in Re SAExploration, Inc., Jeff Hastings, and Brent Whiteley ( 2012 )

Appeal Dismissed; Petition for Writ of Mandamus Denied and Memorandum
Opinion filed December 4, 2012.
In The
Fourteenth Court of Appeals
NO. 14-12-00981-CV
IN RE SAEXPLORATION, INC., JEFF HASTINGS, AND BRENT WHITELEY,
Relators
ORIGINAL PROCEEDING
WRIT OF MANDAMUS
NO. 14-12-01006-CV
SAEXPLORATION INC., JEFF HASTINGS, AND BRENT WHITELEY,
Appellants
V.
CGGVERITAS LAND (U.S.), INC., Appellee
On Appeal from the 215th District Court
Harris County, Texas
Trial Court Cause No. 2012-01355
MEMORANDUM OPINION
On October 26, 2012, relators SAExploration, Inc. (“SAE”), Jeff Hastings, and
Brent Whiteley filed a petition for writ of mandamus in this court. See Tex. Gov’t Code
Ann. §22.221; see also Tex. R. App. P. 52. The petition for writ of mandamus was
assigned appellate cause number 14-11-00981-CV. On the same day, SAE, Hastings, and
Whiteley filed a notice of appeal complaining of the same order. The appeal was
docketed as cause number 14-12-01006-CV. Relators complain that the Honorable
Steven Kirkland, presiding judge of the 215th District Court of Harris County, abused his
discretion in signing an order disqualifying Whiteley.
SAE filed a motion to consolidate the appeal and the original proceeding. The real
party in interest, CGGVeritas Land (U.S.), Inc. (“CGGV”) filed a motion to dismiss the
appeal. We grant the motion to consolidate and the motion to dismiss, and deny the
petition for writ of mandamus.
Factual and Procedural Background
SAE and CGGV are competitors that provide geophysical services and equipment
to the oil and gas industry. On April 21, 2010, the parties entered into a confidentiality
agreement to enable them to evaluate a potential business combination. The agreement
was amended on April 27, 2010, to include a non-compete clause, which terminated one
year “following the date of this Agreement.” Members of the Strasburger & Price law
firm drafted the agreement. Brent Whiteley, who is a lawyer, was an employee of CGGV
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during this period of time until his employment was terminated in December 2010. On
March 15, 2011, Whiteley began working for SAE as chief operating officer, chief
financial officer, and general counsel.
On January 12, 2012, CGGV sued SAE alleging SAE breached the confidentiality
agreement. On March 15, 2012, CGGV moved to disqualify Strasburger & Price and
Whiteley on the grounds that they had a conflict of interest. With regard to Whiteley,
CGGV argued that, “[i]n his role as an attorney for CGGVeritas, Whiteley was exposed
to and obtained CGGVeritas’s confidential and proprietary information. He was also
involved directly with the SAE transaction and the negotiation of the confidentiality
agreement.” In its response to the motion to disqualify Whiteley, SAE argued that
Whiteley had not undertaken to represent SAE in the suit, and his prior employment with
CGGV did not disqualify him as in-house counsel for SAE.
At the hearing on the motion to disqualify, CGGV’s attorney represented that he
thought the parties would be able to reach an agreement limiting Whiteley’s involvement
in the case. At the conclusion of the hearing, the trial court orally pronounced that the
motion to disqualify was granted as to Strasburger & Price. When one of the attorneys
asked about Whiteley, the court responded, “Mr. Whiteley is to construct a Chinese wall.
He can continue working where he’s working but he is not to have anything to do with
this case.” On May 4, 2012, the court signed a written order disqualifying Strasburger &
Price from the case.
