Court Opinion

ID: 2892890
Source: CourtListenerOpinion
Date Created: 2015-09-07 21:58:16.382176+00
Date Added: 2024-06-11T13:31:21.996986
License: Public Domain

NO. 07-04-0506-CV

                             IN THE COURT OF APPEALS

                      FOR THE SEVENTH DISTRICT OF TEXAS

                                       AT AMARILLO

                                         PANEL D

                                     JANUARY 20, 2005

                          ______________________________

                   IN RE: WEST TEXAS POSITRON, LTD.,
          WEST TEXAS POSITRON, L.L.C., AND MIKE WHYTE, RELATORS

                        _________________________________

Before QUINN and REAVIS and CAMPBELL, JJ.

                               MEMORANDUM OPINION

      Relators West Texas Positron, Ltd., a Texas limited partnership, its general partner,

West Texas Positron, L.L.C. and Michael J. Whyte, bring this original proceeding seeking

a writ of mandamus directing 237th District Court Judge, the Honorable Sam Medina, to

vacate an order compelling production of documents in response to a discovery request.

We will deny the requested relief.

                                       Background

      The litigation giving rise to this proceeding is a suit brought against relators by real

party in interest Nancy Cahill, a limited partner and former employee of West Texas

Positron, Ltd. Cahill’s pleadings allege she has expertise in the operation of a cyclotron,
a device which produces material needed by doctors and hospitals operating PET

scanners, and that Whyte proposed to Cahill creation of a partnership for the operation of

a cyclotron facility in Lubbock. The pleadings contain a written partnership agreement

dated September 30, 2002, naming West Texas Positron, L.L.C. as sole general partner

and owner of a one percent interest in West Texas Positron, Ltd. Whyte apparently is the

sole member of West Texas Positron, L.L.C. Whyte is also a limited partner with a 73

percent interest. The agreement states Cahill owns a 10 percent limited partnership

interest, with other individuals owning the remaining limited partnership interests.

       The partnership agreement states an address in San Francisco, California, as the

partnership’s principal place of business. The agreement provides the books, records and

accounts of the partnership shall be maintained at its principal place of business, and

provides that each partner shall have access during normal business hours to all its books,

records and accounts. The agreement also provides a limited partner the right to audit the

partnership’s books, and contains the partners’ agreement to submit claims between them

arising over provisions of the agreement to mediation, and arbitration if necessary, rather

than institute litigation. The agreement states it is to be construed in accordance with the

laws of Texas, excluding its conflict-of-laws principles.

       On a date not shown in this record, but apparently after only a few months of

operation, Cahill terminated her employment with the partnership because, her pleadings

allege, Whyte refused to comply with the terms of their agreement, refused to provide

financial reports and an accounting, and engaged in unethical business practices.

                                             -2-
        In August 2003 Cahill and her husband reviewed some of the partnership’s records

at the office of its accountant in California. They were allowed to make notes from the

documents but not permitted to make copies. In September 2003 Cahill filed the underlying

action as one under Rule of Civil Procedure 202, seeking an order for Whyte’s deposition

for the purpose of investigating potential claims. Relators took the position Cahill’s suit

violated the partnership agreement’s provisions for mediation and arbitration and, when she

failed to dismiss the suit, took steps to terminate her partnership interest in November

2003.

        In May and July 2004 Cahill filed amended petitions asserting claims against

relators.1 The defendants’ response included counterclaims for breach of fiduciary duty and

misappropriation of trade secrets, and sought declaratory judgments that Cahill’s original

suit was in breach of the partnership agreement and her partnership interest was properly

terminated.

        In June 2004 Cahill served a request for production on the partnership and its

general partner which gives rise to this proceeding. It requested sixteen documents or

groups of documents concerning the partnership, of which the following are at issue here:

        1
        Cahill’s second amended petition, filed on July 1, alleges the defendants breached
the partnership agreement in several respects, including the denial of access to partnership
records. It asserts her partnership interest was wrongfully forfeited. It further alleges
claims including fraud, breach of fiduciary duty and other duties, and diversion of
partnership assets. The petition seeks to recover the value of her interest in the
partnership, an accounting, compensatory and exemplary damages, attorneys fees, costs
and interest.

