Corporate entities have no Fifth Amendment right that allows their agents to withhold incriminating documents, 14th COA says in denying mandamus relief

In Re Russo (Tex.App. - Houston [14th Dist.] April 27, 2018) 

“An individual cannot rely upon the [Fifth Amendment] privilege to avoid producing the records of a collective entity which are in his possession in a representative capacity, even if these records might incriminate him personally.” [...] Russo has not shown that the documents he withheld are not records of a corporate entity within his possession or that the Fifth Amendment act-of-production privilege applies to these documents. Accordingly, we deny Russo’s petition for writ of mandamus and lift our partial stay of the March 20, 2018 order.  

Petition for Writ of Mandamus Denied and Opinion filed April 27, 2018.

In The

Fourteenth Court of Appeals

NO. 14-18-00228-CV

IN RE CHRISTOPHER J. RUSSO, Relator

ORIGINAL PROCEEDING

WRIT OF MANDAMUS

 295th District Court

Harris County, Texas

Trial Court Cause No. 2016-24818

OPINION

On April 3, 2018, relator Christopher J. Russo filed a petition for writ of
mandamus in this court, his second relating to this discovery dispute. See Tex. Gov’t
Code Ann. § 22.221 (West Supp. 2017); see also Tex. R. App. P. 52. In the petition,
Russo asks this court to compel the Honorable Caroline Baker, presiding judge of
the 295th District Court of Harris County, to vacate her March 20, 2018 order, which

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compels Russo to produce certain documents for which Russo has asserted an actof-production
privilege under the Fifth Amendment of the United States Constitution.

The real parties-in-interest are Superior Energy Services, Inc., and Stabil Drill
Specialties, LLC, and SESI, LLC (collectively, the “Superior Parties”).

The Fifth Amendment privilege does not apply to the records of corporate
entities. Russo has not shown that the documents for which he asserted the privilege
are not records of corporate entities he allegedly owned or controlled. We therefore
deny the petition for writ of mandamus.

FACTUAL AND PROCEDURAL BACKGROUND

The Superior Parties filed suit, alleging, among other things, that Russo and
the other defendants conspired to defraud the Superior Parties of $72 million and
other assets over several years. Specifically, the Superior Parties allege that Russo
and Martin A. LeBlanc were the executive officers of Stabil Drill, a subsidiary of
SESI, and that Russo and LeBlanc engaged in a complex scheme of self-dealing
primarily by creating separate but interwoven corporate entities (which they owned
or controlled directly or indirectly) to improperly invoice Stabil Drill for goods and
services and to benefit themselves by being on both sides of various transactions.
The Superior Parties allege that Russo was a member of, owned, and/or controlled
several limited liability companies which he used to execute his schemes to defraud
the Superior Parties. These corporate entities include, among others, Triple RRR
Investments, LLC, Gulf Coast Wireline, LLC, Maverick Rental Tools, LLC, Quest
Holdings, LLC, Basket Specialties, LLC, Tri-Eagle NDT Services, LLC, Longhorn

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Bits LLC, Prime 337, LLC, Russo Energy LLC, Russo Exploration LLC, and Cole
Joseph Russo Trust, LLC. In their petition, the Superior Parties assert claims against
Russo and his corporate entities for breach of fiduciary duty, fraud, trade secret
misappropriation, and civil conspiracy.

The Superior Parties served Russo and Russo Energy, LLC with several
requests for production. Russo withheld some responsive documents, objecting to
each request “on the ground that it requires production of documents in violation of
Defendant’s Fifth Amendment (U.S. Constitution) act-of-production privilege. See
United States v. Hubbell, 530 U.S. 27 (2000).”

On September 22, 2016, the Superior Parties filed a motion to compel
production of the withheld documents. The trial judge heard the motion on October
3, 2016, and took the matter under advisement. On August 3, 2017, the trial judge
issued an order requiring Russo to prepare a privilege log of all the documents Russo
withheld and to deliver the documents to the court for an in camera review. Russo
submitted a privilege log listing 2,277 documents.

At a hearing on October 20, 2017, the trial judge asked Russo to attempt to
reduce the number of documents for which he was asserting his Fifth Amendment
privilege. Russo later produced some of the documents he had withheld, submitted
amended and supplemental privilege logs (listing a total of 1538 documents), and
delivered the documents on the logs to the court for in camera review.

On February 12, 2018, the trial judge signed an order requiring Russo to
produce all of the documents that Russo had listed on the logs.

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 On February 21, 2018, Russo filed a petition for writ of mandamus, asking
our court to compel the trial judge to vacate her February 12, 2018 order.
On March 1, 2018, the trial judge vacated her February 12, 2018 order.
On March 20, 2018, the trial judge signed an order compelling Russo, within
fourteen days, to produce “all emails (or portions of emails) identified on the
Amended and Supplemental Privilege Logs that were generated by a third party.”
The order directs Russo to file additional briefing regarding whether the documents
he withheld on Fifth Amendment grounds pose a real and substantial risk of
incrimination to him and why the Superior Parties are not entitled to copies of the
Amended and Supplemental privilege logs under Texas Rule of Civil Procedure
193.3.

Because the trial judge had vacated the February 12, 2018 order, we issued an
opinion on April 2, 2018, dismissing as moot Russo’s first petition for writ of
mandamus.

In his second petition for writ of mandamus now before us, Russo argues that
the March 20, 2018 order constitutes an abuse of discretion because in it the trial
judge orders production of documents which Russo contends are protected by his
Fifth Amendment act-of-production privilege.

MANDAMUS STANDARD

To obtain mandamus relief, a relator generally must show both that the trial
court clearly abused its discretion and that the relator has no adequate remedy by
appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004) (orig.
proceeding). A trial court clearly abuses its discretion if it reaches a decision so

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arbitrary and unreasonable as to amount to a clear and prejudicial error of law or if
it clearly fails to analyze the law correctly or apply the law correctly to the facts. In
re Cerberus Capital Mgmt. L.P., 164 S.W.3d 379, 382 (Tex. 2005) (orig.
proceeding) (per curiam). The relator must establish that the trial court reasonably
could have reached only one conclusion. Walker v. Packer, 827 S.W.2d 833, 840
(Tex. 1992) (orig. proceeding).