On August 16, 2012, CGGV filed a “Motion to Enforce Order and Request for
Accompanying Relief.” The motion recited that on May 4, 2012, the court disqualified
Strasburger & Price and ruled that a “Chinese Wall” was to be constructed by SAE
around Whiteley. The motion stated that, contrary to the court’s order, Whiteley was
acting as SAE’s corporate representative and was directly interacting with lawyers at
Crain, Caton & James, SAE’s new law firm. CGGV sought enforcement of the court’s
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prior “Chinese Wall” order and sought disqualification of Crain, Caton & James. CGGV
also asked the court to enforce the “Chinese Wall” around Whiteley and prohibit him
from all further contact with SAE aside from serving as a fact witness. In SAE’s
response, it alleged that Whiteley is not trial counsel and did not obtain or keep any
CGGV documents, and that CGGV has shown no actual prejudice. In an affidavit signed
August 20, 2012, Whiteley averred that his full communication with SAE’s counsel is
vital to SAE’s defense.
After a brief hearing, the trial court signed an order on October 8, 2012, entitled
“Order Disqualifying Brent Whiteley.” The order stated:
Whiteley is a former employee and former attorney for CGGVeritas Land
(US.), Inc. (“CGGVeritas”) and is now employed by SAExploration, Inc.
(“SAE”) as, among other responsibilities, an attorney for that company.
Because of this potential conflict of interest and based on Mr. Whiteley’s
representations to the Court through his affidavit, the Court ORDERS that
Mr. Whiteley and SAE immediately construct a “Chinese Wall” around Mr.
Whiteley, and further that Mr. Whiteley shall not be actively involved as
counsel in this litigation; shall not serve as litigation counsel in either
matter; shall not be involved in the day-to-day management of the cases;
shall not make any substantive or strategic decisions with regard to the
pending litigation or the arbitration; shall not speak or consult with SAE
employees or representatives, or outside counsel for SAE, about these cases
or developments in these cases; shall not disclose to SAE employees or
representatives, or outside counsel for SAE, any potentially confidential or
privileged information obtained during his employment with CGGVeritas;
and shall not review any documents or information related to this case
except as may be necessary to testify as a fact witness.
Nothing in this Order precludes Mr. Whiteley from testifying as a fact
witness in this case.
On October 26, 2012, SAE filed this petition for writ of mandamus complaining of
the trial court’s order on the following grounds: (1) disqualification standards do not
apply, (2) the trial court’s order actually constitutes an injunction, (3) absent
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disqualification, no irrebuttable presumption applies, (4) CGGV has shown no prejudice,
but SAE has, and (5) even if disqualification standards apply to Whiteley, the trial court
erred in disqualifying him.
Mandamus Standard
Mandamus is appropriate to correct a trial court’s abuse of discretion in denying a
motion to disqualify counsel because there is no adequate remedy by appeal. See In re
Guar. Ins. Servs., 343 S.W.3d 130, 132 (Tex. 2011) (orig. proceeding). With respect to
the resolution of factual issues or matters committed to the trial court’s discretion, we
may not substitute our judgment for that of the trial court unless the relator establishes
that the trial court could reasonably have reached only one decision and that the trial
court’s decision is arbitrary and unreasonable. Walker v. Packer, 827 S.W.2d 833, 839–
40 (Tex. 1992) (orig. proceeding).
Disqualification
SAE first contends that disqualification standards do not apply here because
Whiteley is a party employee of SAE rather than a lawyer representing SAE as retained,
outside counsel. We reject this contention because Whiteley’s role as a party employee
does not foreclose application of disqualification standards; instead, his role as a party
employee implicates disqualification standards that differ from those applicable to
retained, outside counsel.
Texas conflict-of-interest jurisprudence distinguishes between lawyers and non-
lawyers; their duties; and their likelihood of contact with confidential information. In re
Guar. Ins. Servs., Inc., 343 S.W.3d at 133.
The supreme court has held that a lawyer who previously has represented a client
may not represent another person on a matter adverse to the client if the matters are the
same or substantially related. In re Columbia Valley Healthcare System, L.P., 320
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S.W.3d 819, 824 (Tex. 2010) (orig. proceeding) (citing Phoenix Founders, Inc. v.
