Court Opinion

ID: 2903695
Source: CourtListenerOpinion
Date Created: 2015-09-09 21:28:50.063017+00
Date Added: 2024-06-11T11:37:13.278655
License: Public Domain

COURT OF APPEALS
                                 EIGHTH DISTRICT OF TEXAS
                                      EL PASO, TEXAS

                                                §

                                                §
                                                                No. 08-08-00198-CV
 IN RE: JOE E. SMALL and ENERPLUS               §
 RESOURCES (USA) CORPORATION,                             AN ORIGINAL PROCEEDING
 f/k/a LYCO ENERGY CORPORATION,                 §
                                                                  IN MANDAMUS
 Realtors.                                      §

                                                §

                                          OPINION

       Realtors, Mr. Joe Small and Enerplus Resources (USA) Corporation (“Enerplus”), have

filed a petition for a writ of mandamus ordering the Hon. Angie Juarez Barill, Judge of the 346th

Judicial District Court of El Paso County, to vacate an order compelling the production of

numerous documents which Relators assert are privileged. We conditionally grant.

       This mandamus proceeding arises from an oil and gas lease dispute. The oil and gas lease

at the center of the underlying dispute covers property located in Richland County, Montana.

The original lease was signed by Albert and Betty Vaira in 1962. Real party in interest, S.L.D.S.

Energy, Inc. (“S.L.D.S.”), is a successor in interest to the 1962 lease. In the summer of 2004,

Lyco Energy, the predecessor to Relator Enerplus, contacted S.L.D.S. through its landman,

Mr. Joe Small, seeking a release of S.L.D.S.’s interest in the 1962 lease. On August 4, 2004,

Mr. Small spoke with Fred Nelan, the President of S.L.D.S. Energy. On August 11, 2004,

Mr. Nelan signed a release of the interest.

       S.L.D.S. filed suit on September 25, 2006. The first amended petition alleged that
Enerplus, through Mr. Small, fraudulently induced S.L.D.S. to release its interest in a 1962 lease.

S.L.D.S. alleged that Mr. Small falsely represented to Mr. Nelan that its interest in the 1962 lease

had lapsed for non-production and that the release was only neccessary for title “cleanup.”

Following S.L.D.S.’s release, Enerplus drilled a producing well on the Vaira property. S.L.D.S.

sued to recover the royalties it would have been owed under the 1962 lease in addition to

exemplary damages for the alleged fraud.

       The parties began discovery. On April 18, 2007, Enerplus and Mr. Small filed a privilege

log contesting S.L.D.S.’s right to discover numerous internal documents regarding the title work

on the property based on attorney-client and attorney work product privileges. On January 25,

2008, Enerplus and Mr. Small amended their privilege log to include additional documents

containing communications between Enerplus and Mr. Small, and Enerplus and its attorneys.

       Pursuant to S.L.D.S.’s request, the trial court reviewed the documents “in camera.” On

February 6, 2008, the parties appeared before the trial court for a hearing on the asserted

privileges. Two days later, the trial court entered an order compelling Enerplus and Mr. Small to

produce the documents for the court’s inspection. On May 16, 2008, the court entered a written

order granting in part and denying in part the production of the privilege log documents.

Enerplus’s motion for reconsideration was denied on September 10, 2008.

       The parties have condensed the documents, which the trial court ordered to be produced

into five groups. Group “A” contains emails between Enerplus representatives and attorney,

John Lee, concerning the curative steps required by a 2004 Division Title Order. Group “B”

contains a single fax document sent in May 2006, from Kirby Dasinger, an Enerplus landman, to

Enerplus Land Manager Greg Ryan. Group “C” consists of handwritten notes by Enerplus Vice

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President Robert Moore regarding discussions he had with attorney Lee. Group “D” refers to a

single document referred to as the “due diligence report,” which was created by Enerplus

attorneys for Enerplus employee review. Finally, group “E” contains several emails sent from

attorney Lee to Enerplus representatives concerning royalties from the well.