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 Christus Santa Rosa
Health Sys., 492 S.W.3d 276, 280 (Tex. 2016). “If the trial court issues an erroneous
order requiring the production of privileged documents, the party claiming the
privilege is left without an adequate appellate remedy.” Id. “Mandamus is
appropriate for constitutional protections like the privilege against self-incrimination
that an appeal could not adequately protect.” In re Speer, 965 S.W.2d 41, 45 (Tex.
App.—Fort Worth 1998, orig. proceeding) (citing Tilton v. Marshall, 925 S.W.2d
672, 682 (Tex. 1996)).

STANDARD OF REVIEW

A defendant has the right to assert his Fifth Amendment privilege to avoid
civil discovery if he reasonably fears that the responses would tend to incriminate
him. See Tex. Dept. of Pub. Safety Officers Ass’n v. Denton, 897 S.W.2d 757, 760
(Tex. 1995). “Before the judge may compel the witness to answer, [the judge] must
be ‘perfectly clear, from a careful consideration of all the circumstances in the case,
that the witness is mistaken, and that the answer(s) cannot possibly have such
tendency to incriminate.’” Ex Parte Butler, 522 S.W.2d 196, 198 (Tex. 1975) (quoting
Hoffman v. United States, 341 U.S. 479, 71 (1951)).

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Whether a discovery privilege applies is a matter of statutory construction,
which is a question of law reviewed de novo. See In re Christus Santa Rosa Health
Sys., 492 S.W.3d at 280. We review with limited deference the issue of whether a
trial court properly has applied the law of privileges to the documents. See Keene
Corp. v. Caldwell, 840 S.W.2d 715, 718 (Tex. App.—Houston [14th Dist.] 1992, no
writ).

ANALYSIS

A. The Fifth Amendment act-of-production privilege does not protect
records of entities.

The only privilege asserted by Russo was the Fifth Amendment of the United
States Constitution act-of-production privilege, discussed in United States v.
Hubbell, 530 U.S. 27 (2000). A person may be required to produce specific
documents even though the documents contain incriminating assertions of fact or
belief because the creation of those documents was not compelled within the
meaning of the privilege. Id. at 36. However, the act of producing documents in
response to a subpoena duces tecum may have a compelled testimonial aspect
because the act of production itself may implicitly communicate statements of fact.
Id. “By ‘producing documents in compliance with a subpoena, the witness would
admit that the papers existed, were in his possession or control, and were authentic.’”
Id. “The privilege afforded not only extends to answers that would in themselves
support a conviction under a federal criminal statute but likewise embraces those
which would furnish a link in the chain of evidence needed to prosecute the claimant
for a federal crime.” Id. at 37 (quoting Hoffman v. United States, 341 U.S. 479, 486
(1951)).

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However, it is well established that “artificial entities,” such as corporations,
are not protected by the Fifth Amendment. Braswell v. United States, 487 U.S. 99,
102 (1988). Representatives of a collective entity act as agents, and the official
records of the organization that are held by them in a representative rather than a
personal capacity cannot be the subject of their personal privilege against selfincrimination,
even though production of the papers might tend to incriminate them
personally (known as the “collective entity rule”). Id. at 99–100, 107. The
“collective entity rule” applies regardless of the entity’s size and regardless of
whether the subpoena is addressed to the entity or to the individual in the individual’s
capacity as the records’ custodian. Id. “Any claim of Fifth Amendment privilege
asserted by the agent would be tantamount to a claim of privilege by the corporation,
which possesses no such privilege.” Id. at 100, 110.1 A corporate custodian may not
resist a subpoena for corporate records on Fifth Amendment grounds, even though
the act of production may incriminate the custodian. Id. at 108–113. “An individual
cannot rely upon the [Fifth Amendment] privilege to avoid producing the records of
a collective entity which are in [the individual’s] possession in a representative
capacity, even if these records might incriminate [the individual] personally.” Bellis
v. United States, 417 U.S. 85, 88 (1974). The “collective entity rule” applies even if
the subpoena or document request is addressed to an individual who has custody of
corporate records, rather than to the corporation.2

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Corporate documents are (i) those prepared by an employee, officer, director,
representative or agent of the corporation in furtherance of her or his corporate duties
and responsibilities, or (ii) those sent, received, used or maintained by an officer,
director, employee, agent or representative of the corporation in the course of its
business. See In re Grand Jury Investigation, Special Grand Jury No. II, 600 F.
Supp. 436, 438 (D. Md. 1984); In re Grand Jury 89-4 Subpoena Duces Tecum, 727
F. Supp. 265, 269–70 (E.D. Va. 1989). The following nonexhaustive list of criteria
is relevant to determining whether a document is corporate or personal in nature:
who prepared the document; the nature of its contents; its purpose or use; who
possessed it; who had access to it; whether the entity required its preparation; and
whether its existence was necessary to or in furtherance of the entity’s business. See
In re Grand Jury Proceedings, 55 F.3d 1012, 1014 (5th Cir. 1995); Grand Jury
Subpoena Duces Tecum Dated April 23, 1981 Witness v. United States, 657 F.2d 5,
8 (2d Cir. 1981); United States v. Wujkowski, 929 F.2d 981, 984 (4th Cir. 1991).

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B. Russo has not shown that the withheld documents are not business
entity records, for which there is no Fifth Amendment privilege.

The withheld documents consist almost entirely of emails either to or from
Russo at a Yahoo email account. In its motion to compel, the Superior Parties
correctly argued that Russo may not withhold emails in his custody that are records
of his corporate entities. See e.g., Bellis, 417 U.S. at 88; In re Grand Jury Subpoena,
593 F.3d 155, 157–58 (2d Cir. 2010) (the custodian of corporate records, who acts
as a representative of the corporation, cannot refuse to produce corporate records on
Fifth Amendment grounds; this rule holds true regardless of whether the subpoena
is directed to the corporation or to the custodian in the custodian’s representative
capacity).

