Court Opinion

ID: 4105605
Source: CourtListenerOpinion
Date Created: 2016-12-08 15:17:29.992567+00
Date Added: 2024-06-11T13:29:59.607609
License: Public Domain

In The

                               Court of Appeals
                   Ninth District of Texas at Beaumont
                             _________________
                              NO. 09-16-00382-CV
                             _________________

               IN RE FLOWCRETE NORTH AMERICA, INC.

________________________________________________________________________

                              Original Proceeding
              410th District Court of Montgomery County, Texas
                       Trial Cause No. 15-02-01093-CV
________________________________________________________________________

                         MEMORANDUM OPINION

      This mandamus proceeding concerns the protection of trade secrets in

discovery in civil litigation. The relator, Flowcrete North America, Inc.

(“Flowcrete”), contends that the trial court abused its discretion by (1)

consolidating two cases for discovery, (2) allowing a competitor’s chief executive

officer to act as an expert witness in the case, and (3) refusing to protect

Flowcrete’s trade secrets by further limiting the persons with access to certain

discovery materials and permitting re-designation of trade secret information in

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light of the trial court’s rulings on shared discovery and Flowcrete’s objection to

the expert witness. We conditionally grant relief.

      The scope of discovery is largely within the trial court’s discretion, but

mandamus will issue if a trial court improperly orders the disclosure of trade

secrets. See In re Union Pac. R.R. Co., 294 S.W.3d 589, 593 (Tex. 2009). The

Texas Uniform Trade Secrets Act (“TUTSA”) requires that courts preserve the

secrecy of an alleged trade secret by reasonable means. Tex. Civ. Prac. & Rem.

Code Ann. § 134A.006 (West Supp. 2016). TUTSA’s presumption in favor of

granting protective orders to preserve secrecy of trade secrets authorizes limiting

access to confidential information to only attorneys and their experts and ordering

nondisclosure without prior court approval. Id. When considering a party’s pre-

trial request for protection of alleged trade secrets, the trial court need not

determine that the information is, in fact, a trade secret, but must determine

whether the information is entitled to trade-secret protection until the trial on the

merits. In re M-I L.L.C., No. 14-1045, 2016 WL 2981342, at *4, n.3 (Tex. May 20,

2016) (orig. proceeding).

      In February 2015, Flowcrete sued its former president, Anthony Crowell,

three former employees, David Keller, Sheryl Kunning, and Ann Delve, and their

newly-formed company, Verdia, Inc. (collectively, the “Verdia parties”). Flowcrete

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alleged that the Verdia parties misappropriated Flowcrete’s trade secrets for its

polyurethane concrete flooring system, which has a stable emulsion and can be

shipped in bulk. Additionally, Flowcrete alleged that the individual defendants

breached their contractual duties not to disclose any of Flowcrete’s confidential

information. In March 2016, a Flowcrete competitor, Ulfcar Production ApS

(“Ulfcar”), filed a petition in intervention and third-party petition alleging that

Flowcrete, entities affiliated with Flowcrete, and two individuals employed by

those entities misappropriated Ulfcar’s confidential and proprietary polyol formula,

which Ulfcar alleged Flowcrete used to create its product. Ulfcar alleged it licensed

the exclusive right to use its polyol formula in the United States to Verdia.

      The trial court severed Ulfcar’s claims into a separate case, but ordered

shared discovery for the two cases. Flowcrete requested that the protective order

previously signed by the trial court be amended to account for the fact that

Flowcrete’s competitor was directly participating in the discovery process. The

trial court denied Flowcrete’s motion but ordered the parties to return to the

mediator and agree on any additional language “including language to allow for

appropriate protections through case specific marking/designations of documents

and to clarify definitions and terms including independent experts and consultants

and designated party representatives.”

