in-re-park-cities-bank-thomas-youngblood-michael-merritt-john-dienes ( 2013 )

NO. 12-12-00325-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
IN RE PARK CITIES BANK, THOMAS §
YOUNGBLOOD, MICHAEL MERRITT,
JOHN DIENES, STEVEN METZGER,
BRIAN NEITZEL, TODD ASHBROOK, § ORIGINAL PROCEEDING
MICHAEL SAKS, AND PCB SMITH
COUNTY PROPERTIES, LLC,
RELATORS §
OPINION
This original mandamus proceeding arises out of a discovery dispute. The relators are
Park Cities Bank, Thomas Youngblood, Michael Merritt, John Dienes, Steven Metzger, Brian
Neitzel, Todd Ashbrook, Michael Saks, and PCB Smith County Properties, LLC. Lewie
Anderton is the real party in interest. Relators challenge the trial court’s September 12, 2012
order partially granting Anderton’s motion to overrule Relators’ claims of privilege and granting
Anderton’s motion to compel discovery responses. The respondent is the Honorable Randall Lee
Rogers, Judge of the County Court at Law No. 2, Smith County, Texas. We conditionally grant
the petition.
BACKGROUND
In 2002, Lewie Anderton and William R. Cawley formed two partnerships in order to
develop The Cascades, a golf and residential community, in Tyler, Texas. Cascade Properties,
Ltd. (Cascade Ltd.) was to develop the residential portion, and Bellwood Lake Partnership, Ltd.
(Bellwood) was to purchase and further develop a golf course adjoining The Cascades. In 2006,
Anderton, as president of Bellwood’s general partner, signed a $13,325,000 note to Park Cities
Bank (the Bank). Anderton, Cawley, and the Bill Cawley 1997 Revocable Trust (the guarantors)
guaranteed the note. At the time, Cawley was a 10% shareholder and a director of the Bank. He
was also a member of the Bank’s loan committee.
The relationship between Anderton and Cawley became rocky over the years, and in May
2008, Anderton sued Cawley in a Dallas County district court. Tensions between the two
continued to escalate. In February 2009, the Bank gave notice to Bellwood and the guarantors
that Bellwood was in default on the $13,325,000 loan, in part because it had not paid the 2008
property taxes.
On June 30, the Bank, as authorized by the loan documents, paid Bellwood’s delinquent
property taxes of $114,456.46 to Smith County. Also on June 30, BOT Real Estate (BOT), a
limited liability company formed by Cawley, paid the Bank $114,456.46. On July 1, the Bank
made demand on Bellwood and the guarantors for reimbursement of the $114,456.46 delinquent
property tax payment it had made the day before. No reimbursement was made, and the Bank
subsequently sold the loan to BOT. BOT promptly began foreclosure proceedings against
Bellwood on the golf course, which it then purchased at the foreclosure sale. BOT later took a
deficiency judgment against Anderton. In 2011, Anderton filed suit in Smith County against
Relators alleging, among other causes of action, common law and statutory fraud.
The chronology leading to the discovery dispute before this court developed as follows:
October 11, 2011 Anderton served Relators with sixty-five requests for production
(RFPs)
November 9, 2011 Relators filed a motion for a protective order, which included an
alternative motion to obtain or compel search terms
November 14, 2011 Relators’ responses to Anderton’s RFPs were due but not filed
February 21, 2012 The trial court held a hearing on Relators’ motion for protective
order and denied it without ruling on their alternative motion
March 20, 2012 Anderton filed a motion to compel production
March 22, 2012 Relators filed consolidated objections and responses to Anderton’s
RFPs
May 8, 2012 Park Cities Bank, John Dienes, and PCB Smith County Properties,
LLC (Bank Relators) filed their first privilege log
May 30, 2012 Bank Relators filed their first amended privilege log
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June 1, 2012 Anderton filed a motion to overrule Relators’ claims of
privilege
June 8, 2012 Bank Relators filed their second amended privilege log
June 21, 2012 Bank Relators filed their third amended privilege log
July 24 and 26, 2012 The trial court held a hearing on Anderton’s motion to overrule
Relators’ claims of privilege, his motion to compel discovery
responses, and Relators’ alternative motion to obtain or compel
search terms
September 12, 2012 The trial court signed the order that is the subject of this
proceeding
In pertinent part, the trial court’s order provides as follows:
A. As to the First Amended Privilege Log filed by Defendant Park Cities Bank, Defendant Dienes, and
Defendant PCB Smith County Properties, LLC (the "Bank Parties");
1. The Court finds there was no anticipation of litigation by the Bank Parties except during the time
periods February 15, 2010 to April 21, 2010 and August 31, 2011 to present;
2. All claims of privilege made by the Bank Parties on their First Amended Privilege Log are overruled
except as to those claimed for documents generated during the time period February 15, 2010 to April
21, 2010 and during the time period August 31, 2011 to present.
3. The Bank Parties are ordered to produce each and every document listed on their First Amended
Privilege Log within 10 days of this Order, excluding only those documents subject to claims of
privilege found valid by this Court above in Paragraph A(2).
B. As to the Third Amended Privilege Log filed by the Bank Parties;
1. The Court finds there was no anticipation of litigation by the Bank Parties except during the time
periods February 15, 2010 to April 21, 2010 and August 31, 2011 to present;
2. All claims of privilege made by the Bank Parties on their Third Amended Privilege Log are overruled
except as to those claimed for documents generated during the time period February 15, 2010 to April
21, 2010 and during the time period August 31, 2011 to present.
3. The Bank Parties are ordered to produce each and every document listed on their Third Amended
Privilege Log within 30 days of this Order, excluding only those documents subject to claims of
privilege found valid by this Court above in Paragraph B(2).
C. Subject only to the claims of privilege found valid by this Court above in Paragraphs A(2) and B(2),
Plaintiff’s Motion to Overrule Defendants' Claims of Privilege is GRANTED.
D. Subject only to the claims of privilege found valid by this Court above in Paragraphs A(2) and B(2),
Plaintiff’s Motion to Compel is GRANTED.
E. Each Defendant is ordered to produce each and every document responsive to Plaintiff’s Request for
Production Nos. 1 through 65 within 30 days of this Order, excluding only those documents subject to
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claims of privilege found valid by this Court above in Paragraphs A(2) and B(2) as asserted by the Bank
Parties.
