in Re BDPJ Houston, LLC , 2013 Tex. App. LEXIS 15491 ( 2013 )

Petition for Writ of Mandamus Conditionally Granted and Opinion filed
December 31, 2013.
In The
Fourteenth Court of Appeals
NO. 14-13-00751-CV
IN RE BDPJ HOUSTON, LLC, Relator
ORIGINAL PROCEEDING
WRIT OF MANDAMUS
133rd District Court
Harris County, Texas
Trial Court Cause No. 2010-54130
OPINION
Relator has filed a petition for writ of mandamus. See Tex. Gov’t Code
§ 22.221; see also Tex. R. App. P. 52. In the petition, relator asks this court to
compel the Honorable Jaclanel McFarland, presiding judge of the 133rd District
Court of Harris County, to set aside her order dated August 19, 2013, compelling
the production of confidential settlement information. Relator also filed an
emergency motion for temporary relief, seeking to stay the enforcement of the trial
court’s discovery order. See Tex. R. App. P. 52.10. We granted the stay and
requested a response to the petition. A response has now been filed. We
conditionally grant mandamus relief.
I. FACTUAL AND PROCEDURAL BACKGROUND
Relator BDPJ Houston, LLC (hereinafter the “Owner”) is the owner of a
commercial office building that was formerly managed by Central Management,
Inc. (hereinafter the “Manager”), the real party-in-interest. The building suffered
direct damage in September 2008, as a result of Hurricane Ike. After the storm, the
Manager entered into a contract with Water Rescue, Inc., to extract water from the
property and to perform other restoration services as needed. Water Rescue
completed its work and submitted an invoice, but the company was never
compensated for the services it performed.
Water Rescue filed the underlying lawsuit in August 2010, seeking recovery
of approximately $130,000 from both the Owner and the Manager. The Owner
denied liability, claiming that it never agreed to contract with Water Rescue. The
Manager disputed this allegation and asserted that the Owner actually authorized
the hiring of Water Rescue.
The Manager filed a cross-claim against the Owner, asserting claims for
breach of contract, indemnity, fraud, negligent misrepresentation, unjust
enrichment, and money had and received. The Manager alleged that the Owner
already had recovered a settlement with an insurer, and that a portion of this
settlement represented the costs for having employed Water Rescue to perform
services. The settlement appears to have been the product of two previous and
related lawsuits. The first lawsuit was filed in Harris County by the Owner against
its insurance broker, BDL Financial, LLC. In the suit, the Owner alleged that BDL
Financial was negligent because it allowed an insurance policy to lapse months
2
before Hurricane Ike. As a result of the lapse, there was no coverage during the
storm. The Owner sought damages against BDL Financial primarily on a theory of
diminution of value, but the record also indicates that the Owner may have used
the costs of employing Water Rescue in its calculation of damages. In a summary-
judgment motion, the Owner made specific reference to the repairs performed by
Water Rescue and to a mechanics and materialman’s lien filed on the property by
Water Rescue.
The first lawsuit ended with the entry of a $3.5 million agreed judgment
against BDL Financial. After obtaining this consent judgment, the Owner made a
claim on BDL Financial’s errors and omissions insurance carrier, CNA Financial.
CNA Financial denied coverage based on an affiliated entity exclusion.1 When
CNA Financial refused to pay, the Owner filed a second lawsuit, this time in the
state of Arizona. The Arizona suit resulted in a confidential settlement agreement,
which is the subject of this original proceeding.
In the underlying lawsuit, the Manager served the Owner with four requests
for production, each pertaining to the discovery of the Arizona settlement. The
requests sought the following: (1) the settlement agreement between the Owner
and Continental Casualty Company, a CNA Financial subsidiary; (2) all documents
evidencing the location of the settlement funds; (3) all documents evidencing the
total dollar amount of the settlement; and (4) all documents evidencing how the
settlement funds have been spent. The Owner objected to these requests, asserting
that they were overbroad, irrelevant, and not reasonably calculated to lead to the
discovery of admissible evidence. The Manager moved to compel production,
arguing that “such documents could not be more relevant.” In its response to the
motion to compel, the Owner argued that the amount and location of the settlement
1
The Owner and BDL Financial are owned and controlled by the same principal, Brian D. Lesk.
3
funds would be relevant only in the event that a judgment actually were rendered
against the Owner.
The trial court granted, in part, the Manager’s motion to compel, ordering
the production of evidence described in requests (2) through (4). These requests
pertain to the location, amount, and expenditure of settlement funds. The trial court
did not order the production of the settlement agreement itself. The Owner asks
this court to grant mandamus relief on the asserted basis that the settlement
information is not relevant at this stage of the litigation.
II. MANDAMUS STANDARD
To be entitled to mandamus relief, a relator generally must show that the
trial court abused its discretion and that there is no adequate remedy by appeal. See
In re Prudential Ins. Co., 148 S.W.3d 124, 135–36 (Tex. 2004) (orig. proceeding).
