Opinion
Civil No. SA-05-CA-1127-FB.
November 2, 2006
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
Pursuant to the order of referral in the above-styled and numbered cause of action to the undersigned United States Magistrate Judge and consistent with the authority vested in United States Magistrate Judges under the provisions of 28 U.S.C. § 636(b) and rule 1 of the Local Rules for the Assignment of Duties to United States Magistrate Judges in the Western District of Texas, the following report is submitted for your review and consideration.
Docket no. 139. On October 13, 2006, the District Judge referred the motions addressed in this report to the undersigned for disposition, without specification of whether the motions should be considered to be "dispositive." In an abundance of caution, because the undersigned has concluded the nonparties should not be granted leave to intervene and because denials of requests for intervention are generally considered to be "dispositive" rulings, the undersigned has issued a report and recommendation in compliance with 28 U.S.C. § 636 and Appendix C to the Local Rules of this Court, rather than an Order able to be reviewed pursuant to FED.R.CIV.P. 72.
I. JURISDICTION
The Court's subject matter jurisdiction has been challenged. Mariner Defendants have contested the standing of Linda McGill, Janie Denmon, Willa Clements, Joe Zepeda, and Gail Jackson to move to unseal documents that are subject to the District Court's agreed protective Order in the above styled case.II. PROCEDURAL HISTORY and BACKGROUND INFORMATION
A. Procedural History
On August 2, 2006, Linda McGill, Janie Denmon, Willa Clements, Joe Zepeda, and Gail Jackson filed an opposed motion to unseal documents "gathered and produced" in Fulbright Jaworski, L.L.P. v. Mariner Health Care, Inc, et alia, Civil Action No. SA-05-CA-1127-FB ("Fulbright"). McGill, Denmon, Clements, Zepeda, and Jackson are nonparties toFulbright who each have a medical malpractice cause of action pending in Texas courts against the defendants in Fulbright, that is, the "Mariner Defendants." The nonparties contend "[a] central issue that may arise in all five suits is whether the Defendants in . . . [Fulbright] . . . fraudulently conveyed assets so as to protect such assets from judgment by persons such as Movants." The nonparties are seeking discovery "to determine whether such an allegation is justified." The nonparties contend "the documents sought were sealed in this Honorable Court" and seek to have the documents unsealed.
See note 2, above.
Docket no. 132 at 1.
Id.
Id. at 2.
Id.
Id.
On August 10, 2006, the Mariner Defendants filed a combined motion to dismiss nonparties for lack of standing, motion to enforce protective Order, and response to the motion to unseal. A response to the combined motion and a reply have been filed. On October 13, 2006, the District Court referred the opposed motion to unseal documents, motion to dismiss, and motion to enforce protective Order to the undersigned for recommended disposition.
Docket no. 134.
Docket nos. 137 and 138.
Docket no. 139.
B. Background Information
On November 14, 2005, Fulbright Jaworski, L.L.P. ("Fulbright") sued defendants Mariner Health Care, Inc., Mariner Health Care Management Company, and Living Centers of Texas, Inc. (collectively the "Mariner Defendants"); and John Does 1-10 for breach of contract, fraudulent conveyance, and fraud. In sum, Fulbright's claims addressed the firm's continued provision of legal services for the Mariner Defendants, its requests for payment of sums owed on account of such legal services, and the Mariner Defendants' failure to pay moneys owed in and after approximately August 2005. In part, Fulbright sought a temporary and permanent injunction barring defendants from: "(a) render[ing] any Mariner Defendant insolvent, or more insolvent; (b) defraud[ing] creditors of the Mariner Defendants; (c) enhancing the financial position or financial statements of any John Doe or any other party which is not a Mariner Defendant; (d) invest[ing] in any non-Mariner Defendant, company or business; (e) lend[ing] money to any non-Mariner Defendant company or business; and/or (f) encumber[ing] any Mariner Defendant assets." The Mariner Defendants counterclaimed, alleging the fees and/or expenses Fulbright sought to recover were excessive and unreasonable.
Docket no. 1, tab 2, Fulbright's original petition and application for temporary and permanent injunction ("original petition") at 10-12.
Id. at 13.
Docket no. 5.
