in Re Flowcrete North America, Inc. ( 2016 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
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NO. 09-16-00382-CV
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IN RE FLOWCRETE NORTH AMERICA, INC.
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Original Proceeding
410th District Court of Montgomery County, Texas
Trial Cause No. 15-02-01093-CV
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MEMORANDUM OPINION
This mandamus proceeding concerns the protection of trade secrets in
discovery in civil litigation. The relator, Flowcrete North America, Inc.
(“Flowcrete”), contends that the trial court abused its discretion by (1)
consolidating two cases for discovery, (2) allowing a competitor’s chief executive
officer to act as an expert witness in the case, and (3) refusing to protect
Flowcrete’s trade secrets by further limiting the persons with access to certain
discovery materials and permitting re-designation of trade secret information in
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light of the trial court’s rulings on shared discovery and Flowcrete’s objection to
the expert witness. We conditionally grant relief.
The scope of discovery is largely within the trial court’s discretion, but
mandamus will issue if a trial court improperly orders the disclosure of trade
secrets. See In re Union Pac. R.R. Co., 294 S.W.3d 589, 593 (Tex. 2009). The
Texas Uniform Trade Secrets Act (“TUTSA”) requires that courts preserve the
secrecy of an alleged trade secret by reasonable means. Tex. Civ. Prac. & Rem.
Code Ann. § 134A.006 (West Supp. 2016). TUTSA’s presumption in favor of
granting protective orders to preserve secrecy of trade secrets authorizes limiting
access to confidential information to only attorneys and their experts and ordering
nondisclosure without prior court approval. Id. When considering a party’s pre-
trial request for protection of alleged trade secrets, the trial court need not
determine that the information is, in fact, a trade secret, but must determine
whether the information is entitled to trade-secret protection until the trial on the
merits. In re M-I L.L.C., No. 14-1045, 2016 WL 2981342, at *4, n.3 (Tex. May 20,
2016) (orig. proceeding).
In February 2015, Flowcrete sued its former president, Anthony Crowell,
three former employees, David Keller, Sheryl Kunning, and Ann Delve, and their
newly-formed company, Verdia, Inc. (collectively, the “Verdia parties”). Flowcrete
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alleged that the Verdia parties misappropriated Flowcrete’s trade secrets for its
polyurethane concrete flooring system, which has a stable emulsion and can be
shipped in bulk. Additionally, Flowcrete alleged that the individual defendants
breached their contractual duties not to disclose any of Flowcrete’s confidential
information. In March 2016, a Flowcrete competitor, Ulfcar Production ApS
(“Ulfcar”), filed a petition in intervention and third-party petition alleging that
Flowcrete, entities affiliated with Flowcrete, and two individuals employed by
those entities misappropriated Ulfcar’s confidential and proprietary polyol formula,
which Ulfcar alleged Flowcrete used to create its product. Ulfcar alleged it licensed
the exclusive right to use its polyol formula in the United States to Verdia.
The trial court severed Ulfcar’s claims into a separate case, but ordered
shared discovery for the two cases. Flowcrete requested that the protective order
previously signed by the trial court be amended to account for the fact that
Flowcrete’s competitor was directly participating in the discovery process. The
trial court denied Flowcrete’s motion but ordered the parties to return to the
mediator and agree on any additional language “including language to allow for
appropriate protections through case specific marking/designations of documents
and to clarify definitions and terms including independent experts and consultants
and designated party representatives.”
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At this stage of the proceedings, Flowcrete seeks protection from discovery
from a direct product competitor of the formulas and production methods that
Flowcrete alleges (a) derive independent economic value from not being readily
known to or ascertainable through proper means by others who can obtain
economic value from its disclosure or use; and, (b) is the subject of reasonable
efforts to maintain its secrecy. See Tex. Civ. Prac. & Rem. Code Ann. §
134A.002(6). The trial court has not found that Flowcrete is seeking protection of
information that is, in fact, owned by Ulfcar. Whether Flowcrete owns the
information is a disputed fact issue to be resolved in the trial court, but at this stage
of the proceedings, it is undisputed that the information is proprietary and
confidential, and is a trade secret that is claimed by Flowcrete.
