Pincheira v. Allstate Ins. Co.

• Decision Date: 05 August 2008
• Docket Number: No. 30,490.,30,490.
• Citation: 2008 NMSC 049,190 P.3d 322
• Parties: Jose PINCHEIRA and Olivia Pincheira, Plaintiffs-Petitioners, v. ALLSTATE INSURANCE COMPANY, Defendant-Respondent.
• Court: New Mexico Supreme Court

190 P.3d 322

2008 NMSC 049

Jose PINCHEIRA and Olivia Pincheira, Plaintiffs-Petitioners, v. ALLSTATE INSURANCE COMPANY, Defendant-Respondent.

No. 30,490.

Supreme Court of New Mexico.

August 5, 2008.

Rehearing Denied August 5, 2008.

Berardinelli Law Firm, David J. Berardinelli, Santa Fe, NM, for Petitioners.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Lisa Mann, Jennifer A. Noya, Albuquerque, NM, Steptoe & Johnson L.L.P., Bennett Evan Cooper, John T. Neumann, Phoeniz, AZ, for Respondent.

Michael B. Browde, Albuquerque, NM, for Amicus Curiae, New Mexico Trial Lawyers Association.

Rodey, Dickason, Sloan, Akin & Robb, P.A., Edward Ricco, Albuquerque, NM, for Amicus Curiae, New Mexico Defense Lawyers Association.

OPINION

CHÁVEZ, Chief Justice.

{1} On motion for rehearing, the opinion filed June 20, 2008 is withdrawn, and the following opinion is substituted in its place. The motion for rehearing is otherwise denied.

{2} Over seven years ago, Jose and Olivia Pincheira (Plaintiffs) filed a complaint against Allstate Insurance Co. (Defendant) alleging bad faith, fraud, unfair trade practices, and other claims. The merits of those claims are not at issue in this appeal. Rather, this appeal relates to Plaintiffs' attempt to compel discovery of a set of documents known as the "McKinsey slides" or "McKinsey documents." Defendant claimed that these documents contained trade secrets or other confidential or proprietary information and refused to turn them over without a protective order. See Rule 1-026(C)(7) NMRA. Following Defendant's refusal to turn over the documents, the trial court entered a default judgment on liability, with damages to be determined at trial. A Court of Appeals majority held that the trial court abused its discretion in ordering Defendant to turn over the documents without either a protective order or an evidentiary hearing, and vacated the default judgment and remanded for reevaluation of Defendant's assertion of a trade secret privilege. Pincheira v. Allstate Ins. Co. (Pincheira II), 2007-NMCA-094, ¶¶ 27, 72, 142 N.M. 283, 164 P.3d 982. The case reaches this Court on Plaintiffs' petition for writ of certiorari.

{3} Although Defendant's request for a protective order has been rendered moot by subsequent events, Plaintiffs' request for sanctions remains. As a result, we take this opportunity to clarify the procedure to be used when seeking to protect an alleged trade secret and the factors that trial courts should consider when issuing protective orders covering trade secrets. We conclude that Defendant met its initial burden of requesting an evidentiary hearing on the trade secret status of its materials by following the procedure we describe. This procedure differs from that proposed by the Court of Appeals, but we affirm the Court of Appeals to the extent that we vacate the default judgment entered against Defendant. On remand, Plaintiffs may request a hearing on the trade secret status of Defendant's documents at the time Defendant refused to turn them over, as potential support for alternative sanctions.

I. PROCEDURAL BACKGROUND

{4} This case has followed a tortuous path to this Court. The Court of Appeals presented an excellent review of the history in Pincheira II. See id. ¶¶ 4-25. We provide a brief overview to clarify the issues on appeal.

{5} Plaintiffs served Defendant with a second request for production of documents on July 16, 2001. Defendant timely responded with numerous objections. With respect to the McKinsey documents, Defendant objected that they contained confidential or proprietary information. Although Defendant did not use the term "trade secret" in its objection, Plaintiffs filed a motion to compel and responded to the objection as if it were an assertion of a trade secret privilege. Defendant's response brief included an affidavit by Allstate corporate vice president Christine Sullivan that explained why Defendant believed the documents to be trade secrets.

{6} Defendant argued the trade secret status of the materials in question at the October 30, 2001,¹ hearing on Plaintiffs' motion, stating that "We said we objected to [discovery] to the extent it sought confidential or proprietary information. We believe that was sufficient to invoke the protection of trade secrets." The trial court accepted the objection as an assertion of trade secrets but ruled that Defendant's affidavit describing the McKinsey documents was "too general and conclusory to support [Defendant's] request" for a protective order.

