in Re Fedd Wireless LLC., Fedd Holdings LLC., William C. Daley Trust

567 S.W.3d 470
CourtCourt of Appeals of Texas
DecidedJanuary 15, 2019
Docket14-18-00892-CV
StatusPublished

This text of 567 S.W.3d 470 (in Re Fedd Wireless LLC., Fedd Holdings LLC., William C. Daley Trust) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
in Re Fedd Wireless LLC., Fedd Holdings LLC., William C. Daley Trust, 567 S.W.3d 470 (Tex. Ct. App. 2019).

Opinion

Petition for Writ of Mandamus Conditionally Granted and Opinion filed January 15, 2019.

In The

Fourteenth Court of Appeals

NO. 14-18-00892-CV

IN RE FEDD WIRELESS LLC., FEDD HOLDINGS LLC., WILLIAM C. DALEY TRUST, ET AL., Relators

ORIGINAL PROCEEDING WRIT OF MANDAMUS 189th District Court Harris County, Texas Trial Court Cause No. 2014-54156

OPINION

In this original proceeding, we consider whether a party waived attorney- client privilege as to a document the party relied on, but later abandoned, in seeking traditional summary judgment relief. The relators are FEDD Wireless, LLC, FEDD Holdings, LLC, (“FEDD”),1 William C. Daley Trust, Sarah Hughes Daley Trust, Michael W. Murphy Trust 1972, and several individuals or entities who invested in FEDD (collectively “Plaintiffs”). The real parties-in-interest are Flowserve Corporation and Flowserve US Inc. (collectively “Flowserve”).

On September 10, 2018, the Honorable John Wooldridge, visiting judge of the 189th District Court of Harris County, signed an order striking from the record a document the parties refer to as a due-diligence report (“Due-Diligence Report”). The trial court’s order also required Plaintiffs to return to Flowserve all copies of the document. The trial court found that the Due-Diligence Report, which Flowserve attached to and then withdrew from a traditional motion for summary judgment, was an inadvertently produced attorney-client privileged communication. On October 16, 2018, the trial court signed a separate order denying Plaintiffs’ motion to compel production of the same document based on the crime-fraud exception to the attorney- client privilege.

Plaintiffs filed a petition for writ of mandamus asking this court to compel the trial court to vacate its September 10, 2018 and October 16, 2018 orders. See Tex. Gov’t Code Ann. § 22.221 (West Supp. 2017); see also Tex. R. App. P. 52.

We conditionally grant the petition for writ of mandamus in part and direct the trial court to vacate its September 10, 2018 order. Our disposition moots relators’ challenge to the October 16, 2018 order.

1 Relators refer to FEDD Wireless, LLC, and FEDD Holdings, LLC, collectively as “FEDD.” We do as well. 2 Factual and Procedural Background

Plaintiffs include all equity investors who owned membership interests in FEDD. According to Plaintiffs’ allegations, in April 2011 Flowserve acquired FEDD Wireless (the developer of wireless industrial monitoring technology) in an asset sale, at a price alleged to be well below market value. Closing the sale required Flowserve to obtain approval from FEDD’s investors in accordance with FEDD’s operating agreement and applicable Texas law. Plaintiffs allege that Flowserve “monetarily incentivized” three key FEDD representatives to approve and execute the sale by paying $500,000 to Rick Lawson, FEDD’s founder, inventor of FEDD’s technology, and sole manager, who allegedly kept $250,000 and distributed the remaining $250,000 to other investors, Bob and Beth Jordan. Plaintiffs allege that Lawson and the Jordans claimed to hold a controlling interest in FEDD and, in exchange for $500,000, represented that they could force the purchase to close.

A key dispute involves the way controlling interests in FEDD were to be calculated, which allegedly affects whether the necessary approval of FEDD’s investors was secured. Flowserve claims a majority of the FEDD members and shareholders, as calculated by “shares” or “units,” approved the transaction, which was all the operating agreement required. Plaintiffs, on the other hand, contend that the operating agreement required the investors’ membership interests to be calculated based on each investor’s overall capital contributions, not the number of “shares” or “units” owned.