On mandamus review of factual issues, a trial court will be held to have abused its
discretion only if the party requesting mandamus relief establishes that the trial
court could have reached but one decision (and not the decision it made). See
Walker v. Packer, 827 S.W.2d 833, 839–40 (Tex. 1992) (orig. proceeding).
Mandamus review of issues of law is not deferential. A trial court abuses its
discretion if it clearly fails to analyze the law correctly or apply the law to the facts
of the case. See In re Cerberus Capital Mgmt., 164 S.W.3d 379, 382 (Tex. 2005)
(orig. proceeding) (per curiam).
III. ANALYSIS
Generally, the scope of discovery is within the trial court’s discretion. See
In re CSX Corp., 124 S.W.3d 149, 152 (Tex. 2003) (orig. proceeding) (per curiam).
But, the trial court must make an effort to impose reasonable discovery limits. Id.
The trial court abuses its discretion by ordering discovery that exceeds that
4
permitted by the rules of procedure. Id. Usually, the scope of discovery includes
any unprivileged information that is relevant to the subject of the action, even if it
would be inadmissible at trial, so long as the information is reasonably calculated
to lead to the discovery of admissible evidence. See Tex. R. Civ. P. 192.3(a).
Under Texas Rule of Civil Procedure 192.3(g), the scope of discovery also may
extend to the existence and contents of any relevant portions of a settlement
agreement. See Tex. R. Civ. P. 192.3(g). Information is relevant if it tends to make
the existence of any fact that is of consequence to the determination of the action
or defense more or less probable than it would be without such information. See
Tex. R. Evid. 401.
Relevancy
The Owner argues that the trial court abused its discretion because the
requested discovery “in no way advances or assists . . . [the Manager] in satisfying
its burden on any of its claims or defeating any of [the Owner’s] affirmative
defenses.” Thus, we review the record to determine whether the discovery ordered
by the trial court is relevant to a claim or defense in the underlying suit or whether
it is reasonably calculated to lead to the discovery of admissible evidence. See Tex.
R. Civ. P. 192.3(a); Tex. R. Evid. 401.
The trial court ordered the production of documents evidencing the location,
amount, and expenditure of settlement funds, but not the settlement agreement
itself. To determine whether these individual components of the settlement are
discoverable, courts usually must examine the plain terms of the settlement
agreement. See, e.g., In re Union Pac. Res. Co., 22 S.W.3d 338, 341 (Tex. 1999)
(orig. proceeding) (per curiam) (trial court could have determined that the amount
of a settlement was irrelevant, and therefore not discoverable, based on the terms
of the agreement); Palo Duro Pipeline Co. v. Cochran, 785 S.W.2d 455, 457 (Tex.
5
App.—Houston [14th Dist.] 1990, orig. proceeding) (settlement amount was
irrelevant, but settlement terms could be discovered because they were relevant to
claim of conspiracy). Our limited record does not indicate that the settlement
agreement was filed under seal for the trial court’s in camera inspection. The
agreement has not been filed with this court either, and our record reveals very few
clues about its possible terms. The record does not contain any motion or pleading
from the Arizona litigation, which had the most direct bearing on the settlement.
The pleadings from the first litigation against BDL Financial, the Owner’s
insurance broker, likewise are not part of our record. If we accept the Manager’s
argument that the Arizona litigation is premised on the first litigation against BDL
Financial, then the consent judgment potentially could establish a relationship
between the settlement information and the underlying litigation. Still, the consent
judgment does not refer to Water Rescue by name, nor does it specifically describe
any of the services that Water Rescue performed.
Without knowing the terms of the settlement agreement, there is no basis for
concluding that the location, amount, or expenditure of the settlement funds is
relevant to a claim or defense in the underlying suit or is reasonably calculated to
lead to the discovery of admissible evidence. The Owner has admitted that it
already is in possession of settlement funds. Discovering the total dollar amount of
that settlement would reveal nothing about the Owner’s alleged role in the hiring of
Water Rescue.2 Cf. Palo Duro Pipeline, 785 S.W.2d at 457 (“We do not, however,
2
Even if we knew the reasons behind the settlement, this particular information would not
necessarily be relevant. Settlement amounts have been held to be discoverable in very limited
circumstances, which are not present in this mandamus case. See, e.g., Ford Motor Co. v. Leggat,
904 S.W.2d 643, 649 (Tex. 1995) (noting that, as of that time, “[t]he only Texas case to permit
discovery of the amount of a settlement concerned post-judgment discovery efforts to uncover
assets upon which to execute” (citing Collier Servs. Corp. v. Salinas, 812 S.W.2d 372 (Tex.
App.—Corpus Christi 1991, orig. proceeding)); In re Univar USA, Inc., 311 S.W.3d 175, 179,
181 (Tex. App.—Beaumont 2010, orig. proceeding) (per curiam) (when one codefendant has
6
find the cash amounts contained in the settlement agreements to be relevant to the
issue of conspiracy nor would disclosing the cash amounts be reasonably
calculated to lead to the discovery of admissible evidence.”). The same is true
about the location and expenditure of the settlement funds. The relevancy of such
information cannot be determined when it is stripped of all context.
