In Re Kuntz

124 S.W.3d 179, 47 Tex. Sup. Ct. J. 168, 2003 Tex. LEXIS 525, 2003 WL 22999366

• Court: Texas Supreme Court
• Decided: December 19, 2003
• Docket: 02-0375
• Status: Published

Opinions

Justice SMITH

delivered the opinion of the Court,

in which Chief Justice PHILLIPS, Justice HECHT, Justice OWEN, Justice JEFFERSON, Justice SCHNEIDER, Justice WAINWRIGHT, and Justice BRISTER joined.

In this mandamus proceeding, we decide a question of first impression regarding the proper interpretation and application under the Texas Rules of Civil Procedure of the phrase “possession, custody, or control.” See TEX.R. CIV. P. 192.3(b), 192.7(b). The respondent trial court, in an action filed against relator Hal Kuntz in his individual capacity, ordered Kuntz to produce documents that he had access to at his place of employment. It was undisputed that Kuntz’s employer had actual physical possession of the relevant documents, that the documents were owned by a client of Kuntz’s employer, and that the client claimed the documents contained its privileged trade secrets. In this Court, Kuntz asserts that his mere ability to access the documents does not constitute possession, custody, or control. We agree and, accordingly, conditionally grant the requested writ.

I

The Court has jurisdiction over this original proceeding under Article 5, Section 3 of the Texas Constitution and Section 22.002(a) of the Government Code. Mandamus is an extraordinary remedy, available only when a trial court clearly abuses its discretion and when there is no adequate remedy on appeal. In re Ford Motor Co., 988 S.W.2d 714, 718 (Tex.1998); Walker v. Packer, 827 S.W.2d 833, 839 (Tex.1992).

A trial court’s determination of a factual issue is entitled to deference in a mandamus proceeding and should not be set aside unless it is clear from the record that only one decision could have been reached. GTE Communications v. Tanner, 856 S.W.2d 725, 729 (Tex.1993); Walker, 827 S.W.2d at 839-40. In contrast, a trial court has no discretion in determining what the law is or applying the law to the facts. Therefore, a failure by the trial court to analyze or apply the law correctly, as when a discovery order conflicts with the Texas Rules of Civil Procedure, constitutes an abuse of discretion. Walker, 827 S.W.2d at 840; Lindsey v. O’Neill, 689 S.W.2d 400, 402 (Tex.1985). A party will not have an adequate remedy by appeal when the appellate court would not be able to cure the trial court’s discovery error. In re Colonial Pipeline Co., 968 S.W.2d 938, 942-43 (Tex.1998); Walker, 827 S.W.2d at 843.

II

Texas Rule of Civil Procedure 192.3 is entitled “Scope of Discovery.” Rule 192.3(a) provides: “In general, a party may obtain discovery regarding any matter that is not privileged and is relevant to the subject matter of the pending action. ...” TEX.R. CIV. P. 192.3(a). Rule 192.3(b) provides:

A party may obtain discovery of the existence, description, nature, custody, condition, location, and contents of documents and tangible things ... that constitute or contain matters relevant to the subject matter of the action. A person is required to produce a document or tangible thing that is within the person’s possession, custody, or control.

TEX.R. CIV. P. 192.3(b).

Texas Rule of Civil Procedure 192.7(b) sets forth the following definition: “Possession, custody, or control of an item means that the person either has physical possession of the item or has a right to possession of the item that is equal or superior to the person who has physical possession of the item.” TEX.R. CIV. P. 192.7(b) (emphasis in original); see also GTE Communications, 856 S.W.2d at 729 (“The right to obtain possession is a legal right based upon the relationship between the party from whom a document is sought and the person who has actual possession of it.”).

Under Texas Rule of Civil Procedure 196.1, a party may request that another party to the pending action produce a document or tangible thing. Texas Rule of Civil Procedure 205 governs discovery from nonparties, including a request for production of a document or tangible thing.

Ill

The live pleading in the underlying suit, Vesta Kuntz’s Sixth Amended Petition to Enforce Division of Agreement Incident to Divorce, For Declaratory Judgment or, Alternatively to Clarify or Reform Agreement, states:

Parties, Jurisdiction and Venue

2. Vesta L. Kuntz, Movant, is an individual residing in Harris County, Texas.

3. Hal G. Kuntz, Respondent, is an individual residing in Harris County, Texas. His counsel is being furnished a copy of this pleading.