On December 20, 2005, Fulbright filed a motion to compel Mariner Defendants to produce documents responsive to certain requests for production so that all parties to the litigation could be identified, particularly the identities of the ten John Doe defendants. As related to the matter at hand, Fulbright, in sum, sought documents pertaining to the sale or transfer of Mariner Defendants' stock or assets during an eighteen month period. The undersigned subsequently signed an Order granting Fulbright's motion. Noting Mariner Defendants' objection that Fulbright's requests invaded the confidentiality of business transactions, the undersigned found the Western District of Texas standard confidentiality agreement, which Fulbright had offered to enter, "would appear to accomplish the appropriate balance" between the right to know and the need for protection.
Docket no. 15.
Docket no. 23.
Id. at 10.
On January 24, 2006, the District Court signed an agreed protective Order. In relevant part, the protective Order provides:
Docket no. 30.
All Classified Information produced or exchanged in the course of this litigation shall be used solely for the purpose of preparation and trial of this litigation and for no other purpose whatsoever and shall not be disclosed to any person except in accordance with the terms thereof.
Id. at ¶ 1.
"Classified Information" is defined as "any information of any type, kind or character which is designated as `Confidential' or `For Counsel Only' (or `Attorneys' Eyes Only')." The protective Order further provides:
Id. at ¶ 2.
"Confidential" information shall not be disclosed or made available by the receiving party to persons other that Qualified Persons. Information designated as "For Counsel Only"' (or "Attorneys' Eyes Only") shall be restricted in circulation to Qualified Persons described in Paragraphs 3(a) and (b) above.
Id. at ¶ 6(a).
and
Nothing herein shall prevent disclosure beyond the terms of this order if each party designating the information as "Confidential" or "For Counsel Only"' (or "Attorneys' Eyes Only") consents to such disclosure or, if the court, after notice to all affected parties, order such disclosures. . . .
Id. at ¶ 8.
On July 5, 2006, Fulbright and Mariner Defendants filed an agreed motion for entry of an agreed take nothing judgment because the parties had reached a settlement. On July 6, 2006, the District Court signed the agreed final take nothing judgment. The agreed judgment includes an order addressing documents produced during discovery which in part states:
Docket no. 129.
Docket no. 130.
In the event any person or other entity seeks production of paper or electronic documents produced in discovery herein, Fulbright will provide notice to Mariner and give Mariner an opportunity to resist such production, but Fulbright itself will not be obligated to assert any objections to the request for production.
III. ISSUES
Whether Mariner Defendants' motion to dismiss and to enforce the protective order should be granted.
Whether the nonparties' motion to unseal documents should be granted.
IV. ARGUMENTS AND ANALYSIS
A. Summary of Arguments1. Motion to Unseal Documents
The nonparties have moved pursuant to Federal Rule of Civil Procedure 26(c)(8) to unseal the documents produced inFulbright which are subject to the agreed take nothing judgment and the agreed protective Order entered in the case. The nonparties assert the discovery is needed to determine if they have a cause of action against Mariner Defendants for fraudulent conveyance of assets. Contending they are entitled to the documents to have a "more just, speedy and inexpensive determination of the various actions that Movants have brought in state court," the nonparties argue "[i]t would be a waste of both judicial and the Movant's resources, as well as that of the parties from whom documentation is sought, to force Movant's to go through the entire discovery process again in each individual state court action." The nonparties also argue one ruling will give consistent results. Because trade secrets are not at issue and judicial secrecy is not favored, the nonmovants assert "respondents have no compelling reason for the documents to remain sealed." The nonparties note Fulbright's counsel has stated the documents cannot be produced without an order from the District Court.
Docket no. 132.
Id. at 2.
Id.
Id.
Id. at 3.
Id. at 2.
