“It’s a secret” still a valid discovery objection.

In In re Michelin North America, Inc., the Dallas Court of Appeals conditionally granted a writ of mandamus to protect Michelin from being forced to produce certain discovery.  The district court ordered Michelin to produce specifications for tires similar to the allegedly defective tire at issue in that case in addition to financial information for the decade prior to the litigation.

The court of appeals held that Michelin satisfied its burden under Texas Rule of Evidence 507 to resist the discovery of trade secrets through the affidavit of an engineer who worked in Michelin’s legal department but that Michelin failed to satisfy its burden of proving its financial data was a trade secret because it failed to offer an affidavit until after the hearing on the motion to compel (helpful hint: it should be filed 7 days before the hearing under TRCP 193.4(a) if it is in affidavit form).  The court also held that the plaintiffs failed to meet their burden under Rule 507 to show “with specificity” exactly how the lack of information would impair the presentation of the case on the merits “to the point that an unjust result is a real, rather than a merely possible, threat.”  On the issue of financial information, though Michelin failed to timely prove its trade secrets privilege, Michelin was saved by a secondary argument that the district court’s order was too broad because the discovery included financial information from several years earlier and only current financial information is relevant for calculation of punitive damages.

In re Michelin

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Sufficient disclosure

DFW Advisors sued its former bookkeeper, Ervin, alleging misappropriation.  She responded to a request for disclosure by saying that she did acted with consent.  At trial, she sought to introduce evidence of consent, in the form of testimony of an affair with DFW’s principal.  The trial court allowed the testimony, over DFW’s objection, and the Fifth Court affirmed “[T]his response sufficiently disclosed Ervin’s basic defense, which was that she had consent to take the money.  [Tex. R. Civ. P.] 194.2 only requires disclosure of a party’s basic assertions and did not require Ervin to disclose the details of how consent was given.”  DFW Advisors Ltd. v. Ervin, No. 05-14-00883-CV (Feb. 11, 2016) (mem. op.)

Yes, You Can Be Required to Pay Fees and Costs for Losing a Motion to Compel

A personal injury case led to an award of $4500 in attorney fees against the defendants’ attorneys after they lost a motion to compel. Among other things, the defendants sought to designate certain documents as “ATTORNEYS EYES ONLY” and objected to 14 of 21 document requests on the basis of trade secret privilege — in a car wreck case. The county court at law overruled the vast majority of the defendants’ objections, and awarded the $4500 to the plaintiff. On appeal, the defendants’ attorneys argued that the award was a sanction that could not be justified by any offensive conduct. The Dallas Court of Appeals disagreed, pointing to the trial court’s order stating that the award of fees and costs was granted for securing orders overruling the defendants’ objections to the plaintiff’s discovery requests. That made it an award of expenses on a motion to compel, which is required (but rarely observed) by TRCP 215.1(d). Reviewing the course of the proceedings in the trial court, the Court of Appeals could not conclude that the trial court had abused its discretion in determining that the defendants’ resistance to the discovery had not been “substantially justified.”

MacDonald Devin, PC v. Rice, No. 05-14-00938-CV

Bank Error in Your Favor

After the real estate bubble burst in 2008, borrowers attempted all sorts of ways to get out of their obligations. Most notably, debtors repeatedly challenged the ways that their mortgages had been transferred and recorded (or not) by the banks that had held, swapped, sold, and securitized them. Long story short, it hardly ever worked, as courts across the country mostly (but not always) eschewed technical arguments in favor of the big picture of who owed what to whom. But a new opinion from the Dallas Court of Appeals shows that when the bank doesn’t follow the rules in litigation, the debtors may still escape liability on a loan.

In this instance, a pair of individual guarantors for a $748,000 loan were sued by Wells Fargo after the borrower defaulted. While the case was pending, Wells Fargo allegedly assigned the loan documents to another entity, Apex. Wells Fargo’s attorneys later filed a motion for withdrawal and substitution, which the trial court granted. The motion failed to mention the assignment of the loan documents to Apex. The guarantors then filed for no-evidence summary judgment, pointing out that Wells Fargo had conducted no discovery and that the discovery period was closed. The motion argued that there was no evidence to show who owned the guaranty. When Apex appeared and tried to cure that deficiency, the guarantors objected and moved to strike Apex’s summary judgment evidence. The trial court sustained the objections and granted summary judgment. The Court of Appeals affirmed, holding that it was not an abuse of discretion to exclude Apex’s evidence because it had waited 11 months after acquiring the loan to amend Wells Fargo’s discovery responses by disclosing its ownership. That was not “reasonably prompt,” and it acted as an unfair surprise to the guarantors to have that come out only in response to their summary judgment motion.

