In re Russo

• Decision Date: 27 April 2018
• Docket Number: NO. 14-18-00228-CV,14-18-00228-CV
• Citation: 550 S.W.3d 782
• Parties: IN RE Christopher J. RUSSO, Relator
• Court: Texas Court of Appeals

550 S.W.3d 782

IN RE Christopher J. RUSSO, Relator

NO. 14-18-00228-CV

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

Opinion filed April 27, 2018

David Keith Isaak, Shaun Clarke, Houston, TX, for Relator.

C. Thomas Kruse, Alexander Burch, Matthew William Caligur, Sushant Mohan, Houston, TX, for Real party in interest.

Panel consists of Chief Justice Frost and Justices Christopher and Jamison.

Tracy Christopher, Justice

On April 3, 2018, relator Christopher J. Russo filed a petition for writ of mandamus in this court, his second relating to this discovery dispute. See Tex. Gov't Code Ann. § 22.221 (West Supp. 2017); see also Tex. R. App. P. 52. In the petition, Russo asks this court to compel the Honorable Caroline Baker, presiding judge of the 295th District Court of Harris County, to vacate her March 20, 2018 order, which compels Russo to produce certain documents for which Russo has asserted an act-of-production privilege under the Fifth Amendment of the United States Constitution.

The real parties-in-interest are Superior Energy Services, Inc., and Stabil Drill Specialties, LLC, and SESI, LLC (collectively, the "Superior Parties").

The Fifth Amendment privilege does not apply to the records of corporate entities. Russo has not shown that the documents for which he asserted the privilege are not records of corporate entities he allegedly owned or controlled. We therefore deny the petition for writ of mandamus.

FACTUAL AND PROCEDURAL BACKGROUND

The Superior Parties filed suit, alleging, among other things, that Russo and the other defendants conspired to defraud the Superior Parties of $72 million and other assets over several years. Specifically, the Superior Parties allege that Russo and Martin A. LeBlanc were the executive officers of Stabil Drill, a subsidiary of SESI, and that Russo and LeBlanc engaged in a complex scheme of self-dealing primarily by creating separate but interwoven corporate entities (which they owned or controlled directly or indirectly) to improperly invoice Stabil Drill for goods and services and to benefit themselves by being on both sides of various transactions. The Superior Parties allege that Russo was a member of, owned, and/or controlled several limited liability companies which he used to execute his schemes to defraud the Superior Parties. These corporate entities include, among others, Triple RRR Investments, LLC, Gulf Coast Wireline, LLC, Maverick Rental Tools, LLC, Quest Holdings, LLC, Basket Specialties, LLC, Tri-Eagle NDT Services, LLC, Longhorn Bits LLC, Prime 337, LLC, Russo Energy LLC, Russo Exploration LLC, and Cole Joseph Russo Trust, LLC. In their petition, the Superior Parties assert claims against Russo and his corporate entities for breach of fiduciary duty, fraud, trade secret misappropriation, and civil conspiracy.

The Superior Parties served Russo and Russo Energy, LLC with several requests for production. Russo withheld some responsive documents, objecting to each request "on the ground that it requires production of documents in violation of Defendant’s Fifth Amendment (U.S. Constitution) act-of-production privilege. See United States v. Hubbell , 530 U.S. 27, 120 S.Ct. 2037, 147 L.Ed.2d 24 (2000)."

On September 22, 2016, the Superior Parties filed a motion to compel production of the withheld documents. The trial judge heard the motion on October 3, 2016, and took the matter under advisement. On August 3, 2017, the trial judge issued an order requiring Russo to prepare a privilege log of all the documents Russo withheld and to deliver the documents to the court for an in camera review. Russo submitted a privilege log listing 2,277 documents.

At a hearing on October 20, 2017, the trial judge asked Russo to attempt to reduce the number of documents for which he was asserting his Fifth Amendment privilege. Russo later produced some of the documents he had withheld, submitted amended and supplemental privilege logs (listing a total of 1538 documents), and delivered the documents on the logs to the court for in camera review.

On February 12, 2018, the trial judge signed an order requiring Russo to produce all of the documents that Russo had listed on the logs.

On February 21, 2018, Russo filed a petition for writ of mandamus, asking our court to compel the trial judge to vacate her February 12, 2018 order.

On March 1, 2018, the trial judge vacated her February 12, 2018 order.

On March 20, 2018, the trial judge signed an order compelling Russo, within fourteen days, to produce "all emails (or portions of emails) identified on the Amended and Supplemental Privilege Logs that were generated by a third party." The order directs Russo to file additional briefing regarding whether the documents he withheld on Fifth Amendment grounds pose a real and substantial risk of incrimination to him and why the Superior Parties are not entitled to copies of the Amended and Supplemental privilege logs under Texas Rule of Civil Procedure 193.3.

