IN RE: EURECAT US

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Court of Appeals of Texas,Houston (14th Dist.).

IN RE: EURECAT US, INC., Relator.

No. 14–13–00852–CV.

Decided: February 27, 2014

Panel consists of Justices JAMISON, McCALLY, and BUSBY. Michael Dwayne Seale and Benjamin A. Escobar Jr., for Soren Marklund, Douglas Wene and Chem32, LLC. Matthew L. Hoeg, for Eurecat US, Inc.

MAJORITY OPINION

Eurecat US, Inc. has filed a petition for writ of mandamus, asking this court to compel the Honorable Jaclanel McFarland, presiding judge of the 133rd District Court of Harris County, to vacate her protective order dated September 20, 2013. Because Eurecat has not established an inadequate remedy by appeal, we deny the petition for writ of mandamus.

BACKGROUND

Eurecat operates in the specialized field of catalyst activation, providing technical services to refineries and chemical plants throughout the world. Eurecat sued the real parties in interest, Soren Marklund, Douglas Wene, and Chem32, LLC. Marklund is the former president of Eurecat. He left the company in 2011 to form Chem32 with Wene, who had been a plant manager at a Eurecat facility in Pasadena. Chem32 directly competes with Eurecat by offering similar catalyst activation services.

In its suit, Eurecat asserted causes of action for breach of fiduciary duty, misappropriation of trade secrets, and unfair competition, among others. Eurecat alleged that Marklund and Wene decided to form a competing business when they were still employed at Eurecat. According to Eurecat, Marklund and Wene withheld certain business opportunities and solicited clients away from Eurecat for the benefit of their new venture. Eurecat further alleged that Marklund and Wene stole proprietary information from Eurecat, which they used to operate Chem32.

The real parties filed a counterclaim, asserting that Eurecat was a monopolist under the Texas Free Enterprise and Antitrust Act. They alleged that Eurecat initiated this “sham litigation” to suppress competition in the market.

The trial court signed an agreed temporary injunction requiring the real parties to surrender any documents and intellectual property belonging to Eurecat. Under the injunction, the real parties were expressly permitted to continue using their own skill and knowledge to compete with Eurecat's business. Both parties also executed a Rule 11 confidentiality agreement, wherein they promised not to use any information obtained during the discovery process, except for use in the course of the litigation.

During discovery, the real parties produced documents showing that, in late 2010, Marklund had approached Haldor Topsoe, a Swedish corporation, to help secure financing for his new company. At the time of this contact, Marklund was still president of Eurecat, and Haldor Topsoe was doing millions of dollars worth of business with Eurecat. By the time of suit, however, Haldor Topsoe had turned to Chem32 for its catalyst activation needs.

After production of this discovery, Eurecat's attorney contacted Haldor Topsoe directly and expressed serious concerns about any ongoing relationship it may have with the real parties. Eurecat advised Haldor Topsoe that it had already obtained evidence showing that the real parties had used Eurecat's proprietary information in the performance of their new business. Eurecat even provided Haldor Topsoe with the forensic analysis of its computer expert to support its claim of misappropriation. Eurecat opined that, under these circumstances, it would be “inappropriate” and “tantamount to participating in the misappropriation” for Haldor Topsoe to use Chem32 for future projects. Eurecat then inquired whether Haldor Topsoe would be willing to cease doing business with Chem32 in exchange for a covenant not to sue. Haldor Topsoe agreed, resulting in substantial losses to the real parties. The real parties subsequently amended their counterclaim to include causes of action for defamation and business disparagement.

Apparently suspecting that Marklund may have approached other clients in addition to Haldor Topsoe, Eurecat moved to compel the production of documents pertaining to all of Chem32's customers and sales. The real parties opposed such discovery, claiming that it was a protected trade secret. The real parties also filed a motion for protection, arguing that they needed to prevent disclosure of their client lists out of fear that Eurecat would engage those clients in disparaging communications.

