See id. at26 29 (addressing
the Trust’s concems raised during the audit).
One of these complaints was related to labor costs incurred during 2009. Id. at 37. Per the
Tru ’s own public statements to the SEC in its Form 10K for 2010, these complaints
cluding the complaint related to 2009 labor costswere all completely resolved during the
audit process. Ex. F, SEC Documents at 8 (“All material matters issues raised by the
independent
joint venture auditor with respect to the most recent period have b resolved with
the working interest owner.”).
he Trust’s SEC filings also make clear that the Trust was well aware of the amount
withheld
via the Special Costs Escrow Account, and the increase
in the amount after
the interest
‘wes acquired from the previous owner in 2007. See id.Inits Form10 K for year end 2010, the
Trust explained to the SEC that “[als of December 31, 2010, the Working Interest Owners’
estimates of total Special Costs for abandonment are $16.1 million forJay Field.” Id.-This is a
arked difference from the $4.5 million amount (only half of which belonged to the LL&E
artnership) reflected in the year end 2007 Form 10-K that was escrowed for 20See id. 4
(explaining “[t]here were no amounts escrowed for the Jay Field in 2007,” and that the Special
Costs Escrow Account totaled $4,543,402 at that time).
On August 12, 2015, BBOP filed its Original Petition in this case, seeking a declaratory
judgment See Original Petition. The Trust filed its Original Answer on September 18, 2015 but
did not assert any counterclaims
at that time. See Original Answer. It did not assert any claims
in this case until February 19, 2016. See First Amended Answer, Original Counterclaim, and
Original Third Party Petition.Now, the Trust asserts causes of action for breach of contract and
related theories stemming from Breitbum’s alleged failureto pay Net Proceeds due to the
withholding of the Special Costs discussed above. See Third Amended Answer, Amended
unterclaim, and Amended Third-Party Petitionat 16.
he Trust maintains that it is entitled to recover for these injuries it claims it suffered
“over decades”
far beyond what the statute of limitations would permit. See Motion to Compel
at 10. In fact, over the last few months, the Trust has insisted
that Breitbum produce documents
relatedto expenses
and issues from well more than ten years ago. See id. at 15, 16 (demanding
reserve reports from as far back as 2007 and time sheets from as far back as 2009, which relate to
the labor dispute that the Trust previously represented had been resolved during the audits).
Such stale claims—and the discovery requests accompanying them—cannot survive.
ARGUMENT AND AUTHORITIES
None of the parties in the case w responsible for the Trust’s alleged injuries prior
to December 28, 2012.
First, none of the parties in this case operated the Jay Fie d until December
28, 2012. See
Third Amended Answer, Amended Counterclaim, and Amended Third Party Petition at 6. Thus,
the Trust cannot succeed on its claims based on the contractual duties of the operator—including
the calculation and distribution of Net Proceedsbased any alleged injuries related to those
ies prior
to that date.
From 2007 until December 28, 2012, Quantum Resources Management, LLC was the
operator of the Jay Fielld. BBOP’s predecessor, QRE Operating, LLC, did not assume the
operatorship until December 28, 2012. Quantum Resour ces Management, LLC is not a party
to this acti . The Trust nor-suited its claims against Quantum Resources Management, LLC on
December 3, 2018. SeelLL&E Trust ’s December 3, 2018 Notice of Non-Suit.
der the terms of the Net Profits Conveyance, the operator of the Jay Fidd is
responsible for calculating the amount of Net Proceeds due to be paid to the LL&E Partnership
each month and making any required payments. Ex. B, Net Profits Conveyance, at VII(e)
(stating that this responsibility lies with the “Assignor,” which is included in the definition of
“Operator”). Thus, since none of the parties in this case had any contractual responsibilities
related to the distribution and calculation of Net Proceeds, or calculation of the Special Costs
Escrow Account, the Trust’s claims prior to December 28, 2012 necessarily fail. See Mission
Grove, LP. v. Hall, 503 S.W.3d 546, 55152 (Tex. App.Houston [14th Dist.] 2016, no pet.
(“As
a general rule, a suit for breach of contractmay not be maintained against a person who
notaparty thecontract.”). The Court should grant summary judgment in Breitbum’s favor
on all claims related to any alleged injury sustained prior to December 28, 2012. None of the
entities
that remain in the case are the properdefendants for those claims.
The LL&E Trust's claims for all Net Proceeds due to be paid prior to February
2012 are barred by the statute of limitations.
But next, even if he Trust had maintained a claim against the proper party, its claims
for
any alleged injuries
that accrued prior to February 2012 are still time-barred.
Statute of limitations is an appropriate ground for summary judgment. KPMG Peat
Marwickv. Harrison County Hous. Fin. Corp, 988 S.W.2d 746, 748 (Tex. 1999). Indeed, a
defendant is entitled to summary judgment if it conclusively establishes that the applicable
statute of limitations
has expired. Id. When a defendant moves for summary judgment on the
firmative defense of limitations, it carries the burden to establish the defense. Véelsicol
Chemical Corp. v. Winograd 956 S.W.2d 529, 530 (Tex. 1997). To do so, it must: (1)
nclusively prove when the cause of action accrued, and (2) if applicable, negate the discovery
tule. KPMG, 988 S.W.2d at 748. If the movant establishes that the statute of limitations bars the
action, the burden shifts to the nonmovant to adduce summary judgment evidence that raises a
fact issue in avoidance of limitations. Id.
The LL&E Trust claims fornon payment of Net Proceeds accrued on a monthly
basis on the date each payment allegedly should
have been made,
First, the Trust’s causes of action related to alleged withholding of Net Proceeds due to
the calculation
of the Special Costs Escrow Account accrued each month when the payment of
Net Proceedswas allegedly due.
In Texas, when a cause of action accrues is a question of law. Morenov. Sterling Drug,
Inc., 787 S.W.2d 348, 351 (Tex. 1990). Generally, a cause of action accrues and the statute of
limitations begins to rm when facts come into existence that authorize the plaintiff to seek a
judicial remedy. Id. (citing Johnson & Higgins of Tex. Inc. v. Kenneco Energy, Inc., 962
S.W.2d 507, 514 (Tex. 1998)). This is true regardless of when the plaintiff leams of the legal
injury orif all resulting damages have yet to occur. SV. v. RV., 9383 S.W.2d 1, 4 (Tex. 1996).
Generally, a cause of action accrues in a breach of contract case when the alleged breach.
occurs. Moreno 787 S.W.2d at 351. As such, cases of action relatedto contracts that require
monthly payments accrue on a monthly basis as payments are not made. See _rrison
v. Bass
Enterprises Prod. Co., 888 S.W.2d 532, 537 (Tex. App.Corpus Christi 1994, no writ) Thus,
[plaintiffs] claims for unpaid royalty ‘accrued’ monthly as oil and gas are produced and the
agreed royalty is not paid.”); see also Trelltex, Inc. v. Intecx, LL.C., 494 S.W.3d 781, 786
(Tex. App.Houston [14th Dist.] 2016, no pet.) (holding that a breach of contract claim related
to monthly commissions accrued each month when the commissions were due to be paid); F.D.
Stella Products Co. v. Scott, 875 S.W.2d 462, 465 (Tex. App.Austin 1994, no writ) (holding
the same in a breach of contract caserelated to lease payments).
In this case, the Trust’s claims against Breitbum center on alleged breaches of the Net
Profits Conveyance related to an alleged failure to pay Net Proceeds because of the amount of
funds withheld for the Special Costs Escrow Account. Third Amended Answer, Amended
Counterclaim, and Amended Third Party Petition at 14-16. he Net Profits Conveyance
provides that any royalty payments were to be paid out on a monthly basis. Ex. B, Net Profits
Conveyance, at rt. VIII(a). Similarly, the amount withheld via the Special Costs Escrow
Account is calculated on a monthly basis. Id. at rt VIII(e) As such, the Trust’s claims
accrued
on a monthly basis, each month the Trust alleges Breitbum failed to pay Net Proceeds
See Moreno, 787 S.W.2d at 351.
