Axelson, Inc. v. McIlhany
| Decision Date | 24 October 1990 |
| Docket Number | No. C-7774,C-7774 |
| Citation | 798 S.W.2d 550 |
| Parties | AXELSON, INC., et al., Relators, v. The Honorable Grainger W. McILHANY, Judge, Respondent. |
| Court | Texas Supreme Court |
In this mandamus proceeding, we are asked to direct Judge McIlhany to vacate orders denying pretrial discovery. The court of appeals conditionally granted the petition for writ of mandamus on certain points but denied the petition on other points. 755 S.W.2d 170. Among other things, we are requested to grant relief regarding discovery of a kickback investigation and "dual capacity" witnesses. We conditionally grant the writ.
The underlying suit from which this action arises involves what is believed to be the largest gas well blowout in United States history. Key Well 1-11, located in Wheeler County, blew out in October 1981 and was not brought under control for over a year. Apache Corporation operates the well and, together with El Paso Exploration Company (a/k/a Meridian Oil Production, Inc.), owns the working interest. Numerous lawsuits involving over 100 parties have been filed against Apache and El Paso, alleging that their wrongful acts caused the blowout. All suits against Apache and El Paso have been consolidated.
Plaintiffs include Arkla Exploration, Stephens Production Company and Hobart Key, all of whom own mineral interests in the same field. Tom L. Scott, Inc. and other mineral interest holders ("Scott group") 1 intervened as plaintiffs, alleging a cause of action against Apache and El Paso only. Apache and El Paso responded by adding numerous third-party defendants. Sooner Pipe & Supply Corporation, Hydril Corporation and Babcock & Wilcox Company ("Sooner") were added because they supplied well equipment that allegedly caused the blowout. Axelson, Inc. and its parent corporation, U.S. Industries, Inc. (USI), were added because Axelson manufactured a relief valve that allegedly should have prevented the blowout. Axelson and USI are the relators herein and ask that we set aside the trial court's order denying 2:
(1) discovery of documents reflecting Apache's internal investigation of kickback schemes at the well site;
(2) depositions from dual capacity witnesses (those witnesses who were active participants in the Key Well 1-11 operations or support and were later designated consulting-only experts);
(3) depositions of six experts originally designated as testifying experts by parties who have settled with Apache and El Paso and who were later redesignated as consulting-only experts; 3 and
(4) depositions of persons who performed gas analyses at Apache's request.
We will now separately address each of the discovery requests made by Axelson and USI.
For purposes unrelated to this lawsuit, Apache conducted an internal investigation concerning bribes and kickbacks from suppliers and contractors on a number of wells in western Oklahoma and Texas Panhandle fields. Illegal drug use and prostitution on the job site were also investigated. According to testimony by Apache's general counsel, wells in Oklahoma were the primary focus of the investigation, but Key Well 1-11 and the subsequent Key wells were included. Axelson and USI have tried unsuccessfully to obtain discovery of this investigation. 4 Apache and El Paso resist discovery on the grounds of relevance, attorney-client privilege, attorney work product exemption, and the party communications exemption. The trial court did not conduct an in camera inspection of the investigation results. Instead, the court heard testimony from Apache's general counsel regarding Apache's grounds for resisting discovery of any part of the investigation results. Ultimately, the trial court denied discovery on the basis of relevance, and the court of appeals upheld the denial on this ground. 755 S.W.2d at 178.
Generally, discovery is permitted into any matter, not privileged, that is relevant to the subject matter and is "reasonably calculated to lead to the discovery of admissible evidence." 5 TEX.R.CIV.P. 166b(2)(a); see also Lindsey v. O'Neill, 689 S.W.2d 400, 402 (Tex.1985, orig. proceeding) (per curiam); Jampole v. Touchy, 673 S.W.2d 569, 573 (Tex.1984, orig. proceeding). This broad grant, however, is limited by the legitimate interests of the opposing party to avoid overly broad requests, harassment, or disclosure of privileged information. Jampole, 673 S.W.2d at 573. Thus the trial court has discretion to narrow the scope of discovery on a case by case basis with a protective order. TEX.R.CIV.P. 166b(5).
