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In re TMD Def. & Space

Court of Appeals of Texas, Eighth District, El Paso
May 31, 2022
649 S.W.3d 764 (Tex. App. 2022)

Opinion

No. 08-21-00050-CV

05-31-2022

IN RE TMD DEFENSE AND SPACE, LLC

RESPONDENT: Maria Salas-Mendoza, Judge, 120th District Court, 500 E. San Antonio #605, El Paso, TX 79901. ATTORNEYS FOR REAL PARTIES IN INTEREST: Michael Blake Downey, ScottHulse, 201 E Main Dr., El Paso, TX 79901-1340, Victor M. Firth, Firth, Johnston, Martinez, 311 Montana, Suite B Law Center, El Paso, TX 79902, Felix Valenzuela, Valenzuela Law Firm, P.O. Box 26186, El Paso, TX 79926. ATTORNEYS FOR RELATOR: S. Anthony Safi, Mounce, Green, Myers, Safi, Paxson & Galatzan, P.C., P.O. Box 1977, El Paso, TX 79950-1977, Gary A. Norton, Windle, Hood, Alley, Norton, Brittain & Jay, LLP, Chase Tower, Suite 1350, 201 E. Main Dr., El Paso, TX 79901.


RESPONDENT: Maria Salas-Mendoza, Judge, 120th District Court, 500 E. San Antonio #605, El Paso, TX 79901.

ATTORNEYS FOR REAL PARTIES IN INTEREST: Michael Blake Downey, ScottHulse, 201 E Main Dr., El Paso, TX 79901-1340, Victor M. Firth, Firth, Johnston, Martinez, 311 Montana, Suite B Law Center, El Paso, TX 79902, Felix Valenzuela, Valenzuela Law Firm, P.O. Box 26186, El Paso, TX 79926.

ATTORNEYS FOR RELATOR: S. Anthony Safi, Mounce, Green, Myers, Safi, Paxson & Galatzan, P.C., P.O. Box 1977, El Paso, TX 79950-1977, Gary A. Norton, Windle, Hood, Alley, Norton, Brittain & Jay, LLP, Chase Tower, Suite 1350, 201 E. Main Dr., El Paso, TX 79901.

Before Rodriguez, C.J., Palafox, and Alley, JJ.

OPINION

YVONNE T. RODRIGUEZ, Chief Justice

Relator, TMD Defense and Space, LLC ("TMD"), filed a petition for a writ of mandamus against the Honorable Maria Salas-Mendoza, judge of the 120th District Court of El Paso County. TMD contends the trial court erred by issuing an order disqualifying its counsel, Attorney James Martinez and his law firm of Mounce, Green, Myers, Safi, Paxson & Galatzan, from representing TMD.

Based on the record before us, we conclude that TMD has failed to establish it is entitled to mandamus relief. Accordingly, we deny TMD's petition for writ of mandamus.

BACKGROUND

The underlying cause of action

In the underlying proceeding, TMD filed suit and an application for temporary restraining order, against Defendants Real Parties in Interest Town of Horizon City, Texas, RKM Land Partners, LLC ("RKM"), Viva Land Ventures, LP, and SDC Development, LLC ("SDC"). TMD claims that LTV Road has been demolished through acts of the defendants and that due to the state of the road and the ongoing construction, it is unable to receive tractor-trailer shipments at its facility, which include shipments of weapons to United States military bases.

A hearing on TMD's request for a temporary injunction was scheduled for December 21, 2020, but it did not go forward because SDC filed a motion to disqualify TMD's attorneys. In its motion, SDC claimed Martinez was in violation of Rules 1.09(a)(2) and 1.09(a)(3) of the Texas Disciplinary Rules of Professional Conduct because he previously represented SDC in a suit against CEA Engineering (CEA), where SDC alleged a detention pond located in one of its subdivision developments had design and construction defects.

Disqualification Hearing

A hearing on the motion to disqualify was held on January 5, 2021.