Relators filed this original proceeding contending the trial court abused its discretion by
overruling the majority of its work product claims, its attorney-client privilege claims, and its
objections to discovery. They also filed a motion for emergency relief. We granted the motion
and stayed the proceedings in the trial court until further order of this court.
PREREQUISITES TO MANDAMUS
Mandamus issues only to correct a clear abuse of discretion or the violation of a duty
imposed by law where there is no adequate remedy by appeal. In re Prudential Ins. Co. of Am.,
148 S.W.3d 124, 135-36 (Tex. 2004) (orig. proceeding); Walker v. Packer, 827 S.W.2d 833, 839
(Tex. 1992) (orig. proceeding).
Mandamus is proper when the trial court erroneously orders the disclosure of privileged
information because the trial court’s error cannot be corrected on appeal. Walker, 827 S.W.2d at
843; see also In re Crestcare Nursing & Rehab. Ctr., 222 S.W.3d 68, 72 (Tex. App.–Tyler
2006, orig. proceeding [mandamus denied]) (mandamus available to protect confidential
documents from discovery). Mandamus is also available when a trial court fails to conduct an in
camera inspection of documents if the review is critical to its evaluation of a privilege claim. In
re E.I. DuPont de Nemours & Co., 136 S.W.3d 218, 223 (Tex. 2004); In re Crestcare Nursing
& Rehab. Ctr., 222 S.W.3d at 72. Moreover, mandamus relief is available when the trial court
compels production beyond the permissible bounds of discovery. In re Weekley Homes, L.P.,
295 S.W.3d 309, 322 (Tex. 2009) (orig. proceeding).
PRIVILEGES ASSERTED –APPLICABLE LAW
Our procedural rules define the general scope of discovery as any unprivileged
information that is relevant to the subject matter of the action, even if it would be inadmissible at
trial, as long as the information sought is “reasonably calculated to lead to the discovery of
admissible evidence.” TEX. R. CIV. P. 192.3(a); In re CSX Corp., 124 S.W.3d 149, 152 (Tex.
2003). Relators asserted primarily the work product and attorney-client privileges in response to
Anderton’s RFP’s.
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Work Product Privilege
The definition of “work product” and the extent to which work product is protected are
set out in Texas Rule of Civil Procedure 192.5.
(a) Work Product Defined. Work product comprises:
(1) material prepared or mental impressions developed in anticipation of litigation
or for trial by or for a party or a party’s representatives, including the party’s
attorneys, consultants, sureties, indemnitors, insurers, employees, or agents; or
(2) a communication made in anticipation of litigation or for trial between a party
and the party’s representatives or among a party’s representatives, including the
party’s attorneys, consultants, sureties, indemnitors, insurers, employees, or
agents.
(b) Protection of Work Product.
(1) Protection of core work product-attorney mental processes. Core work
product–the work product of an attorney or an attorney’s representative that
contains the attorney’s or the attorney’s representative’s mental impressions,
opinions, conclusions, or legal theories–is not discoverable.
(2) Protection of other work product. Any other work product is discoverable only
upon a showing that the party seeking discovery has substantial need of the
materials in the preparation of the party’s case and that the party is unable
without undue hardship to obtain the substantial equivalent of the material by
other means.
(3) Incidental disclosure of attorney mental processes. It is not a violation of
subparagraph (1) if disclosure ordered pursuant to subparagraph (2) incidentally
discloses by inference attorney mental processes otherwise protected under
subparagraph (1).
(4) Limiting disclosure of mental processes. If a court orders discovery of work
product pursuant to subparagraph (2), the court must–insofar as possible–protect
against disclosure of the mental impressions, opinions, conclusions, or legal
theories not otherwise discoverable.
TEX. R. CIV. P. 192.5(a), (b). Under this rule, the work product privilege is broader than the
attorney-client privilege because it includes all communications made in preparation for trial,
including an attorney’s interviews with parties and nonparty witnesses. In re Bexar Cnty.
Criminal Dist. Attorney’s Office, 224 S.W.3d 182, 186 (Tex. 2007). It covers more than just
documents, extending to an attorney’s mental impressions, opinion, conclusions, and legal
theories. Id. It also includes the selection and ordering of documents. Id.
To determine if the work product privilege applies, a trial court must look to the totality
of the circumstances in each case where it has been asserted. See In re Toyota Motor Corp., 94
S.W.3d 819, 823 (Tex. App.–San Antonio 2002, orig. proceeding). From those circumstances,
the trial court must determine whether a reasonable person in the party’s position would have
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anticipated litigation and whether the party actually did anticipate litigation. In re Monsanto
Co., 998 S.W.2d 917, 923-24 (Tex. App.–Waco 1999, orig. proceeding). The first prong requires
an objective examination of the facts with consideration being given to outward manifestations
that indicate litigation is imminent. Flores v. Fourth Court of Appeals, 777 S.W.2d 38, 40-41
(Tex. 1989). The second prong utilizes a subjective approach by asking if the party opposing
discovery had a good faith belief that litigation would ensue. Id.
A party may reasonably anticipate suit being filed and prepare for the expected litigation
before anyone manifests an intent to sue. Nat’l Tank Co. v. Brotherton, 851 S.W.2d 193, 204
(Tex. 1993). Actual notice of a potential lawsuit is not required for a party to anticipate
litigation. See Trevino v. Ortega, 969 S.W.2d 950, 957 (Tex. 1998) (noting that in National
Tank, the court did not require actual notice of potential litigation for a party to anticipate
litigation).
Attorney-Client Privilege
The scope of the attorney-client privilege is defined in Texas Rule of Evidence 503. The
following rules of the privilege are applicable in this case:
(b) Rules of Privilege.
(1) General rule of privilege. A client has a privilege to refuse to disclose and to
prevent any other person from disclosing confidential communications made for the
purpose of facilitating the rendition of professional legal services to the client:
(A) between the client or a representative of the client and the client’s lawyer or a
representative of the lawyer;
(B) between the lawyer and the lawyer’s representative;
(C) by the client or a representative of the client, or the client’s lawyer or a
representative of the lawyer, to a lawyer or a representative of a lawyer
representing another party in a pending action and concerning a matter of
common interest therein;
(D) between representatives of the client or between the client and a representative
of the client; or
(E) among lawyers and their representatives representing the same client.