Under Flowserve’s interpretation of the operating agreement, Lawson and the Jordans purportedly owned over sixty percent of the membership interests in FEDD based on the total number of “shares” or “units” owned. Under Plaintiffs’ view of the 3 agreement—calculating ownership interests by overall capital contributions—Lawson and the Jordans owned less than one percent of the membership interests. According to Plaintiffs, a majority of ownership interests as calculated by capital contributions did not approve of the sale, and the sale is therefore invalid.

In 2014, Plaintiffs sued Flowserve, alleging claims for fraud, aiding and abetting Lawson’s breach of fiduciary duty, unjust enrichment, money had and received, civil conspiracy, and civil aiding and abetting. Plaintiffs also sought equitable relief and a declaratory judgment to set aside the sale. Plaintiffs’ claims are based in part on allegations that Flowserve, in conjunction with Lawson and the Jordans, misrepresented or concealed material aspects and terms of the sale from Plaintiffs, including the extent of assets transferred. Plaintiffs also allege that Flowserve and Lawson misled investors with respect to communications that sought investors to certify their share ownership and consent to the sale.

On May 22, 2018, Flowserve filed a traditional motion for summary judgment, seeking judgment on all causes of action. Flowserve attached the Due-Diligence Report to the motion as Exhibit I and specifically referenced it by name in a list of exhibits on which it relied in seeking summary judgment. The Due-Diligence Report is dated April 1, 2011 and purports to be a memorandum from Samuel Barrett, Flowserve’s in-house counsel, to other Flowserve representatives. The memorandum’s subject line states, “Legal Due Diligence Summary—Asset Acquisition of FEDD Wireless LLC and

4 License of IP from FEDD Holdings, LLD (collectively, ‘FEDD’).”2 Flowserve’s motion cites to Exhibit I as support for the statement, “[a]fter execution of the MOU, Flowserve learned that FEDD had many previously undisclosed minority investors— including the Roanoke and Charleston Investors mentioned above.” The motion was signed by Flowserve’s attorney in charge. See Tex. R. Civ. P. 8. Flowserve also attached an affidavit of Rob Miller, Flowserve’s Director of After Market Services, who was Flowserve’s project leader for the transaction. In his affidavit, Miller averred that he had “read the above and foregoing Traditional Motion for Summary Judgment.” Miller’s affidavit is dated May 17, 2018. The record does not indicate whether the Due-Diligence Report was disclosed prior to its attachment to Flowserve’s motion, and we presume that the document was first disclosed on May 22, 2018 when Flowserve filed its motion for summary judgment.

On June 11, 2018, Plaintiffs filed a response to Flowserve’s motion for summary judgment. Plaintiffs attached the Due-Diligence Report to their response as Exhibit 76. Plaintiffs relied on the report throughout their response. Plaintiffs argued that the report supported their claims and constituted either direct or circumstantial proof of Flowserve’s fraudulent intent.

On June 19, 2018, twenty-eight days after Flowserve disclosed the Due-Diligence Report and eight days after Plaintiffs filed their response, Flowserve filed an amended traditional motion for summary judgment, which removed the Due-Diligence Report as

2 The Due-Diligence Report has been filed in camera with this court. We have carefully reviewed the report but do not detail its content in this opinion due to Flowserve’s assertion of privilege. 5 an exhibit. The same day, Flowserve’s counsel emailed a letter to Plaintiffs’ counsel advising that the Due-Diligence Report filed with Flowserve’s original motion for summary judgment was an attorney-client privileged communication inadvertently attached to the motion and that Flowserve did not intend to waive the attorney-client privilege attached to the document.

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Bluebook (online)
567 S.W.3d 470, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-fedd-wireless-llc-fedd-holdings-llc-william-c-daley-trust-texapp-2019.