{7} Before the court entered its order compelling production, Defendant requested an expedited hearing on a motion to reconsider the trial court's oral ruling. In support of that motion, Defendant asked the trial court to hold an evidentiary hearing, as the court had recommended in an earlier case involving the same documents and the same plaintiff's counsel. See Blanks v. Allstate Ins. Co., No. D-101-CV-200000852 (1st Dist. N.M. Oct. 25, 2001). The Blanks case was submitted to an arbitrator before the Blanks court could hold a hearing. The arbitrator, however, heard testimony about the documents and concluded that they contained trade secrets. Defendant offered the arbitrator's letter in support of its motion and request for an evidentiary hearing in this case.

{8} The trial court denied the request for an evidentiary hearing and ordered Defendant to turn over the documents. Following another hearing, the trial court again ordered Defendant to turn over the documents but granted a temporary protective order pending an appeal for writ of error. The protective order prohibited Plaintiffs from using the documents outside the scope of this litigation and would "remain in effect until fourteen days following the completion of appellate review of the questions presented in [Defendant's] Petition for Writ of Error." At the hearing granting the protective order, the trial court noted that Defendant would "have 14 days to regroup if the Court of Appeals says no or 14 days to respond in some way." The court also noted that, if the Court of Appeals declined to enter a writ of error, the protective order would be lifted fourteen days later.

{9} Defendant produced the documents and filed its writ of error one day late. Pincheira v. Allstate Ins. Co. (Pincheira I), 2004-NMCA-030, ¶¶ 3-4, 6, 135 N.M. 220, 86 P.3d 645. The Court of Appeals quashed the writ as untimely. Id. ¶ 1. On the same day, the Court of Appeals filed King v. Allstate Insurance Co., which held that an order granting or denying a motion for a protective order cannot be reviewed by writ of error. 2004-NMCA-031, ¶ 1, 135 N.M. 206, 86 P.3d 631. Instead, the Court held that such orders can be appealed only if they are certified by the trial court for an interlocutory appeal or as of right from a contempt citation for failure to comply. Id. ¶ 19. We denied Defendant's petition for writ of certiorari from Pincheira I, and returned the case to the trial court. Pincheira v. Allstate Ins. Co., 2004-NMCA-030, 135 N.M. 220, 86 P.3d 645.

{10} Before the fourteen-day protective order expired, Defendant asked the trial court to clarify or extend the protective order, and respectfully asked the court to hold it in contempt so that it could appeal as it did in King. Plaintiffs returned the documents to Defendant and asked the trial court to enter a default judgment against Defendant for its "contumacious defiance" of the trial court's authority. The trial court ordered Defendant to turn over the documents without a protective order, or it would enter a default judgment. Defendant refused, again asking to be held in contempt. The trial court entered default judgment, with a trial to be held on the issue of damages.

{11} Defendant appealed the default judgment. The Court of Appeals dismissed the appeal, holding that the default judgment was a non-final order because damages had not been decided. Pincheira II, 2007-NMCA-094, ¶ 25, 142 N.M. 283, 164 P.3d 982. We granted Defendant's petition for writ of certiorari and remanded to the trial court to determine whether the default judgment was intended as a contempt order within the meaning of King. The trial court stated that it was.

{12} Defendant timely appealed the contempt order to the Court of Appeals. A Court of Appeals majority remanded to the trial court so that it could vacate the default judgment, reevaluate the documents' trade secret status and, if they were found to be trade secrets, issue an appropriate protective order. 2007-NMCA-094, ¶ 72, 142 N.M. 283, 164 P.3d 982. We granted Plaintiffs' petition for writ of certiorari.

II. MOOTNESS

{13} Plaintiffs argue that publication of the McKinsey documents on its web site makes this appeal moot and that Defendant should be sanctioned for opposing discovery. See Petitioners' Special Motion for Immediate Summary Affirmance ... and for an Award of Attorney Fees and Sanctions, at 6-9, Pincheira v. Allstate Ins. Co., No. 30,490 (N.M. Apr.7, 2008). We agree that Defendant's public disclosure of the McKinsey documents has rendered the request for a protective order moot. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984). "As a general rule, this Court does not decide moot cases." Gunaji v. Macias, 2001-NMSC-028, ¶ 9, 130 N.M. 734, 31 P.3d 1008. Plaintiffs, however, continue to ask for sanctions. We cannot determine whether sanctions are warranted unless we first determine whether Defendant was justified in seeking a protective order and then followed the proper procedure for appealing the trial court's denial of a protective order. Therefore, we hold that the appeal is not moot, and we will address the issue of sanctions following our discussion of the merits of this appeal.

III. TRADE SECRET PRIVILEGE AND PROTECTION

{14} In addition to its complicated and lengthy procedural background, this case requires resolution of the intricate interplay among discovery and privilege...