The discovery rule and the doctrine offra udulent concealment do not apply.
The Trust has pled both the discovery rule and the doctrine of fraudulent concealment in
an attempt to rescue its claims and toll the nmni of the statute of limitations. Third Amended
Answer, Amended Counterclaim, and Amended Third Party Petition at 14. But neither applies
in this case. And even if the Court were to apply either doctrine the Trust’s claims for alleged
contractual breaches
that occurred prior to February 19, 2012 would still be time-barred.
For example, any claim related to Net Proceeds that were due to be paid in December 2006 accrued on the
date such Net Proceeds should have been paid, any claim related to Net Proceeds that were due to be paid in January
2007 accrued on the date such Net Proceeds should have been paid, and
so on. Pursuantto rticle VIII(a) of the Net
Profits Conveyance, distributions
for a given month, if any, are to be paid within three months after that given
month on the Monthly Record Date. Ex. B, Net Profits Conveyance, at Art. VIII(a). Thus, for example, any
distribution for November 2011 would have been due in February 2012, exactly four years priorto when the Trust
first filedits claims. See id.
The Discovery Rule
The discovery rule provides an exception to the general rule regarding when a cause of
action accruesRobinson v. Weaver , 550 S.W.2d 18, 19 (Tex. 1977). If applicable, the
discovery rule tolls the running of the statute of limitations until the plaintiff discovers or,
through reasonable care and diligence should have discovered, the facts giving rise to the cause
of action. Barker v. Eckman, 213 S.W.3d 306, 312 (Tex. 2006); Moreno, 787 S.W.2d at 351.
When pled as an exceptionto limitations, the defendant must negate the exception by provingas
a matter of law that the discovery rule does not apply, or that there is no genuine issue of
material fact about when the plaintiff discovered, or should have discovered, the nature
of the
alleged injury. KPMG, 988 S.W.2d at 748; see also Cluckv. Mecom, 401 S.W.3d 110, 118 (Tex.
App.— Houston [14th Dist.] 2011, pet. denied).
Importantly, the discovery rule only applies when
the injury at issue in the case is both
“inherently undiscoverable’ and “objectively verifiable.” Houston Endowment Inc. v. Atl.
Richfield Co., 972 S.W.2d 156, 159 (Tex. App.Houston [14th Dist] 1998, no pet.) (citing
Computer Assocs. Int 1, Inc. v. Altai, Inc.918 S.W.2d 453, 456 (Tex. 1996)). “An injury is not
inherently undiscoverable when it could be discovered through the exercise of reasonable
diligence.” B. Mahler Interests, L.P. v. DMAC Constr., Inc., 503 S.W.3d 43, 49 (Tex. App.
Houston [14th Dist.] 2016, no pet.) (citing BP Am Prod. Co. v. Marshall, 342 S.W.3d 59,
(Tex. 2011)). Rather, “an injury is inherently undiscoverable
if it is, by its nature, unlikely to be
discovered within the prescribed limitations period despite due diligence.” Wagner & Brown,
Ltd. v. Horwood, 58 S.W.3d 732, 734-35 (Tex. 2001) (citin S.V., 983 S.W.2d at 7).
The Texas Supreme Court has made clear that injuries that result froma lack of payments
or deductions from payments in the oil and gas context are not inherently undiscoverable. See
Wagner
& Brown, 58 S.W.3d
at 736. In Wagner
& Brown royalty owners filed suit against a
lease operator on account of alleged improper deductions from the royalties that were paid. Id.at
733. When the operator argued the royalty owners’ claims were barred by the statute of
limitations, the royalty owners maintained the discovery rule deferred accrual of the statute of
limitations. Id. at 734. The Court noted that the deductions the royalty owners complained of
te reflected on the statements they received from the operator, and explained
that “ Just
as a
royalty owner should determine whether operations in a common reservoir are harming its
interests, a royalty owner should exercise due diligence to determine whether charges made
against royalty payments are proper and reasonable.Id. at 736. Furthermore, the royalty
owners hired a consultantto review their royalty statements and to investigate the amount of fees
that were withheld. Id. at 737. As a result, the Court held the discovery mule did not apply,
because the royalty owners’ alleged injuries were not “inherently undiscoverable.” Id. (“In sum,
we cannot say that injuries caused by excessive or improper charges resulting in the
underpayment of royalti e inherently undiscoverable.”).
Additionally, even when the discovery mule applies, in Texas, once a plaintiff leams of a
wrongful injury, the limitations clock begins to rneven if itisn ot yet aware of the full extent
of the injury. PPG Indus., Inc. v. JMB Houston Ctrs. Partners Ltd. P’ship, 146 S.W.3d 79, 93
94 (Tex. 2004). Moreover, the discovery rule does not excuse a plaintiff from having to act with
reasonable diligence in investigating its claims. HECI Expl. Co. v. Neel, 982 S.W.2d 881, 88
(Tex. 1998). The discovery mule only tolls the limitations clock “until the plaintiff knew or,
exercising reasonable diligence, should have known of the facts giving rise to a cause of action.
Id.
Here, the discovery mule does not apply becaus the Trust’s alleged injuriesa lack of
Net Proceeds payments due to the amount withheld
for the Special Costs Escrow Accountwere
not “inherently undiscoverable.” See Houston Endowment Inc., 972 S.W.2d at 159 (citing
Computer Assocs. Int’l, 918 S.W.2d at 456 . The Trust cannot in good faith argue it could not
discover whether or not it was receiving payments under the Net Profits Conveyance each
month. Just as the royalty
owner © Wagner & Brown received statements detailing the amount
withheld from their royalty payments, the Trust received reports detailing the amount withheld
from their Net Proceeds due to the Special Costs Escrow Account. Ex.J, Decl. of K. Reihle, at
5-6; Ex. C, Monthly Distribution Calcula ns; Ex. D, June 2011 NPI Calculation Report; Ex.
E, January 2012 NPI Calculation Report see also Wagner & Brown 58 S.W.3d at 736.
Moreover, just as the royalty owners in Wagner & Brown hired an independent consultant to
review the deductions
from the payments, the Trust hired independent auditors to review their
interest and audit Breitbum’s calculations. Ex. , Audit Documents; see also Wagner & Brown.
58 S.W.3d at 737. Thus, just as the Texas Supreme Court concluded that the royalty owners’
injud in Wagner & Brow were not inherently undiscoverable, the Court should conclude that
the Trust's injuries were not inherently undiscoverable, and so the discovery rule does not apply.
Wagner & Brown 58 S.W.3d at 737 see also Clear Lake Ctr., L.P. v. Garden Ridge, LP., 416
S.W.3d 527, 544 (Tex. App.Houston [14th Dist.] 2013, no pet.) (where
a plaintiff had
contractual audit rights, and there is no evidence that false information
was provide during the
course of any audit, an injury is not inherently undiscoverable because it could have been
discovered with the exercise of due diligence
But regardless, even if the discovery mle applied, it would only serve to toll the
limitations period until the causes of action were discovered or could have been discovered by
the Trust. See HECI Expl. 982 S.W.2d
at 886. Here, the evidence is clear that the Trust
necessarily
must have discovered its alleged injuries each month when they occurred. See Ex. C,
Monthly Distribution Calculations; Ex. D, June 2011 NPI Calculation Report; Ex. E, January
2012 NPI Calculation Report. The Trust was plainly aware that it did not receive any Net
Proceeds from the Net Profits Conveyance each month when it did not receive funds.
Throughout 20072012, BBOP and the prior o perators provided the Trust with reports
detailing the Net Proceeds and Special Costs Escrow Account calculations. . J, Decl. of K.
Reihle, at 175 Ex. C, Monthly Distribution Calculations; Ex. D, June 2011 NPI Calculation
Report; Ex. E, January 2012 NPI Calculation Report.
r example, the Trust received a report in June 2011 that contained the NPI calculation
nd the supporting amounts (including the Net Proceeds and the Special Costs Escrow Account)
for January 2007 through March 2011. Ex. D, June 2011 NPI Calculation Report. This report
which contained time periods both before and after Quantum Resources Management, LLC
assumed operatorship made clear to the Trust there had been a change in the amounts withheld
for the Special Costs Escrow Account after the operator changedfor eJay FiedldSee id.