The trial court conducted two hearings on the discovery motions, the first on March 25 and the second on April 9. At the first hearing, the trial court proposed an equitable remedy to the parties' dispute. Instead of compelling Chem32 to produce its own list of clients, the trial court directed Chem32 to examine a list of Eurecat's existing clients and identify whether Chem32 had done business with any of them. The real parties moved for “a very strict protective order” to ensure that Eurecat would not harass Chem32's clients like it had done with Haldor Topsoe. The trial court responded that Eurecat was bound by the confidentiality agreement, and that the real parties would have “a whole new lawsuit” if Eurecat decided to breach that agreement.

At the second hearing, the real parties renewed their objection to Eurecat's attempts to discover Chem32's clients. The real parties alleged that Eurecat's contacts had already caused Haldor Topsoe to cease doing business with them. They were afraid that contacts with any other customers would achieve the same result and effectively put them out of business. The trial court ordered Eurecat not to disclose “copies of depositions, affidavits, [and] different things that have been used in this litigation.” Then, without expressly disturbing its previous order, the trial court directed Eurecat, “Don't contact any of the customers.”

Eurecat filed a motion for status conference, seeking in part to clarify the trial court's oral order. Eurecat asserts that this motion was heard on August 19, but that the trial court did not rule on the issue of customer discovery.

On September 18, Eurecat notified the real parties by letter that it intended to send subpoenas to eighty-nine businesses, which Eurecat represented as being its own customers. Eurecat indicated that this discovery was intended to find information pertaining to its claims, specifically breach of fiduciary duty, and the real parties' counterclaims. Eurecat asked Chem32 to relay any objections to the proposed subpoenas. On September 19, the real parties requested an emergency order prohibiting Eurecat from conducting third-party customer discovery. The real parties argued that Eurecat's actions were in direct violation of the trial court's oral order, and that allowing this third-party discovery would “destroy Chem32's business.”

The trial court conducted a hearing on the emergency request on September 20. Without producing any witnesses, the real parties argued that this is the “turn around season” in the market for catalyst activation. During this time of year, industrial consumers solicit bids for the activation of catalyst. The real parties worried that if Eurecat's third-party discovery were allowed, subpoenaed customers would follow the example of Haldor Topsoe and refuse to consider bids from Chem32.

Eurecat contended that there were legitimate reasons for pursuing third-party discovery, as the trial court had acknowledged during the April 9 hearing.1 Eurecat urged the trial court to permit third-party discovery because it needed to investigate whether the real parties were conspiring to steal Eurecat's customers before they left the company. Eurecat specifically referred the trial court to Chem32's business plan, wherein the real parties had indicated that they would target approximately nine of Eurecat's customers.

The trial court expressed concern, as Chem32's business plan did not list all of the eighty-nine businesses listed in Eurecat's letter. The real parties responded that the fact that they may have done business with common customers is no evidence of breach of fiduciary duty. The real parties also argued that this third-party discovery was unwarranted because the real parties had already produced documents for the period through May 2012, several months after Marklund and Wene had left Eurecat, and these documents showed no contact by the real parties with any Eurecat customer other than Haldor Topsoe.

Eurecat countered that there was still a need for discovery because of the real parties' antitrust counterclaim. Eurecat argued that it needed to contact its customers to establish the relevant market and prepare a defense to whether it is a monopolist in that market. The trial court responded that establishing the market was the real parties' burden, and the real parties stated that they would establish the market through the testimony of Eurecat's own officers. The real parties also stipulated that they would limit their damages to the lost business relationship with Haldor Topsoe.

The trial court denied the third-party discovery, finding that there was a potential and significant harm of ruining Chem32's business that outweighed the benefit of permitting the discovery. The court then granted the real parties' protective order, which provides that Eurecat “may not serve discovery on any customers or potential customers of catalyst activation services identified in the letter from [Eurecat's counsel] to [the real parties' counsel] dated 9/18/2013 which is contained in the Court's record, other than Haldor Topsoe, Inc.” Eurecat's mandamus petition challenges this order.

MANDAMUS STANDARD

Mandamus is appropriate when the relator demonstrates that the trial court clearly abused its discretion and there is no adequate remedy by appeal. See In re Reece, 341 S.W.3d 360, 364 (Tex.2011) (orig.proceeding). On mandamus review of factual issues, a trial court will be held to have abused its discretion only if the relator establishes that the trial court could have reached but one decision, and not the decision it made. See Walker v. Packer, 827 S.W.2d 833, 839–40 (Tex.1992) (orig.proceeding). Mandamus review of legal issues is not deferential. A trial court abuses its discretion if it clearly fails to analyze the law correctly or apply the law to the facts of the case. See In re Cerberus Capital Mgmt ., 164 S.W.3d 379, 382 (Tex.2005) (orig.proceeding) (per curiam).