                                            -3-
       Request 1: “Inception to current financial statements, tax returns and general

ledgers”;

       Request 2: “Current detailed depreciation list”;

       Request 3: “Aged accounts receivable list”;

       Request 9: “List of largest customers and percentage of sales in 2003”;

       Request 12: “Copies of contractual obligations, including leases, loan agreements,

etc.”; and

       Request 16: Inception to current bank statements and checks.”

       The partnership and general partner responded to Cahill’s request for production

with objections asserting, among several others, an objection to the extent the request

would require the defendants to disclose information which constitutes trade secrets.

       In August 2004, Cahill filed a motion to compel and for sanctions. The partnership’s

response to the motion asserted it had responded “fully pursuant to Rule 196.2(b),”2

reiterating its objections to the request. The response stated “the only information in

controversy is the value of plaintiff’s interest in the partnership,” and the information sought

       2
        The response made no mention of Rules of Civil Procedure 193.2, 193.3, or 193.4.
See, e.g., Tex. R. Civ. P. 193.2(f) (stating objection to written discovery request on the
basis of privilege is improper). We do not reach Cahill’s contention that relators’ petition
should be denied because of their failure to observe the procedural requirements of Rules
193.3 and 193.4 in the trial court, or relators’ contention that Cahill waived that complaint.

                                              -4-
was not relevant to that claim. The response also sought to establish the documents as

trade secrets under Rule of Evidence 507. In support, the partnership attached affidavits

of Whyte and the partnership’s accountant. Whyte’s affidavit states requests 1, 2, 3, 12

and 16 seek “highly sensitive” financial information, that the partnership keeps the

information in San Francisco “under lock and key,” only accessible to Whyte, the

partnership’s chief financial officer and “the accountant/bookkeeper,” and that the

information was never available to Cahill. Whyte states that disclosure of the information

to competitors could be highly detrimental to West Texas Positron. The affidavit also states

the partnership has made great efforts to maintain the confidentiality of its customer list and

the sales volume of each customer, noting that all billing and pricing is conducted through

the partnership’s San Francisco office. Access to that information is limited to the same

three people.

       Whyte further states that “to the best of his knowledge,” Cahill is working for a

competitor, “there is a great risk she would exploit the information to the detriment of West

Texas Positron,” and she had once bragged to him about taking trade secret information

from a prior employer.

       Whyte’s affidavit also contains the claim that the only information in controversy in

the suit is the value of Cahill’s interest in the partnership. Significantly, the affidavit further

states production of the documents sought by Cahill is unnecessary because the parties

mutually agreed “to have an independent certified public accountant perform an evaluation

                                               -5-
of the company in order that a value may be determined for [Cahill’s] interest in the

partnership as set forth in the partnership agreement.”3

       The accountant’s affidavit related the circumstances by which Cahill was given

access to partnership’s records in his office in August 2003, and described their

disagreement on that occasion over her contention she was entitled to take with her some

of the information provided.

       Following a September 3 hearing at which no evidence was admitted, in a

September 20 order the trial court granted Cahill’s motion to compel, directing the parties

to enter into a mutually agreeable confidentiality agreement applicable to both parties. The

order also states the confidentiality agreement must provide that invoices with pricing

information will be made available only to Cahill’s counsel and experts. The order also

directs Cahill to provide the defendants4 with a list of all of the customers of the defendants

within her knowledge and the defendants are to produce “all records pertaining to the

customers listed[.]” For other customers, the defendants are allowed to prepare a privilege

log of responsive documents for the court’s review. The order further directs Cahill to more

       3
        A bench brief the partnership and general partner presented at the September 3
hearing contains a copy of a July 8, 2004 letter agreement from a Lubbock firm of certified
public accountants addressed to and signed by counsel for relators and Cahill. The letter
states the firm had been retained by both counsel, and describes services to be provided
by the firm including “determining the amount of payment due to an exiting partner in
accordance with the formula set forth in the West Texas Positron, Ltd. partnership
agreement.” The record contains no information concerning the results of the firm’s work,
but at oral argument on relator’s petition for writ of mandamus counsel indicate the work
has not resolved the parties’ disagreements.
       4
       The defendants are listed as the partnership and its general partner. Although
Whyte is a relator in this proceeding, the trial court’s order is not directed to him individually.

