Texas Supreme Court constricts discovery's reach.

Just what "possession, custody, or control" means has been given a new twist by a Texas Supreme Court decision regarding discovery.

The court ruled that a party's "mere access" to documents requested "does not constitute 'physical possession' of the documents under the definition of 'possession, custody, or control.'" (In re Kuntz, No. 02-0375, 2003 WL 22999366 (Tex. Dec. 19, 2003).)

Although the case arose out of a divorce, this decision "will have consequences on discovery in all cases, because it's the first time the Texas Supreme Court has put some parameters around what it means to have possession of a document for purposes of a discovery request," said Marie Yeates, a Houston attorney who represented the husband on appeal.

Under the 1999 divorce agreement, Vesta Frommer, former wife of geological consultant Hal Kuntz, was given a 25 percent share of royalties from oil and gas wells in which Kuntz had an interest. Those wells were drilled by MOXY, an oil exploration company. Kuntz obtained his interest through his work as general manager for, and minority owner of, CLK, a geological consulting firm whose only client was MOXY CLK provided letters of recommendation to MOXY about prospects for oil and gas wells. The projects from which Frommer could receive royalties were only those for which CLK had written positive letters of recommendation during the 15 years of Frommer's marriage to Kuntz.

In May 2001, she asked Kuntz to produce the positive letters so she could determine which wells she had a share in. Kuntz had physical access to the documents, which were in CLK's offices, but under an agreement between MOXY and CLK, all such documents belonged to MOXY and could not be disclosed to third parties without MOXY's permission. CLK also prohibited Kuntz from disclosing the information.

Texas law says that during discovery, "a person is required to produce a document or tangible thing that is within the person's possession, custody, or control." The state defines "possession, custody, or control" to mean that "the person either has physical possession of the item or has a right to possession of the item that is equal or superior to the person who has physical possession of the item."

Both CLK and MOXY refused to turn over to Kuntz the about 2,000 letters in question. In December 2001, a trial court, recognizing the letters as trade secrets, ordered Kuntz to produce them anyway. In April 2002, a Houston appellate court denied Kuntz's appeal.

Writing for eight Texas Supreme Court justices, Justice Steven Smith concluded that "the trial court abused its discretion in ordering Hal [Kuntz] to produce the documents. If required to produce the relevant letters of recommendation, Hal would be forced to violate the confidentiality provisions contained in both CLK's operating agreement and the consulting agreement between MOXY and CLK, potentially subjecting himself to a suit for significant damages."

Yeates said that Kuntz "has access to those documents in the same way that my secretary has access to documents in my filing cabinet. Does that mean that she should be required to turn them over because she has access to them? The part of the opinion that we feel is far-reaching is that the supreme court is saying, 'No, mere physical possession is not the test.'"

Thomas Conner, one of Frommer's lawyers, thinks the ruling sets a bad precedent. "This is just an example of tightening the discovery noose," he said. "In Texas, we were one of the first jurisdictions that said you could discover a matter even if it was not admissible evidence. If it might lead to admissible evidence, it was discoverable. We've had tort law being constrained by this court, and I guess now they're going to start on the discovery process."

Conner noted that although the case has been called one of first impression, earlier rulings held that if the trial court makes adequate provisions to protect the trade secrets, such as requiring a confidentiality agreement, then they're discoverable. I think this is just another example of the conservative court we now have in Texas that's very sensitive to the needs of large companies."