2. Motion to Dismiss and Enforce Protective Order
Mariner Defendants have moved to dismiss the nonparties' motion to unseal documents and to enforce the protective Order entered in Fulbright. Mariner Defendants argue the nonparties lack standing to have the documents unsealed because they have not intervened in Fulbright as required by Rule 24. Moreover, noting the nonparties served depositions on written questions to counsel for the parties in Fulbright, requesting to inspect "[a]ll documents received from the Mariner defendants in [Fulbright] . . . which either did or purportedly originated from Houlihan Lokey Howard Zukin," Mariner Defendants contend they have produced all relevant documents sought in the extensive discovery completed in the state court cases. To the extent the nonparties may have properly moved to intervene, Mariner Defendants argue there are no grounds to support intervention because the documents sought are unrelated to the issues in the state court cases regarding events that occurred three years prior to Mariner Defendants' merger in 2004 with a third-party. In addition, Mariner Defendants argue allowing the nonparties to intervene and vacate the protective Order "would rob the Defendants of their opportunity to object based on privilege and relevancy."
Docket no. 134.
Id. at 3.
Id. at 2.
Id. at 4.
Id. at 5.
In the event the nonparties are allowed to intervene, Mariner Defendants argue the motion to unseal should be denied because the serious injury and prejudice to them from releasing the documents "grossly outweighs" the nonparties' rights to the documents. First, contending the nonparties argue only that "they have a right to the documents to prevent repetitious discovery," Mariner Defendants argue releasing the documents would not prevent the extensive repetitive discovery that has already been conducted in each of the state suits. Next, Mariner Defendants assert the documents at issue "were only produced in reliance on the Protective Order and to allow the documents to be released would allow Non-parties to circumvent the rules of discovery and would give Non-parties access to documents they have no right to see under state or federal law." Specifically, Mariner Defendants argue releasing the documents at issue would leave them "in a vulnerable commercial position" because the "documents include extensive information on the financial condition of the Defendants and the analysis of a merger between Defendants and a third party." To the extent documents are sought from defendants' counsel, Mariner Defendants argue that whether privileged or unprivileged, the documents are "protected under Texas law because, to the extent the documents are not publically available, they constitute confidential client information provided to an attorney for the purpose of rendering legal services and, therefore, cannot be disclosed by the attorney." Mariner Defendants also argue the documents are exempt from discovery by state and federal rules governing attorney-client privilege, and the nonparties should not be allowed to access documents they would not have a right to discover in the state litigation. Mariner Defendants further argue "[t]he majority of the documents under seal would not have been produced by the Defendants, nor would Defendants likely have been required to produce the documents, had it not been for Defendants' reliance on the Agreed Protective Order."
Id.
Id. at 6.
Id.
Id. at 7.
Id.; see id. at 8.
Id. at 8.
Id. at 10.
Mariner Defendants contend the documents the nonparties seek are not "relevant nor reasonably calculated to lead to the discovery of admissible evidence as the documents bear no reasonable relationship" to the "treatment and care provided to a nursing resident or any of the allegations at issue in the state case." Nor, Mariner Defendants argue, is there a "`reasonable expectation' that the production of these documents will aid in the resolution of this lawsuit" as required by the Texas Rules of Civil Procedure. Mariner Defendants also argue, in sum, that the nonparties are attempting to engage in an impermissible "fishing expedition" for new causes of action rather than conducting permissible discovery regarding their existing claims. Finally, Mariner Defendants argue the nonparties request to unseal is "massively overbroad" as they seek to vacate the entire protective Order to obtain "`all documents'" purportedly originating from the Houlihan Firm, "documents with little apparent relevance to the subject matter" of their lawsuits.
Id.
Id. at 11.
Id.
Id.
In response, the nonparties concede they have no basis for intervening in Fulbright and there is no community of interest between the nonparties and Fulbright who sued to collect unpaid attorneys' fees. The nonparties assert they "simply wish to unseal documents that were sealed in [Fulbright" and "[a] motion is an appropriate avenue" to obtain the relief they seek. Noting Mariner Defendants' assertion that relief should first be sought in state court, the nonparties argue the position is contrary to the one taken in the state court that the federal court should rule first. The nonparties concede that even if this Court unseals the documents, state court rules of procedure would require Mariner Defendants to prepare a privilege log and allow them the opportunity to submit documents deemed privilege for in camera inspection. Citing the Texas Business and Commerce Code, which defines fraudulent transfer of assets, the nonparties reiterate their argument that "it is necessary for the non-parties to review the documents to determine if a fraudulent transfer has occurred."
