in Re Baytown Nissan Inc., Burklein Family Limited Partnership, Frederick W. Burklein and J. Cary Gray , 2014 Tex. App. LEXIS 12197 ( 2014 )

Opinion issued November 7, 2014
In The
Court of Appeals
For The
First District of Texas
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NO. 01-14-00704-CV
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IN RE BAYTOWN NISSAN INC., BURKLEIN FAMILY LIMITED
PARTNERSHIP, FREDERICK W. BURKLEIN AND J. CARY GRAY,
Relators
Original Proceeding on Petition for Writ of Mandamus
OPINION
In this mandamus proceeding, we examine whether a discussion between
two lawyers—one representing a trade association and the other representing one
of its members—is subject to an attorney-client or attorney-work-product
privilege. Relators Baytown Nissan, Inc., the Burklein Family Limited Partnership
and Frederick W. Burklein (collectively, “Baytown Nissan”) are defendants in an
action alleging breach of contract and various torts arising from a failed sale of
their Nissan dealership to, BSAG, Inc. Baytown Nissan and their legal counsel, J.
Cary Gray, seek mandamus relief from the trial court’s order overruling their
privilege assertions to the substance of a June 2013 phone conversation between
Gray and Brenda Karen Phillips, the General Counsel of the Texas Automobile
Dealer Association, regarding the dealership sale. The order requires that both
Gray and Phillips answer additional questions about the substance of the
conversation, for which Baytown Nissan has claimed privilege. We conditionally
grant relief as to Gray’s deposition and deny it as to Philips’s. 1
Background
Baytown Nissan entered into an agreement to sell the assets and the
associated real estate of their Nissan dealership to BSAG, Inc. Pursuant to the
agreement’s terms, the dealership’s sale was subject to the written approval of
Nissan North America, Inc., which also holds a right of first refusal for the sale of
the dealership. Nissan North America never gave its written approval, and it
1
The underlying case is BSAG, Inc. and Bob Stallings Nissan of Baytown, Inc. v.
Baytown Nissan, Inc., Burklein Family Limited Partnership, Nissan North
America, Inc., and Frederick W. Burklein, cause number 2013-38072, pending in
the 127th District Court of Harris County, Texas, the Honorable R.K. Sandill
presiding.
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exercised its right of first refusal; thus, the dealership sale to BSAG failed to close.
Baytown Nissan then agreed to sell the dealership to a third party, who Nissan
North American had approved. BSAG and its assignee under the agreement, Bob
Stallings Nissan of Baytown, Inc. (collectively “BSAG”) have sued the Baytown
Nissan defendants and Nissan North America, seeking damages associated with the
failed transaction.
A. The Failed Sale Transaction and Right of First Refusal
In 1989, Nissan North America entered into a sales and service agreement
with Baytown Nissan. Pursuant to the agreement, Baytown Nissan became an
authorized Nissan dealer in Baytown, Texas. In 2005, the parties amended the
agreement to add, among other things, a right of first refusal (“ROFR”) allowing
Nissan North America to match any dealership purchase offer and to step into the
shoes of a potential buyer.
In March 2013, BSAG offered to purchase the Baytown Nissan dealership
from Baytown Nissan through an asset purchase agreement. In April, Baytown
Nissan notified Nissan North America of the proposed sale. In June, Nissan North
America notified Baytown Nissan that it was exercising its ROFR. Nissan North
America subsequently assigned its rights to purchase Baytown Nissan to Soni
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Insurgentes, S.A. de C.V. By the end of June, BSAG had filed the underlying
lawsuit, and it moved to enjoin the sale to Soni. In August, the trial court denied
injunctive relief. This original proceeding, as well as two others relating to trade
secret issues, arose during the discovery process. After a failed settlement attempt
(prompting the parties to amend their pleadings to assert additional claims), the
case is set for trial next week.