At the hearing, SDC called two witnesses, David Ballard and John Duran. Ballard, a SDC consultant, explained SDC was working on a master-planned community in Horizon City which involved the reconstruction of LTV Road. He testified he dealt with Martinez in a prior SDC lawsuit where SDC sued CEA over a defective pond located in one of SDC's west-side subdivisions. Martinez had stepped in to handle the lawsuit for SDC after their initial attorney discovered a conflict. Ballard said his work with Martinez on the lawsuit included personal meetings, exchanging emails, and speaking over the telephone. Additionally, Ballard said he put together discovery materials and studies containing confidential and proprietary information, such as the cost of their development. Ballard claimed they had given Martinez inside information regarding the effects of delays on their budgeting and financial commitments for the project and asserted similar concerns would arise in this case if SDC was delayed in completing the LTV Road construction. Ballard added during the mediation, SDC's litigation strategy was conveyed to Martinez, specifically their desire never to go to trial, and information regarding how their financial situation required them to push forward with developments was also conveyed.

Ballard admitted there was no written record of what had been turned over to Martinez. He also acknowledged much of the information that he felt was confidentially relayed to Martinez had now been disclosed in open court, but he explained he did not know how else to convey his concerns Martinez had confidential and proprietary information that could be used against SDC.

John Duran, an SDC land development manager, testified he had worked with Martinez in SDC's lawsuit against CEA. Specifically, he assisted with responding to discovery requests and believed some of the information he had provided was confidential or proprietary.

Martinez testified he had previously represented SDC in a "construction-defect case." He explained he was initially unaware of SDC's involvement in the current litigation, but after filing suit against RKM, he conducted his investigation and discovered SDC would have to be added as a party. Martinez described the suit in which he represented SDC as a construction case and maintained it did not involve ingress and egress issues, as in the present case which he considered to be an "implied kind of constructive easement case." After Martinez detailed his many years of experience in land development issues, he stated there was no information about land development issues he had learned while representing SDC that was relevant to the current suit. He further stated there was no confidential information that he obtained during his representation of SDC he could use to TMD's advantage. Martinez concluded with testifying it would be financially burdensome for TMD to have to obtain a new attorney.

During cross-examination, Martinez testified his representation of SDC concluded the previous year after the matter was settled. He explained he discovered SDC was involved in the current suit when he went out to inspect LTV Road and saw they were the contractor listed on a permit. Upon discovering SDC's involvement, his law firm examined the law applicable to the conflicts issue for about two weeks, after which the firm's conflicts committee concluded there was no conflict with suing SDC and continuing to represent TMD. Martinez denied having any awareness of SDC's insurance coverage and stated the effect of delays on SDC's budget and financing would not assist him in disadvantaging SDC, as he was only aware of the budgetary information related to the prior lawsuit.

When challenged about whether SDC relayed information that it was more likely to settle than to take a case to trial, Martinez responded he took issue with that information being characterized as confidential given they had just revealed the information in open court and added every client expressed their view on risk tolerance. Martinez reiterated he had not learned anything in his representation of SDC that would be useful in the present case and rejected the assertion he had obtained an insider's view of SDC's operations, stating SDC only shared information pertaining to the initial suit.

The trial court granted the motion to disqualify Martinez.

This mandamus action followed.

DISCUSSION

The question in this mandamus action is whether Martinez's prior representation of SDC in its suit over a defective pond in one of its subdivisions precludes him from representing TMD in this suit over the taking of property to construct a road.

TMD asserts Martinez's prior representation of SDC is not substantially related to his representation of TMD because the matters involve entirely distinct claims, and no specific facts were presented that show the matters are factually intertwined. SDC counters the matters are substantially related, and a reasonable probability existed that confidential information obtained by Martinez could be used against SDC. We agree with TMD's assertion the two matters are not substantially related, as the record does not support that finding and reflects the trial court did not rely on the substantial relationship test. However, as argued by SDC, we conclude the trial court did not abuse its discretion in determining Martinez's disqualification was warranted because a reasonable probability exists certain confidential information relayed to him could be used to SDC's disadvantage.