The Verdia parties argue that the substantial overlap between the Ulfcar and
Flowcrete suits justifies combining the discovery in the two cases. Flowcrete’s suit,
in part, seeks to enjoin the Verdia parties’ misappropriation of Flowcrete’s “non-
public formulas, mixing instructions, prices, pricing policies, customer lists and
identities, the preferences and needs of such customers, material and product
specifications, contractual relations, sales and marketing strategies, business
practices, and training know-how” developed from 2009 through 2013. Ulfcar’s
petition alleges that an entity related to Flowcrete illicitly obtained Ulfcar’s polyol
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formula from Ulfcar’s predecessor in interest in 2008, and Flowcrete’s polyol
formulation and production methods changed dramatically between 2009 and
2011. Therefore, it is undisputed that through their employment with Flowcrete,
the Verdia parties have already obtained the information that Flowcrete developed
after 2008 and that Ulfcar does not possess that information. Sharing discovery in
the two cases would result in Flowcrete surrendering its trade secrets to Ulfcar
before Ulfcar established its right to possess the information. We conclude that the
trial court’s order consolidating the Flowcrete and Ulfcar suits for purposes of
discovery fails to preserve the secrecy of Flowcrete’s alleged trade secret by
reasonable means. See Tex. Civ. Prac. & Rem. Code Ann. § 134A.006.
Flowcrete complains that due to his designation as an independent expert,
the existing protective order permits Ulfcar’s CEO, Neils Vangsted, to review all
of the competitive commercial information, confidential material, and trade secrets
that Flowcrete produces to the Verdia parties. The Verdia parties designated
Vangsted as a non-retained expert and fact witness. Flowcrete moved to strike the
designation, arguing that Vangsted is fully interested in the outcome of the
litigation between Flowcrete and the Verdia parties by virtue of the exclusive
licensing agreement between Ulfcar and Verdia. The trial court denied the motion
to strike. Flowcrete moved for protection of its alleged trade secrets from
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disclosure to its competitor’s CEO. The trial court denied the motion but ordered
the parties to return to the mediator and agree on additional protective language for
the existing protective order “through case specific marking/designations of
documents and to clarify definitions and terms including independent experts and
consultants and designated party representatives.”
Flowcrete argues that TUTSA requires the trial court to preserve the secrecy
of an alleged trade secret through reasonable means. See id. The Verdia parties
claim that Vangsted is a “Counsel-Designated Representative” not an “independent
expert” and argue that Flowcrete can prevent Vangsted from viewing proprietary
information by designating it for “Attorneys[’] Eyes Only[.]” We agree with
Flowcrete. The protective order states that a qualified person for “Attorneys Only”
information includes “actual or potential independent experts[.]” The trial court’s
protective order failed to preserve the secrecy of Flowcrete’s alleged trade secrets
by reasonable means. See id.
We agree with Flowcrete that the trial court’s mediation order does not
protect Flowcrete’s alleged trade secrets, but this order was an incidental ruling
that does not merit mandamus review in light of the trial court’s decision to stay
discovery pending mandamus review and our ruling that the trial court must
protect Flowcrete’s alleged trade secrets pending trial on the merits or a
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determination that Flowcrete is not entitled to trade secret protection. See id. We
are confident that the trial court will amend its orders to remove the provision
allowing shared discovery and that the trial court will protect the alleged trade
secret information from disclosure to the relator’s competitor before the ownership
of the information has been determined. The writ shall issue only if the trial court
fails to comply.
PETITION CONDITIONALLY GRANTED.
PER CURIAM
Submitted on October 27, 2016
Opinion Delivered December 8, 2016
Before Kreger, Horton, and Johnson, JJ.
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