In Re the Sydow Firm, PLLC and Michael D. Sydow v. the State of Texas ( 2024 )

Opinion issued May 9, 2024
In The
Court of Appeals
For The
First District of Texas
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NO. 01-23-00694-CV
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IN RE THE SYDOW FIRM, PLLC AND MICHAEL D. SYDOW, Relators
Original Proceeding on Petition for Writ of Mandamus
MEMORANDUM OPINION
Relators, The Sydow Firm, PLLC and Michael D. Sydow (collectively,
“Sydow”), filed a petition for a writ of mandamus challenging the trial court’s
August 9, 2023 order denying their “Motion to Dismiss for Lack of Jurisdiction,”
and the trial court’s October 17, 2023 order on the motion to compel filed by real
party in interest, Series 2 – Virage Master LP (“Virage”). Sydow requested that this
Court issue a writ of mandamus directing the trial court to (1) “vacate the written
[o]rder denying the Motion to Dismiss [for Lack of Jurisdiction],” and (2) “vacate
its discovery rulings made from the bench,” which were memorialized in the trial
court’s October 17, 2023 order.
On October 26, 2023, Sydow filed an “Emergency Motion for Temporary
Relief to Stay Trial Court’s Oct[ober] 17[, 2023] Order Compelling Production.”
The Court granted the motion, in part, on October 31, 2023, staying enforcement of
the October 17, 2023 order compelling production “only as to [Sydow’s] obligation
to serve supplemental written responses and/or produce all responsive,
non-privileged documents to Request for Production Nos. 12, 14, and 15, and
Interrogatory No. 4.”
This Court requested a response to Sydow’s petition for writ of mandamus.
Virage filed a response to the mandamus petition, and Sydow filed a reply in support
of his mandamus petition.
We lift the stay imposed by our October 31, 2023 order and deny Sydow’s
petition for writ of mandamus in part, and conditionally grant Sydow’s petition for
writ of mandamus in part.1
1
The underlying case is Series 2 – Virage Master LP v. The Sydow Firm, PLLC and
Michael D. Sydow, Cause No. 2023-03316, in the 113th District Court of Harris
County, Texas, the Honorable Rabeea Sultan Collier presiding.
2
Background
This original proceeding arises from a suit filed by Virage against Sydow. In
its lawsuit, Virage brought claims for a declaratory judgment and breach of contract.
Virage is a commercial lender which provides loans to law firms and lawyers
to assist in financing litigation against well-funded parties. Virage and Sydow
disagree about whether a formal contractual relationship existed between them,
under which Virage would provide funding assistance to Sydow for certain
contingency fee cases.
In the mandamus petition, Sydow asserted that in October 2014, Sydow
“engaged . . . with a broker to possibly get nonrecourse funding for two . . . cases.”
Sydow was then “directed to an electronic platform for attorneys called LitCap.”
After entering information regarding the cases, Sydow was “matched . . . with
Virage as a funder willing to review the two . . . cases.”
According to Virage, after negotiating the terms of an agreement, the parties
entered into a commercial lending agreement under which Virage would provide
litigation loans to Sydow, referred to as the “LitCap Business Expense Note Number
711” (the “Note”). Virage stated that the Note was electronically executed by Virage
and Sydow on November 20, 2014 via the LitCap electronic platform. However,
Sydow asserted that, despite being “informed that the [N]ote was available for
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review on the LitCap platform,” Sydow was not able to “review it or otherwise sign
onto the LitCap platform.”
Despite this assertion, the mandamus record included a copy of the Note
which was electronically executed by both Virage and Sydow. However, Sydow
asserted that he “did not approve by any interaction with the LitCap platform . . . his
or his firm’s consent or approval of an electronic signature to any note.”
Accordingly, Sydow “denied signing any note or guaranty, electronically or
otherwise.”
The terms of the Note provided that Virage would lend Sydow $2,060,000 for
litigation funding in exchange for, among other things, a security interest in the
recovery on litigation matters specifically identified in the Note. The Note also
provided that Sydow was required to provide a quarterly status report to Virage for
each litigation matter identified in the Note, describing “the current status of each
Litigation Matter, the minimum amount in controversy in respect therefore, the
anticipated date of any Recovery Event,” and “any change in the status of any
Litigation Matter” since the previous quarterly status report.
Notably, despite the assertions that he “did not approve . . . an electronic
signature to any note,” Sydow’s mandamus petition does not dispute that Virage
performed its obligations under the Note, specifically, by loaning $2,060,000 to
Sydow. According to its suit, Virage “performed its obligations under the Note” by
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“advancing $2,060,000” to Sydow. However, Virage asserted that Sydow “ha[d]
only repaid $22,425 to Virage.” In its suit, Virage alleged that Sydow breached and
defaulted on the Note by failing to make the required payments from recoveries in
the litigation matters that were collateral for the Note and he failed to provide the
required quarterly status reports.
