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Editor: Colin Miller
Univ. of South Carolina School of Law

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Monday, November 3, 2008

It Was A Privilege? Court of Appeals Of Texas Finds Party Failed To Plead Trade Secrets Privilege

The recent opinion of the Court of Appeals of Texas in In re: Union Energy, Inc., Gulf Exploration, Inc. and MC2 Resources, LLC, Relators, 2008 WL 4757008 (Tex.App.-Tyler 2008), reveals that a privilege is worthless if a party doesn't plead it.  In Union Energy, Real Parties filed suit against MC2 Resources, LLC (collectively “Relators”) in Smith County, Texas seeking damages under various legal theories, including breach of contract, fraud, negligent misrepresentation, alter ego, and vicarious liability.  Real Parties subsequently served Relators with a request for production of documents and tangible items, including a request for production of Union Energy, Inc.'s stock register.  In response, Relators objected that the request sought documents that were not relevant and not reasonably calculated to lead to the discovery of admissible evidence and, further, that the discovery requested "invade[d] the personal, constitutional, or property rights of Defendants which is impermissible under TEX.R.CIV.P. 192.6(b)." 

Thereafter, Real Parties filed a motion to compel, and there was no indication in Real Parties' motion to compel that they were aware that Relators were asserting any privilege with regard to the stock register.  In response to the motion, Relators stated, in pertinent part, as follows:

     "[P]laintiff's discovery request invades defendants' shareholders' privacy interests[ ] because it would require defendants to publicly disclose the identities of those owning interests in privately-held entities. Defendants' shareholders are highly concerned about disclosure of their identities. This information would not only be available for plaintiff to use to harass defendants' shareholders, but also for any member of the public to solicit after reviewing the information in the Court's records. Therefore, the Court should sustain Defendants' objection that the disclosure of such information would include Defendants' personal rights under TEX.R.CIV.P. 192.6(b)."

Thereafter, the trial court conducted a hearing on Real Parties' motion to compel, during which neither party uttered the words "privilege" or "trade secret."  Following the hearing, the trial court entered an order compelling Union Energy to produce its stock register to Real Parties.  Consequently, the Relators filed a petition for writ of mandamus as well as a motion for emergency relief with the Court of Appeals of Texas.

And the Relators raised a new argument before the Court of Appeals of Texas, the argument being that the stock register was privileged under Texas Rule of Evidence 507, its trade secrets privilege, which states that:

     "A person has a privilege, which may be claimed by the person or the person's agent or employee, to refuse to disclose and to prevent other persons from disclosing a trade secret owned by the person, if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice. When disclosure is directed, the judge shall take such protective measure as the interests of the holder of the privilege and of the parties and the furtherance of justice may require."

According to the Court of Appeals, however, it did not even need to reach the merits of this argument because:

     "The party seeking protection of information by a claim of privilege has the burden to plead and prove the applicable privilege....There is no presumption that documents are privileged....To meet its burden, the party claiming the privilege must first assert the privilege....In the instant case, in their response to Real Parties' request for production of documents, Relators made no claim of privilege."

I agree with the court's opinion, and it provides an important lesson for all litigants:  If you have a privilege, you must assert it.

-CM

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