Similarly, the January 19, 2012 NPI Calculation report provided the same detail for
months January 2009 through November 2011. Ex. E, January 2012 NPI Calculation Report
The Trust raised questions about these calculations, and the parties and their representatives
discussed these concems. See, eg., Ex. H, October 2011 Email (discussing variances in the
calculations from month to month); Ex. I, December 2011 Email (containing the parties’ agenda
for a meeting
to discuss the Tru ’s questions).As a result, the Trust had all of the informationit
needed to be aware of its alleged injuries related to Net Proceeds due to be paid for all months
through February 2012 by January 19, 2012 at the very latest.
But evenif he Trust had not received reports from BBOP and the prior operators putting
it on notice
of its alleged injuries, the Trust
was still well aware of the issues it now raises in this
lawsuit long before the limitations period began. The Trust conducted an audit of all of
Breitbum’s predecessor's books and records related to the Jay Field on three separate occasions
covering the time period of July 2007 through December 2012Ex. J, Decl. of K. Reihle, at 7;
Ex. G, Audit Documents. The Trust even represented in its public filings to the SEC that those
audits resolved all of its complaints. See Ex. F, SEC Documents at 8 (“All material matters
issues raised by the independent joint venture auditor with respect to the most recent period have
been resolved with the working interest owner.”). This includes the 2009 dispute over labor
sts, which was included in the audit conducted in 2010 that e Trust represented resolved all
issues yet is also included as part of the claims the Trust brings here. Compare
Ex. G, Audit
Documents at 37 (explaining the 2009 labor costs issue), Ex. F, SEC Documents at
(representing
that all issues had been resolved; with LL&E Trust’s Motionto Compel at 16
(movingto compel daily time sheets related to this issue).
Because
Net Proceeds are due to be paid three months after a given specified month, any payment
for Net
Proceeds for November 2011 would have been due to be paid in February 2012, the relevant limitations cut off date
for this action. See Ex. B, Net Profits Conveyance,at rt. VIII(a); see also First Amended Answer, Original
Counterclaim, and Original Third Party Petition (filed February 19, 2016).
Moreover, the Trust’s own public statements show it was on notice of a marked increase
in the amount of the Special Costs Escrow Account after the operatorship changed hands. The
Trust’s Form 10 K for 2010 stated that for year end 2010, the amount of Special Costs withheld
was $16.1 million. Ex. F, SEC Documents at 8. The Trustwas th erefore aware of e significant
increase from the $4.5 million amount disclosed in the Form 10 K for year end 2007. See id. at
In sum, since the Trust could discover—and _ tually did discoverits alle ged injuries at
the time they occurred, and at the latest, long before the relevant time period for limitations, the
discovery rule does not toll the application of the statute of limitations in this case.
Fraudulent Ccealment
Similarly, the doctrine of fraudulent concealment has no application in this case, either.
Under the doctrine, when a defendant is “under a duty to make disclosure but fraudulently
conceals the existence of a cause of action from a party to wh it belongs, the defendant i
estopped from relying on the defense of limitations until the party leams of its right of action, or
should have leamed of it through the exercise of reasonable diligence.” Bayou Bend Towers
Council of Co Owners v. Manhat n Constr. Co., 866 S.W.2d 740, 746 (Tex. App.— Houston
[14th Dist.] 1993, writ denied) (citingBorderlon v. Peck, 661 S.W.2d 907, 908 (Tex. 1983)).
The plaintiff has the burden of proof to establish fraudulent concealment Caseyv. Methodist
Hosp. W.2d 898, 903 (Tex. App.Hou _ ston [1st Dist.] 1995, no writ) (citingNicho ls v.
Smith, 507 S.W.2d 518, 521 (Tex. 1974)). Specifically, a plaintiff must show the defendant had
(1) actual knowledge
of the wrong; (2) a duty to disclose
the wrong; and (3) a fixed purpose to
conceal the wrong.” Mellon Serv. Co. v. Touche Ross & Co, 17 S.W.3d 432, 436 (Tex. App.
Houston [1st Dist.] 2000, no pet).
Importantly, the doctrine “only tolls the running of limitations until the fraud is
discovered or could have be discovered with reasonable diligence.” BP Am Prod. Co. v.
Marshall, 342 S.W.3d 59, 67 (Tex. 2011)). Thus, fraudulent concealment does not apply once a
Plaintiff has been “put on notice of the alleged harm” and “a diligent inquiry could have led to
discovery of the truth.” venport v. Adu Lartey, 526 S.W.3d 544, 555 (Tex. App.
Houston [1st Dist.] 2017, pet. denied) (citing Etan Indus. v. Lehmann, 359 S.W.3d 620, 623
(Tex. 2011) (per curiam)
Thus, even if the Trust was able to meet its burden anrovide the proof necessary to
show the doctrine of fraudulent concealment applied, it still would not serve to toll the statute of
limitations. Because as set forth above, the Trust was “put on notice of the alleged harm” it
suffered
each month when e LL&E Partnership did not receive Net Proceed , when
it received
reports detailing the Net Profits Conveyance calculations, and when it audited its interest See
Ex. J, Decl. of K. Reihle, at (15 Ex. D, June 2011 NPI Calculation Report; Ex. E, January
2012 NPI Calculation Report; Ex. G, Audit Documents.
Any claims related to alleged injuries that accrued priorto February 19, 2012 are
barred by the statute of limitations.
Since the discovery rule and fraudulent concealment o not apply in this case, the normal
stabute of limitations analysis ntrols the inquiry. Here, any claims related to any injuries that
accrued prior to February 19, 2012—including the failure to pay Net Proceeds, the Special Costs
Escrow Account calculation, or any expense or revenue amount—are plainlytime - barred.
The Trust alleges claims against Breitbum for breach of contract, declaratory judgment, tortious
interference with contract, inducement of breach of fiduciary duty, and conspiracy. Third
Amended Answer, Amended Coterclaim, and Amended Third Party Petition at 1421. Each
of these caus of action has either
a two year or four year statute of limitations. See Agar
Corp., Inc. v. Electro Circuits Int 1, LLC, 580 S.W.3d 136, 142 (Tex. 2019), reh g denied (Sept.
19) (explaining conspiracy is a derivative claim that assumes the limitations time period for
the underlying claim); Exxon Mobil Corp. v. Rincones, 520 S.W.3d 572, 592 (Tex. 2017) (stating
that the statute of limitations for tortious interference is two years); Ammerman v. Ranches of
Clear Creek Crmty. Ass n, Inc., 562 S.W.3d 6, 636 (Tex. App.Houston [1st Dist.] 2018, no
pet.) (providing that both breach of contract and declaratory judgment have a four year statuteof
limitations). All c laims are currently stayed with the exception of the breach of contract claim.
hus, since the Trust first filed its counterclaims on February 19, 2016 the relevant cut
off date for limitations bruary 19, 2012See = Original Counterclaim Any alleged
contractual breaches
that occurred prior to February 19, 2012 are time barredSee +Ammernan
562 S.W.3d at 636 see also Lyle v. Jane Guinn Revocable Tr., 365 S.W.3d 341, 355 (Tex.
App.—Houston [1st Dist.] 2010, pet. denied) (holding that the plaintiff in a breach of contract
case related to oil and gas royalties could recover only for the royalty payments allegedly owed
during the four-year period priorto the filing of the suit).
As such, the Court should grant summary judgment in Breitbum’s favor, and dismiss any
claim relatedto any alleged injuries priorto February 19, 2012.Breit bum is entitledto judgment
One of the Trust’s alleged causes of action is “inducement of breachof fiduciary duty.” No such claim
exists under Texas law. To the extent the Court decides to ize this novel theory, the statute of limitations for
such a claim would be four years. See Tex. Civ. Prac. & Rem. Code § 16.051 (setting the statuteof limitations for
all claims for which there is otherwise no express limitations period at four years).
inits favor on such claims as a matterof law.