TEX. R. EVID. 503(b)(1).
This privilege attaches to the complete communication between attorney and client. In re
Small, 346 S.W.3d 657, 663 (Tex. App.–El Paso 2009, orig. proceeding). The subject matter of
the information communicated is irrelevant when determining whether the privilege applies. Id.
The privilege attaches to legal advice and factual information included in completed
communications between attorney and client. Id. A communication is “confidential” if it is not
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intended to be disclosed to third persons other than those to whom disclosure is made “in
furtherance of the rendition of professional legal services to the client or those reasonably
necessary for the transmission of the communication.” TEX. R. EVID. 503(a)(5).
Asserting and Establishing Privilege
A party may assert a privilege by withholding documents and stating in its response to a
discovery request (1) that information or material responsive to the request has been withheld,
(2) the request to which the information or material relates, and (3) the privilege or privileges
asserted. TEX. R. CIV. P. 193.3(a). Upon request, the withholding party must serve a privilege
log describing the withheld materials, without revealing privileged information, and asserting a
specific privilege for each withheld item. TEX. R. CIV. P. 193.3(b). The burden is on the party
asserting a privilege from discovery to produce evidence concerning the applicability of the
privilege. Peeples v. Fourth Court of Appeals, 701 S.W.2d 635, 635 (Tex. 1985).
The mere listing of a specific privilege in a response or a privilege log does not prove that
privilege. In re Monsanto Co., 998 S.W.2d at 928. Therefore, in addition to the privilege log,
the party resisting discovery must establish a prima facie case for the privilege by testimony or
affidavit. In re Living Ctrs. of Tex., Inc., 175 S.W.3d 253, 261 (Tex. 2005). The prima facie
standard requires only the minimum quantum of evidence necessary to support a rational
inference that the allegation of fact is true. In re E.I. DuPont de Nemours & Co., 136 S.W.3d at
223; In re Crestcare Nursing & Rehab. Ctr., 222 S.W.3d at 73. “[A]n affidavit, even if it
addresses groups of documents rather than each document individually, has been held to be
sufficient to make a prima facie showing of attorney-client and/or work product privilege.” In re
E.I. DuPont de Nemours & Co., 136 S.W.3d at 223. In some instances, the documents
themselves may constitute the only evidence substantiating the claim of privilege. Weisel
Enterprises, Inc. v. Curry, 718 S.W.2d 56, 58 (Tex. 1986); In re BP Prods. N. Am. Inc., 263
S.W.3d 106, 115 (Tex. App.–Houston [1st Dist.] 2006, orig. proceeding). Once the party
resisting discovery establishes a prima facie case that the documents are privileged, the burden
shifts to the discovering party to refute the privilege claim. In re Small, 346 S.W.3d at 662-63.
If the trial court determines that an in camera review of some or all of the requested
discovery is necessary, that material or information must be segregated and produced to the court
in a sealed wrapper within a reasonable time following the hearing. TEX. R. CIV. P. 193.4(a).
The trial court abuses its discretion in failing to conduct an in camera inspection when such
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review is critical to the evaluation of a privilege claim. In re Living Ctrs. of Tex., Inc., 175
S.W.3d at 261.
Crime-Fraud Exception
Rule 503 specifies certain exceptions to the attorney-client privilege, including the
following:
(d) Exceptions. There is no privilege under this rule:
(1) Furtherance of crime or fraud. If the services of the lawyer were sought or
obtained to enable or aid anyone to commit or plan to commit what the client knew
or reasonably should have known to be a crime or fraud[.]
TEX. R. EVID. 503(d)(1). The crime-fraud exception also applies to any work product created
under circumstances within this exception. TEX. R. CIV. P. 192.5(c)(5). The party seeking
discovery of an otherwise privileged communication bears the burden of proving the exception.
In re USA Waste Mgmt. Res., L.L.C., 387 S.W.3d 92, 98 (Tex. App.–Houston [14th Dist.] 2012,
orig. proceeding [mandamus denied]).
The crime-fraud exception applies only if (1) the party asserting the exception makes a
prima facie showing that a crime or fraud was ongoing or about to be committed, and (2) there is
a relationship between the document for which the privilege is challenged and the prima facie
proof offered. Granada Corp. v. First Court of Appeals, 844 S.W.2d 223, 227 (Tex. 1992); In
re Gen. Agents Ins. Co. of Am., 224 S.W.3d 806, 819 (Tex. App.–Houston [14th Dist.] 2007,
orig. proceeding). The prima facie requirement is met when the proponent offers evidence
establishing the elements of fraud and that the fraud was ongoing, or about to be committed, at
the time the document was prepared. In re Small, 346 S.W.3d at 666. The fraud alleged to have
occurred must have happened at or during the time the document was prepared, and the
document must have been created as part of perpetrating the fraud. Id.
In addition to the prima facie showing, the party asserting the crime-fraud exception must
show that a nexus exists between the privileged documents and the alleged fraud. Granada
Corp., 844 S.W.2d at 227; In re Seigel, 198 S.W.3d 21, 28 (Tex. App.–El Paso 2006, orig.
proceeding [mandamus denied]). This nexus must be established for each privileged document.
In re Seigel, 198 S.W.3d at 28. Mere allegations of a connection between the alleged fraud and
the document will not suffice. In re Small, 346 at 667.
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ABUSE OF DISCRETION
In their fourth issue, Relators contend the trial court abused its discretion in finding that
there was no anticipation of litigation prior to February 15, 2010, and between April 22, 2010,
and August 30, 2011. In their fifth issue, Relators contend the trial court abused its discretion by
failing to conduct an in camera inspection of the documents listed in their third amended
privilege log before ordering them to produce the documents.1 We will consider these two issues
together.
Waiver
Before proceeding to the merits, however, we note that Anderton contends Relators
waived their privilege claims by failing to object to Anderton’s RFPs within thirty days.