The "relevant to the subject matter" and "reasonably calculated to lead to admissible evidence" tests are liberally construed to allow the litigants to obtain the fullest knowledge of the facts and issues prior to trial. Gutierrez v. Dallas Indep. School Dist., 729 S.W.2d 691, 693 (Tex.1987). It does not matter that the information sought may be inadmissible at trial if it appears reasonably calculated to lead to the discovery of admissible evidence. TEX.R.CIV.P. 166b(2)(a). Among other reasons, Apache conducted the investigation to determine whether the kickbacks and bribes affected the quality of equipment used. This information might reasonably lead to evidence that Apache's conduct, or that of its suppliers, was a contributing cause of the blowout. Apache also investigated whether this conduct had an inflationary effect on the drilling costs. Since Apache is seeking drilling costs in its suit against Axelson, to be able to defend against these costs, Axelson must be permitted to determine whether they were reasonable. Therefore, portions of the kickback investigation may well be relevant to Axelson's case. Furthermore, Apache's attorney testified that the scope of the investigation included Key Well 1-11, the subsequent Key wells and all suppliers to Apache wells during the time covered by the investigation. The trial court abused its discretion in denying discovery of the investigation results sight unseen. The trial court should have conducted an in camera inspection to determine if any of the kickback investigation was relevant to the subject matter of the litigation and, if it was, whether any part of the investigation is reasonably calculated to lead to the discovery of admissible evidence. 6
Apache also resists discovery based on the attorney-client privilege under Texas Rule of Civil Evidence 503(b) 7 and the work product privilege under Texas Rule of Civil Procedure 166b(3). Since there was evidence that the investigation was disclosed to the FBI, IRS, and the Wall Street Journal, the court of appeals properly held that these privileges had been waived. TEX.R.CIV.EVID. 511. Nor does the party communications privilege apply, because the record shows that these documents were not prepared in anticipation of the litigation in which discovery of the communication was sought.
"DUAL CAPACITY" WITNESSES
Several potential witnesses in this case maintain a dual capacity--possessing firsthand knowledge of relevant facts and serving as consulting-only experts for Apache and El Paso. One of these persons, Paul Douglas Storts, is the petroleum engineer who has been in charge of the well from its inception. He also spearheaded the effort to bring the well under control after the blowout. The others include Richard Biel, Joe Fowler and Tom Hill, who were hired by Apache and El Paso to examine the wellhead equipment and have specific knowledge concerning the chain of custody of the wellhead equipment.
Axelson and USI seek to discover all facts known by Storts and his mental impressions and opinions gained while working on the well and consulting. They seek to discover only chain of custody facts from Biel, Fowler and Hill.
The trial court entered several orders from December 1984 through July 1987 limiting discovery. With regard to Storts, the trial court initially quashed his deposition, but later determined that information gained by him while working on the well was discoverable, but that information he gained while doing a combination of working on the well and consulting was not discoverable. With regard to Biel, Fowler, and Hill, the trial court allowed discovery of facts relating only to the Axelson valve. The court of appeals held that the trial court had not abused its discretion and disallowed all other discovery from these experts. 755 S.W.2d at 176-77. We disagree.
The factual knowledge and opinions acquired by an individual who is an expert and an active participant in the events material to the lawsuit are discoverable. This information is not shielded from discovery by merely changing the designation of a person with knowledge of relevant facts to a "consulting-only expert."
The scope of discovery regarding experts who serve in the dual capacity of fact witness and consulting-only expert has not been addressed thoroughly by Texas courts. Barrow and Henderson, 1984 Amendments to the Texas Rules of Civil Procedure Affecting Discovery, 15 ST. MARY'S L.J. 713, 729 (1984). The literal text of the exemption, however, resolves the issue presented in this mandamus. The consulting expert exemption protects the identity, mental impressions and opinions of consulting-only experts; but not the facts. 8 The rule we announce today, however, "should not extend to consulting [only] experts ... whose only source of factual information was the consultation." Id. In other words, persons who gain factual information by virtue of their involvement relating to the incident or transaction giving rise to the litigation do not qualify as consulting-only experts because the consultation is not their only source of information. We now separately address Axelson's discovery requests regarding...
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