The Manager contends that the settlement information is relevant, arguing
that it specifically supports its cross-claim against the Owner for money had and
received. We disagree. To recover on this particular cause of action, the claimant
must demonstrate that the defendant holds money which in equity and good
conscience belongs to the claimant. See Best Buy Co. v. Barrera, 248 S.W.3d 160,
163 (Tex. 2007) (per curiam); London v. London, 192 S.W.3d 6, 13 (Tex. App.—
Houston [14th Dist.] 2005, pet. denied). Discovery regarding the location, amount,
or expenditure of the settlement funds would not be relevant to whether the Owner
holds money which in equity and good conscience belongs to the Manager.
Though the Manager consistently has maintained that the Owner obtained the
settlement based on the services and invoices from Water Rescue, discovery
regarding the location, amount, or expenditure of the settlement funds is not
relevant to this allegation, nor is it reasonably calculated to lead to the discovery of
admissible evidence. On this record, we conclude that the trial court abused its
discretion by compelling discovery that was neither relevant to a claim or defense
in the underlying suit, nor reasonably calculated to lead to the discovery of
admissible evidence. See Tex. R. Civ. P. 192.3(a); Tex. R. Evid. 401; Palo Duro
Pipeline Co., 785 S.W.2d at 457 (holding that cash amounts of settlement
agreements were not discoverable because these amounts were irrelevant to the
settled but another has not, the nonsettling codefendant may be entitled to discover the other
party’s settlement amount for purposes of section 33.012 of the Civil Practice and Remedies
Code).
7
claims and not reasonably calculated to lead to the discovery of admissible
evidence); Nermyr v. Hyde, 799 S.W.2d 472, 476 (Tex. App.—El Paso 1990, orig.
proceeding) (holding that lump sum amount of a settlement was not discoverable
where it had no discernable relationship to the asserted causes of action or
defenses); Burlington N., Inc. v. Hyde, 799 S.W.2d 477, 481 (Tex. App.—El Paso
1990, orig. proceeding) (same).
Waiver Argument
The Manager presents two additional arguments. First, the Manager
contends that the Owner has waived the discovery objections that are the basis for
its requested mandamus relief. By rule, the party resisting discovery must make a
timely objection to the discovery request or else the objection is waived. See Tex.
R. Civ. P. 193.2(e); Young v. Ray, 916 S.W.2d 1, 3 (Tex. App.—Houston [1st
Dist.] 1995, orig. proceeding). According to the Manager, the Owner was required
to object to the discovery requests on the basis of privilege or confidentiality, and
its failure to do either waives the Owner’s complaint.
Sometimes a settlement agreement is protected with conditions of
confidentiality, but that does not make the agreement or its contents
undiscoverable as a matter of law. Rule 192.3(g) provides that a settlement
agreement is discoverable if it is relevant to the underlying litigation, without
regard to the settlement’s confidential nature. The Owner consistently has argued
in both its trial court objections and in its petition for mandamus relief that the
settlement information is not relevant to the Manager’s cross-claims. The Manager
has not cited any authority showing that an objection in this context is ineffective
because it is not based either on privilege or confidentiality. We conclude that the
Owner did not waive its objections that the discovery is irrelevant, and not
reasonably calculated to lead to the discovery of admissible evidence.
8
Faulty-Premise Argument
Next, the Manager argues that mandamus relief should be denied because of
a faulty premise in the Owner’s petition. In making this argument the Manager
specifically focuses on a question raised in the petition, which asked whether the
discovery ordered by the trial court qualified as net-worth discovery. The Owner
assumed that the request did qualify as net-worth discovery, then it argued that this
discovery was impermissible because “[the Manager] has not asserted a claim for
punitive damages in this matter.” See In re Jacobs, 300 S.W.3d 35, 40 (Tex.
App.—Houston [14th Dist.] 2009, orig. proceeding [mand. dismissed]) (evidence
of a party’s current net worth is discoverable only when punitive or exemplary
damages may be awarded). We agree that the Owner’s premise is faulty. The
Manager, in fact, has asserted a claim for punitive damages; but, this issue is not
dispositive. The Manager did not assert net worth as a reason for obtaining the
settlement information, and the Owner’s discovery objections are independent of
the question of net-worth discovery.
No Adequate Remedy by Appeal
Having found that the trial court abused its discretion, we must consider
whether the Owner has an adequate appellate remedy. The Supreme Court of
Texas has held that no adequate appellate remedy exists if the trial court compels
the production of patently irrelevant documents because the order imposes a
burden on the producing party far out of proportion to any benefit that may obtain
to the requesting party. See In re CSX Corp., 124 S.W.3d at 153. We conclude that
the Owner has no adequate appellate remedy. See id.; Palo Duro Pipeline Co., 785
S.W.2d at 457.
9
IV. CONCLUSION
We conditionally grant a writ of mandamus and order respondent to vacate
her discovery order dated August 19, 2013. The writ will issue only if the
respondent fails to comply.
/s/ Kem Thompson Frost
Kem Thompson Frost
Chief Justice
Panel consists of Chief Justice Frost and Justices Busby and Donovan.
10