In re Platinum Energy Solutions, Inc.

• Decision Date: 02 January 2014
• Docket Number: No. 14–13–00681–CV.,14–13–00681–CV.
• Citation: 420 S.W.3d 342
• Parties: In re PLATINUM ENERGY SOLUTIONS, INC., Relator.
• Court: Texas Court of Appeals

420 S.W.3d 342

In re PLATINUM ENERGY SOLUTIONS, INC., Relator.

No. 14–13–00681–CV.

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

Jan. 2, 2014.

Kathleen C. Pickett, Houston, for Relator.

James L. Reed, John Christopher Ramsey, Robert M. Corn, Houston, for Real Parties in Interest.

Panel consists of Chief Justice FROST and Justices BOYCE and JAMISON.

OPINION

WILLIAM J. BOYCE, Justice.

Relator Platinum Energy Solutions, Inc. filed a petition for writ of mandamus in this Court. SeeTex. Gov't Code Ann. § 22.221 (Vernon 2004); see also Tex.R.App. P. 52. Platinum asks this Court to compel the Honorable Wesley Ward, presiding judge of the 234th District Court of Harris County, to vacate his July 15, 2013 order denying Platinum's motion for protective order and October 21, 2013 order granting the real parties in interest's motion to compel in the underlying shareholder derivative shareholder suit. We conditionally grant the petition for writ of mandamus.

I. Background

Platinum is a Nevada corporation and an oil field services provider specializing in premium hydraulic fracturing, coiled tubing, and other pressure-pumping services. The real parties in interest are minority shareholders of Platinum.¹ They filed a shareholder derivative suit against nominal defendant Platinum and its current or former officers and directors on May 25, 2012.² The minority shareholders alleged claims based on self-dealing, conflicts of interest, excessive compensation, and waste.

Platinum's board of directors formed a Special Litigation Committee on June 5, 2012 to investigate the minority shareholders' suit and determine the appropriate response. Platinum also adopted a charter to govern the committee.

The committee presented its findings to Platinum's board of directors in December 2012. The committee found no evidence of breach of fiduciary duties or corporate waste; it recommended that Platinum refrain from pursuing the minority shareholders' claims. The committee report concluded, in part:

The low probability of success combined with Platinum's current financial challenges would provide little, if any, gain. Additionally, the SLC is concerned that pursuing any claims would expose the Company to additional claims, counterclaims, or liabilities. The significant disruptionsto business activity, mounting litigation costs, the current natural gas market, and other mitigating circumstances warrant no further legal action on Platinum's behalf.

The committee also recommended that Platinum move to dismiss the derivative action.

Platinum filed a motion to dismiss the derivative action on February 15, 2013. The minority shareholders subsequently served a request asking Platinum to produce 45 categories of documents in connection with the Special Litigation Committee's investigation. Platinum objected on grounds that the requested production (1) exceeds the permissible scope of discovery; and (2) is overbroad and unduly burdensome. Platinum also filed a motion for protective order. After a hearing on July 1, 2013, the trial court signed the July 15 order denying Platinum's motion for protective order. On October 21, 2013, the trial court signed a separate order that overruled Platinum's objections to the document requests and compelled production by November 11, 2013 of documents responsive to 43 of the 45 categories.³ Platinum then filed a motion in this court to stay the October 21 order, which we granted on October 30, 2013.

Platinum argues in this mandamus proceeding that the trial court abused its discretion insofar as the permitted discovery goes beyond the following limited subjects: (1) the committee's independence and disinterestedness; (2) whether the committee's review was undertaken in good faith; and (3) the reasonableness of the committee's procedures used to investigate the minority shareholders' claims.

II. Standard of Review

Mandamus is appropriate when then relator demonstrates that (1) the trial court clearly abused its discretion; and (2) the relator has no adequate remedy by appeal. In re Reece, 341 S.W.3d 360, 364 (Tex.2011) (orig. proceeding). A trial court clearly abuses its discretion if it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law, or if it clearly fails to analyze the law correctly or apply the law correctly to the facts. In re Cerberus Capital Mgmt., L.P., 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. 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. In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, 464 (Tex.2008) (orig. proceeding). In evaluating benefits and detriments, we consider whether mandamus will preserve important substantive and procedural rights from impairment or loss. 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.