On May 22, 2023, Sydow filed a “Motion to Dismiss for Lack of Jurisdiction.”
In the motion to dismiss, Sydow argued that the trial court lacked jurisdiction over
the case because Virage “lacked standing to sue” as it “could not prove [that] it was
a ‘holder’ in due course” of the Note.
Separately, on March 30, 2023, Virage served written discovery on Sydow,
including requests for production and interrogatories. After Sydow served his
responses and objections, which Virage deemed deficient, Virage filed a motion to
compel in the trial court on June 30, 2023. In its motion to compel, Virage requested
that the trial court overrule certain objections offered by Sydow. Specifically,
Virage challenged Sydow’s objections to the requests for documents and
information covering three categories: (1) communications between Sydow and a
receiver in a turnover proceeding pending in a different trial court, (2) documents
and information concerning the collateral cases identified in the Note, and (3)
financial information and records of Sydow purportedly “related” to Sydow’s
recovery of fees and expenses “that are owed to Virage under the Note.”
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On August 8, 2023, the trial court held a hearing on Sydow’s motion to
dismiss and Virage’s motion to compel. During the hearing, the trial court orally
stated on the record that it was sustaining Sydow’s objections to Virage’s request to
produce tax records, but that it was overruling all other objections asserted by Sydow
which were challenged by Virage. On August 9, 2023, the trial court entered an
order denying Sydow’s motion to dismiss for lack of jurisdiction. On October 17,
2023, the trial court entered an order memorializing its rulings from the August 8,
2023 hearing on Virage’s motion to compel.
Sydow, in his reply in support of the mandamus petition, complained that “the
trial court overruled [his] objections to four key discovery requests involving [his]
and [his] Firm’s confidential and sensitive financial information.” Sydow further
asserted that the “four discovery requests are vastly overbroad and, if Sydow and
[his] Firm must respond to them, [it] will subject Sydow and [his] Firm to irreparable
harm.”
Specifically, Sydow complained about the trial court’s order granting
Virage’s motion to compel, overruling his objections to Request for Production Nos.
12, 14, and 15, and Interrogatory No. 4. Those requests, and Sydow’s response,
were as follows:
Request for Production No. 12: All financial records, including
balance sheets, statements of cash flow, profit and loss statements, and
bank statements of The Sydow Firm and any related entity from
November 2014 to present.
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Response: Defendant, The Sydow Firm, PLLC objects to this request
as it is overbroad and unduly burdensome and invades the right to
privacy. [Sydow] further objects that such discovery is outside the
scope of permissible discovery under the Texas Rules of Civil
Procedure and is not the type of discovery permitted by the rules of
discovery. Furthermore, Defendant, The Sydow Firm, PLLC is not a
proper party to this suit having been formed on May 28, 2019.
Request for Production No. 14: All bank statements for all accounts
owned or accessible by The Sydow Firm, and any related entity,
including operating accounts and IOLTA accounts, from November
2014 to present.
Response: To the extent this would disclose attorney-client privilege,
[Sydow] assert[s] that privilege. Defendant, The Sydow Firm, PLLC
objects to this request as it is overbroad and unduly burdensome and
invades the right to privacy. [Sydow] further objects that such
discovery is outside the scope of permissible discovery under the Texas
Rules of Civil Procedure and is not the type of discovery permitted by
the rules of discovery. Furthermore, Defendant, The Sydow Firm,
PLLC is not a proper party to this suit having been formed on May 28,
2019.
Request for Production No. 15: All bank statements for all accounts
owned or accessible by Sydow, including personal or business
accounts, from November 2014 to present.
Response: Defendant, Sydow objects to this request as it is overbroad
and unduly burdensome and invades the right to privacy. [Sydow]
further objects that such discovery is outside the scope of permissible
discovery under the Texas Rules of Civil Procedure and is not the type
of discovery permitted by the rules of discovery.
Interrogatory No. 4: Identify all bank accounts, including by account
number, that are referenced in Requests for Production Nos. 12, 13, and
14.
Response: [Sydow] objects to this interrogatory on the grounds that it
is not reasonably calculated to lead to the discovery of evidence that
would be admissible at time of trial. [Sydow] further object[s] on the
ground of [his] right to privacy as recognized by Texas law.
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In its October 17, 2023 order, the trial court ordered Sydow to “serve
supplemental written responses and produce all responsive non-privileged
documents” to Request for Production Nos. 12, 14, and 15, and to “serve
supplemental written responses” to Interrogatory No. 4 “within 14 days of the entry”
of the trial court’s order. Sydow’s mandamus petition challenging the trial court’s
August 9, 2023 order denying his motion to dismiss and the trial court’s discovery
rulings followed.