The adequacy of an appellate remedy must be determined by balancing the benefits of mandamus review against the detriments. See In re Team Rocket, L.P., 256 S.W.3d 257, 262 (Tex.2008) (orig.proceeding). Because this balance depends heavily on circumstances, it must be guided by analysis of principles rather than simple rules that treat cases as categories. See In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, 464 (Tex.2008) (orig.proceeding). When evaluating the benefits and detriments, we consider whether mandamus will preserve important substantive and procedural rights from impairment or loss. See In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 136 (Tex.2004) (orig.proceeding). We also consider whether mandamus will “allow the appellate courts to give needed and helpful direction to the law that would otherwise prove elusive in appeals from final judgments.” Id. Finally, we consider whether mandamus will spare the litigants and the public “the time and money utterly wasted enduring eventual reversal of improperly conducted proceedings.” Id.

ANALYSIS

We afford the trial court broad discretion in the granting of protective orders. See Masinga v. Whittington, 792 S.W.2d 940, 940 (Tex.1990) (orig.proceeding). To justify a protective order, the party resisting discovery must present facts showing a particular, specific, and demonstrable injury. See Garcia v. Peeples, 734 S.W.2d 343, 345 (Tex.1987) (orig.proceeding). The party resisting discovery cannot simply make conclusory allegations that the requested discovery is unduly burdensome or duplicative. See Brewer & Pritchard, P.C. v. Johnson, 167 S.W.3d 460, 466 (Tex.App.-Houston [14th Dist.] 2005, pet. denied). Some evidence must be produced in support of the request for a protective order. Id. If this evidentiary burden is not satisfied and the requested discovery falls within the scope of discovery permitted by the rules of civil procedure, then the trial court abuses its discretion by entering the protective order. Id.

Eurecat argues that the trial court abused its discretion because the real parties produced no evidence that the requested discovery would destroy Chem32's business. Yet even if the evidence regarding Eurecat's contacts with Haldor Topsoe were insufficient to support the protective order (an issue we do not decide), Eurecat must still establish that it has no adequate remedy by appeal in order to be entitled to mandamus relief. We conclude that Eurecat has not done so.

“Appeal from a trial court's discovery order is not adequate if: (1) the appellate court would not be able to cure the trial court's error on appeal; (2) the party's ability to present a viable claim or defense is vitiated or severely compromised; or (3) missing discovery cannot be made a part of the appellate record.” In re Ford Motor Co., 988 S.W.2d 714, 721 (Tex.1998) (orig.proceeding). Eurecat does not rely on the first category, which includes errors such as an order to produce privileged documents. Regarding the second category, Eurecat's petition offers several reasons why it contends this third-party discovery is relevant and necessary to present viable claims and defenses. Eurecat did not present most of those reasons to the trial court, however, so we do not consider them in reviewing its order.2 Eurecat did argue in the trial court that it was entitled to discover whether Chem32 had solicited other Eurecat customers, but Eurecat has not clearly established that the trial court's interlocutory protective order prevents it from pursuing other avenues of discovery in support of its claim for damages resulting from any breach of fiduciary duty. See id.

Our dissenting colleague focuses on Eurecat's alleged need for Chem32's customer information. This focus is misplaced because the protective order under review does not disturb the trial court's prior order for Chem32 to identify which of Eurecat's existing clients it had done business with—an order that is not challenged here. The question of what other discovery might be proper once Chem32 identifies those clients was not before the trial court and thus is not before this court.