The burden is on the party asserting a privilege from discovery to produce
evidence concerning the applicability of the privilege. Peeples v. Fourth Supreme
Judicial District, 701 S.W.2d 635, 635 (Tex. 1985) (orig. proceeding). “The party
who seeks to limit discovery by asserting a privilege has the burden of proof.” In re
E.I. DuPont de Nemours & Co., 136 S.W.3d 218, 223 (Tex. 2004) (orig.
proceeding). It is relator’s burden to establish the applicability of the Fifth
Amendment privilege. Batson v. Rainey, 762 S.W.2d 717, 720 (Tex. App.—Houston
[1st Dist.] 1988, no writ). A person asserting the Fifth Amendment privilege to the
production of documents has the burden to prove that the documents are personal,
rather than corporate. See Wujkowski, 929 F.2d at 984; In re Grand Jury 89-4
Subpoena Duces Tecum, 727 F. Supp. at 270; In re Grand Jury Investigation, Special
Grand Jury No. II, Sept. Term, 1983, 600 F. Supp. at 438.

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In his briefing, Russo alleges that none of the emails he withheld are records
of the entities he owned or controlled. In support of this allegation, Russo cites only
the statement of his counsel at the hearing that Russo will be producing any corporate
records that Russo has in his possession pertaining to Triple RR Investment, LLC or
any of the other entities which he owns or controls. However, unsworn statements
by counsel, such as this, are not evidence. See Daugherty v. Jacobs, 187 S.W.3d 607,
619 (Tex. App.—Houston [14th Dist.] 2006, no pet.); In re Butler, 987 S.W.2d 221, 225
(Tex. App.—Houston [14th Dist.] 1999, orig. proceeding).

Further, there is evidence that the withheld emails likely are records of an
entity because they were sent or received by Russo, as an agent of an entity, in the
course of the entity’s business. See In re Grand Jury Investigation, Special Grand
Jury No. II, 600 F. Supp. at 438. Many of the emails, which Russo initially withheld
under the Fifth Amendment but later produced, are emails to or from a Yahoo
account that relate to the business of one or more of Russo’s corporate entities. For
example, in one email, Russo sends an invoice from his wholly owned entity, Gulf
Coast Wireline, LLC, to obtain payment from a Stabil Drill vendor, Basket
Specialties, LLC, also an entity that Russo allegedly owned. A second email shows
that Russo used the Yahoo account to communicate with Stabil Drill vendor, E&M
Supply Group, and to invoice this vendor for consulting services by Longhorn Bits,
LLC, another entity that Russo allegedly owned. In a third email from the Yahoo
account, Russo expresses his desire to include LeBlanc in “Pro” (short for
“Procyon,” another vendor of Stabil Drill that Russo allegedly owned). The Superior
Parties allege in their petition that Russo and Chris Hart received direct kickbacks
of over $500,000 from Procyon for its basket sales to Stabil Drill. Russo also sent

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an email from this account to attempt to convince a vendor to bill Stabil Drill for
services that were not performed; Russo states in his email to the vendor’s
representative that “nobody outside of you and I would know anything about our
agreement.” Thus, it is clear that Russo used the Yahoo account to conduct the
business of corporate entities which the Superior Parties allege Russo used to
execute his fraudulent schemes.

Additionally, in the privilege logs, Russo states that each of the documents
relate to either the “alleged kickback” or the “alleged unreported related party
transactions.” Russo acknowledges in his mandamus petition that the Superior
Parties allege that “Russo and other co-defendants created several entities to engage
in and profit from undisclosed related-party transactions from which they received
kickbacks and other remuneration.” The Superior Parties allege in their petition that
several vendors of Stabil Drill paid kickbacks to Russo’s entities, including Ragin
Rentals, Longhorn Bits, Prime 337, and Gulf Coast Wireline, among others. The
Superior Parties further allege that Russo’s entities, Basket Specialties, LLC and TriEagle
NDT Services, LLC, misrepresented and concealed their “related party” status
when transacting business with Stabil Drill to induce the company to enter into
business with them. Because the “alleged kickbacks” and the “alleged unreported
related party transactions” were paid to or done with entities that Russo allegedly
owned or controlled, it reasonably may be inferred that the withheld documents
constitute records of one of these entities.

Thus, there is evidence in the record that Russo used the Yahoo account to
conduct business of his corporate entities and that the emails in this account are
likely or may be corporate records. Russo had the burden to prove that each of the

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documents he withheld are personal and not a record of one of his corporate entities.
See In re E.I. DuPont de Nemours & Co., 136 S.W.3d at 223; Wujkowski, 929 F.2d
at 984. Russo has not done so.3

CONCLUSION

“An individual cannot rely upon the [Fifth Amendment] privilege to avoid
producing the records of a collective entity which are in his possession in a
representative capacity, even if these records might incriminate him personally.”
Bellis, 417 U.S. at 88. Russo has not shown that the documents he withheld are not
records of a corporate entity within his possession or that the Fifth Amendment actof-production
privilege applies to these documents. Accordingly, we deny Russo’s
petition for writ of mandamus and lift our partial stay of the March 20, 2018 order.

/s/ Tracy Christopher
 Justice

Panel consists of Chief Justice Frost and Justices Christopher and Jamison.

Discovery Mandamus Granted in Civil Case Stemming from Office Building Arson

On March 28, 2007, Misty Ann Weaver set fire to the fifth floor office leased by her employer in the atrium-style building located at 9343 North Loop in Houston.1 9343 North Loop, L.P. owns the building and Boxer Property Management Corporation (“Boxer”) manages it. Marvin Wells, Jeanette Hargrove, and Shana Ellis died as a result of the fire, and their family members brought premises-liability claims against 9343 North Loop, L.P. and Boxer.

* * *

Boxer Property Management Corporation and 9343 North Loop, L.P. filed a petition for writ of mandamus asking this court to compel the presiding judge of the 133rd District Court of Harris County to vacate a June 16, 2009 order compelling the deposition of relators' corporate representative. Relators contend the deposition will invade the attorney work product privilege regarding their response to requests for production propounded by real parties in interest, Lynell Wells, individually, as the legal representative of the estate of her deceased husband, Marvin Wells, and as next friend of her minor child, Adrian D. Wells; Marvin Wells d/b/a M & E Transportation; Marvin G. Wells; and Shameka Wells (the "Wells plaintiffs"). We conditionally grant the writ.