Because the trial judge had vacated the February 12, 2018 order, we issued an opinion on April 2, 2018, dismissing as moot Russo’s first petition for writ of mandamus.

In his second petition for writ of mandamus now before us, Russo argues that the March 20, 2018 order constitutes an abuse of discretion because in it the trial judge orders production of documents which Russo contends are protected by his Fifth Amendment act-of-production privilege.

MANDAMUS STANDARD

To obtain mandamus relief, a relator generally must show both that the trial court clearly abused its discretion and that the relator has no adequate remedy by appeal. In re Prudential Ins. Co. of Am. , 148 S.W.3d 124, 135–36 (Tex. 2004)(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 relator must establish that the trial court reasonably could have reached only one conclusion. Walker v. Packer , 827 S.W.2d 833, 840 (Tex. 1992) (orig. proceeding).

A party will not have an adequate remedy by appeal when the appellate court would not be able to cure the trial court’s discovery error. In re Christus Santa Rosa Health Sys. , 492 S.W.3d 276, 280 (Tex. 2016). "If the trial court issues an erroneous order requiring the production of privileged documents, the party claiming the privilege is left without an adequate appellate remedy." Id. "Mandamus is appropriate for constitutional protections like the privilege against self-incrimination that an appeal could not adequately protect." In re Speer , 965 S.W.2d 41, 45 (Tex. App.—Fort Worth 1998, orig. proceeding) (citing Tilton v. Marshall , 925 S.W.2d 672, 682 (Tex. 1996) ).

STANDARD OF REVIEW

A defendant has the right to assert his Fifth Amendment privilege to avoid civil discovery if he reasonably fears that the responses would tend to incriminate him. See Tex. Dept. of Pub. Safety Officers Ass'n v. Denton , 897 S.W.2d 757, 760 (Tex. 1995). "Before the judge may compel the witness to answer, [the judge] must be ‘perfectly clear, from a careful consideration of all the circumstances in the case, that the witness is mistaken, and that the answer(s) cannot possibly have such tendency to incriminate.’ " Ex Parte Butler , 522 S.W.2d 196, 198 (Tex. 1975) (quoting Hoffman v. United States , 341 U.S. 479, 71 S.Ct. 814, 95 L.Ed. 1118 (1951) ).

Whether a discovery privilege applies is a matter of statutory construction, which is a question of law reviewed de novo. See In re Christus Santa Rosa Health Sys. , 492 S.W.3d at 280. We review with limited deference the issue of whether a trial court properly has applied the law of privileges to the documents. See Keene Corp. v. Caldwell , 840 S.W.2d 715, 718 (Tex. App.—Houston [14th Dist.] 1992, no writ).

ANALYSIS

A. The Fifth Amendment act-of-production privilege does not protect records of entities.

The only privilege asserted by Russo was the Fifth Amendment of the United States Constitution act-of-production privilege, discussed in United States v. Hubbell , 530 U.S. 27, 120 S.Ct. 2037, 147 L.Ed.2d 24 (2000). A person may be required to produce specific documents even though the documents contain incriminating assertions of fact or belief because the creation of those documents was not compelled within the meaning of the privilege. Id. at 36, 120 S.Ct. 2037. However, the act of producing documents in response to a subpoena duces tecum may have a compelled testimonial aspect because the act of production itself may implicitly communicate statements of fact. Id. "By ‘producing documents in compliance with a subpoena, the witness would admit that the papers existed, were in his possession or control, and were authentic.’ " Id. "The privilege afforded not only extends to answers that would in themselves support a conviction under a federal criminal statute but likewise embraces those which would furnish a link in the chain of evidence needed to prosecute the claimant for a federal crime." Id. at 37, 120 S.Ct. 2037 (quoting Hoffman v. United States , 341 U.S. 479, 486, 71 S.Ct. 814, 95 L.Ed. 1118 (1951) ).

However, it is well established that "artificial entities," such as corporations, are not protected by the Fifth Amendment. Braswell v. United States , 487 U.S. 99, 102, 108 S.Ct. 2284, 101 L.Ed.2d 98 (1988). Representatives of a collective entity act as agents, and the official records of the organization that are held by them in a representative rather than a personal capacity cannot be the subject of their personal privilege against self-incrimination, even though production of the papers might tend to incriminate them personally (known as the "collective entity rule"). Id. at 99–100, 107, 108 S.Ct. 2284. The "collective entity rule" applies regardless of the entity’s size and regardless of...