       Mandamus will lie only to correct a clear abuse of discretion. In re Prudential Ins. Co. of

Am., 148 S.W.3d 124, 135 (Tex. 2004)(orig. proceeding). An Appellant court rarely interferes

with a trial court’s exercise of discretion. In re Seigel, 198 S.W.3d 21, 26 (Tex.App.--El Paso

2006, orig. proceeding). A clear abuse of discretion warranting correction by mandamus occurs

when a court issues a decision which is without basis in or reference to guiding rules and

principles of law. See Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex.

1985)(orig. proceeding). With respect to resolution of fact issues, or matters committed to the

trial court’s discretion, the reviewing court may not substitute its judgment for that of the trial

court. Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992)(orig. proceeding). The relator

must establish that the trial court could reasonably have reached only one conclusion. Id. at 840.

With respect to the trial court’s determination of the legal principles controlling its ruling, the

standard is much less deferential. In re Seigel, 198 S.W.3d at 26. A clear failure by the trial

court to analyze or apply the law correctly will constitute an abuse of discretion and may result in

appellate reversal by extraordinary writ. Walker, 827 S.W.2d at 840.

       An appellate court will deny mandamus relief if another remedy, usually appeal, is

available and adequate. See In re Prudential Ins. Co. of Am., 148 S.W.3d at135-36. In

considering whether an adequate remedy by appeal exists, appellate courts consider whether the

benefits of relief by mandamus outweigh the detriments. Id. at 136. Although generally a party

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may obtain discovery regarding any matter that is relevant to the subject matter of the pending

litigation, privileged matters are not discoverable. See TEX .R.CIV .P. 192.3(a); In re Seigel, 198
S.W.3d at 27. If a trial court erroneously orders privileged matters to be disclosed, there is no

adequate remedy at law, and mandamus is the proper remedy. See Dillard Dept. Stores, Inc. v.

Hall, 909 S.W.2d 491, 492 (Tex. 1995); Walker, 827 S.W.2d at 843.

       Enerplus and Mr. Small asserted the attorney-client and attorney work product privileges

in response to S.L.D.S.’s discovery requests. To establish a privilege, a party must plead the

particular privilege, produce evidence to support the privilege through affidavits or testimony,

and produce the documents themselves if the trial court determines an in camera review is

necessary. See TEX .R.CIV .P. 193.3(a); Peeples v. Hon. Fourth Supreme Judicial Dist., 701
S.W.2d 635, 637 (Tex. 1985)(orig. proceeding). Once the party resisting discovery establishes a

prima facie case that the documents are privileged, the burden shifts to the discovering party to

refute the privilege claim. See Marathon Oil Co. v. Moye, 893 S.W.2d 585, 591 (Tex.App.--

Dallas 1994, orig. proceeding).

       The attorney-client privilege protects confidential communications between client and

counsel made for the purpose of facilitating the rendition of legal services from disclosure. See

TEX .R.EVID . 503(b); Huie v. DeShazo, 922 S.W.2d 920, 922 (Tex. 1996). This privilege

attaches to the complete communication between attorney and client. Marathon Oil Co., 893
S.W.2d at 589. The subject matter of the information communicated is irrelevant when

determining whether the privilege applies. Marathon Oil Co., 893 S.W.2d at 589. The privilege

attaches to legal advice and factual information included in completed communications between

attorney and client. Id.

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        The attorney-client privilege applies only to communications which are intended to be

confidential between the attorney and the client and which are made for the purpose of

facilitating the rendition of legal services for the client. See TEX .R.EVID . 503(b); Arkla, Inc. v.

Harris, 846 S.W.2d 623, 629 (Tex.App.--Houston [14th Dist.] 1993, orig. proceeding). A

communication is “confidential” if it is not intended to be disclosed to third persons other than

those persons to whom disclosure is made “in furtherance of the rendition of professional legal

services to the client or those reasonably necessary for the transmission of the communication.”

TEX .R.EVID . 503(a)(5). If a matter for which a privilege has been asserted has been disclosed to

a third party, the party asserting the privilege has the burden to prove that no waiver occurred.

Arkla, Inc., 846 S.W.2d at 630.