* * *

Relators have established that the trial court abused its discretion by compelling the deposition of relators’ corporate representative, its general counsel, to respond the twelve questions and one request for production set forth in the June 16, 2009 order. Relators have no adequate remedy by appeal. Accordingly, we conditionally grant the petition for a writ of mandamus and direct the trial court to vacate its June 16, 2009 order. The writ will issue only if the trial court fails to act in accordance with this opinion. We lift the stay issued on July 2, 2009.

Click case style below to read the opinion setting forth the analysis and reasoning of the court: In Re Boxer Property Management Corp. (Tex.App.- Houston [14th Dist.] Sep. 3, 2009)(Boyce)
(discovery mandamus granted)
MOTION OR WRIT GRANTED: Opinion by Justice Boyce
Before Justices Anderson, Guzman and Boyce
14-09-00579-CV In Re Boxer Property Management Corporation and 9343 North Loop, L.P.
Appeal from 133rd District Court of Harris County
Trial Court Judge: Jaclanel McFarland

Discovery: Does snap-back provision cover documents produced by nonparty?

In Re Heidi Ortuno (Tex.App.- Houston [14th Dist.] May 6, 2008)(per curiam) (discovery, nonparty, expert report, privilege, confidential documents, TRCP 193.3, snap-back) (request for protective order must first be presented to the trial court, mandamus relief not proper)
MOTION OR WRIT DENIED: Per Curiam Before Justices Brock Yates, Guzman and Brown
14-08-00227-CV In Re Heidi Ortuno, Individually and As Next Friend Of J. O.
Appeal from 215th District Court of Harris County
Trial Court Judge: Levi James Benton

PER CURIAM OPINION (Links not part of court's opinion)

Relator Heidi Ortuno has asked in this original proceeding that we issue a writ of mandamus requiring the respondent[1] to grant her motion for enforcement of Rule 193.3(d), thereby compelling the real party in interest to return an inadvertently-produced consulting expert report to non-party Texas Children's Hospital. Because we hold that Rule 193.3(d) does not apply to the production of privileged materials by a non-party, we deny the petition.

Background

Ortuno filed the underlying premises liability lawsuit against the corporate owner and management company for the Winkler Villa Apartments ("Winkler Villa") after her son J.O. fell from a second-story balcony and allegedly suffered injuries. During the prosecution of the lawsuit, Ortuno retained neuropsychologist Sue E. Caudle, Ph.D. as a consulting expert. Dr. Caudle performed an examination on J.O. in November 2007 and prepared a three-page report containing her expert opinions. Unbeknownst to relator, Dr. Caudle provided the report to her employer, Texas Children's Hospital, which compiled the report as an ordinary part of the child's medical records. When the attorney for Winkler Villa took the deposition upon written questions of Texas Children's custodian of records, Dr. Caudle's report was produced in discovery with the medical records.

Upon learning of the disclosure, Ortuno asserted that Dr. Caudle was her consulting expert, and demanded that Winkler Villa return Dr. Caudle's report to Texas Children's pursuant to the "snap-back" provision of Rule 193.3(d). See Tex. R. Civ. P. 193.3(d). When Winkler Villa resisted, Ortuno filed a motion to that effect with the trial court. The respondent denied the motion,[2] ruling that (1) Dr. Caudle is Ortuno's consulting expert, but that (2) Rule 193.3(d) does not apply to documents that were produced by non-parties.[3] This mandamus proceeding ensued.

Application of Rule 193.3(d)

Rule 193.3(d) provides as follows:

(d) Privilege Not Waived by Production. A party who produces material or information without intending to waive a claim of privilege does not waive that claim under these rules or the Rules of Evidence if- within ten days or a shorter time ordered by the court, after the producing party actually discovers that such production was made - the producing party amends the response, identifying the material or information produced and stating the privilege asserted. If the producing party thus amends the response to assert a privilege, the requesting party must promptly return the specified material or information and any copies pending any ruling by the court denying the privilege. Tex. R. Civ. P. 193.3(d).

Ortuno concedes that Rule 193.3(d) does not apply to privileged materials that are produced by a non-party, and she does not urge the rule's "snap-back" provision on that basis. Rather, she contends that a consulting expert is a "representative of the lawyer," and that Dr. Caudle's production of her report was therefore production by a party. We need not reach that contention, however, as Dr. Caudle's provision of her report to Texas Children's was not "production" within the context of Rule 193.3(d).

Although the terms "producing" and "production" have not been given formal definitions in this context, Rule 193.3 expressly applies to the production of privileged materials in the course of written discovery. See Tex. R. Civ. P. 193.3 ("A party may preserve a privilege from written discovery in accordance with this subdivision.") (emphasis added). Permissible forms of written discovery are set out in Rule 192.1, and include such devices as requests for production and depositions upon written questions. See Tex. R. Civ. P. 192.1. Even if Dr. Caudle - acting as a representative of Ortuno's lawyer - supplied the report to her employer, the actual production of the report in written discovery occurred when the Hospital's custodian of records was deposed by written questions and was required to produce the facility's records.[4]

Because the producing entity (Texas Children's Hospital) was not a party to this lawsuit and therefore outside the scope of Rule 193.3(d), we hold that the respondent did not abuse his discretion in declining to order that Winkler Villa return Dr. Caudle's report to Texas Children's Hospital.

Continued Use of Privileged Documents

Relator has also asked that we issue mandamus to compel the trial court to enter a protective order preventing the disclosure or use of the already-produced report. We agree that a protective order can be an appropriate remedy to prevent a party from disclosing or making use of confidential information. See In re AEP Texas Cent. Co., 128 S.W.3d 687, 694 (Tex. App. - San Antonio 2003, orig. proceeding) (mandating that the trial court "enter an order preventing the use of" privileged materials produced in discovery).

However, mandamus is not available to compel an action that has not first been demanded and refused. Axelson, Inc. v. McIlhaney, 798 S.W.2d 550, 556 (Tex. 1990) (orig. proceeding); In re Houston Chronicle Pub. Co., 64 S.W.3d 103, 106 (Tex. App.- Houston [14th Dist.] 2001, orig. proceeding). From our review of the record, Ortuno has never asked the respondent to enter a protective order. We therefore decline to issue mandamus for relief that was not first requested in the court below. See Texas Farmers Ins. Co. v. Cooper, 916 S.W.2d 698, 701 n.3 (Tex. App. - El Paso 1996, orig. proceeding).