Standard of Review and Applicable Law

Mandamus is an extraordinary remedy that will issue only if the lower court has clearly abused its discretion and the relator has no adequate remedy by appeal. In re Murrin Bros. 1885, Ltd. , 603 S.W.3d 53, 56 (Tex. 2019)(orig. proceeding). Mandamus relief is appropriate only when the relator establishes that there was only one legally permissible outcome in the trial court. Id. The erroneous disqualification of a party's chosen counsel is an abuse of discretion for which there is generally no adequate remedy on appeal. In re Nitla S.A. de C.V. , 92 S.W.3d 419, 422 (Tex. 2002)(orig. proceeding) (per curiam). Thus, this mandamus action turns on whether the trial court abused its discretion in disqualifying TMD's counsel.

Disqualification of a party's counsel is a severe remedy which "can result in immediate and palpable harm, disrupt trial court proceedings, and deprive a party of the right to have counsel of choice." Id. When considering disqualification motions, the courts must adhere to an exacting standard to discourage the use of such motions as a dilatory trial tactic. Spears v. Fourth Court of Appeals , 797 S.W.2d 654, 656 (Tex. 1990). Thus, the movant bears the burden of proving that the attorney should be disqualified. Cimarron Agr., Ltd. v. Guitar Holding Co., L.P. , 209 S.W.3d 197, 201 (Tex.App.—El Paso 2006, no pet.). "Mere allegations of unethical conduct or evidence showing a remote possibility of a violation of the disciplinary rules will not suffice under this standard." Spears , 797 S.W.2d at 656. "[L]awyers who violate the conflict-of-interest rules must be disqualified because there is an irrebuttable presumption that a lawyer obtains a client's confidential information during representation." In re Thetford , 574 S.W.3d 362, 373 (Tex. 2019)(orig. proceeding). "Although the attorney will not be presumed to have shared that information with his current client, the appearance of impropriety demands that the trial court disqualify counsel." Id. [Quotation marks omitted].

In determining whether the interests of justice require disqualification, a court must consider all the facts and circumstances. In re Murrin Bros. 1885, Ltd. , 603 S.W.3d at 57. Although courts and litigants often look to the Disciplinary Rules to decide whether an attorney is disqualified, the rules do not determine whether counsel is disqualified but rather "provide helpful guidance" and "suggest the relevant considerations." Id.

Rule 1.09

Rule 1.09 of the Texas Disciplinary Rules of Professional Conduct deals with conflicts of interest that arise in connection with former clients. The rule provides, in pertinent part:

(a) Without prior consent, a lawyer who personally has formerly represented a client in a matter shall not thereafter represent another person in a matter adverse to the former client:

(1) in which such other person questions the validity of the lawyer's services or work product for the former client;

(2) if the representation in reasonable probability will involve a violation of Rule 1.05; or

(3) if it is the same or a substantially related matter.

TEX.DISCIPLINARY RULES PROF'L CONDUCT R. 1.09(a), reprinted in TEX.GOV'T CODE ANN. , tit. 2, subtit. G, app. A. A party seeking disqualification does not need establish all three circumstances and may meet their burden by establishing any one of the three. See id. Rule 1.09(a) & cmt. 3; see also Spradlin v. Jim Walter Homes, Inc. , 34 S.W.3d 578, 581 (Tex. 2000) (use of disjunctive conjunction "or" between two phrases signifies a separation between two distinct ideas); Clarke v. Ruffino , 819 S.W.2d 947, 950 (Tex.App.—Houston [14th Dist.] 1991, writ dism'd w.o.j.) ("[b]ecause of the ‘or’ strategically placed in this rule [ Rule 1.09 ], there are now more than one bases for disqualification of an attorney"); In re Liebbe , No. 12-19-00044-CV, 2019 WL 1416637, at *3 (Tex.App.—Tyler March 29, 2019, orig. proceeding)(mem. op.) (" Rule 1.09 prohibits the adverse representation, except with prior consent, where the party seeking disqualification shows the existence of "any of [the] three circumstances" enumerated in subparagraph (a)").