                                         Groups “A” & “C”

        Following attorney Lee’s completion of the Division Title Order on the property in 2004,

Enerplus employees and representatives began the process of satisfying the curative measures as

outlined in the opinion in order to proceed with their plan to develop the mineral rights. During

that process, Mr. Moore remained in contact with Mr. Lee. Enerplus asserted the attorney-client

privilege to protect, what its privilege log describes as Mr. Moore’s handwritten notes related to

conversations with, or information provided by Mr. Lee from discovery. Enerplus also witheld

five emails between Mr. Lee, Mr. Small, Mr. Moore, and Mr. Dasinger regarding the Larson well

by asserting the attorney-client privilege. These emails are referred to by the parties as group

“A.”

        The emails were sent between July 26 and August 24, 2004, during the same time period

Mr. Small was corresponding with Mr. Nelan regarding the release. According to affidavit

                                                  -5-
evidence presented by Enerplus, all of these documents were made for the purpose of the

rendition of legal services related to the title on the property at issue. All the affidavits include

statements indicating that the parties to these emails expected the communications would be

private and protected by the attorney-client privilege.

        Enerplus argues that the affidavit evidence it has provided establishes the “confidential

communication” requirement of Rule 503(a)(5), and therefore, satisfied its burden to show the

documents are not discoverable. In response, S.L.D.S. does not challenge the communications’

status as confidential but argues that they were not made during the time period when Mr. Lee

was providing legal services. This argument is based on the following statement in Mr. Lee’s

affidavit: “I am one of the attorneys at Crowley who assisted Enerplus in doing the title work

prior to the drilling of the wells in question, including the well identified as [Larson].” S.L.D.S.

asserts that by this statement, Mr. Lee has excluded any work he did for Enerplus after July 5,

2004, the day drilling began, from his rendition of professional legal services for Enerplus.

S.L.D.S. concludes that this statement creates a conflict in the evidence regarding the duration of

Mr. Lee’s services, which could only be resolved by the trial court. See In re Angelini, 186
S.W.3d 558, 560 (Tex. 2006).

        We disagree that such a conflict exists. When read in the context of the totality of the

record, Mr. Lee’s statement only indicates that part of the legal service he provided to Enerplus

included “title work” prior to the date drilling began on the well. The totality of the record,

including the remainder of Mr. Lee’s affidavit, shows that Mr. Lee continued to provide Enerplus

with legal services long after drilling began. S.L.D.S. has failed to rebut Enerplus’s assertion of

attorney-client privilege with regard to the documents in group “A.” Therefore, the trial court

                                                  -6-
abused its discretion by ordering Enerplus to produce these documents on this ground.

       S.L.D.S. argues in the alternative, that Enerplus waived the attorney-client privilege with

regard to these emails by including landman Kirby Dasinger, a third party, in the

communications. It was part of Enerplus’s burden to establish that the privilege had not been

waived by disclosure. See Arkla, Inc., 846 S.W.2d at 630. According to his affidavit,

Mr. Dasinger was retained by Lyco Energy to assist Mr. Small and Mr. Lee regarding the curative

measures being taken on the property title. Mr. Dasinger understood that his communications

with Mr. Small and Mr. Lee regarding the title work was confidential. The record does not

contain evidence indicating that the emails were communicated to any additional parties. Based

on Mr. Dasinger’s affidavit, Enerplus rebutted S.L.D.S.’s disclosure argument by establishing

that the emails were not disclosed to any party other than those individuals involved in the

furtherance of Mr. Lee’s representation of Enerplus. Therefore, there was no waiver by

disclosure, and the trial court abused its discretion by ordering the emails to be disclosed on this

ground.

       S.L.D.S. presents similar arguments in response to Enerplus’s attorney-client privilege

assertion to group “C.” Group “C” consists of several handwritten notes by Enerplus Vice

President Robert Moore, regarding his discussions with Mr. Lee. Again, S.L.D.S. does not argue

that these notes do not fit the definition of attorney-client privilege but simply argues the

documents are not privileged because they were created after Mr. Lee ceased providing legal

services to Enerplus. Again, because we disagree that the record contains an evidentiary conflict

regarding the duration of Mr. Lee’s representation, the trial court abused its discretion by

ordering these notes be disclosed.