CONCLUSION AND PRAYER FOR RELIEF
Plaintiff Breitbum Operating LP, successor interest to QRE Operating, L.L.C., and
Third Party Defendants Breitbum Management Company, LLC, Breitbum Energy Partners, LP,
QREnergy, LP, and Maverick Natural Resources, LLC respectfully
request that the Court grant
this Motion for Summary Judgment and dismiss with prejudice all claims made by Defendant
RogerD. Parsons, in his capacity as Trustee of the LL&E Royalty Trust related to any alleged
injury that occurred prior to December 28, 2012, or in the altemative, any alleged injury that
occumed prior to February 19, 2012.
Respectfully submitted,
ECK EDDEN
By: /s/ Geoff A. Gannaway
Geoff A. Gannaway
State Bar No. 24036617
Qggannaway@beckredden.com
JoeW. Redden,Jr.
State Bar No. 16660600
jredden@beckredden.com
Allison Standish Miller
State Bar No. 24046440
amiller@beckredden.c
Joel T. Towner
State Bar No. 24083978
Ibeckredden.com
1221 McKinney Street, Suite 4500
Houston, Texas 77010
Telephone No. (713) 951-3700
Facsimile No. (713) 951-3720
TTORNEYS OR LAINTIFF OUNTER
EFENDANT REITBURN PERATING LP,
suocessor interest
QRE PERATING LLC ND
HIRD-PARTY EFENDANTS
REITBURN ANAGEMENT OMPANY
REITBURN NERGY TNERS LP,
NERGY AND AVERICK ATURAL
ESOURCES
CERTIFICATE OF SERVICE
Thereby certify thaton ne2 , attue and correct copy of the foregoing instrument
wes served on all known counsel of record in accordance with the Texas Rules of Civil
Procedure
via e service, wit:
John H. Kim, Esq. Joseph G. Thompson III, Esq.
Timothy A. Rothberg, Esq. MadelineL. Mathews, Esq.
The Kim Law Firm Porter Hedges, LLP
4309 Y oakum, Suite 2000 1000 Main Street, 36th Floor
Houston, Texas 77006 Houston, Texas 77002
thekimlawfirm.com.
thekimlawfirm.com Attorneys for Third-Party Defendant
ConocoPhillips Company
Attorneys for Defendant/Counter- Plaintiff/
Third-Party Plaintiff Roger D. The Trust
as Trustee of the LL&E Royalty Trust
W Stephen Benesh, Esq. AndrewR. Harvin, Esq.
PatrickA. Caballero, Esq. Peter Wells, Esq.
Bracewell LLP Doyle, Restrepo, Harvin& Robbins, L.L.P.
111 Congress Avenue, Suite 2300 440 Louisiana, Suite 2300
Austin, Texas 78701-4043 Houston, Texas 77002
steve. benesh@bracewelllaw.com aharvin@drhaw.com
patrick.caballero@hracewelllaw.com pwells@drhaw.com
Attorneys for Third-Party Defendant Attorneys for Third-Party Defendant
the Bank of New York Mellon Trust Co., NA. Stifel, Nicolaus & Co.
/s/ Geoff A. Gannaway
Geoff A. Gannaway
Preview
CAUSE NO. 2015 47031 BREITBURN OPERATING, LP, IN THE DISTRICT COURT successor interest to QRE OPERATING, LLC Plaintiff ROGER D. PARSONS, IN HIS CAPACITY AS TRUSTEE OF THE LL&E ROYALTY TRUST, Defendant OF HARRIS COUNTY, TEXAS QRE OPERATING, LLC, QR ENERGY, LP, BANK OF NEW YORK MELLON TRUST COMPANY, N.A., BREITBURN ENERGY PARTNERS, LP, BREITBURN MANAGEMENT COMPANY, LLC, STIFEL, NICOLAUS & COMPANY, INC., CONOCOPHILLIPS COMPANY, AND MAVERICK NATURAL RESOURCES, LLC, ‘Third Party Defendants. 133RD JUDICIAL DISTRICT COURT PLAINTIFF AND THIRD PARTY DEFENDANTS’ TRADITIONAL MOTION FOR SUMMARY JUDGMENTON LIMITATIONS TO THE HONORABLE JUDGE JACLANEL McFARLAND: Plaintiff Breitbum Operating LP (“BBOP”), successor interest to QRE Operating, L.L.C. and Third Party Defendants Breitbum Management Company, LLC, Breitbum Energy Partners, LP, QR Energy, LP, and Maverick Natural Resources, LLC (collectively with BBOP “Br tbum’”) file this Traditional Motion for Summary Judgment on Limitations In support thereof, Breitbum would respectfully show the Court as follows: INTRODUCTION This is a case about accounting for the revenue and expenses associated with oil and gas production from wells in the Jay Field, located in Florida and Alabama. Defendant Roger D. Parsons, in his capacity as trustee of the LL&E Royalty Trust (“LL&E Trust” or the Trust”), brings claims for breach of contract a related causes of action stemming from an alleged failureby Breitbum to pay the Trust its share of Net Proceeds from that production, pursuantto the Conveyance of Overriding Royalty Interests (the “Net Profits Conveyance”) that govems the ghts and obligations of BBOPand the LL&E Partnership(a non party)as relatedto their interests in Net Proceeds, or net profits, production from certain oil and gas wells in the Jay Field. The related causes of action are not at issue as they remain stayed by the United States Bankruptcy Court for the Southem Distr ct of New Y ork. The LL&E Trust s claim at issue, breach of contract, is govemedby a four-year statute of limitations—yet the Tru seeks damages for alleged injuries that took place as far back as December 2006, almost a decade before it filed its claims in this case The Trust - st filed its counterclaims against Breitbum in this case on February 19, 2016. As such, any claims for any payment of Net Proceeds that occurred prior to February 19, 2012 are outside of the limitations period and are clearly time-barred. In addition to the limitations issues that plague the Trust’s claims prior to February 2012, none of the parties in this case were responsible for operating the Jay Fieldand thus performing the calculations the Trust bases its claims onuntil December 2012. Prior to that time, Quantum Resources Management, LLC was the operator. The Trust dismissed its claims against Quantum Resources Management, LLC on December3, 2018. Notwithstanding that issue, the Trust maintains that the discovery rule and the doctrineof audulent concealment should permit it to recover damages for any failure to pay Net Proceeds going back “over decades.” See Motion to Compel at 10. But neither the discovery rule nor the doctrine of fraudulent concealment applies in this cThe Trust knew full well of its alleged injuries at the time they occurred. Any argument to the contrary belies reality. The Trust received regular reports from BBOP and the prior operators of the Jay Field that included the amount of Net Proceeds, if any, due to be paid, as well as the amount of any expenses incurred, and any amount withheld for future expenses. Furthermore, in addition to the reports it received from Breitbum, the Trust affirmatively set forth these amountsthe amounts that form the basis of its alleged injuriesin its public filings with the U.S. Securities and Exchange Commission. (the SEC). And the Trust has audited Breitbum three separate occasions, with the first audit occuming as far back as 2010. It cannot now in good faith claim it was not aware of its alleged injuies. The Court should grant summary judgment in Breitbum’s favor on the Trust’s claims relatedto non-payment of Net Proceeds that occurred prior to February 19, 2012. SUMMARY JUDGMENT EVIDENCE This motion relies upon the following evidence in addition to the parties’ pleadings: EXHIBIT DESCRIPTION Declaration of Joel Towner Net Profits Conveyance Monthly stribution Calculations EXHIBIT | DESCRIPTION June 2011 NPI Calculation Report January 2012 NPI Calculation Report SEC Documents Audit Documents October , 2011 Email Chain from Ste en Passalacqua December 14, 2011 Email fromJamie Bartlett Declaration of Kamille Reihle FACTUAL BACKGROUND BBOP owns the majority working interest and revenue interest in the Jay Field, which is an oil and gas field located in Florida and Alabama. Ex. J, Decl. of K. Reihle, at {3.BBOP is also the current operator of the Jay Fidd. Id’ BBOP’s predecessor, QRE Operating, LLC, assumed the operatorship of the Jay Field on December 28, 2012. See Third Amended Answer, Amended Counterclaim, and Amended Third Party Petition at 6. Prior to that time, Quantum. Resources Management, LLC was the operator. Id.Quantum Resources Management, LLC is not a party to this action; the Trust nomsuited its claims against Quantum Resources Management, LLC on December 3, 2018. See LL&E Trust’s December 3, 2018 Notice of Non Suit Non party LL&E Partnership has a net profits interest (“NPI”) in a portion of the net proceeds (“Net Proceeds”) of certain leases located in the Jay Field, pursuant to the Net Profits Conveyance. See Ex. B, Net Profits Conveyance. The LL&E Trust owns a 99% interest in the LLGE Partnership. Pursuant to the Net Profits Conveyance, BBOP is responsible for calculating the amount of Net Proceeds payable to the LL&E Partnership and distributing any such amount. Id. Additionally, pursuant to a formula