In Re Xto Resources I, Lp

248 S.W.3d 898, 2008 Tex. App. LEXIS 2237, 2008 WL 837022
CourtCourt of Appeals of Texas
DecidedMarch 26, 2008
Docket2-07-382-CV
StatusPublished
Cited by14 cases

This text of 248 S.W.3d 898 (In Re Xto Resources I, Lp) 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 Xto Resources I, Lp, 248 S.W.3d 898, 2008 Tex. App. LEXIS 2237, 2008 WL 837022 (Tex. Ct. App. 2008).

Opinions

OPINION

ANNE GARDNER, Justice.

Relator XTO Resources I, LP (“XTO”) seeks mandamus relief from a trial court order compelling XTO to furnish to Real Parties in Interest (collectively, “Threshold”) data consisting of subsurface gas reserves related to certain gas leases in Wise County, including reserve estimates and future revenue projections. We hold that XTO established that the data are trade secrets and that Threshold failed to show that disclosure of the information is necessary to prevent fraud or injustice, and we conditionally grant the writ of mandamus.

Background

Threshold sued XTO, alleging that XTO breached contracts with Threshold by failing to reassign acreage that was not developed in accordance with the continuous-development obligations contained in certain gas leases. Threshold alleges that XTO’s failure to reassign the acreage caused it significant damages because the acreage is no longer available for reassignment.

Threshold served requests for production on XTO, seeking, among other things, documents stating XTO’s reserve estimates, recoverable gas reserve estimates, and projected future revenues for all wells covered by the leases and identifying “proved undeveloped acreage” and “proved developed not producing acreage” on the leases. XTO objected to the requests, asserting that the information “is confidential and proprietary and closely guarded [901]*901by XTO” and that Threshold could calculate its alleged damages from publicly-available production data.

Threshold filed a motion to compel, arguing that the requested information would “assist” their expert and that XTO’s confidentiality concerns could be addressed by a confidentiality agreement. XTO filed a response, asserting that the requested data are trade secrets.

The trial court held a hearing on Threshold’s motion to compel. Threshold’s expert witness testified at the hearing, and XTO submitted the affidavits of two employees. We will discuss the testimony and affidavits in detail later in this opinion. At the conclusion of the hearing, the trial court granted the motion to compel and signed an order overruling XTO’s objections to five of six requests for production and ordering production of the subject data within fourteen days. XTO petitioned this court for mandamus relief from the order.

Standard of Review

Mandamus will issue to correct a discovery order if the order constitutes a clear abuse of discretion and there is no adequate remedy by appeal. In re Colonial Pipeline Co., 968 S.W.2d 938, 941 (Tex.1998) (orig.proceeding); Walker v. Packer, 827 S.W.2d 883, 839 (Tex.1992) (orig.proceeding). A trial court abuses its discretion and no adequate remedy by appeal exists when a trial court erroneously compels production of trade secrets without a showing that the information is “necessary.” In re Bass, 113 S.W.3d 735, 738, 745 (Tex.2003) (orig.proceeding).

Discussion

Under rule of evidence 507, trade secrets are privileged from disclosure if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice. Tex.R. Evid. 507. The party asserting a trade secret privilege has the burden of proving that the discovery information sought qualifies as a trade secret. In re Bass, 113 S.W.3d at 737; In re Cont’l Gen. Tire, Inc., 979 S.W.2d 609, 612-3 (Tex. 1998); see also In re Cl Host, Inc., 92 S.W.3d 514, 516 (Tex.2002). The burden then shifts to the party seeking the trade secret disclosure to establish that the information is necessary for a fair adjudication of a claim or defense in the litigation. In re Cont’l Gen. Tire, Inc., 979 S.W.2d at 612-13.

1. Are the data trade secrets?

To determine whether information is a trade secret, Texas courts apply a six-factor test adopted from the Restatement of Torts. In re Bass, 113 S.W.3d at 739. The Restatement factors are (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of the measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. Id. (quoting Restatement of Torts § 757 cmt. B (1939) and Restatement (Third) of Unfair Competition § 39 reporter's n. cmt. d (1995)). The party claiming a trade secret is not required to satisfy all six factors because trade secrets do not fit neatly into each factor every time, and other circumstances may be relevant to the trade secret analysis. Id. at 740. A court must weigh the factors in the context of surrounding circumstances to determine whether the data in question are trade secrets. Id.

[902]*902In In re Bass, the supreme court held that the 3-D geological seismic data at issue in that case were trade secrets. Id. at 742. The court first noted that “[i]t is undisputed that the oil and gas industry typically treats seismic data and all other methods of obtaining subsurface geological data as trade secrets.” Id. at 740-41 (collecting cases from other jurisdictions). The court then analyzed each of the six Restatement factors in light of the circumstances. Id. at 741. The evidence established that (1) Bass at all times maintained the confidentiality of the data and never showed the data to anyone except its employees and agents; (2) only four people— all of whom were Bass’s agents or employees — had access to the data; (3) the data were kept in a vault accessible only to those who knew the combination, and employees needed a security card just to enter the work area; (4) the data were a “vital commodity” upon which all interpretation of the land’s value was based and had a monetary value of between $800,000 and $2,200,000, both of which values highly favored trade secret protection; (5) the seismic shoot took several months to complete at considerable expense and inconvenience, though there was no evidence of a specific monetary cost; and (6) duplicating the data would be difficult and expensive and would require Bass’s permission to conduct another seismic shoot, and licensing the exiting data from Bass would also be expensive. Id. at 741-42. The court held that all of the factors except the fifth, for which there was no specific evidence, weighed in favor of deeming the data trade secrets. Id. at 742. Thus, the court held that the data and its interpretations were trade secrets. Id.

In this case, XTO presented evidence on all six factors by way of affidavits — evidence that is similar to the evidence in In re Bass. But before we turn to the affidavits, we must consider XTO’s assertion that Threshold conceded that the data are trade secrets at the hearing on the motion to compel. At the hearing, Threshold’s counsel argued as follows:

We’ve also, I think, simplified that issue for the Court, your Honor, because I think both parties, by looking at the briefing, agree that

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In Re Xto Resources I, Lp
248 S.W.3d 898 (Court of Appeals of Texas, 2008)

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248 S.W.3d 898, 2008 Tex. App. LEXIS 2237, 2008 WL 837022, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-xto-resources-i-lp-texapp-2008.