in Re Hal G. Kuntz

IN THE SUPREME COURT OF TEXAS

IN THE SUPREME COURT OF TEXAS

No. 02-0375

In Re  Hal G. Kuntz, Relator

On Petition for Writ of Mandamus

Justice Hecht, joined by Justice Owen, Justice Schneider and Justice Wainwright, concurring.

I agree that Vesta Kuntz is not entitled to have her ex-husband, Hal Kuntz, produce letters of recommendation (ALORs@) that his employer prepared for its client because he does not have Apossession, custody, or control@ of the documents within the meaning of Rule 192.3(b) of the Texas Rules of Civil Procedure.  But Vesta has not merely sought discovery from the wrong person.  She is not entitled to production of the LORs because they are privileged trade secrets under Rule 507 of the Texas Rules of Evidence and she has not established, as she must, that they are essential to the fair adjudication of her claims.  So while I join fully in the Court=s opinion, I would reach the same result for this additional reason.

Hal=s employer, CLK Company, L.L.C., evaluates oil and gas prospects for its client, McMoRan Oil & Gas, L.L.C. (AMOXY@), detailing its findings in letters of recommendation to MOXY.  Vesta and Hal=s agreed divorce decree gives Vesta

25% of all overriding royalty interests, if any, from MOXY assigned to [Hal] after the date of divorce that results [sic] from projects on which CLK forwarded letters of recommendation to MOXY to drill during the marriage.

Vesta sued Hal, alleging that he had not paid her what was due by this provision. When Hal asserted that the extent of his obligation can be determined only by the precise language of each LOR, Vesta requested Hal to produce all of the LORs CLK sent MOXY during the Kuntzes= fifteen-year marriage C over 1,700 of them, according to her C regardless of whether they pertain to prospects MOXY has drilled or will ever drill.  Hal responded that the LORs are privileged trade secrets and agreed to produce only the LORs pertaining to prospects MOXY drilled.  The trial court found that the LORs are privileged trade secrets but ordered Hal to produce them, subject to a confidentiality order.

Vesta argues that Hal failed to prove that the LORs are trade secrets because MOXY failed to protect the confidentiality of the LORs and the information they contain.  She cites evidence showing that MOXY shares the information in the LORs with its competitors, subject to confidentiality agreements.  She also points out that MOXY did not obtain a confidentiality agreement from each of its employees, or for that matter from Hal=s expert witness before he was shown redacted copies of 155 LORs, and that MOXY lost some of the LORs B possibly by including them in an inadvertent transfer of thousands of files to an outside entity.  Hal, however, cites evidence showing MOXY=s efforts to protect its trade secrets. Information was disclosed only to those competitors solicited as potential investors, and then subject to confidentiality agreements and other protective measures.  MOXY required CLK to seek permission before disclosing the LORs, and MOXY=s recent consulting agreements included a confidentiality provision.  Employee agreements, besides including non-compete clauses, required compliance with MOXY rules and regulations; further, only a limited number of MOXY employees had access to this information, and then, only at work.  Hal also argues that an inadvertent transfer of LORs to an outsider, even if it actually occurred, should not result in a waiver of trade secret protection.  At most, Vesta raises subsidiary fact issues about one factor used to analyze the existence of a trade secret.^[1]  She has not shown that the trial court erred in its determination.

Accordingly, to obtain discovery of the LORs Vesta must establish that they are Anecessary or essential to the fair adjudication of the case,@ weighing her need for the information against the harm that may result from disclosure.^[2]  Vesta must Ademonstrate with specificity exactly how the lack of the information will impair the presentation of the case on the merits to the point that an unjust result is a real, rather than a merely possible, threat.@^[3]

Vesta does not dispute that MOXY will not drill all or even most of the prospects covered by the LORs, and Hal offered evidence that MOXY will drill at most five to fifteen a year.  Hal argues that a LOR should be produced only when MOXY has assigned him an interest or drilled a well, events reflected in public filings with the Securities Exchange Commission or the Department of Interior=s Mineral Management Service.  At that point, after a prospect has been developed, no one claims that the information in a related LOR remains confidential.  Vesta argues that immediate production of all LORs is necessary to determine which of them could result in payments to Vesta if MOXY should ever drill the prospects covered by the LORs.  This, she says, is essential to a fair adjudication of the case for three reasons.

First, Vesta argues that producing LORs only when wells are drilled will necessitate litigating her right to a share of Hal=s overriding royalty well by well. But she has not explained how production of all the LORs at once will eliminate future disputes over whether she is due a share of overriding royalty with respect to particular wells.  Vesta must either trust Hal to pay her what is due under the divorce decree or else monitor MOXY=s recorded assignments to him and drilling reports and inquire whether they have resulted in payments to him.  Even if a review of all the LORs could reduce future disputes, Vesta has not shown how that reduction would justify the disclosure of a large amount of privileged information that Vesta concedes is completely irrelevant to her claims, since most LORs will never be a basis of any payments to Hal.

Second, Vesta argues that deferring production of the LORs until wells are drilled and Hal is paid an overriding royalty gives Hal a financial incentive to lie about the existence of relevant LORs in the future.  It is one thing, she says, to produce LORs when no one knows whether they will ever be a basis of payments to Hal, and another after payments are made.  But such suspicions do not present Aa real, rather than a merely possible, threat@ to a fair adjudication of Vesta=s rights.  Moreover, Vesta=s access to LORs cannot be defeated by Hal alone; CLK and MOXY, who have access to the LORs, would also have to conceal their existence, something Vesta has not shown is probable.

Finally, Vesta argues that LORs may be lost, as some already have been, and evidence and testimony that may be necessary to explain them may become inaccessible as memories fade and witnesses are unavailable.  But it appears that Vesta=s claims depend largely on the language of the LORs themselves rather than on extraneous evidence.  Again, even if some evidence might be lost, Vesta has not shown how that justifies disclosure of irrelevant trade secret information.

Because Vesta did not establish that the LORs are necessary to a fair adjudication of her claims, the trial court abused its discretion in ordering disclosure.  For this additional reason I would direct the trial court to set aside its order.

Nathan L. Hecht

Justice

Opinion delivered: December 19, 2003

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^[1] See In re Bass, ___ S.W.3d ___, ___ (Tex. 2003).

^[2] In re Bridgestone/Firestone, Inc., 106 S.W.3d 730, 732 (Tex. 2003) (citing In re Cont=l Gen. Tire, Inc., 979 S.W.2d 609, 610-613 (Tex. 1998)).

^[3] In re Bridgestone/Firestone, 106 S.W.3d at 733.