                                               -6-
specifically identify documents to be produced under her request number 12 seeking copies

of contractual obligations, including leases and loan agreements.

                                       Applicable Law

       The Texas Supreme Court set out the manner in which Rule of Evidence 507 is to

be applied in discovery, as follows: “First, the party resisting discovery must establish that

the information is a trade secret. The burden then shifts to the requesting party to establish

that the information is necessary for a fair adjudication of its claims. If the requesting party

meets this burden, the trial court should ordinarily compel disclosure of the information,

subject to an appropriate protective order. In each circumstance, the trial court must weigh

the degree of the requesting party’s need for the information with the potential harm of

disclosure to the resisting party.” In re Continental General Tire, Inc., 979 S.W.2d 609, 613

(Tex. 1998) (orig. proceeding) (footnote omitted). To meet its burden, a party seeking trade

secret information “cannot merely assert unfairness but must demonstrate with specificity

exactly how the lack of the information will impair” fair adjudication of the claim. In re

Bridgestone/Firestone, Inc., 106 S.W.3d 730, 733 (Tex. 2003) (orig. proceeding).

       The scope of discovery is largely within the discretion of the trial court. See In re

American Optical Corp., 988 S.W.2d 711, 713 (Tex. 1998) (per curiam). A writ of

mandamus is an extraordinary remedy that will issue only to correct a clear abuse of

discretion or the violation of a duty imposed by law, when there is no adequate remedy by

law. In re Colonial Pipeline Co., 968 S.W.2d 938, 941 (Tex. 1998) (orig. proceeding);

Canadian Helicopters Ltd. v. Wittig, 876 S.W.2d 304, 305 (Tex. 1994) (orig. proceeding).

                                              -7-
Mandamus is not issued as a matter of right, but at the discretion of the court. Rivercenter

Assocs. v. Rivera, 858 S.W.2d 366, 367 (Tex. 1993) (orig. proceeding); see In re Prudential

Ins. Co. of America, 148 S.W.3d 124, 138 (Tex. 2004) (orig. proceeding). It is the relator's

burden to show entitlement to the relief being requested. Johnson v. Fourth Court of

Appeals, 700 S.W.2d 916, 917 (Tex. 1985) (orig. proceeding).

       A trial court abuses its discretion when it “reaches a decision so arbitrary and

unreasonable as to amount to a clear and prejudicial error of law.” Walker v. Packer, 827
S.W.2d 833, 839 (Tex. 1992) (orig. proceeding). If a trial court orders production once

trade secret status is proven, but the party seeking production has not shown a necessity

for the requested materials, the trial court’s action is an abuse of discretion. In re Bass,

113 S.W.3d 735, 738 (Tex. 2003) (orig. proceeding).

       A party will not have an adequate remedy by appeal when the appellate court will

be unable to cure the trial court's discovery error, such as by erroneously ordering the

disclosure of trade secrets “without adequate protections to maintain the confidentiality of

the information.” Walker, 827 S.W.2d at 843.

                                   Application of Law

       The trial court’s order does not say, and the record does not otherwise reflect,

whether the court found the information sought by Cahill contains the partnership’s trade

secrets. The language of the order suggests the trial court found at least some of the

information sought to be privileged as a trade secret. Relators contend they are entitled

to mandamus relief from the trial court’s order because they conclusively proved the

                                            -8-
requested documents contain trade secrets, and Cahill failed to satisfy her burden to

demonstrate the information she seeks is necessary for a fair adjudication of her claims.

Cahill disputes both contentions. For purposes of this opinion, we will assume relators

have established the information sought by Cahill contains trade secrets owned by the

partnership.5

       We disagree with relators’ assertion there was no evidence before the court to

establish that the information sought by Cahill is necessary for a fair adjudication. The trial

court’s determination of the necessity of information involves consideration of the parties’

claims and defenses. See In re Bass, 113 S.W.3d at 743 (determining necessity of

information for fair adjudication of claim by analyzing claims asserted); In re

Bridgestone/Firestone, Inc., 106 S.W.3d at 735 (O’Neill, J., concurring) (analysis of

necessity of trade secret information for fair adjudication “must begin” with examination of

relationship between information and material elements of parties’ claims and defenses).

As noted, before the trial court, relators took the position that the subject matter of the

litigation was the value of Cahill’s partnership interest, noting Cahill’s live pleadings which

asked that the value of her interest be determined by the trier of fact.