set forth in the Net Profits Conveyance, BBOP may withhold certain funds from the Net Proceeds each month to pay for future Special Costs, which are certain expected future capital expenditures and plugging and abandonment costs. Id.at rt. VIII(e).The amou nt of money that may be deducted from the Net Proceeds pursuant to this calculation is called the Special Costs Escrow Accountid. Since September 2010, money has been deducted every month from the Net Proceeds to be distributed for the Special Costs Escrow Account, as is permitted via the terms of the Net Profits Conveyance Ex. J, Decl. of K. Reihle, at 8; Ex. D, June 2011 NPI Calculation Report; Ex. E, January 2012 NPI Calculation ReportAs a result the last payment of Net Proceeds was to the LLGE Partnership (and thus, the LL&E Royalty Trust) in January 2008. Id. Since that time, there have simply been no Net Proceeds to pay out. Id. (or the prior operators) and the Trust have engaged in constant communication regarding these calculations and the amounts withheld via the Special Costs Escrow Account since 2007. See, eg., Ex. C, Monthly Distribution Calculations; Ex. D, June 2011 NPI Calculation Report; Ex. E, January 2012 NPI Calculation Report; Ex. H, October 2011 Email; Ex. I, December 2011 Email ven though no Net Proceeds have been due to be distributed, BBOP and accounting persomn for the previous operators have regularly produced reports detailing the Net Proceeds calculation, as well as the amount of the Special Costs Escrow Account. See Ex. J, Decl. of K. Reihle, at (15-6; Ex. C, Monthly Distribution Calculations; Ex. D, June 2011 NPI Calculation Report; Ex. E, January 2012 NPI Calculation Report These reports were provided to the Trust. Id. Some of these reports re monthly distribution calculations, which explained to the Trust the amount of money set to be distributed t the LL&E Partnership in a given month. See Ex. C, Monthly Distribution Calculations. These reports, and the emails that accompanied them, expressly stated how much money was due to be paid to the LL&E Partnership in a given month, if any. Id. For example, the monthly distribution calculation for September 2009, which was providedto the Trust on November 23, 2009, made clear that no distribution would be made that month: = RE: LL&E Report ‘sarah.newell@bnymelion.com’ 11/23/2009 05:50 PM ——— ren.carlson@pnymelion.com" et = Sarai h, At chi Di for rember 20 of ar} oe eee L&E Roy December 30 ryt presented re is corre = the eh st m In order to £ pr t disclo: re to hold encl sed is a samp the of fe ret re t as ap; de ha coy the in which you 4t to the Sincer Cole Norton Quantum Le gerof ou 00 cnorton@ Id.at 307. Other reports provided a detailed breakdown of the NPI calculation. See, e.g. Ex. D, June 2011 NPI Calculation Report; Ex. E, January 2012 NPI Calculation ReportFor example, June 2011, Breitbum sent the Trust an NPI calculation report that included information for the months January 2007 (when the interest was acquired) through March 2011. Ex. D, June 2011 NPI Calculation Report. The report included detailed amounts supporting the calculation of Net oceeds, Gross Proceeds, Special Costs, and the amount withheld via the Special Costs Escrow Account for each of those months. Id. Similarly, on January 19, 2012, Breitbum sent the Trust a detailed report providing the NPI calculation for the months of January 2009 through November 2011. Ex. E, January 2012 NPI Calculation Report. It also included detailed amounts supporting the calculation of Net Proceeds, Gross Proceeds, Special Costs, and the amount withheld via the Special Costs Escrow Account for those months. Id. Thus, by January 19, 2012, the Trust had been provided with the data supporting the Net Proceeds calculations, as well as the calculations for the Special Costs Escrow Account, for the entirety of the time BBOP (and its predecessor) had owned its interest intheJay Fidd. In addition to the reports received by e Trust during the 20072012 time period the Trust and Breitbum (or prior operators) communicated regularly regarding the Trust’s concems about the payment of Ne roceeds and the calculation of Special Costs. See, eg., Ex. H, October 2011 Email; Ex. I, December 2011 Email For example, in October 2011, S teven Passalacqua, a KPMG associate who worked with the Trust in reviewing its interest in the Jay Fidd, re ed outto discuss the Trust s concems: Id. at3. Accounting personnel from Quantum entities worked intemally to respond to the Trust's inquiries. See id.at 1-3. In December 2011, the parties met to discuss these very issues. Ex. I, December 2011 Email (discussing a meeting to take place December 19, 2011). An agenda for the meeting includes a list of questions directly related to the claims the Trust brings in this case, including: “Why has the estimated abandonment costs increased over the years?” and “What are decision. points to escrow money versus distribute proceeds?” Id.at 2. Furthemore, the Trust conducted an audit of all of ’s predecessor's books and. records related to the Jay Field on three separate occasions x. J, Decl. of K. Reihle, at 117; Ex. , Audit Documents. These audits covered the period from July 2007 through December 2012 Id. During these audits, the Trust’s independent auditors reviewed the calculations related to the NPI and the Special Costs Escrow Account. See Ex. G, Audit Documents, at 3 (explaining that Martindale Consultants, the independent auditor, reviewed the monthly Trust Distribution calculations for July 2007 through December 2008” for the first audit). he Trust used these audits to negotiate several complaints it had with various expenses and revenue amounts. See id. at26 29 (addressing the Trust’s concems raised during the audit). One of these complaints was related to labor costs incurred during 2009. Id. at 37. Per the Tru ’s own public statements to the SEC in its Form 10K for 2010, these complaints cluding the complaint related to 2009 labor costswere all completely resolved during the audit process. Ex. F, SEC Documents at 8 (“All material matters issues raised by the independent joint venture auditor with respect to the most recent period have b resolved with the working interest owner.”). he Trust’s SEC filings also make clear that the Trust was well aware of the amount withheld via the Special Costs Escrow Account, and the increase in the amount after the interest ‘wes acquired from the previous owner in 2007. See id.Inits Form10 K for year end 2010, the Trust explained to the SEC that “[als of December 31, 2010, the Working Interest Owners’ estimates of total Special Costs for abandonment are $16.1 million forJay Field.” Id.-This is a arked difference from the $4.5 million amount (only half of which belonged to the LL&E artnership) reflected in the year end 2007 Form 10-K that was escrowed for 20See id. 4 (explaining “[t]here were no amounts escrowed for the Jay Field in 2007,” and that the Special Costs Escrow Account totaled $4,543,402 at that time). On August 12, 2015, BBOP filed its Original Petition in this case, seeking a declaratory judgment See Original Petition. The Trust filed its Original Answer on September 18, 2015 but did not assert any counterclaims at that time. See Original Answer. It did not assert any claims in this case until February 19, 2016. See First Amended Answer, Original Counterclaim, and Original Third Party Petition.Now, the Trust asserts causes of action for breach of contract and related theories stemming from Breitbum’s alleged failureto pay Net Proceeds due to the withholding of the Special Costs discussed above. See Third Amended Answer, Amended unterclaim, and Amended Third-Party Petitionat 16. he Trust maintains that it is entitled to recover for these injuries it claims it suffered “over decades” far beyond what the statute of limitations would permit. See Motion to Compel at 10. In fact, over the last few months, the Trust has insisted that Breitbum produce documents relatedto expenses and issues from well more than ten years ago. See id. at 15, 16 (demanding reserve reports from as far back as 2007 and time sheets from as far back as 2009, which relate to the labor dispute that the Trust previously represented had been resolved during the audits). Such stale