In re M-I L.L.C.

• Decision Date: 20 May 2016
• Docket Number: NO. 14–1045,14–1045
• Parties: IN RE M–I L.L.C. d/b/a M–I Swaco, Relator
• Court: Texas Supreme Court

505 S.W.3d 569

IN RE M–I L.L.C. d/b/a M–I Swaco, Relator

NO. 14–1045

Supreme Court of Texas.

Argued January 13, 2016

Opinion Delivered: May 20, 2016

Amy Warr, Anna Meredith Baker, Douglas W. Alexander, Wallace B. Jefferson, Alexander Dubose Jefferson & Townsend LLP, Austin, TX, Cody T. Vasut, Edward L. Friedman, Baker & Hostetler LLP, S. Shawn Stephens, King & Spalding LLP, Houston, TX, for Relator.

Elizabeth Pannill Fletcher, John Zavitsanos, Neal A. Sarkar, Ahmad Zavitsanos Anaipakos Alavi & Mensing, P.C., Thomas C. Wright, Bradley Wayne Snead, Wright & Close LLP, Houston TX, for Real Parties in Interest.

JUSTICE DEVINE delivered the opinion of the Court.

In this original mandamus proceeding, we must decide whether the trial court abused its discretion by summarily refusing the plaintiff's request to conduct portions of a temporary injunction hearing involving alleged trade secrets outside the presence of the defendant's designated representative. We must also decide whether the trial court abused its discretion by ordering the production of an affidavit purportedly involving these alleged trade secrets without conducting an in camera review of the affidavit. We hold that the trial court abused its discretion in both instances. Because no adequate appellate remedy exists, we conditionally grant mandamus relief against the trial court.

I. Background

M–I L.L.C. d/b/a M–I Swaco (M–I) and National Oilwell Varco, L.P. (NOV) are competitors providing solid-control equipment and services to the oil-and-gas industry. One aspect of both companies' solid-control business involves mesh screens that filter solid matter, such as drilling cuttings, from drilling fluid. These screens allow expensive drilling fluids to be reused, and thus lower the overall cost of drilling. Both companies have invested heavily in researching, developing, and promoting their respective screens.

In May 2012, Jeff Russo was promoted to business development manager of M–I's screen division, a sales position in its Denver, Colorado, office. In this position, Russo is alleged to have developed in-depth knowledge of M–I's solid-control business, including M–I's bidding strategies, pricing information, customer preferences, solid-control systems, and deployment strategies.

In February 2014, Russo left M–I and accepted a position in NOV's Conroe, Texas, office as the global product line manager of NOV's screen division. The following month M–I sent Russo a letter stating its belief that he remained in possession of "trade secrets and confidential information" belonging to M–I, which it was "inevitable" he would disclose to NOV. M–I also stated that Russo was in breach of a non-compete agreement he executed when he joined M–I and demanded that he "remove [him]self from any position of employment or job duties in the same or similar product line, segment, or division at NOV that [he] worked in at M–I." If Russo failed to comply with M–I's demand, M–I stated it would file suit against him and seek a restraining order to protects its interests.

In response to M–I's letter, Russo filed suit, requesting that his non-compete agreement with M–I be declared unenforceable. M–I counterclaimed against Russo for breach of the non-compete agreement, breach of fiduciary duty, misappropriation of trade secrets, and tortious interference. M–I also asserted third-party claims against NOV for misappropriation of trade secrets and tortious interference. M–I sought both declaratory and injunctive relief.

At an August 8, 2014, hearing on M–I's application for a temporary injunction, M–I sought to establish its trade secrets through the oral testimony of LaTosha Moore, the global business line manager of its screens division. M–I requested that everyone, except the parties' counsel, their experts, and Russo be excluded from the courtroom. The trial court denied M–I's request, finding that the exclusion of NOV's designated representative, Federico Mezzatesta, would be a "total violation of due process." The trial court did, however, state that it would order Mezzatesta not to disclose or use any trade secrets he heard.

Concerned about disclosing Moore's testimony to Mezzatesta, M–I asked that the hearing be recessed so it could petition the court of appeals for a writ of mandamus. The trial court agreed to the requested recess and asked M–I to make an offer of proof, with Mezzatesta absent, to create a record for the court of appeals. After NOV suggested that the offer of proof could be accomplished by affidavit, however, the trial court instructed M–I to "submit whatever you have."

