Opinion
No. 05-19-01283-CV
05-20-2020
IN RE BYRON CURTIS COOK, TRADE RARE, L.L.C., JOEL HOCHBERG, UNITY RESOURCES, LLC, MARK THOMAS MERSMAN, AND MARK JOSEPH SOLOMON JR., Relators
Original Proceeding from the 417th Judicial District Court Collin County, Texas
Trial Court Cause No. 417-04885-2016
MEMORANDUM OPINION
Before Justices Bridges, Osborne, and Carlyle
Opinion by Justice Carlyle
In this original proceeding, relators challenge a protective order barring certain discovery from a non-party witness. After reviewing relators' petition for writ of mandamus, real parties in interest's response, relators' reply, the mandamus record, and the supplemental mandamus record, we conditionally grant relators' petition for writ of mandamus.
Relators are Byron Curtis Cook; Trade Rare, L.L.C. (Trade Rare); Joel Hochberg; Unity Resources, LLC (Unity); Mark Thomas Mersman; and Mark Joseph Solomon Jr.
This court granted relators' motion to seal nearly all documents filed in this proceeding pending the trial court's ruling on real parties in interest's motion to seal certain deposition transcripts pursuant to Texas Rule of Civil Procedure 76a. We note that the rules of appellate procedure require us to hand down a public opinion explaining our decision based on the record. See TEX. R. APP. P. 52.8(d), 47.1; Kartsotis v. Bloch, 503 S.W.3d 506, 510 (Tex. App.—Dallas 2016, pet. denied). We have "strived to preserve the confidentiality of the materials we believe the parties intended to be confidential." Kartsotis, 503 S.W.3d at 510. "Thus, we avoid referring to those materials where possible and make some references deliberately vague." Id.
Background
The underlying lawsuit was filed against relators and others in 2016. Plaintiff, a limited liability company, alleged securities fraud and related claims in connection with a mineral acreage purchase transaction facilitated by Unity. Plaintiff contended the mineral acreage interests it purchased met the Texas Securities Act's definition of "securities" and thus it was owed heightened disclosure duties and other obligations not otherwise applicable. According to plaintiff, Unity failed to make required disclosures and received undisclosed profits at the expense of plaintiff and other investors by engaging in self-dealing by and through its managers and related entities.
On August 19, 2019, over plaintiff's objection, relators Trade Rare, Cook, and Hochberg deposed a non-party witness (the non-party) who had served as both manager of and counsel to Unity from 2008 through 2014 and also owned or controlled membership interests in Unity during that time. According to relators, the non-party had known of, reviewed, and approved the complained-of conduct in plaintiff's petition.
Several relators filed a trial court motion to designate the non-party as a responsible third party, which the trial court denied. A separate mandamus action regarding that denial is pending in this court, number 05-20-00205-CV, also captioned In re Cook.
At the deposition, plaintiff and the non-party (collectively, real parties) were represented by the same counsel. Real parties' counsel instructed the non-party not to answer questions related to two subjects, contending the questions were irrelevant and solely for harassment purposes: (1) the non-party's solicitation of clients for an investment adviser firm without first registering as an investment adviser representative, resulting in a disciplinary order from the Texas State Securities Board, and (2) the non-party's solicitation of relator Cook to invest in an entity called Servergy. When relators' counsel began questioning the non-party on the second subject, real parties' counsel objected and sought a trial court ruling barring any further such questioning.
The record shows the non-party has been indicted for two counts of felony securities fraud for soliciting investors in Servergy without disclosing to the investors he was being compensated by Servergy for his efforts. Servergy is not a party in the underlying lawsuit.
The parties reached the trial court by telephone. Real parties' counsel told the trial court "there have been a lot of questions that have begun being asked about [the non-party's] criminal matter that's pending. . . . It's obviously Plaintiff's position this has nothing to do with the case and solely for [sic] purposes of harassment today. I—I don't know what relationship it would bear to this case, or why these questions have continued to be asked, but we would ask the Court to order us not to address that topic for this deposition." Real parties' counsel did not specify to the trial court any particular question about which he was complaining or offer any evidence to support his general complaint that the questions were irrelevant and harassing.
Relators argued that the complained-of lines of questioning were relevant because during the time of the transactions at issue the non-party was counsel for Unity, plaintiff's principals, and Cook, and advised them on various matters, including disclosure duties regarding their investment solicitation materials. Relators contended the disclosure obligations and circumstances in the lawsuit against them are the same as or similar to the disclosure obligations and circumstances involved in the objected-to lines of questioning. Thus, they argued, the lines of questioning "clearly do[] have a relation to the claims and defenses in this case" and were intended to lead to relevant circumstantial evidence of a lack of fraudulent intent by relators.
After listening to each side's arguments by phone, the trial court granted real parties a protective order "in this line of questioning based on precisely the argument that this is a non-party's deposition."