Accordingly, we deny the petition for writ of mandamus.

PER CURIAM

Petition Denied and Memorandum Opinion filed, May 6, 2008.
Panel consists of Justices Yates, Guzman, and Brown.

[1] The Honorable Levi Benton, presiding judge of the 215th Judicial District Court of Harris County, Texas.
[2] The respondent initially granted Winkler Villa's motion to compel the production of Dr. Caudle's records but, after this proceeding was filed, issued supplemental orders clarifying that Dr. Caudle's records were protected from discovery under the consulting expert privilege. The portion of this proceeding that concerned this motion to compel is therefore moot.
[3] Judge Benton also ruled that there was no evidence that production of Dr. Caudle's report was inadvertent. See Tex. R. Civ. P. 193 cmt. 4 (noting that the rule applies to material or information "produced inadvertently"). Because of our resolution of this case, we need not reach the issue of whether the production of Dr. Caudle's report was "inadvertent."
[4] One of Ortuno's attorneys conceded this point when he testified by affidavit that the report was "produced as a part of the records produced by Texas Children's Hospital."

Susan Criss should have enforced Rule 11 agreement re: apex deposition, Supreme Court says

Texas Supreme Court sides with BP in discovery dispute over depositions in BP blast litigation. Court's disagreement with Galveston District Judge Criss on a novel question of law in Texas, and its rejection of all bases for setting aside the agreement between lawyers regarding pretrial evidence collection in this suit by blast victims, suggest that Susan Criss, who is running for a seat on the Supreme Court this year, would make a difference in the Court's decisions, if elected. Court also finds, in opinion written by an assigned judge, that failure to enforce the agreement could not be upheld as a sanction for improper litigation conduct by defendants because no sanctions motion was before the court. Justice O'Neill was recused, for reasons not disclosed in the opinion.

In re BP Products North America, Inc., No. 07-0119 (Tex. Jan. 25, 2008)(Gaultney, sitting by assignment)(Discovery dispute, apex deposition, Rule 11 agreement, motion to quash notice of deposition, protective order, discovery mandamus granted)

HOLDING: The trial court abused its discretion in setting aside a valid discovery agreement without good cause. In this case, one party had already acted in reliance on the agreed procedure, partially performing its obligations. The parties agreed to define the scope of permissible discovery under Rule 192.3(a), limiting the expense and burden of litigating a disputed issue. Delaying review until appeal, under these circumstances, would defeat not only the purpose of the discovery agreement, but also the strong public policy encouraging parties to resolve their discovery disputes without court intervention. See Tex. R. Civ. P. 191.2. This case presents an issue of first impression, involving an important issue of public policy. We conclude that the benefits outweigh the detriments of mandamus review. See In re Prudential, 148 S.W.3d at 136-38.

DISPOSITION: We conditionally grant the writ of mandamus to compel the trial court to vacate its order, and direct the trial court to enforce the parties’ agreement. We are confident the trial court will comply, and our writ will issue only if the court does not.

══════════════════════════════════════════
On Petition for Writ of Mandamus
══════════════════════════════════════════

Argued October 18, 2007

Justice Gaultney delivered the opinion of the Court.[1]

This mandamus proceeding concerns the enforcement of a discovery agreement governing what is commonly referred to as an “apex” deposition. The discovery agreement was signed by the attorneys for the parties, and filed as provided by Rule 191.1 and Rule 11. We conclude the trial court abused its discretion in failing to enforce the agreement.

The Trial Court Proceedings

Fifteen people died and hundreds suffered injuries in an explosion at relator BP Products North America, Inc.’s Texas City oil refinery. The hundreds of resulting lawsuits against BP Products were consolidated for discovery in the 212th District Court in Galveston County. The parties conducted extensive discovery.

The plaintiffs served notices to take the depositions of two executives of relator’s parent company, BP p.l.c.: John Manzoni, the head of refining and marketing, and John Browne, the chief executive officer. BP Products moved to quash the depositions and moved for protective orders. BP Products contended the plaintiffs had not met their burden under the apex doctrine.[2] The plaintiffs responded, alleging that both Manzoni and Browne had unique or superior knowledge of relevant facts. The trial court initially struck BP Products’ supporting affidavits as insufficient, and denied the motions. BP Products sought mandamus review, and the court of appeals granted relief requiring consideration of the affidavits. In re BP Products N. Am., Inc., 2006 Tex. App. LEXIS 6898, at *20 (Tex. App.–Houston [1st Dist.] Aug. 4, 2006, orig. proceeding) (mem. op.). The trial court again denied BP Product’s motions and allowed the depositions to proceed.

Instead of attempting further mandamus review, BP Products concluded a discovery agreement with the plaintiffs regarding the executives’ depositions, and the parties filed the agreement with the trial court. See Tex. R. Civ. P. 11, 191.1. The agreement provided that the defendants would produce Manzoni for a four-hour deposition. In return, the plaintiffs promised they would withdraw the notice of deposition of Browne and would not request the deposition of any other executive officer or board member of BP p.l.c., with one exception: paragraph four of the agreement provided that if, during the Manzoni deposition, the plaintiffs developed new evidence that John Browne had “unique and superior personal knowledge” of relevant facts, the plaintiffs would be permitted to issue a new notice of deposition for Browne. The agreement also provided that BP Products retained its right to file a motion to quash and motion for protection “on this new notice,” as well as its right to seek review of the trial court’s ruling on these motions. In addition, the agreement provided that “if, following appeals referenced in paragraph 4, the deposition of John Browne is not protected, the deposition of John Browne will be limited to one hour by telephone.”[3] As plaintiffs’ counsel explained to the trial court, the agreement was a “quid pro quo” negotiated to avoid delay in obtaining Manzoni’s testimony:

[The agreement] was based on . . . a quid pro quo . . . . Time was of the essence. As the court may recall, we were scheduled for trial in September, and because of BP’s prior appeals that delayed the taking of him when I went to London to take him in August. We were concerned we would not be able to get a ruling from the Court of Appeals for the next mandamus allowing us to take it promptly then. So that was our concern and our willingness to restrict Mr. Manzoni for four hours instead of the six or more we may need to do a thorough job. And also to firmly restrict the deposition of Lord Browne to one hour which was unprecedented on our part.