Rule 1.05

Rule 1.05, referenced in Rule 1.09(a)(2), addresses a lawyer's duties with respect to a client's confidential information. The portions of Rule 1.05 pertinent in this case are Rule 1.05(a) and (b) which provide:

(a) ‘Confidential information’ includes both ‘privileged information’ and ‘unprivileged client information.’ ‘Privileged information’ refers to the information of a client protected by the lawyer-client privilege of Rule 503 of the Texas Rules of Evidence or of Rule 503 of the Texas Rules of Criminal Evidence .... ‘Unprivileged client information’ means all

information relating to a client or furnished by the client, other than privileged information, acquired by the lawyer during the course of or by reason of the representation of the client.

(b) [A] lawyer shall not knowingly:

(1) Reveal confidential information of a client or a former client[.]

...

(3) Use confidential information of a former client to the disadvantage of the former client after the representation is concluded unless the former client consents after consultation or the confidential information has become generally known.

Id. Rule 1.05(a)(b)(1) & (3).

Analysis

The substantial relationship test under Rule 1.09(a)(3)

In the proceedings below, SDC presented two grounds for disqualification: (1) Martinez was precluded from representing TMD because this case and the matter he previously handled for SDC were substantially related; and (2) Martinez was made privy to both "privileged information" and "unprivileged client information" that is protected as "confidential information" under Rule 1.05(a) and there was a reasonable probability that Rule 1.05 would be violated. The parties do not dispute that that TMD is adverse to SDC in the current litigation. See Cimarron Agr., Ltd. , 209 S.W.3d at 201-02. Accordingly, we begin by addressing whether the record supports the finding that the matters are substantially related for purposes of Rule 1.09(a)(3).

Although the phrase "substantially related" is "not defined in the Rule, it primarily involves situations where a lawyer could have acquired confidential information concerning a prior client that could be used either to that prior client's disadvantage or for the advantage of the lawyer's current client or some other person." TEX.DISCIPLINARY RULES PROF'L CONDUCT R. 1.09 cmt. 4B. Matters are substantially related "when the similarity of the facts involved creates a genuine threat that confidences revealed to the client's former counsel will be divulged to his present adversary." In re Thetford , 574 S.W.3d at 374. [Internal quotation marks and brackets omitted]. "Neither conclusory statements of similarities nor facial similarities will suffice—the movant must delineate specific facts that tie the former and current representations together." Id. "A substantial relationship may be found only after the moving party delineates with specificity the subject matter, issues and causes of action common to prior and current representations and the court engages in a painstaking analysis of the facts and precise application of precedent." In re Murphy , No. 14-08-01017-CV, 2009 WL 707650, at *5 (Tex.App.—Houston [14th Dist.] Mar. 5, 2009, orig. proceeding)(mem. op.) [Internal quotation marks omitted].