LSREF2 Apex (TX) II, LLC v. Blomquist, No. 05-14-00851-CV

Discovery Available to Challenge Arbitration Award

Is a party seeking to set aside an arbitration award entitled to take discovery from her opponent’s attorneys and the arbitrator in order to establish a claim of evident partiality? The answer from the Dallas Court of Appeals is a partially qualified yes. Dolores Rodas sued her employer, La Madeleine, for personal injuries sustained during her employment. The case was compelled into arbitration, and the arbitrator issued a take-nothing award in favor of La Madeleine. Rodas moved to set aside the result on the basis of the arbitrator’s evident partiality, claiming that he had failed to disclose two subsequent times he had been appointed as arbitrator in cases involving La Madeleine’s law firm. The trial court confirmed the arbitration award, but the Court of Appeals reversed and remanded. Assuming, without deciding, that Texas law requires a party to make some evidentiary showing of grounds to challenge the arbitration result before discovery is permitted, the Court of Appeals held that Rodas had met that threshold and was therefore entitled to take depositions in support of her claim of evident partiality.

Rodas v. La Madeleine of Tex., Inc., No. 05-14-00054-CV

Instruct the Witness Not to Answer

A short opinion appears to stand for the proposition that mandamus will not issue to prevent the deposition of a lawyer for one of the parties in the litigation because the appellate court can only speculate what questions might be asked of the attorney. The opinion relies on a pair of cases from the Houston [1st] and Corpus Christi Courts of Appeals that held the future possibility of questions being asked on privileged topics does not justify the prior restraint of barring the deposition altogether. It should be noted that the witness here was apparently involved in the facts underlying the plaintiff’s claims, and that the district judge’s order did provide at least a broad definition of the proper scope of inquiry (although neither caveat is included in the Court of Appeals’ opinion).

In re Hydroscience, Inc., No. 05-15-00366-CV

Upon Further Review, No Evidence for Direct Access

In one of the last opinions of 2014, the Dallas Court of Appeals denied mandamus relief to VERP Investment LLC, which was seeking to overturn a trial court order requiring it to turn over a computer hard drive to a third-party forensic examiner. The Court denied mandamus because VERP had not included transcripts of the trial court’s hearings or a statement that no evidence was taken at them. That left the Court of Appeals unable to determine whether the trial court had abused its discretion in granting the motion to compel. But VERP persisted, filing a second petition that cured the original’s omissions, and that mandamus petition has now been conditionally granted.

On the merits, the Court of Appeals first noted that an order requiring direct access to an electronic device is burdensome because it is intrusive. Due to that intrusiveness, the party seeking direct access must establish via evidence that the opponent is in default of its discovery obligations. In this instance, however, the movant failed to come forward with any evidence, and “[m]ere skepticism or bare allegations” are not enough to warrant direct access to electronic devices. Therefore, the trial court abused its discretion, and the Court of Appeals directed it to vacate the order granting the motion to compel.

In re VERP Investment LLC (VERP II), No. 05-15-00023-CV

No Record, No Relief

A short opinion denying mandamus in an electronic discovery dispute serves as a reminder of the importance of a hearing transcript in the appellate courts. In this case, VERP Investment lost a motion to compel, but the mandamus record did not include a transcript from either the hearing on the motion or VERP’s subsequent motion for reconsideration. Likewise, the record did not include a statement that no testimony was taken at the hearings, as permitted by TRAP 52.7(a)(2). Those failures left the Court of Appeals unable to determine whether or not VERP’s opponent had made the required evidentiary showing to obtain the electronic discovery. Therefore, VERP could not demonstrate that the trial court had abused its discretion in granting the motion to compel.

In re VERP Investment, LLC, No. 05-14-01403-CV

Unanswered But Improperly Served Requests for Admission Not Deemed Admitted

Graham Mortgage sued Holmes on a personal guaranty he had signed.  The trial court granted Graham’s motion for summary judgment, and Holmes appealed.  Among other things, he argued that the trial court had erred by refusing to deem his requests for admission admitted because Graham never responded to them. Graham argued that it had no obligation to respond to the requests for admission because they were served by email and the rules (at the time) did not allow service by email.  The Court of Appeals agreed, holding that even though Graham had received the requests for admission, its internal procedures were not structured to receive discovery requests by email, and “attorneys should be able to structure their internal procedures around their opponents’ compliance with the rules of civil procedure in such matters as service of documents.”

Holmes v. Grahma Mortgage Corp.

Court Grants Mandamus Petition; Denies Plaintiffs’ Attempt to Tour and Videotape Goodyear Tire Plant

In this products liability case, the plaintiffs alleged that Goodyear was grossly negligent with respect to its tire manufacturing practices at its North Carolina plant and that the design of the tire was defective because it failed to include a nylon cap ply.  Ostensibly to help prove their case, the plaintiffs sought to tour and videotape parts of Goodyear’s plant in North Carolina.  The trial court obliged, ordering Goodyear to allow plaintiffs’ counsel, expert witness, and a videographer to enter the facility and document the manufacturing process.

Goodyear resisted by filing a writ of mandamus challenging the trial court’s order permitting the tour.  The Court of Appeals sided with Goodyear, reasoning that the main reason the plaintiffs wanted to tour the facility was to create demonstrative evidence (namely, a video to show the jury), not to discover new information.  Because that is not a valid purpose to seek entry onto another party’s property, the Court granted Goodyear’s mandamus petition.

In re the Goodyear Tire & Rubber Company