Marshall, 887 S.W.2d 831, 833 (Tex. 1994) (orig. proceeding); NCNB Texas Nat’l Bank
v Coker, 765 S.W.2d 398, 399–400 (Tex. 1989) (orig. proceeding); Tex. Disciplinary R.
Prof’l Conduct 1.09(a), reprinted in Tex. Gov’t Code, tit. 2, subtit.G, app. A, (State Bar.
R art. X, § 9)). If the lawyer works on a matter, there is an irrebuttable presumption that
the lawyer obtained confidential information during the representation. Phoenix
Founders, Inc. , 887 S.W.2d at 833. “When the lawyer moves to another firm, and the
second firm represents an opposing party to the lawyer’s former client, a second
irrebuttable presumption arises—that the lawyer has shared the client’s confidences with
members of the second firm.” In re Guar. Ins. Servs., Inc., 343 S.W.3d at 134 (original
emphasis) (citing Phoenix Founders, Inc., 887 S.W.2d at 834). “The effect of this
second presumption is the mandatory disqualification of the second firm.” Id. (citing
Phoenix Founders, Inc., 887 S.W.2d at 833–34).
A different rule applies to nonlawyers. A nonlawyer who worked on a matter
during prior employment also is subject to a conclusive presumption that confidences
were obtained. In re Am. Home Prods. Corp., 985 S.W.2d 68, 74 (Tex. 1998) (orig.
proceeding); Phoenix Founders, Inc., 887 S.W.2d at 834. However, the second
presumption—that confidences were shared with members of the second firm—may be
rebutted when nonlawyers are at issue. Phoenix Founders, Inc., 887 S.W.2d at 835.
Although Whiteley is an attorney, he is not participating in this case as retained,
outside counsel. Whiteley wears multiple corporate hats as SAE’s general counsel, chief
operating officer, and chief financial officer.
We agree with relators that “[d]isqualification under the Texas Disciplinary Rules,
specifically Rule 1.09, does not apply to a party employee” such as Whiteley. See Tex.
Disc. R. Prof. Conduct 1.09 & cmt. 1 (“Rule 1.09 addresses the circumstances in which a
lawyer in private practice, and other lawyers who were, are or become members of or
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associated with a firm in which that lawyer practiced or practices, may represent a client
against a former client of that lawyer or the lawyer’s former firm.”). We disagree with
relators’ accompanying suggestion that no disqualification standard applies to Whiteley
in the absence of Rule 1.09. We conclude that the disqualification standard applicable to
nonlawyers also applies here in light of Whiteley’s multiple corporate roles at SAE.
Under the applicable standard, there is a conclusive presumption that Whiteley obtained
confidential information while working on a substantially related matter for CGGV. SAE
may rebut the presumption that Whiteley shared those confidences with his new
employer.
To rebut the presumption and avoid disqualification, a party must show that (1) the
employee was cautioned not to disclose any confidences; (2) the employee was instructed
not to work on any matter that he previously worked on for the other side; and (3) the
new employer has taken reasonable steps to ensure that the employee will not work in
connection with such matters. American Home Prods., 985 S.W.2d at 75; Phoenix
Founders, Inc. 887 S.W.2d at 835. In other words, a Chinese Wall must be constructed
around the employee. See Phoenix Founders, Inc. 887 S.W.2d at 835.
SAE made Whiteley its corporate representative and sole client contact with
counsel. Whiteley worked for CGGV when the confidential agreement was drafted.
According to SAE’s petition, Whiteley “communicated with [SAE’s outside counsel],
participated in the discovery process, and generally served as a liaison or corporate
representative for SAE” after the May 4 hearing. Whiteley averred in his affidavit that
his full communication with SAE’s counsel is vital to SAE’s defense. Therefore, the
record reflects that Whiteley has worked on the litigation at issue in cooperation with
SAE’s outside counsel. The record further reflects that SAE’s outside counsel knew
Whiteley worked at CGGV at the time the agreement was drafted. By his own
admission, Whiteley was intimately involved in SAE’s litigation defense.