In support of its position the matters are not substantially related, TMD maintains the facts and the legal theories of recovery are completely dissimilar in both matters, as the prior matter involved SDC's claims a detention pond in one of its subdivisions was defective and this case involves SDC's alleged taking of property to construct a road that TMD claims it has a legal right to use. It also asserts SDC failed to delineate specific facts that tied the two representations together, and as further support for its position, TMD points to the trial court's comments at the hearing reflecting its understanding SDC dealt with Martinez "in a different type of litigation and different posture." SDC counters the matters are substantially related because both involve subdivision construction lawsuits with similar risks, delays, expenses, defenses, and strategies. We agree with TMD. Although SDC claims the matters are substantially similar because both involve subdivision construction lawsuits, no specific facts were presented to establish a connection between the prior suit involving a defect in the design of a detention pond and the current suit that involves the taking of property to construct a road. "Neither conclusory statements of similarities nor facial similarities will suffice—the movant must delineate specific facts that tie the former and current representations together." In re Fenenbock , 621 S.W.3d 724, 735 (Tex.App.—El Paso 2020, orig. proceeding) (quoting In re Thetford , 574 S.W.3d at 374 ). Here, there is nothing in the mandamus record that shows with specificity the overlap between the prior defective construction/design case and the current suit. See In re Drake , 195 S.W.3d 232, 237 (Tex.App.—San Antonio 2006, orig. proceeding) (Reversing trial court's disqualification order, where there was no evidence that facts material to the resolution of the current case were related to facts in the prior cases handled by counsel). Additionally, the record does not reflect the trial court determined there was a substantial relationship between the two matters after conducting a "painstaking analysis of the facts and precise application of precedent." In re Murphy , 2009 WL 707650, at *5. On the contrary, based on the trial court's statement regarding the dissimilarity of the two matters, it did not rely on the Rule 1.09(3) substantial relationship test in arriving at its decision. See TEX.DISCIPLINARY RULES PROF'L CONDUCT R. 1.09(a)(3). However, this does not end our analysis because Rule 1.09(a)(2) "provides a distinct and alternative basis for disqualification." In re Butler , 987 S.W.2d 221, 226 n.3 (Tex.App.—Houston [14th Dist.] 1999, orig. proceeding).

Rule 1.09(a)(2) Disqualification

"Before a trial court may disqualify a lawyer pursuant to Rule 1.09(a)(2), the court must find a reasonable probability that some aspect of rule 1.05 will be violated." In re Hoar Construction , L.L.C., 256 S.W.3d 790, 800 (Tex.App.—Houston [14th Dist.] 2008, orig. proceeding). The determination of whether such a probability exists is a question of fact for the trial court. In re Colony Ins. Co. , No. 05-14-00947-CV, 2014 WL 4345658, at *2 (Tex.App.— Dallas Sept. 2, 2014, orig. proceeding) (citing TEX.DISCIPLINARY RULES PROF'L CONDUCT R. 1.09 cmt. 4). Factual determinations by the trial court may not be disturbed by mandamus review. Id. , (citing Mendoza v. Eighth Court of Appeals , 917 S.W.2d 787, 790 (Tex. 1996))(orig. proceeding).

As previously noted, Rule 1.05(b) states an attorney shall not knowingly reveal confidential information of a former client or use the former client's confidential information to their detriment. TEX.DISCIPLINARY R. PROF'L CONDUCT R. 1.05(b)(1)(3). The definition of "confidential information" under Rule 1.05 is broad as it encompasses information to which the attorney-client privilege applies and "information relating to a client or furnished by the client, other than privileged information, acquired by the lawyer during the course of or by reason of the representation of the client." Id. Rule 1.05(a). TMD admits based on this broad definition, Martinez would have obtained confidential information related to SDC by virtue of his prior representation of SDC. However, TMD argues the information obtained is irrelevant to this case.

At the disqualification hearing, SDC presented evidence they provided Martinez with information regarding the financing of their developments and how delays affect them in terms of financing and budgeting. Martinez was also made privy to information regarding SDC's approach to litigation insofar as its risk tolerance, and to information regarding SDC's insurance coverage. In its argument to the trial court, SDC asked it to focus on Rule 1.09(a)(2) and the confidentiality protections afforded under Rule 1.05 when it considered how the confidential information that had been entrusted to Martinez could be used against them.