As to the third category, Eurecat asserts that “[u]nless mandamus relief is granted, all of the discovery that [Eurecat] has been preemptively and wholly excluded from taking will not be part of the trial court's record, and a reviewing court will not be able to determine the effect of its absence.” This brief and summary assertion does not establish that appeal is an inadequate remedy. In evaluating an argument regarding the third category, “the court must carefully consider all relevant circumstances, such as the claims and defenses asserted, the type of discovery sought, what it is intended to prove, and the presence or lack of other discovery, to determine whether mandamus is appropriate.” Walker, 827 S.W .2d at 844. Here, it is unclear from the record before the trial court precisely what Eurecat's discovery from eighty-nine other businesses is intended to prove, and Eurecat has not clearly established that other discovery is unavailable to support its claims and defenses. Accordingly, we conclude that Eurecat has failed to establish its entitlement to mandamus relief.

CONCLUSION

We deny Eurecat's petition for writ of mandamus and all other requests for relief currently pending before this court.

DISSENTING OPINION

“Eurecat U.S., Inc. may not serve discovery on any customers or potential customers of catalyst activation services identified in the letter from Mr. Touchstone to Mr. Escobar dated September 18, 2013.” This order is a discovery injunction. I would grant this Petition for Writ of Mandamus. Because the majority does not, I respectfully dissent.

A. Introduction

Though not clear from the face of the trial court's order, review of the September 18, 2013 letter referenced shows that the order prevents Eurecat from sending any discovery to its own customers. From the moment it filed the instant lawsuit, Eurecat attempted to obtain discovery in support of its claims; Real Parties resisted the discovery, alleging that the lawsuit was solely for the purposes of harassment and was without evidentiary support. Real Parties maintained this position even after Eurecat obtained evidence that Real Parties solicited and secured business from Eurecat's largest client—and did so prior to their departure from Eurecat. Real Parties assured that the client was the only one—“we promise.” Eurecat was not required to trust Real Parties. Eurecat was not required to prove its case to obtain discovery. Eurecat's breach of fiduciary duty claim was effectively adjudicated by this discovery injunction. Though the trial court has great discretion over matters of discovery, this order constitutes a clear abuse of discretion. Further, there is no adequate remedy by appeal. Mandamus should lie.

B. Eurecat's effort to obtain discovery

C. Eurecat's mandamus burden

I agree with the majority's recitation of mandamus and protective order standards. Specifically, Petitioner may satisfy its burden to establish no adequate remedy at law by showing that its “ability to present a viable claim or defense is vitiated or severely compromised by the order.” In re Ford Motor Co., 988 S.W.2d 714, 721 (Tex.1998) (orig.proceeding). I also reiterate that, on the merits of the protective order, Real Parties needed to produce some evidence in support of the request for protective order. See Brewer & Pritchard, P.C. v. Johnson, 167 S.W.3d 460, 466 (Tex. App .-Houston [14th Dist.] 2005, pet. denied). Some evidence must be produced in support of the request for a protective order. Id.

Beyond the majority's recitation, however, I note that it is axiomatic that the scope of discovery is measured by the live pleadings regarding the pending claims. Stated differently, a party's right to discovery is not conditioned upon proof of the merits of the claims. See In re Citizens Supporting Metro Solutions, Inc., No. 14–07–00190–CV, 2007 WL 4277850, at *3 (Tex.App.-Houston [14th Dist.] Oct. 18, 2007, orig. proceeding) (mem.op.); see also In re Jacobs, 300 S.W.3d 35, 40 (Tex.App.-Houston [14th Dist.] 2009, orig. proceeding) (citing Lunsford v. Morris, 746 S.W.2d 471, 473 (Tex.1988), overruled on other grounds by Walker v. Packer, 827 S.W.2d 833, 842 (Tex.1992)).

As Eurecat alleges, in part, that the discovery forbidden goes to the heart of the breach of fiduciary case and prevents it from developing its claim, it is also important to consider what Eurecat must prove to prevail on that claim. We have said,

[I]n general, an at-will employee—even a fiduciary one—may plan to compete with his employer and take certain steps toward that goal without disclosing his plans to the employer, but he may not ‘appropriate his employer's trade secrets,’ ‘solicit his employer's customers while still working for his employer,’ ‘carry away certain information, such as lists of customers,’ or ‘act for his future interests at the expense of his employer by using the employer's funds or employees for personal gain or by a course of conduct designed to hurt the employer.’