claims—and the discovery requests accompanying them—cannot survive. ARGUMENT AND AUTHORITIES None of the parties in the case w responsible for the Trust’s alleged injuries prior to December 28, 2012. First, none of the parties in this case operated the Jay Fie d until December 28, 2012. See Third Amended Answer, Amended Counterclaim, and Amended Third Party Petition at 6. Thus, the Trust cannot succeed on its claims based on the contractual duties of the operator—including the calculation and distribution of Net Proceedsbased any alleged injuries related to those ies prior to that date. From 2007 until December 28, 2012, Quantum Resources Management, LLC was the operator of the Jay Fielld. BBOP’s predecessor, QRE Operating, LLC, did not assume the operatorship until December 28, 2012. Quantum Resour ces Management, LLC is not a party to this acti . The Trust nor-suited its claims against Quantum Resources Management, LLC on December 3, 2018. SeelLL&E Trust ’s December 3, 2018 Notice of Non-Suit. der the terms of the Net Profits Conveyance, the operator of the Jay Fidd is responsible for calculating the amount of Net Proceeds due to be paid to the LL&E Partnership each month and making any required payments. Ex. B, Net Profits Conveyance, at VII(e) (stating that this responsibility lies with the “Assignor,” which is included in the definition of “Operator”). Thus, since none of the parties in this case had any contractual responsibilities related to the distribution and calculation of Net Proceeds, or calculation of the Special Costs Escrow Account, the Trust’s claims prior to December 28, 2012 necessarily fail. See Mission Grove, LP. v. Hall, 503 S.W.3d 546, 55152 (Tex. App.Houston [14th Dist.] 2016, no pet. (“As a general rule, a suit for breach of contractmay not be maintained against a person who notaparty thecontract.”). The Court should grant summary judgment in Breitbum’s favor on all claims related to any alleged injury sustained prior to December 28, 2012. None of the entities that remain in the case are the properdefendants for those claims. The LL&E Trust's claims for all Net Proceeds due to be paid prior to February 2012 are barred by the statute of limitations. But next, even if he Trust had maintained a claim against the proper party, its claims for any alleged injuries that accrued prior to February 2012 are still time-barred. Statute of limitations is an appropriate ground for summary judgment. KPMG Peat Marwickv. Harrison County Hous. Fin. Corp, 988 S.W.2d 746, 748 (Tex. 1999). Indeed, a defendant is entitled to summary judgment if it conclusively establishes that the applicable statute of limitations has expired. Id. When a defendant moves for summary judgment on the firmative defense of limitations, it carries the burden to establish the defense. Véelsicol Chemical Corp. v. Winograd 956 S.W.2d 529, 530 (Tex. 1997). To do so, it must: (1) nclusively prove when the cause of action accrued, and (2) if applicable, negate the discovery tule. KPMG, 988 S.W.2d at 748. If the movant establishes that the statute of limitations bars the action, the burden shifts to the nonmovant to adduce summary judgment evidence that raises a fact issue in avoidance of limitations. Id. The LL&E Trust claims fornon payment of Net Proceeds accrued on a monthly basis on the date each payment allegedly should have been made, First, the Trust’s causes of action related to alleged withholding of Net Proceeds due to the calculation of the Special Costs Escrow Account accrued each month when the payment of Net Proceedswas allegedly due. In Texas, when a cause of action accrues is a question of law. Morenov. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex. 1990). Generally, a cause of action accrues and the statute of limitations begins to rm when facts come into existence that authorize the plaintiff to seek a judicial remedy. Id. (citing Johnson & Higgins of Tex. Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514 (Tex. 1998)). This is true regardless of when the plaintiff leams of the legal injury orif all resulting damages have yet to occur. SV. v. RV., 9383 S.W.2d 1, 4 (Tex. 1996). Generally, a cause of action accrues in a breach of contract case when the alleged breach. occurs. Moreno 787 S.W.2d at 351. As such, cases of action relatedto contracts that require monthly payments accrue on a monthly basis as payments are not made. See _rrison v. Bass Enterprises Prod. Co., 888 S.W.2d 532, 537 (Tex. App.Corpus Christi 1994, no writ) Thus, [plaintiffs] claims for unpaid royalty ‘accrued’ monthly as oil and gas are produced and the agreed royalty is not paid.”); see also Trelltex, Inc. v. Intecx, LL.C., 494 S.W.3d 781, 786 (Tex. App.Houston [14th Dist.] 2016, no pet.) (holding that a breach of contract claim related to monthly commissions accrued each month when the commissions were due to be paid); F.D. Stella Products Co. v. Scott, 875 S.W.2d 462, 465 (Tex. App.Austin 1994, no writ) (holding the same in a breach of contract caserelated to lease payments). In this case, the Trust’s claims against Breitbum center on alleged breaches of the Net Profits Conveyance related to an alleged failure to pay Net Proceeds because of the amount of funds withheld for the Special Costs Escrow Account. Third Amended Answer, Amended Counterclaim, and Amended Third Party Petition at 14-16. he Net Profits Conveyance provides that any royalty payments were to be paid out on a monthly basis. Ex. B, Net Profits Conveyance, at rt. VIII(a). Similarly, the amount withheld via the Special Costs Escrow Account is calculated on a monthly basis. Id. at rt VIII(e) As such, the Trust’s claims accrued on a monthly basis, each month the Trust alleges Breitbum failed to pay Net Proceeds See Moreno, 787 S.W.2d at 351. The discovery rule and the doctrine offra udulent concealment do not apply. The Trust has pled both the discovery rule and the doctrine of fraudulent concealment in an attempt to rescue its claims and toll the nmni of the statute of limitations. Third Amended Answer, Amended Counterclaim, and Amended Third Party Petition at 14. But neither applies in this case. And even if the Court were to apply either doctrine the Trust’s claims for alleged contractual breaches that occurred prior to February 19, 2012 would still be time-barred. For example, any claim related to Net Proceeds that were due to be paid in December 2006 accrued on the date such Net Proceeds should have been paid, any claim related to Net Proceeds that were due to be paid in January 2007 accrued on the date such Net Proceeds should have been paid, and so on. Pursuantto rticle VIII(a) of the Net Profits Conveyance, distributions for a given month, if any, are to be paid within three months after that given month on the Monthly Record Date. Ex. B, Net Profits Conveyance, at Art. VIII(a). Thus, for example, any distribution for November 2011 would have been due in February 2012, exactly four years priorto when the Trust first filedits claims. See id. The Discovery Rule The discovery rule provides an exception to the general rule regarding when a cause of action accruesRobinson v. Weaver , 550 S.W.2d 18, 19 (Tex. 1977). If applicable, the discovery rule tolls the running of the statute of limitations until the plaintiff discovers or, through reasonable care and diligence should have discovered, the facts giving rise to the cause of action. Barker v. Eckman, 213 S.W.3d 306, 312 (Tex. 2006); Moreno, 787 S.W.2d at 351. When pled as an exceptionto limitations, the defendant must negate the exception by provingas a matter of law that the discovery rule does not apply, or that there is no genuine issue of material fact about when the plaintiff discovered, or should have discovered, the nature of the alleged injury. KPMG, 988 S.W.2d at 748; see also Cluckv. Mecom, 401 S.W.3d 110, 118 (Tex. App.