Appeals court directs orders be vacated in controlling interests calculation case involving Flowserve

By Karen Kidd | Jan 21, 2019

HOUSTON – A Harris County court has been ordered to vacate two orders concerning a due-diligence report in a controlling interests calculation case following a recent state appeals court's ruling.

In its opinion issued Jan. 15, the 14th Court of Appeals three-judge panel conditionally granted writ of mandamus in part and directed the Harris County 189th District Court to vacate the orders issued last year.

"We conditionally grant the petition for writ of mandamus in part and direct the trial court to vacate its Sept. 10, 2018, order," Justice Kevin Jewell wrote. "Our disposition moots relators' challenge to the Oct. 16, 2018 order."

Justices Ken Wise and Margaret Poissant were also on the panel and concurred.

Relators/plaintiffs in the case are FEDD Wireless, FEDD Holdings, William C. Daley Trust, Sarah Hughes Daley Trust, Michael W. Murphy Trust 1972, and several individuals or entities who invested in FEDD. Flowserve Corp. and Flowserve U.S. are parties-in-interest in the case.

The case itself is over calculation of controlling interests in FEDD, but the matter before the Appeals Court was a disposition of two orders.

The two orders the Appeals Court ordered vacated were handed last fall by the Harris County court, according to the background portion of the opinion.

In September, a visiting judge on the 189th District Court bench issued the first order that struck from the record a due-diligence report and required plaintiffs to return to Flowserve all copies of that report. The District Count issued that order after finding the report had been "an inadvertently produced attorney-client privileged communication," the opinion said.

The following month, the District Court issued a separate order that denied a plaintiffs' motion to compel production of the same report "based on the state's crime-fraud exception to attorney-client privilege," the ruling states.

That order prompted the plaintiffs' filing for writ of mandamus, asking the Appeals Court to compel the District Court to vacate both orders. The plaintiffs argued the trial court abused its discretion in granting "snap-back" relief and claimed they lacked adequate remedy by ordinary appeal.

A snap-back provision of the court rule is intended to provide protection from inadvertent disclosure of privileged material.

The plaintiffs also claimed that court rules do not justify the District Court's orders because those rules apply only to privileged documents produced during written discovery.

"Alternatively, assuming the rule applies, plaintiffs contend Flowserve did not inadvertently disclose the report; Flowserve did not invoke the rule's snap-back provision timely; and the report is not protected in any event due to the crime-fraud exception," the opinion said.

Flowserve claimed the rule applies to documents produced outside formal written discovery.

The Appeals Court found Flowserve failed to amend its motion for summary judgment to remove the due-diligence report and request its return until the previous and that the snap-back request had been untimely.

"Accordingly, Flowserve waived any claim of privilege," the opinion said. "The visiting judge clearly abused his discretion by granting snap-back relief because the record conclusively shows that Flowserve did not, within 10 days after it discovered that the due-diligence report had been produced inadvertently as part of its motion for summary judgment, amend the motion to omit the document and assert the attorney-client privilege."

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