We are not persuaded the trial court could have reasonably found Martinez's knowledge about SDC's insurance coverage would prejudice SDC because Martinez would have ultimately obtained this information through Rule 194 mandatory disclosures. See TEX.R.CIV.P. 194.2(7). However, the trial court could have reasonably found that in performing his role of advocating for TMD, there was a reasonable probability that Martinez could use the confidential information he possessed regarding SDC's financing of developments and how delays affect that financing to SDC's detriment. For example, the trial court could have determined that such knowledge, if true, would give Martinez information on how to leverage the present litigation to apply maximum pressure to SDC. The fact that a reviewing court might decide a factual issue differently, does not mean the court should disturb the trial court's decision unless that decision is shown to be arbitrary and unreasonable. Walker v. Packer , 827 S.W.2d 833, 840 (Tex. 1992)(orig. proceeding). On this record, we cannot say the trial court abused its discretion.

Prejudice

We next turn to the issue of prejudice. In Fenenbock , this Court, relying on Supreme Court guidance, clarified that "[e]ven if a violation of the disciplinary rules is established, the party requesting disqualification must also show it will suffer prejudice if disqualification is not granted." In re Fenenbock , 621 S.W.3d at 736 (quoting In re Murrin Brothers 1885, Ltd. , 603 S.W.3d at 57 ). However, In re Murrin Brothers also instructs that prejudice to the movant is only one dimension courts must consider. In re Murrin , 603 S.W.3d at 57. In addition to the movant's burden to show prejudice, the trial court should also consider "the extent to which the nonmovant will suffer prejudice from the disqualification of his or her attorney." Id. Prejudice to a nonmovant may include the financial cost of having to obtain substitute counsel who will have to take time to become familiar with the case, the denial of a nonmovant's right to be represented by counsel of its choice, and the use of disqualification as a dilatory tactic. Id.

SDC has taken the position that proof of prejudice is not required. However, the record reflects that despite SDC's adoption of this stance, the trial court properly considered the prejudice question, as both parties presented arguments regarding whether disqualification would be fair or unfair to their respective sides. At the hearing, SDC argued Martinez could potentially use the confidential information he obtained from representing SDC against it. Specifically, SDC pointed out Martinez was in possession of information regarding how delays in SDC's subdivision work affects their timelines, financial obligations, and contractual obligations. Thus, although SDC did not frame its arguments in terms of prejudice, it presented the trial court with various reasons regarding why Martinez's representation of TMD could give TMD an unfair advantage in the current case. TMD has maintained throughout the proceedings that prejudice is a factor a trial court should consider and maintain that SDC failed to show how Martinez's continued representation of TMD would cause it to suffer prejudice. Additionally, in terms of prejudice to TMD, TMD presented evidence that requiring it to obtain new counsel would be extremely burdensome, as it had already incurred significant expenses in the case and would have to spend even more if new counsel had to be retained.

As such, the trial court was cognizant of the prejudice to TMD, as it stated it understood that TMD did not consider the disqualification of its counsel to be "a great thing," but it was sure TMD would want similar considerations extended to it if it were in SDC's position. On balance, the trial court found the reasonable probability that SDC's confidential information could be used to its detriment outweighed the prejudice TMD would experience in having to employ new counsel. "Even if the risk that a former client will be affected by counsel's participation in subsequent litigation is small, if the consequences to the former client are great, then disqualification is appropriate ..., the chances of being struck by lightning are slight, but not slight enough, given the consequences, to risk standing under a tree in a thunderstorm." Cimarron Agr., Ltd. , 209 S.W.3d at 202. [Quotation marks omitted]. Based on this record, we find the trial court correctly considered the prejudice question and that it did not abuse its discretion in deciding the issue.

CONCLUSION

TMD has not shown it is entitled to mandamus relief. Accordingly, we deny TMD's petition for writ of mandamus. Any pending motions are dismissed as moot.


Summaries of

In re TMD Def. & Space

Court of Appeals of Texas, Eighth District, El Paso
May 31, 2022
649 S.W.3d 764 (Tex. App. 2022)
Case details for

In re TMD Def. & Space

Case Details

Full title:IN RE TMD DEFENSE AND SPACE, LLC

Court:Court of Appeals of Texas, Eighth District, El Paso

Date published: May 31, 2022

Citations

649 S.W.3d 764 (Tex. App. 2022)

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