— Houston [14th Dist.] 2011, pet. denied). Importantly, the discovery rule only applies when the injury at issue in the case is both “inherently undiscoverable’ and “objectively verifiable.” Houston Endowment Inc. v. Atl. Richfield Co., 972 S.W.2d 156, 159 (Tex. App.Houston [14th Dist] 1998, no pet.) (citing Computer Assocs. Int 1, Inc. v. Altai, Inc.918 S.W.2d 453, 456 (Tex. 1996)). “An injury is not inherently undiscoverable when it could be discovered through the exercise of reasonable diligence.” B. Mahler Interests, L.P. v. DMAC Constr., Inc., 503 S.W.3d 43, 49 (Tex. App. Houston [14th Dist.] 2016, no pet.) (citing BP Am Prod. Co. v. Marshall, 342 S.W.3d 59, (Tex. 2011)). Rather, “an injury is inherently undiscoverable if it is, by its nature, unlikely to be discovered within the prescribed limitations period despite due diligence.” Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734-35 (Tex. 2001) (citin S.V., 983 S.W.2d at 7). The Texas Supreme Court has made clear that injuries that result froma lack of payments or deductions from payments in the oil and gas context are not inherently undiscoverable. See Wagner & Brown, 58 S.W.3d at 736. In Wagner & Brown royalty owners filed suit against a lease operator on account of alleged improper deductions from the royalties that were paid. Id.at 733. When the operator argued the royalty owners’ claims were barred by the statute of limitations, the royalty owners maintained the discovery rule deferred accrual of the statute of limitations. Id. at 734. The Court noted that the deductions the royalty owners complained of te reflected on the statements they received from the operator, and explained that “ Just as a royalty owner should determine whether operations in a common reservoir are harming its interests, a royalty owner should exercise due diligence to determine whether charges made against royalty payments are proper and reasonable.Id. at 736. Furthermore, the royalty owners hired a consultantto review their royalty statements and to investigate the amount of fees that were withheld. Id. at 737. As a result, the Court held the discovery mule did not apply, because the royalty owners’ alleged injuries were not “inherently undiscoverable.” Id. (“In sum, we cannot say that injuries caused by excessive or improper charges resulting in the underpayment of royalti e inherently undiscoverable.”). Additionally, even when the discovery mule applies, in Texas, once a plaintiff leams of a wrongful injury, the limitations clock begins to rneven if itisn ot yet aware of the full extent of the injury. PPG Indus., Inc. v. JMB Houston Ctrs. Partners Ltd. P’ship, 146 S.W.3d 79, 93 94 (Tex. 2004). Moreover, the discovery rule does not excuse a plaintiff from having to act with reasonable diligence in investigating its claims. HECI Expl. Co. v. Neel, 982 S.W.2d 881, 88 (Tex. 1998). The discovery mule only tolls the limitations clock “until the plaintiff knew or, exercising reasonable diligence, should have known of the facts giving rise to a cause of action. Id. Here, the discovery mule does not apply becaus the Trust’s alleged injuriesa lack of Net Proceeds payments due to the amount withheld for the Special Costs Escrow Accountwere not “inherently undiscoverable.” See Houston Endowment Inc., 972 S.W.2d at 159 (citing Computer Assocs. Int’l, 918 S.W.2d at 456 . The Trust cannot in good faith argue it could not discover whether or not it was receiving payments under the Net Profits Conveyance each month. Just as the royalty owner © Wagner & Brown received statements detailing the amount withheld from their royalty payments, the Trust received reports detailing the amount withheld from their Net Proceeds due to the Special Costs Escrow Account. Ex.J, Decl. of K. Reihle, at 5-6; Ex. C, Monthly Distribution Calcula ns; Ex. D, June 2011 NPI Calculation Report; Ex. E, January 2012 NPI Calculation Report see also Wagner & Brown 58 S.W.3d at 736. Moreover, just as the royalty owners in Wagner & Brown hired an independent consultant to review the deductions from the payments, the Trust hired independent auditors to review their interest and audit Breitbum’s calculations. Ex. , Audit Documents; see also Wagner & Brown. 58 S.W.3d at 737. Thus, just as the Texas Supreme Court concluded that the royalty owners’ injud in Wagner & Brow were not inherently undiscoverable, the Court should conclude that the Trust's injuries were not inherently undiscoverable, and so the discovery rule does not apply. Wagner & Brown 58 S.W.3d at 737 see also Clear Lake Ctr., L.P. v. Garden Ridge, LP., 416 S.W.3d 527, 544 (Tex. App.Houston [14th Dist.] 2013, no pet.) (where a plaintiff had contractual audit rights, and there is no evidence that false information was provide during the course of any audit, an injury is not inherently undiscoverable because it could have been discovered with the exercise of due diligence But regardless, even if the discovery mle applied, it would only serve to toll the limitations period until the causes of action were discovered or could have been discovered by the Trust. See HECI Expl. 982 S.W.2d at 886. Here, the evidence is clear that the Trust necessarily must have discovered its alleged injuries each month when they occurred. See Ex. C, Monthly Distribution Calculations; Ex. D, June 2011 NPI Calculation Report; Ex. E, January 2012 NPI Calculation Report. The Trust was plainly aware that it did not receive any Net Proceeds from the Net Profits Conveyance each month when it did not receive funds. Throughout 20072012, BBOP and the prior o perators provided the Trust with reports detailing the Net Proceeds and Special Costs Escrow Account calculations. . J, Decl. of K. Reihle, at 175 Ex. C, Monthly Distribution Calculations; Ex. D, June 2011 NPI Calculation Report; Ex. E, January 2012 NPI Calculation Report. r example, the Trust received a report in June 2011 that contained the NPI calculation nd the supporting amounts (including the Net Proceeds and the Special Costs Escrow Account) for January 2007 through March 2011. Ex. D, June 2011 NPI Calculation Report. This report which contained time periods both before and after Quantum Resources Management, LLC assumed operatorship made clear to the Trust there had been a change in the amounts withheld for the Special Costs Escrow Account after the operator changedfor eJay FiedldSee id. Similarly, the January 19, 2012 NPI Calculation report provided the same detail for months January 2009 through November 2011. Ex. E, January 2012 NPI Calculation Report The Trust raised questions about these calculations, and the parties and their representatives discussed these concems. See, eg., Ex. H, October 2011 Email (discussing variances in the calculations from month to month); Ex. I, December 2011 Email (containing the parties’ agenda for a meeting to discuss the Tru ’s questions).As a result, the Trust had all of the informationit needed to be aware of its alleged injuries related to Net Proceeds due to be paid for all months through February 2012 by January 19, 2012 at the very latest. But evenif he Trust had not received reports from BBOP and the prior operators putting it on notice of its alleged injuries, the Trust was still well aware of the issues it now raises in this lawsuit long before the limitations period began. The Trust conducted an audit of all of Breitbum’s predecessor's books and records related to the Jay Field on three separate occasions covering the time period of July 2007 through December 2012Ex. J, Decl. of K. Reihle, at 7; Ex. G, Audit Documents. The Trust even represented in its public filings to the SEC that those audits resolved all of its complaints. See Ex. F, SEC Documents at 8 (“All material matters issues raised by the independent joint venture auditor with respect to the most recent period have been resolved with the working interest owner.”). This includes the 2009 dispute over labor sts, which was included in the audit conducted in 2010 that e Trust represented resolved all issues yet is also included as part of the claims the Trust brings here. Compare Ex. G, Audit Documents at 37 (explaining the 2009 labor costs issue), Ex. F, SEC Documents at (representing that all issues had been resolved; with LL&E Trust’s Motionto Compel at 16 (movingto compel daily time sheets related to this issue). Because Net Proceeds are due to be paid three months after a given specified month, any payment for Net Proceeds for November 2011 would have been due to be paid in February 2012, the relevant limitations cut off date for this action. See Ex. B, Net Profits Conveyance,at rt. VIII(a); see also First Amended Answer, Original Counterclaim, and Original Third