                                                 -7-
                                              Group “E”

        Group “E” consists of three emails sent in October of 2004 regarding potential royalty

interests. The first email was sent from Joe Small to Kirby Dasinger, David Knapp, and John

Lee on October 5, 2004, with carbon copies sent to Patricia Scott and Robert Moore. The second

email was sent by John Lee back to Joe Small on October 6, 2004. Joe Small sent the final email

on October 6, 2004, also to John Lee with copies also sent to Ms. Scott and Mr. Moore.

Mr. Small explained in his affidavit that the emails were communication related to the ongoing

title work being done under Mr. Lee’s direction. Enerplus asserted these documents were also

protected by the attorney-client privilege.

        S.L.D.S. argues that any claim Enerplus may have had that the emails one and three were

privileged was waived by their disclosure to third parties via the carbon copies to Mr. Dasinger,

Mr. Moore, and Ms. Scott. S.L.D.S. argues further that any privilege with regard to email two

was waived by Mr. Small’s admission in his deposition that he reviewed the document while

preparing to testify.

        As we discussed in our analysis of group “A,” a communication is “confidential” if it is

not intended to be disclosed to third persons other than those persons to whom disclosure is made

“in furtherance of the rendition of professional legal services to the client or those reasonably

necessary for the transmition of the communication.” TEX .R.EVID . 503(a)(5). As was the case

earlier, the record does not indicate that Enerplus disclosed the emails in group “E” to third

parties. The record reflects, and S.L.D.S. does not argue to the contrary, that Mr. Moore was an

Enerplus executive, Ms. Scott was in a high level position at Lyco, and Mr. Dasinger was a Lyco

representative in his capacity as a professional landman at the time they were included in

                                                 -8-
Mr. Small’s email communications with Mr. Lee. Based in their professional roles on behalf of

Enerplus and Lyco, the evidence does not demonstrate that Mr. Moore, Ms. Scott, and

Mr. Dasinger were parties outside the organization, which was the “client” for whom Mr. Lee

was performing legal services. Therefore, there was no waiver of the attorney-client privilege by

disclosure for emails one and three of group “E.”

       With regard to email two, S.L.D.S. argues the privilege was waived by Mr. Small’s use of

the document in his preparation for deposition. During his deposition, Mr. Small testified as

follows:

       Q:      Any other documents that you used in preparing for your deposition today?

       A:      No, not really.

                                          .       .          .

       A:      I’m sorry. I did look at things like this (indicating).

       Q:      The letters?

       A:      The letters and the copies of the releases, and things like that.

       Q:      Anything else that you recall?

       A:      Possibly an internal memorandum about the title opinion.

       Q:      Okay. And this internal memorandum that you reviewed in preparation for
               your deposition today, who issued the internal memorandum.

       A:      I probably initiated it.

       Q:      Okay. And is it something that you used to recall the sequence of events
               as far as this case was concerned?

       A:      Oh, it was written way before this case.

       Q:      Oh, it was?

                                                 -9-
       A:      Yes.

       Q:      What kind of internal memorandum are we talking about?

       A:      Communication with John Lee.

       Q:      Okay. But this internal memorandum that you reviewed this -- regarding
               your communications with John Lee, that was something that you used in
               preparation for your deposition today; is that right?

       A:      I reviewed it.

       Enerplus argues that Mr. Small’s reference to an “internal memorandum” was not an

admission that the emails were reviewed prior to his deposition. Enerplus states that the

document Mr. Small was referring to, an internal memorandum created by Mr. Small for Mr. Lee

and other Enerplus representatives in May 2004, has been produced pursuant to a Rule 11

agreement, and therefore, the issue is moot. The document Enerplus refers to is contained in the

mandamus record. It is titled “MEMORANDUM,” written by Mr. Small on May 12, 2004. In

the memo, Mr. Small reports the status of his work in satisfying the requirements of the Division

Title Order.