B. The Gray-Phillips Conversation
Before it exercised its ROFR, Nissan North America notified Baytown
Nissan that it was considering invoking it. At the time, Baytown Nissan was a
member of the Texas Automobile Dealer Association (“TADA”). In response to
the notice, Baytown Nissan’s lawyer, Gray, telephoned TADA’s General Counsel,
Phillips, to discuss the transaction. During the discovery process in this suit,
BSAG advised Baytown Nissan that it intended to (1) depose Gray regarding the
substance of the Gray-Phillips Conversation and (2) call Philips as a witness at trial
to testify against Baytown Nissan regarding their conversation.
1. The Gray Deposition
Baytown Nissan moved to quash Gray’s deposition, arguing that Gray’s
conversation with Phillips is privileged. The trial court ordered that Gray be
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deposed in the courtroom so that the court could rule on the privilege assertions in
real time. At Gray’s deposition, Gray’s counsel asserted privilege and instructed
Gray not to answer questions about the substance of the Gray-Phillips
Conversation. The trial court was present for nine of these questions; it overruled
the assertions of privilege and instructed Gray to answer within ten days. BSAG
then posed the following two additional questions, which also evoked privilege
objections and instructions not to answer:
Q: Okay. And as somebody with experience in the automobile
dealership business, what she told you was consistent with your
experience, wasn’t it? (the “First Additional Question”)
Q: All right. What did you and Ms. Phillips talk about? Tell me from
the beginning of the conversation to the end of it. (the “Second
Additional Question”)
The trial court thereafter entered a written order (1) overruling Gray’s objections
and assertions of privilege as to the nine original questions and the First Additional
Question and (2) sustaining the objection to the Second Additional Question. The
order compelled Gray to answer the deposition questions to which objections and
instructions not to answer were overruled. Gray then provided sworn answers to
the original questions and the First Additional Question. BSAG subsequently
moved the court to reconsider its ruling sustaining the privilege objection to the
Second Additional Question.
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2. The Phillips Deposition
During Phillips’s deposition, Baytown Nissan’s counsel similarly objected
to questions regarding the substance of the Gray-Phillips Conversation on the basis
of attorney-client privilege and instructed Phillips not to answer. The parties
contacted the trial court for a ruling. The trial court overruled Baytown Nissan’s
objections, but directed that Phillips not provide answers until ten days after the
court entered a written signed order to allow for further review.
C. The Order
On August 12, 2014, the trial court entered a written order, ruling that the
substance of the Gray-Phillips Conversation is not privileged and ordering both
Gray and Phillips to be re-deposed. The trial court also granted BSAG’s motion for
reconsideration of its July 8, 2014 ruling and ordered Gray to answer Second
Additional Question.
Discussion
Baytown Nissan seeks mandamus relief, requesting that we vacate the
August 12, 2014 order, contending that the Gray-Phillips Conversation is subject to
one or more privileges or exemptions from discovery.
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Standard of Review
Mandamus relief is available to correct a clear abuse of discretion when
there is no adequate remedy by appeal. See Walker v. Packer, 827 S.W.2d 833,
839–40 (Tex. 1992) (orig. proceeding). Generally, the scope of discovery is within
the trial court’s discretion. See In re Colonial Pipeline Co., 968 S.W.2d 938, 941
(Tex. 1998) (orig. proceeding) (citing Dillard Dep’t Stores, Inc. v. Hall, 909
S.W.2d 491, 492 (Tex. 1995) (orig. proceeding)). The burden of establishing a
clear abuse of discretion is on the party resisting discovery. See In re CSX Corp.,
124 S.W.3d 149, 151 (Tex. 2003) (orig. proceeding) (citing Canadian Helicopters
Ltd. v. Wittig, 876 S.W.2d 304, 305 (Tex. 1994) (orig. proceeding)). But a trial
court has no discretion in determining what the law is or in applying the law to the
particular facts. See Walker, 827 S.W.2d at 840.
In particular, mandamus relief is appropriate to protect confidential and
privileged information from discovery. See In re Living Ctrs. of Tex., Inc., 175
S.W.3d 253, 256 (Tex. 2005) (orig. proceeding); Mem’l Hosp.–The Woodlands v.