4. This Court has subject matter jurisdiction over this proceeding pursuant to ' 7.001 et seq. and ' 9.001 et seq. of the Texas Family Code.

Factual Background

5. On October 7, 1983 the parties were married. On June 30, 1999 the parties were divorced. The Court approved an Agreement Incident to Divorce (“AID”) as a just and right division of the parties’ property. A true copy of the AID is attached as Exhibit “A.” Paragraph 5.4 of the AID under the subheading “Future MOXY Royalty” provides as follows:

Husband by virtue of employment or as a partner of CLK may earn additional interests in oil and gas leases and properties which Husband may acquire by assignment from McMo-Ran Offshore Exploration Co. (“MOXY”) or its successors or predecessors in the future. All such interests which have not been assigned by MOXY shall be the property of Husband, except Wife will have the right to 25% of all overriding royalty interests, if any, from MOXY assigned to Husband after the date of divorce that results [sic] from projects on which CLK forwarded letters of recommendation to MOXY to drill during the marriage.

McMoRan Oil & Gas, L.L.C. (“MOXY”), successor to McMoRan Offshore Exploration Company, is an independent oil and gas company engaged in the exploration, development, and production of oil and gas. The company’s operations are primarily conducted offshore in the Gulf of Mexico and onshore in the Gulf Coast area, and its offices are located in New Orleans. CLK Company, L.L.C. (“CLK”) is MOXY’s primary geological and geophysical consultant. CLK has offices in both New Orleans and Houston. MOXY is CLK’s only client.

Hal Kuntz is a minority owner and the general manager of CLK. He works at CLK’s Houston office. As general manager, Hal is in charge of CLK’s day-to-day operations and answers only to the company’s board, of which he is one of four members.

CLK is in the business of evaluating oil and gas prospects for MOXY. After evaluating a property, CLK creates and forwards to MOXY a letter of recommendation (“LOR”) detailing its findings and recommendations. A copy of each LOR is traditionally maintained in both of CLK’s offices. Hal and other CLK principals have unrestricted access to those copies.¹

The consulting agreement between MOXY and CLK provides that data and information obtained or compiled by CLK for MOXY belongs exclusively to MOXY and prohibits disclosure of that data and information to a third party without MOXY’s written consent. CLK’s operating agreement obligates Hal to maintain the confidentiality of data and information acquired during his employment and prohibits him from disclosing it to a third party without the written consent of CLK’s board.

In May 2001, Vesta filed a motion to compel discovery, requesting that Hal be ordered “[t]o produce all LORS that are ‘positive’ from October 7, 1983 (date of marriage) to June 30, 1999 (date of divorce) in an unredacted form.” She had previously, pursuant to Texas Rule of Civil Procedure 196.1, requested that Hal produce “all the LORs written during the marriage.”² In response to the motion, Hal asserted that he did not have possession, custody, or control of the documents and that the requested documents were MOXY’s privileged trade secrets.

While the aforementioned motion was pending, Hal requested permission from both MOXY and CLK to release the relevant documents. MOXY and CLK, in separate letters, denied Hal’s written request.³ In August 2001, the letters were filed as exhibits in the trial court.

On September 18, 2001, a hearing was held on the motion to compel discovery. On December 11, 2001, the trial court signed an order resolving the motion. Hal was ordered to “produce all Letters of Recommendation for the period beginning on October 7, 1988 through June 30, 1999 generated by CLK Company or any of such company’s partners or employees that contain a positive recommendation.” Approximately 2,000 LORs satisfy the order’s criteria for production.

In his petition for writ of mandamus, Hal requests that we: “(1) order Respondent to vacate the Order dated December 11, 2001, requiring Hal Kuntz to disclose MOXY’s trade secrets; (2) vacate any finding that Hal Kuntz has possession, custody, or control of MOXY’s trade secrets; and (3) grant Hal Kuntz such other and further relief to which he may be justly entitled.”

IV

Hal asserts that he does not have possession, custody, or control of the relevant letters of recommendation. Specifically, Hal asserts that, in his individual capacity, he does not have physical possession of the requested documents and has no legal right to obtain physical possession of the documents from either CLK or MOXY. In sum, Hal argues that he “should not be ordered to produce documents in the physical possession of his corporate employer in this suit brought against him individually.”

