D.R. Horton, Inc. v. Ferrari (Ex parte Ferrari)

• Decision Date: 06 February 2015
• Docket Number: 1130679,1130726.
• Citation: 171 So.3d 631
• Court: Alabama Supreme Court
• Parties: Ex parte Peter FERRARI et al. (In re D.R. Horton, Inc.—Birmingham v. Peter Ferrari et al.). Peter Ferrari et al. v. D.R. Horton, Inc.—Birmingham.

171 So.3d 631

Ex parte Peter FERRARI et al.

(In re D.R. Horton, Inc.—Birmingham

v.Peter Ferrari et al.).

Peter Ferrari et al.

v.D.R. Horton, Inc.—Birmingham.

1130679

1130726.

Supreme Court of Alabama.

Feb. 6, 2015.

Richard Mark Gaal and Frederick G. Helmsing, Jr., of McDowell Knight Roedder & Sledge, LLC, Mobile, for petitioners/appellants Peter Ferrari et al.

Lisa Karen Atkins and Michael M. Shetterly of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Birmingham, for respondent/appellee D.R. Horton, Inc.—Birmingham.

Opinion

MURDOCK, Justice.

D.R. Horton, Inc.—Birmingham (“DR Horton”), filed a verified petition in the Baldwin Circuit Court, pursuant to Rule 27(a), Ala. R. Civ. P., requesting preaction discovery from Peter Ferrari; Peter's wife, Kimberly Ferrari; Ferrari Capital Partners, LLC; FH Properties, LLC; P6 Holdings, LLC; and Prince 5 Holdings, LLC (collectively “the Ferrari defendants”). The trial court granted the petition. The Ferrari defendants have petitioned this Court for a writ of mandamus ordering the trial court to vacate its order and to dismiss DR Horton's Rule 27(a), Ala. R. Civ. P., petition. Simultaneously, the Ferrari defendants also have appealed the trial court's order on DR Horton's petition. We grant the petition and issue the writ, and we dismiss the appeal.

I. Facts and Procedural History

Peter Ferrari was employed by DR Horton as a land-acquisition manager for its Gulf Coast division. His responsibilities included researching and acquiring properties for DR Horton to develop. DR Horton asserts that it gave Ferrari confidential information concerning its business and land-acquisition strategies, including its geographical markets for expansion, and that it empowered Ferrari to arrange land purchases for DR Horton.

DR Horton asserts that it received information that Ferrari had supplied third parties with confidential information from DR Horton without DR Horton's permission, including DR Horton's planned land acquisitions, future real-estate developments, markets for expansion, and plans for construction. DR Horton also asserts that it received information that Ferrari had benefited from DR Horton land acquisitions apart from his employment compensation.

Based on the information it had received, on July 9, 2013, DR Horton called Ferrari into a meeting with three DR Horton representatives, including its president for Gulf Coast operations, Scott Whitehurst. According to Whitehurst, Ferrari denied making any money “on the side” in DR Horton related transactions, he denied that his wife Kimberly had received any money from third parties, and he denied that the limited-liability companies he and his wife had formed had received any money from DR Horton related transactions or from third parties. DR Horton requested the tax returns of the Ferrari defendants in order to verify his assertions, but Ferrari refused to provide such information. According to Whitehurst, Ferrari admitted that he had given Brad Zeitlin priority on property deals with DR Horton, but Ferrari was not truthful about the scope and number of DR Horton transactions in which Zeitlin had been involved. Ferrari also claimed that he and his wife had formed their limited-liability companies years before the transactions in question; in fact, however, the formation of those entities coincided with the business dealings DR Horton was scrutinizing.

After Ferrari's meeting with the DR Horton representatives, DR Horton placed Ferrari on administrative leave without pay. DR Horton subsequently contacted third parties that it believed had information concerning Ferrari's conduct. Brad Zeitlin agreed to meet with DR Horton representatives to discuss real-property transactions involving DR Horton and Ferrari. Zeitlin was interviewed for over seven hours by a DR Horton attorney who questioned him about transactions in which he had participated with DR Horton and Ferrari. The DR Horton attorney told Zeitlin that it had reviewed approximately 90,000 e-mails to or from Ferrari as part of its investigation. According to Whitehurst, who was also present during the interview, Zeitlin admitted that he had benefited financially from “tying up” property DR Horton wanted to purchase and then selling it to DR Horton. Whitehurst asserted that Zeitlin admitted that Ferrari had given him priority over other developers, including DR Horton, which allowed Zeitlin to purchase properties that DR Horton wanted.