There is no written order, only the August 19, 2019 phone ruling shown in the reporter's record. The rules of appellate procedure allow consideration of an oral order in an original proceeding if the court's ruling is a clear, specific, and enforceable order that is adequately shown by the record. See In re M.B., No. 05-19-00971-CV, 2019 WL 4509224, at *2 (Tex. App.—Dallas Sept. 19, 2019, orig. proceeding) (mem. op.) (citing TEX. R. APP. P. 52.3(k)(1)(A)). The ruling before us is specific enough to satisfy the standard for purposes of this mandamus proceeding. See id.; TEX. R. APP. P. 52.3(k)(1)(A).
Mandamus relief is warranted
Mandamus is an extraordinary remedy available only when the trial court has clearly abused its discretion and there is no adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36, 137 (Tex. 2004) (orig. proceeding). A clear abuse of discretion occurs when a trial court "reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law." Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding). A trial court has no discretion in determining what the law is or applying the law to the facts. Id. A clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of discretion. Id. at 840.
A relator has no adequate remedy by appeal in the discovery context when (1) the appellate court would not be able to cure the trial court's discovery error; (2) the party's ability to present a viable claim or defense is vitiated or severely compromised by the erroneous discovery ruling to the extent that the party is effectively denied the ability to develop the merits of its case; or (3) the trial court's discovery order disallows discovery that cannot be made a part of the appellate record, thereby denying the appellate court's ability to evaluate the effect of the trial court's error. See In re Colonial Pipeline Co., 968 S.W.2d 938, 941 (Tex. 1998) (orig. proceeding) (per curiam).
Generally, the scope of discovery is within the trial court's discretion. In re CSX Corp., 124 S.W.3d 149, 152 (Tex. 2003) (orig. proceeding) (per curiam). A party is typically entitled to obtain discovery on any matter that is not privileged and is relevant to the subject matter of the pending action. See TEX. R. CIV. P. 192.3(a). It is not a ground for objection that the information sought will be inadmissible at trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence. Id. The phrases "relevant to the subject matter" and "reasonably calculated to lead to the discovery of admissible evidence" are to be liberally construed. See In re Nat'l Lloyds Ins. Co., 507 S.W.3d 219, 223 (Tex. 2016) (orig. proceeding) (per curiam); In re Sun Coast Res., Inc., 562 S.W.3d 138, 146 (Tex. App.—Houston [14th Dist.] 2018, orig. proceeding).
Information is relevant if it tends to make the existence of a fact that is of consequence to the determination of the action more or less probable than it would be without the information. TEX. R. EVID. 401. Information is "patently irrelevant" when reasonable minds would not differ that it has no tendency to prove or disprove any issue involved in the subject matter of the suit and the information's irrelevancy is apparent from the face of the record. Sun Coast, 562 S.W.3d at 146; MCI Telecomm. Corp. v. Crowley, 899 S.W.2d 399, 403-04 (Tex. App.—Fort Worth 1995, orig. proceeding). Without question, the scope of discovery exceeds the scope of admissible evidence, and a party need not prove information is admissible for it to be discoverable. In re Am. Power Conversion Corp., No. 04-12-00140-CV, 2012 WL 5507111, at *5 (Tex. App.—San Antonio Nov. 14, 2012, orig. proceeding) (mem. op.). Information concerning other lawsuits is not necessarily outside the scope of discovery and may be allowed when the information sought is relevant— that is, when the other lawsuits have a material connection to an issue in the case, present the same or similar issues, or are factually similar. See id.
Generally, litigants are not empowered to restrict access to non-party fact witnesses. See In re Collins, 286 S.W.3d 911, 916 (Tex. 2009) (orig. proceeding). Texas courts apply the same discovery standards to parties and non-parties with regard to relevance and harassment. See id. at 919 (applying general scope of discovery law to non-party).
A trial court may grant a protective order "[t]o protect the movant from undue burden, unnecessary expense, harassment, annoyance, or invasion of personal, constitutional, or property rights." TEX. R. CIV. P. 192.6(b). Though a judge may exercise some discretion when granting a protective order, that discretion is not without bounds. See Collins, 286 S.W.3d at 919. Generally, "[a] party seeking a protective order 'must show particular, specific and demonstrable injury by facts sufficient to justify a protective order.'" Id. (quoting Masinga v. Whittington, 792 S.W.2d 940, 940 (Tex. 1990) (orig. proceeding)). "[T]he burden of proof regarding relevance, or lack thereof, generally rests on the party resisting discovery." In re GreCon, Inc., 542 S.W.3d 774, 780 (Tex. App.—Houston [14th Dist.] 2018, orig. proceeding); accord Gen. Elec. Co. v. Salinas, 861 S.W.2d 20, 24 (Tex. App.—Corpus Christi-Edinburg 1993, orig. proceeding) (stating party resisting discovery bears burden to plead and prove basis of objection, including proving requested information is irrelevant). But when evidence is not necessary to determine the discoverability of requested information, litigants are not required to produce evidence in support of their request for protection. See In re Union Pac. Res. Co., 22 S.W.3d 338, 341 (Tex. 1999) (orig. proceeding) (per curiam) (concluding trial court was within its discretion to sustain discovery objections based on lack of relevance of settlement amount even though resisting party did not adduce evidence in support of its objections, where trial court could have determined amount of settlement was irrelevant, and therefore not discoverable, based on terms of agreement); In re Wal-Mart Stores, Inc., 545 S.W.3d 626, 634-35 (Tex. App.—El Paso 2016, orig. proceeding) (concluding that although evidence is generally necessary to support a claim of protection from discovery, it is not necessary if discovery requests demonstrate overbreadth and lack of relevance as a matter of law).