Relators respond that they did not need to assert a privilege claim at that time. We agree with
Relators. No objection needs to be made to preserve a privilege, and the rules set no time limit
for asserting a privilege. See TEX. R. CIV. P. 193.2(f), 193.3; In re Graco Children’s Prods.,
Inc., 173 S.W.3d 600, 605 (Tex. App.–Corpus Christi–2005, orig. proceeding). There was no
waiver of Relators’ privilege claims.
Work Product Privilege
The time periods for which the trial court found the work product privilege “valid”
correspond to the time the Bank was a party to the Dallas County suit (February 15, 2010, to
April 21, 2010) and the time during which the Smith County suit has been pending (August 31,
2011 “to present”). Therefore, the trial court implicitly determined that the work product
privilege applied only if there was actual ongoing litigation between Anderton and any of the
relators. This definition is too narrow. See Nat’l Tank Co., 851 S.W.2d at 204; Trevino, 969
S.W.2d at 957. To determine the applicability of the work product privilege, the trial court must
consider the totality of the circumstances and determine whether a reasonable person in Relators’
1
In its order, the trial court refers to Relators’ first amended and third amended privilege logs. However,
Relators’ first amended privilege log was superseded by a subsequent amendment. Relators state in their mandamus
petition that “the first 530 entries on the Third Amended Privilege Log correspond to the very same documents as
the 530 entries in the First Amended Privilege Log.” Accordingly, we refer only to the third amended privilege log
in our analysis.
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position would have anticipated litigation and whether they actually did anticipate litigation.2
See In re Monsanto Co., 998 S.W.2d at 923-24.
1. Relators’ Evidence. Relators presented the affidavit of Wally Reed, an executive
vice-president and credit officer of the Bank, who identified two outside law firms that
represented the Bank during the period covered by Relators’ work product assertions. According
to Reed’s affidavit, the law firm of Metzger & McDonald PLLC represented the Bank regarding,
among other things, (1) the loan to Bellwood and related agreements, (2) the BOT and COT Real
Estate, LLC3 loans and related agreements, and (3) Anderton’s Dallas County lawsuit, including
but not limited to responding to document subpoenas and presenting employees or directors of
the Bank for depositions, representing the Bank while it was a party to the case, and monitoring
the case after the Bank was dismissed as a party. Reed also stated that the law firm of Kane
Russell Coleman & Logan PC (KRCL) represented the Bank regarding, among other things, (1)
the BOT and COT loans and related agreements, (2) monitoring Anderton’s Dallas County
lawsuit and bankruptcy proceeding, and (3) acting as co-counsel for the Bank in the Smith
County suit.
Relators also presented the affidavits of Steven C. Metzger, a member of Metzger &
McDonald, who has represented the Bank since 2002, and Boyd A. Mouse, a director of KRCL,
who has represented the Bank since 2009.
Metzger stated that he had reviewed the documents described in item numbers 1 through
54, 490 through 513, and 531 through 637 of the privilege log. He also identified the various
senders and recipients of the documents as representatives of Metzger & McDonald who were
assisting in the performance of professional legal services for the Bank, or persons employed by
the Bank “and/or were representatives of the Bank,” and explained why they were entitled to
receive confidential communications. He also stated that he was familiar with the definition of
“work product” included in Rule 192.5. Finally, Metzger expressed his opinion that, applying
this definition of “work product,” the documents corresponding to the item numbers of the
privilege log referred to in his affidavit are “material prepared or mental impressions developed
in anticipation of litigation or for trial by or for [the Bank] or its representatives, or a
2
Anderton’s suit against the Bank in Dallas County was dismissed without prejudice to refiling. This is
certainly some indication that there was “anticipation of litigation” by the Bank other than on the actual dates that a
lawsuit was pending.
3
This entity acquired the Cascade Properties real estate.
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communication made in anticipation of litigation or for trial between [the Bank] and its
representatives or among its representatives.”
Mouse’s affidavit was in the same form as Metzger’s and contained similar information
pertaining to the documents corresponding to item numbers 55 through 437 of the privilege log.
He identified certain senders and recipients of the documents and explained their relationship to
KRCL, the Bank, or other entities and explained why they were entitled to receive privileged
communications. He also stated that he was familiar with the definition of “work product”
included in Rule 192.5. In his opinion, Mouse stated further, the documents corresponding to the
item numbers referred to in his affidavit are “material prepared or mental impressions developed
in anticipation of litigation or for trial by or for [the Bank] or its representatives, or a
communication made in anticipation of litigation or for trial between [the Bank] and its
representatives or among its representatives.”
We conclude that through the affidavits of Reed, Metzger, and Mouse, Relators
established a prima facie case that the documents specifically mentioned in the affidavits were
protected from discovery by the work product privilege. See In re E.I. DuPont de Nemours &
Co., 136 S.W.3d at 224-25. Consequently, the burden shifted to Anderton to refute Relators’
assertions of work product privilege. See In re Small, 346 S.W.3d at 667.
2. Anderton’s Evidence. Anderton contends that the crime-fraud exception applies
here. The record shows that on February 20, 2009, the Bank notified Bellwood and the
guarantors that Bellwood was in default on its $13,325,000 loan, in part for failing to pay its
2008 property taxes. An internal Bank memorandum dated March 24, 2009, shows that the
Bellwood loan was on a “watch list,” that real estate taxes were due, and that Cawley was
planning to form a new entity that would acquire the loan. The memorandum also refers to the
continuing litigation between Anderton and Cawley. Other notations show that the Bank did not
expect any “impairment” at that time, but categorized the loan as a Grade 6 due to “the
uncertainty of the sale/replacement of collateral.” Also on March 24, 2009, the Bank sent
Bellwood and the guarantors another letter notifying them that the note was still past due. In this
letter, the Bank cautioned that “[t]his normally is cause for concern in any of our business loans
but in this case, even more so because of the continuing litigation between the partners and that
no response to our demand for payment dated February 20, 2009 . . . has been received.” The
letter also included notice that foreclosure proceedings would be initiated if the loan was not
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brought current by 3:00 p.m. on Tuesday, March 31, 2009. Although the loan was not brought
current by the specified date and time, the Bank did not initiate foreclosure proceedings.