Party Petition (filed February 19, 2016). Moreover, the Trust’s own public statements show it was on notice of a marked increase in the amount of the Special Costs Escrow Account after the operatorship changed hands. The Trust’s Form 10 K for 2010 stated that for year end 2010, the amount of Special Costs withheld was $16.1 million. Ex. F, SEC Documents at 8. The Trustwas th erefore aware of e significant increase from the $4.5 million amount disclosed in the Form 10 K for year end 2007. See id. at In sum, since the Trust could discover—and _ tually did discoverits alle ged injuries at the time they occurred, and at the latest, long before the relevant time period for limitations, the discovery rule does not toll the application of the statute of limitations in this case. Fraudulent Ccealment Similarly, the doctrine of fraudulent concealment has no application in this case, either. Under the doctrine, when a defendant is “under a duty to make disclosure but fraudulently conceals the existence of a cause of action from a party to wh it belongs, the defendant i estopped from relying on the defense of limitations until the party leams of its right of action, or should have leamed of it through the exercise of reasonable diligence.” Bayou Bend Towers Council of Co Owners v. Manhat n Constr. Co., 866 S.W.2d 740, 746 (Tex. App.— Houston [14th Dist.] 1993, writ denied) (citingBorderlon v. Peck, 661 S.W.2d 907, 908 (Tex. 1983)). The plaintiff has the burden of proof to establish fraudulent concealment Caseyv. Methodist Hosp. W.2d 898, 903 (Tex. App.Hou _ ston [1st Dist.] 1995, no writ) (citingNicho ls v. Smith, 507 S.W.2d 518, 521 (Tex. 1974)). Specifically, a plaintiff must show the defendant had (1) actual knowledge of the wrong; (2) a duty to disclose the wrong; and (3) a fixed purpose to conceal the wrong.” Mellon Serv. Co. v. Touche Ross & Co, 17 S.W.3d 432, 436 (Tex. App. Houston [1st Dist.] 2000, no pet). Importantly, the doctrine “only tolls the running of limitations until the fraud is discovered or could have be discovered with reasonable diligence.” BP Am Prod. Co. v. Marshall, 342 S.W.3d 59, 67 (Tex. 2011)). Thus, fraudulent concealment does not apply once a Plaintiff has been “put on notice of the alleged harm” and “a diligent inquiry could have led to discovery of the truth.” venport v. Adu Lartey, 526 S.W.3d 544, 555 (Tex. App. Houston [1st Dist.] 2017, pet. denied) (citing Etan Indus. v. Lehmann, 359 S.W.3d 620, 623 (Tex. 2011) (per curiam) Thus, even if the Trust was able to meet its burden anrovide the proof necessary to show the doctrine of fraudulent concealment applied, it still would not serve to toll the statute of limitations. Because as set forth above, the Trust was “put on notice of the alleged harm” it suffered each month when e LL&E Partnership did not receive Net Proceed , when it received reports detailing the Net Profits Conveyance calculations, and when it audited its interest See Ex. J, Decl. of K. Reihle, at (15 Ex. D, June 2011 NPI Calculation Report; Ex. E, January 2012 NPI Calculation Report; Ex. G, Audit Documents. Any claims related to alleged injuries that accrued priorto February 19, 2012 are barred by the statute of limitations. Since the discovery rule and fraudulent concealment o not apply in this case, the normal stabute of limitations analysis ntrols the inquiry. Here, any claims related to any injuries that accrued prior to February 19, 2012—including the failure to pay Net Proceeds, the Special Costs Escrow Account calculation, or any expense or revenue amount—are plainlytime - barred. The Trust alleges claims against Breitbum for breach of contract, declaratory judgment, tortious interference with contract, inducement of breach of fiduciary duty, and conspiracy. Third Amended Answer, Amended Coterclaim, and Amended Third Party Petition at 1421. Each of these caus of action has either a two year or four year statute of limitations. See Agar Corp., Inc. v. Electro Circuits Int 1, LLC, 580 S.W.3d 136, 142 (Tex. 2019), reh g denied (Sept. 19) (explaining conspiracy is a derivative claim that assumes the limitations time period for the underlying claim); Exxon Mobil Corp. v. Rincones, 520 S.W.3d 572, 592 (Tex. 2017) (stating that the statute of limitations for tortious interference is two years); Ammerman v. Ranches of Clear Creek Crmty. Ass n, Inc., 562 S.W.3d 6, 636 (Tex. App.Houston [1st Dist.] 2018, no pet.) (providing that both breach of contract and declaratory judgment have a four year statuteof limitations). All c laims are currently stayed with the exception of the breach of contract claim. hus, since the Trust first filed its counterclaims on February 19, 2016 the relevant cut off date for limitations bruary 19, 2012See = Original Counterclaim Any alleged contractual breaches that occurred prior to February 19, 2012 are time barredSee +Ammernan 562 S.W.3d at 636 see also Lyle v. Jane Guinn Revocable Tr., 365 S.W.3d 341, 355 (Tex. App.—Houston [1st Dist.] 2010, pet. denied) (holding that the plaintiff in a breach of contract case related to oil and gas royalties could recover only for the royalty payments allegedly owed during the four-year period priorto the filing of the suit). As such, the Court should grant summary judgment in Breitbum’s favor, and dismiss any claim relatedto any alleged injuries priorto February 19, 2012.Breit bum is entitledto judgment One of the Trust’s alleged causes of action is “inducement of breachof fiduciary duty.” No such claim exists under Texas law. To the extent the Court decides to ize this novel theory, the statute of limitations for such a claim would be four years. See Tex. Civ. Prac. & Rem. Code § 16.051 (setting the statuteof limitations for all claims for which there is otherwise no express limitations period at four years). inits favor on such claims as a matterof law. CONCLUSION AND PRAYER FOR RELIEF Plaintiff Breitbum Operating LP, successor interest to QRE Operating, L.L.C., and Third Party Defendants Breitbum Management Company, LLC, Breitbum Energy Partners, LP, QREnergy, LP, and Maverick Natural Resources, LLC respectfully request that the Court grant this Motion for Summary Judgment and dismiss with prejudice all claims made by Defendant RogerD. Parsons, in his capacity as Trustee of the LL&E Royalty Trust related to any alleged injury that occurred prior to December 28, 2012, or in the altemative, any alleged injury that occumed prior to February 19, 2012. Respectfully submitted, ECK EDDEN By: /s/ Geoff A. Gannaway Geoff A. Gannaway State Bar No. 24036617 Qggannaway@beckredden.com JoeW. Redden,Jr. State Bar No. 16660600 jredden@beckredden.com Allison Standish Miller State Bar No. 24046440 amiller@beckredden.c Joel T. Towner State Bar No. 24083978 Ibeckredden.com 1221 McKinney Street, Suite 4500 Houston, Texas 77010 Telephone No. (713) 951-3700 Facsimile No. (713) 951-3720 TTORNEYS OR LAINTIFF OUNTER EFENDANT REITBURN PERATING LP, suocessor interest QRE PERATING LLC ND HIRD-PARTY EFENDANTS REITBURN ANAGEMENT OMPANY REITBURN NERGY TNERS LP, NERGY AND AVERICK ATURAL ESOURCES CERTIFICATE OF SERVICE Thereby certify thaton ne2 , attue and correct copy of the foregoing instrument wes served on all known counsel of record in accordance with the Texas Rules of Civil Procedure via e service, wit: John H. Kim, Esq. Joseph G. Thompson III, Esq. Timothy A. Rothberg, Esq. MadelineL. Mathews, Esq. The Kim Law Firm Porter Hedges, LLP 4309 Y oakum, Suite 2000 1000 Main Street, 36th Floor Houston, Texas 77006 Houston, Texas 77002 thekimlawfirm.com. thekimlawfirm.com Attorneys for Third-Party Defendant ConocoPhillips Company Attorneys for Defendant/Counter- Plaintiff/ Third-Party Plaintiff Roger D. The Trust as Trustee of the LL&E Royalty Trust W Stephen Benesh, Esq. AndrewR. Harvin, Esq. PatrickA. Caballero, Esq. Peter Wells, Esq. Bracewell LLP Doyle, Restrepo, Harvin& Robbins, L.L.P. 111 Congress Avenue, Suite 2300 440 Louisiana, Suite 2300 Austin, Texas 78701-4043 Houston, Texas 77002 steve. benesh@bracewelllaw.com aharvin@drhaw.com patrick.caballero@hracewelllaw.com pwells@drhaw.com Attorneys for Third-Party Defendant Attorneys for Third-Party Defendant the Bank of New York Mellon Trust Co., NA. Stifel, Nicolaus & Co. /s/ Geoff A. Gannaway Geoff A. Gannaway