In their petition for writ of mandamus, relators contend the trial court "abused its discretion when it issued a blanket protective order barring certain relevant deposition questions and areas of inquiry in the deposition of [the non-party] when no evidence and only conclusory objections were submitted in support of that protective order." According to relators, the lines of inquiry prohibited by the protective order "seek testimony relevant to this case" and "are not facially irrelevant." Relators argue, as they did in the trial court, that questions about the non-party's disciplinary order for failing to register as an investment adviser representative and the circumstances surrounding his securities fraud indictment would lead to evidence likely to show that relators lacked fraudulent intent because they were relying on the non-party's allegedly deficient legal advice about disclosure and registration obligations.
Real parties respond, among other things, that they "were not required to present separate evidence in support of their objections and protective order because the lines of questioning were totally irrelevant to the issue in the case, and, thus, facially objectionable warranting protection." Rather than directly addressing relators' circumstantial-evidence-of-fraud argument, real parties contend their position "is bolstered by" the fact that the transaction at issue in the underlying lawsuit took place in October 2013 and the non-party was not disciplined by the Texas State Securities Board until May 2014 and was not indicted until July 2015. Thus, real parties argue, "there was nothing for [the non-party] to disclose to Unity regarding the disciplinary order issued against him and alleged criminal violations of state securities laws at the time the transaction at issue was taking place." But this argument misses the mark. Relators are not arguing that the non-party failed to disclose the disciplinary order and indictment to them, but rather that the conduct for which the non-party was censured and indicted occurred within the same general timeframe as the events in question and would lead to circumstantial evidence relevant to the lawsuit's issues.
Here, the trial court's ruling was proper only if the challenged lines of questioning were facially irrelevant. See Union Pac., 22 S.W.3d at 341; Wal-Mart, 545 S.W.3d at 634-35; GreCon, 542 S.W.3d at 780. Given the liberal relevance standard applicable in discovery, we conclude the two challenged lines of questioning were not necessarily outside the scope of relevant information. See Nat'l Lloyds, 507 S.W.3d at 223; Sun Coast, 562 S.W.3d at 146. Information concerning other lawsuits is not per se outside the scope of discovery, and relators did not establish below that the circumstances of the non-party's role in the Servergy and investment adviser situations are so dissimilar to the allegations here as to be irrelevant. See GreCon, 542 S.W.3d at 780; Gen. Elec., 861 S.W.2d at 24. Anything reasonably calculated to lead to the discovery of material evidence is generally within the scope of proper discovery. See TEX. R. CIV. P. 192.3(a); see also In re United Fire Lloyds, 578 S.W.3d 572, 582-83 (Tex. App.—Tyler 2019, orig. proceeding) (concluding trial court abused discretion by determining requested discovery was not reasonably calculated to lead to discovery of admissible evidence, where challenged discovery requests showed "reasonable expectation" of obtaining information that would "aid" resolution of dispute involving fraud allegations).
On this record, we conclude the complained-of lines of questioning were not facially irrelevant and thus, that the trial court abused its discretion by concluding otherwise. In light of our conclusion, we need not address relators' alternative arguments regarding abuse of discretion.
To the extent matters within the lines of questioning could potentially be subject to an attorney-client or Fifth Amendment privilege, those issues are not presented here and are more properly dealt with by asserting a privilege in response to specific inquiries. See In re Edge Capital Grp., 161 S.W.3d 764, 767 (Tex. App.—Beaumont 2005, orig. proceeding).
As to the second mandamus element, the law is well-settled that a relator lacks an adequate remedy by appeal when, as here, a trial court's discovery order disallows discovery that cannot be made a part of the appellate record, thereby denying the appellate court's ability to evaluate the effect of the trial court's error. See Colonial Pipeline, 968 S.W.2d at 941. Real parties fail to address the adequate appellate remedy element in their mandamus response.
We conclude (1) the trial court abused its discretion by granting the challenged protective order and (2) relators have no adequate remedy by appeal. We conditionally grant relators' petition for writ of mandamus and direct the trial court to vacate its August 19, 2019 protective order barring deposition questioning of the non-party witness regarding (1) his solicitation of clients for an investment adviser firm that resulted in a Texas State Securities Board disciplinary order against him and (2) his solicitation of Cook to invest in Servergy. The writ of mandamus will issue only if the trial court fails to comply within fifteen days from the date of our opinion and order.
/Cory L. Carlyle/
CORY L. CARLYLE
JUSTICE Bridges, J., dissenting 191283F.P05