McCown, 927 S.W.2d 1, 12 (Tex. 1996). An appeal is inadequate when a trial
court erroneously orders the production of confidential information or privileged
documents. See In re Ford Motor Co., 211 S.W.3d 295, 298 (Tex. 2006); In re E.I.
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DuPont de Nemours and Co., 136 S.W.3d 218, 223 (Tex. 2004); see also In re BP
Prods. N. Am. Inc., 263 S.W.3d 106, 111 (Tex. App.—Houston [1st Dist.] 2006,
orig. proceeding) (“There is not an adequate remedy by appeal when a trial court
erroneously orders the disclosure of privileged information because the error
cannot be corrected once the benefit of the privilege is lost.”).
To properly assert a claim of privilege, a party must plead the particular
privilege, produce evidence to support the privilege through affidavits or
testimony, and produce the documents for an in camera inspection, if the trial court
determines review is necessary. See In re ExxonMobil Corp., 97 S.W.3d 353, 357
(Tex. App.—Houston [14th Dist.] 2003, orig. proceeding). The burden to establish
the privilege is on the party seeking to shield information from discovery, and the
party has the obligation to prove, by competent evidence, that the privilege applies
to the information sought. See Arlington Mem’l Hosp. Found., Inc. v. Barton, 952
S.W.2d 927, 929 (Tex. App.—Fort Worth 1997, orig. proceeding).
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A. Attorney-Client Privilege
Texas Rule of Evidence 503 provides that 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. See TEX. R. EVID. 503(b)(1).
The attorney-client relationship is a contractual relationship whereby an
attorney agrees to render professional services for a client. See Mellon Serv. Co. v.
Touche Ross & Co., 17 S.W.3d 432, 437 (Tex. App.—Houston [1st Dist.] 2000, no
pet.). Parties may expressly create such a relationship by contract, or it may be
implied from their actions. See Sutton v. Estate of McCormick, 47 S.W.3d 179, 182
(Tex. App.—Corpus Christi 2001, no pet.); Vinson & Elkins v. Moran, 946 S.W.2d
381, 405 (Tex. App.—Houston [14th Dist.] 1997, writ dism’d by agr.).
Baytown Nissan argues that the Gray-Phillips Conversation is privileged
under Rule 503 because (1) the rule does not require an attorney-client relationship
between two attorneys for it to apply; and (2) in any event, an attorney-client
relationship was implied under these facts.
1. Rule 503’s Requirement of an Attorney-Client Relationship
Rule 503 recognizes a privilege for confidential communications when a
lawyer either (1) renders professional legal services to a client or (2) consults with
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a client who seeks professional legal services from that lawyer. See TEX. R. EVID.
503(a)(1), (b)(1). Baytown Nissan’s first argument, that Phillips’s status as an
attorney—and not necessarily their attorney—is sufficient to attach attorney-client
privilege disregards the purpose of the privilege: to foster open communication
between clients and their attorneys so that the attorneys can best represent their
clients. See In re Union Carbide Corp., 2003 WL 22682301, *4 (Tex. App.—
Houston [1st Dist.] 2003, orig. proceeding) (“The purpose of the attorney-client
privilege is to protect the confidential relationship between attorney and client and
to promote full and open disclosure of facts so that the attorney can best represent
his client.”). It is the relationship with the client that confers the privilege.
Accordingly, we reject Baytown Nissan’s request to expand the attorney-client
privilege to situations outside of an attorney-client relationship. See TEX. R. EVID.
503(b).
2. Implied Attorney-Client Relationship
It is undisputed by the parties that there was no express agreement forming
an attorney-client relationship between Phillips and Baytown Nissan. Baytown
Nissan instead argues that an attorney-client relationship existed because Phillips is
an attorney who provides legal services to TADA’s membership and thus, as a
member of TADA, Baytown Nissan numbers among her clients.