       S.L.D.S. does not contradict Enerplus’s assertion that the emails are privileged. Nor does

S.L.D.S. refute Enerplus’s statements that the document Mr. Small referred to in his deposition

was not the emails contained in group “E.” There is no indication in the record that S.L.D.S.

disagrees with Enerplus’s statement that the document referred to by Mr. Small has been

produced. Even so, were we to assume that Mr. Small’s testimony was sufficient to raise the

issue of waiver as to group “E,” Enerplus has carried its burden to refute the waiver argument by

establishing the emails were not part of Mr. Small’s review and by demonstrating that the

document he did use has been produced. See Arkla, Inc., 846 S.W.2d at 630. Therefore, the

                                               -10-
emails in group “E” remain protected by the attorney-client privilege, and there is no need to

further address the application of Texas Rule of Evidence 612(2). The trial court abused its

discretion by ordering disclosure of the group “E” documents.

                  The Crime-Fraud Exception: Groups “A,” “C,” “D,” & “E”

       S.L.D.S. asserts that the remainder of the documents, group “D,” is discoverable pursuant

to the crime-fraud exception of Rule 503. Group “D” contains a due diligence review created on

August 31, 2005, by attorneys at Andrews & Kurth, L.L.P., for Enerplus. By affidavit testimony,

Enerplus Land Manager Roxanne Forst explained the document was created as part of the merger

whereby Enerplus acquired Lyco Energy Corporation. Ms. Forst explains that this type of

document is routinely requested by companies and reflects the legal analysis performed by

attorneys on behalf of Enerplus at the time of the acquisition. Enerplus asserted the attorney-

client privilege protected the memorandum from discovery. S.L.D.S. also contends that to the

extent they are privileged, the documents contained in groups “A,” “C,” and “E” are also

discoverable pursuant to the exception.

       Texas Rule of Evidence 503(d)(1) provides that material otherwise protected by the

attorney-client privilege is discoverable if the services of the lawyer were sought or obtained to

enable or aid anyone to commit or plan to commit what the client knew or reasonably should

have known to be a crime or fraud. See TEX .R.EVID . 503(d)(1); In re Seigel, 198 S.W.3d at 28.

The crime fraud exception only applies if: (1) the party asserting the exception establishes a

prima facie case of contemplated fraud; and (2) there is a relationship between the document for

which the privilege is challenged and the prima facie proof offered. In re Seigel, 198 S.W.3d at

28.

                                                -11-
       The prima facie requirement is met when the proponent offers evidence establishing the

elements of fraud and that the fraud was ongoing, or about to be committed at the time the

document was prepared. Id. Mere allegations of fraud are not sufficient. Id. Similarly, the fact

that the plaintiff’s cause of action involves fraudulent conduct is also insufficient. Id. The fraud

alleged to have occurred must have happened at or during the time the document was prepared,

and the document must have been created as part of perpetrating the fraud. Id. at 28-9. The trial

court must make findings both that the prima facie case has been established and that a nexus

exists between the document at issue and the alleged fraud. Id. at 29.

       S.L.D.S. makes a three-part argument in support of its assertion that the crime-fraud

exception applies to all the documents otherwise protected by the attorney-client privilege.

Under part one, S.L.D.S. argues that the July 29, 2004 memorandum, which has been produced

pursuant to agreement, indicates that Enerplus had developed a “fraudulent scheme to obtain and

use releases from various interest owners to convince others to also release their interest in the

1962 Lease.” S.L.D.S. also argues that the remainder of the evidence establishes element one of

the exception. However, this argument consists only of S.L.D.S.’s own allegations that

“Enerplus engaged in two forms of fraud: the misrepresentation to SLDS that the 1962 Lease

was invalid for lack of production and its concealment of the fact that the 1962 Lease was valid

when and after the misrepresentation was made.” As we noted above, neither the mere allegation

of fraud, nor the fact that the plaintiff’s cause of action includes fraudulent conduct is sufficient

to establish the first element of the crime-fraud exception. See In re Seigel, 198 S.W.3d at 28.

Here, the majority of S.L.D.S.’s “evidence” demonstrating that Enerplus engaged its attorney for

fraudulent purposes is its own allegations of fraud, which serve as the basis of its lawsuit. Such a

                                                 -12-
demonstration will not serve as a basis for the application of the crime-fraud exception. See id.