DR Horton terminated Ferrari's employment effective July 31, 2013, allegedly because Ferrari had repeatedly violated several policies of DR Horton as to confidentiality and the purchase of properties.

On September 9, 2013, DR Horton filed a petition pursuant to Rule 27(a), Ala. R. Civ. P., in the Baldwin Circuit Court for preaction discovery against the Ferrari defendants.¹ In the petition, DR Horton alleged that Peter Ferrari had supplied confidential information to third parties and that those third parties had benefited financially from DR Horton's subsequent real-property acquisitions as a result of the confidential business information revealed to them by Ferrari. The petition also alleged that Peter and Kimberly Ferrari “may have received compensation” from the third parties “in exchange for the confidential information Pete Ferrari provided them” and that “the Ferraris may be holding this compensation in their personal bank accounts, in [limited-liability companies] managed or controlled by Pete Ferrari and Kimberly Ferrari, or other unknown entities.” The petition stated that DR Horton sought preaction discovery as to this “possible compensation to further determine if causes of action exist against [the Ferrari defendants].” The petition stated that DR Horton “believes that multiple causes of action exist against [the Ferrari defendants]” and that

“[t]he allowance of pre-suit discovery from the [Ferrari defendants] may prevent a failure or delay of justice and would benefit all parties by allowing production of relevant and material information, records, and documents, disclosing the identity(ies) of other parties to a potential lawsuit, or preventing a frivolous lawsuit if no claim exists against [the Ferrari defendants].”

Attached to the petition were interrogatories, requests for production of documents, and notices for video depositions of the Ferrari defendants. The document requests sought financial records, including personal bank-account statements, tax returns, and limited-liability-company records.

On October 11, 2013, the Ferrari defendants filed their “Objection to Plaintiff's Verified Petition for Pre-suit Discovery and Motion to Dismiss.” In their filing, the Ferrari defendants contended that DR Horton's petition was procedurally and substantively deficient under Rule 27(a).

On October 24, 2013, DR Horton filed a motion requesting that the court set a hearing on its petition for preaction discovery. On October 30, 2013, without holding a hearing, the trial court entered an order granting DR Horton's petition for preaction discovery in all respects. On November 13, 2013, the trial court entered an order expressly denying DR Horton's motion for a hearing on its Rule 27(a) petition.

On November 14, 2013, the Ferrari defendants filed what they styled as a “Motion for Reconsideration, Motion for Stay, for Protective Order, and Supporting Brief.” The Ferrari defendants argued that the trial court erred in failing to hold a hearing on DR Horton's Rule 27(a) petition, and they reiterated the defects they believed were present in DR Horton's petition. On November 22, 2013, DR Horton filed a response in which it contended that Rule 27 does not require a hearing on the merits of a petition.

On March 25, 2014, the trial court held a hearing on the Ferrari defendants' motions filed November 14, 2013. In the hearing, the parties argued about whether DR Horton's Rule 27(a) petition demonstrated what was required in order to grant preaction discovery and whether a hearing on DR Horton's petition was required under the rule. DR Horton's counsel admitted in the hearing that DR Horton “could theoretically sue [Ferrari] for breach of fiduciary duty now. But, if he was making a profit and essentially taking bribes and kickbacks from this friend, then the causes of action increase exponentially.” He further explained that “[w]hat we want to do is just determine, did he make any money off these transactions or not. That's in his financial records that we can talk to him about so we can sort out what those financial records say.” He added: “What we're trying to do is, under Rule 11 [, Ala. R. Civ. P.], just assess who are our defendants and what are our claims, and then we'll bring the action. ”

Following further arguments by the parties concerning the propriety of DR Horton's petition, the Ferrari defendants' counsel interjected that “there is a timing issue that I would like to address.” Counsel for the Ferrari defendants proceeded to explain that they had filed their “motion for reconsideration on November 14, 2013, and that “the 90th day after we filed our motion would have been February the 12th....” Thus, the Ferrari defendants' counsel believed the motion had been denied by operation of law under Rule 59.1, Ala. R. Civ. P. After hearing more arguments concerning whether the trial court should have held a hearing on DR Horton's petition, the trial court stated: “Since the Court has failed to rule on the respondents' Motion to Reconsider Order and Motion for Protective Order, it's deemed [denied] by rule of law due to the Court's failure to rule within 90 days. So tomorrow is your last day to appeal.”

On the same day, March 25, 2014, the trial court entered an order granting the Ferrari defendants' request for a stay

“of all matters currently pending before this court ... and all discovery in this case ... pending conclusion of the appeal that this court understands will be filed on or before tomorrow March 26, 2014, related to this Court's order granting the

...