Docket no. 137 at 1-2.
Id. at 2.
Id.
Id.
Id.
In reply, Mariner Defendants note the nonparties' concessions and reiterate their argument that the nonparties lack standing to have the documents unsealed. Mariner Defendants also reiterate their arguments that the documents the nonparties seek are not relevant to their state court claims, there is no reasonable expectation the documents will aid in resolving the state court disputes, and the nonparties are impermissibly fishing for potential claims of fraudulent transfer.
Docket no. 138 at 1-2.
Id. at 2-3.
B. Analysis
The Fifth Circuit has held a nonparty must file a motion to intervene as required by Rule 24(c) in order to have a protective order modified or vacated. When a nonparty seeks to intervene in a pending case, there is no Article III requirement for standing if the "the ultimate relief sought by the intervenors is also being sought by at least one subsisting party with standing to do so." But, in the absence of a live controversy, the nonparty would need standing to intervene. The nonparties concede they have no grounds to intervene in this closed case as "there is not a community of interest between the non-parties and the Plaintiff in this matter," a law firm seeking to collect unpaid attorneys' fees, the case is "closed and there just would be no point in it," and "intervention would be both improper and unnecessary." The question is whether there is some other legal basis supporting their motion to unseal documents.
In re Beef Indus. Antitrust Litig., 589 F.2d. 786, 789 (5th Cir. 1979). In In Re Beef Antitrust, when nonparties filed motion to allow plaintiffs to comply with subpoena for documents subject to protective order or for clarification or modification of the protective order, the Fifth Circuit held:
We reiterate that a formal motion for intervention should have been filed pursuant to Rule 24(c). Future litigants should not attempt to use this opinion to circumvent the clear requirements of the rule.
Newby v. Enron Corp., 443 F.3d 416, 422 (5th Cir. 2006) (quoting Ruiz v. Estelle, 161 F.3d 814, 830 (5th Cir. 1998)).
Id. (explaining Deus v. Allstate Ins. Co., 15 F.3d 506, 526 (5th Cir.), cert. denied, 513 U.S. 1014, 115 S.Ct. 573 (1994)). Of note, prior to the explanation in Newby that when there is no existing case, a nonparty must have standing to intervene, the Fifth Circuit reversed a district court decision allowing a nonparty to intervene for the purpose of gaining access to documents sealed in a settled case, holding:
An existing suit within the court's jurisdiction is a prerequisite of an intervention, which is an ancillary proceeding in an already instituted suit or action by which a third person is permitted to make himself a party, either joining the plaintiff in claiming what is sought by the complaint, or uniting with the defendant in resisting the claims of the plaintiff, or demanding something adversely to both of them.Ericsson, Inc. v. Interdigital Commc'n Corp., 418 F.3d 1217, 1221 (5th Cir. 2005) (quoting Kendrick v. Kendrick, 16 F.2d 744, 745 (5th Cir. 1926)). The Court has also recently held "[t]hat none of the individual claims remained viable . . . when the motion to intervene was filed, disposes of the attempt at intervention." Krim v. pcOrder.com, Inc., 402 F.3d 489, 502 (5th Cir. 2005). The apparent conflict in Fifth Circuit case law need not be resolved here because the nonparties concede they are not attempting to intervene in Fulbright.
Docket no. 137 at 2.
The nonparties filed the motion to unseal documents pursuant to Rule 26(c)(8) but have not argued how the rule is applicable here or cited authority suggesting the rule has been interpreted to provide a nonparty with standing to challenge a protective order in a closed case. Rule 26(c)(8) provides that a court can enter a protective order when the "parties simultaneously file specified documents or information enclosed in sealed envelopes to be opened as directed by the court." The nonparties have not explained how the rule can be construed to provide for modifying or vacating protective orders or as basis for the nonparties' standing to request the documents at issue be unsealed.
Because the nonparties concede they have no grounds to intervene in Fulbright, permissibly or as of right, and have cited no other authority establishing they have standing to request the documents be unsealed, Mariner Defendants' motion to dismiss and enforce the protective order should be granted. Therefore, the nonparties' motion to unseal documents should bedismissed.