After the agreement was concluded, Browne made numerous public statements regarding the Texas City explosion, including giving interviews to Fortune and the Financial Times, providing information packets to investors, and hosting several “town hall” meetings for employees, at least one of which plaintiffs contend appeared on the internet.

Plaintiffs took Manzoni’s deposition and then issued a new notice to take Browne’s deposition. Despite the provision of the agreement that any deposition take place “by telephone,” the notice provided that the deposition would take place in Galveston, Texas. BP Products filed a motion for protection, complaining that the deposition could not be set in Galveston, that plaintiffs could still not show that Browne had unique or superior knowledge of relevant facts as required under Crown Central, 904 S.W.2d at 128, and that Manzoni’s deposition had not produced “new evidence” Browne had “unique and superior personal knowledge” of relevant facts as required under the parties’ discovery agreement. Plaintiffs responded, asserting they could satisfy both the apex standard and the standard provided in the agreement.

On October 9th, the day of the hearing on BP Products’ motion for protection, plaintiffs filed a supplemental response arguing that, at the time the parties entered the agreement, “it was not anticipated” new information demonstrating Browne’s knowledge would become available from Browne’s public statements. Plaintiffs initially stood by the Rule 11 agreement. At the hearing itself, plaintiffs argued:

[W]e are abiding by the contract. The contract we’re relying is under paragraph four of the Rule 11 agreement . . . . In fact, we could probably come to this court with a straight face and say we think all bets are off because they misrepresented things. They waited until we entered that agreement and then they put Lord Browne all over the Internet after the fact and then try to King’s X us, and we’re not even arguing that. So, we will still stick with one hour and we’ll still stick with the teleconference . . . .

The trial court ended the first day of the hearing with the statement that it was not convinced “based on how Mr. Browne likes to interject himself, that he doesn’t want to be deposed.” The trial court continued the hearings until October 11th, to give BP Products an opportunity to examine plaintiffs’ new exhibits.

BP Products argued in its written response before the trial court that Browne’s public statements did not demonstrate Browne had unique or superior knowledge, and, in any event, did not justify setting aside the parties’ discovery agreement. At the October 11th hearing, plaintiffs argued:

[T]here was fraud inducement in the execution of Rule 11. And we are asking the court to dissolve the Rule 11 agreement and to allow us to proceed with the deposition of Lord Browne. Not just for the one-hour telephonic conference, but for the four to six hours individually we were originally intending to take the deposition.

BP Products responded that plaintiffs had not alleged fraud, had not made allegations attacking the Rule 11 agreement, there was no evidence of fraud, and BP Products was entitled to time “to develop it, discover it, and they have to provide some evidence which they have not.”

The trial court denied BP Products’ motions, and ordered Browne’s deposition to proceed at a place of the parties’ choosing, “without limitations and the Rule 11.” In its order of October 11, 2006, the trial court found that “new circumstantial evidence developed during Mr. John Manzoni’s deposition shows that Mr. Browne has unique or superior knowledge of relevant facts.” In addition, the court explained its refusal to enforce the parties’ Rule 11 agreement:

The Court further finds that the parties’ Rule 11 Agreement concerning the depositions of Mr. Manzoni and Mr. Browne does not prevent the deposition of Mr. Browne going forward because:

(1) After the effective date, Mr. Browne personally injected himself into the case with public comments that present new evidence of his unique or superior knowledge of relevant facts;

(2) The Rule 11 Agreement was based on circumstances that have changed;

(3) BP made misrepresentations that induced Plaintiffs to enter into the rule 11 Agreement;

(4) BP is estopped to rely on the Rule 11 Agreement; and/or

(5) BP’s public comments appear to be part of a continuing effort by BP to taint the jury pool.

The Court orders the deposition of Mr. Browne to proceed, without limitations and the Rule 11, at a time and place within the United States to be determined by agreement of the parties, or if in London, with costs/expenses to be paid by the defendants.

Relator filed a petition for writ of mandamus with the court of appeals, and, after the court of appeals denied that petition, relator filed a petition with this Court. We granted a stay of the trial court’s order pending our review of the issues.

During the pendency of this mandamus proceeding, Browne resigned from BP p.l.c., and retired. The plaintiffs then filed a motion to dismiss BP Products’ petition as moot, contending that apex protections do not apply to retired officials.

The Mandamus Standard

A writ of mandamus may issue to correct a clear abuse of discretion by a trial court. Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992). A failure by the trial court to apply the law correctly constitutes an abuse of discretion. Id. at 840. The relator must show no adequate remedy by appeal exists. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 136 (Tex. 2004). In determining whether appeal is an adequate remedy, appellate courts consider whether the benefits outweigh the detriments of mandamus review. Id.

The Issues

BP Products contends the trial court abused its discretion by setting aside the parties’ discovery agreement and ordering Browne’s deposition. BP Products argues the plaintiffs have not satisfied their burden under the apex doctrine. In BP Products’ view, because Browne does not have unique or superior knowledge of relevant facts, his deposition would be outside the scope of discovery permitted by the rules governing apex depositions. BP Products also asserts the plaintiffs have not made the showing required under the parties’ agreement because there is no evidence that Manzoni’s deposition produced “new evidence” of Browne’s “unique and superior personal knowledge.”

The Rule 191.1 Agreement

Rule 191.1 provides that “except where specifically prohibited” the parties may modify the “rules pertaining to discovery” by agreement. Tex. R. Civ. P. 191.[4] An agreement is enforceable when it complies with the terms of Rule 11, or as it affects an oral deposition, if made a part of the record of the deposition. Id. The agreement in this case complied with the requirements of Rule 11. See Tex. R. Civ. P. 11. The parties do not argue that the agreement was specifically prohibited[5] or that the agreement was outside the scope of Rule 191.1. The question here is whether the trial court had adequate reason to set aside the parties’ agreement.