Pas, Inc. v. Engel, 350 S.W.3d 602, 614 (Tex.App.-Houston [14th Dist.] 2011, no pet.) (citing Johnson v. Brewer & Pritchard, 73 S.W.3d 193, 202 (Tex.2002)). Under this standard, evidence of the content of communications between Real Parties, while still Eurecat employees, and Eurecat customers is reasonably calculated to lead to the discovery of evidence admissible in a breach of fiduciary duty. Therefore, it is discoverable.

D. Eurecat's Pleadings

As outlined above, the live pleadings control the scope of discovery. Eurecat's (sworn) Original Petition and Application for Temporary Restraining Order and Temporary and Permanent Injunctions alleges, in part:

• Although Marklund and Wene jointly decided in or before February of 2011 that they would quit their employment and enter into competition against Eurecat, they remained employees until July and September, respectively.

• During that time, while still employed by and receiving compensation from Eurecat, they secretly formed Chem32, LLC; secretly scouted for and secured a lease on a Beaumont area facility; secretly scouted for and arranged for equipment and supplies; secretly submitted applications for permits and other governmental licenses necessary to operate a catalyst activation facility; and secretly communicated with existing and prospective customers about their proposed new business.

• Damages for all causes of action as “all damages legally available”; exemplary damages; and “an order of disgorgement.”

E. “Mandamus Record ”

The majority opinion finds that Eurecat has failed to establish that appeal is an inadequate remedy based upon its review of the record before the trial court. However, the record before the trial court cannot be merely the Emergency Hearing of September 20, 2013, and exhibits thereto. There was no pending request for relief at that hearing. There was no pending discovery request at that hearing. If that is the full record, we should grant relief without delay as the trial court sua sponte refused to permit a party to propound discovery without explanation. See Firestone v. Claycombe & King, 875 S.W.2d 727, 729 (Tex.App.-Dallas 1994, writ denied) (holding that an order arbitrarily and sua sponte freezing discovery is an abuse of discretion); see also Helfand v. Coane, 12 S.W.3d 152, 157 (Tex.App.-Houston [1st Dist.] 2000, pet. denied).

Instead, the trial court's “record,” as supplied by to us by the parties, must include the prior hearings and evidence. Those earlier proceedings and the evidence presented in connection with those hearings make utterly clear that the parties began fighting over whether Eurecat was entitled to Chem32's customer list no later than February 2013.

As outlined in the timeline above, however, the only motion of Real Parties in this record is Real Parties' motion for protection, which:

• Requests “an order that prohibits Plaintiff from seeking discovery related to [Real Parties'] performance on any quality assessment of catalyst activated by Chem32 on grounds that the information is a trade secret and not within the proper scope of discovery”;

• Requests that the trial court “prohibit discovery of Chem32's customers, other than Haldor Topsoe, Inc. on grounds that such information is trade secret and not within the proper scope of discovery; and

• Alleges that Real Parties have “kept the identity of its clients confidential and believes that Eurecat could engage in disparaging communications if it learns the identity of Chem32's clients.”

The trial court also had Eurecat's motion to compel and for sanctions, which outlines its need for Chem32's customer information. Real Parties never allege that such discovery is not reasonably calculated to lead to the discovery of admissible evidence. Instead, Real Parties' response is replete with references to “Eurecat has no evidence.” And, most telling, Real Parties state that if Eurecat's claim is based upon customer contacts that occurred before Real Parties terminated their employment with Eurecat, “Eurecat has the information. [Real Parties] provided it on July 6, 2012, and it shows contact with only one potential customer—Haldor Topsoe.” Again, only one customer—“we promise.”

F. Eurecat's Evidence

Though not required to prove a prima facie case to be entitled to discovery, Eurecat did support its Original Petition with affidavit testimony describing generally the proprietary information believed stolen by Real Parties from Eurecat as well as the effort required to develop the information.

During the temporary injunction hearing, the trial court also heard (self-serving) testimony from Real Party Marklund that he did not inform any Eurecat customers other than its largest, Haldor Topsoe, that he intended to leave to form a competing business. Marklund also acknowledged, however, that he and co-defendant Mr. Wene got together while they were still officers of Eurecat and formed a “hit list” of Eurecat customers that they were going “to try to take business from.”