       Were we to determine that the July 29, 2004 memorandum was sufficient to demonstrate

Enerplus engaged in fraudulent conduct, which would satisfy the first element of the exception,

S.L.D.S. also argues that there is proof that Mr. Lee’s services were obtained to further the fraud

in the withheld documents. Without commenting on the contents of the documents in groups

“A,” “C,” and “E,” we disagree that S.L.D.S.’s blanket assertion that those documents will prove

the purpose of Mr. Lee’s services was fraud satisfies the requirements of the exception. Were we

to accept S.L.D.S.’s argument, the exception would overrun the rule. Parties seeking such

discovery would simply argue that withheld documents will prove their case, and the attorney-

client privilege would cease to exist in many situations.

       Similarly, S.L.D.S. argues that the required nexus between the documents and the

fraudulent conduct will be established by the contents of those documents. S.L.D.S. asserts that

the documents it seeks will demonstrate that Enerplus’s fraudulent concealment was ongoing.

Again, such an argument cannot serve as the basis for an exception to the attorney-client

privilege. The crime-fraud exception requires the discovering party to establish a connection

between the particular documents sought and the fraud alleged. Mere allegations will not suffice.

As S.L.D.S. has not established a prima facie case that the crime-fraud exception applies to the

documents protected by the attorney-client privilege, the trial court abused its discretion by

ordering Enerplus to produce them.

                               Attorney Work Product: Group “B”

       Group “B” refers to a single document which the parties refer to as a fax from Enerplus

Landman Kirby Dasinger to Enerplus Land Manager Greg Ryan. According to Mr. Ryan’s

                                                -13-
affidavit, the document was created as part of a series of communications related to his

investigation of Mr. Nelan’s claim that he was fraudulently induced to sign the 2004 oil and gas

release. Enerplus asserted both the attorney-client and attorney work product privileges to

protect the document from discovery. We will limit our analysis to whether the document is

protected as non-core attorney work product.

          Rule 192.5(b)(2) precludes discovery of an attorney’s work product. TEX .R.CIV .P.

192.5(b)(2). The work product exemption protects the attorney’s mental processes, conclusions,

and legal theories from discovery by another party, thereby providing a privileged area where the

attorney can analyze and prepare the case. Marathon Oil Co., 893 S.W.2d at 589. The work

product exemption extends both to documents actually created by the attorney and memoranda,

reports, notes, or summaries of interviews prepared by other individuals for the attorney’s use.

Id.

          S.L.D.S. does not contest that the fax is properly categorized by Enerplus as non-core

work product. The party seeking such discovery labors under a heavy burden to show both that a

“substantial need” for the materials exists and that materials equivalent to those sought cannot be

obtained without substantial hardship. See TEX .R.CIV .P. 192.5(b)(2); In re Bexar County Crim.

Dist. Attorney’s Office, 224 S.W.3d 182, 188 (Tex. 2007). A party does not establish a

“substantial need” for materials by showing a “substantial desire” for them. Id. at 188. By the

same token, a “substantial need” is not established by evidence that the party could not prove his

cause of action without the materials. In re Bexar County Crim. Dist. Atty’s Office, 224 S.W.3d

at 188.

          S.L.D.S. argues summarily that “[i]nformation in the May 2006 fax may evidence the

                                                 -14-
fraudulent scheme concocted and pursued by Enerplus to obtain the release from SLDS of its

interest in the 1962 Lease.” S.L.D.S. continues by stating, “[t]he communication from Kirby

Dasinger may very well confirm the knowledge of Enerplus that SLDS’s interest was still valid

despite the representation by Joe Small to Fred Nelan; evidence SLDS would have a substantial

need for and hardship acquiring from another source . . . .” This statement does nothing more

than demonstrate S.L.D.S.’s desire to obtain a copy of the fax and is therefore not sufficient to

satisfy its burden. Accordingly, with regard to group “B,” the trial court abused its discretion by

ordering Enerplus to disclose the fax.

        We conclude that the trial court abused its discretion by overruling Relators’ objections to

discovery and by granting the motion to compel discovery of privileged materials. Because

Realtors have no adequate remedy at law, we conditionally grant the relief requested. The writ

will issue only if the trial court fails to comply with this opinion.

June 10, 2009
                                                DAVID WELLINGTON CHEW, Chief Justice

Before Chew, C.J., McClure, J., and Barajas, C.J. (Ret.)
Barajas, C.J. (Ret.)(Sitting by Assignment)

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