The Discovery Rule in Texas is Still Alive

This past Friday, November 16, 2018, the Supreme Court of Texas reminded everyone that the discovery rule is alive and well in Texas. In Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153 (Tex. November 16, 2018), the Supreme Court of Texas was faced with the issue of whether the statute of limitations barred a claim for breach of a recorded right of first refusal to purchase a mineral interest. The grantors of the right of first refusal conveyed the mineral interest to a third party without notifying the holders of the right of first refusal. More than four years later, the holders of the right of first refusal finally learned of the conveyance and sued the third party for breach, seeking specific performance. The trial court ruled in favor of the holders of the right of first refusal option and the court of appeals reversed, holding that the statute of limitations barred the claim.

In reversing the court of appeals in part (on the discovery rule), and affirming in part (on the accrual date of the claim), the Supreme Court of Texas held that the discovery rule is a “limited exception” to the general theory that a cause of action accrues when a legal injury is incurred. Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153, *15 (Tex. November 16, 2018), citing, BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 66 (Tex. 2011). The discovery rule is applied when the nature of the injury is inherently undiscoverable and the evidence is objectively verifiable and when applicable, it defers accrual of the cause of action until the plaintiff knew or should have known of the facts that gave rise to the cause of action. Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153, *15 (Tex. November 16, 2018), citing, S.V. v. R.V., 933 S.W.2d 1,  4 (Tex. 1996). The elements of the discovery rule try to strike a balance between the policy of barring stale claims and preventing an unjust result when claims could not be brought with the limitations period. Id. at 3, 6.

The Supreme Court of Texas also set out that an injury is inherently undiscoverable when it is “unlikely to be discovered within the prescribed limitations period despite due diligence.” Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153 (Tex. November 16, 2018), citing, Via Net v. TIG Insurance Co., 211 S.W.3d 310, 313-314 (Tex. 2006). Significantly, the Supreme Court held that the determination of whether an injury is inherently undiscoverable is made on a categorical basis rather than on the facts of the individual case. Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153 (Tex. November 16, 2018), citing, HECI Expl. Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998). As a result, the Court held that the inquiry is not whether the trustees in particular could have discovered their injury with diligence, but whether the injury was “the type of injury that could be discovered through the exercise of reasonable diligence.” Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153 (Tex. November 16, 2018), citing, BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 66 (Tex. 2011).

Disagreeing with the court of appeals that the injury was not inherently undiscoverable, and rejecting that the injury could have been gleaned in a recorded public instrument from public sources like tax rolls and commercial sources, the Supreme Court of Texas provided other examples of cases where the discovery rule was applicable even though the injury could have been gleaned from reviewing publicly available information.  Carl M. Archer Trust No. Three v. Tregallas, 2018 Tex. LEXIS 1153, *16-18 (Tex. November 16, 2018), citingKelley v. Rinkle, 532 S.W.2d 947, 949 (Tex. 1976) (accrual of libel action in false credit report) and Vanderbilt Mortgage & Fin, Inc. v. Flores, 692 F.3d 358, 369-370 (5th Cir. 2012) (fraudulent lien claims in real property records); but see Shell Oil Co. v. Ross, 356 S.W.3d 924, 929-930 (Tex. 2011) (underpayments in royalties available in public accessible information).The Supreme Court of Texas’ opinion and the examples provided in its opinion give excellent guidance for when the discovery rule may be a tool in a litigator’s tool box should the need arise. 

The opinions in this blog are solely the author’s and any replies, comments or suggestions can be sent to john@jrjoneslaw.com. Happy Thanksgiving to everyone!

 

 

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