On June 30, 2009, the Bank paid Bellwood’s delinquent 2008 property taxes ($114,
456.46). On that same day, BOT, a new entity formed by Cawley, issued a check for
$114,456.46, payable to the Bank. The check stub reflects that $114,456.46 is the sum of six
different line items for different amounts, all identified as “D8PropTaxBLP.” The following day,
the Bank demanded reimbursement from Bellwood and the guarantors for the amount of the
taxes. The Bank did not receive the requested reimbursement. BOT subsequently completed its
purchase of the Bellwood loan, foreclosed on the golf course, and took a default judgment
against Anderton.
Anderton does not dispute that the loan was in default. Instead, his argument is that
BOT’s check for $114,456.46 “cured” Bellwood’s default for failure to pay the 2008 property
taxes. He argues that the Bank’s failure to disclose the payment, along with its “fraudulent
demand” for reimbursement and its transfer of the loan to BOT, showed the Bank’s participation
in a fraudulent scheme that allowed Cawley to take control of Bellwood. This, Anderton
maintains, provided the Bank “with significant additional collateral to which it would not have
otherwise had any right.”
Underlying Anderton’s fraud allegation is the assumption that Bellwood was entitled to
credit for BOT’s payment to the Bank. We initially note that Anderton cites no authority
supporting this assumption. Secondly, when a third party pays the holder of a note, the
transaction is presumed to be a purchase and not a payment and discharge of the note unless
evidence shows the parties to the payment intended otherwise. Anderton v. Cawley, 378 S.W.3d
38, 49 (Tex. App.–Dallas 2012, no pet.). Anderton presented no such evidence.
Anderton first called Steven Metzger, one of the relators and also the attorney who
represented the Bank in the sale of the Bellwood loan to BOT. As part of his representation,
Metzger prepared the documents related to the sale. He also sent the July 1, 2009 letter on behalf
of the Bank demanding reimbursement from Bellwood and the guarantors for the property taxes
paid by the Bank. Metzger testified that the amount of the delinquent taxes paid by the Bank
($114,456.46) was advanced by the Bank and added to the Bellwood note as authorized by the
lender’s expenditures clause in the deed of trust. He also related that when he prepared the initial
drafts of the documents for the sale of the Bellwood loan, he understood the loan would be sold
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at “par.” He explained that this meant it would be sold for the principal amount of the loan plus
accrued interest through the date of sale. He also understood that the Bank would receive a cash
payment and a promissory note secured by the balance of the assets sold and some additional
collateral. Metzger consistently maintained that he knew nothing about the BOT check to the
Bank until he read the opinion of the Dallas court of appeals in Anderton’s Dallas County case.
The record shows that this opinion was dated May 8, 2012.
On cross examination, Metzger again explained the lender’s expenditures clause in the
deed of trust, which authorized the Bank to pay the delinquent property taxes and add the amount
to the note. He testified that under the terms of the deed of trust, Bellwood made a covenant to
pay the taxes as they became due. If they did not, the Bank could pay them. When the sale of
the note had not closed by June 30, the Bank decided to pay the taxes. At that point, the
documents for the sale had to be revised because the purchase price to be paid by BOT also
included any advances added back to the note. Metzger testified that the Bank included the
$114,456.46 payment for property taxes as part of what was owed on the note. According to
Metzger, the transaction between the Bank and BOT was simply a sale of the loan. He stated
further that he did not know that BOT, by its check to the Bank, was doing anything but paying
on its obligation to purchase the loan.
Anderton also called Michael Saks, another relator and the attorney for Cawley and his
related entities. Saks represented BOT in the purchase of the Bellwood loan from the Bank. He
testified that he had no knowledge of any collusion between Cawley or his entities and the Bank
in connection with the BOT transaction. He also testified that to his knowledge on July 1, 2009
(the date the Bank’s demand for reimbursement was sent), the Bank had paid Bellwood’s
delinquent property taxes and had not been reimbursed by anyone. Saks also testified that when
he learned of the check from BOT, it was his understanding that it was tendered as consideration
for the purchase of the Bellwood loan.
Nothing in the testimony of Metzger or Saks, which was uncontroverted, showed that the
$114,456.46 check from BOT was intended as reimbursement for the property taxes paid by the
Bank or that the payment was intended to cure Bellwood’s default. Consequently, Anderton
failed to rebut the presumption of purchase and therefore could not show that Bellwood was
entitled to credit for BOT’s payment. This undercut his fraud allegation and prevented him from
establishing a prima facie case of fraud by the Bank. See In re Small, 346 S.W.3d at 666.
13
Moreover, Anderton did not show a nexus between the alleged fraud and any of the documents
ordered to be produced. Id. Therefore, Anderton did not establish that the crime-fraud exception
applied. Nor did he request that the trial court review specific documents in camera to determine
whether the documents were in fact privileged. See In re Monsanto Co., 998 S.W.2d at 925
(noting that party requesting discovery has burden to point out which specific document or
groups of documents it believes require in camera inspection by the trial court). Accordingly, we
hold that the trial court abused its discretion by ordering the production of the documents
identified in the affidavits as work product “without at least subjecting them to an in camera
review.” See In re E.I. DuPont de Nemours & Co., 136 S.W.3d at 225; In re BP Prods. N. Am.
Inc., 263 S.W.3d at 115.
Attorney-Client Privilege
We reach the same conclusion concerning Relators’ attorney-client privilege assertions.
1. Relators’ Evidence. Reed, Metzger, and Mouse addressed attorney-client privilege in
their affidavits. Reed stated that he had reviewed the documents corresponding to privilege log
item numbers 438-489 and 514-530. He described the representation provided to the Bank by
Metzger & McDonald and by KRCL. He also identified various senders and recipients for the
documents he reviewed and explained the relationship that entitled them to receive privileged
communications. Reed stated further that he is familiar with the definitions of client,
representative of a client, lawyer, representative of a lawyer, and confidential in Texas Rule of
Evidence 503. After applying these definitions to the documents he reviewed, Reed concluded
that the documents corresponding to item numbers 439-489 and 514-530 are confidential
communications made for the purpose of facilitating the rendition of professional legal services
to the Bank.
Metzger’s affidavit provided the same types of information for the documents
corresponding to privilege log item numbers 1-54, 490-513, and 531-637. He expressed his
opinion, based on his familiarity with the applicable definitions in Texas Rule of Evidence 503,
that these communications were made for the purpose of facilitating the rendition of professional
legal services to the Bank. Mouse provided similar information and reached the same conclusion
for the documents corresponding to item numbers 55-437 of the privilege log.
