United States: Bigger In Texas? High Court To Decide Scope Of Protection For Third Party Trade Secrets In Civil Discovery

Last Updated: September 15 2014
Article by Robert L. Uriarte

On August 22, 2014, the Texas Supreme Court ordered oral argument in In re: Magnum Hunter Resources Corp., a case concerning the discoverability of third-party trade secrets documents in civil cases. When should such documents be produced? And who gets to see them?

A simple summary of the facts of Magnum Hunter are as follows:

Party A hires Law Firm to help it negotiate a contract with Party B regarding an oil and natural gas venture. Party A and Party B ultimately reach an agreement on the venture and enter into a contract that says that Party B will provide to Party A all reports related to the venture upon request, provided that Party A agrees to treat such reports as confidential information.

Party A later sues Law Firm, alleging that Law Firm provided poor counsel to Party A regarding the venture. In connection with discovery into Party A's claims, Law Firm subpoenas Party B and demands production of certain "reserve reports" (i.e., well production forecasts) relevant to valuation of Party A's investment in the venture. Party B refuses to produce the reserve reports, alleging that the reports are trade secrets and that other public information provides the evidence Law Firm needs. Law Firm agrees that the reserve reports are Party B's trade secrets but argues it nevertheless needs the reports because they are the best evidence on valuation, a critical issue in Party A's lawsuit. Party A takes the position that it is indifferent as to whether the reports are produced or not. Question: Should the trial court compel production of the documents?

Under Texas law, a party seeking production of trade secrets must show that the requested evidence is reasonably necessary given the nature of the evidence in the context of the case. (See, e.g., In re Union Pac. R.R. Co., (Tex. 2009)). In Magnum Hunter, however, the trial court ordered production on an alternate theory. The court concluded that the reserve reports were in Party A's "control" for purposes of discovery because the contract between Party A and Party B required Party B to furnish the reports upon request. The trial court further reasoned that because Party A asserted claims against Law Firm that put the reserve reports at issue, Party A could not withhold the documents from Law Firm under a line of cases, including, e.g., Ginsberg v. Fifth Court of Appeals (Tex. 1985), establishing that a plaintiff cannot use an evidentiary privilege to deny access to evidence favorable to the defendant (aka the "offensive use doctrine"). Texas Rule of Evidence 507 provides that: "a person has a privilege...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." The trial court therefore ordered Party B to produce the reserve reports.

Magnum Hunter raises a number of interesting issues, including whether Party A actually had "possession, custody, or control" of the reports, whether Party B waived its right to object to production of the reports, and whether the offensive use doctrine can apply in a third-party context. Perhaps most importantly, Magnum Hunter may provide significant guidance on what the "reasonably necessary" standard actually means. The parties and the court all agreed that other evidence could be used to prove the value of Party A's investments; however, it is likely that the reserve reports constituted the best evidence. Undoubtedly, a costly battle of the experts is in the cards if the Texas Supreme Court reverses the trial court's order to produce. To what extent should parties be forced to incur significant costs to obtain inferior evidence for the sake of a non-party's purported trade secrets?

The issues presented by Magnum Hunter are available for public consumption on the Texas Supreme Court's website for those who are interested. But beyond the issues presented in the parties' briefs, the trial court's reasoning—and the parties' respective strategies—raise other interesting issue worthy of consideration.

The contract's language suggests that, had Party A requested the reserve reports, Party B would have been obliged to turn them over to Party A. Party B might have refused (in breach of the contract), at which point Party A would have been able to argue persuasively that the reserve reports are not in its control (short of court action). Perhaps Party A made a sound strategic decision not to request the documents; the Texas Supreme Court's grant of oral argument suggests that resolution of the issues presented may be decided on a thin margin. It is possible that the reports will not make their way into the case. But Party A could also, in such an event, have to end up explaining to the jury why it chose to pay an expert significant fees to create new reserve reports when Party A had a contractual right to request existing reports for free.

For its part, Law Firm may have chosen to bark up the wrong tree. Law Firm argues vehemently that the coveted reserve reports are in Party A's possession, custody, and control. If this argument is correct, Law Firm could have filed a motion to compel Party A to produce the reports. This would have required Party A to show that it diligently attempted to procure the reports. Absent such a showing, Law Firm may have been entitled to an adverse inference or other evidentiary sanction against Party A under Tex. R. Civ. P. 215.2. A successful motion to compel may have even required Party A to subpoena Party B on its own behalf under threat of sanction.

Monday morning quarterbacking aside, there is one other important issue raised by Magnum Hunter that practitioners and businesses alike should take note of. The contract provision governing access to the reports says only that the parties agree to treat such reports as "confidential information." The provision does not explain what this restriction means, does not require Party A to provide notice to Party B prior to disclosure of the reports to third parties, and does not require Party A to cooperate with Party B's efforts to seek relief from a subpoena. Had the documents actually been in Party A's possession, it is likely that Party A could have produced the documents (subject to a protective order) to Law Firm without breaching the confidentiality provision, depriving Party B of its day in court.

Regardless of how the Texas Supreme Court resolves the various legal issues presented in Magnum Hunter, the facts of the case demonstrate the importance of including provisions in non-disclosure agreements that provide protection against subpoenas and other governmental process.

Twitter: @TS_Watch

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
21 Nov 2018, Seminar, New York, United States

“Big data” is changing our economy. It has allowed Amazon, Google, Facebook and many others to redesign traditional business models and to create new or improved products and services with greater utility for consumers and often at very little cost.

24 Nov 2018, Speaking Engagement, New York, United States

Each year, the New York Region of IFA hosts a panel and reception at the NYU Law School. This year’s panel will include a discussion of the TCJA international provisions.

27 Nov 2018, Speaking Engagement, New York, United States

Employment Managing Associates, Alexandra Stathpoulos and Alexandra Heifetz are presenting at the University of California, Berkeley School of Law’s FORM+FUND Series.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions