Court Opinion

ID: 4058065
Source: CourtListenerOpinion
Date Created: 2016-09-29 08:55:49.513066+00
Date Added: 2024-06-11T13:21:05.646454
License: Public Domain

IN THE SUPREME COURT OF TEXAS
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                                           NO . 13-0499
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  IN RE RSR CORPORATION AND QUEMETCO METALS LIMITED, INC., RELATORS

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                              ON PETITION FOR WRIT OF MANDAMUS
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                                   Argued September 2, 2015

       JUSTICE DEVINE delivered the opinion of the Court.

       This original proceeding concerns whether the trial court abused its discretion by

disqualifying plaintiffs’ counsel because they “worked so closely” with a defendant’s former finance

manager. Treating the finance manager like a side-switching paralegal, the trial court applied In re

American Home Products Corp., 985 S.W.2d 68 (Tex. 1998) (orig. proceeding), and found

plaintiffs’ counsel should have screened him from participating in the case. We hold the American

Home Products screening requirement does not govern a fact witness with information about his

former employer if his position with that employer existed independently of litigation and he did not

primarily report to lawyers. To the extent the fact witness discloses his past employer’s privileged

and confidential information, the factors outlined by In re Meador, 968 S.W.2d 346 (Tex. 1998)

(orig. proceeding), should guide the trial court’s discretion regarding disqualification. Because the

trial court improperly disqualified plaintiffs’ counsel under American Home Products, we

conditionally grant mandamus relief.
                                   I. Background and Procedural History

         In the underlying case, Bickel & Brewer represent RSR Corporation and Quemetco Metals

Limited, Inc. (collectively, “RSR”) in their suit against Inppamet S.A.,1 a Chilean manufacturer of

anodes used in the mining industry. RSR had licensed its anode-production information to Inppamet

in 2003. In return, Inppamet promised to pay RSR a fee for every anode sold. In 2008, RSR sued

Inppamet in Texas for (among other things) breaching their contract and misappropriating trade

secrets. That same year, Inppamet sued RSR in Chile. The law firm of Bofill Mir & Alvarez Jana

(BMAJ) represents RSR in the Chilean litigation.

         Hernan Sobarzo was Inppamet’s finance manager from April 2007 to April 2010. Sobarzo’s

self-described duties included ensuring cash flow and financing, as well as calculating Inppamet’s

payments to RSR under the 2003 agreement. He had access to data regarding Inppamet’s financial

statements, foreign trading, and government reports. When RSR requested an audit in 2009

concerning Inppamet’s payments to RSR, Sobarzo gathered information and discussed the audit with

Inppamet’s lawyers and company officers. He also discussed litigation strategy with company

officers, communicated with Inppamet’s lawyers, and reviewed invoices describing the attorneys’

work. Notably, Sobarzo’s contract with Inppamet stated that all information Sobarzo obtained

during his employment was confidential and could not be disclosed to third parties, even after his

employment ended.

         1
           RSR also sued Plastic and Metal Parts, Inc., and Andreas Siegmund. For convenience, we refer only to
Inppamet. Although Siegmund is a defendant in the underlying suit and a real party in interest in this original proceeding,
he has not made an appearance here.

                                                            2
       In April 2010, Sobarzo resigned from Inppamet. He took with him around 2.3 gigabytes of

data, consisting primarily of emails—around 15,000 to 17,000 of them. The emails included some

of Sobarzo’s personal communications, as well as emails between Inppamet’s lawyers, managers,

and directors.

       Months later, an attorney with BMAJ, RSR’s Chilean counsel, emailed Sobarzo and asked

Sobarzo to contact him. The two eventually met to discuss Inppamet and the feud with RSR. More

meetings followed, often involving Bickel & Brewer. Twice Sobarzo traveled to New York City to

meet with Bickel & Brewer. At other times, attorneys from Bickel & Brewer traveled to Chile. The

trial court found Sobarzo met with Bickel & Brewer’s attorneys and consultants at least 19 times for

a total of more than 150 hours.

       The parties dispute what happened during these meetings. But this much is clear: Sobarzo

supplied significant information regarding Inppamet, accusing Inppamet of underpaying RSR under

the 2003 agreement. He discussed Inppamet’s audit of the payments and even provided Bickel &

Brewer a spreadsheet concerning the payment calculations. Bickel & Brewer attorneys looked on

as Sobarzo displayed Inppamet documents on his computer, and BMAJ possesses a pen drive with

many Inppamet documents. The parties, of course, dispute the nature and number of documents

Bickel & Brewer reviewed. RSR asserts Bickel & Brewer always told Sobarzo not to reveal

Inppamet’s privileged or confidential information during their interviews. Inppamet, however,

contends Bickel & Brewer freely viewed the documents Sobarzo took from Inppamet, many of which

were privileged and confidential. Regarding the pen drive, the parties dispute the extent that Bickel

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& Brewer reviewed the documents on the pen drive and whether BMAJ took adequate precautions

against viewing privileged information.

       Sobarzo insisted on compensation for his time with BMAJ and Bickel & Brewer. The trial

court found Sobarzo charged $1,600 per day, which was four times his current salary. RSR asserts

Sobarzo misrepresented his salary and led RSR’s attorneys to believe they were fairly compensating

him for travel expenses and lost time. In May 2011, BMAJ and Sobarzo formalized the terms of

Sobarzo’s compensation in a written consulting agreement. As the trial court noted, though the

agreement was between BMAJ and Sobarzo, RSR and Bickel & Brewer also participated in the

decision to retain him. Inppamet argues the contract required BMAJ to pay Sobarzo for 30 hours

of work per week, guaranteeing Sobarzo nearly $1 million by the time the contract’s three-year term

passed, in addition to other benefits. In response, RSR points to a section of the agreement stating

BMAJ had no obligation to use Sobarzo’s services and would pay Sobarzo only for work actually

performed.

       Two months after signing the agreement, however, Sobarzo quit consulting with BMAJ and

Bickel & Brewer. He then signed an affidavit recanting his accusations against Inppamet and

asserting Inppamet never underpaid RSR.

       Concerned by Bickel & Brewer’s exposure to Sobarzo and his documents, Inppamet moved

to disqualify Bickel & Brewer from representing RSR. Former Texas Supreme Court Justice

Deborah Hankinson, who had been appointed by the trial court as a special master, denied the motion

to disqualify. She did, however, order Bickel & Brewer to destroy one document—a spreadsheet

with Inppamet’s payment calculations. Inppamet appealed the disqualification ruling to the trial

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court. The trial court, relying primarily on American Home Products, found that BMAJ was

“irreparably tainted” by hiring Sobarzo and reviewing his documents. It also found a genuine threat

that BMAJ or Sobarzo had disclosed confidential information to Bickel & Brewer and accordingly

ordered Bickel & Brewer’s disqualification. Beyond the spreadsheets for calculating Inppamet’s

payments to RSR and information regarding the audit, the trial court’s order did not identify specific

documents Bickel & Brewer reviewed. The court of appeals subsequently denied RSR’s petition for

mandamus relief. 405 S.W.3d 265, 268 (Tex. App.—Dallas 2013).

                            II. The Proper Disqualification Standard

        “Disqualification is a severe remedy.” Spears v. Fourth Court of Appeals, 797 S.W.2d 654,

656 (Tex. 1990) (orig. proceeding). A party whose counsel is improperly disqualified has no

adequate remedy by appeal. In re Guar. Ins. Servs., Inc., 343 S.W.3d 130, 132 (Tex. 2011) (orig.

proceeding) (per curiam). Thus, if the trial court abused its discretion by disqualifying Bickel &

Brewer, we may grant mandamus relief. In re Nitla S.A. de C.V., 92 S.W.3d 419, 422 (Tex. 2002)

(orig. proceeding) (per curiam). A trial court abuses its discretion if it incorrectly analyzes or applies

the law. In re Sanders, 153 S.W.3d 54, 56 (Tex. 2004) (orig. proceeding) (per curiam). Of course,

we may not make factual determinations in mandamus proceedings. In re Dep’t of Family &

Protective Servs., 273 S.W.3d 637, 648 (Tex. 2009) (orig. proceeding).

        RSR asserts the trial court abused its discretion by disqualifying Bickel & Brewer under

American Home Products, a case discussing disqualification of counsel for hiring the other side’s

former paralegal or legal assistant. See 985 S.W.2d at 71. According to RSR, Sobarzo is a fact

witness and a different standard applies. We agree and hold the factors test from In re Meador

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properly balances Inppamet’s need to protect privileged information against RSR’s interest in

retaining counsel.

       Meador applies when attorneys “receive[] an opponent’s privileged materials outside the

normal course of discovery.” 968 S.W.2d at 352. In Meador, a company president’s executive

assistant copied a letter from the company’s attorneys regarding a pending lawsuit. Id. at 348. The

executive assistant later quit her job, taking the copy with her. Id. She decided to sue the company

and contacted an attorney already representing a client in a suit against the company. Id. at 349. The

attorney agreed to represent her as well. Id. During their meeting she gave him a copy of the

company’s letter from its attorneys, followed by copies of several other company documents. Id.

Although the attorney “should have known after the most cursory review that the materials . . . were

privileged,” he still appeared to have “thoroughly reviewed” them. Id. at 352. The trial court

ordered the attorney to return the company’s documents, but it refused to disqualify the attorney from

representing his original client. Id. at 349.

       On mandamus review, we held that “the trial court, giving due consideration to the

importance of our discovery privileges, must consider all the facts and circumstances to determine

whether the interests of justice require disqualification.” Id. at 351. At times, “a lawyer who has

been privy to privileged information improperly obtained from the other side must be disqualified,

even though the lawyer was not involved in obtaining the information.” Id. But not always.

Relevant factors for the trial court’s consideration include:

       1)      whether the attorney knew or should have known that the material was
               privileged;

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        2)       the promptness with which the attorney notifies the opposing side that he or
                 she has received its privileged information;

        3)       the extent to which the attorney reviews and digests the privileged
                 information;

        4)       the significance of the privileged information; i.e., the extent to which its
                 disclosure may prejudice the movant’s claim or defense, and the extent to
                 which return of the documents will mitigate that prejudice;

        5)       the extent to which movant may be at fault for the unauthorized disclosure;

        6)       the extent to which the nonmovant will suffer prejudice from the
                 disqualification of his or her attorney.

Id. at 351–52.

        The factors explained by Meador are appropriate for evaluating whether Bickel & Brewer

should be disqualified in this case. Like the executive assistant in Meador, Sobarzo secreted

documents from his employer when he quit and provided them to the opposing side’s counsel. Like

the attorney in Meador, Bickel & Brewer received the opposing side’s documents not through

discovery requests but rather “outside the normal course of discovery.” Id. at 352. To the extent

Bickel & Brewer should have known any documents were privileged, they still were not “directly

involved in wrongfully procuring” them. Id.

        Meador provides a flexible, fact-oriented standard so that trial courts may reach a just result.

But here, the trial court’s order reflects that it neither considered the Meador factors nor resolved the

factual disputes necessary to do so. The trial court applied the wrong standard.

        Inppamet, however, argues that Sobarzo’s status as a paid consultant and his extensive

contact with Bickel & Brewer calls for a different rule. Citing American Home Products, Inppamet

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claims we must presume Sobarzo shared Inppamet’s confidences with Bickel & Brewer and argues

RSR cannot overcome this presumption. Inppamet also asserts that Bickel & Brewer’s close contact

with BMAJ, as well as with Sobarzo, created a genuine threat of disclosure of Inppamet’s

confidences.

       American Home Products concerned a law firm that hired its opposing counsel’s former legal

assistant. 985 S.W.2d at 71. In such cases, two presumptions ensure that any law firm hiring a side-

switching paralegal is disqualified unless it has screening measures in place. First, it is conclusively

presumed that “a paralegal or legal assistant who has worked on a case” received confidences and

secrets. Id. at 74. Second, it is presumed that the paralegal shared the confidential information with

the new employer. Id. at 75. This latter presumption is not conclusive, but may only be overcome

by (1) “instruct[ing] the legal assistant ‘not to work on any matter on which the paralegal worked

during the prior employment, or regarding which the paralegal has information relating to the former

employer’s representation,” and (2) “tak[ing] other reasonable steps to ensure that the paralegal does

not work in connection with matters on which the paralegal worked during the prior employment.”

Id. (quoting Phoenix Founders, Inc. v. Marshall, 887 S.W.2d 831, 835 (Tex. 1994) (orig.

proceeding)). Such “other reasonable steps” must include “formal, institutionalized screening

measures that render the possibility of the nonlawyer having contact with the file less likely.” In re

Columbia Valley Healthcare Sys., L.P., 320 S.W.3d 819, 826 (Tex. 2010) (orig. proceeding).

