Entries in Discovery & Privileges (1)

Tuesday
Oct062009

Trade Secret Privilege

In In re Union Pacific, --S.W.3d – (Tex. 2009), the Texas Supreme Court has held that a trial court abused its discretion when it ordered the production of confidential “rate structures,” which include formulas to determine shipping rates charged to customers, because the plaintiff could not demonstrate “with specificity exactly how the lack of information will impair the presentation of the case on the merits to the point that an unjust result is a real, rather than a merely possible, threat.”  (View the Legal Briefs: Union Pacific's Writ of Mandamus, the plaintiff's Response Brief, and Union Pacific's Reply Brief

This case arose from a train crash allegedly caused by Union Pacific when one of its trains crashed into another train after it failed to stop at a signal, causing a fire and the release of a toxic chlorine gas.  After the crash, a local resident filed a negligence and gross negligence action against Union Pacific, claiming injuries related to the release of the toxic gases.  The plaintiff’s negligence theory relied upon, among other things, an argument that “Union Pacific should have positioned the chlorine car farther toward the rear of the train and that the hazardous material should not have been placed next to steel cars.”  Union Pacific contested this theory by claiming that it did not have a duty to place the hazardous materials toward the rear of the train and that “placing hazmat cares in the back of the train would be cost-prohibitive.”  To rebut this argument, the plaintiff sought the production of Union Pacific’s “rate structures” to show that Union Pacific charged a higher price for the transportation of hazmat material, which would, according to the plaintiff, demonstrate that Union Pacific recognized a higher duty associated with transporting hazmat material. 

After the trial court denied Union Pacific’s motion to quash the document request and the San Antonio Court of Appeals denied Union Pacific’s mandamus petition, the Texas Supreme Court reversed the trial court for abuse of discretion, holding that the plaintiff failed to establish a specific need sufficient to pierce the trade secret privilege.  In essence, the Court found that the plaintiff failed to show “why she needs the specific rate structures to advance [her] negligence theory.”  (emphasis in original)  The Court also noted the irreparable harm to Union Pacific’s ability to compete with competitors, adopting Union Pacific’s argument that disclosure would “‘provide competitors with an advantage in predicting Union Pacific pricing and undercut Union Pacific efforts to market and conduct its business with its customers in a competitive fashion.’”