We conclude that through the affidavits of Reed, Metzger, and Mouse, Relators
established a prima facie case that the documents identified in the affidavits were protected from
14
discovery by the attorney-client privilege. See In re E.I. DuPont de Nemours & Co., 136
S.W.3d at 224-25. Anderton then had the burden to refute Relators’ assertion of attorney-client
privilege. See In re Small, 346 S.W.3d at 667.
2. Anderton’s Evidence. As we stated above, Anderton did not make a prima facie
showing of the crime-fraud exception. Nor did he request that the trial court review specific
documents in camera to determine whether the documents were in fact privileged. See In re
Monsanto Co., 998 S.W.2d at 925. Accordingly, we hold that the trial court abused its
discretion by ordering the production of the referenced documents “without at least subjecting
them to an in camera review.” See In re E.I. DuPont de Nemours & Co., 136 S.W.3d at 225; In
re BP Prods. N. Am. Inc., 263 S.W.3d at 115.
Common Interest Rule and Waiver
Confidential communications to which the attorney-client privilege applies include those
“by the client or a representative of the client, or the client’s lawyer or a representative of the
lawyer, to a lawyer or a representative of a lawyer representing another party to a pending action
and concerning a matter of common interest therein[.]” TEX. R. EVID. 503(b)(1)(C). This rule,
often referred to as the “common interest” privilege, is an exception to the general rule that no
attorney-client privilege attaches to communications that are made in the presence of or
disclosed to a third party. In re JDN Real Estate–McKinney L.P., 211 S.W.3d 907, 922-23
(Tex. App.–Dallas 2006, orig. proceeding [mandamus denied]); In re Siegel, 198 S.W.3d at 27.
The Texas Supreme Court has recently addressed the “pending action” requirement of the
rule and concluded that the “common interest” privilege is more accurately described as an
“allied litigant” privilege. In re XL Specialty Ins. Co., 373 S.W.3d 46, 52 (Tex. 2012) (orig.
proceeding). This is because the privilege does not extend beyond litigation and it applies to any
parties–not just the defendants–to a pending action. Id. “Because of the pending action
requirement, no commonality of interest exists absent actual litigation.” Id.
Here, the Bank was a party to Anderton’s Dallas County suit from February 15, 2010 to
April 21, 2010. Relators have been parties to the pending Smith County suit since it was filed on
August 31, 2011. In their affidavits, Reed, Metzger, and Mouse identify various senders and
recipients for documents that they assert are protected from discovery by the “Attorney-Client
(Common Interest)” privilege. In their mandamus petition, they call our attention to thirty-four
items in Bank Relators’ third amended privilege log to which they contend the common interest
15
rule applies. We have reviewed these entries and noted that only six of them are within the
relevant time periods. Therefore, as to item numbers 38-40; 141; 227; 244-245; 249; 275; 277;
438; 460-61; 479; 549; 554-556; 558; 592-593; 613-614; 617-618; and 632-634, the trial court
did not abuse its discretion in overruling Relators’ common interest privilege claims without
reviewing the corresponding documents in camera.
The remaining communications, identified as item numbers 410, 532, 535, 543, 546, and
547, occurred during the relevant time periods. In their affidavits, Reed, Metzger, and Mouse
identified various senders and recipients, and explained their respective relationships that entitled
them to receive privileged communications. Each affiant stated further that
[a]t the time of these documents, the status and outcome of the First Anderton Lawsuit was and
remains a matter of common interest among [the Bank] and the Cawley Parties. Some of the real
property located in the Cascades that secures the BOT Loan is subject to the lis pendens filed by
Anderton in connection with the First Anderton Lawsuit, which lis pendens predates [the Bank’s]
deed of trust regarding the BOT Loan. Anderton also attempted (unsuccessfully) to add [the
Bank] as a defendant in the First Anderton Lawsuit. Thus, [the Bank] and the Cawley Parties or
their lawyers have had communications dealing with their common interest in the outcome of the
First Anderton lawsuit, the Anderton bankruptcy proceeding, and now of course the Second
Anderton Lawsuit.
Therefore, they assert that the communications between those senders and recipients and
designated in the privilege log as protected by the common interest privilege are not
discoverable.
We first note that the affiants interpret “common interest” too broadly because they did
not apply the “pending action” requirement of Rule 503. See TEX. R. EVID. 503(b)(1)(C). After
applying that requirement, we conclude that the common interest privilege does not apply to the
documents corresponding to item number 410 in the privilege log.
Michael Saks, with the law firm of Wright Ginsberg Brusilow P.C., and Gordon Russell
with KRCL are the initial senders of the documents corresponding to item number 410.
According to Mouse’s affidavit, Saks represented the Cawley entities in various transactions and
in the Anderton bankruptcy. Russell’s firm represents the Bank in the Smith County suit. The
recipients are Russell; Mouse (also a KRCL lawyer); Jeri Walker, a KRCL paralegal; and two
Bank employees or representatives. The documents are described in the privilege log as “E-mail
string re: BOT legal fee invoices from Wright Ginsberg Brusilow PC, with attachments.” The
Smith County suit was pending on the date of these documents, but neither Cawley nor any of
16
the Cawley entities are parties to that suit. And Saks is a party to the Smith County action, but
the information included in the privilege log does not indicate that the documents pertain to that
action. Accordingly, the trial court did not abuse its discretion in denying Relators’ claim of
common interest privilege for these documents.
The affidavits of Reed, Metzger, and Mouse, when read together, show that the
documents corresponding to the remaining item numbers were sent and received by those
authorized to receive confidential communications and fall within the parameters of Texas Rule
of Evidence 503(a)(1)(C). Therefore, Relators made the required prima facie showing that these
documents (item numbers 532, 535, 543, 546, and 547 in the privilege log) were subject to the
common interest privilege.