With the temporary injunction hearing recessed, M–I filed a petition for writ of mandamus in the court of appeals. As an offer of proof, M–I submitted in camera to the court of appeals (not the trial court) an affidavit from Moore detailing the testimony she was prepared to offer at the temporary injunction hearing. Russo and NOV objected to the affidavit as an ex parte communication and moved for access to it in the court of appeals. On November 4, 2014, the court of appeals denied their motion for access, along with M–I's mandamus petition. See In re M–I, L.L.C., No. 14–14–00705–CV, 2014 WL 5591575 (Tex.App.—Houston [14th Dist.] Nov. 4, 2014) (mem.op.) (orig.proceeding).

That same day, Russo and NOV moved the trial court to compel M–I to produce the Moore affidavit they submitted in camera to the court of appeals, arguing it was a discoverable witness statement under Texas Rule of Civil Procedure 194.2. On November 11, 2014, the trial court heard Russo and NOV's motion and ordered the affidavit disclosed without reviewing it. M–I then petitioned this Court for mandamus relief challenging (1) the trial court's refusal to exclude Mezzatesta from the temporary injunction hearing, and (2) the trial court's order to disclose the Moore affidavit. Shortly thereafter, M–I moved this Court to seal the Moore affidavit, which this Court granted over NOV's opposition. NOV subsequently filed a motion to strike portions of the mandamus record, including the Moore affidavit, and an emergency motion for access to the affidavit. On December 18, 2015, this Court denied NOV's emergency motion for access without resolving NOV's motion to strike.

II. Scope of Review

Mandamus relief is available when two conditions are met. First, the trial court abuses its discretion. See Walker v. Packer, 827 S.W.2d 833, 839–40 (Tex.1992) (orig. proceeding). Second, no adequate appellate remedy exists. Id. In this case, we have no dispute that the second condition is satisfied because no adequate appellate remedy exists for an erroneous order to disclose a trade secret. See In re Colonial Pipeline, Co., 968 S.W.2d 938, 941 (Tex.1998) (orig. proceeding). Accordingly, our review is limited to considering whether the trial court abused its discretion.

To constitute an abuse of discretion, the trial court's decision must be "so arbitrary and unreasonable as to amount to a clear and prejudicial error of law." Walker, 827 S.W.2d at 839 (quoting Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex.1985) (orig.proceeding)). Thus, in an abuse-of-discretion challenge, "the reviewing court may not substitute its judgment for that of the trial court," id. at 839, but instead must only consider whether the trial court "acted without reference to any guiding rules and principles," Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex.1985). A trial court "has no ‘discretion’ in determining what the law is or applying the law to the facts," even when the law is unsettled. Walker, 827 S.W.2d at 840. "A clear failure by the trial court to analyze or apply the law correctly," therefore, constitutes an abuse of discretion. Id.

In determining whether a trial court abused its discretion, a reviewing court is generally bound by the record before the trial court at the time its decision was made. See Univ. of Tex. v. Morris, 162 Tex. 60, 344 S.W.2d 426, 429 (1961). Because portions of the record were not before the trial court when its decisions were made, they will not be considered by this Court in determining whether the trial court abused its discretion. See id. Accordingly, we grant NOV's motion to strike these portions of the mandamus record.

III. Analysis

A. Refusal to Exclude NOV's Designated Representative

M–I challenges the trial court's refusal to conduct portions of the temporary injunction hearing involving alleged trade secrets outside the presence of Mezzatesta, NOV's designated representative. The trial court declined to exclude Mezzatesta from the temporary injunction hearing on the grounds that it would be "a total violation of due process." Accordingly, our analysis begins with the U.S. Constitution's Fourteenth Amendment Due Process Clause.¹

1. Fourteenth Amendment Due Process

The Fourteenth Amendment Due Process Clause guarantees that states shall not deprive a "person"² of "life, liberty, or property, without due process of law." U.S. CONST. amend. XIV, § 1. The Fourteenth Amendment Due Process Clause does not, however, specify what process is "due" to a person by a state under any given circumstance. Morrissey v. Brewer, 408 U.S. 471, 481, 92 S.Ct. 2593, 33 L.Ed.2d 484 (1972). That depends on "the precise nature of the government function involved as well as of the private interest that has been affected by governmental action." Cafeteria & Rest. Workers Union, Local 473 v. McElroy, 367 U.S. 886, 895, 81 S.Ct. 1743, 6 L.Ed.2d 1230 (1961).

When the government functions as adjudicator of dueling private interests, as it does in this case, three competing factors are balanced to determine what process is due: (1) "the private interest that will be affected by the official action," Mathews v. Eldridge, 424 U.S. 319, 335, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976) ; (2) "the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards," i...