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The presumption that Whiteley shared confidential information is rebuttable; on
this record, SAE failed to rebut it. Therefore, the trial court did not abuse its discretion in
granting CGGV’s motion to disqualify Whiteley.
Prejudice
SAE argues that CGGV is not entitled to disqualify Whiteley because it failed to
show that Whiteley’s continued participation in the litigation on behalf of SAE would
prejudice CGGV.
Citing In re Meador, 968 S.W.2d 346, 350 (Tex. 1998) (orig. proceeding), SAE
argues that a court should not disqualify a lawyer for a disciplinary violation that has not
resulted in actual prejudice to the party seeking disqualification. In Meador, the supreme
court addressed whether a lawyer who obtained privileged information through the
discovery process should be subject to disqualification. Id. at 350–51. The court
determined that the trial court must consider all the facts and circumstances to determine
whether the interests of justice require disqualification. Id. at 351. The court listed six
factors to be considered including “the extent to which the nonmovant will suffer
prejudice from the disqualification of his or her attorney.” Id. at 352.
Meador emphasized that the factors apply “only when a lawyer receives an
opponent’s privileged materials outside the normal course of discovery.” Id. The court
specifically rejected a bright-line rule such as the one laid out in Phoenix Founders.
Meador, 968 S.W.2d at 353–54. The court determined that the rule set out in Phoenix
Founders does not extend to the facts of Meador. Id.
The facts and circumstances in this case do not address receipt of an opponent’s
privileged materials; rather, the issue here is preventing disclosure of confidential
information. In a case such as this, as discussed earlier, no showing of prejudice is
required because the facts raise a presumption of shared confidences. See American
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Home Prods., 985 S.W.2d at 74; In re Guar. Ins., 343 S.W.3d at 135. The facts of this
case implicate the bright-line rule of Phoenix Founders rather than Meador’s prejudice
requirement. Therefore, CGGV was not required to show it would be prejudiced by
Whiteley’s continued participation in the litigation.
Injunction
SAE next contends that, under the guise of disqualification, CGGV effectively
sought and obtained permanent injunctive relief without pleadings, notice, hearing, or
proof to support such relief. SAE contends that the trial court’s order disqualifying
Whiteley is, in reality, an injunction prohibiting Whiteley from performing his job at
SAE. Because SAE contends the order grants injunctive relief, SAE also filed an
interlocutory appeal from the same order it challenged on mandamus.
In part, SAE’s injunction characterization is an extension of the already-rejected
contention that disqualification standards do not apply to Whiteley. We likewise reject
SAE’s argument that the trial court’s order operates as an injunction. Nothing in the trial
court’s order prohibits Whiteley from performing his duties for SAE as long as he
refrains from communicating with outside counsel for SAE in this lawsuit. The order
permits communication to the extent necessary to prepare Whiteley as a fact witness;
however, the trial court’s order does not prohibit Whiteley from competing with CGGV,
as SAE argues. Whiteley can perform his other job duties at SAE; the order does not
prevent him from performing those job duties or from participating as a fact witness in
this litigation.
Generally, we have jurisdiction only over appeals from final judgments, that is,
judgments that dispose of all pending parties and claims in the record. See Lehmann v.
Har–Con Corp., 39 S.W.3d 191, 195 (Tex. 2001). Interlocutory orders may be appealed
only if permitted by statute. Bally Total Fitness Corp. v. Jackson, 53 S.W.3d 352, 352
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(Tex. 2001); Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992) (orig.
proceeding). Interlocutory appeal of a disqualification order is not permitted by statute;
SAE’s remedy is mandamus. See In re Guar. Ins. Servs., 343 S.W.3d at 132.
Accordingly, CGGV’s motion to dismiss SAE’s interlocutory appeal in cause number 14-
12-01006-CV is granted.
Conclusion
Relators have not established entitlement to the extraordinary relief of a writ of
mandamus. Accordingly, we deny relator’s petition for writ of mandamus and dismiss
appellants’ appeal.
PER CURIAM
Panel consists of Justices Seymore, Boyce, and McCally.
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