Anderton points out that six of the relators (Youngblood, Merritt, Metzger, Neitzel,
Ashbrook, and Saks) did not file a privilege log. Therefore, he urges, they have waived “any
claims of privilege . . . in their entirety.” Because of that waiver, his argument continues,
Relators cannot assert the common interest privilege for documents that were shared with these
relators. We first note that the six relators are either employees or representatives of the Bank or
attorneys. There is nothing in the record before us to indicate that they had any documents in
their possession responsive to Anderton’s RFPs. Moreover, Anderton cites no authority
supporting the proposition that Relators cannot assert the common interest privilege for
documents shared with these six relators. Therefore, he has not shown that Relators cannot
assert the “common interest” privilege for item numbers 532, 535, 543, 546, and 547.
WAIVER OF OTHER OBJECTIONS TO DISCOVERY
Anderton contends that Relators waived their objections to his sixty-five RFPs because
they failed to file specific written objections on or before November 14, 2011. As we stated
previously, no objection is necessary to assert a privilege. See TEX. R. CIV. P. 193.2(f).
Therefore, Relators did not waive any privilege claims by failing to object to Anderton’s
discovery on that basis before the response date. Relators contend, however, that none of their
other objections were waived because they filed a motion for a protective order.
Applicable Law
Texas Rule of Civil Procedure 193 governs responses and objections to written
discovery. This rule was adopted in an effort to “streamline procedures, reduce costs, and
17
enhance the effectiveness of written discovery as a means of uncovering truth.” Nathan L. Hecht
& Robert H. Pemberton, A Guide to the 1999 Texas Discovery Rules Revisions, Nov. 11, 1998,
F, http://www.supreme.courts.state.tx.us/rules/tdr/disccle3.htm. To that end, Rule 193 imposes a
duty upon parties to make a complete response to written discovery based upon all information
reasonably available, subject to objections and privileges. TEX. R. CIV. P. 193 cmt.1.
A party may object to written discovery only if a good faith legal and factual basis for the
objection exists at the time the objection is made. TEX. R. CIV. P. 193.2(c). In general, the rules
require the responding party to serve a written response, including any objections to written
discovery, within thirty days after service of a request for production. See TEX. R. CIV. P.
193.2(a), 196.2(a). If party objects to part but not all of a production request, the party must
comply with the part to which it did not object. TEX. R. CIV. P. 192.3(b). An objection that is
not made within the time required is waived unless the court excuses the waiver for good cause
shown. TEX. R. CIV. P. 193.2(e). But an objection may be amended or supplemented to state an
objection that was inapplicable or unknown after reasonable inquiry when the original objection
was made. TEX. R. CIV. P. 193.2(d).
An objection to written discovery must be in writing and must state specifically the legal
or factual basis for the objection. TEX. R. CIV. P. 193.2(a). Thus, a responding party who objects
to a request for production because is it overbroad, unduly burdensome, vague, ambiguous, or
unreasonably cumulative or duplicative should explain why the discovery request suffers from
each asserted deficiency. See id.; see also Robert K. Wise, Ending Evasive Responses to Written
Discovery: A Guide for Properly Responding (and Objecting) to Interrogatories and Document
Requests Under the Texas Discovery Rules, 65 BAYLOR L. REV. 510, 563 (Spring 2013); but see
Reynolds v. Murphy, 188 S.W.3d 252, 260 (Tex. App.–Fort Worth 2006, pet. denied) (holding
more specific objection unnecessary where party’s objection to large set of requests for
admissions was that volume was unduly burdensome and harassing). The responding party
must also state the extent to which the party is refusing to comply with the request. TEX. R. CIV.
P. 193.2(a).
Under the former discovery rules, objections and privilege claims not asserted within the
time for responding were waived. Hecht & Pemberton, supra, at F-3. To avoid waiver, parties
frequently, out of an abundance of caution, asserted voluminous prophylactic general objections
18
that often proved unnecessary. Id. This defeated the purpose of discovery and caused
unnecessary expense. Id.
A primary goal of all of the groups considering discovery reform in anticipation of
revising the former discovery rules was to rid the system of prophylactic objections. 47 Alex
Wilson Albright et al., Texas Practice Series: Handbook on Texas Discovery Practice § 7:3
(2012 ed.). As a result, Rule 193 requires a good faith legal and factual basis at the time the
objection is made. See TEX. R. CIV. P. 193.2(c). Additionally, an objection that is obscured by
numerous unfounded objections is waived unless the court excuses the waiver for good cause
shown. TEX. R. CIV. P. 193.2(e). These two provisions eliminate the perceived need for, and the
practice of making, prophylactic objections to prevent a waiver of discovery objections. See
Wise, supra, at 562 (“These provisions’ obvious purpose is to eliminate the practice of
interposing numerous hypothetical or prophylactic objections to . . . prevent a waiver of
objections.”); see also Hecht & Pemberton, supra, at F-3.
A party from whom discovery is sought may move for a protective order within the time
for the response. TEX. R. CIV. P. 192.6(a). But the movant must comply with the discovery
request to the extent protection is not sought unless it is unreasonable under the circumstances to
do so before obtaining a ruling on the motion. Id.
Discussion
Relators sought protection from discovery because they planned to file a motion for
summary judgment asserting the affirmative defense of res judicata. They informed the trial
court that this soon-to-be-filed motion would include all of Anderton’s claims in the Smith
County suit. And they argued that staying discovery until the trial court ruled on the motion
would prevent them from having to respond to burdensome, expensive, and time-consuming
discovery that would be irrelevant if their summary judgment motion was granted. Relators also
asserted that Anderton’s RFPs
are overly broad, unduly burdensome, harassing, seek documents that are not relevant nor
reasonably calculated to lead to the discovery of admissible evidence, constitute an impermissible
fishing expedition, require [Relators] to marshal their evidence, invade [Relators’] right to privacy
as guaranteed by the United States Constitution and Texas Constitution, seek documents that are
confidential, proprietary, and trade secrets, seek documents that are privileged attorney-client
communications and attorney work product, among other things.
19
In addition to these general objections, Relators purported to “reserve the right to assert specific
objections to each request for production should the Court deny this motion and require
[Relators] to substantively respond to [Anderton’s] discovery requests.” Anderton alleged in his
motion to compel that Relators had waived their objections because they did not timely assert
specific objections to each RFP by the response date and never sought an extension of the
deadline for responding. Relying on Rule 192.6(a), Relators assert that filing a motion for
protective order did not waive their objections.