This Court has not previously addressed the scope of a trial court’s power to set aside an otherwise enforceable Rule 191.1 agreement. Consistent with its powers over discovery, a trial court may modify discovery procedures and limitations for “good cause.” Tex. R. Civ. P. 191.1. This power, however, is not “unbounded.” Id. cmt. 1. Wherever possible, a trial court should give effect to agreements between the parties. Johnson v. Swain, 787 S.W.2d 36, 38 (Tex. 1989); see also Fortis Benefits v. Cantu, 234 S.W.3d 642, 651 (Tex. 2007) (trial court had duty to enforce valid Rule 11 pretrial agreement); EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 91 (Tex. 1996) (per curiam) (enforcing a time of filing agreement). Discovery agreements serve an important role in efficient trial management, permitting the parties to settle their disputes without resort to judicial supervision. The Rules of Civil Procedure encourage parties to reach discovery agreements. See Tex. R. Civ. P. 191.2. When the parties conclude an agreement, the court should not lightly ignore their bargain.

A court should be particularly reluctant to set aside a Rule 191.1 agreement after one party has acted in reliance on the agreed procedure and performed its obligations under the agreement. Cf. McBride v. McBride, 797 S.W.2d 689 (Tex. App.–Houston 1990, writ. denied); SEC v. TheStreet.Com, 273 F.3d 222, 229-3 (2d Cir. 2001) (where a deponent has relied upon a protective order sealing the deponent’s testimony, a court should not lightly modify the order). An easy disregard for partially performed agreements would discourage parties from committing to discovery agreements for fear that the other party would avail itself of the benefit of the bargain and then attempt to avoid its own obligations.

The trial court apparently set aside the agreement here based on the court’s application of equitable and contract principles. See In re Ford Motor Co., 211 S.W.3d 295 (Tex. 2006); Kennedy v. Hyde, 682 S.W.2d 525, 529 (Tex. 1984) (holding that agreements complying with Rule 11 are nevertheless subject to attack on the grounds of fraud or mistake, and nonconforming agreements “may be enforced for similar equitable reasons”); Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). The trial court found that Browne’s public statements justified setting aside the discovery agreement on grounds of misrepresentation, estoppel, and changed circumstances. On this record, none of these grounds provides a valid basis for ignoring the parties’ agreement.[6]

The plaintiffs identify no specific misrepresentations on which they may have relied. Nor does the record contain evidentiary support for the assertion that BP Products made a material, false representation that could have reasonably induced the plaintiffs to enter the discovery agreement. See Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 46-47 (Tex. 1998); Restatement (Second) of Contracts §§ 159 intro. note, 162 (1979). The trial court’s explanation, that Browne’s public statements established plaintiffs relied on misrepresentations concerning Browne’s lack of knowledge, is not supported by the record or the parties’ agreement. To the contrary, plaintiffs’ statements to the trial court reflect that the plaintiffs entered the agreement to avoid the delays associated with mandamus review and to obtain Manzoni’s deposition testimony prior to the September trial setting. Plaintiffs have always maintained Browne has unique and superior knowledge, the trial court previously ruled plaintiffs could take Browne’s deposition, and the agreement itself provides that Browne’s deposition may be taken for one hour, by telephone, if Manzoni’s deposition demonstrated Browne’s knowledge.

Similarly, the finding that “BP is estopped to rely on the Rule 11 Agreement” does not support the order. The trial court invoked estoppel apparently to prevent BP Products from taking a position in court concerning the extent of Browne’s knowledge that the court viewed as inconsistent with Browne’s public statements. See Restatement (Second) of Contracts § 84 cmt. b (1979) (defining waiver); Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 864 (Tex. 2000) (defining quasi-estoppel). Even if Browne had unique or superior knowledge, that fact would not estop BP Products from insisting upon the time and manner restrictions included in the agreement; the parties expressly agreed that even if Browne’s deposition was “not protected,” Browne’s deposition would be limited.

The record also fails to show that Browne’s public statements are the kind of changed circumstance that might amount to “good cause” for setting aside the discovery agreement. Browne’s public statements rendered the agreement neither impracticable nor impossible. A subsequent development reducing the usefulness of a discovery agreement to one party, without more, does not justify a refusal to enforce the agreement.

The trial court found that “BP’s public comments appear to be part of a continuing effort to taint the jury pool,” but nothing in the record suggests sanctions were the subject matter of the hearing before the trial court. The hearing focused on the extent of Browne’s knowledge as reflected in his public statements. In the trial court, plaintiffs neither explicitly requested sanctions nor cited any supporting rule or case law. Plaintiffs make no argument and cite no authority in their brief to this Court that the order was permissible as a sanction, though in oral argument they referenced other efforts by BP Products that are not part of this record. In the absence of a motion for sanctions, proper notice and opportunity to be heard, or the trial court’s invocation of the court’s power to sanction, the order striking the discovery agreement is not supportable as a sanctions order. See In re Bennett, 960 S.W.2d 35, 40 (Tex. 1997) (per curiam); Tex. R. Civ. P. 215.3; cf. Am. Flood Research, Inc. v. Jones, 192 S.W.3d 581, 583-84 (Tex. 2006) (per curiam).

Rule 191.2 provides that “[p]arties and their attorneys are expected to cooperate in discovery and to make any agreements reasonably necessary for the efficient disposition of the case.” Tex. R. Civ. P. 191.2. The Rule also provides that, when requesting a hearing relating to discovery or when filing a discovery motion, a party must certify “that a reasonable effort has been made to resolve the dispute without the necessity of court intervention and the effort failed.” Id. To achieve “the efficient disposition of the case . . .without the necessity of court intervention,” parties and their attorneys must be able to rely on agreements. See id. We hold the trial court abused its discretion by setting aside the parties’ Rule 191.1 agreement.

BP Products’ Motion to Quash

BP Products asserts that the apex doctrine bars plaintiffs from taking Browne’s deposition. Plaintiffs assert the issue is moot because Browne has retired. The apex doctrine, however, does not control the outcome in this case. The discovery agreement displaced the common law standard with the parties’ own standard. As BP Products explained in its brief: “If new evidence was developed during Manzoni’s deposition showing that Browne had unique and superior knowledge of relevant facts, then Browne would be presented at a limited deposition. . . . Both parties retained the right to appeal the trial court’s ruling on the new evidence issue.”

The terms of the parties’ discovery agreement apply. The trial court found that “new circumstantial evidence developed during Mr. John Manzoni’s deposition shows that Mr. Browne has unique or superior knowledge of relevant facts.” If some evidence supports the trial court’s conclusion, the trial court could order a deposition consistent with the terms of the parties’ agreement. See generally Butnaru v. Ford Motor Co., 84 S.W.3d 198, 211 (Tex. 2002) (a trial court does not abuse its discretion if some evidence supports its decision).