Even assuming the nonparties have standing to have the documents unsealed and that a motion to unseal in this court is the proper procedure for gaining relief, the nonparties have not shown the protective Order in Fulbright should be modified or vacated. The biggest obstacle confronting the nonparties is their failure to show how the documents are relevant to their state medical malpractice claims. The present record does not reflect the precise nature of the claims or allegations against Mariner Defendants in the Harris County case, but the Mariner defendants assert, and the nonparties do not contest, that the state case concerns "care and treatment provided to a nursing home resident between September 2000 and March 2002." The nonparties provide no argument to show the requested information has any reasonable relationship to a negligence claim and concede the documents are necessary merely to determine "if fraudulent transfer has occurred." Although the nonparties refer to Texas law on fraudulent transfer, they cite no authority establishing that even if the documents at issue suggest fraudulent transfer of assets, the nonparties have a legal basis to assert such a claim against Mariner Defendants. It is unclear whether the state court would allow the nonparties to discover the documents at issue for such a purpose even if the they were not subject to the protective Order. The Texas Supreme Court has described another plaintiff's attempted exploration of whether there is a good faith basis to support a new claim as a "fishing expedition" not allowed under the Texas Rules of Civil Procedure. The Texas court explained "requests for document production may not be used simply to explore."
Docket no. 138 at 2.
Docket no. 137 at 2.
Dillard Dep't Stores, Inc. v. Hall, 909 S.W.2d 491, 492 (Tex. 1995) (quoting Loftin v. Martin, 776 S.W.2d 145, 148 (Tex. 1989)).
Id.
In addition, it is not clear unsealing the documents is necessary to accomplish the nonparties' goal. The record reflects the nonparties served Robert Newman, counsel for Fulbright, and Robert Valdez, counsel for Mariner Defendants, each with a notice of "Deposition on Written Questions to Permit Inspection and Copying of Designated Books, Documents or Tangible Things." But, the nonparties have not shown Texas courts would require these attorneys to produce the documents, even if the protective Order is vacated or modified.
Docket no. 137, exhibit A.
Further, the nonparties contend it would be more cost-effective to obtain the documents produced in Fulbright, not that they are unable to obtain documents on Mariner defendants' assets in other ways, such as through discovery directly from Mariner Defendants administered by the state court. "Requiring the [nonparties] to move to compel discovery in their own case would not cause undue wastefulness; indeed, such a motion would be the most efficient way to obtain the desired discovery." As the nonparties recognize, even if the documents are unsealed and the attorneys could be required under Texas law to produce them, Mariner Defendants have the right to challenge the production and submit the documents to the state court for an in camera inspection, a likely request regardless of how the nonparties attempt to gain access to the documents. The state judge is in the best position to determine if other discovery on the Mariner defendants' assets and financial condition is relevant, material, not privileged, and otherwise not exempt from discovery.
Deus, 15 F.3d at 526 (citing Diaz v. Southern Drilling Corp., 427 F.2d 1118 (5th Cir.), cert. denied, 400 U.S. 878, 91 S.Ct. 118 (1970)) (in the context of motion to intervene, Fifth Circuit has held "[i]ntervention generally is inappropriate where the applicant can protect its interests and/or recover on its claim through some other means." The Court noted, "Lane is already participating in a lawsuit against Allstate in federal court in Nevada. Thus, he can protect any interest he has in these materials by filing a discovery request in that case.").
Stack v. Gamill, 796 F.2d 65, 68 (5th Cir. 1986).
The Court notes the nonparties do not dispute Mariner Defendants' assertion that extensive discovery has concluded in the state cases, raising the question of whether the state court would even entertain any discovery disputes likely to arise regarding a production of the documents at issue.
In sum, the nonparties do not have standing to request documents produced in this case be unsealed for inspection an possible use in a state malpractice case. Alternatively, to the extent the nonparties may have standing to request the unsealing of the documents, they have not shown: the relevance of the documents to their state negligence claims; why this Court should permit a "fishing expedition" for new causes of action when the state court likely would not; or they have no other way to discover information about Mariner defendants' assets. Accordingly, Mariner Defendants' motion to dismiss and to enforce the protective Order should be granted and the nonparties' motion to unseal documents should be dismissed.