Rule 192.6(a) provides, in part, that “[a] person should not move for protection when an
objection to written discovery . . . is appropriate, but a motion does not waive the objection. . . .”
This portion of the rule has two purposes. See Hecht & Pemberton, supra, at E-5. First, it
clarifies that persons should not move for a protective order when an objection is appropriate.
Id. Second, it attempts to avoid creating a “trap” for the unwary or “breeding satellite litigation”
regarding whether a protective order or an objection was the appropriate vehicle for seeking
relief from discovery. Id.
Relators’ argument suggests that filing a motion for a protective order provides an
exception to the rule that “[a]n objection that is not made within the time required . . . is waived
unless the court excuses the waiver for good cause shown.” TEX. R. CIV. P. 193.2(e). However,
nothing in the language of either rule persuades us that this is the correct interpretation.
Moreover, Relators have not directed us to any authority supporting this interpretation, nor have
we been able to locate any such authority. Indeed, the express language of the rule is that “the
objection” is not waived. We interpret “the objection” to mean the complaint that was asserted
by a motion for protection when an objection was appropriate. See TEX. R. APP. P. 192.6(a).
This reading is consistent with the plain language of the rule and does not limit the application of
Rule 193.2(e). See In re Christus Spohn Hosp. Kleberg, 222 S.W.3d 434, 437 (Tex. 2007)
(stating that clear and unambiguous rule of procedure should be construed according to its plain
or literal meaning). Rule 192.6(a) does not aid Relators.
Next, Relators contend that their objections are not waived because they filed general
objections and reserved the right to assert specific objections if the trial court denied their motion
for protective order and required them to respond to Anderton’s RFPs. However, prophylactic
objections are now prohibited by the rules of procedure. See TEX. R. CIV. P. 193.2(c), (e); see
also Wise, supra, at 568 (stating that prophylactic or general objections violate Rules 193.2(a)
20
and (e), among others; trial court should strike, ruling that each such objection has been waived).
And the rules make no provision for a party to avoid responding to written discovery within
thirty days merely by reserving the right to respond later.
The discovery rules specify the content of objections to written discovery, the time for
making those objections, and the penalty for failing to do so. See TEX. R. CIV. P. 193.2(a), (c),
(e). Prophylactic general objections and a reservation to file later specific objections are not
permitted under Rule 193. See id. Thus, a determination that prophylactic general objections
satisfy Rule 193 would be contrary to the rule’s plain language and would reinstate the practice
of filing prophylactic general objections to avoid waiver. The trial court properly declined to
make such a ruling and therefore disregarded Relators’ general objections and reservation of the
right to file later specific objections. The trial court did not abuse its discretion by ruling that
Relators waived their objections (those unrelated to privilege) to Anderton’s RFPs by failing to
timely file them.
CONCLUSION
We have held that the respondent trial court abused its discretion in (1) holding that
Relators waived their claims of privilege and (2) granting Anderton’s motions to overrule
Relators’ claims of privilege and compel discovery responses without conducting an in camera
review. We also hold that appeal is an inadequate remedy to correct the trial court’s error. See
In re Weekley Homes, L.P., 295 S.W.3d at 322; In re E.I. DuPont de Nemours & Co., 136
S.W.3d at 223; Walker, 827 S.W.2d at 843. Accordingly, we conditionally grant Relators’
petition for writ of mandamus. We direct the trial court to vacate its September 12, 2012 order
partially granting Anderton’s motion to overrule Relators’ claims of privilege and granting his
motion to compel discovery responses, and to (2) conduct further proceedings consistent with
this opinion. We trust that the trial court will promptly vacate its September 12, 2012 order in
compliance with this opinion and order. The writ will issue only if it fails to do so within ten
days of the date of this opinion and order. The trial court shall furnish this court, within the
time for compliance with this court’s opinion and order, a certified copy of the order vacating its
September 12, 2012 order. We lift our stay of proceedings ordered on September 24, 2012.4
4
Because Relators’ fourth and fifth issues are dispositive, we need not address their remaining issues. See
TEX. R. APP. P. 47.1.
21
JAMES T. WORTHEN
Chief Justice
Opinion delivered August 15, 2013.
Panel consisted of Worthen, C.J., Griffith, J., and Hoyle, J.
(PUBLISH)
22
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
ORDER
AUGUST 15, 2013
NO. 12-12-00325-CV
IN RE PARK CITIES BANK, THOMAS YOUNGBLOOD,
MICHAEL MERRITT, JOHN DIENES, STEVEN METZGER,
BRIAN NEITZEL, TODD ASHBROOK, MICHAEL SAKS, AND
PCB SMITH COUNTY PROPERTIES, LLC,
Relators
v.
HON. RANDALL L. ROGERS,
Respondent
ORIGINAL PROCEEDING
ON THIS DAY came to be heard the petition for writ of mandamus filed
by PARK CITIES BANK, THOMAS YOUNGBLOOD, MICHAEL MERRITT, JOHN
DIENES, STEVEN METZGER, BRIAN NEITZEL, TODD ASHBROOK, MICHAEL
SAKS, AND PCB SMITH COUNTY PROPERTIES, LLC, who are the relators in Cause No.
59,872-A, pending on the docket of the County Court at Law #2 of Smith County, Texas. Said
petition for writ of mandamus having been filed herein on September 24, 2012, and the same
having been duly considered, because it is the opinion of this Court that the petition is
meritorious, it is therefore CONSIDERED, ADJUDGED and ORDERED that the said petition
for writ of mandamus be, and the same is, hereby conditionally granted.
And because it is further the opinion of this court that the trial judge will
act promptly and vacate his order of September 12, 2012, partially granting the motion of
LEWIE C. ANDERTON to overrule Relators’ claims of privilege and granting his motion to
compel discovery responses, the writ will not issue unless the Honorable Randall L. Rogers,
Judge of the County Court at Law #2, fails to vacate the September 12, 212 order as directed by
this order within ten (10) days from the date of this order.
It is further ORDERED that LEWIE C. ANDERTON pay all costs
incurred by reason of this proceeding.
James T. Worthen, Chief Justice.
Panel consisted of Worthen, C.J., Griffith, J., and Hoyle, J.
24