       5
         By engaging in the assumption relators have established the information sought
contains trade secrets, we do not reach, and express no opinion on, some interesting
questions involving the assertion of the trade secret privilege by a limited partnership
against a current or former partner. See, e.g., Texas Revised Limited Partnership Act, Tex.
Rev. Civ. Stat. Ann. art. 6132a-1, § 1.07(d) (concerning partner’s right to examine records
required to be maintained by partnership “and other information regarding the business,
affairs, and financial condition of the limited partnership as is just and reasonable.”) Cf. B
& R Communications v. Lopez, 890 S.W.2d 224 (Tex.App.–Amarillo 1994) (orig.
proceeding) (general partnership).

                                              -9-
       Information before the trial court demonstrated that the partnership to be valued is

closely-held and had then been in existence no more than two years. The affidavit

evidence presented to the trial court by the partnership supports the unsurprising

conclusion that financial information concerning the partnership is needed to determine the

value of an interest in this partnership. As noted, Whyte’s affidavit states that information

relevant to that determination had already been given to the Lubbock CPA jointly retained

by the parties “in order that an independent evaluation of the value of [Cahill’s] partnership

interest may be determined according to the partnership agreement.”6 Whyte’s example

of the information already provided to the jointly-retained CPA is a general ledger,

containing a record of every check written by the partnership. The trial court reasonably

could have concluded that information of such detail from the records of the partnership,

presumably considered by the jointly-retained CPA to be necessary to that determination,

also was necessary to Cahill’s ability to pursue judicial determination of the value of her

partnership interest. Further, the general ledger was not the only item of such information

provided the jointly-retained CPA.      Whyte’s affidavit gives it as an example of the

information provided.

       The partnership’s evidence also demonstrates Cahill has no other source for the

information.7 Whyte’s affidavit expressly states the information concerning customers could

       6
         Cahill does not contend the partnership has waived the privilege, either by providing
her access to some books and records in August 2003 or by providing information to the
jointly-retained CPA.
       7
        See In re Bridgestone/Firestone, Inc., 106 S.W.3d at 736 (O’Neill, J., concurring)
(case law teaches trade secret information is generally discoverable when not allowing
discovery would significantly impair party’s ability to establish or rebut material element of
a claim or defense, and party’s ability is significantly impaired when the information is
unavailable from any other source and no adequate alternative means of proof exist).

                                            -10-
be obtained from only two sources, those being the partnership’s records in San Francisco

and the customers themselves, and the customers were subject to confidentiality

agreements in their contracts with the partnership. The affidavit flatly states the other

financial information Cahill seeks “is not ascertainable elsewhere.”

       On this record, we cannot say that a conclusion financial information and information

concerning its largest customers’ shares of sales from the records of the limited partnership

is necessary to an adjudication of the value of an interest in the partnership8 was arbitrary

or unreasonable, or otherwise an abuse of the trial court’s discretion.

       There is a further reason relators’ petition must be denied.               As noted, the

requirement that one seeking mandamus have no adequate remedy by appeal is satisfied

when a court erroneously orders production of trade secrets without adequate protections

to maintain their confidentiality. Walker, 827 S.W.2d at 843. Here, the trial court’s order

compelling discovery is conditioned on the parties’ entry into a mutually agreeable

confidentiality agreement, permits relators to assert the privilege with respect to information

about some customers and restricts pricing information to Cahill’s counsel and experts in

the absence of further court order. Relators argue a protective order may not be effective

to prevent Cahill’s improper use of the partnership’s claimed trade secrets, but we are

unwilling to issue mandamus on the assumption there is no possible mutually agreeable

confidentiality arrangement which, when coupled with the restrictions contained in the

court’s order, would adequately maintain confidentiality of the information.

       8
        Our discussion should not be taken as expressing agreement or disagreement with
relators’ statement to the trial court that the value of Cahill’s partnership interest is the “only
information in controversy” in the suit.

                                               -11-
      Concluding relators have established neither that the trial court has abused its

discretion nor that they are without other remedy, we deny their petition for writ of

mandamus. We grant relators’ motion to file a supplemental brief and deny their motion

for emergency relief.

                                       James T. Campbell
                                           Justice

                                         -12-