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In the absence of an express agreement, an attorney-client relationship can
be implied from the actions of the parties. See Span Enters., Inc. v. Wood, 274
S.W.3d 854, 858 (Tex. App.—Houston [1st Dist.] 2008, no pet.). Whether an
attorney-client relationship can be implied depends upon an objective standard,
looking at what the parties said and did to support an agreement to enter into one.
See Span Enters., 274 S.W.3d at 858; Vinson & Elkins, 946 S.W.2d at 405–06. A
court cannot consider a client’s or attorney’s unspoken subjective beliefs about the
parties’ relationship. See Id.
A federal district court rejected Baytown Nissan’s position in Robinson v.
Tex. Auto. Dealers Ass’n, 214 F.R.D. 432 (E.D. Tex. 2003), vacated in part on
other grounds, In re Tex. Auto. Dealers Ass’n, No. 03-40860, 2003 WL 21911333
(5th Cir. July 25, 2003). In Robinson, the plaintiffs moved to compel production of
documents on a privilege log served by defendants that included communications
between Phillips, on behalf of TADA, and individual members. The district court
concluded that the communications between Phillips and TADA members were
not per se protected by attorney-client privilege. The court observed that “[t]o
invoke the attorney-client privilege, Defendants must show that the asserted
holders of the privilege, here the members of the TADA, were or sought to become
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clients at the time the allegedly privileged communication was made.” Id. at 451.
In rejecting a blanket rule that communications between a trade association’s
attorney and the association’s members are covered by an attorney-client privilege,
the court held that “while members of a trade association may certainly establish
an attorney-client relationship with the trade association’s attorney(s), it must be
determined on a case-by-case basis whether those members actually took the
necessary action to do so.” Id. at 452.
We similarly decline to adopt a blanket rule of privilege between a trade
association’s members and the association’s counsel. Consistent with our
precedent, we instead examine the objective evidence in the record supporting an
attorney-client relationship between the association’s counsel and this particular
member. The record cannot support an implied relationship here. In particular:
• Gray did not ask Phillips to represent him or his clients or tell Phillips that
he wanted to engage Phillips to provide legal services to him or his clients;
• Gray did not send Phillips any proposed engagement agreement or
confidentiality agreement;
• Gray did not express a belief to Phillips that she was acting as an attorney
for him or his clients;
• Gray did not seek, and Phillips did not provide, any agreement or assurances
that the conversation was privileged and confidential;
• Phillips did not inform Gray that she had to run a conflicts check before
providing information to Gray;
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• Phillips testified that she only provided general information, not legal
advice; and
• Phillips testified that, each day, she receives as few as 10 or as many as 75
phone calls, emails, or other communications from dealers.
Although Gray provided statements regarding his belief that the conversation was
subject to attorney-client privilege and would be kept confidential, such unstated
subjective beliefs do not give rise to an attorney-client relationship by implication.
See Span Enters., 274 S.W.3d at 858 (“[Appellant’s] unstated, subjective beliefs do
not give rise to an attorney-client relationship by implication.”); Vinson & Elkins,
946 S.W.2d at 405–06 (“Because the attorney-client relationship is contractual, the
determination of the existence of a contract must be, as in any other contract case,
based on an objective standard, and not on what the parties subjectively thought.”).
Accordingly, the trial court acted within its discretion in overruling Baytown
Nissan’s attorney-client privilege objections. We hold that Baytown Nissan has not
shown that it is entitled to mandamus relief based on a claim of attorney-client
privilege.
B. Work-Product Privilege
The work product doctrine preserves the rights of attorneys to thoroughly
prepare cases for trial and to investigate both favorable and unfavorable aspects of
their cases, while preventing attorneys from taking advantage of their opposing
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counsel’s efforts. See In re Union Carbide Corp., 2003 WL 22682301, at *5 (Tex.
App.—Houston [1 Dist.], Nov. 13, 2003). The Texas Rules of Civil Procedure
define “work product” as:
(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.