Noting that the “testimony in this case is unequivocal that the LORs were in Hal’s offices and he could get them anytime he wants,” Vesta asserts that “hal has the actual possession, custody and control of the documents, so he cannot refuse to produce the same.” She does not argue that Hal has a legal right to obtain physical possession of the documents from either CLK or MOXY.

MOXY appeared as amicus in the courts below in support of Hal. In this Court, MOXY, also as amicus, asserts that “the trial court improperly circumvented the Texas Rules of Civil Procedure related to obtaining nonparty discovery and improperly infringed on MOXY’s constitutional rights by depriving MOXY of its property without due process of law.” In addition, MOXY argues:

Hal Kuntz, as an employee of CLK, lacks both physical possession of MOXY’s trade secret LORs or any “right to possess” MOXY’s trade secret LORs. At best, all that Hal Kuntz has is access to MOXY’s trade secret LORs and that access is strictly limited to use of the LORs in furtherance of his employer’s services performed for MOXY. Like a bank teller with access to cash in the vault, Hal Kuntz has neither possession nor any right to possess MOXY’s trade secret LORs.

V

Hal’s mere access to the relevant letters of recommendation does not constitute “physical possession” of the documents under the definition of “possession, custody, or control” set forth in Texas Rule of Civil Procedure 192.7(b). Cf. In re Grand Jury Subpoena (Kent), 646 F.2d 963, 969 (5th Cir.1981) (“The [employee’s] subpoena, if upheld, would be illegal because it would direct her to produce documents not in her possession, custody, or control. Because [employee] had mere access, her compliance with the subpoena would have required that she illegally take exclusive possession of [her employer’s] documents and deliver them to the grand jury.”) (emphasis in original); Am. Maplan Corp. v. Heilmayr, 203 F.R.D. 499, 501-02 (D.Kan.2001) (denying motion to compel defendant, president and minority shareholder of nonparty corporation, to produce nonparty corporation’s documents in suit brought against defendant in his individual capacity). Thus, we conclude that the trial court abused its discretion in ordering Hal to produce the documents.⁴

If required to produce the relevant LORs, Hal would be forced to violate the confidentiality provisions contained in both CLK’s operating agreement and the consulting agreement between MOXY and CLK, potentially subjecting himself to a suit for significant damages. See, e.g., IBP, Inc. v. Klumpe, 101 S.W.3d 461 (Tex.App.—Amarillo 2001, pet. denied) (suit brought by employer against employee arising out of disclosure of trade secrets by employee in response to request for production). Because an appellate court would not be able to cure the trial court’s discovery error, we further conclude that Hal does not have an adequate remedy by appeal.

Based on the foregoing, we conditionally grant the writ of mandamus and direct the trial court to vacate its December 11, 2001 order. We are confident that the trial court will promptly comply, and the writ will issue only if it does not.

Justice HECHT filed a concurring opinion, in which Justice OWEN, Justice SCHNEIDER, and Justice WAINWRIGHT joined.

Justice WAINWRIGHT filed a concurring opinion.

Justice O’NEILL concurred in the judgment only.

1 . Hal testified:

Q. Does CLK have copies of [the relevant LORs],

A. Yes, they do.

Q. You've certainly got access to them, don’t you.

A. I can access them, but I don’t control them.

2 . Neither the request for production nor the response thereto is in the mandamus record.

3 . The letter from CLK to Hal stated: “The Board of Managers of CLK Company, L.L.C., less yourself, has met to determine whether to grant your June 29, 2001 request to allow you to provide certain confidential data currently under CLK's care to a Houston Court.... Enclosed please find a copy of our July 12, 2001 written request to McMoRan eliciting a determination of their willingness to allow CLK to comply with your request for the release of confidential data. McMoRan’s July 13, 2001 response is also enclosed that unequivocally denies our request and demands that our members and employees strictly comply with the confidentiality provisions in the MMR CLK retainer contract. We must therefore inform you that CLK Company, L.L.C. must deny you permission to provide any of McMoRan’s data to any third party."

4 . Because MOXY owns and CLK has actual physical possession of the relevant LORs, Vesta may seek nonparty production of the documents from either entity. See TEX.R. CIV. P. 205. If Vesta seeks production of the documents from CLK, MOXY may move for a protective order. See TEX.R. CIV. P. 192.6(a) ("A person from whom discovery is sought, and any other person affected by the discovery request, may move ... for an order protecting that person from the discovery sought.”); see also TEX.R. CIV. P. 176.6(e).