       In other words, under American Home Products and its progeny, if the side-switching

employee is not screened but “works on the case at her [new] employer’s directive, . . . and the [new]

employer reasonably should know about the conflict of interest, then the presumption of shared

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confidences must become conclusive.” Id. at 827. Simply put, if Sobarzo is the type of side-

switching employee that American Home Products contemplated, then neither BMAJ nor Bickel &

Brewer could retain him as a consultant in the underlying case. Even if Sobarzo was only retained

by BMAJ, Bickel & Brewer would still be subject to disqualification because its attorneys had

substantive communications about the case with Sobarzo. American Home Products, 985 S.W.2d

at 78.

         We conclude, however, that American Home Products does not apply to a fact witness such

as Sobarzo. His position with his former employer existed independently of litigation, and his

function was not primarily to report to lawyers. Sobarzo was Inppamet’s finance manager with

firsthand knowledge of facts, and thus his contact with Inppamet lawyers, without more, does not

shield him from RSR’s contact. Indeed, we have only applied the American Home Products

presumptions to paralegals, legal assistants, or other nonlawyers who are directly supervised by

attorneys and are retained to assist with litigation.2 We applied the same presumptions in several

cases predating American Home Products, but again, only to legal staff.3 To be sure, we take a

functional approach, looking not only to labels and job titles but also to the side-switching

employee’s duties at the original employer. Nonetheless, we examine whether the tasks “performed

         2
            See Guar. Ins. Servs., 343 S.W .3d at 132–34 (considering side-switching paralegal who, at original firm,
reviewed the case file, identified persons with knowledge of relevant facts, and drafted a response to a request for
disclosures); Columbia Valley Healthcare Sys., 320 S.W .3d at 822 (considering side-switching legal assistant who, at
original firm, “was a custodian of records and was responsible for filing many privileged documents concerning the
suit”).

         3
           See Grant v. Thirteenth Court of Appeals, 888 S.W .2d 466, 467–68 (Tex. 1994) (orig. proceeding) (per
curiam) (considering side-switching legal secretary who, at original firm, handled case files, interviewed clients, and
prepared investigative reports); Phoenix Founders, 887 S.W .2d at 833 (evaluating side-switching paralegal who located
a pleading and discussed the case with one firm’s lead counsel before being hired by the opposing firm).

                                                          9
were the same as those that might be executed by a legal assistant as a full-time employee of a law

firm or by a legal assistant in the legal department of a party.” American Home Products, 985
S.W.2d at 74. If so, then the “professional obligations that inhere when performing services for a

client must obtain.” Id. at 77. But if not, the employee may be a fact witness and screening is not

required.

        Even the Texas Disciplinary Rules of Professional Conduct allow an attorney to contact the

former employees of the opposing party. Under Rule 4.02(a), a lawyer, in representing a client, may

not communicate with a person or organization “the lawyer knows to be represented by another

lawyer regarding that subject.” TEX . DISCIPLINARY RULES PROF’L CONDUCT R. 4.02(a), reprinted

in TEX . GOV ’T CODE , tit. 2, subtit. G, app. A. This prohibition extends to certain “persons presently

having a managerial responsibility” in the organization or “presently employed by” the organization.

TEX . DISCIPLINARY RULES PROF’L CONDUCT R. 4.02(a) (emphasis added). But “this Rule does not

prohibit a lawyer from contacting a former employee of a represented organization.” TEX .

DISCIPLINARY RULES PROF’L CONDUCT R. 4.02 cmt. 4.

        Applying the bright-line rule from American Home Products to fact witnesses instead of legal

staff would limit informal discovery and fact-gathering. “Denial of access to such a person would

impede an adversary’s search for relevant facts . . . .” RESTATEMENT (THIRD )             OF THE   LAW

GOVERNING LAWYERS § 100 cmt. g (AM . LAW INST . 2000). If attorneys abuse their freedom by

eliciting privileged or confidential information from fact witnesses, then their conduct is subject to

Meador. But American Home Products does not create a blanket rule against any contact with such

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fact witnesses, even if they were once employed by the opposing side and had contact with that

side’s attorneys.