G. Analysis

Eurecat has established that its ability to present, inter alia, its breach of fiduciary claim is vitiated or severely compromised by the order at issue. In re Ford Motor Co., 988 S.W.2d 714, 721 (Tex.1998) (orig.proceeding). The majority concludes that Eurecat is not entitled to mandamus relief because it has not clearly established that the trial court's interlocutory protective order prevents it from pursuing other avenues of discovery in support of its claim for damages resulting from any breach of fiduciary duty. I disagree.

Eurecat's damage model, as established by its pleadings, is money lost (damages) by Eurecat from a loss of customers or business or money achieved (disgorgement) by Chem32 through its breach. Either way, discovery on Chem32 customers is essential. If the customers are common to Eurecat and Chem32, they are the persons with knowledge of whether Real Parties were contacting them prior to their departure from Eurecat; and, if they are not common customers (i.e., Chem32 only), they are the persons with knowledge of whether Real Parties used proprietary Eurecat data to solicit their business.

The relevant timeline outlined above shows that Eurecat began with the routine avenue of discovery. Eurecat requested Chem32 customer lists from Real Parties. Real Parties refused and averred that their customer lists were trade secrets. The trial court did not compel the discovery, though Eurecat moved to compel. So, Eurecat took the only other approach available; Eurecat advised Chem32 that it was going to subpoena its own customers2 —such discovery would at least uncover the common customers. By the subject order, the trial court has prophylactically prohibited that avenue of discovery as well. The only “other avenue” for discovering admissible evidence about what, if any, damages Real Parties caused in an alleged breach of their fiduciary duty is Real Parties, themselves. If Real Parties are the avenue, Eurecat is required to accept Real Parties self-serving assurances that they did not contact other Eurecat customers or that they did not use Eurecat proprietary data. Zero damages—“we promise.”

Moreover, the discovery injunction order is a clear abuse of discretion. First, the breadth of the order is well beyond anything Real Parties ever pled for or proved. The order does more than forbid Eurecat from serving discovery on any customers or potential customers of Chem32's catalyst activation services identified in the letter from Mr. Touchstone to Mr. Escobar dated September 18, 2013. It forbids Eurecat from serving discovery on any customers or potential customers of catalyst activation services identified in the letter from Mr. Touchstone to Mr. Escobar dated September 18, 2013—which necessarily includes Eurecat's customers as well.

Second, the discovery injunction order does not represent any effort to balance the interests of the parties. If, as Real Parties argued at the emergency hearing without evidence or pleading, the request to depose the witnesses was a deliberate attempt to interfere with the turnaround season,3 the trial court might have delayed the discovery. If, as Real Parties argued at the emergency hearing without evidence or pleading, one or more of those witnesses might feel harassed as Haldor Topsoe did, the trial court might have controlled the type or the extent of the questions to be asked.

Instead, the trial court appears to have accepted Real Parties' representation that “to this day, there is no evidence that we are doing business with their confidential information” and “after expert disclosures, after Rule 194 disclosures, they haven't even identified economic damages.” As such, the emergency hearing on proposed subpoenas was tantamount to a summary judgment hearing without Eurecat having the benefit of notice, a motion, the opportunity to respond, or application of the appropriate standards of proof.

For the foregoing reasons, I disagree with the majority and would conditionally grant the mandamus relief requested.

FOOTNOTES

1.  At the earlier hearing, the trial court put forth several hypothetical scenarios.

2.  We do not read the trial court's protective order as precluding all third-party discovery, nor as rejecting the new reasons for third-party discovery that Eurecat presents for the first time in its mandamus petition.

1.  FN1. The majority urges that the real parties “requested an emergency order.” The “request” was merely a letter; it complained of Eurecat's letter and, based upon the prior proceedings, requested an order forbidding the discovery. The record contains neither a motion seeking relief from the September 18, 2013 letter nor evidence supporting such a request.

2.  We know that the list attached to the September 18 letter is Eurecat's customers not only because the letter says so, but also because Chem32 refused to provide its customer list.

3.  Real parties described this as one of two times a year when the market is particularly active for catalyst activation services where, “in the next several months, these customers will be seeking bids for activation services.”

BRETT BUSBY, Justice.

McCALLY, J., dissenting.BUSBY, J., majority.

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