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      At this stage of the proceedings, Flowcrete seeks protection from discovery

from a direct product competitor of the formulas and production methods that

Flowcrete alleges (a) derive independent economic value from not being readily

known to or ascertainable through proper means by others who can obtain

economic value from its disclosure or use; and, (b) is the subject of reasonable

efforts to maintain its secrecy. See Tex. Civ. Prac. & Rem. Code Ann. §

134A.002(6). The trial court has not found that Flowcrete is seeking protection of

information that is, in fact, owned by Ulfcar. Whether Flowcrete owns the

information is a disputed fact issue to be resolved in the trial court, but at this stage

of the proceedings, it is undisputed that the information is proprietary and

confidential, and is a trade secret that is claimed by Flowcrete.

      The Verdia parties argue that the substantial overlap between the Ulfcar and

Flowcrete suits justifies combining the discovery in the two cases. Flowcrete’s suit,

in part, seeks to enjoin the Verdia parties’ misappropriation of Flowcrete’s “non-

public formulas, mixing instructions, prices, pricing policies, customer lists and

identities, the preferences and needs of such customers, material and product

specifications, contractual relations, sales and marketing strategies, business

practices, and training know-how” developed from 2009 through 2013. Ulfcar’s

petition alleges that an entity related to Flowcrete illicitly obtained Ulfcar’s polyol

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formula from Ulfcar’s predecessor in interest in 2008, and Flowcrete’s polyol

formulation and production methods changed dramatically between 2009 and

2011. Therefore, it is undisputed that through their employment with Flowcrete,

the Verdia parties have already obtained the information that Flowcrete developed

after 2008 and that Ulfcar does not possess that information. Sharing discovery in

the two cases would result in Flowcrete surrendering its trade secrets to Ulfcar

before Ulfcar established its right to possess the information. We conclude that the

trial court’s order consolidating the Flowcrete and Ulfcar suits for purposes of

discovery fails to preserve the secrecy of Flowcrete’s alleged trade secret by

reasonable means. See Tex. Civ. Prac. & Rem. Code Ann. § 134A.006.

      Flowcrete complains that due to his designation as an independent expert,

the existing protective order permits Ulfcar’s CEO, Neils Vangsted, to review all

of the competitive commercial information, confidential material, and trade secrets

that Flowcrete produces to the Verdia parties. The Verdia parties designated

Vangsted as a non-retained expert and fact witness. Flowcrete moved to strike the

designation, arguing that Vangsted is fully interested in the outcome of the

litigation between Flowcrete and the Verdia parties by virtue of the exclusive

licensing agreement between Ulfcar and Verdia. The trial court denied the motion

to strike. Flowcrete moved for protection of its alleged trade secrets from

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disclosure to its competitor’s CEO. The trial court denied the motion but ordered

the parties to return to the mediator and agree on additional protective language for

the existing protective order “through case specific marking/designations of

documents and to clarify definitions and terms including independent experts and

consultants and designated party representatives.”

      Flowcrete argues that TUTSA requires the trial court to preserve the secrecy

of an alleged trade secret through reasonable means. See id. The Verdia parties

claim that Vangsted is a “Counsel-Designated Representative” not an “independent

expert” and argue that Flowcrete can prevent Vangsted from viewing proprietary

information by designating it for “Attorneys[’] Eyes Only[.]” We agree with

Flowcrete. The protective order states that a qualified person for “Attorneys Only”

information includes “actual or potential independent experts[.]” The trial court’s

protective order failed to preserve the secrecy of Flowcrete’s alleged trade secrets

by reasonable means. See id.

      We agree with Flowcrete that the trial court’s mediation order does not

protect Flowcrete’s alleged trade secrets, but this order was an incidental ruling

that does not merit mandamus review in light of the trial court’s decision to stay

discovery pending mandamus review and our ruling that the trial court must

protect Flowcrete’s alleged trade secrets pending trial on the merits or a

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determination that Flowcrete is not entitled to trade secret protection. See id. We

are confident that the trial court will amend its orders to remove the provision

allowing shared discovery and that the trial court will protect the alleged trade

secret information from disclosure to the relator’s competitor before the ownership

of the information has been determined. The writ shall issue only if the trial court

fails to comply.

      PETITION CONDITIONALLY GRANTED.

                                                          PER CURIAM

Submitted on October 27, 2016
Opinion Delivered December 8, 2016

Before Kreger, Horton, and Johnson, JJ.

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