This Court requested a response to Sydow’s mandamus petition. Virage filed
a response to the mandamus petition. Sydow then filed a reply in support of his
request for mandamus relief.
Standard of Review
Mandamus is an extraordinary remedy that is only available in limited
circumstances. See Walker v. Packer, 827 S.W.2d 833, 839–40 (Tex. 1992).
Specifically, mandamus relief is only available where a relator establishes two
requirements. First, relator must establish that the trial court has abused its
discretion. See id. Second, a relator must establish that it has no adequate remedy
by appeal. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004).
Motion to Dismiss for Lack of Jurisdiction
In his first issue, Sydow argued that the trial court abused its discretion in
denying his “Motion to Dismiss for Lack of Jurisdiction” because Virage lacks
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standing. Thus, Sydow’s mandamus petition requested that this Court “issue a Writ
of Mandamus to [the trial court] directing it to vacate the denial of the Plea to the
Jurisdiction.”
While Sydow’s motion filed in the trial court was titled a “Motion to Dismiss
for Lack of Jurisdiction,” as Sydow correctly noted in his mandamus petition, “[a]
motion to dismiss for lack of jurisdiction is the functional equivalent of a plea to the
jurisdiction.” See Wheeler v. Law Office of Frank Powell, No. 01-22-00479-CV,
2023 WL 5535670, at *4 (Tex. App.—Houston [1st Dist.] Aug. 29, 2023, no pet.)
(mem. op.).
We conclude that Sydow has failed to establish that he is entitled to mandamus
relief from the trial court’s August 9, 2023 order denying his motion to dismiss for
lack of jurisdiction. Accordingly, we deny Sydow’s petition for writ of mandamus
to the extent that it requests that we direct the trial court to vacate its August 9, 2023
order. See TEX. R. APP. P. 52.8(a).
Discovery Rulings
In his second issue, Sydow argued that the trial court abused its discretion in
overruling his discovery objections because the discovery requests go beyond the
scope of permissible discovery for breach of contract and are invasive. Specifically,
in his reply in support of his mandamus petition, Sydow complained that “the trial
court overruled [his] objections to four key discovery requests involving Sydow’s
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and [his] Firm’s confidential and sensitive financial information.” Sydow further
asserted that the “four discovery requests [were] vastly overbroad and, if Sydow and
[his] Firm must respond to them, [the discovery requests] will subject Sydow and
[his] Firm to irreparable harm.”
“Generally, the scope of discovery is within the trial court’s discretion.” In
re CSX Corp., 124 S.W.3d 149, 152 (Tex. 2003). However, where a trial court
“compels overly broad discovery well outside the bounds of proper discovery,” the
trial court commits “an abuse of discretion for which mandamus is the proper
remedy.” See In re Graco Children’s Prods., Inc., 210 S.W.3d 598, 600 (Tex. 2006).
The Texas Rules of Civil Procedure define the general scope of discovery as
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).
However, the rules do not permit a party to use discovery as a “fishing
expedition . . . simply to explore.” See Dillard Dep’t Stores, Inc. v. Hall, 909
S.W.2d 491, 492 (Tex. 1995); see also In re CSX Corp., 124 S.W.3d at 152–53; In
re Am. Optical, 988 S.W.2d 711, 713 (Tex. 1998). Accordingly, while the scope of
discovery is broad, discovery requests must be “reasonably tailored” to include only
relevant matters. See In re Am. Optical, 988 S.W.2d at 713.
10
In his mandamus petition, Sydow challenged the trial court’s order overruling
his objections, and compelling Sydow to respond and produce documents, in
response to Request for Production Nos. 12, 14, and 15, and Interrogatory No. 4.:
Request for Production No. 12: All financial records, including
balance sheets, statements of cash flow, profit and loss statements, and
bank statements of The Sydow Firm and any related entity from
November 2014 to present.
Request for Production No. 14: All bank statements for all accounts
owned or accessible by The Sydow Firm, and any related entity,
including operating accounts and IOLTA accounts, from November
2014 to present.
Request for Production No. 15: All bank statements for all accounts
owned or accessible by Sydow, including personal or business
accounts, from November 2014 to present.
Interrogatory No. 4: Identify all bank accounts, including by account
number, that are referenced in Requests for Production Nos. 12, 13, and
14.