III. This Mandamus Proceeding is Not Premature

The minority shareholders contend that Platinum's request for mandamus reliefis premature because the trial court has not yet ruled on Platinum's objections that the requests are overbroad and burdensome. We disagree. A review of Platinum's motion for protective order shows that Platinum initially objected to the 45 categories of requested documents as being overbroad and unduly burdensome; Platinum also argued that the categories exceeded the scope of permissible discovery. The order denying Platinum's motion for protective order states the motion “is hereby denied in its entirety.” After Platinum filed this petition, the trial court signed its October 21 order overruling Platinum's objections that the 43 categories still at issue are overbroad and burdensome. Therefore, we reject the minority shareholders' contention that the trial court did not rule on all of Platinum's objections.

IV. Analysis

In the trial court and in this mandamus proceeding, the parties dispute whether Texas or Delaware law governs the scope of permissible discovery in connection with a motion to dismiss a derivative action against Platinum. Resolution of this issue turns on two provisions contained in Chapter 21 of the Texas Business Organizations Code.

When construing a statute, the primary objective is to give effect to the Legislature's intent. Tex. Lottery Comm'n v. First State Bank of DeQueen, 325 S.W.3d 628, 635 (Tex.2010). “We presume the Legislature selected language in a statute with care and that every word or phrase was used with a purpose in mind.” Id. “We construe statutes by first looking to the statutory language for the Legislature's intent, and only if we cannot discern legislative intent in the language of the statute itself do we resort to canons of construction or other aids such as which statute is more specific.” Id. at 639.

Subchapter L of Chapter 21 governs derivative actions in Texas. SeeTex. Bus. Orgs.Code Ann. §§ 21.551–.563 (Vernon 2012). Chapter 21 establishes a mechanism by which a corporation may move to dismiss a derivative action filed against it:

(a) A court shall dismiss a derivative proceeding on a motion by the corporation if the person or group of persons described by Section 21.554 determines in good faith, after conducting a reasonable inquiry and based on factors the person or group considers appropriate under the circumstances, that continuation of the derivative proceeding is not in the best interests of the corporation.

Tex. Bus. Orgs.Code Ann. § 21.558(a). In turn, section 21.554 provides for independent and disinterested persons, who may be directors of the corporation, to determine “how to proceed on allegations made in a demand or petition.” Tex. Bus. Orgs.Code Ann. § 21.554.

Discovery in connection with a section 21.558 motion to dismiss is governed by section 21.556, which provides as follows:

(a) If a domestic or foreign corporation proposes to dismiss a derivative proceeding under Section 21.558, discovery by a shareholder after the filing of the derivative proceeding in accordance with this subchapter shall be limited to:

(1) facts relating to whether the person or group of persons described by Section 21.558 is independent and disinterested;

(2) the good faith of the inquiry and review by person or group; and

(3) the reasonableness of the procedures followed by the person or group in conducting the review.

(b) Discovery described by Subsection (a) may not be expanded to include a fact or substantive matter regarding the act, omission, or other matter that is the subject matter of the derivative proceeding. The scope of discovery may be expanded if the court determines after notice and a hearing that a good faith review of the allegations for purposes of Section 21.558 has not been made by an independent and disinterested person or group in accordance with that section.

Tex. Bus. Orgs.Code Ann. § 21.556 (emphasis added). The purpose behind section 21.556's limitation on discovery is to (1) focus on the manner in which the committee performed its obligations; and (2) avoid delving into the merits of the shareholders' claims unless a determination first has been made that a good faith review was not conducted. SeeTex. Bus. Orgs.Code Ann. § 21.556(b).

Platinum contends that section 21.556 applies to it as a Nevada corporation and limits the scope of permissible discovery in connection with its motion to dismiss the derivative action.

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