TEX. R. CIV. P. 192.5(a). The rule distinguishes between “core work product” and
“non-core work product.” “Core work product” concerns an attorney’s mental
processes and is not discoverable. See TEX. R. CIV. P. 192.5(b)(1). “Other” or
“non-core” 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.” Id. at 192.5(b)(2).
Thus, our court has held that the work product privilege exempts an
attorney’s documents, reports, communications, memoranda, mental impressions,
conclusions, opinions, or legal theories from discovery if generated in anticipation
of litigation. See Marshall v. Hall, 943 S.W.2d 180, 183 (Tex. App.—Houston [1st
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Dist.] 1997, no writ). The privilege also protects the mental impressions and
strategy of the attorney. Id. Core work product is the work product of an attorney
or an attorney’s representative that contains the attorney’s or the attorney’s
representative’s mental impression, opinions, conclusions, or legal theories; it is
not discoverable. See TEX. R. CIV. P. 192.5(b)(1). “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.” TEX. R. CIV. P. 192.5(b)(2). The “anticipation of litigation” test is
met when a reasonable person would have concluded from the totality of the
circumstances that there was a substantial chance that litigation would ensue and
the party asserting the work product privilege subjectively believed in good faith
that there was a substantial chance that litigation would ensue. See Nat’l Tank Co.
v. Brotherton, 851 S.W.2d 193, 204, 207 (Tex. 1993). Whether the Gray-Phillips
Conversation was in anticipation of litigation is not in dispute.
BASG responds that the work product privilege does not protect facts of the
case from discovery save under exceptional circumstances. See Marshall v. Hall,
943 S.W.2d at 183 (citing Leede Oil & Gas, Inc. v. McCorkle, 789 S.W.2d 686,
15
687 (Tex. App.—Houston [1st Dist.] 1990, orig. proceeding) (interpreting TEX. R.
CIV. P. 166b(3)(a)). “Where relevant and non-privileged facts remain hidden in an
attorney’s file and where production of those facts is essential to the preparation of
one’s case, discovery may properly be had.” Hickman v. Taylor, 329 U.S. 495,
511, 67 S. Ct. 385, 394, 91 L. Ed. 451 (1947). We thus examine whether compelling
either Phillips or Gray to testify about the Gray-Phillips Conversation would
require disclosure of attorney work product and, if so, whether an exception to the
work product privilege applies.
Discovery from Phillips
Baytown Nissan notes that Gray sought to investigate the claims of this case
in his discussions with Phillips because (1) “TADA itself openly states that it
represents the Texas automobile dealer body and works on behalf of its members”
and (2) “Phillips testified that TADA’s purpose is to represent the Texas
automobile dealer body before the Texas Legislature, Congress, and regulatory
agencies.” To the extent Baytown Nissan suggests that Phillips was its
representative, we reject this argument for the same reason that an attorney-client
privilege does not attach. The evidentiary record does not conclusively
demonstrate an agreement that Phillips was to serve as either an attorney or any
16
sort of representative acting on behalf of Baytown Nissan. Instead, the record
includes, among other things, an affidavit from Phillips stating that Gray “did not
ask [Phillips] if [she] would be willing to be a consulting or testifying expert in any
matter and did not mention anything about [her] being or potentially being an
expert.” Phillips herself disavows such a relationship. The trial court thus was
within its discretion in concluding that Phillips’s testimony was not covered by
work product privilege.
Discovery from Gray
We reach a different conclusion in the application of the work-product
doctrine to the testimony sought from Gray. The record demonstrates that Gray is
Baytown Nissan’s lawyer. His conversation with Phillips was conducted as part his
examination of the ROFR and the dealership sale that is the subject of the
underlying lawsuit. The deposition questions posed to Gray requested the
disclosure of his thoughts and mental impressions with respect to the claims at
hand. His firm is Baytown Nissan’s counsel of record in this lawsuit. As one of
our sister courts noted in granting mandamus relief in similar circumstances:
Every attorney of record in a case being litigated, or in a case where
litigation is anticipated, obtains “factual, relevant information.”