       Inppamet emphasizes Bickel & Brewer’s extensive contact with Sobarzo, the compensation

Sobarzo received, and Sobarzo’s confidentiality agreement with Inppamet. These facts, of course,

are relevant to Meador, but they do not call for an entirely different analytical framework. Frequent

contact with Sobarzo and knowledge of his confidentiality agreement may inform at least two of the

Meador factors: “whether the attorney knew or should have known that the material was privileged,”

and “the extent to which the attorney reviews and digests the privileged information.” Meador, 968
S.W.2d at 351–52. Such facts inform the Meador analysis; they do not call for its abandonment.

Neither does Sobarzo’s compensation require the presumptions of American Home Products to be

applied here. Although attorneys may not compensate a witness “contingent upon the content of the

testimony of the witness or the outcome of the case,” they may still provide reasonable compensation

for travel expenses and the witness’s loss of time. TEX . DISCIPLINARY RULES PROF’L CONDUCT

R. 3.04(b). If an attorney violates this rule, the opposing side should so argue and seek an

appropriate remedy. But compensation on its own does not turn a fact witness into a paralegal or

legal assistant subject to the American Home Products presumptions.

       Inppamet points to a court of appeals decision disqualifying a firm for hiring an engineer as

a consultant in a lawsuit against her prior employer, Bell Helicopter Textron. In re Bell Helicopter

Textron, Inc., 87 S.W.3d 139, 144 (Tex. App.—Fort Worth 2002, orig. proceeding [mand. denied]).

The employee had worked as an engineer, accident investigator, and chief of flight safety for Bell

Helicopter. Id. at 144. At times, she worked with Bell Helicopter’s counsel to develop legal

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strategies in cases involving helicopter crashes. Id. Eventually, she left Bell Helicopter and was

later hired by a firm suing Bell Helicopter. Id. The court of appeals applied the American Home

Products presumptions because the engineer-turned-consultant was part of the legal team that

developed defenses at Bell Helicopter. Id. at 145–47. Although the plaintiffs presented affidavits

averring the consultant never divulged Bell Helicopter’s privileged information, trade secrets, or trial

strategies, the court of appeals held the plaintiffs’ counsel must be disqualified. Id. at 147, 151. It

held her status as a fact witness did not prevent disqualification. Id. at 150–51.

        For the reasons already discussed, the American Home Products presumptions do not apply

to fact witnesses who, at their original place of employment, were not hired for litigation purposes

and were not directly supervised by lawyers. We disapprove of Bell Helicopter for disqualifying a

firm that hired the opposing side’s former engineer without first considering the Meador factors.

        Finally, Inppamet points to a recent opinion by the Texas Committee on Professional Ethics

concerning when a law firm hires an opposing law firm’s former employee “who is not a lawyer,

paralegal or secretary.” Tex. Comm. on Prof’l Ethics, Op. 650, 78 TEX . B.J. 579, 581 (2015)

(emphasis added). The Commission determined that the hiring law firm must withdraw from the

representation if

        the employee in question had in the prior employment worked on the lawsuit or
        otherwise had access to information concerning the prior employer’s representation
        of the opposing party in the lawsuit and the hiring law firm fails to take effective
        steps, which normally would include screening the newly hired employee, to prevent
        the employee from disclosing or using in the hiring law firm confidential information
        related to the lawsuit. In all other circumstances, the hiring law firm will not be
        required to withdraw from the representation unless, regardless of the hiring law
        firm’s attempts to prevent improper disclosure or use of any confidential information

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       relating to the lawsuit acquired by the employee in the prior law firm, the employee
       actually discloses or uses such confidential information in the hiring law firm.

Id.

       This ethics opinion, however, does not discuss fact witnesses. The opinion refers to

nonlawyers and nonparalegals, but it only applies to the opposing law firm’s employees. Here,

Sobarzo was originally employed by a party to the case. As a finance manager, he has firsthand

knowledge of relevant facts, and RSR was free to pursue these facts. To the extent RSR’s counsel

abused this freedom, its conduct is governed by Meador rather than American Home Products.

                                                ***

       We hold the trial court abused its discretion by disqualifying Bickel & Brewer under

American Home Products. We do not decide whether disqualification would have been proper under

Meador because the trial court did not reach the issue and did not resolve all fact issues relevant to

a Meador analysis. We conditionally grant mandamus relief. The writ will issue only if the trial

court does not vacate its order granting Inppamet’s motion to disqualify.

                                                      __________________________
                                                      John P. Devine
                                                      Justice

Opinion delivered: December 4, 2015

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