To satisfy the “new evidence” provision, plaintiffs rely, in part, on Manzoni’s inability to answer certain questions about a twenty-five percent budget cut directive issued by BP p.l.c. The trial court concluded that Manzoni’s inability to answer these questions constituted new evidence that Browne would have unique and superior knowledge about the budget cuts. This inference might not normally support the taking of an apex deposition. Here, however, the trial court could reasonably construe the “new evidence” provision of the Rule 191.1 agreement to allow plaintiffs a limited deposition of Browne to answer questions Manzoni may have been unable to answer but Browne could. On this record, under that construction of the parties’ agreement, the deposition of John Browne could be taken for one hour, by telephone. The court instead ordered the deposition to proceed without the limitations agreed to by the parties. Though the trial court’s “new evidence” finding would support authorizing plaintiffs to take Browne’s deposition consistent with the agreed limitations, the finding does not justify setting aside the agreement.

Conclusion

The trial court abused its discretion in setting aside a valid discovery agreement without good cause. In this case, one party had already acted in reliance on the agreed procedure, partially performing its obligations. The parties agreed to define the scope of permissible discovery under Rule 192.3(a), limiting the expense and burden of litigating a disputed issue. Delaying review until appeal, under these circumstances, would defeat not only the purpose of the discovery agreement, but also the strong public policy encouraging parties to resolve their discovery disputes without court intervention. See Tex. R. Civ. P. 191.2. This case presents an issue of first impression, involving an important issue of public policy. We conclude that the benefits outweigh the detriments of mandamus review. See In re Prudential, 148 S.W.3d at 136-38.

We conditionally grant the writ of mandamus to compel the trial court to vacate its order, and direct the trial court to enforce the parties’ agreement. We are confident the trial court will comply, and our writ will issue only if the court does not.
____________________________________
David Gaultney
Justice

Opinion Delivered: January 25, 2008


APPENDIX

Text of the Parties’ Agreement

The parties agree that, in consideration of all the agreements made herein:

1. The oral ruling of the court on August 28, 2006, regarding the depositions of John Browne and John Manzoni will be deemed by the parties to be vacated and of no effect and no order will be tendered by plaintiffs.

2. BP Products will produce John Manzoni for deposition in Chicago on September 8 for four hours of deposition time.

3. Plaintiffs will withdraw the notice of deposition of John Browne and will not again notice or request the deposition of any other executive officer or board members of BP p.l.c., with one exception set out in paragraph 4 below.

4. If, during the deposition of John Manzoni, new evidence is developed that John Browne has unique and superior personal knowledge of facts relevant to the trial of this matter, Plaintiffs may issue a new notice for the deposition of John Browne. BP Products retains its right to file a motion to quash and motion for protection on this new notice, have that motion heard at the trial court and both parties retain their right to appeal the trial court’s ruling.

5. Plaintiffs agree that if, following appeals referenced in paragraph 4, the deposition of John Browne is not protected, the deposition of John Browne will be limited to one hour by telephone.

[1] The Honorable David Gaultney, Justice, Ninth Court of Appeals, Beaumont, sitting by commission of the Honorable Rick Perry, Governor of Texas, pursuant to Tex. Gov’t Code § 22.005. Justice O’Neill is recused.
[2] Under the apex doctrine, when a party seeks to take the deposition of a senior corporate official, the party must show either that the official has “unique or superior personal knowledge” of relevant facts or that “after a good faith effort to obtain the discovery through less intrusive means, (1) that there is a reasonable indication that the official’s deposition is calculated to lead to the discovery of admissible evidence, and (2) that the less intrusive methods of discovery are unsatisfactory, insufficient or inadequate.” In re Alcatel USA, Inc., 11 S.W.3d 173, 176 (Tex. 2000); see also Crown Cent. Petroleum Corp. v. Garcia, 904 S.W.2d 125, 128 (Tex. 1995).
[3] For the full text of the parties’ agreement, see the appendix.
[4] Rule 191.1 reads in full: “Except where specifically prohibited, the procedures and limitations set forth in the rules pertaining to discovery may be modified in any suit by the agreement of the parties or by court order for good cause. An agreement of the parties is enforceable if it complies with Rule 11 or, as it affects an oral deposition, if it is made a part of the record of the deposition.”
[5] Paragraph 1 of the agreement provided that the trial court’s previous oral ruling regarding the depositions of John Browne and John Manzoni “will be deemed by the parties to be vacated and of no effect.” The agreement does not set aside a court order, something specifically prohibited as noted in comment 1 to Rule 191.1. The court’s original ruling did not require the plaintiffs to take Browne’s deposition, and the parties could agree “to shorten the time permitted for a deposition or to change the manner in which a deposition is conducted.” See Tex. R. Civ. P. 191.1 cmt 1.
[6] See Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 851-52 (Tex. 1992) (orig. proceeding) (noting that trial court findings may be helpful in assessing whether or not the trial court abused its discretion).

IN RE BP PRODUCTS NORTH AMERICA, INC.; from Galveston County; 1st district (01-06-00943 CV, ___ S.W.3d ___, 02-09-2007)
Opinion below: In re BP Products North America Inc., (Tex.App.- Houston [1st Dist.] Feb. 9, 2007)(per curiam)
Trial court judge: Susan Criss

First Court of Appeals denies mandamus relief in discovery dispute in Enron litigation

In re Enron Creditors Recovery Corp., No. (Tex.App.- Houston [1st Dist.] Sep. 6, 2007)(per Curiam)(Before Justices Taft, Jennings and Alcala)
In re Enron Creditors Recovery Corp.
Appeal from 215th District Court of Harris County

Original Proceeding on Petition for Writ of Mandamus

MEMORANDUM OPINION

By petition for writ of mandamus, relator, Enron Creditors Recovery Corp. ("Enron Corp."), challenges the trial court's May 21, 2007 order compelling production of certain documents, which Enron Corp. contends are privileged.

We deny the petition for writ of mandamus.

PER CURIAM

Panel consists of Justices Taft, Jennings, and Alcala.