Performing the function of a lawyer does not preclude a litigation
attorney from observing, investigating, monitoring, and evaluating the
17
facts surrounding the matter in controversy. The evidence does not
show [relator’s attorney] was a fact witness divorced from the
litigation. His work was reasonably related to and in furtherance of the
prosecution of [relator’s] case against the defendants, and also related
to mitigating its damages regarding [real party in interest] and to
defending against [real party in interest’s] causes of action. We
conclude his activities fall within the Rule 192.5 work product
definition.
In re Baptist Hosps. of S.E. Tex., 172 S.W.3d 136, 143 (Tex. App.—Beaumont
2005, orig. proceeding.) “Compelling an attorney of record involved in the
litigation of the case to testify concerning the suit’s subject matter generally
implicates work product concerns” and “is inappropriate under most
circumstances.” Id. at 140, 145.
Deposition questions requesting Gray’s mental impressions regarding his
conversation with Phillips (such as whether Phillips’s statements “were consistent
with [his] experience”) are core work product and not discoverable. Other
questions requesting factual details of Gray’s conversation with Phillips are non-
core work product. With respect to those questions, BASG had the burden of
demonstrating the substantial need and undue hardship requirements for discovery
of non-core work product. See TEX. R. CIV. P. 192.5(b)(2). This is a particularly
heavy burden when a discovery request seeks to compel the deposition of a party’s
attorney:
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Generally, an attorney of record in litigation is an advocate, not a fact
witness, in the litigation process. As with compelling production of
opposing counsel’s litigation file, compelling a deposition of the
opposing party's attorney of record concerning the subject matter of
the litigation is inappropriate under most circumstances. Calling
opposing counsel of record as a witness seriously disrupts the
counsel’s functioning as an advocate and may create a false
impression that the advocate was improperly involved in the
underlying issues in the litigation.
In re Baptist Hosps. of S.E. Tex., 172 S.W.3d at 145.
Our decision in Marshall v. Hall is instructive in this case. See 943 S.W.2d
180. In Marshall, an employee of the relator’s attorney interviewed a witness to a
car accident over the telephone and took notes of the interview. Id. at 182. In
holding that the interview notes were protected by the attorney work product
privilege, our court reasoned:
Here, [the attorney’s employee] was acting as an agent of the relators’
attorney. Her task in interviewing [the witness] was to generate
information to make the strategic decision of whether to depose [the
witness]. In accomplishing her task, [the attorney’s employee]
compiled facts from her conversation with [the witness]. She
reorganized those facts according to her mental impressions of what
organization would best help the relators’ attorney decide whether to
take [the witness’] deposition. She omitted some facts she felt were
not helpful to the [relators’] case. We believe that not only her
summaries but her interview notes as well are protected by the
attorney work product privilege.
Id. at 183. Our court rejected an effort to overcome the privilege based on
hardship, applying the two-part test provided in Hickman for exemption from
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privilege requiring that (1) the information be “hidden in the attorney’s file” and
(2) the facts sought to be discovered must be “essential to the preparation of one’s
case.” See id. (quoting Hickman, 329 U.S. at 511). As in Marshall, BASG has not
satisfied its burden of demonstrating exemption from privilege. The information it
seeks, far from being hidden, is readily available through Phillips, who already has
disclosed it to third-parties, who in turn at some point disclosed it to BASG. See id.
Given Phillips’s availability, there is no indication in the record of a substantial
need for Gray’s testimony. See id.
We hold that the trial court erred in compelling Gray to testify about the
Gray-Phillips conversation; mandamus relief is therefore appropriate. See In re
CSX Corp., 124 S.W.3d at 151.
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Conclusion
We conditionally grant the petition for writ of mandamus, and direct the trial
court to vacate its order compelling Gray’s deposition. We deny further requested
relief. We are confident that the trial court will comply, and the writ will issue only
if it does not.
Jane Bland
Justice
Panel consists of Chief Justice Radack and Justices Bland and Huddle.
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