Sydow asserted that “[b]y seeking all financial records, without limitation,
Virage’s discovery requests d[id] not comply with the requirement that they be
reasonably tailored to lead to the discovery of admissible evidence.” Further, Sydow
argued that the discovery requests were overbroad because they seek financial
records and information “irrespective of any connection to [Virage’s] suit to recover
on its promissory note,” and Virage “d[id] not explain . . . how all of [Sydow’s]
financial records, bank statements and bank accounts ha[d] any relevance at all to”
its claims.
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In arguing that the requested documents were discoverable, Virage stated that
the “requests were crafted to capture evidence that, as Virage ha[d] alleged, Sydow
ha[d] obtained recoveries on various cases identified in the Note but failed to either
report those recoveries or make payments from them to Virage as required under the
Note.” Virage further attacked Sydow’s objection that these requests invaded a
“right to privacy,” asserting that there was “no constitutional privacy right in
personal financial records.” According to Virage, the records related to the financial
condition of Sydow are relevant to assist it in “investigat[ing] the full extent of
[Sydow’s] breaches of contract,” and to “show the extent of the alleged breach which
includes a failure to pay and a failure to report” earnings from the litigation matters
for which Virage provided a loan to Sydow.
While certain records relating to Sydow’s financial condition may be relevant,
“discovery may not be used as a fishing expedition.” See In re Am. Optical, 988
S.W.3d at 713. In the challenged discovery, Virage requested “[a]ll financial
records . . . of The Sydow Firm and any related entity from November 2014 to
present,” “[a]ll bank statements for all accounts owned or accessible by The Sydow
Firm . . . from November 2014 to present,” “[a]ll bank statements for all accounts
owned or accessible by Sydow, including personal or business accounts, from
November 2014 to present,” and that Sydow “[i]dentify all bank accounts, including
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by account number, that are referenced” in response to the requests for production.
(Emphasis added.)
Sydow objected to Virage’s requests for “all” documents and records as
overly broad. We note that a “central consideration in determining overbreadth is
whether the request could have been more narrowly tailored to avoid including
tenuous information and still obtain the necessary, pertinent information.” See In re
CSX Corp., 124 S.W.3d at 153. Virage asserted that the requested records were
necessary in investigating the full extent of Sydow’s breaches of contract,
specifically, the failure to pay and report earnings from the litigation matters
identified in the Note. However, Virage failed to articulate why production of “[a]ll
financial records . . . of The Sydow Firm and any related entity from November 2014
to present,” “[a]ll bank statements for all accounts owned or accessible by The
Sydow Firm . . . from November 2014 to present,” and “[a]ll bank statements for all
accounts owned or accessible by Sydow, including personal or business accounts,
from November 2014 to present,” was necessary to obtain that information.
(Emphasis added.) Or, more directly, Virage failed to articulate why a more
narrowly tailored request for records would be insufficient.
We conclude that Virage’s challenged requests which seek “all” documents
and records are an impermissible fishing expedition and are not sufficiently
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“narrowly tailored to avoid including tenuous information,” but still “obtain the
necessary, pertinent information.” Id.
Because we conclude that the trial court’s October 17, 2023 discovery order
is overbroad, the trial court has abused its discretion and the order must be vacated
if there is no adequate remedy on appeal. See In re Am. Optical, 988 S.W.2d at 713.
We further conclude that no adequate appellate remedy exists, because where a
discovery order compels production of irrelevant or duplicative documents, there is
no adequate appellate remedy. See In re CSX Corp., 124 S.W.3d at 153.
Conclusion
We conclude that, as written, Request for Production Nos. 12, 14, and 15 and
Interrogatory No. 4 are overbroad and not “narrowly tailored” to seek only relevant
information. See In re Allstate Cnty. Mut. Ins. Co., 277 S.W.3d 667, 669 (Tex. 2007)
(concluding trial court abused its discretion by compelling production to overbroad
requests that “could easily have been more narrowly tailored to the dispute at hand”).
We therefore lift the stay imposed by our October 31, 2023 order and conditionally
grant mandamus relief and direct the trial court to vacate its October 17, 2023 order
to the extent that it overrules Sydow’s objections to the overbreadth of Request for
Production Nos. 12, 14, and 15 and Interrogatory No. 4 and to the extent that it orders
Sydow to serve supplement written responses and/or produce documents in response
to Request for Production Nos. 12, 14, and 15 and Interrogatory No. 4.
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However, we deny Sydow’s petition for writ of mandamus to the extent that
Sydow requests this Court to direct the trial court to vacate its August 9, 2023 order
denying Sydow’s motion to dismiss for lack of jurisdiction.
We are confident that the trial court will comply with this Court’s ruling, and
the writ will issue only if the trial court fails to comply within thirty days of the date
of this opinion. All pending motions are dismissed as moot.
Amparo Monique Guerra
Justice
Panel consists of Chief Justice Adams and Justices Guerra and Farris.
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